MASTER AGREEMENT
THE MULTICARE COMPANIES, INC.
THIS MASTER AGREEMENT -- THE MULTICARE COMPANIES, INC. is made as of
the 27th day of November, 2000, by and among THE MULTICARE COMPANIES, INC., a
Delaware corporation ("Multicare"), BERKS NURSING HOMES, INC., a Pennsylvania
corporation ("Berks"), LEHIGH NURSING HOMES, INC., a Pennsylvania corporation
("Lehigh"), DELM NURSING, INC., a Pennsylvania corporation ("Sanatoga") (Berks,
Lehigh and Sanatoga are each a "Transferor" and are collectively "Transferors")
and GENESIS ELDERCARE CORP., a Delaware corporation ("Guarantor"), and
ELDERTRUST, a Maryland real estate investment trust ("ET"), and ELDERTRUST
OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ("ETOP"; ETOP and
ET are collectively referred to herein as the "ET Entities").
W I T N E S S E T H :
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WHEREAS, the Multicare Entities (as hereinafter defined) filed for
protection under Chapter 11 of the bankruptcy laws of the United States under
the Bankruptcy Proceeding (as hereinafter defined); and
WHEREAS, Berks is the owner in fee simple of that certain assisted
living facility more commonly known as Berkshire Commons a/k/a Park Lane Commons
at Berkshire, located in Exeter Township, Berks County, Pennsylvania ("Berkshire
ALF"), which is adjacent to a skilled nursing facility also owned by Berks
("Berkshire SNF"); and
WHEREAS, Lehigh is the owner in fee simple of that certain assisted
living facility more commonly known as Lehigh Commons a/k/a Park Lane Commons at
Lehigh, located in Lower Macungie Township, Lehigh County, Pennsylvania ("Lehigh
ALF"), which is adjacent to a skilled nursing facility also owned by Lehigh
("Lehigh SNF"); and
WHEREAS, Sanatoga is the owner in fee simple of that certain assisted
living facility more commonly known as Sanatoga Commons a/k/a Park Lane Commons
at Sanatoga located in Lower Pottsgrove Township, Montgomery County,
Pennsylvania ("Sanatoga ALF"), which is adjacent to a skilled nursing facility
also owned by Sanatoga ("Sanatoga SNF");and
WHEREAS, the real property on which each of the Berkshire ALF, the
Lehigh ALF and the Sanatoga ALF is located is referred to herein, respectively,
as the "Berkshire ALF Property", the "Lehigh ALF Property", and the "Sanatoga
ALF Property"; and
WHEREAS, the real property on which each of the Berkshire SNF, the
Lehigh SNF and the Sanatoga SNF is located is referred to herein, respectively,
as the "Berkshire SNF Property", the "Lehigh SNF Property", and the "Sanatoga
SNF Property"; and
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WHEREAS, the Berkshire ALF, the Lehigh ALF and the Sanatoga ALF are
sometimes hereinafter referred to individually as an "ALF Facility" and
collectively as the "ALF Facilities"; and
WHEREAS, the Berkshire SNF, the Lehigh SNF and the Sanatoga SNF are
sometimes hereinafter referred to individually as an "SNF Facility" and
collectively as the "SNF Facilities"; and
WHEREAS, the Berkshire ALF Property, the Lehigh ALF Property and the
Sanatoga ALF Property are sometimes hereinafter referred to individually as an
"ALF Property" and collectively as the "ALF Properties"; and
WHEREAS, the Berkshire SNF Property, the Lehigh SNF Property and the
Sanatoga SNF Property are sometimes hereinafter referred to individually as an
"SNF Property" and collectively as the "SNF Properties"; and
WHEREAS, Berks is indebted to ETOP pursuant to the terms and provisions
of the Berks Loan Documents (as hereinafter defined); and
WHEREAS, Lehigh is indebted to ETOP pursuant to the terms and
provisions of the Lehigh Loan Documents (as hereinafter defined); and
WHEREAS, Sanatoga is indebted to ETOP pursuant to the terms and
provisions of the Sanatoga Loan Documents (as hereinafter defined); and
WHEREAS, Guarantor is a guarantor to ETOP pursuant to the terms and
provisions of the Guaranties (as hereinafter defined); and
WHEREAS, Transferors desire to convey the ALF Facilities to the ET
Entities, which desire to acquire the ALF Facilities from Transferors, in
consideration for which, among other things, the ET Entities shall: (a) forgive
the Loans (as hereinafter defined) in full, including without limitation,
terminating or assigning the Notes (as hereinafter defined) to Transferors (or
their requested assigns) and releasing the Mortgages (as hereinafter defined) of
record, terminating the Guaranties and the Loan Documents (as hereinafter
defined) and (b) lease the Berks ALF to Assisted Living Associates of Berks,
Inc. ("ALA Berks"), a wholly-owned affiliate of Multicare (the "Berks Lease");
lease the Lehigh ALF to Assisted Living Associates of Lehigh, Inc.("ALA
Lehigh"), a wholly-owned affiliate of Multicare (the "Lehigh Lease"); and lease
the Sanatoga ALF to Assisted Living Associates of Sanatoga, Inc. ("ALA
Sanatoga"), a wholly-owned affiliate of Multicare (the "Sanatoga Lease") (the
Berks Lease, the Lehigh Lease and the Sanatoga Lease being sometimes hereinafter
referred to collectively as the "ALF Facility Leases").
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NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions of Certain Terms. For all purposes of this Agreement,
the following terms shall have the respective meanings set forth below:
"Agreement" means this document entitled "Master Agreement -- The
Multicare Companies, Inc.", all exhibits and schedules attached hereto or made a
part hereof (which are deemed to be a part hereof) and all amendments to this
Agreement which are agreed to in writing and signed by the parties hereto.
"Asset Transfer Agreements" means, collectively, those certain Asset
Transfer Agreements, each dated January 30, 1998, by and between ETOP and Berks,
Lehigh and Sanatoga, respectively.
"Bankruptcy Court" means United States Bankruptcy Court for the
District of Delaware.
"Bankruptcy Proceeding" means the bankruptcy case in connection with
that certain petition filed by the Multicare Entities on June 22, 2000, with the
Bankruptcy Court under Case No. 00-2494 (PJW) seeking protection under Chapter
11 of the bankruptcy laws of the United States.
"Berks Guaranty" means that certain guaranty executed by Guarantor for
the benefit of ETOP dated as of January 30, 1998, as additional security for the
Berks Loan.
"Berks Loan Documents" means a certain Term Loan Agreement dated as of
January 30, 1998, the Berks Note, the Berks Mortgage, the Berks Guaranty, and
all loan documents executed in connection therewith, as amended or modified
through the date hereof, and relating to a loan from ETOP to Berks (the "Berks
Loan").
"Berks Mortgage" means the open-end mortgage and security agreement
executed by Berks as one of the Berks Loan Documents, encumbering the real
property described therein (the "Berks Mortgaged Real Property").
"Berks Note" means a certain secured term note dated as of January 30,
1998, in the original principal amount of $6,269,000.000.
"Business Day" means a day on which national banking associations are
open for the transaction of business in Philadelphia, Pennsylvania.
"Closing" or "Closing Date" means the date on which the transactions
described in the Conveyance and Transfer Agreements (as defined in Section 2)
are settled, such date in no event being later than January 31, 2001.
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"Contract Rights" shall mean all agreements relating to the
development, construction and operation of the ALF Properties, such as rights
under architect and construction contracts (including rights in plans and
specifications), agreements relating to the service and operation of the ALF
Properties, such as service, property management, supply and maintenance
agreements, and agreements as to off-site improvements or access that are likely
to affect the ALF Properties, including agreements relating to pedestrian
access, storm water management, road access and improvements, stream
preservation, forest remediation, environmental remediation and monitoring,
wetlands remediation and the like. Excluded from Contract Rights are any
contracts relating to the employment of persons in the performance of assisted
living services. Included in Contract Rights are any warranties, guaranties or
other assurances relating to the development, construction and operation of the
ALF Properties.
"DIP Lenders" means those certain lenders who are parties to that
certain Revolving Credit and Guaranty Agreement dated as of June 22, 2000,
involving Multicare and other related parties.
"Execution Date" means the date on which this Agreement has been fully
executed by both parties hereto, which date is November 27, 2000.
"Financial Reports" shall mean all financial statements of the
Transferors and those related to the operation of the ALF Facilities, including
any reports provided to regulators and other overseers of operations, dating
from the commencement of operation for each of the ALF Facilities.
"Guaranties" means, collectively, the Berks Guaranty, the Lehigh
Guaranty and the Sanatoga Guaranty.
"HSR" means the Hart-Scott-Rodino Antitrust Act of 1976, as amended
from time to time, and as may hereafter be amended.
"Law" or "Laws" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, order, permit, licensing or other
requirement.
"Lehigh Guaranty" means that certain guaranty executed by Guarantor for
the benefit of ETOP dated as of January 30, 1998 as additional security for the
Lehigh Loan.
"Lehigh Loan Documents" means a certain Term Loan Agreement dated as of
January 30, 1998, the Lehigh Note, the Lehigh Mortgage, the Lehigh Guaranty, and
all loan documents executed in connection therewith, as amended or modified
through the date hereof, and relating to the loan from ETOP to Lehigh (the
"Lehigh Loan").
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"Lehigh Mortgage" means the open-end mortgage and security agreement
executed by Lehigh as one of the Lehigh Loan Documents, encumbering the real
property described therein (the "Lehigh Mortgaged Real Property").
"Lehigh Note" means a certain secured term note dated as of January 30,
1998, in the original principal amount of $6,665,000.00.
"Liability" or "Liabilities" shall mean any direct or indirect
liability, claim, lien, order, loss, obligation or responsibility, accrued or
unaccrued, contingent or otherwise, whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement or the notes thereto due or allegedly due to, or mandated by, any and
all third parties, including without limitation any government, governmental
body or agency, however arising.
"Licenses and Permits" shall mean all licenses, franchises, privileges,
permits, approvals, authorizations, consents, certificates of need and similar
documents in connection with the right to use the ALF Facilities, construct and
develop the ALF Facilities and operate the ALF Facilities, including a personal
care license, all building permits and certificates of occupancy, all variances,
special exceptions and other zoning permits and licenses, and all other permits,
licenses and other authorizations used in connection with the ALF Properties.
"Loan Documents" means, collectively, the Berks Loan Documents, the
Lehigh Loan Documents and the Sanatoga Loan Documents.
"Loans" means, collectively, the Berks Loan, the Lehigh Loan and the
Sanatoga Loan.
"Mortgaged Properties" means, collectively, the Berks Mortgaged
Property, the Lehigh Mortgaged Property and the Sanatoga Mortgaged Property.
"Mortgages" means, collectively, the Berkshire Mortgage, the Lehigh
Mortgage, the Sanatoga Mortgage.
"Multicare Entities" means Multicare, Berks, Lehigh, Sanatoga, ALA
Berks, ALA Lehigh and ALA Sanatoga.
"Notes" means, collectively, the Berkshire Note, the Lehigh Note and
the Sanatoga Note.
"Operating Statements" shall mean such quarterly or monthly reports of
operations of each of the ALF Facilities which have been prepared and have not
previously been provided to the ET Entities within the last twelve (12) months.
"Order Date" means the date on which the Bankruptcy Court issues its
Order approving the transactions described herein, and the expiration of any
applicable appeal period without the institution of an appeal.
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"Petition Date" means June 22, 2000.
"RLAs" shall mean all residential living agreements relating to each of
the ALF Properties.
"Sanatoga Guaranty" means that certain guaranty executed by Guarantor
for the benefit of ETOP dated as of January 30, 1998 as additional security for
the Sanatoga Loan.
"Sanatoga Loan Documents" means a certain Term Loan Agreement dated as
of January 30, 1998, the Sanatoga Note, the Sanatoga Mortgage, the Sanatoga
Guaranty, and all loan documents executed in connection therewith, as amended or
modified through the date hereof, and relating to the loan from ETOP to Sanatoga
(the "Sanatoga Loan").
"Sanatoga Mortgage" means the open-end mortgage and security agreement
executed by Sanatoga as one of the Sanatoga Loan Documents, encumbering the real
property described therein (the "Sanatoga Mortgaged Real Property").
"Sanatoga Note" means a certain secured term note dated as of January
30, 1998, in the original principal amount of $6,511,000.00.
2. Delivery of Property Information for ALF Facilities.
2.1 Deliverables. Within three (3) days following the Execution
Date, the Transferors shall deliver to the ET Entities copies of the following
documents and other items, if and to the extent they are in the possession of
the Transferors (collectively, the "Deliverables"):
(a) All material executed and contemplated agreements pertaining to
any portions of the ALF Properties, that constitute (or will upon execution and
delivery become) Contract Rights.
(b) The subdivision plat for each of the ALF Properties and any
other documentation related to the establishment of each of the ALF Properties
as separately subdivided parcels in accordance with all applicable Laws.
(c) Written notices of actual or potential violations of any laws,
ordinances, rules or regulations relating to zoning or environmental matters
and/or other violations, disputes or issues with respect to any of the ALF
Properties.
(d) All Licenses and Permits for each of the ALF Properties.
(e) A list of all lawsuits, arbitrations or other proceedings,
other than the Bankruptcy Proceeding, which are pending or which the Multicare
Entities have any knowledge of which are threatened, as well as any unsatisfied
judgments or attachments, relating to or otherwise directly affecting the
Transferors or any of the ALF Properties.
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(f) All RLAs for each of the ALF Facilities.
(g) All Operating Statements and Financial Reports for each of the
Transferors and ALF Facilities. The ET Entities hereby acknowledge receipt of
all current Operating Statements and Financial Reports for each of the
Transferors and the ALF Facilities.
(h) A list of the personal property inventory for each of the ALF
Properties.
2.2 Manner of Delivery for Deliverables. The Deliverables shall be
provided by the Transferors to the ET Entities in an orderly and organized
manner pursuant to one written certification executed by all of the Transferors,
dated as of the date of delivery of the Deliverables, stating that Transferors
have delivered therewith all Deliverables required to be provided by Transferors
with respect to the ALF Properties as set forth in Section 2.1 above (the
"Certification").
2.3 Additional Deliveries. The Transferors shall use best efforts(
including the payment of a fee if necessary) to obtain and deliver to the ET
Entities as soon as possible following the Execution Date, but in any event by
no later than the Closing, copies of all plans and specifications relating to
each of the ALF Facilities. In addition, Transferors hereby agree to provide the
ET Entities with new, updated certificates of insurance evidencing all fire,
liability and other insurance policies presently in effect with respect to each
of the ALF Properties at Closing.
3. Period to Identify Objections. The ET Entities shall have a period
of ten (10) Business Days following receipt of the Certification and the
Deliverables from the Transferors within which to raise any objections or
concerns related to the Deliverables and any and all other objections or
concerns relating to any one or more of the ALF Properties, including but not
limited to title, survey, environmental, zoning and any other matters relating
to the ownership or operation of the ALF Properties (the "Objection Period").
Any objections or concerns raised by the ET Entities shall be provided to the
Transferors in writing on or before expiration of the Objection Period ("ET's
Objection Notice"). Transferors shall have a period of three (3) Business Days
following receipt of ET's Objection Notice within which to advise the ET
Entities in one writing regarding whether Transferors will cure and/or otherwise
address the items identified in ET's Objection Notice on or before Closing
("Transferors' Notice"). Transferor's notice shall specifically set forth in
writing how Transferors will cure and/or address the items identified in ET's
Objection Notice. The failure of Transferors to respond within three (3)
Business Days to ET's Objection Notice shall be deemed to be an election by
Transferors not to cure and/or address the items identified in ET'S Objection
Notice. Upon receipt of Transferors' Notice, the ET Entities shall have three
(3) Business Days to advise Transferors in writing whether the ET Entities shall
(i) terminate this Agreement, in which case this Agreement shall be of no
further force or effect, and it shall be as if the parties had never entered
into this Agreement or (ii) proceed with execution of the Transfer and
Conveyance Agreements in accordance with the provisions of this Agreement,
subject to Transferors' Agreement to cure and/or address those items that the
Transferors have agreed to cure and/or address as set forth in Transferors'
Notice ("ET's Election Notice").
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4. Transfer of the ALF Facilities. Provided that the ET Entities have
not elected to terminate this Agreement pursuant to Section 3 hereof, upon the
later of three (3) days following (i) the date of ET's Election Notice or (ii)
the Order Date, the parties hereto will execute for each ALF Property, a
separate Conveyance and Transfer Agreement substantially in the form attached
hereto and made a part hereof as Exhibit "A". The three documents are referred
to collectively as the "Conveyance and Transfer Agreements."
5. Release and Termination of the Loans. Upon and subject to the
occurrence of the Closing on the conveyances required by each of the Conveyance
and Transfer Agreements:
(a) the ET Entities will release each of the Mortgaged Properties
from the lien of the Mortgages and the Loans of record (including, without
limitation, the Sanatoga Mortgage which encumbers both the Sanatoga ALF and the
Sanatoga SNF, the Berks Mortgage which encumbers the Berks SNF and the Lehigh
Mortgage which encumbers the Lehigh SNF), terminate the Guaranties and the Asset
Transfer Agreements, return to Multicare the Notes, and take such further steps
as are customary to achieve the objectives of the parties hereto.
(b) the Multicare Entities shall pay to the ET Entities at Closing,
an amount equal to the Minimum Rent (as such term is defined in the ALF Facility
Lease for each ALF Facility) that would have been payable under each such ALF
Facility Lease for the period from the Petition Date until the Closing Date had
each such ALF Facility Lease been in effect during such time period.
Notwithstanding the foregoing, the Transferors shall still be obligated to pay
all real estate taxes and insurance premiums with respect to each of the ALF
Properties through the Closing Date as required by the existing Loan Documents.
6. ALF Facility Leases. Upon and subject to the occurrence of the
Closing on the conveyances required by each of the Conveyance and Transfer
Agreements, the ET Entities and the Multicare Entities will enter into ALF
Facility Leases substantially in the form of Exhibit "B", but modified as set
forth on Exhibit "C" as to each of the ALF Facility Leases. Each of the ALF
Facility Leases will be guarantied by Guarantor under the terms of a Lease
Guaranty Agreement substantially in the form of Exhibit "D" attached hereto.
7. Representations and Warranties of the Multicare Entities. The
Multicare Entities executing this Agreement, on behalf of themselves and such of
the Multicare Entities as are not signatories to this Agreement, as of the
Execution Date and as of the Closing Date, represent and warrant to the ET
Entities that the following is true and complete:
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7.1 Authority. Each of the Multicare Entities signing this
Agreement has full power and authority to enter into this Agreement and to carry
out the transactions contemplated hereby subject to approval by the Bankruptcy
Court and the DIP Lenders. Each of the Multicare Entities not signing this
Agreement has the full power and authority to enter into the documents required
by the applicable provisions of this Agreement, subject only to the approval of
the Bankruptcy Court and the DIP Lenders, and the Multicare Entities signing
this Agreement have the power and authority to bind the Multicare Entities that
are not signatories to this Agreement, subject as aforesaid.
7.2 Organization, Existence and Authorization of the Multicare
Entities. All of the Multicare Entities are entities, duly organized, validly
existing and in good standing under the Laws of the particular states of
formation and are in good standing to transact business in the states in which
such entities are operating. The execution, delivery and performance by the
Multicare Entities of this Agreement, have been duly authorized by all necessary
actions and do not contravene or constitute a default or require the further
consent of any person under any Law (except for the consent of the Bankruptcy
Court and the DIP Lenders and various creditor groups), or of the organization
documents of the Multicare Entities, or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Multicare Entities or to
which any of their properties are subject. The execution, delivery and
performance by the Multicare Entities of this Agreement requires no action by or
in respect of, or filing with, any governmental body, agency or official, and no
third-party consents are required to consummate this transaction, except that
the same require the consent and approval of the Bankruptcy Court and the DIP
Lenders.
7.3 Additional Consents and Approvals. Except for approval of the
Bankruptcy Court and the DIP Lenders, and agencies regulating the operation of
the ALF Facilities, if necessary, the Multicare Entities are not aware of any
other necessary consents that would be the subject of Section 10.2(f) hereof.
8. Representations and Warranties of the Guarantor. The Guarantor, as
of the Execution Date and as of the Closing Date, represents and warrants to the
ET Entities that the following is true and complete:
8.1 Authority. Guarantor has full power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby subject to
approval by the Bankruptcy Court and the DIP Lenders.
8.2 Organization, Existence and Authorization of the Guarantor.
Guarantor is duly organized, validly existing and in good standing under the
Laws of the particular state of formation and is in good standing to transact
business in the Commonwealth of Pennsylvania. The execution, delivery and
performance by the Guarantor of this Agreement, have been duly authorized by all
necessary actions and do not contravene or constitute a default or require the
further consent of any person under Law (except for the consent of the
Bankruptcy Court and the DIP Lenders), or of the organization documents of the
Guarantor, or of any agreement, judgment, injunction, order, decree or other
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instrument binding upon the Guarantor or to which any of their properties are
subject. The execution, delivery and performance by the Guarantor of this
Agreement requires no action by or in respect of, or filing with, any
governmental body, agency or official, and no third-party consents are required
to consummate this transaction, except that the same require the consent and
approval of the Bankruptcy Court and the DIP Lenders.
8.3 Additional Consents and Approvals. Except for approval of the
Bankruptcy Court and the DIP Lenders, the Guarantor is not aware of any other
necessary consents that would be the subject of Section 10.2(f) hereof.
9. Representations and Warranties of the ET Entities. Each of the ET
Entities represents and warrants to the Multicare Entities and the Guarantor, as
of the Execution Date and the Closing Date as follows:
9.1 Organization and Existence. The ET Entities are entities, duly
organized, validly existing and in good standing under the Laws of the
particular state of formation and are in good standing to transact business in
the states in which such entities are operating.
9.2 Authorization. The execution, delivery and performance of this
Agreement are within the power of the ET Entities, have been duly authorized by
all necessary corporate action and do not contravene or constitute a default or
require the further consent of any person under any provision of applicable law
or regulation or of their articles of incorporation or bylaws or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
it or to which its assets are subject.
9.3 No Further Action. The execution, delivery and performance by
the ET Entities of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency or official.
9.4 Due Execution. This Agreement has been duly executed by, and
constitutes a valid and binding agreement of, the ET Entities, enforceable in
accordance with its terms.
9.5 Financial Statements; Solvency. The Financial Statements of the
ET Entities are attached hereto as Exhibit "E" (the "ET Financial Statements").
Based on the ET Financial Statements, the ET Entities are solvent and there has
been no material adverse change since the issuance of the ET Financial
Statements which adversely affects the solvency of the ET Entities. At Closing,
the ET Entities shall deliver a certificate certifying that (i) there has been
no material adverse change in the Financial Statements through the Closing Date
and that the ET Entities are solvent, and (ii) the ET Entities have not entered
into the transactions contemplated hereby in anticipation of getting relief
under the Bankruptcy Code.
9.6 No Litigation. There are no actions, suits or proceedings
pending, affecting, or, unless previously disclosed in writing to the Multicare
Entities, threatened against the ET Entities, or any of them, before any Court
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or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to the ET
Entities , or any of them, would have a material adverse effect on (i) the
financial condition, properties or operation of the ET Entities or any of them,
or (ii) the legality, validity or enforceability of this Agreement, the
transactions contemplated herein, or any of the other documents and instruments
to be executed pursuant hereto.
10. Conditions.
10.1 Conditions to Obligations of the ET Entities. The obligation
of the ET Entities to complete the transactions contemplated hereunder is
subject to the timely satisfaction of the following conditions any one or more
of which may be waived in whole or in part by the ET Entities:
(a) Representations and Warranties. The representations and
warranties of the Multicare Entities and the Guarantor set forth in this
Agreement shall be true and correct in all material respects as of the Closing
Date.
(b) Performance of Obligations of the Multicare Entities and
the Guarantor. The Multicare Entities and the Guarantor shall have performed all
agreements required to be performed by them under this Agreement prior to or on
the Closing Date.
(c) No Violations. The completion of the transaction
contemplated hereunder shall not violate any order or decree of any court or
governmental body having competent jurisdiction.
(d) Bankruptcy Court Approval. This Agreement is conditioned
on and shall not be effective unless and until the Bankruptcy Court issues the
Order approving this Agreement and authorizing the transactions contemplated
hereby. Upon the Execution Date, the Multicare Entities will use commercially
reasonable efforts promptly to obtain the Order, and the ET Entities shall
cooperate with the Multicare Entities and the Guarantor in obtaining the Order
and shall execute such documents and perform such other acts as may be
reasonably requested by the Multicare Entities and the Guarantor in connection
therewith. If, after application by the Multicare Entities and the Guarantor,
the Bankruptcy Court decides not to issue the Order, then this Agreement, along
with the Genesis Master Agreement, shall terminate and be of no force and
effect, neither party shall have any liability to the other under this Agreement
or Genesis Master Agreement, and it shall be as if this Agreement was never
entered into by the parties.
(e) Genesis/ElderTrust Closing. Approval for this transaction
as well as that certain transaction between the ET Entities and affiliates of
Genesis Health Ventures, Inc., as described in that certain Master Agreement
dated as of the date of this Agreement, among the ET Entities and the Genesis
Entities, as those terms are defined therein (the "Genesis Transactions"), shall
have been obtained from the Bankruptcy Court as well as from the ET Lenders. The
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ET Entities shall have the right, at their sole and absolute discretion, not to
complete Closing hereunder, if any of the Genesis Entities are not prepared or
able to complete closing with respect to the Genesis Transactions or any of the
Multicare Entities are not prepared to complete closing of the transactions
contemplated in this Master Agreement.
(f) Other Necessary Consents. The ET Entities shall have
received all governmental or other third party consents or other actions
necessary to the consummation of the transactions contemplated by this Agreement
(including, without limitation, the ET Lenders).
(g) Simultaneous Transaction. Unless waived by the ET
Entities, no transfer of an ALF Facility shall occur unless all three of the
transfers occur simultaneously.
10.2 Conditions to Obligation of the Multicare Entities and the
Guarantor. The obligation of the Multicare Entities and the Guarantor to
complete the transactions contemplated herein is subject to the satisfaction of
the following conditions any one or more of which may be waived in whole or in
part by all the Multicare Entities and the Guarantor:
(a) Representations and Warranties. The representations and
warranties of the ET Entities set forth in this Agreement shall be true and
correct in all material respects as of the Closing Date.
(b) Performance of Obligations of the ET Entities. The ET
Entities shall have performed all agreements required to be performed by them
under this Agreement prior to or on the Closing Date.
(c) No Violations. The completion of the transactions
contemplated herein shall not violate any order or decree of any court or
governmental body having competent jurisdiction.
(d) Bankruptcy Court Approval. This Agreement is conditioned
on and shall not be effective unless and until the Bankruptcy Court issues the
Order approving this Agreement and authorizing the transactions contemplated
hereby. Upon full execution of this Agreement, the Multicare Entities and the
Guarantor will use commercially reasonable efforts promptly to obtain the Order,
and the ET Entities shall cooperate with the Multicare Entities and the
Guarantor in obtaining the Order and shall execute such documents and perform
such other acts as may be reasonably requested by the Multicare Entities and the
Guarantor in connection therewith. If, after application by the Multicare
Entities and the Guarantor, the Bankruptcy Court decides to issue the Order,
then this Agreement, along with the Genesis Master Agreement, shall terminate
and be of no force or effect, neither party shall have any liability under this
Agreement or the Genesis Master Agreement, and it shall be as if the parties had
never entered into this Agreement.
(e) Genesis/ElderTrust Closing. Approval for this transaction
as well as the Genesis Transactions shall have been obtained from the Bankruptcy
Court as well as the DIP Lenders. The Multicare Entities shall have the right,
- 12 -
at their sole and absolute discretion, not to complete Closing hereunder, if any
of the ET Entities are not prepared or able to complete closing with respect to
the Genesis Transactions or any of the transactions contemplated in this Master
Agreement.
(f) Other Necessary Consents. The Multicare Entities shall
have received all governmental or other third party consents or other actions
necessary to the consummation of the transactions contemplated by this
Agreement, including, without limitation, the DIP Lenders.
(g) Simultaneous Transaction. Unless waived by the Multicare
Entities, no transfer of an ALF Facility shall occur unless all three of the
transfers occur simultaneously.
10.3 Hart-Scott-Rodino. Promptly after the Execution Date, the
parties hereto will cooperate to file, if determined to be necessary, the
notification and report form required by the HSR. To the extent that the parties
determine that compliance with the HSR is required, then Closing will not occur
prior to expiration of the appropriate waiting periods as required by the HSR.
The ET Entities and the Multicare Entities agree to split the filing fee
required in connection with the submision of the application required under the
HSR.
11. Release.
11.1. Release by The Multicare Entities and the Guarantor.
Effective on the Closing Date, for good and valuable consideration, and
intending to be legally bound hereby, the Multicare Entities and Guarantor, for
themselves and on behalf of their respective partners, shareholders, affiliates,
directors, officers, employees and agents, hereby unconditionally release,
waive, acquit and forever discharge the ET Entities, and their partners,
shareholders, affiliates, directors, officers, employees, agents, attorneys,
subsidiaries and affiliated companies and its and their successors and assigns
from any and all liabilities, whether known or unknown, on account of any
condition, act, omission, event, contract, liability, obligation, indebtedness,
claim, cause of action, defense, circumstance or matter of any kind whatsoever
which existed, arose or occurred, directly or indirectly, at any time prior to
the Closing Date in connection with the Loans, including without limitation, the
administration of the Loans by the ET Entities, or the ET Entities' course of
dealing with the Multicare Entities or the Guarantor, EXCEPTING the obligations
of the ET Entities to keep, observe and perform the terms of this Agreement and
the documents delivered pursuant to this Agreement which survive or are to be
performed from and after the Closing Date.
11.2. Release by the ET Entities. Effective on the Closing Date,
for good and valuable consideration, and intending to be legally bound hereby,
the ET Entities, for themselves and on behalf of their respective partners,
shareholders, affiliates, directors, officers, employees and agents, hereby
unconditionally release, waive, acquit and forever discharge the Multicare
Entities and the Guarantor, and their respective partners, shareholders,
affiliates, directors, officers, employees, agents, attorneys, subsidiaries and
affiliated companies and its and their respective successors and assigns, from
- 13 -
any and all liabilities, whether known or unknown, on account of any condition,
act, omission, event, contract, liability, obligation, indebtedness, claim,
cause of action, defense, circumstance or matter of any kind whatsoever which
existed, arose or occurred, directly or indirectly, at any time prior to the
Closing Date in connection with the Loans, including, without limitation, any
and all past and existing obligations, liabilities, contingent claims and claims
for damages (including, but not limited to, rejection damages), demands, rights,
actions or causes of action, counterclaims, third-party claims, liabilities,
losses judgments, suits, accountings, rights and interests, direct or
derivative, known or unknown, fixed or contingent, choate or inchoate, arising
from, arising under or relating or pertaining to the Loans pre-petition or
post-petition, arising from the termination of the Loans and/or the conveyance
of the properties and for indemnification, contribution or otherwise, EXCEPTING
the obligations of the Multicare Entities and the Guarantor to keep, observe and
perform the terms of this Agreement and the documents delivered pursuant to this
Agreement which survive or are to be performed from and after the Closing Date.
11.3 Survival. The provisions of this Section 11 shall survive
Closing hereunder.
12. Indemnification.
12.1. Indemnification by The Multicare Entities. Effective on the
Closing Date, the Multicare Entities and Guarantor shall jointly and severally
indemnify, defend, save and hold the ET Entities and their partners,
shareholders, members, officers, directors, employees, agents and affiliates and
their respective successors and assigns, as the case may be (collectively,
"Purchaser Indemnitees") harmless from and against all demands, claims,
allegations, assertions, actions or causes of action, assessments, losses,
damages, deficiencies, liabilities, costs and expenses (including reasonable
legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing and whether or not
any such demands, claims, allegations, etc., of third parties are meritorious;
asserted against, imposed upon, resulting to, required to be paid by, or
incurred by any Purchaser Indemnitees, directly or indirectly, in connection
with, arising out of, which could result in, or which would not have occurred
but for: (a) a material breach of any representation or warranty made by the
Multicare Entities and the Guarantor in this Agreement, in any certificate or
document furnished pursuant hereto by a Multicare Entity or the Guarantor or any
ancillary agreement to which a Multicare Entity or the Guarantor is or is to
become a party; or (b) a material breach or nonfulfillment of any covenant or
agreement made by a Multicare Entity or the Guarantor in or pursuant to this
Agreement and in any ancillary agreement to which such Multicare Entity or the
Guarantor is or is to become a party.
12.2. Indemnification by the ET Entities. Effective on the Closing
Date, the ET Entities shall jointly and severally indemnify, defend, save and
hold the Multicare Entities and the Guarantor and their partners, shareholders,
members, officers, directors, employees, agents and affiliates, and their
respective successors and assigns, as the case may be (collectively, "Transferor
- 14 -
Indemnitees") harmless from and against any and all demands, claims, actions or
causes of action, assessments, losses, damages, deficiencies, liabilities, costs
and expenses (including reasonable legal fees, interest, penalties, and all
reasonable amounts paid in investigation, defense or settlement of any of the
foregoing and whether or not any such demands, claims, allegations, etc., of
third parties are meritorious, asserted against, imposed upon, resulting to,
required to be paid by, or incurred by any Transferor Indemnitees, directly or
indirectly, in connection with, arising out of, which could result in, or which
would not have occurred but for: (a) a material breach of any representation or
warranty made by the ET Entities in this Agreement, in any certificate or
document furnished pursuant hereto by the ET Entities or any ancillary agreement
to which any of the ET Entities is a party; or (b) a material breach or
nonfulfillment of any covenant or agreement made by the ET Entities in or
pursuant to this Agreement and in any ancillary agreement to which any of the ET
Entities is a party.
12.3. Survival. The indemnifications set forth in this Section 12
shall survive Closing hereunder for a period of one (1) year from the Closing
Date.
13. Miscellaneous.
13.1 No Third Party Rights. Nothing in this Agreement shall be
construed to give any person or entity other than the Multicare Entities and the
ET Entities any legal or equitable right, remedy or claim under this Agreement,
and this Agreement shall be for the sole and exclusive benefit or the Multicare
Entities, the ET Entities, their successors and permitted assigns hereunder.
13.2 Expenses. Each party acknowledges and agrees that it will
equally share in the costs associated with (i) recording any instruments of
conveyance or releases of Loan Documents contemplated hereunder and (ii)
obtaining a survey and title insurance for the ALF Properties (including owners
and leasehold policies) in connection with the transactions contemplated by this
Agreement. Each Party shall pay its own legal fees and any broker's or finder's
fee. In addition, each party shall indemnify, defend and hold harmless the other
with respect to the payment of any broker's or finder's fee arising from such
party's actions, which indemnity shall survive Closing hereunder.
13.3 Press Release. Multicare, on behalf of itself and the other
Multicare Entities, and ET, on behalf of itself and the other ET Entities, shall
consult with one another in advance concerning the form and substance of any
press release relating to this Agreement or the transactions contemplated
hereby; provided, however, that this obligation shall not be deemed to prohibit
any party hereto from making any disclosure which is required to comply with
such party's disclosure obligations imposed by Law. Without limiting the
generality of the foregoing, Multicare, on behalf of itself and the other
Multicare Entities, acknowledges that (a) ET intends to file a copy of this
Agreement as an exhibit to a Form 8-K to be filed by ET with the Securities and
Exchange Commission (the "SEC") and (b) this Agreement will be referred to and
described in such Form 8-K, as well as in ET proxy statements and other periodic
reports of ET and any registration statements filed by ET with the SEC.
- 15 -
13.4 Description Headings. The headings of the Paragraphs and
Sections of this Agreement are inserted for convenience only and shall not
constitute a part hereof.
13.5 Cooperation. Each party hereto shall take such further action,
and execute such additional documents as may be reasonably required by any other
party hereto in order to consummate the transactions contemplated by this
Agreement.
13.6 Binding Effect; Assignment. This Agreement shall be binding
upon and shall inure to the benefit of and be enforceable by each of the
parties, and their successors and permitted assigns. This Agreement shall not be
assigned by the ET Entities without the consent of the Multicare Entities or by
the Multicare Entities without the consent of the ET Entities. Notwithstanding
the foregoing, the ET Entities shall be permitted to assign any or all of its
rights under this agreement to an affiliate or subsidiary of the ET Entities.
13.7 Notice. All notices, demands, requests or communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been properly given or served and shall be effective
upon delivery by a nationally recognized overnight delivery service, or upon the
date of receipt of hand delivery which is received any Business Day on or before
5:00 P.M. in the location of receipt or on the next Business Day after receipt
if received by facsimile after 5:00 P.M. on any Business Day, or upon the date
of receipt of a facsimile which is received any Business Day on or before 5:00
P.M. in the location of receipt or on the next Business Day after receipt if
received by facsimile after 5:00 P.M. on any Business Day, provided that a hard
copy is sent in accordance with one of the foregoing methods. Any such notice,
demand, request or communication if given shall be addressed as follows:
if to the ET Entities: c/o ElderTrust Operating Partnership
101 East State Street
Suite 100
Kennett Square, PA 19348
Attention: D. Lee McCreary, President
Telephone: (610) 925-4200
Facsimile: (610) 925-4351
with a copy to: Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attention: Mark Pollak, Esquire
Telephone: (410) 986-2860
Facsimile: (410) 986-2828
- 16 -
if to the Multicare Entities: c/o Multicare Companies, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Telephone: (610) 444-6350
Facsimile: (610) 925-4242
with a copy to: Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: Matthew J. Comisky, Esquire
Telephone: (215) 569-5678
Facsimile: (215) 569-5692
with a copy to: Wilkie Farr & Gallagher
The Equitable Center
787 Seventh Avenue
New York, NY 10019-6099
Attention: Marc Abrams, Esquire
Telephone: (212) 728-8764
Facsimile: (212) 728-8111
if to Guarantor: c/o Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Telephone: (610) 444-6350
Facsimile: (610) 925-4242
with a copy to: Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: Matthew J. Comisky, Esquire
Telephone: (215) 569-5678
Facsimile: (215) 569-5692
with a copy to: Wilkie Farr & Gallagher
The Equitable Center
787 Seventh Avenue
New York, NY 10019-6099
Attention: Marc Abrams, Esquire
Telephone: (212) 728-8764
Facsimile: (212) 728-8111
By written notice, each party to this Agreement may change the address to which
notice is given to that party, provided that such changed notice shall include
(i) a facsimile number to which notices may be sent in the ordinary course on
any Business Day and (ii) a street address to which notices may be delivered by
overnight courier in the ordinary course on any Business Day.
- 17 -
13.8 Integration; Amendment and Modification. This Agreement and
other documents delivered pursuant hereto contain the entire understanding among
the parties, all prior negotiations between the parties are merged into this
Agreement and those agreements executed pursuant to this Agreement and there are
no promises, agreements, conditions, undertakings, warranties or
representations, oral or written, express or implied, other than as herein set
forth. No change or modification of this Agreement shall be valid unless the
same is in writing and signed by the parties hereto. No waiver of any of the
provisions of this Agreement, or any other agreement referred to herein, shall
be valid unless in writing and signed by the party against whom it is sought to
be enforced.
13.9 Conflicts. In the event of a conflict between this Agreement
and any Exhibits, the provisions of the particular Exhibit shall control and
prevail.
13.10 Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart hereof shall be deemed to be an original,
and all of which together shall constitute one and the same instrument.
13.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
13.12 Invalidity. If any provision or part of any provision of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions or the remaining part of any effective provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality or unenforceability.
13.13 Time of the Essence. Time is of the essence of this
Agreement. If any time period or date ends on a day or time which is a weekend,
legal holiday or bank holiday, such period shall be extended to the same time on
the next Business Day.
13.14 Judicial Interpretation. Should any provision of this
Agreement require judicial interpretation, it is agreed that the court
interpreting or construing the same shall not apply a presumption that the terms
hereof shall be more strictly construed against one party by reason of the rule
of construction that a document is to be construed more strictly against the
party who itself or through its agent prepared the same, it being agreed that
the agents of all parties have participated in the preparation of this
Agreement.
13.15. Further Assurances. The Multicare Entities and the ET
Entities executing this Agreement agree for themselves (and further agree to
cause any non-signatory Multicare Entities and ET Entities, respectively) to
execute and deliver such further documents as are necessary or desirable to
implement and accomplish the agreements and terms of this Agreement.
- 18 -
13.16 Negation of Partnership. Nothing contained in this Agreement
shall be deemed to create a partnership or joint venture between the ET Entities
and the Multicare Entities, between the ET Entities and the Guarantor, or
between the ET Entities and any other person or party, or cause any of the
parties to be liable or responsible in any way for the actions, liabilities,
debts or obligations of the other parties, or of any other person or party.
13.17 Advice of Counsel. Each party to this Agreement represents
and warrants to the other that it has consulted with counsel of its own choosing
in negotiating, executing and delivering this Agreement and all other documents
and instruments executed in connection herewith, that each has read this
Agreement, and all of such other documents, inclusive of each of the provisions
contained therein, and that they and all of them are aware of the context and
legal effect of the same, and that they have voluntarily, and without coercion
or duress of any kind, entered into this Agreement and all such other documents.
14. Default. If either party shall default hereunder by failing or
refusing to perform as required pursuant to the terms hereof, including, without
limitation, execution and delivery of any of the documents required herein, then
the other party shall have the sole option of either (i) terminating this
Agreement, or (ii) suing the other party for specific performance.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
THE MULTICARE ENTITIES:
THE MULTICARE COMPANIES, INC.,
a Delaware corporation,
on behalf of itself and all of its
affiliates and subsidiaries set forth in this Agreement
By: /s/ George V. Hager, Jr.
------------------------------------
Name: George V. Hager, Jr.
Title: Executive Vice President
and Chief Financial Officer
- 19 -
BERKS NURSING HOMES, INC.,
a Pennsylvania corporation
By: /s/ George V. Hager, Jr.
----------------------------------------
Name: George V. Hager, Jr.
Title: Executive V.P. & C.F.O.
LEHIGH NURSING HOMES, INC.,
a Pennsylvania corporation
By: /s/ George V. Hager, Jr.
----------------------------------------
Name: George V. Hager, Jr.
Title: Executive V.P. & C.F.O.
DELM NURSING, INC.,
a Pennsylvania corporation
By: /s/ George V. Hager, Jr.
----------------------------------------
Name: George V. Hager, Jr.
Title: Executive V.P. & C.F.O.
GUARANTOR:
GENESIS ELDERCARE CORP.,
a Delaware corporation
By: /s/ George V. Hager, Jr.
------------------------------------
Name: George V. Hager, Jr.
Title: Executive V.P. & C.F.O.
- 20 -
THE ET ENTITIES/ELDERTRUST:
ELDERTRUST OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership,
on behalf of itself and all of its
affiliates and subsidiaries set forth in this Agreement
By: /s/ D. Lee McCreary
----------------------------------------------
Name: D. Lee McCreary
Title: President & Chief Executor Officer
- 21 -
INDEX OF EXHIBITS
-----------------
Exhibit "A" - Form Conveyance and Transfer Agreement
Exhibit "B" - Form of Facility Lease
Exhibit "C" - Modifications to Form of Facility Lease for each ALF Facility
Exhibit "D" - Lease Guaranty Agreement
Exhibit "E" - ET Financial Statements
- 22 -
EXHIBIT "A"
FORM CONVEYANCE AND TRANSFER AGREEMENT
- 23 -
CONVEYANCE AND TRANSFER AGREEMENT
(Berkshire)
THIS CONVEYANCE AND TRANSFER AGREEMENT (this "Agreement") is made this
______ day of __________, 2000, between BERKS NURSING HOMES, INC., a
Pennsylvania corporation ("Multicare"), and ET SUB-BERKSHIRE LIMITED
PARTNERSHIP, L.P., a Delaware limited partnership ("ET").
WITNESSETH
WHEREAS, Multicare is the owner in fee simple of that certain assisted
living facility more commonly known as Berkshire Commons, located in Exeter
Township, Berks County, Pennsylvania ("Berkshire ALF"), which is adjacent to a
skilled nursing facility also owned by Multicare ("Berkshire SNF"); and
WHEREAS, Multicare and its affiliates, filed a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware
("Bankruptcy Court") and has since continued in the operation of its business
and management of its property pursuant to Section 1107 and 1108 of the
Bankruptcy Code; and
WHEREAS, Multicare has caused the property of Multicare to be
subdivided in accordance with applicable Legal Requirements (as defined below)
and benefited with all appropriate easements in order to create a legally
subdivided lot for the Berkshire ALF (the "Land"); and
WHEREAS, Multicare is indebted to ElderTrust with respect to a loan
(the Berks Loan") made by ET to Multicare, which is evidenced by that certain
promissory note dated January 30, 1998, in the original principal amount of
$6,269,000.00 (the "Berks Note"); and
WHEREAS, the Berks Note is secured by, among other things, an open-end
mortgage and security agreement executed by Multicare (the "Berks Mortgage")
encumbering the Berkshire SNF, and such other related documents; and
WHEREAS, Genesis Eldercare Corp. executed for the benefit of ET a
certain guaranty dated as of January 30, 1998, as additional security for the
Berks Loan (the "Berks Guaranty"; the Berks Note, the Berks Mortgage, the Berks
Guaranty, and all other documents, instruments and certificates executed and
delivered in connection with the Berks Loan are collectively referred to as the
"Berks Loan Documents"); and
- 1 -
WHEREAS, the conveyance and transfer of the Berkshire ALF and the Land
is part of a series of transactions required to occur in accordance with the
Master Agreement (as defined below); and
WHEREAS, the Master Agreement provides that following the conveyance
and transfer of the Berkshire ALF and the Land to ET, that ET shall lease the
Berkshire ALF and the Land to Assisted Living Associates of Berks, Inc., a
wholly owned affiliate of Multicare (the "Tenant"); and
WHEREAS, Multicare desires to convey the Berkshire ALF to ET, which
desires to acquire the Berkshire ALF from Multicare, in consideration for which,
among other things, ET shall: (a) forgive the Berks Loan in full, including
without limitation, terminating or assigning the Berks Note to Multicare (or its
requested assigns) and releasing the Berks Mortgage of record, terminating the
Berks Guaranty and the Loan Documents (as hereinafter defined) and (b) lease the
Land to Tenant pursuant to the Lease Agreement (hereinafter defined).
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, not otherwise defined in the body
of this Agreement, shall have the meanings set forth below for purposes of this
Agreement:
"Accounts" shall mean all accounts, as defined in the UCC,
including notes, notes receivable, amounts payable to Multicare under the RLAs,
and proceeds thereof.
"Assisted Living Services" shall mean those services provided as a
matter of right or option to Residents under their RLAs, primarily in the nature
of health care, food service and similar facilities uniquely made available to
occupants of assisted living residential facilities.
"Bankruptcy Court" means United States Bankruptcy Court for the
District of Delaware.
"Bankruptcy Proceeding" means the bankruptcy case in connection
with that certain petition filed by the Multicare Entities on June 22, 2000,
with the Bankruptcy Court under Case No. 00-2494(PJW) seeking protection under
Chapter 11 of the bankruptcy laws of the United States.
"Closing" and "Closing Date" shall be the settlement of and date
for the occurrence of particular described events associated with the conveyance
and transfer described in this Agreement, which Closing Date, shall be that date
- 2 -
which is designated by written notice from ET to Multicare at least five (5)
business days prior to such settlement, but in no event later than January 31,
2001.
"Contract Rights" shall mean all agreements relating to the
development, construction and operation of the Berkshire ALF, such as rights
under architect and construction contracts (including rights in plans and
specifications), agreements relating to the service and operation of the
Berkshire ALF and the Land, such as service, property management, supply and
maintenance agreements, and agreements as to off-site improvements or access
that are likely to affect the Property, including agreements relating to
pedestrian access, storm water management, road access and improvements, stream
preservation, forest remediation, environmental remediation and monitoring,
wetlands remediation and the like. Excluded from Contract Rights are any
contracts relating to the employment of persons in the performance of Assisted
Living Services. Included in Contract Rights are any warranties, guaranties or
other assurances relating to the development, construction and operation of the
Berkshire ALF.
"County" shall mean Berks County, Pennsylvania.
"Effective Date" shall be the date of this Agreement, which date
shall be the same date as the date of the final signature to this Agreement.
"Environmental Laws" shall mean all applicable statutes,
regulations, rules, ordinances, codes, licenses, permits, common law, orders,
demands, approvals, authorizations and similar items of all governmental
agencies, departments, commissions, boards, bureaus or instrumentalities of the
United States, states and political subdivisions thereof and all applicable
judicial, administrative and regulatory decrees, judgments and orders relating
to the protection of human health, or the environment, as in effect on the date
hereof or as later amended, including but not limited to those pertaining to
reporting, licensing, permitting, investigation, removal and remediation of
emissions, discharges, releases or threatened releases of Hazardous Materials,
into the air, surface water, ground water or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, handling or release of Hazardous Materials, including: (x) the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
9601 et seq.), the Resource ------ Conservation and Recovery Act (42 U.S.C. 6901
et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Federal ------ ------
Water Pollution Control Act (33 U.S.C. 1251 et seq.), the Safe Drinking Water
Act (42 U.S.C. 300f et seq.), the ------ ------ Toxic Substances Control Act (15
U.S.C. 2601 et seq.), the Emergency Planning and Community Right-to-Know Act
- ------ (42 U.S.C. 11001 et seq.), and the regulations implementing these
statutes, (y) analogous state and local ------- provisions, and (z) common law
principles of tort liability.
"Financial Reports" shall mean all financial statements of
Multicare and the operation of the Berkshire ALF, including any reports provided
to regulators and other overseers of operations, dating from the commencement of
operation of the Berkshire ALF.
- 3 -
"General Intangibles shall mean general intangibles, as defined in
the UCC, including contractual rights, goodwill, literary rights, rights to
performance, copyrights, trademarks, servicemarks and patents.
"Genesis Master Agreement" shall mean that certain Master Agreement
dated November ___, 2000 between the Genesis Entities and the ET Entities, as
those terms are defined in the Genesis Master Agreement.
"Guarantor" shall mean Genesis Eldercare Corp.
"Guaranty" shall mean that certain Guaranty and Suretyship
Agreement to be executed and delivered at Closing by the Guarantor securing the
performance of the obligations of the tenant under the Lease Agreement, the form
of which Guaranty is attached as Exhibit F to the Master Agreement.
"Hazardous Materials" shall means any chemicals, substances,
pollutants, contaminants, materials, or wastes, whether solid, liquid or gaseous
in nature (including, without limitation, any medical waste):
(i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation,
ordinance, order, action or policy, administrative request or
civil complaint under any of the foregoing or under common
law;
(ii) which is defined as a "hazardous waste," "pollutant or
contaminant," or otherwise "hazardous substance" under any
Environmental Laws;
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous
and as of the Commencement Date, or as thereafter amended, is
regulated by any governmental authority, agency, department,
commission, board, or instrumentality of the United States, or
any state or any political subdivision thereof having or
asserting jurisdiction over the Property;
(iv) the presence of which on the Property causes or threatens to
cause a nuisance upon the Property or to other properties or
poses a hazard to the health or safety of persons on or about
the Property;
(v) which, except as contained in building materials, contains
gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenyls (PCBs) or friable asbestos or
friable asbestos-containing materials or urea formaldehyde
foam insulation;
(vi) radon gas; and
(vii) petroleum and petroleum products.
- 4 -
"Insurance Requirements" shall mean all terms of any insurance
policies covering or applicable to the Property, all requirements of any issuer
of such policy and all order, rules, regulations and other requirements of any
insurance, regulatory or governing body applicable to the Property.
"Intangible Property" shall mean Accounts and General Intangibles.
"Inventory" shall mean all of Multicare's inventory, as defined in
the UCC, used in the operation of the Berkshire ALF.
"Land" shall mean all of that real property described on Exhibit A
attached hereto.
"Lease Agreement" shall mean that certain Lease Agreement between
ET and Assisted Living Associates of Berkshire, Inc., the form of which Lease
Agreement is attached as Exhibit B to the Master Agreement.
"Legal Requirements" shall mean all federal, state, county,
municipal and other governmental statutes, laws (including any zoning or
subdivision ordinance, the Americans with Disabilities Act, the Fair Housing
Act, as applicable, and any applicable Environmental Law), rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting either the
Property or the construction, use or alteration thereof, whether now or
hereafter enacted and in force, including any which may (i) require repairs,
modifications or alterations in or to the Property; (ii) in any way adversely
affect the use and enjoyment thereof, and all Permits and Licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of record or
known to Multicare, at any time in force affecting the Property; (iii) require
the cleanup or other treatment of any Hazardous Materials; or (iv) impose
parking requirements, building setback lines or other building or operating
requirements.
"Licenses and Permits" shall mean all licenses, franchises,
privileges, permits, approvals, authorizations, consents, certificates of need
and similar documents in connection with the right to use the Land, construct
and develop the Berkshire ALF and operate the Berkshire ALF, including a
personal care license, all building permits and certificates of occupancy, all
variances, special exceptions and any other zoning permits and licenses required
for the ownership, use, or operation of the Property, and all other permits,
licenses and other authorizations issued in any connection with the Property.
"Master Agreement" shall mean that certain Master Agreement--The
Multicare Companies, Inc. dated as of November__, 2000, among the Multicare
Entities and ET Entities, as those terms are defined in the Master Agreement.
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"Off-Site Easements" shall mean those easements to be granted by
Multicare on or before, and as a condition to, Closing on, over or under the
Berkshire SNF Property for the benefit of the Property, including but not
limited to those easements which are necessary for the ownership, operation, or
maintenance of the Property in the manner which it has been operated and
maintained prior to the date of this Agreement including, but not limited to (i)
any easements that are necessary for the delivery of utility services to the
Property; (ii) easements for stormwater and sanitary sewers, (iii) easements for
landscaping and maintenance, (v) easements for signage, parking and access, and
(vi) easements for stormwater management ponds and drainage, the location and
final details of which shall be established prior to Closing and which shall
address those needs, issues and concerns of ET as outlined in that certain
Memorandum (as defined in Section 4.10) and any additional needs, issues and/or
concerns identified by ET in ET's Objection Notice and that Multicare shall have
agreed to address pursuant to and as provided for in the Transferors' Notice (as
defined in the Master Agreement).
"Operating Statements" shall mean the reports of operations of the
Berkshire ALF from the initial year of operation to the last full year, plus
such quarterly or monthly reports as have been prepared thereafter.
"Order" shall mean the order entered by the Bankruptcy Court
approving the transactions described in the Master Agreement.
"Person" shall mean an individual, fiduciary, estate, trust,
partnership, firm, association, corporation, limited liability company, or other
organization, or a government or governmental authority.
"Personal Property" shall mean all personal property, building
materials, fixtures, equipment, tools and tangible personal property of every
kind and nature whatsoever located on the Land or used in connection with the
operation of the Berkshire ALF as identified on Exhibit C, and shall
specifically exclude those items listed on Exhibit C.
"Permitted Exceptions" shall mean those exceptions set forth on
Exhibit B.
"Property" shall mean all of Multicare's right, title and interest
in and to (A) the Land and any buildings, structures, work in progress, and
other improvements, if any, erected on the Land or attached thereto, including
the Berkshire ALF, and all facilities, fixtures, equipment, machinery,
furnishings and other property attached to, located in or used in connection
with any such building, structure, or other improvement; (B) all work product of
engineers, architects, similar professionals, and others pertaining to the Land
or to existing or proposed improvements thereon; (C) any topsoil located on the
Land as of the date hereof; (D) all interest in any land lying in the bed of any
street, alley, road or avenue, open or proposed, in front of or adjoining the
Land; (E) all awards or recoveries or rights thereto, arising out of eminent
domain or condemnation proceedings or as a result of damage to the Land by
reason of any change of grade of any street or highway; (F) all trees,
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vegetation, and other living things on the Land; (G) all rights of way or use,
riparian rights, water rights, profits, easements, corporeal and incorporeal
hereditaments, benefits, privileges, appurtenances, and advantages to the Land
belonging or in anywise appertaining; (H) all Personal Property, Inventory,
Licenses and Permits, RLAs and Contract Rights, (I) all Accounts, General
Intangibles and other rights growing out of or in connection with the operation
of the Berkshire ALF and the RLAs, including without limitation, all cash or
securities deposited thereunder to secure performance by the Residents, and (J)
all leases, rents, royalties, issues, revenues, profits and benefits therefrom.
Included as part of the Property shall be the Off-Site Easements. Excluded from
the definition of Property shall be those items on or within the Berkshire ALF
which are owned by Residents.
"Residents" shall mean all individuals and families living at the
Berkshire ALF pursuant to RLAs.
"RLAs" shall mean all residential living agreements.
"State" shall mean the Commonwealth of Pennsylvania.
"Subdivision Plat" shall mean the final subdivision plat approved
by the County and the Township as meeting all applicable Legal Requirements
necessary in order to cause the Land to be legally subdivided and transferred as
a separate subdivided lot, which Subdivision Plat shall be subject to the review
and reasonable approval of ET.
"Survey" shall mean the ALTA/ASCM Land Title Survey for the
Property obtained by ET pursuant to Section 4.2 hereof.
"Surveyor" shall mean a firm acceptable to ET experienced in the
preparation of ALTA/ASCM land title surveys.
"Title Company" shall mean Commonwealth Land Title Insurance
Company.
"Title Commitment" shall mean the title insurance commitment
committing the Title Company to insure ET's interest as owner of the Land at
Closing issued by the Title Company to ET pursuant to Section 4.1 hereof.
"Township" means Exeter Township within the County.
"UCC" shall mean the Uniform Commercial Code of the State.
1.2 Definition of Certain Other Capitalized Terms. All capitalized
terms used in this Agreement that are not defined in Section 1.1 hereof or
elsewhere in the body of this Agreement shall have the meanings assigned to such
terms as set forth in the Master Agreement.
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ARTICLE II
CONVEYANCE AND TRANSFER
2.1 Conveyance and Transfer.
Multicare agrees to convey and transfer the Property to ET and ET
agrees to acquire and accept the Property from Multicare in accordance with the
terms hereof.
2.2 Consideration.
The consideration for the Property is set forth in the Master
Agreement. At the Closing, ET will perform such portion of the Master Agreement
as relates to ET.
2.3 Duty to Cure And/Or Address Items in Transferors' Notice.
Multicare hereby agrees that it shall, on or before Closing, cure
and/or address all items with respect to the Property that it has agreed to cure
and/or address pursuant to and as provided by the Transferors' Notice, and the
disposition of all such items shall be a condition to ET's obligation to
consummate Closing hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Multicare. Multicare hereby
warrants and represents as of the Effective Date and as of the Closing Date as
follows:
(a) Authorization/Validity. Multicare is duly organized in the
state of its formation, is in good standing in the State, and has the power and
authority to execute and deliver this Agreement, to consummate the transactions
hereby contemplated and to take all other actions required to be taken by
Multicare pursuant to the provisions of this Agreement; and this Agreement is
valid and binding upon Multicare and enforceable against Multicare in accordance
with its terms. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will constitute a default
under any other agreement, License and Permit, Order or Legal Requirement. The
Master Agreement and this Agreement were duly executed and delivered by
Multicare and each constitutes a legal and binding obligation of Multicare, and
is exercisable against Multicare in accordance with its terms.
(b) Title; Consents. Multicare has good and valid title to the
Personal Property, except as set forth on Exhibit C-1. Multicare has, or will
have at the time of Closing, good, merchantable and marketable fee simple title
to the Property, subject only to the Permitted Exceptions. Any mortgages, deeds
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of trusts, judgments or other security documents affecting the Property shall be
released as of the Closing Date. Except for the approval of the Bankruptcy Court
(which will require the Consent of the various creditor and lenders groups), no
other consents are necessary to convey title to the Property to ET in accordance
with the terms hereof.
(c) FIRPTA. Multicare is not a "foreign person" as such term is
defined in Section 1445 of the Internal Revenue Code of 1986, as amended.
(d) Liens. To Multicare's knowledge, there are no recorded or
unrecorded liens affecting the Property, other than as shown on the Title
Commitment. The Berkshire ALF is located entirely within the boundary lines of
the Property, and there is no encroachment of the Berkshire ALF onto any land
adjoining the Property, and there are no encroachments of improvements from any
adjoining land onto the Property.
(e) Litigation. Except for the Bankruptcy Proceeding, there is no
pending, nor to Multicare's knowledge, threatened litigation or government
investigation which materially affects, or could materially affect Multicare's
ability to perform its obligations hereunder, or which materially affects, or
could materially affect, the operation of the Berkshire ALF, or the ownership of
the Property.
(f) Financial Reports. The Financial Reports for the Property
attached hereto as Schedule I have been prepared in accordance with GAAP,
applied on a consistent basis throughout the period specified. The Balance Sheet
in the Financial Reports fairly presents the financial condition of the Property
as of the date shown, and the Income Statements in the Financial Reports fairly
present the results of operations for the period indicated.
(g) RLA's: Except as set forth on Schedule II hereto, Multicare
has not entered into any RLA's, tenancies, or other rights of occupancy in
effect on the date hereof with respect to the Property, or made commitments to
deliver such rights in the future. Each of the RLA's referenced in Schedule II
has been delivered to or made available to ET and is presently unamended, or
with respect to each RLA that has been amended, all amendments thereto have been
delivered or made available to ET, and, to Multicare's knowledge are in full
force and effect without material default. To Multicare's knowledge, except as
set forth on Schedule II, no Resident is in default of any of its material
obligations under any RLA, and Multicare is not in default of any of its
material obligations under any RLA. Schedule II shall set forth for each RLA:
(i) the date of the RLA, (ii) the name of the Resident, (iii) the amount of the
monthly rent payable, (iv) the expiration date of the RLA and (v) any amendments
thereto.
(h) Contract Rights. Schedule III hereto sets forth all the
Contract Rights and any other understandings, written or oral, to which
Multicare is a party or by which Multicare is bound that relate to the Property.
For purposes of Schedule III, Contract Rights shall not be construed to include
any RLA's. Except as set forth on Schedule III, each of the Contract Rights
relates only to the Berkshire ALF and not to any property other than the
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Property, is valid and binding on Multicare and is in full force and effect in
all material respects. Except as set forth in Schedule III, neither Multicare,
nor to Multicare's knowledge, any other party thereto has breached or defaulted
under the terms of any Contract Rights.
(i) Licenses and Permits. To Multicare's knowledge, Schedule IV
hereto sets forth and describes all Licenses and Permits as are necessary to
own, use, operate and license the Property as it is currently being used, and,
to Multicare's knowledge, Multicare is not in violation of any Licenses and
Permits relating to the Property, and all Licenses and Permits relating to the
Property are valid and in full force and effect.
(j) Compliance with Laws. Multicare has no knowledge of, nor has
it received, any written notice of any violation of any applicable zoning
regulation or ordinance, or of any employment, environmental, or other
regulatory law, order, regulation or requirements, including applicable
subdivision laws, or any other legal requirements relating to the Property or
the business or operations thereon which remains uncured.
(k) Taxes. All taxes imposed upon Multicare have been paid or will
be paid prior to the delinquency thereof and all tax or information returns
required to be filed will be filed before Closing in accordance with all
applicable laws. All real and personal property taxes for the Property have been
paid and there are no current municipal improvement or like assessments against
the Property, and to the best of Multicare's knowledge, no such assessments are
in process or planned by any municipal or other government. Multicare has no
written notice of any proposed increase in the assessed valuation or rate of
taxation. The Township has orally informed Multicare that the Deed of Conveyance
to be delivered as herein provided will serve as a Deed of Subdivision for the
purpose of allowing the Township to create a new tax parcel identification
number for the Property.
(l) Utilities. Usable public sanitary and storm sewers, public
water, and gas and electrical utilities (collectively, "Public Utilities"), of
adequate capacity for the operation of the Property, are installed in, and are
duly connected to, the Property and can be used without any charge except the
normal and usual metered charges imposed for such Public Utilities for the
operation of an assisted living facility of similar size and design. No amounts
due and owing with respect to the Property in connection with utilities,
insurance, assessments or other charges customarily prorated in real estate
transactions have been outstanding more than thirty (30) days.
(m) Pending Assessments and Eminent Domain. Multicare has no
knowledge and has received no written notice of any pending proceeding for the
imposition of any special assessment, or the formation of a special assessment
district, or for a condemnation proceeding which would affect in any manner any
portion of the Property.
(n) Compliance with Legal Requirements; Approvals. Multicare, to
its knowledge, has operated and continues to operate the Property in compliance
with all applicable Legal Requirements, including, without limitation, all laws,
regulations, orders and requirements promulgated by any governmental authority
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or relating to consumer protection, equal opportunity, health, health care
industry regulation, third-party reimbursement (including, if applicable,
Medicare, Medicaid, fraud and abuse and workers compensation), environmental
protection, fire, zoning and building and occupational safety matters.
(o) Governmental Proceedings. Multicare has neither received
written notice of nor has any knowledge of any governmental action or
governmental proceeding (zoning or otherwise) or governmental investigation
pending or threatened against or relating to the Property or the transactions
contemplated by this Agreement. Multicare has no knowledge, and has received no
written notice, of any threatened or pending condemnation proceeding affecting
all or any part of the Property.
(p) No Agreements. Other than the RLAs, and the Berks Loan
Documents, the Property is not subject to any outstanding agreement of sale or
lease, option to purchase or other right of any third party to acquire any
interest therein.
(q) Zoning. The Property is located, in its entirety, in a SR-1
Suburban Residential District, as that term is defined by the Zoning Ordinance
of the County, and the operation of the ALF is a permitted use in such zoning
district. The Property is in full compliance with all parking requirements,
setback requirements and any and all other zoning requirements applicable to the
Property.
(r) Subdivision. The Property has been subdivided, in accordance
with all Legal Requirements, from the Berkshire SNF such that the Land
constitutes a legally subdivided lot for the Berkshire ALF, provided, however,
that a separate tax parcel identifier has not yet been assigned as provided by
Section 3.1(k) herein.
(s) True Copies of Documents and Deliverables. The documents and
Deliverables provided pursuant to this Agreement and Section 2 of the Master
Agreement are true, correct and complete copies of each.
(t) No Other Contracts. To Multicare's knowledge, except for the
RLAs and the agreements underlying the Contract Rights, there are no other
agreements or contracts affecting the Property or binding on Multicare, other
than any agreements required by the terms of the Master Agreement.
(u) Books and Records. The books and records relating to the
operation of Berkshire ALF made available to ET by Multicare for inspection in
accordance with Section 2.3 hereof were maintained by Multicare in the ordinary
course of business, are true and correct, and accurately reflect the matters
contained therein.
(v) Insurance. Schedule V sets forth a list of all insurance
coverages currently in force with respect to the Property and the limits of each
policy. Each such policy under which the coverage is provided, is in full force
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and effect and all premiums due thereunder have been paid. No notice has been
received from any insurance company which issued any such policy, or from any
agent thereof, stating that any such policy will not be renewed.
(w) ERISA. Multicare and any affiliate of Multicare providing
services at the Berkshire ALF have, to the extent applicable, complied in all
material respects with the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA") and have no actual or potential liability with
respect to any plan maintained under Title IV of ERISA.
(x) Material Disclosure. Multicare has advised ET of all material
matters or concerns relating to the use, operation, management and legal
compliance of the Berkshire ALF, and to Multicare's knowledge, neither this
Agreement (including the Exhibits) nor any document furnished or to be furnished
pursuant to or in connection with the transactions contemplated by this
Agreement, contains or will contain any misstatement of a material fact, or
omits or will omit to state a material fact necessary in order to make the
representations and warranties contained herein or therein not misleading in the
circumstances in which it is made.
(y) Personal Property. To Multicare's knowledge, the Personal
Property set forth on Exhibit C constitutes all of the Personal Property that is
required and/or necessary to operate the Property, and except as set forth on
Exhibit C-1, Multicare is the title owner of all the Personal Property set forth
on Exhibit C.
3.2 Representations and Warranties of ET. ET hereby represents and
warrants, as of the Effective Date and the Closing Date as follows:
(a) ET is duly organized, validly existing and in good standing in
the state of its formation and in the State.
(b) ET has the power and authority to execute and deliver this
Agreement, to consummate the transactions hereby contemplated and to take all
other actions required to be taken by ET pursuant to the provisions of this
Agreement.
(c) This Agreement is valid and binding upon ET and enforceable
against ET in accordance with its terms.
3.3 Brokerage Fees and Commissions. ET and Multicare represent and
warrant that they have not dealt with any broker or with any other entity or
individual that would be entitled to any commission, finder's fee or any similar
compensation in connection with ET's acquisition of the Property. Multicare and
ET shall each indemnify and hold harmless the other from all liability arising
from any claim for which the indemnifying party is responsible with respect to
any finder's or brokerage fees or agent's commissions in connection with this
transaction. The provisions of this paragraph shall survive any termination of
this Agreement.
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3.4 General. All of the foregoing representations and warranties shall
be true at the time of this Agreement, as of the Closing, and shall survive for
a period of twenty-four (24) months following the Closing.
ARTICLE IV
COVENANTS AND AGREEMENTS OF MULTICARE AND ET
Covenants of Multicare. Multicare hereby covenants and agrees with ET
that prior to the date of the Closing:
4.1 Actions Affecting Property. With the exception of equipment leases
and the granting of security interests in equipment, executed in the ordinary
course of business, Multicare shall not sell, assign, pledge, transfer or
encumber the Property or any portion thereof, or enter into any other consent,
commitment, understanding or other agreement, or incur any material obligation
or liability (contingent or absolute) with respect to the Property without ET's
prior written consent.
4.2 Licenses and Permits. Multicare shall maintain all Permits in full
force and effect, and will file timely all reports, statements, renewal
applications and other filings, and will pay timely all fees and charges in
connection therewith that are required to keep the Licenses and Permits in full
force and effect.
4.3 Contract Rights. Multicare will not enter into any new Contract
Rights with respect to the Property except in the ordinary course of the
business of the operation of the Property, and to the extent that any Contract
Rights relate to any property other than the Property, Multicare shall, on or
before Closing, cause such Contract Rights to be modified so that such Contract
Rights shall be applicable solely to the Property.
4.4 Insurance. Multicare shall maintain in full force and effect
substantially the same public liability and casualty insurance coverage now in
effect with respect to the Property, and shall name ET as an additional insured
thereunder as its interest may appear.
4.5 Taxes and Assessments. Multicare shall pay or discharge before
delinquent all tax liabilities and obligations, including without limitation
those for federal, state or local income, property, unemployment, withholding,
sales, transfer, stamp, documentary use and other taxes.
4.6 Binding Commitments. Multicare shall not make any commitments or
representations to any applicable government authorities, any adjoining or
surrounding property owners, any civic association, any utility or any other
similar person or entity that would in any manner be binding upon Multicare or
the Property without ET's prior consent.
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4.7 Compliance with Legal Requirements. The operations of Multicare and
the Property will be conducted in compliance with all applicable Legal
Requirements, including, without limitation, all such laws regulations, orders
and requirements promulgated by any governmental authority or relating to
consumer protection, equal opportunity, health, health care industry regulation,
third party reimbursement (including, if applicable, Medicare, Medicaid, fraud
and abuse, and workers compensation), environmental protection, fire, zoning and
building and occupational safety matters.
4.8 Operation of Property. Multicare shall continue, in the ordinary
course of business, to operate and maintain the Property in the same manner as
Multicare has heretofore operated the Property, and such operation and
maintenance shall be consistent with other assisted living facilities operated
or managed by Multicare or affiliates thereof.
4.9 Notices and Payments. Multicare shall promptly deliver to ET copies
of all governmental notices relating to the Property received by Multicare and
any other notices that are related to representations and warranties contained
in Section 3.1.
4.10 Off-Site Easements. Promptly following the Effective Date,
Multicare and ET shall promptly commence and diligently pursue the negotiation
of the Off-Site Easements for the Berkshire ALF. Such Off-Site Easements shall
be negotiated in order to satisfy the needs, issues and concerns of ET as set
forth in a copy of that certain Memorandum from Kevin C. Smith of ET dated
October 16, 2000, a copy of which Memorandum has been delivered to and received
by Multicare (the "Memorandum") and any other needs, issues and/or concerns
relating to the Property raised by ET in ET's Objection Notice and which
Multicare has agreed to address as set forth in the Transferors' Notice.
4.11 Reciprocal Easements and Restrictive Covenants. Promptly following
the Effective Date, Multicare and ET shall promptly commence and diligently
pursue the negotiation of any reciprocal easements and covenants ("Reciprocal
Easements"), binding upon the Berkshire ALF and the Berkshire SNF that may be
necessary for parking, stormwater management or any other matter that Multicare
and ET deem appropriate for the continued use and operation of the Berkshire ALF
and the Berkshire SNF. The Reciprocal Easements shall be subject to the
reasonable review and approval of both Multicare and ET, and shall be in form
suitable for execution no later than the Closing Date. Such Reciprocal Easements
shall be negotiated in order to satisfy the needs, issues and concerns of ET as
set forth in the Memorandum, and any other needs, issues and/or concerns
relating to the Property raised by ET in ET's Objection Notice and which
Multicare has agreed to address as set forth in the Transferors' Notice.
4.12 Utilities. To the extent that the Berkshire ALF is not separately
metered for consumption of Public Utilities, Multicare shall, prior to Closing,
cause such Public Utilities to become separately metered at the sole cost of
Multicare.
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ARTICLE V
[Intentionally Deleted]
ARTICLE VI
CONDITIONS TO CONSUMMATION OF TRANSACTION BY ET
The obligation of ET to consummate Closing shall be subject to
fulfillment (or waiver at or prior to the date of the Closing) of the following
conditions:
6.1 Representations, Warranties and Covenants. The representations and
warranties made by Multicare in this Agreement or in any document delivered by
Multicare pursuant to this Agreement shall be true and correct in all material
respects when made and on and as of the date of the Closing as though such
representations and warranties were made on and as of such date. Multicare shall
not have defaulted in the performance of any covenant required to be performed
hereunder.
6.2 No Material Adverse Change. There shall have been no material
adverse change in the value or condition of the Property since the date hereof
6.3 Title Insurance. The Title Company shall have issued to ET an ALTA
owner's title insurance policy effective as of the date of the Closing or an
unconditional commitment therefor insuring fee simple title to the Property to
be vested in ET in an amount equal to the fair market value of the Property,
subject to no exceptions other than Permitted Exceptions with such endorsements
and otherwise in form acceptable to ET in its sole and absolute discretion.
6.4 No Order or Injunction. Closing shall not have been restrained,
enjoined or prohibited by any order or injunction of any court or governmental
authority of competent jurisdiction nor shall there be any pending or threatened
condemnation proceeding with respect to the Property or any portion thereof.
6.5 Instruments of Conveyance. Multicare shall have delivered the
instruments referred to in Section 8.1.
6.6. Consents. All consents necessary for the consummation of Closing
by ET shall have been obtained.
6.7 Bankruptcy Court Approval for Master Agreement and Genesis Master
Agreement. Bankruptcy Court approval shall have been obtained for the
transactions described in the Master Agreement, including this transaction, as
well as for the transactions described in the Genesis Master Agreement.
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6.8 Simultaneous Closing. Unless waived by ET, no transfer of the
Property shall occur unless (i) all three (3) transfers contemplated in the
Master Agreement occur simultaneously, and (ii) all three (3) transfers occur
simultaneously with the closings contemplated under the Genesis Master
Agreement.
6.9 Utilities. To the extent that the Berkshire ALF is not separately
metered for consumption of Public Utilities, Multicare shall have caused, in
accordance with Section 4.12, such Public Utilities to become separately
metered.
6.10 Contracts. To the extent that any Contract Rights relate to
property other than the Property, such Contract Rights shall have been modified,
in accordance with Section 4.3, so that such Contract Rights relate solely to
the Property.
6.11 Cure of Items Identified in ET's Objection Notice. All of the
items identified in ET's Objection Notice that Multicare agreed to cure and/or
address pursuant to and as provided for in the Transferors' Notice shall have
been cured and/or addressed to ET's satisfaction.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF TRANSACTION BY MULTICARE
The obligation of Multicare to consummate Closing shall be subject to
fulfillment (or waiver) at or prior to the date of the Closing of the following
conditions:
7.1 Representations, Warranties and Covenants. The representations,
warranties and covenants made by Multicare in this Agreement or in any document
delivered by Multicare pursuant to this Agreement shall be true and correct in
all material respects when made and on and as of the date of the Closing as
though such representations, warranties and covenants were made on and as of
such date.
7.2. Consents. All consents necessary for the consummation of the
Closing by Multicare shall have been obtained.
7.3 Bankruptcy Court Approval for Master Agreement and Genesis Master
Agreement. Bankruptcy Court approval shall have been obtained for the
transactions described in the Master Agreement, including this transaction, as
well as the transactions described in the Genesis Master Agreement.
7.4 Simultaneous Closing. Unless waived by Multicare, no transfer of
the Property shall occur unless (i) all three (3) transfers contemplated in the
Master Agreement occur simultaneously, and (ii) all three (3) transfers occur
simultaneously with the Closings contemplated under the Genesis Master
Agreement.
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ARTICLE VIII
THE CLOSING
Subject to the terms and conditions of this Agreement, the Closing
shall take place promptly after satisfaction or waiver of the conditions set
forth in Articles VI and VII hereof.
8.1 Closing Deliveries by Multicare: At Closing, Multicare shall
deliver or cause to be delivered the following:
(a) a special warranty deed conveying good and marketable fee
simple title to the Property and the Off-Site Easements (subject only to the
Permitted Exceptions);
(b) the Reciprocal Easements referenced in Section 4.11 hereof;
(c) a bill of sale pursuant to which Multicare shall convey to ET
good title to all the Personal Property, free and clear of all liens and
encumbrances;
(d) a certification duly executed by Multicare under penalty of
perjury, setting forth Multicare's address and Federal tax identification number
and certifying that Multicare is not a "foreign person" under section 1445 (as
may be amended) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder;
(e) such assignment agreements as may be deemed necessary and
appropriate by ET and Multicare, including but not limited to, an assignment by
Multicare to Tenant of the Permits and Licenses, the Contract Rights and the
RLAs.
(f) a certificate from a duly authorized agent of Multicare
certifying that the representations and warranties of Multicare set forth herein
are true and correct in all material respects as of the Closing Date;
(g) the Lease Agreement duly executed by Tenant;
(h) the Guaranty duly executed by Genesis Eldercare Corp.; and
(i) delivery to ET by Multicare of the payment to be made to ET
pursuant to Section 5(b) of the Master Agreement.
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(j) such other documents and instruments as ET and Multicare agree
are necessary or appropriate.
8.2 Closing Deliveries by ET. At Closing ET shall deliver or cause to
be delivered the following:
(a) all releases and/or other documentation necessary to reflect
forgiveness of the Berks Loan of record, including a release of the Berks
Mortgaged Real Property from the lien of the Berks Mortgage, termination of the
Berks Guaranty, the return of the Berks Note and such other steps as are
customary to achieve the objectives of Multicare and ET as set forth in Section
5 of the Master Agreement.
(b) a certificate from a duly authorized officer of ET certifying
that the representations and warranties of ET set forth herein are true and
correct in all material respects as of the Closing Date;
(c) the Reciprocal Easement Agreement referenced in Section 8.1 (b)
above;
(d) the assignment agreements referenced in Section 8.1 (e);
(e) the Lease Agreement, duly executed by ET; and
(f) such other documents and instruments as Multicare and ET agree
are necessary or appropriate.
8.3 Closing Costs. ET and Multicare shall each pay one-half (1/2) of:
(i) documentary and transfer fees imposed on, or in connection with, the
transfer of the Property; (ii) survey costs; (iii) costs, including the payment
of the title insurance premium, of obtaining a title insurance policy for the
benefit of ET and (iv) all recording fees and charges. Each party shall pay its
own legal fees.
8.4 Prorations. Multicare and ET agree that charges, credits and
adjustments shall be made as of the Closing Date, and a statement setting forth
such adjustments shall be initialed by the parties. The subject areas of such
adjustments shall include:
(a) Real estate, personal property and similar taxes and
assessments (general and special, ordinary and extraordinary) that have become
or may become a lien on the Property;
(b) Charges for public utilities servicing the Property, payments
under the Contracts, charges under easements and similar agreements affecting
the Property;
(c) Insurance premiums, if any, to the extent policies are assumed
by ET;
- 18 -
(d) All other charges and fees customarily prorated and adjusted in
similar transactions.
The parties shall prorate on the best available information; all
adjustments that cannot be determined precisely as of the Closing Date shall be
readjusted as soon as practicable. Multicare shall use its best efforts to have
all utility meters read as of the Closing Date. To the extent practicable, as
Multicare and ET agree as appropriate, such prorations may occur outside the
Closing by arrangement with the vendor or supplier of services (e.g.,
utilities). Any prorations which are the obligation of ET will be assumed and
paid by the Tenant as provided under Section 5.3 of the Lease Agreement.
8.5 Possession. At Closing, Multicare shall deliver possession of the
Property to ET (subject to the rights of tenants under the RLAs), the Property
to be in the same condition and repair as on the date hereof, reasonable wear
and tear excepted, and ET shall immediately deliver possession of the Property
to the Tenant under the Lease.
8.6 Further Assurances. In addition to the obligations required to be
performed hereunder by Multicare at the Closing, Multicare agrees to perform
such other acts, and to execute, acknowledge, and/or deliver subsequent to the
Closing such other instruments, documents, and other materials, as ET may
reasonably request in order to vest title to the Property in ET.
8.7 Deadline for Closing. In the event the Closing has not occurred by
January 31, 2001, and neither party is in breach hereunder, this Agreement shall
be terminated, unless otherwise extended by mutual agreement of the parties in
writing. Except as to matters which by the terms hereof are to survive any
termination, neither party shall have any further obligations hereunder in
conjunction with a termination pursuant to this provision.
ARTICLE IX
CONDEMNATION; DESTRUCTION
9.1 Condemnation of the Property. If after the date hereof and prior to
the Closing all or a material part of the Property is taken by eminent domain or
condemnation (or sale in lieu thereof) such that the operation of the Property
as an assisted living facility in the present form or the Property's compliance
with zoning laws is disturbed or otherwise compromised, ET may, by written
notice to Multicare delivered within thirty (30) days of receipt of a copy of
the notice of condemnation from Multicare, elect to cancel this Agreement, in
which event both parties shall be relieved and released of and from any further
liability hereunder, and this Agreement shall be considered canceled. If no such
election is made, this Agreement shall remain in full force and effect and the
purchase contemplated herein, less any interest taken by eminent domain or
condemnation, shall be effected with no further adjustment except that the
condemnation award shall be assigned to ET.
- 19 -
9.2 Destruction of Property, Risk of Loss. The Property is to be held
at the risk of Multicare until Closing. In the event of any substantial
destruction or damage to the Property, ET may terminate this Agreement within
thirty (30) days of the event, and upon such termination, neither party shall
have any liability to the other. If no such election is made, the purchase
contemplated herein shall be effected with no adjustment except that the
insurance award shall be assigned to ET.
ARTICLE X
REMEDIES ON DEFAULT
10.1 Multicare's Remedies. Except for any breaches waived in writing by
Multicare, if any of the representations and warranties are untrue in any
material respect as provided in Section 7.1 hereof, or if ET has breached any of
its covenants or obligations under this Agreement or has failed, refused or is
unable to consummate the Closing by the date of the Closing when and as required
to do so hereunder, then Multicare shall have the sole and exclusive right
either: (a) to bring an action seeking the specific performance of the
obligations of ET hereunder, or (b) to terminate this Agreement. Notwithstanding
the foregoing, if the event or condition giving rise to the breach of any
representation and warranty is not susceptible of being cured, as reasonably
determined by Multicare, and is a result of fraud on the part of and/or willful
misrepresentation made by ET, then Multicare shall be entitled to avail itself
of any and all remedies available at law or in equity as a result of such
breach. Multicare hereby agrees, in the absence of fraud and/or willful
misrepresentation, that its sole remedy in the event that any of the
representations and warranties contained under Section 3.2 hereof shall prove to
be untrue as of the Closing or at any time during the survival period for such
representations and warranties, that Multicare's sole remedy shall be to compel
ET to cure whatever event or condition has given rise to the breach of any such
representations or warranties.
10.2 ET's Remedies. Except for any breaches waived in writing by ET, if
any of the representations and warranties are untrue in any material respect as
provided in Section 6.1 hereof, or if Multicare has breached any of its
covenants or obligations under this Agreement or has failed, refused or is
unable to consummate the Closing by the date of the Closing when and as required
to do so hereunder, then ET shall have the sole and exclusive right either: (a)
to bring an action seeking the specific performance of the obligations of
Multicare hereunder, or (b) to terminate this Agreement. Notwithstanding the
foregoing, if the event or condition giving rise to the breach of any
representation or warranty is not susceptible of being cured, as reasonably
determined by ET, and is a result of fraud on the part of and/or willful
misrepresentation made by Multicare, then ET shall be entitled to avail itself
of any and all remedies available at law or in equity as a result of such
breach. ET hereby agrees, in the absence of fraud and/or willful
misrepresentation, that its sole remedy in the event that any of the
representations and warranties contained under Section 3.1 hereof shall prove to
be untrue as of the Closing or at anytime during the survival period for such
representations and warranties, that ET's sole remedy shall be to compel
Multicare to cure whatever event or condition has given rise to the breach of
any such representations or warranties.
- 20 -
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by Multicare and Guarantor. Multicare and
Guarantor hereby, jointly and severally, indemnify and agree to defend and hold
harmless ET, and its officers, directors, employees, agents and successors and
assigns, and its general partners and any officers, trustees, directors,
employees, agents and successors and assigns of such general partners ("ET
Indemnitees"), from and against any and all demands, claims, actions or causes
of action, assessments, expenses, costs, damages, losses and liabilities
(including attorneys' fees and other charges) which may at any time be asserted
against or suffered by any ET Indemnitee, the Property, or any part thereof
whether before or after the date of the Closing, as a result of, on account of
or arising from (a) the failure of Multicare to perform any of its obligations
hereunder or the breach by Multicare of any of its representations and
warranties made herein, (b) events, contractual obligations, acts or omissions
of Multicare that occurred in connection with the ownership or operation of the
Property prior to the Closing, (c) damage to property or injury to or death of
any person or any claims for any debts or obligations occurring on or about or
in connection with the Property or any portion thereof or with respect to the
operation of the Property at any time or times prior to the Closing, or (d) any
obligation, claim, suit, liability, contract, agreement, debt or encumbrance
(other than Permitted Exceptions) created, arising or accruing prior to the date
of the Closing, regardless of when asserted, relating to the Property or its
operation, including, without limitation, and all liabilities for federal or
state income taxes or other taxes, which shall not have been set forth or
specifically described in this Agreement or the Schedules and the Exhibits
hereto. The obligations of Multicare under this Section 11.1 shall survive the
Closing for a period of twelve (12) months.
11.2 Indemnification by ET. Subject to the qualifications set forth in
this Section 11.2, ET hereby indemnifies and agrees to defend and hold harmless
Multicare and its officers, directors, employees, agents and successors and
assigns ("Multicare Indemnitees"), from and against any and all demands, claims,
actions or causes of action, assessments, expenses, costs, damages, losses and
liabilities (including attorneys' fees and other charges) which may at any time
be asserted against or suffered by any Multicare Indemnitee, whether before or
after the date of the Closing, as a result of, on account of or arising from (a)
the failure of ET to perform any of its obligations hereunder or the breach by
ET of any of its representations and warranties made herein, (b) events,
contractual obligations, acts or omissions of ET that occurred in connection
with the ownership of the Property subsequent to the Closing which were or are
the sole fault of ET and not the lessee of the Property, or (c) damage to
property or injury to or death of any person or any claims for any debts or
obligations occurring on or about or in connection with the Property or any
portion thereof or with respect to the operation of the Property at any time or
times subsequent to the Closing which were or are the sole fault of ET and not
the lessee of the Property. Notwithstanding the foregoing, in no event shall ET
be required to indemnify any Multicare Indemnitee as provided for in this
Section 11.2 if such indemnification relates to (i) any condition or
pre-existing problem that existed with respect to the Property prior to the
Closing, even if such condition was not apparent to ET and/or Multicare as of
the Closing, or (ii) any matter than was not properly disclosed to ET pursuant
to this Agreement. The obligations of ET under this Section 11.2 shall survive
the Closing for a period of twelve (12) months.
- 21 -
ARTICLE XII
GENERAL
12.1 Notices.
(a) All notices, demands and requests required under this Agreement
shall be in writing. All such notices, demands and requests shall be deemed to
have been properly given if hand delivered or if sent by, facsimile, nationally
recognized overnight delivery service, or United States registered or certified
mail, return receipt requested, postage prepaid, at the following addresses:
If to ET: c/o ElderTrust Operating Partnership
101 East State Street
Suite 100
Kennett Square, PA 19348
Attention: President and Chief Financial Officer
Telephone: (610) 925-4200
Facsimile: (610) 925-4351
with a copy to: Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attention: Mark Pollak, Esquire
Telephone: (410) 986-2860
Facsimile: (410) 986-2828
If to Multicare: c/o Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Chief Executive Officer
Telephone: (610) 925-6350
Facsimile: (610) 925-4242
Attention: Law Department
Telephone: (610) 444-6350
Facsimile: (610) 925-4242
- 22 -
with a copy to: Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Attention: Matthew J. Comisky, Esquire
Telephone: (215) 569-5678
Facsimile: (215) 569-5692
with a copy to: Willkie Farr & Gallagher
The Equitable Center
787 Seventh Avenue
New York, NY 10019-6099
Attention: Marc Abrams, Esquire
Telephone: (212) 728-8764
Facsimile: (212) 728-8111
(b) The parties may change the address to which such communications
are to be directed by giving written notice to the others in the manner provided
in this section.
(c) Notices, demands and requests shall be deemed sufficiently
served or given for all purposes hereunder (i) if hand delivered or sent by
facsimile, on the date of receipt; (ii) if sent by facsimile, upon confirmation
and voice confirmed, (iii) if sent by overnight delivery service, one (1) day
following the deposit with such delivery service; or (iv) if sent by registered
or certified mail, three (3) days following the deposit in any Post Office or
Branch Post Office regularly maintained by the United States Government.
12.2 No Waiver. No failure by a party to exercise and no delay in
exercising any right, power, privilege or discretion under this Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power, privilege or discretion hereunder preclude any other or further
exercise thereof or the exercise of any right, power, privilege or discretion
provided for herein; nor shall any waiver thereof be effective unless in writing
and signed by the party waiving the same.
12.3 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of the other party, which consent shall not be
unreasonably withheld, and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect, provided that ET may (i) assign
this Agreement and its rights hereunder, to a corporation partnership, limited
liability company or other entity of which the entire ownership interest is
owned directly or indirectly by ET or its affiliates without the consent of
Multicare, or (ii) contribute the Property, or any portion thereof, to a
corporation, partnership, limited liability company or other entity in exchange
for 100% of the ownership interests in such entity; no such assignment or
contribution shall relieve Multicare of its obligations hereunder.
- 23 -
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns as permitted
hereunder. No person or entity other than the parties hereto is or shall be
entitled to bring any action to enforce any provision of this Agreement against
any of the parties hereto, and the covenants and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable only by,
the parties hereto or their respective successors and assigns as permitted
hereunder.
12.4 Governing Law. This Agreement, the rights and obligations of the
parties hereto and any claims and disputes relating thereto shall be governed by
and construed under the laws of the State (but not including the choice of law
rules thereof).
12.5 Entire Agreement Amendment. This Agreement and the exhibits and
schedules hereto and the agreements referred to herein set forth the entire
agreement and understanding of the parties in respect of the transactions
contemplated hereby and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof. No amendment, change or
modification of this Agreement shall be valid unless the same is in writing and
signed by the parties hereto.
12.6 Counterparts/Facsimile Signature Pages. This Agreement may be
executed in any number of counterparts and each such counterpart shall be deemed
to be an original, but all such counterparts together shall constitute but one
Agreement. For purposes of binding the parties, signatures may be exchanged by
the use of facsimile and confirmed by live signatures circulated immediately
thereafter.
12.7 Severability. In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
12.8 Miscellaneous.
(a) Both parties participated in the drafting of this Agreement and
no presumptions shall arise by virtue of the identity of the draftsmen.
(b) Delivery of the conveyancing instruments, the documents and/or
the consideration required hereunder of either party shall constitute good and
sufficient tender of performance of the terms hereof by the complying party.
(c) Section and subsection headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
- 24 -
IN WITNESS WHEREOF, the parties hereto have executed and sealed this
Agreement as of the day and year first written above.
WITNESS: MULTICARE
BERKSHIRE NURSING HOMES, INC.
_________________________ By: ______________________________(SEAL)
Name: _____________________________
Title:_____________________________
Date:__________________
ET
ET SUB-BERKSHIRE LIMITED PARTNERSHIP, L.P.
BY: ET BERKSHIRE, LLC
BY: ElderTrust Operating Limited Partnership
_________________________ By: ______________________________(SEAL)
Name:______________________________
Title:_____________________________
Date:__________________
- 25 -
JOINDER BY GUARANTOR
--------------------
Genesis Eldercare Corp. hereby joins in this Agreement for the sole
purpose of acknowledging and accepting its responsibilities pursuant to Section
11.1 of this Agreement, and by executing this Agreement hereby evidences its
agreement to be bound by the provisions of Section 11.1 hereof.
IN WITNESS WHEREOF, Genesis Eldercare Corp. has executed this Agreement
as of the day and year first written above.
GENESIS ELDERCARE CORP.
By: _______________________(SEAL)
Name: ______________________
Title:______________________
Date: ______________________
- 26 -
Exhibit A
---------
The Land
--------
- 27 -
Exhibit B
---------
Permitted Exceptions
--------------------
- 28 -
Exhibit C
---------
Personal Property
-----------------
- 29 -
Exhibit C-1
-----------
Personal Property Not Owned By Multicare
----------------------------------------
- 30 -
Schedule I
----------
Financial Reports
-----------------
- 31 -
Schedule II
-----------
Residential Living Agreements
-----------------------------
- 32 -
Schedule III
------------
Contract Rights
---------------
- 33 -
Schedule IV
-----------
Licenses and Permits
--------------------
- 34 -
Schedule V
----------
Insurance
---------
- 35 -
EXHIBIT "B"
FORM OF FACILITY LEASE
================================================================================
LEASE AGREEMENT
ET SUB-BERKSHIRE LIMITED PARTNERSHIP, L.P.
As
Landlord
And
Assisted Living Associates of Berkshire, Inc.
As
Tenant
Dated as of __________________, 2000
================================================================================
Berkshire Commons, a/k/a Park Lane Commons at Berkshire
Reading, Pennsylvania
TABLE OF CONTENTS
Page
----
PREAMBLE.................................................................................................1
RECITALS.................................................................................................1
ARTICLE I INTERPRETATION AND DEFINITIONS..............................................................1
ARTICLE II PROPERTY AND TERM.........................................................................13
2.1. Property.................................................................................13
2.2. Initial Term.............................................................................14
2.3. Extended Terms...........................................................................15
ARTICLE III RENT.....................................................................................15
3.1. Rent.....................................................................................15
3.2. Minimum Rent.............................................................................16
3.2.1. Catch-Up on Incremental Minimum Rent...............................................16
3.2.2. Record-keeping.....................................................................16
3.2.3. Audits.............................................................................16
3.3. [INTENTIONALLY DELETED]..................................................................17
3.4. Additional Rent..........................................................................17
3.5. Late Payment of Rent.....................................................................17
3.6. Net Lease................................................................................18
3.7. Income and Expense Prorations............................................................18
ARTICLE IV IMPOSITIONS...............................................................................18
4.1. Payment of Impositions...................................................................18
4.2. Information and Reporting................................................................18
4.3. Assessment Challenges....................................................................19
4.4. Prorations; Payment in Installments......................................................19
4.5. Refunds..................................................................................19
4.6. Utility Charges..........................................................................20
4.7. Assessment Districts.....................................................................20
ARTICLE V TENANT WAIVERS.............................................................................20
5.1. No Termination or Abatement..............................................................20
5.2. Condition of Leased Property.............................................................21
5.3. Limitation on Landlord's Liability; Tenant Responsible for Certain Items Under
Transfer Agreement ....................................................................22
ARTICLE VI OWNERSHIP OF PROPERTY.....................................................................23
6.1. Leased Property..........................................................................23
6.2. Tenant's Personal Property...............................................................23
6.3. Purchase of Tenant's Personal Property...................................................23
6.4. Removal of Personal Property.............................................................24
6.5. Landlord's Personal Property.............................................................25
i
ARTICLE VII USE OF PROPERTY..........................................................................25
7.1. Permitted Use............................................................................25
7.1.1. Primary Intended Use...............................................................25
7.1.2. Necessary Approvals................................................................26
7.1.3. Continuous Operation...............................................................26
7.1.4. Lawful Use.........................................................................27
7.2. Compliance with Medicaid and Medicare Requirements.......................................27
7.3. Environmental Matters....................................................................28
7.4. Landlord to Grant Easements..............................................................29
7.5. Management Agreements....................................................................29
7.6. Compliance with Building Service and Property Maintenance Agreements and
Recorded Instruments. .................................................................30
ARTICLE VIII SECURITY FOR LEASE OBLIGATIONS..........................................................30
8.1. Security Deposit.........................................................................30
8.2. Guarantee................................................................................31
ARTICLE IX HAZARDOUS MATERIALS.......................................................................31
9.1. Remediation..............................................................................31
9.2. Tenant's Indemnification of Landlord.....................................................32
9.3. Survival of Indemnification Obligations..................................................33
9.4. Environmental Violations at Expiration or Termination of Lease...........................33
ARTICLE X MAINTENANCE AND REPAIR.....................................................................34
10.1. Tenant's Maintenance and Repair Obligation............................................34
10.2. Waiver of Statutory Obligations.......................................................34
10.3. Mechanic's Liens......................................................................34
10.4. Surrender of Property.................................................................35
10.5. Required Capital Expenditures.........................................................35
10.5.1. Required Years; Required Amounts; Permitted Expenditures...........................35
10.5.2. Payment Provisions.................................................................35
10.5.3. No Liability of Landlord...........................................................36
ARTICLE XI TENANT IMPROVEMENTS.......................................................................36
11.1. Tenant's Right to Construct...........................................................36
11.2. Construction..........................................................................38
11.3. Scope of Tenant's Right...............................................................39
11.4. Cooperation of Landlord...............................................................39
11.5. Rights in Tenant Improvements.........................................................40
ARTICLE XII LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS.............................................40
12.1. Liens.................................................................................40
12.2. Encroachments and Other Title Matters.................................................41
ARTICLE XIII PERMITTED CONTESTS......................................................................42
ARTICLE XIV INSURANCE................................................................................43
14.1. General Insurance Requirements........................................................43
14.1.1. All Risk...........................................................................43
14.1.2. Liability..........................................................................44
14.1.3. Flood..............................................................................44
14.1.4. Worker's Compensation..............................................................44
14.1.5. Business Interruption..............................................................44
14.1.6. Builder's Risk.....................................................................44
14.1.7. Boiler and Machinery...............................................................45
14.1.8. Earthquake.........................................................................45
14.1.9. Environmental Impairment...........................................................45
14.1.10. Subsidence......................................................................45
14.1.11. Other Insurance.................................................................45
14.2. Replacement Cost......................................................................46
ii
14.3. Waiver of Subrogation.................................................................46
14.4. Insurance Company Satisfactory........................................................46
14.5. Change in Limits......................................................................46
14.6. Blanket Policy........................................................................46
ARTICLE XV APPLICATION OF INSURANCE PROCEEDS.........................................................46
15.1. Insurance Proceeds....................................................................46
15.1.1. Disbursement of Proceeds...........................................................46
15.1.2. Excess Proceeds....................................................................46
15.2. Reconstruction Covered by Insurance...................................................46
15.2.1. Destruction Rendering Facility Unsuitable for its Primary Intended Use.............46
15.2.2. Destruction Not Rendering Facility Unsuitable for its Primary Intended Use.........46
15.2.3. Costs of Repair....................................................................46
15.3. No Abatement of Rent..................................................................46
15.4. Waiver................................................................................46
15.5. Damage Near End of Term...............................................................46
15.6. Proceeds Paid to Facility Mortgagee...................................................46
ARTICLE XVI CONDEMNATION.............................................................................46
16.1. Total Taking..........................................................................46
16.2. Partial Taking........................................................................46
16.3. Restoration...........................................................................46
16.4. Award Distribution....................................................................46
16.5. Temporary Taking......................................................................46
16.6. Awards Paid to Facility Mortgagee.....................................................46
ARTICLE XVII EVENTS OF DEFAULT.......................................................................46
17.1. Events of Default.....................................................................46
17.2. Payment of Costs......................................................................46
17.3. Certain Remedies......................................................................46
17.4. Damages...............................................................................46
17.5. Additional Remedies...................................................................46
17.6. Appointment of Receiver...............................................................46
17.7. WAIVER................................................................................46
17.8. Application of Funds..................................................................46
17.9. Impounds..............................................................................46
ARTICLE XVIII LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT..............................................46
ARTICLE XIX LEGAL REQUIREMENTS.......................................................................46
ARTICLE XX HOLDING OVER..............................................................................46
ARTICLE XXI RISK OF LOSS.............................................................................46
21.1. Risk of Loss..........................................................................46
21.2. Unavoidable Events....................................................................46
ARTICLE XXII INDEMNIFICATION.........................................................................46
22.1. Tenant's Indemnification of Landlord..................................................46
22.2. Landlord's Indemnification of Tenant..................................................46
22.3. Mechanics of Indemnification..........................................................46
22.4. Survival of Indemnification Obligations...............................................46
iii
ARTICLE XXIII SUBLETTING AND ASSIGNMENT..............................................................46
23.1. Prohibition Against Subletting and Assignment.........................................46
23.2. Changes of Control....................................................................46
23.3. Subleases.............................................................................46
23.3.1. Permitted Subleases................................................................46
23.3.2. Terms of Sublease..................................................................46
23.3.3. Copies.............................................................................46
23.3.4. Assignment of Rights in Subleases..................................................46
23.3.5. Licenses...........................................................................46
23.4. Assignment............................................................................46
23.4.1. Financial Condition of Assignee....................................................46
23.4.2. Assignment to Affiliate............................................................46
23.4.3. Assignment in Bankruptcy...........................................................46
23.4.4. Adequate Assurance of Future Performance...........................................46
23.4.5. Disaffirmance or Rejection.........................................................46
23.4.6. Costs..............................................................................46
23.4.7. No Release of Tenant's Obligation..................................................46
23.4.8. Assignment by Landlord; Subordination..............................................46
ARTICLE XXIV ESTOPPEL CERTIFICATES AND OTHER STATEMENTS..............................................46
24.1. Estoppel Certificates.................................................................46
24.1.1. Estoppel Certificate of Tenant.....................................................46
24.1.2. Estoppel Certificate of Landlord...................................................46
24.2. Financial Statements of the Facility and Guarantor....................................46
24.2.1. Quarterly Financial Statements.....................................................46
24.2.2. Annual Financial Statements........................................................46
24.3. Environmental Statements..............................................................46
24.4. Charges...............................................................................46
24.5. Provision of Information..............................................................46
ARTICLE XXV LANDLORD MORTGAGES.......................................................................46
25.1. Landlord May Grant Liens; Tenant's Non-Disturbance Rights.............................46
25.2. Attornment............................................................................46
25.3. Breach by Landlord....................................................................46
25.4. Facility Mortgage Protection..........................................................46
ARTICLE XXVI INTENTIONALLY OMITTED...................................................................46
iv
ARTICLE XXVII MISCELLANEOUS..........................................................................46
27.1. Landlord's Right to Inspect...........................................................46
27.2. No Waiver.............................................................................46
27.3. Remedies Cumulative...................................................................46
27.4. Acceptance of Surrender...............................................................46
27.5. No Merger of Title....................................................................46
27.6. Conveyance by Landlord................................................................46
27.7. Quiet Enjoyment.......................................................................46
27.8. Notices...............................................................................46
27.9. Survival of Claims....................................................................46
27.10. Invalidity of Terms or Provisions.....................................................46
27.11. Prohibition Against Usury.............................................................46
27.12. Amendments to Lease...................................................................46
27.13. Successors and Assigns................................................................46
27.14. Titles................................................................................46
27.15. Governing Law.........................................................................46
27.16. Memorandum of Lease...................................................................46
27.17. Attorneys' Fees.......................................................................46
27.18. Non-Recourse as to Landlord...........................................................46
27.19. No Relationship.......................................................................46
27.20. Signs; Reletting......................................................................46
27.21. Further Assurances....................................................................46
27.22. Arbitration...........................................................................46
27.23. Licenses..............................................................................46
27.24. Counterparts..........................................................................46
EXHIBIT A Legal Description of Land
EXHIBIT B [INTENTIONALLY DELETED]
EXHIBIT C Appraisal Process
EXHIBIT D Form of Guarantee
EXHIBIT E [INTENTIONALLY DELETED]
EXHIBIT F Arbitration
SCHEDULE 1 [INTENTIONALLY DELETED]
SCHEDULE 2 [INTENTIONALLY DELETED]
SCHEDULE 3 Simultaneous Leases
SCHEDULE 4 Landlord's Personal Property
SCHEDULE 5 Immediate Tenant Repairs
SCHEDULE 6 Tenant's Personal Property
v
LEASE AGREEMENT
---------------
PREAMBLE
--------
THIS LEASE AGREEMENT (the "Lease"), dated as of
______________, 2000, is made and entered into by and between ET SUB-BERKSHIRE
LIMITED PARTNERSHIP, L.P., a Delaware limited partnership ("Landlord"), and
Assisted Living Associates of Berkshire, Inc., a Pennsylvania Corporation
("Tenant").
RECITALS
--------
WHEREAS, Landlord owns the Leased Property (as defined below);
WHEREAS, Tenant wishes to lease from Landlord the Leased
Property for the purpose of operating the Facility (as defined below) on the
Leased Property;
NOW, THEREFORE, in consideration of the foregoing, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant agree as follows:
ARTICLE I
INTERPRETATION AND DEFINITIONS
For all purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article I shall have the meanings assigned to them in this Article I and include
the plural as well as the singular, (ii) all accounting terms not otherwise
defined herein shall have the meaning assigned to them in accordance with
generally accepted accounting principles consistently applied, (iii) all
references in this Lease to designated "Articles,", "Sections" and other
subdivisions are to the designated Articles, Sections and subdivisions of this
Lease and (iv) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Lease as a whole and not to any particular Article,
Section or other subdivision.
Additional Rent: As defined in Section 3.4.
1
Adjusted Minimum Rent: Means the greater of (i) the Minimum
Rent for the eighth (8th) Lease Year plus the Incremental Minimum Rent, if any,
determined with respect to the eighth (8th) Lease Year or (ii) the fair market
rental value of the Leased Property at the end of the eighth (8th) Lease Year,
as may reasonably be determined by Landlord and Tenant or, if Landlord and
Tenant are unable to agree, as determined pursuant to the appraisal process set
forth on Exhibit C.
Affiliate: As applied to any Person, means any other Person
directly or indirectly Controlling, Controlled by, or under common Control with,
that Person.
Award: Means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
Bankruptcy Code: As defined in Section 23.4.3.
Bankruptcy Proceeding: Means the bankruptcy case in connection
with that certain petition filed by the Tenant and certain other related
entities of The Multicare Companies, Inc. on June 22, 2000 with the Bankruptcy
Court under Case No. 00-2494 (PJW) seeking protection under Chapter 11 of the
bankruptcy laws of the United States.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, are
authorized, or obligated, by law or executive order, to close.
Capital Impound Payment: As defined in Section 17.9(b).
Capital Impound Reserves: As defined in Section 17.9(b).
Change of Control: As defined in Section 23.2.
Code: Means the Internal Revenue Code of 1986, as amended.
Commencement Date: Means [CLOSING DATE].
Condemnation: Means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, and (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
2
Condemnor: Means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
Control: Means (including, with correlative meanings, the
terms "Controlling" and "Controlled by"), as applied to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise, but shall not include
any powers arising by virtue of a contract to manage the operations of the
property owned by that Person.
CPI: Means, as of any date, the current United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index, United
States Average, "All Items" (1982-84=100); provided, however, that if
compilation of the CPI is discontinued or transferred to any other governmental
department or bureau, then the index most nearly the same as the CPI shall be
used as reasonably chosen by Landlord. No delay by Landlord in providing notice
of the CPI applicable at any time shall be deemed a waiver of Landlord's right
to apply the CPI in respect of any Cumulative CPI Adjustment to be made under
this Lease.
Cumulative CPI: Means, for any period, the CPI as of the last
day of such period divided by the CPI as of the first day of such period.
Cumulative CPI Adjustment: Means, with respect to any amount
at the end of any period, such amount multiplied by the Cumulative CPI for such
period.
Date of Taking: Means the date the Condemnor has the right to
possession of the property being condemned.
Environmental Law: Means all applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, common law, orders, demands,
approvals, authorizations and similar items of all governmental agencies,
departments, commissions, boards, bureaus or instrumentalities of the United
States, states and political subdivisions thereof and all applicable judicial,
administrative and regulatory decrees, judgments and orders relating to the
protection of human health, or the environment, as in effect on the date hereof
or as later amended, including but not limited to those pertaining to reporting,
licensing, permitting, investigation, removal and remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials, into the
air, surface water, ground water or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, handling
or release of Hazardous Materials, including: (x) the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.),
the Resource ------ Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Clean Air Act (42 U.S.C. 7401 et seq.), the Federal ------ ------ Water
Pollution Control Act (33 U.S.C. 1251 et seq.), the Safe Drinking Water Act (42
U.S.C. 300f et seq.), the ------ ------ Toxic Substances Control Act (15 U.S.C.
2601 et seq.), the Emergency Planning and Community Right-to-Know Act ------ (42
U.S.C. 11001 et seq.), and the regulations implementing these statutes, (y)
analogous state and local ------- provisions and (z) common law principles of
tort liability.
3
Event of Default: As defined in Section 17.1.
Excess Amount: As defined in Section 10.5.2.
Expended Amount: As defined in Section 10.5.2.
Extended Term: As defined in Section 2.3.
Extended Term Commencement Date: As defined in Section 2.3.
Facility: The assisted living facility operated on the Leased
Property, commonly known as Berkshire Commons, a/k/a Park Lane Commons at
Berkshire.
Facilities: Means, collectively, the Facility, Lehigh and
Sanatoga.
Facility Mortgage: As defined in Section 14.1.
Facility Mortgagee: Means the holder or beneficiary of a
Facility Mortgage, if any, and only to the extent Landlord gives Tenant notice
of the identity and address of the Person.
Facility Revenues: Means, with respect to the Facility, all
revenues (determined in accordance with generally accepted accounting principles
applied on a consistent basis, except as provided below) whether or not directly
or indirectly received or receivable from or by reason of the operation of the
Facility, including, without limitation, all resident or client revenues
received or receivable for the use of or otherwise by reason of all rooms, beds
and other facilities provided, meals served, services performed or provided
(including, without limitation, personal care and nursing when provided by an
employee of Tenant), space or facilities subleased or goods sold at or from the
Facility, or any other use of the Leased Property, including, without
limitation, subleases, licenses or any other arrangements with third parties
relating to the possession or use of any portion of the Facility; provided,
however, that Facility Revenues shall not include:
4
(a) revenues from professional fees or charges by
physicians and all providers of ancillary services,
including without limitation, physical therapy
services, whether or not such providers are employees
of Tenant;
(b) non-operating revenues such as interest income or
income from the sale of assets not sold in the
ordinary course of business;
(c) federal, state or local excise taxes imposed
upon, and any tax based upon or measured by, such
revenues which is added to or made a part of the
amount billed to the resident, client or other
recipient of such services or goods, whether included
in the billing or stated separately;
(d) contractual allowances (relating to any period
during the Term) for billings not paid by or received
from the appropriate governmental agencies or third
party providers; and
(e) all proper resident billing credits and
adjustments (including, without limitation,
allowances for uncollectible accounts) according to
generally accepted accounting principles relating to
senior housing accounting.
Fiscal Quarter: The three-month periods (or applicable
portions thereof) in any Fiscal Year from January 1 through March 31, April 1
through June 30, July 1 through September 30 and October 1 through December 31.
Fiscal Year: Each twelve-month period from October 1 through
September 30.
Fixtures: Means all permanently affixed equipment, machinery,
fixtures, and other items of real or personal property, including all components
thereof, now or hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Leased Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
kitchen equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which, to the greatest extent permitted by law, are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's Personal Property.
Full Replacement Cost: Means the actual replacement cost of
the Insured Property (as hereinafter defined) from time to time including
increased cost of construction endorsement, less exclusions provided in the
healthcare industry standard fire insurance policy.
5
GAAP: Means generally accepted accounting principles.
Guarantee: Means the Guarantee of even date herewith executed
by Guarantor in favor of Landlord, the form of which is attached hereto as
Exhibit D.
Guarantor: Means Genesis Eldercare Corp., and its permitted
successors and assigns.
Hazardous Materials: Means any chemicals, substances,
pollutants, contaminants, materials, or wastes, whether solid, liquid or gaseous
in nature (including, without limitation, any medical waste):
(i) the presence of which requires investigation or
remediation under any federal, state or local
statute, regulation, ordinance, order, action or
policy, administrative request or civil complaint
under any of the foregoing or under common law;
(ii) which is defined as a "hazardous waste," "pollutant
or contaminant," or otherwise "hazardous substance"
under any federal, state or local statute, regulation
or ordinance or amendments thereto as in effect as of
the Commencement Date, or as thereafter amended,
including, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. 9601 et
seq.) or the Resource Conservation and Recovery Act
(42 U.S.C. 6901 et seq.);
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous as of, or at any time after, the
Commencement Date, and, is regulated by any
governmental authority, agency, department,
commission, board, or instrumentality of the United
States, or any state or any political subdivision
thereof having or asserting jurisdiction over the
Leased Property;
(iv) the presence of which on the Leased Property causes
or threatens to cause a nuisance upon the Leased
Property or to other properties or poses a hazard to
the health or safety of persons on or about the
Leased Property;
(v) which contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenyls
(PCBs) or friable asbestos or friable
asbestos-containing materials or urea formaldehyde
foam insulation;
6
(vi) radon gas; or
(vii) petroleum and petroleum products.
Impartial Appraiser: As defined in Section 14.2.
Impositions: Means collectively:
(a) all taxes (including all real and personal
property, ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or
similar taxes);
(b) assessments and levies (including all assessments
for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and
whether or not to be completed within the Term);
(c) excises;
(d) fees (including license, permit, inspection,
authorization and similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property, the business conducted thereon by Tenant or the Rent payable
with respect thereto (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time during or in respect of the
Term hereof may be assessed or imposed on or in respect of or be a lien upon (i)
Landlord or Landlord's interest in the Leased Property; (ii) the Leased Property
or any part thereof or any rent therefrom or any estate, right, title or
interest therein; or (iii) any operation, use or possession of, or sales from or
activity conducted on or in connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof; provided, however, that
Impositions shall not include:
(aa) any tax based on net income (whether
denominated as an income, franchise, capital stock or
other tax) imposed on Landlord or any other Person
other than Tenant;
(bb) any transfer, or net revenue tax of
Landlord or any other Person other than Tenant;
(cc) any tax imposed solely with respect to
the sale, exchange or other disposition by Landlord
of the Leased Property or the proceeds thereof; or
7
(dd) any tax imposed with respect to any
principal or interest on any indebtedness on the
Leased Property.
Impound Charges: As defined in Section 17.9.
Impound Payment: As defined in Section 17.9.
Incremental Minimum Capital Expenditure. Means, with respect
to any Lease Year, the amount determined by multiplying one-half (1/2) of the
percentage increase in CPI as determined by reference to the publication dates
nearest to and prior to the first and last days of such Lease Year, times the
Minimum Capital Expenditure payable with respect to such Lease Year. For
example, if the Minimum Capital Expenditure for a given Lease Year is $300 and
the CPI applicable to the first day of such Lease Year is 102.5 and the CPI
applicable to the last day is 104.5, the Incremental Minimum Capital Expenditure
is calculated as follows:
1/2 x (104.5 - 102.5) = 1% times $300.00, or $3.00.
Incremental Minimum Rent: Means, with respect to any Lease
Year, the amount determined by multiplying one-half (1/2) of the percentage
increase in CPI, as determined by reference to the publication dates nearest to
and prior to the first and last days of such Lease Year, times the Minimum Rent
payable with respect to such Lease Year. For example, if the Minimum Rent for a
given Lease Year is $300,000 and the CPI applicable to the first day of such
Lease Year is 102.5 and the CPI applicable to the last day is 104.5, the
Incremental Minimum Rent is calculated as follows:
1/2 x (104.5 - 102.5)= 1.0% times $300,000.00, or $3,000.00.
Initial Term: As defined in Section 2.2.
Inspection: As defined in Section 27.1.
Insurance Requirements: All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
Land: As defined in Section 2.1.
8
Landlord: As defined in the Preamble.
Landlord's Encumbrance: As defined in Section 25.1.
Landlord's Personal Property: As defined in Section 2.1.
Lease: As defined in the Preamble.
Leased Improvements: As defined in Section 2.1.
Leased Property: As defined in Section 2.1.
Lease Year: Means each period of one (1) year that commences
on the Commencement Date (or anniversary thereof) and ends on the day
immediately prior to the next anniversary of the Commencement Date. However, in
the event that the Commencement Date is not the first day of the month, the
first Lease Year shall include the remainder of the month which includes the
Commencement Date plus the period of one (1) year that commences on the first
day of the calendar month following the Commencement Date. In such event, Rent
shall be pro-rated for such fractional period of any partial month of such first
Lease Year.
Legal Requirements: All federal, state, county, municipal and
other governmental statutes, laws (including, without limitation, the Americans
with Disabilities Act, the Fair Housing Act, as applicable, and any applicable
Environmental Laws), rules, orders, regulations, ordinances, judgments, decrees
and injunctions affecting either the Leased Property or the construction, use or
alteration thereof, whether now or hereafter enacted and in force, including,
without limitation, any which may (i) require repairs, modifications or
alterations in or to the Leased Property; (ii) in any way adversely affect the
use and enjoyment thereof, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to Tenant
(other than encumbrances created by Landlord without the consent of Tenant), at
any time in force affecting the Leased Property; or (iii) require the cleanup or
other treatment of any Hazardous Material.
Lehigh: Means Lehigh Commons a/k/a Park Lane Commons at Lehigh
in Lehigh County, Pennsylvania.
MAI Appraiser: As defined in Exhibit C.
9
Management Agreement: Any agreement, whether written or oral,
between Tenant and any other Person pursuant to which Tenant provides any
payment, fee or other consideration to any other Person to operate or manage the
Facility.
Manager: Means any Person of who has at least five (5) years
experience in the management of assisted living facilities of at least similar
size and quality to the Facility, and who is engaged to manage the Facility in
accordance with the terms hereof.
Memorandum of Lease: As defined in Section 27.16.
Minimum Capital Expenditure. The Minimum Capital Expenditure
required to be made for the first Lease Year shall be Three Hundred Fifty and
00/100 Dollars ($350.00), and for any Lease Year thereafter, the Minimum Capital
Expenditure shall be an amount equal to the Minimum Capital Expenditure required
to be made with respect to the immediately preceding Lease Year, plus the
Incremental Minimum Capital Expenditure determined with respect to the
immediately preceding Lease Year, if any. As an example, the Minimum Capital
Expenditure required during the Second Lease Year shall be Three Hundred Fifty
and 00/100 Dollars ($350.00), plus the Incremental Minimum Capital Expenditure ,
if any, determined with respect to the first Lease Year.
Minimum Rent: The Minimum Rent payable for the first (1st)
Lease Year shall be Two Hundred Eighty-Two Thousand Three Hundred Ninety-One and
00/100 Dollars ($282,391.00). The Minimum Rent payable for the second (2nd)
through the eighth (8th) Lease Years shall be in an amount equal to the Minimum
Rent payable with respect to the immediately preceding Lease Year plus the
Incremental Minimum Rent determined with respect to the immediately preceding
Lease Year, if any. As an example, the Minimum Rent payable during the second
(2nd) Lease Year shall be Two Hundred Eighty-Two Thousand Three Hundred
Ninety-One and 00/100 Dollars ($282,391.00) plus the Incremental Minimum Rent,
if any, determined with respect to the first (1st) Lease Year. Commencing on the
eighth (8th) anniversary of the Commencement Date, the Minimum Rent (for the
ninth (9th) Lease Year) shall be equal to the Adjusted Minimum Rent, and the
Minimum Rent for the tenth (10th) Lease Year shall be equal to the Adjusted
Minimum Rent plus the Incremental Minimum Rent, if any, determined with respect
to the ninth (9th) Lease Year, if any.
Officer's Certificate: A certificate of Tenant signed by an
officer authorized to so sign by the board of directors or bylaws.
Operating Capacity: The number of beds with which the Facility
will operate and maintain at any given time. As of the Commencement Date,
Operating Capacity is 75 beds. Operating Capacity shall not mean that all beds
must be occupied, but only that such beds must be in operation and available for
occupancy.
10
Overdue Rate: On any date, a rate equal to the Prime Rate on
such date plus two percent (2%), but in no event greater than the maximum rate
then permitted under applicable law.
Permitted Expenditure: As defined in Section 10.5.1.
Person: Means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
Primary Intended Use: As defined in Section 7.1.1.
Prime Rate: On any date, a rate equal to the annual rate on
such date announced by Citibank, N.A. to be its prime rate or base rate for
ninety (90) day unsecured loans to its corporate borrowers of the highest credit
standing.
Quarter: Means, during each Lease Year, the first three (3)
calendar-month period commencing on the first (1st) day of such Lease Year and
each subsequent three (3) calendar-month period within such Lease Year;
provided, however, that the last Quarter during the Term may be a period of less
than three (3) calendar months and shall end on the last day of the Term.
Registered Offering: As defined in Section 23.2.
Related Rights: As defined in Section 2.1.
Rent: Collectively, Minimum Rent and Additional Rent, each as
defined in Article III.
Required Amount: Means, for any Lease Year, the product of the
Minimum Capital Expenditure for such Lease Year multiplied by the then current
Operating Capacity throughout the Required Period.
Required Lease Coverage: Means 1.0.
Required Period: As defined in Section 10.5.2.
11
Required Year: As defined in Section 10.5.1.
Rules: As defined in Exhibit F.
Sanatoga: Means Sanatoga Commons a/k/a Park Lane Commons at
Sanatoga located in Montgomery County, Pennsylvania.
Security Deposit. As defined in Section 8.1.
Simultaneous Lease Coverage: Means (a) the aggregate net
operating income for the Facilities for a given applicable period, determined in
accordance with GAAP applied on a consistent basis, less the sum of (i) an
imputed management fee equal to five percent (5%) of the total aggregate
Facility Revenues for the Facilities for such applicable period and (ii) the
product of the Minimum Capital Expenditure for the applicable Lease Year
multiplied by the total aggregate Operating Capacity for the Facilities adjusted
to the appropriate time period, divided by (b) the total aggregate amount of
Minimum Rent payable under the Simultaneous Leases for such time period.
Simultaneous Leases: Means the Leases set forth on Schedule 3
hereto.
State: The Commonwealth of Pennsylvania.
Tenant: As defined in the Preamble.
Tenant Improvement: As defined in Section 11.1.
Tenant's Personal Property: All machinery, equipment,
furniture, furnishings, movable walls or partitions, phone system, computers or
trade fixtures or other personal property, and consumable inventory and
supplies, owned by Tenant and used or useful in Tenant's business on the Leased
Property, including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, flatware, lawn mowers and other gardening tools,
and tractors and other motorized vehicles.
Term: Collectively, the Initial Term and the Extended Terms,
as the context may require, unless earlier terminated pursuant to the provisions
hereof.
Third MAI Appraiser: As defined in Exhibit C.
12
Unavoidable Delays: Delays due to strikes, lockouts, inability
to procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or other causes beyond
the control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto perform any obligations of such party under this Lease.
Unavoidable Event: As defined in Section 21.2.
Unsuitable For Its Primary Intended Use: A state or condition
of the Facility such that in the good faith judgment of Tenant, reasonably
exercised, the Facility cannot be operated on a commercially practicable basis
for its Primary Intended Use.
ARTICLE II
PROPERTY AND TERM
2.1. Property
Subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant leases from Landlord all of the following
(collectively the "Leased Property"):
(a) that certain tract, piece and parcel of land, as more
particularly described on Exhibit A hereto (the "Land");
(b) all buildings, structures, and other improvements of every
kind now or hereafter located on the Land including, but not
limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines, parking areas and roadways
appurtenant to such buildings and structures presently
situated upon the Land including any Tenant Improvements
(collectively, the "Leased Improvements");
(c) all Fixtures;
(d) all easements, rights and appurtenances relating to the
Land and the Leased Improvements (collectively, the "Related
Rights"); and
(e) all personal property owned by Landlord and located on the
Leased Property ("Landlord's Personal Property").
13
Landlord and Tenant agree that all personal property located on the Leased
Property, or used in the operation of the Facility, as of the Commencement Date,
is owned by the Landlord and is listed on Schedule 4 (Landlord's Personal
Property), with the exception of those certain items (i) owned by Residents on
the Leased Property and (ii) owned by Tenant and identified on Schedule 6
(Tenant's Personal Property). It is hereby acknowledged that there is one (1)
leased vehicle used in connection with the operation of the Leased Property, and
Tenant shall assume such vehicle lease in accordance with Section 5.3 hereof, if
such lease is not already in Tenant's name. In addition, Tenant hereby agrees
that it shall provide appropriate and sufficient transportation services to
Residents of the Leased Property at all times during the Term hereof. Within
thirty (30) days after the end of each Lease Year, Tenant shall prepare a
revised Schedule 4 ("Revised Schedule 4") which shall list all of Landlord's
Personal Property as of the date thereof, including all personal property which
Tenant acquired to replace lost, destroyed, or obsolete Landlord's Personal
Property as required under Section 6.5 hereof.
Landlord and Tenant further agree that the fair market value of Landlord's
Personal Property leased by Tenant pursuant to this Lease accounts for less than
ten percent (10%) of the aggregate fair market value of the Leased Property.
2.2. Initial Term.
The initial term of this Lease shall commence on the
Commencement Date and, unless earlier terminated in accordance with the
provisions of this Lease, shall expire on the day prior to the Tenth (10th)
anniversary of such Commencement Date (the "Initial Term"). However in the event
that the Commencement Date is not the first day of the month, the Initial Term
shall include the remainder of the month which includes the Commencement Date
plus the Ten (10) year period that commences on the first day of the calendar
month following the Commencement Date
2.3. Extended Terms.
Provided that (i) no Event of Default shall have occurred and
be continuing, and (ii) the Lease shall be in full force and effect, Tenant
shall have the right to extend the Term for up to two (2) consecutive extended
terms of five (5) years each (each, an "Extended Term").
Each Extended Term shall commence on the day succeeding the
expiration of the Initial Term or the preceding Extended Term, as the case may
be (any such day, an "Extended Term Commencement Date"), and shall expire on the
day prior to the fifth (5th) anniversary of such Extended Term Commencement
Date. For any Extended Term, the Minimum Rent payable for each Lease Year during
such Extended Term shall be equal to the Minimum Rent payable with respect to
the immediately preceding Lease Year plus the Incremental Minimum Rent
determined with respect to the immediately preceding Lease Year. All of the
other terms, conditions, covenants and provisions of this Lease shall apply for
such Extended Term. If Tenant shall elect to exercise any of the aforesaid
extensions, Tenant shall do so by giving Landlord notice therefore not later
than nine (9) months prior to the expiration of the then current Term, it being
14
agreed that time is of the essence with respect to the giving of such notice.
Tenant may not exercise this extension right with respect to more than one
Extended Term at a time. If Tenant shall fail to give any such notice, this
Lease shall automatically terminate at the end of the then current Term, and
Tenant shall have no further right to extend the Term of this Lease. If Tenant
shall give such notice, the extension of the Lease shall be automatically
effected without the execution of any additional documents; it being understood
and agreed, however, that Tenant and Landlord shall execute such documents and
agreements as either party shall reasonably require to evidence the same.
ARTICLE III
RENT
3.1. Rent.
Tenant shall pay to Landlord, in lawful money of the United
States of America, which shall be legal tender for the payment of public and
private debts, without offset, abatement, demand or reduction, Minimum Rent and
Additional Rent during the Term as hereinafter provided. Payment of Rent during
the Term shall be made at Landlord's address set forth in Section 27.8 or at
such other place or to such other Person as Landlord from time to time may
designate in writing. If any payment owing hereunder shall otherwise be due on a
day that is not a Business Day, such payment shall be due on the next succeeding
Business Day. All payments to Landlord shall be made by corporate check,
certified check, wire transfer of immediately available funds or by such other
method acceptable to Landlord in its sole discretion.
3.2. Minimum Rent.
Except as permitted under Section 3.2.1 for the lag between
the start of the Lease Year and the calculation of Incremental Minimum Rent,
Minimum Rent shall be payable in twelve equal monthly installments on or before
the first (1st) Business Day of each month.
3.2.1. Catch-Up on Incremental Minimum Rent.
Within sixty (60) days after the beginning of each new Lease
Year, Landlord shall deliver to Tenant an Officer's Certificate setting forth
for the Facility (i) the CPI published on or most closely and prior to the first
and last days of the prior Lease Year and (ii) the Incremental Minimum Rent with
respect to the Lease Year just commencing. If the Incremental Minimum Rent
determined with respect to the Lease Year just commencing is greater than zero,
Tenant shall pay to Landlord with the next payment of Minimum Rent or within ten
(10) days following receipt of such notice, whichever is later, the deficiency
in Minimum Rent payable with respect to the current Lease Year up to and
including the date of such Officer's Certificate after giving effect to the
Incremental Minimum Rent with respect to the Lease Year just commencing as set
forth in such Officer's Certificate.
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3.2.2. Record-keeping.
Tenant shall utilize an accounting system for the Leased
Property in accordance with its usual and customary practices and in accordance
with GAAP (applied on a basis consistent with all of the properties subject to
Simultaneous Leases) which will accurately record all Facility Revenues and net
operating income. Tenant shall retain reasonably adequate records for each Lease
Year conforming to such accounting system until at least five (5) years after
the expiration of such Lease Year.
3.2.3. Audits.
Landlord, at its own expense except as provided herein, shall
have the right, but not the obligation, from time to time directly, or through
an accountant, which accountant shall be reasonably approved by Tenant, to audit
any certificates or statements provided by Tenant pursuant to Section 24, and in
connection with such audits to examine Tenant's books and records with respect
thereto (including supporting data, sales tax returns and Tenant's work papers).
3.3. [INTENTIONALLY DELETED].
3.4. Additional Rent
In addition to Minimum Rent, (1) Tenant shall also pay and
discharge when due and payable all other amounts, liabilities, obligations and
Impositions which Tenant assumes or agrees to pay under this Lease, and (2) in
the event of any failure on the part of Tenant to pay any of those items
referred to in clause (1) above, or any Minimum Rent, Tenant shall also pay and
discharge every fine, penalty, interest and cost which may be added for
non-payment or late payment of such items (the items referred to in clauses (1)
and (2) above being referred to herein collectively as the "Additional Rent").
Except as otherwise provided in this Lease, or by applicable law, all Additional
Rent shall be due and payable by Tenant along with the next payment of Minimum
Rent or within ten (10) days after either Landlord or the applicable third party
who may be billing Tenant therefore shall deliver an invoice to Tenant
therefore, whichever is later. To the extent that Tenant pays any Additional
Rent to Landlord pursuant to any requirement of this Lease, Tenant shall be
relieved of its obligation to pay such Additional Rent to the entity to which it
would otherwise be due.
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3.5. Late Payment of Rent.
Tenant hereby acknowledges that late payment by Tenant to
Landlord of Minimum Rent or Additional Rent will cause Landlord to incur costs
not contemplated under the terms of this Lease, the exact amount of which is
presently anticipated to be extremely difficult to ascertain. Such costs may
include processing and accounting charges and late charges which may be imposed
on Landlord by the terms of any mortgage or deed of trust covering the Leased
Property, and other expenses of a similar or dissimilar nature. Accordingly, if
any installment of Minimum Rent or Additional Rent (but only as to those items
of Additional Rent which are payable directly to Landlord) shall not be paid
within five (5) Business Days after its due date, Tenant will pay Landlord on
demand, as Additional Rent, a late charge equal to five percent (5%) of such
installment. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. In addition, if any installment of Minimum Rent or Additional
Rent (but only as to those items of Additional Rent which are payable directly
to Landlord) shall not be paid within five (5) Business Days of its due date,
the amount unpaid shall bear interest, from the due date of such installment to
the date of payment thereof, computed at the Overdue Rate on the amount of such
installment, and Tenant will pay such interest to Landlord within five (5)
Business Days of demand, as Additional Rent. The payment of said late charge or
such interest shall not alone constitute a waiver, nor excuse or cure, of any
default under this Lease, nor prevent Landlord from exercising any other rights
and remedies available to Landlord.
3.6. Net Lease.
The Rent shall be paid absolutely net to Landlord, without
notice or demand and without set-off, counterclaim, recumbent, abatement,
suspension, determent, deduction or defense, so that this Lease shall yield to
Landlord the full amount of the installments of Minimum Rent and Additional Rent
throughout the Term, all as more fully set forth in Article V.
3.7. Income and Expense Prorations.
Income and expense items received or paid with respect to the
period in which the Term terminates shall be adjusted and prorated between
Landlord and Tenant as of the date the Term terminates.
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ARTICLE IV
IMPOSITIONS
4.1. Payment of Impositions.
Subject to Section 17.9, Tenant will pay, or cause to be paid,
all Impositions before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing authorities where
feasible. All payments of Impositions shall be subject to Tenant's right of
contest pursuant to the provisions of Article XIII. Tenant shall promptly
furnish to Landlord copies of official receipts, if available, or other
satisfactory proof evidencing such payments, such as canceled checks.
4.2. Information and Reporting.
Landlord shall give prompt notice to Tenant of all Impositions
payable by Tenant hereunder of which Landlord at any time has knowledge, but
Landlord's failure to give any such notice shall in no way diminish Tenant's
obligations hereunder to pay such Impositions; provided, however, any failure by
Tenant to pay such Impositions within ten (10) days after the date on which
Tenant had actual knowledge or notice of such Impositions shall constitute an
Event of Default hereunder. Landlord and Tenant shall, upon request of the
other, provide such data as is maintained by the party to whom the request is
made with respect to the Leased Property as may be necessary to prepare any
required returns and reports. In the event any applicable governmental
authorities classify any property covered by this Lease as personal property,
Tenant shall file all personal property tax returns in such jurisdictions where
it must legally so file and shall pay all associated personal property taxes.
Each party, to the extent it possesses the same, will provide the other party,
upon request, with cost and depreciation records necessary for filing returns
for any property so classified as personal property.
4.3. Assessment Challenges.
In addition to Tenant's rights under Article XIII but subject
to the requirements thereof, Tenant may, upon notice to Landlord, at Tenant's
option and at Tenant's sole cost and expense, protest, appeal, or institute such
other proceedings as Tenant may deem appropriate to effect a reduction of real
estate or personal property assessments and Landlord, at Tenant's expense as
aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other
action. Any and all such savings, to the extent they accrue during the Term
shall inure to the benefit of Tenant during the Term.
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4.4. Prorations; Payment in Installments.
Impositions imposed in respect of the tax-fiscal period during
which the Term terminates shall be adjusted and prorated between Landlord and
Tenant, whether or not such Imposition is imposed before or after such
termination, and Tenant's obligation to pay its prorated share thereof shall
survive such termination. If any Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Tenant may elect to pay in installments, in
which event Tenant shall pay all installments (and any accrued interest on the
unpaid balance of the Imposition) that are due during and allocable to any
portion of the Term hereof before any fine, penalty, premium, further interest
or cost may be added thereto.
4.5. Refunds.
If any refund shall be due from any taxing authority in
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default shall
be applied as provided in Article XVII.
4.6. Utility Charges.
Tenant shall pay or cause to be paid prior to delinquency
charges for all utilities and services, including, without limitation,
electricity, telephone, trash disposal, gas, oil, water, sewer, communication
and all other utilities used in the Leased Property during the Term.
4.7. Assessment Districts.
Neither party shall voluntarily consent to or agree in writing
to (i) any special assessment or (ii) the inclusion of any material portion of
the Leased Property into a special assessment district or other taxing
jurisdiction unless the other party shall have consented thereto, which consent
shall not be unreasonably withheld.
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ARTICLE V
TENANT WAIVERS
5.1. No Termination or Abatement
Except as otherwise specifically provided in this Lease, to
the extent permitted by law, (i) Tenant shall remain bound by this Lease in
accordance with its terms and shall neither take any action without the consent
of Landlord to modify, surrender or terminate this Lease nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against the
Rent by reason of, and (ii) the respective obligations of Landlord and Tenant
shall not be otherwise affected by reason of:
(a) except as provided in Section 15.2 hereof, any damage to,
or destruction of, the Leased Property or any portion thereof
caused primarily by the actions, omissions, negligence or
intentional misconduct of Tenant;
(b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use or occupancy of the Leased Property, or any
portion thereof, caused primarily by the actions, omissions,
negligence or intentional misconduct of Tenant; or
(c) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee
of Landlord.
Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
(i) to modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant under this Lease shall continue to be payable
in all events unless such obligations shall be terminated pursuant to the
express provisions of this Lease or by termination of this Lease other than by
reason of an Event of Default.
5.2. Condition of Leased Property.
Notwithstanding anything contained in this Lease to the
contrary (including without limitation, the provisions of Section 10.4 hereof),
Tenant acknowledges receipt and delivery of possession of the Leased Property
and that Tenant has examined or otherwise has knowledge of the condition of the
Leased Property prior to the execution and delivery of this Lease. Regardless,
however, of any inspection made by Tenant of the Leased Property and whether or
20
not any patent or latent defect or condition was revealed or discovered thereby,
Tenant is leasing the Leased Property "as is" in its present condition. Tenant
acknowledges that Landlord has simultaneously with execution of this Lease,
purchased the Leased Property from Berks Nursing Homes, Inc., an affiliate of
Tenant ("Berks"), and Tenant hereby agrees that it shall, for all purposes of
this Lease, be deemed to have the same knowledge regarding the Leased Property
as Berks. Tenant waives and releases any claim or action against Landlord in
respect of the condition of the Leased Property including any defects or adverse
conditions latent or patent, matured or unmatured, known or unknown by Tenant or
Landlord as of the date hereof. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER
ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT
MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, INCLUDING ANY WARRANTY
OR REPRESENTATION AS TO (A) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR
USE OR PURPOSE, (B) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (C) THE
EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (D) VALUE, (E) COMPLIANCE WITH
SPECIFICATIONS, (F) LOCATION, (G) USE, (H) CONDITION, (I) MERCHANTABILITY, (J)
QUALITY, (K) DESCRIPTION, (L) DURABILITY, (M) OPERATION, (N) THE EXISTENCE OF
ANY HAZARDOUS MATERIAL OR (O) COMPLIANCE OF THE LEASED PROPERTY WITH ANY LAW
(INCLUDING ANY ENVIRONMENTAL LAW) OR LEGAL REQUIREMENTS. TENANT ACKNOWLEDGES
THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT
AND THAT TENANT IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR
LANDLORD'S AGENTS OR EMPLOYEES. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN THE
LEASED PROPERTY OCCURRING PRIOR TO THE COMMENCEMENT DATE OF ANY NATURE, WHETHER
LATENT OR PATENT, AS BETWEEN LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY
RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT), IT BEING AGREED THAT
ALL SUCH RISKS OCCURRING PRIOR TO THE COMMENCEMENT DATE ARE TO BE BORNE BY
TENANT. THE PROVISIONS OF THIS SECTION 5.2 HAVE BEEN NEGOTIATED, AND ARE
INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD,
EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING
OTHERWISE. To the extent permitted by law, however, Landlord hereby assigns to
Tenant for the Term all of Landlord's rights to proceed against any predecessor
in title for breaches of warranties or representations or for latent defects in
the Leased Property. Landlord shall fully cooperate with Tenant in the
prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's
sole cost and expense. Tenant shall indemnify, defend and hold harmless Landlord
from and against any loss, cost, damage or liability (including reasonable
attorneys' fees and expenses) incurred by Landlord in connection with such
cooperation. Within one hundred eighty (180) days from the Commencement Date,
Tenant shall complete, to the reasonable satisfaction of Landlord and at
Tenant's sole cost and expense, the repairs listed on Schedule 5 hereof.
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5.3. Limitation on Landlord's Liability; Tenant Responsible for Certain
Items Under Transfer Agreement.
It is hereby expressly acknowledged by Tenant, notwithstanding
any provision of this Lease to the contrary, that Landlord shall have no
responsibility or liability under this Lease for any problem, condition or
matter relating to the Leased Property that arises out of, or relates in any way
to (i) a breach of the representations and warranties made by Berks in Section 3
of that certain Conveyance and Transfer Agreement relating to the conveyance of
the Leased Property from Berks to Landlord ("Transfer Agreement"); (ii) any
matter that was not properly disclosed to Landlord by Berks as provided for by
the Transfer Agreement (Landlord hereby acknowledges the proper disclosure of
all matters identified in that certain EMG Property Condition Assessment dated
March 1, 2000, as the same was updated by letter from EMG dated October 4,
2000); or (iii) any condition or pre-existing problem that existed with respect
to the Leased Property prior to Landlord's acquisition thereof from Berks, even
if such condition was not apparent to Landlord and/or Berks prior to closing of
Landlord's acquisition of the Leased Property.
In addition to the foregoing, Tenant hereby (i) acknowledges
and accepts responsibility for the payment of any and all prorations under
Section 8.4 of the Transfer Agreement that are Landlord's responsibility
thereunder, and (ii) represents and warrants that Tenant has accepted an
assignment from Berks of all of the rights and obligations of Berks under and
pursuant to the RLAs (as defined in the Transfer Agreement), the Contract Rights
(as defined in the Transfer Agreement), and the Licenses and Permits (as defined
in the Transfer Agreement), and Tenant hereby agrees to be bound by the terms
thereof. Tenant further acknowledges that it has had an opportunity to review
the Transfer Agreement and Tenant fully understands, accepts and acknowledges
the provisions set forth in this Section 5.3.
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ARTICLE VI
OWNERSHIP OF PROPERTY
6.1. Leased Property.
Tenant acknowledges that the Leased Property is the property
of Landlord and that Tenant has only the right to the exclusive possession and
use of the Leased Property during the Term of and upon the terms and conditions
of this Lease.
6.2. Tenant's Personal Property.
Tenant may (and shall, as provided below), at its expense,
install, affix or assemble or place on the Land or in any of the Leased
Improvements, any items of Tenant's Personal Property, and Tenant may, subject
to the conditions set forth in this Lease, remove the same upon the expiration
or any prior termination of the Term. Tenant shall provide and maintain during
the entire Term all such Tenant's Personal Property as shall be necessary in
order to operate the Facility in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use and in
accordance with its past practices.
6.3. Purchase of Tenant's Personal Property.
Upon the expiration or sooner termination of this Lease,
Landlord shall have the right (but not the obligation) to purchase from Tenant
all or any portion of tangible Tenant's Personal Property (which shall
specifically exclude those items identified on Schedule 6 hereof):
(i) if owned by Tenant and not subject to any secured
financing, at the fair market value thereof;
(ii) if owned by Tenant, but subject to a secured financing,
at the greater of the amount of the debt owing under such
financing and secured exclusively by such property, and the
fair market value thereof; and
(iii) if leased by Tenant and the applicable lease provides
for termination of the lease as to such property upon the
payment of a given sum, at the greater of the amount of the
payment so provided, and the fair market value thereof;
provided, that at Landlord's option and if the lessor of such
Tenant's Personal Property will permit Landlord to assume the
obligations under the applicable lease with respect to such
property (separate from the obligations under a master lease
if in effect), Tenant shall, upon the request of Landlord,
assign the applicable lease (or portion thereof) to Landlord.
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Landlord may elect to purchase Tenant's Personal Property by
giving notice to Tenant not later than, as the case may be, ninety (90) days
prior to the expiration of this Lease or upon the termination of this Lease
following any Event of Default. Tenant shall transfer title to such property by
a bill of sale without warranty (except as to ownership) upon concurrent payment
in cash by Landlord. To the extent that Landlord and Tenant are unable to
reasonably agree on the fair market value of any of Tenant's Personal Property,
the parties shall agree on a mutually acceptable third party appraiser to
determine the fair market value of the items in question, and such value
assigned by the appraiser shall be final and binding on both parties.
6.4. Removal of Personal Property.
All items of Tenant's Personal Property not removed by Tenant
within fourteen (14) days following the expiration or earlier termination of
this Lease shall be considered abandoned by Tenant and may, at Landlord's
discretion and without any obligation, be appropriated, sold, destroyed or
otherwise disposed of by Landlord without first giving notice thereof to Tenant
and without any payment to Tenant and without any obligation to account
therefore. Tenant shall, at its expense, promptly restore the Leased Property to
the condition required by Article X, including repair of all damage to the
Leased Property caused by the removal of Tenant's Personal Property, within
thirty (30) days following expiration or earlier termination of the Lease,
whether effected by Tenant or Landlord. Landlord shall not be responsible for
any loss or damage to Tenant's Personal Property, or any other property of
Tenant, by virtue of Landlord's removal thereof at any time subsequent to the
fourteen (14) day period provided for herein.
6.5. Landlord's Personal Property.
Tenant shall maintain Landlord's Personal Property in the same
manner as Tenant is required to maintain Tenant's Personal Property pursuant to
Section 6.2 hereof. Upon the loss, destruction, or obsolescence of any of
Landlord's Personal Property, Tenant shall replace such property and such
replacement property shall become Landlord's Personal Property and as such shall
be listed on Revised Schedule 4 in lieu of the replaced property.
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ARTICLE VII
USE OF PROPERTY
7.1. Permitted Use.
7.1.1. Primary Intended Use.
Tenant shall, at all times during the Term, and at any other
time Tenant shall be in possession of the Leased Property, continuously use or
cause to be used the Leased Property as an appropriately licensed assisted
living facility operated at full Operating Capacity and for such other uses as
may be necessary or incidental thereto (such use referred to herein as the
Leased Property's "Primary Intended Use"). Notwithstanding whether there are
sufficient Residents to occupy all beds at Operating Capacity, Tenant shall be
required to operate and maintain the Leased Property at full Operating Capacity
unless Landlord shall have provided Tenant with Landlord's express written
consent (which consent may be withheld in Landlord's reasonable discretion) to
operate at less than full Operating Capacity. Tenant shall not use the Leased
Property or any portion thereof for any other use without the prior written
consent of Landlord (which consent may be granted or withheld in Landlord's
reasonable discretion). No use shall be made or permitted to be made of the
Leased Property and no acts shall be done thereon which (a) is reasonably likely
to materially and adversely effect any licenses, permits, approvals or
authorizations relating to the Leased Property and its Primary Intended Use or
(b) will cause the cancellation of any insurance policy covering the Leased
Property or any part thereof (unless another adequate policy is available), nor
shall Tenant sell or otherwise provide to residents or clients therein, or
permit to be kept, used or sold in or about the Leased Property any article
which may be prohibited by law or by fire underwriter's regulations. Tenant
shall, at its sole cost, comply with all of the requirements pertaining to the
Leased Property or other improvements of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Tenant's Personal Property,
including, without limitation, the Insurance Requirements.
7.1.2. Necessary Approvals.
Tenant hereby represents that on or prior to the Commencement
Date, Tenant shall have obtained all approvals necessary to use and operate the
Leased Property and the Facility under applicable local, state and federal law,
for the Primary Intended Use. From and after the Commencement Date, Tenant shall
maintain all approvals necessary to use and operate the Leased Property and the
Facility under applicable local, state and federal law, for the Primary Intended
Use, and without limiting the foregoing, shall maintain, to the extent required
by applicable law, appropriate certifications for reimbursement and licensure.
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7.1.3. Continuous Operation.
Tenant shall continuously operate the Leased Property as a
provider of assisted living services in accordance with its Primary Intended
Use. Tenant will not take or omit to take any action, the taking or omission of
which may materially impair the value or the usefulness of the Leased Property
or any part thereof for its Primary Intended Use. Tenant shall at all times
during the Term, and at any time Tenant shall be in possession of the Leased
Property, continuously operate the facility at its Operating Capacity; provided,
however, Tenant may operate the Facility below its Operating Capacity with the
prior written consent of Landlord (which consent may be granted or withheld in
Landlord's reasonable discretion). Notwithstanding the foregoing, Tenant may,
with Landlord's approval, cease operation of the Facility for a period not to
exceed six (6) months so long as during such period Tenant is constructing a
Tenant Improvement (as hereinafter defined) involving an estimated cost in
excess of Fifty Thousand Dollars ($50,000.00) (as estimated by a licensed
architect selected by Tenant and approved by Landlord in its reasonable
discretion) and subject to the provisions of Article 11 hereof. During any such
period of cessation, Tenant shall continue to pay to Landlord all Minimum Rent
and Additional Rent payable hereunder.
7.1.4. Lawful Use.
Tenant shall not use or suffer or permit the use of the Leased
Property and Tenant's Personal Property for any unlawful purpose. Tenant shall
not commit or suffer to be committed any waste on the Leased Property, or in the
Facility, nor shall Tenant cause or permit any nuisance thereon or therein.
Tenant shall neither suffer nor permit the Leased Property or any portion
thereof, including any Tenant Improvement, or Tenant's Personal Property, to be
used in a such a manner as (i) would impair Landlord's (or Tenant's, as the case
may be) title thereto or to any portion thereof, or (ii) may reasonably make
possible a claim or claims for adverse usage or adverse possession by the
public, as such, or of implied dedication of the Leased Property or any portion
thereof.
Tenant shall give notice to Landlord not later than ten (10)
Business Days after receipt of any notice, claim or demand from any governmental
authority, or any officer acting on behalf thereof, of any material violation of
any law, order, ordinance, rule or regulation with respect to the operation of
the Facility, and Tenant shall immediately commence and diligently pursue the
cure or correction of any such violation to Landlord's satisfaction.
7.2. Compliance with Medicaid and Medicare Requirements.
Tenant shall, at its sole cost and expense, make whatever
improvements (capital or ordinary) as are required to conform the Leased
Property to such standards as may, from time to time, be required by Federal
Medicare (Title 18) or Medicaid (Title 19), if applicable, or any other
applicable programs or legislation, or any applicable programs or legislation or
capital improvements required by any other governmental agency having
jurisdiction over the Leased Property as a condition of the continued operation
of the Leased Property for its Primary Intended Use.
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7.3. Environmental Matters.
Tenant shall not store, spill upon, release, dispose of or
transfer to or from the Leased Property any Hazardous Materials, except that
Tenant may store, transfer and dispose of such Hazardous in compliance with all
applicable Environmental Laws. Tenant shall maintain the Leased Property at all
times free of any Hazardous Materials (except as necessary to Tenant's Primary
Use, and then only in compliance with Environmental Laws, as aforesaid). Tenant
shall, as to the Leased Property, promptly: (a) notify Landlord in writing of
any material change in the nature, extent or use of such Hazardous Materials,
(b) transmit to Landlord copies of any citations, orders, notices or other
material governmental, regulatory or third-party communications received with
respect thereto, (c) observe and comply with any and all Environmental Laws and
all orders or directions from any official, court or agency of competent
jurisdiction relating to the use or maintenance or requiring the removal,
treatment, containment or other disposition of Hazardous Materials, (d) notify
Landlord of any release, discharge, emission, spill, leak, disposal or
transportation of any Hazardous Material on or from the Leased Property in
violation of Section 7.3, and any damage, loss or injury to persons, property or
business resulting or claimed to have resulted therefrom, and (e) pay or
otherwise properly dispose of any fine, charge or Imposition related thereto,
unless Tenant shall in good faith contest the same and the right to use and the
value of the Leased Property is not materially and adversely affected thereby.
Tenant shall, upon demand, pay to Landlord, as Additional Rent, the full amount
of any cost, expense, loss or damage incurred by Landlord and growing out of a
failure of Tenant strictly to observe and perform the foregoing requirements
(including, without limitation, reasonable attorneys' and consultants' fees and
expenses), which amounts will bear interest from the date incurred until paid at
the Overdue Rate.
Tenant shall protect, release, defend, indemnify and hold
harmless Landlord and each Facility Mortgagee from and against any and all
liabilities, obligations, claims, damages, penalties, costs and expenses
(including without limitation, reasonable attorneys' and consultants' fees and
expenses) imposed upon, incurred by or asserted against any of them by reason of
any failure by Tenant or any Person claiming under Tenant to perform or comply
with any of the terms of this Section 7.3. The provisions of this Section 7.3
shall survive the expiration or sooner termination of this Lease for a period of
two (2) years.
7.4. Landlord to Grant Easements.
Landlord shall, from time to time so long as no Event of
Default has occurred and is continuing, at the request of Tenant and at Tenant's
cost and expense (which cost and expense shall include, without limitation,
27
Landlord's reasonable attorneys' fees and expenses relating to any action by
Landlord pursuant to this Section 7.4), subject to the approval of Landlord,
which approval shall not be unreasonably withheld or delayed (i) grant easements
and other rights in the nature of easements; (ii) release existing easements or
other rights in the nature of easements which are for the benefit of the Leased
Property; (iii) dedicate or transfer unimproved portions of the Leased Property
for road, highway or other public purposes; (iv) execute petitions to have the
Leased Property annexed to any municipal corporation or utility district; (v)
execute amendments to any covenants and restrictions affecting the Leased
Property; and (vi) execute and deliver to any Person any instrument appropriate
to confirm or effect such grants, releases, dedications and transfers (to the
extent of its interest in the Leased Property), but only upon delivery to
Landlord of an Officer's Certificate, which Officer's Certificate shall be
accompanied by all documents necessary to enable Landlord to verify the accuracy
of such Officer's Certificate and shall state that such grant, release,
dedication, transfer, petition or amendment (i) is not detrimental to the proper
conduct of the business of Tenant on the Leased Property, (ii) does not reduce
the value or usefulness of the Leased Property for the Primary Intended Use and
(iii) is necessary for the operation of the Facility in accordance with the
Primary Intended Use (and which Certificate, if contested by Landlord, shall not
be binding on Landlord); provided, however, that any withholding of approval by
Landlord to any action pursuant to this Section 7.4 shall be deemed to be
reasonable if Landlord reasonably believes that any such action is not required
in order to operate or continue to operate the Leased Property and Facility in
accordance with its Primary Intended Use. Landlord shall not grant, release,
dedicate or execute any of the foregoing items in this Section 7.4 without
obtaining Tenant's approval, which approval shall not be unreasonably withheld
or delayed.
7.5. Management Agreements.
Throughout the Term, Tenant shall not enter into any
Management Agreement except with a Manager that satisfies the definition of
"Manager" herein, or such other party approved by Landlord in Landlord's
reasonable discretion. Tenant shall provide Landlord with a copy of each
Management Agreement and any other documents relating thereto which Landlord may
reasonably request. Each Management Agreement shall provide that (i) Landlord,
and each Facility Mortgagee, shall receive notice of any defaults thereunder
and, at Landlord's option, an opportunity to cure any such defaults, (ii)
Landlord shall have the right to terminate the Management Agreement upon the
occurrence of an Event of Default hereunder and (iii) Manager shall be obligated
to perform and be bound by the covenants of Tenant contained herein. If Landlord
shall cure any of Tenant's defaults under any Management Agreement, the cost of
any such cure shall be payable upon demand by Landlord to Tenant as Additional
Rent. Tenant shall deliver to Landlord any instrument requested by Landlord to
implement the intent of the foregoing provision. In addition to any other rights
and remedies available to Landlord hereunder, in the event of the occurrence of
an Event of Default hereunder, Landlord shall have the right to terminate any
Management Agreement then in effect and to appoint a manager for the Facility
acceptable to Landlord in its sole discretion.
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7.6. Compliance with Building Service and Property Maintenance
Agreements and Recorded Instruments.
Throughout the Term, Tenant shall comply with and abide by the
terms of any building service or property maintenance agreements and recorded
instruments affecting the Property, including, but not limited to, any and all
reciprocal easement agreements or shared maintenance agreements. Tenants'
obligation to comply with and abide by the terms of such building service and
property maintenance agreements and recorded instruments shall include the
performance of any and all duties or obligations to be performed by the owner of
the Property under such building service or property maintenance agreements and
recorded instruments, including the payment of any sum of money required to be
paid thereunder by the owner of the Property, it being expressly understood and
acknowledged by Tenant that the performance and payment of such obligations
shall be the sole responsibility of Tenant during the Term.
ARTICLE VIII
SECURITY FOR LEASE OBLIGATIONS
8.1. Security Deposit.
On or prior to the Commencement Date, Tenant shall deposit
with Landlord either a letter of credit or cash in the sum of Ninety Four
Thousand and 00/00 Dollars ($94,000.00) representing a security deposit against
the faithful performance of the terms and conditions contained in this Lease
(the "Security Deposit"), which Security Deposit shall be transferable to the
Facility Mortgagee or its successors and assigns in accordance with the
provisions of any Facility Mortgage. As long as no Event of Default has occurred
and is then continuing, and as long as no fact or circumstance currently exists
which, with the giving of notice or the passage of time, would constitute an
Event of Default, then interest on any cash Security Deposit shall be paid by
Landlord to Tenant on a quarterly basis in arrears at a rate of interest per
annum equal to the 90-day Treasury bill rate for segregated accounts, and the
bank pay rate for general accounts.
If Tenant shall elect to provide the Security Deposit in the
form of a letter of credit, such letter of credit shall be unconditional and
irrevocable and shall be provided by a bank acceptable to Landlord. Said letter
of credit shall contain terms whereby it may be drawn upon by Landlord at sight
on any date during the Term or Extended Term on which issuer shall receive from
Landlord a certification signed by Landlord that an Event of Default has
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occurred with respect to Tenant. Any balance left of the sum received from
drawing on the letter of credit, after the correction of any such Event(s) of
Default, shall be held by Landlord as a cash security deposit. In the event that
Landlord shall draw upon any letter of credit provided by Tenant hereunder,
Tenant shall replace the same no later than thirty (30) days after the date of
such drawing. Tenant acknowledges and agrees that it shall keep any letter of
credit posted hereunder in full force and effect throughout the Term and any
Extended Term and for thirty (30) days following the end thereof. In the event
that the term of the letter of credit must be renewed annually, then not more
than thirty (30) days prior to any expiration date of such letter of credit,
Tenant shall provide Landlord with a replacement letter of credit. Should Tenant
fail to provide Landlord with a replacement letter of credit, Landlord shall
have the right to draw on the entire amount of the letter of credit and hold it
as the Security Deposit until the letter of credit is replaced.
Upon the expiration or earlier termination of this Lease,
provided that Tenant shall have met all of its obligations under this Lease, the
Security Deposit shall be returned to Tenant within thirty (30) days of such
expiration or termination.
8.2. Guarantee.
All obligations of Tenant under this Lease shall be
unconditionally and irrevocably guaranteed by Guarantor pursuant to the
Guarantee.
ARTICLE IX
HAZARDOUS MATERIALS
9.1. Remediation.
If Tenant becomes aware of the presence or release of any
Hazardous Material in, on or under the Leased Property or any other property
affected by the Leased Property, in a quantity sufficient to require remediation
or reporting under any Environmental Law, or where remediation is otherwise
necessary to prevent the value of the Leased Property from being materially and
adversely affected, or if Tenant, Landlord, the Leased Property or any property
affected by the Leased Property becomes subject to any order of any court or
federal, state or local agency to investigate, remove, remediate, repair, close,
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detoxify, decontaminate or otherwise clean up the Leased Property or any
property affected by the Leased Property, except to the extent that such
remediation is required to address releases of Hazardous Materials caused solely
by actions of the Landlord, Tenant shall, at its sole expense, carry out and
complete any required response, action, investigation, removal, remediation,
repair, closure, detoxification, decontamination or other cleanup of the Leased
Property or any property affected by the Leased Property in compliance with
applicable laws and prevailing industry practices and standards. Tenant shall
provide Landlord with documentation reasonably acceptable to Landlord evidencing
that all work or other action required hereunder has been properly and lawfully
completed (including a certificate addressed to Lessor from an environmental
consultant reasonably acceptable to Landlord in such detail and form as Landlord
may reasonably require). If Tenant fails to implement and diligently pursue any
such repair, closure, detoxification, decontamination, response, action,
remediation or other cleanup of the Leased Property, or any property affected by
the Leased Property in a timely manner and in compliance with applicable laws
and prevailing industry standards, Landlord shall have the right (in addition to
any other rights of Landlord under this Lease), but not the obligation, to carry
out such action and to recover all of Landlord's actual, documented costs and
expenses (including, without limitation, reasonable attorneys' and consultants'
fees and costs) from Tenant as Additional Rent.
9.2. Tenant's Indemnification of Landlord.
Except with regard to the matters for which Landlord is
responsible as provided in Section 9.1 above, Tenant shall pay, protect,
indemnify, save, release, hold harmless and defend Landlord and each Facility
Mortgagee from and against all liabilities, obligations, claims, damages
(including punitive and consequential damages), penalties, causes of action,
demands, judgments, costs and expenses (including, without limitation,
reasonable attorneys' and consultants' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against Landlord, such
Facility Mortgagee or the Leased Property by reason of any Environmental Law
(irrespective of whether there has occurred any violation of any Environmental
Law) in respect of the Leased Property or any property affected by the Leased
Property howsoever arising, without regard to fault on the part of Tenant,
including (a) liability for response costs and for costs of removal and remedial
action incurred by the United States Government, any state or local governmental
unit or any other Person, or damages from injury to or destruction or loss of
natural resources, including the reasonable costs of assessing such injury,
destruction or loss, incurred pursuant to any Environmental Law, (b) liability
for costs and expenses of abatement, investigation, removal, closure,
remediation, correction or clean-up, fines, damages, response costs or penalties
which arise under the provisions of any Environmental Law, or (c) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity. Landlord shall pay,
protect, indemnify, give, release, hold harmless and defend Tenant from and
against all Claims to the extent such Claims result from releases of Hazardous
Materials at the Leased Property caused by the Landlord after the Commencement
Date.
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9.3. Survival of Indemnification Obligations.
Tenant's obligations or liability under this Article IX
arising during the Term hereof shall survive the expiration or sooner
termination of this Lease for a period of two (2) years.
9.4. Environmental Violations at Expiration or Termination of Lease.
Notwithstanding any other provisions of this Lease, if, at a
time when the Term would otherwise terminate or expire, a violation of any
Environmental Law has been asserted by Landlord or a governmental authority and
has not been resolved in a manner reasonably satisfactory to the applicable
governmental or regulatory authority, if any, and Landlord, or has been
acknowledged by Tenant to exist or has been found to exist at the Leased
Property, or has been asserted by any governmental or regulatory authority or
any other third-party, and failure to have completed all action required to
correct, abate or remediate such a violation of any Environmental Law materially
impairs the leasability of the Leased Property upon the expiration of the Term,
then, at the option of Landlord, the Term shall be automatically extended with
respect to the Leased Property beyond the date of termination or expiration and
this Lease shall remain in full force and effect under the same terms and
conditions until the completion of all remedial action in accordance with
applicable Environmental Laws; provided, however, that Tenant may, upon any such
extension of the Term, terminate the Term by paying to the Landlord such amount
as is necessary in the reasonable judgment of Landlord to complete or perform
such remedial action, which amount shall be held in escrow for remediation on
terms and conditions reasonably acceptable to Landlord, any Facility Mortgagee
and Tenant; any amount not required for remediation shall be remitted to Tenant.
ARTICLE X
MAINTENANCE AND REPAIR
10.1. Tenant's Maintenance and Repair Obligation.
Tenant, at its expense, will keep the Leased Property and
Tenant's Personal Property in good order, repair and appearance (whether or not
the need for such repairs occurs as a result of Tenant's use, any prior use, the
elements, or the age of the Leased Property) in accordance with any applicable
Legal Requirements, and, except as otherwise provided in Article XV, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term (concealed
or otherwise).
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10.2. Waiver of Statutory Obligations.
Landlord shall not under any circumstances be required to
build or rebuild any improvements on the Leased Property, or to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to maintain
the Leased Property in any way. Tenant hereby waives, to the extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to any law in
effect as of the Commencement Date or later enacted.
10.3. Mechanic's Liens.
Nothing contained in this Lease and no action or inaction by
Landlord shall be construed as (i) constituting the consent or request of
Landlord expressed or implied, to any contractor, subcontractor, laborer,
material supplier or vendor to or for the performance of any labor or services
or the furnishing of any materials or other property for the construction,
alteration, addition, repair or demolition of or to the Leased Property or any
part thereof or (ii) giving Tenant any right, power or permission to contract
for or permit the performance of any labor or services or the furnishing of any
materials or other property, in either case, in such fashion as would permit the
making of any claim against Landlord in respect thereof or to make any agreement
that may create, or in any way be the basis for, any right, title, interest,
lien, claim or other encumbrance upon the estate of Landlord in the Leased
Property, or any portion thereof, and Tenant shall promptly remove, discharge or
otherwise satisfy any such right, title, interest, lien, claim or other
encumbrance.
10.4. Surrender of Property.
Unless the Lease shall have been terminated pursuant to the
provisions of Article XV, Tenant shall, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property to Landlord in the
condition in which the Leased Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligation of Tenant to maintain the Leased Property in good
order and repair during the entire Term) and with due consideration being given
to the age of the Leased Property at such time.
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10.5. Required Capital Expenditures.
10.5.1. Required Years; Required Amounts; Permitted
Expenditures.
Notwithstanding anything contained in this Article X or
elsewhere in this Lease to the contrary, during each Lease Year of the Initial
Term and any Extended Term (the "Required Period"), Tenant shall expend an
amount at least equal to the Required Amount for capital expenditures at the
Facility; provided, however, that the Required Amount shall be expended for such
repairs and refurbishments as are required to maintain or restore the Facility
in accordance with the requirements of this Article X (a "Permitted
Expenditure") and in no event shall any expenditures made in respect of a Tenant
Improvement as provided in Article XI hereof be deemed to be a Permitted
Expenditure; provided, however, that the cost of replacement of Landlord's
Personal Property required by Tenant during the Required Period shall be
credited against the Required Amount.
10.5.2. Payment Provisions.
Within forty five (45) days after the end of each Lease Year
during the Required Period, Tenant shall deliver to Landlord an Officer's
Certificate certifying the amount expended in respect of, and providing an
itemized list of, Permitted Expenditures made during such applicable Lease Year
(the "Expended Amount"). At the end of each Lease Year during the Required
Period, the amount, if any, by which the Required Amount exceeds the Expended
Amount for such Lease Year shall be deemed Additional Rent payable in accordance
with Section 3.4 hereof and shall be paid by Tenant to Landlord, with the next
payment of Minimum Rent or within ten (10) days following the end of each Lease
Year during the Required Period, whichever is later, and such amount shall be
placed in an escrow account established by Landlord to be used for Permitted
Expenditures. Any amounts in excess of the Required Amount expended by Tenant in
any Lease Year shall be credited against the Required Amount for the next
succeeding Lease Year; provided; however, no further amounts shall be permitted
to be carried forward with respect to the Lease Year following that Lease Year
unless the amount actually expended by Tenant in that Lease Year, excluding any
amounts previously credited to the Required Amount from the prior Lease Year, is
in excess of the Required Amount for that Lease Year. To the extent that the
Required Amount exceeds the Expended Amount during the final Lease Year of the
Initial Term or Extended Term, as applicable, and to the extent that Tenant has
not paid such excess amount as Additional Rent as aforesaid, Landlord may deduct
such excess prior to the return to Tenant of any portion of the Security Deposit
otherwise required to be returned by Landlord to Tenant pursuant to Section 8.1
hereof); Tenant's obligation to pay such excess as Additional Rent shall survive
the expiration or other termination of this Lease.
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10.5.3. No Liability of Landlord.
In no event shall Landlord be liable to Tenant for the amount,
if any, by which the Expended Amount for any Required Period exceeds the
Required Amount for such Required Period.
ARTICLE XI
TENANT IMPROVEMENTS
11.1. Tenant's Right to Construct.
During the Term of this Lease, Tenant may make alterations,
additions, changes and improvements to the Leased Property (individually, a
"Tenant Improvement," and collectively, "Tenant Improvements"). Except as
otherwise agreed to by Landlord in writing, any such Tenant Improvement shall be
made at Tenant's sole expense and shall become the property of the Landlord upon
termination of this Lease. All Tenant Improvements shall be subject to all of
the following conditions and restrictions:
(a) Unless made on an emergency basis to prevent injury to
person or property, Tenant may not undertake any nonstructural
Tenant Improvement involving an estimated cost in excess of
Fifty Thousand Dollars ($50,000.00) (as estimated by a
licensed architect selected by Tenant and approved by Landlord
in its reasonable discretion) without Landlord's prior written
consent, which consent shall not be unreasonably withheld,
conditioned or delayed; provided, however, that Landlord may
condition its consent to any proposed Tenant Improvement on
the receipt of a writing in form and substance reasonably
acceptable to Landlord evidencing Tenant's covenant to restore
the Leased Property to its condition as of the time
immediately prior to the construction of such proposed Tenant
Improvement and any such condition shall not be deemed to be
unreasonable; and provided further, however, that Tenant shall
provide notice to Landlord of any Tenant Improvement
undertaken without its consent as soon as practicable and
Landlord may, within thirty (30) days after receipt of any
such notice, demand from Tenant a writing in form and
substance reasonably acceptable to Landlord evidencing
Tenant's covenant to restore the Leased Property to its
condition as of the time immediately prior to the construction
of any such Tenant Improvement undertaken without Landlord's
consent and Tenant shall, within ten (10) days after receipt
of any such demand from Landlord, provide such a writing to
Landlord.
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(b) Unless made on an emergency basis to prevent injury to
person or property, no structural alteration shall be
undertaken without Landlord's prior written consent, which
consent shall not be unreasonably withheld, conditioned or
delayed; provided, however, that Landlord may condition its
consent to any proposed Tenant Improvement on the receipt of a
writing in form and substance reasonably acceptable to
Landlord evidencing Tenant's covenant to restore the Leased
Property to its condition as of the time immediately prior to
the construction of such proposed Tenant Improvement and any
such condition shall not be deemed to be unreasonable; and
provided further, however, that Tenant shall provide notice to
Landlord of any Tenant Improvement undertaken without its
consent as soon as practicable and Landlord may, within thirty
(30) days after receipt of any such notice, demand from Tenant
a writing in form and substance reasonably acceptable to
Landlord evidencing Tenant's covenant to restore the Leased
Property to its condition as of the time immediately prior to
the construction of any such emergency Tenant Improvement and
Tenant shall, within ten (10) days after receipt of any such
demand from Landlord, provide such a writing to Landlord.
(c) The written consent of any Facility Mortgagee with respect
to the Facility must be obtained before the commencement of
any work hereunder whenever such consent is required by the
Facility Mortgage.
(d) The reasonable cost and expense of Landlord's and the
Facility Mortgagee's review of any plans and specifications
required to be furnished to Landlord or the Facility Mortgagee
pursuant to Section 11.2 hereof shall be paid by Tenant to
Landlord as Additional Rent.
(e) The provisions of Section 11.2 hereof shall apply to any
work performed by Tenant pursuant to this Article XI.
11.2. Construction
Tenant agrees that:
(a) Tenant shall diligently seek all governmental approvals
relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently prosecute any such
construction to completion in accordance with applicable
Insurance Requirements and the laws, rules and regulations of
all governmental bodies or agencies having jurisdiction over
the Leased Property;
(c) Landlord and Tenant shall have the right at any time and
from time to time to post and maintain upon the Leased
Property such notices as may be necessary to protect their
respective interests from mechanics' liens, material
supplier's liens or liens of a similar nature;
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(d) Tenant shall not suffer or permit any mechanics' liens or
any other claims or demands arising from the work of
construction of any Tenant Improvement to be enforced against
the Leased Property or any part thereof, and Tenant agrees to
hold Landlord, each Facility Mortgagee and the Leased Property
free and harmless from all liability from any such liens,
claims or demands, together with all costs and expenses in
connection therewith;
(e) All work shall be performed in a good and workmanlike
manner and in accordance with any plans and specifications
therefore which shall have been approved by Landlord in its
reasonable discretion and the Facility Mortgagee if required
by the Facility Mortgage.
(f) If the Tenant Improvement shall involve (i) more than
Fifty Thousand Dollars ($50,000.00) (as estimated by a
licensed architect selected by Tenant and approved by Landlord
in its reasonable discretion) and requiring Tenant to obtain a
building or other permit prior to the commencement of any such
Tenant Improvement or (ii) any structural repair, alteration,
restoration or other work, then no work on such Tenant
Improvement shall be commenced until detailed plans and
specifications (including layout, architectural, mechanical
and structural drawings), prepared by a licensed architect
selected by Tenant and reasonably satisfactory to Landlord
shall have been submitted to and approved by Landlord and any
applicable Facility Mortgagee;
(g) No Tenant Improvement costing more than Fifty Thousand
Dollars ($50,000.00) (as estimated by a licensed architect
selected by Tenant and approved by Landlord in its reasonable
discretion) shall be undertaken except under the supervision
of a licensed architect retained at Tenant's expense
reasonably satisfactory to Landlord;
(h) No Tenant Improvement costing more than Fifty Thousand
Dollars ($50,000.00) (as estimated by a licensed architect
selected by Tenant and approved by Landlord in its reasonable
discretion) shall be commenced until Tenant shall have
obtained and delivered to Landlord, at Tenant's expense, a
performance bond and a labor and materials payment bond
(issued by a corporate surety licensed to do business in the
State in which the Leased Property is located and reasonably
satisfactory to Landlord), each in an amount equal to the
estimated cost of such Tenant Improvement (as estimated by a
licensed architect selected by Tenant and approved by Landlord
in its reasonable discretion) and in form otherwise reasonably
satisfactory to Landlord; and
(i) Any Tenant Improvement shall be subject to inspection at
any time and from time to time by Landlord or the applicable
Facility Mortgagee or the duly authorized representatives of
either, and if upon such inspection, Landlord or such Facility
Mortgagee shall reasonably be of the opinion that the Tenant
Improvement is not being constructed in accordance with the
requirements of this Article XI, then Tenant shall promptly
correct any such failure to comply with such requirements.
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11.3. Scope of Tenant's Right.
Subject to Section 11.1 and Section 11.2, at Tenant's cost and
expense, Tenant shall have the right to seek any governmental approvals,
including building permits, licenses, conditional use permits and any
certificates of need that Tenant requires to construct any Tenant Improvement.
11.4. Cooperation of Landlord.
Landlord shall cooperate with Tenant and take such actions,
including the execution and delivery to Tenant of any applications or other
documents, reasonably requested by Tenant in order to obtain any governmental
approvals sought by Tenant to construct any Tenant Improvement within ten (10)
Business Days following the later of (a) the date Landlord receives Tenant's
request, or (b) the date of delivery of any such application or document to
Landlord, so long as the taking of such action, including the execution of said
applications or documents, shall be without cost to Landlord (or if there is a
cost to Landlord, such cost shall be reimbursed by Tenant), and will not cause
Landlord to be in violation of any law, ordinance or regulation.
11.5. Rights in Tenant Improvements.
Notwithstanding anything to the contrary in this Lease, all
Tenant Improvements constructed pursuant to this Article XI, and any and all
subsequent additions thereto and alterations and replacements thereof, shall be
the sole and absolute property of Tenant during the Term of this Lease. Upon the
expiration or early termination of this Lease, all such Tenant Improvements
shall become the property of Landlord. Without limiting the generality of the
foregoing, Tenant shall be entitled to all federal and state income tax benefits
associated with any Tenant Improvement during the Term of this Lease.
ARTICLE XII
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
12.1. Liens.
Subject to the provisions of Article XIII relating to
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of Rent, not including,
however:
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(a) this Lease;
(b) the matters, if any, that existed as of the Commencement
Date;
(c) restrictions, liens and other encumbrances which are
created or granted or consented to in writing by Landlord, or
any easements granted pursuant to the provisions of Section
7.4;
(d) liens for those taxes of Landlord which Tenant is not
required to pay hereunder;
(e) subleases permitted by Article XXIII;
(f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as (1) the same
are not yet payable or are payable without the addition of any
fine or penalty or (2) such liens are in the process of being
contested as permitted by Article XIII;
(g) liens of mechanics, laborers, material supplier, suppliers
or vendors for sums either disputed (provided that such liens
are in the process of being contested as permitted by Article
XIII) or not yet due;
(h) any liens which are the responsibility of Landlord
pursuant to the provisions of Article XV; and
(i) any judgment or other liens against Landlord which are not
related to the occurrence of an Event of Default by Tenant.
12.2. Encroachments and Other Title Matters.
Excepting any matters granted or created by Landlord with
respect to the Leased Property and excepting matters that do not have a material
adverse effect on the use of the Leased Property for the Primary Intended Use,
if the Leased Improvements shall, at any time, encroach upon any property,
street or right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or other
agreement affecting the Leased Property, or any easement or right-of-way to
which the Leased Property is subject, or the use of the Leased Property is
impaired, limited or interfered with by reason of the exercise of the right of
surface entry or any other rights under a lease or reservation of any oil, gas,
water or other minerals, then promptly upon the request of Landlord or at the
behest of any Person affected by any such encroachment, violation or impairment,
Tenant, at its sole cost and expense (subject to its right to contest the
existence of any such encroachment, violation or impairment), shall protect,
indemnify, save harmless and defend Landlord from and against all losses,
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) based on or arising by reason of any such encroachment, violation or
impairment and in such case, in the event of an adverse final determination,
either (i) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
39
impairment, whether the same shall affect Landlord or Tenant; or (ii) make such
changes in the Leased Improvements, and take such other actions, as Tenant in
the good faith exercise of its judgment deems reasonably practicable, to remove
such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements, and in any event
take all such actions as may be necessary in order to be able to continue the
operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation or encroachment. Tenant's obligations under this
Section 12.2 shall be in addition to and shall in no way discharge or diminish
any obligation of any insurer under any policy of title or other insurance and
Tenant shall be entitled to a credit for any sums recovered by Landlord under
any such policy of title or other insurance.
ARTICLE XIII
PERMITTED CONTESTS
Tenant, on its own behalf (in its own name or in Landlord's
name) but at Tenant's expense, may contest, by appropriate legal proceedings
conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim not otherwise permitted by Section 12.1, provided that:
(a) in the case of an unpaid Imposition, lien, attachment,
levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Leased Property, and
neither the Leased Property nor any Rent therefrom nor any
part thereof or interest therein would be in any danger of
being sold, forfeited, attached or lost pending the outcome of
such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be
subject to criminal or civil liability for failure to comply
therewith pending the outcome of such proceedings. Nothing in
this Section 13(b), however, shall permit Tenant to delay
compliance with any requirement of an Environmental Law to the
extent such non-compliance poses an immediate threat of injury
to any Person or to the public health or safety or of material
damage to any real or personal property;
(c) in the case of a Legal Requirement or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable
security, if any, as may be demanded by Landlord to insure
ultimate payment of the same and to prevent any sale or
forfeiture of the Leased Property or the Rent by reason of
such non-payment or noncompliance, provided, however, the
provisions of this Article XIII shall not be construed to
permit Tenant to contest the payment of Minimum Rent and
Additional Rent payable to Landlord or any other sums payable
by Tenant to Landlord hereunder;
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(d) no such contest shall interfere in any material respect
with the use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the coverage
required by Article XIV shall be maintained; and
(f) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Rent due hereunder,
promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the
applicable Legal Requirement or Insurance Requirement.
Landlord, at Tenant's request, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall reimburse Landlord for, and
indemnify and save Landlord and each Facility Mortgagee harmless, against, any
liability, cost or expense of any kind that may be imposed upon Landlord or such
Facility Mortgagee in connection with any such contest and any loss resulting
therefrom.
ARTICLE XIV
INSURANCE
14.1. General Insurance Requirements.
During the Term, Tenant shall at all times keep the Leased
Property, and all property located in or on the Leased Property, including all
Tenant's Personal Property and any Tenant Improvements (collectively, the
"Insured Property"), insured with the kinds and amounts of insurance described
below. With the exception of the first Five Hundred Thousand Dollars ($500,000)
of general and professional liability coverage to be provided by Liberty Health
Corp., all insurance required hereby shall be written by companies authorized to
do insurance business in the State. The policies must name Landlord as an
"Additional Insured." Losses shall be payable as provided in Article XV. In
addition, the policies shall name as an additional insured any Facility
Mortgagee by way of a standard form of mortgagee's loss payable endorsement. Any
loss adjustment shall require the written consent of Landlord, Tenant, and each
Facility Mortgagee. Evidence of insurance shall be deposited with Landlord and,
if requested, with any Facility Mortgagee(s). The policies on the Leased
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Property, including the Leased Improvements, Fixtures, Tenant's Personal
Property and any Tenant Improvements, shall insure against the following risks
and in the amounts set forth below (or such greater amounts as may be required
by a Facility Mortgagee). In no event shall Tenant be permitted to self-insure,
except with respect to worker's compensation and the first Five Hundred Thousand
Dollars ($500,000) of general and professional liability coverage, which
coverage shall be provided by Liberty Health Corp., a related entity to
Guarantor.
14.1.1. All Risk.
Loss or damage by all risks perils including but not limited
to, fire, vandalism, malicious mischief and extended coverages, including but
not limited to, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then Full Replacement Cost thereof.
14.1.2. Liability.
Claims for personal injury or property damage under a policy
of comprehensive general liability insurance with amounts not less than Ten
Million Dollars ($10,000,000.00) per occurrence and in the aggregate.
14.1.3. Flood.
Flood (when the Leased Property is located in whole or in
material part in a designated flood plain area) and such other hazards and in
such amounts as may be customary for comparable properties in the area.
14.1.4. Worker's Compensation.
Adequate worker's compensation insurance coverage or qualified
self-insurance for all Persons employed by Tenant and all of Tenant's agents or
contractors on the Leased Property in accordance with the requirements of
applicable federal, state and local laws.
14.1.5. Business Interruption.
Loss due to business interruption in an amount, for any Lease
Year, equal to all loss and damages incurred by Tenant from the date of such
loss or damage until the date the Facility is stabilized at the level existing
as of the date of the original business interruption; provided, however, the
minimum amount of business interruption coverage to be carried by Tenant
hereunder shall be no less than the Minimum Rent payable with respect to any
such Lease Year.
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14.1.6. Builder's Risk.
Loss or damage during times of construction on any portion of
the Leased Property (including, without limitation, any period of construction
pursuant to Article XI hereof).
14.1.7. Boiler and Machinery.
Loss due to any boiler or machinery (including related
electrical apparatus and components) casualty under a standard comprehensive
form, providing coverage against loss or damage caused by explosion of steam
boilers, pressure vessels or similar vessels, now or hereafter installed at the
Facility, in limits reasonably acceptable to Landlord, and in amounts as are
generally carried for properties similar to the Leased Property.
14.1.8. Earthquake.
Loss due to earthquake (if such coverage is reasonably deemed
necessary by Landlord and reasonably available to Tenant in the State) in limits
reasonably acceptable to Landlord.
14.1.9. Environmental Impairment.
[INTENTIONALLY OMITTED]
14.1.10. Subsidence.
Loss due to subsidence (if reasonably deemed necessary by
Landlord) in limits reasonably acceptable to Landlord.
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14.1.11. Other Insurance.
Such additional insurance on or in connection with the Leased
Property as (i) is required under the current Facility Mortgage encumbering the
Leased Property, or (ii) as Landlord or any Facility Mortgagee may reasonably
require, which in the case of clause (ii) at the time is usual and commonly
obtained in connection with the properties similar in type of building size and
use to the Leased Property and located in the geographic area where the Leased
Property is located as Landlord shall reasonably require, and in the event, and
so long as, a loan to Landlord secured by the Leased Property, from any Facility
Mortgagee ("Loan"), is outstanding, Tenant agrees to purchase and maintain such
commercially reasonable insurance coverage as may be required by such Facility
Mortgagee, subject to availability and further discussion by Landlord and Tenant
regarding payment of the cost therefor. While the Loan is outstanding, the
provisions of the Facility Mortgage and other loan documents shall govern the
purchase and maintenance of insurance and the application of the proceeds of
insurance, notwithstanding the provisions of the Lease, provided, however,
Landlord shall be obligated to give any notices required to be given to the
Facility Mortgagee under the Facility Mortgage; provided, further, the
provisions of the Lease, shall control with respect to business interruption
insurance.
14.2. Replacement Cost.
In the event either party believes that the Full Replacement
Cost of the Insured Property has increased at any time during the Term, it shall
have the right to have such Full Replacement Cost re-determined by a qualified
appropriate party (the "Appraiser"). The party desiring to have the Full
Replacement Cost so re-determined (the "Appraising Party") shall forthwith, on
receipt of such determination by such Appraiser, give written notice thereof to
the other party hereto. The determination of such Appraiser shall be subject to
negotiation for a period of ten (10) days after which, if the parties cannot
come to an agreement, the non-Appraising Party shall have such Full Replacement
Cost re-determined by the insurance company through which the non-Appraising
Party is then carrying hazard insurance on the Leased Property (the "Second
Appraiser"). The determination of such Second Appraiser shall be subject to
negotiation for a period of ten (10) days after which, if the parties cannot
come to an agreement, the Full Replacement Cost shall be re-determined by an
appraiser chosen jointly by the Appraiser and the Second Appraiser (the
"Impartial Appraiser"). The determination of the Impartial Appraiser shall be
final and binding on both Landlord and Tenant. If the re-determination of Full
Replacement Cost, as finally agreed upon or determined, indicates that Full
Replacement Cost has increased, Tenant shall forthwith increase the amount of
insurance carried pursuant to this Article 14 to the amount so agreed upon or
determined. The Appraising Party shall pay the fee, if any, of the Appraiser,
the non-Appraising Party shall pay the fee, if any, of the Second Appraiser and
Landlord and Tenant shall each pay one-half (1/2) of the fee, if any, of the
Impartial Appraiser.
14.3. Waiver of Subrogation.
Landlord and Tenant waive their respective right of recovery
against the other to the extent damage or liability is insured against under a
policy or policies of insurance. All insurance policies carried by either party
covering the Leased Property including the contents and fire insurance (but not
casualty), shall expressly waive any right of subrogation on the part of the
insurer against the other party (including any Facility Mortgagee). The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so.
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14.4. Insurance Company Satisfactory.
All of the policies of insurance referred to in Section 14.1
shall be written by an insurance company licensed and in good standing in the
State and rated not less than A:X by A.M. Best Co. (or such higher rating as may
be required by a Facility Mortgagee), except that it is hereby agreed by
Landlord and Tenant that the first Five Hundred Thousand Dollars ($500,000) of
general and professional liability coverage may be provided by Liberty Health
Corp. as set forth in Section 14.1. In addition, all insurance carried by Tenant
hereunder shall have deductible amounts which are reasonably acceptable to
Landlord. Tenant shall pay all premiums for the policies of insurance referred
to in Section 14.1 and shall deliver certificates thereof to Landlord prior to
their effective date (and with respect to any renewal policy, at least thirty
(30) days prior to the expiration of the existing policy). In the event Tenant
fails to satisfy its obligations under this Section 14.4, Landlord shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefore, which premiums shall be repayable to Landlord upon written
demand as Additional Rent. Each insurer mentioned in Section 14.1 shall agree,
by endorsement on the policy or policies issued by it, or by independent
instrument furnished to Landlord, that it will give to Landlord thirty (30)
days' written notice before the policy or policies in question shall be altered,
allowed to expire or canceled. Each such policy shall also provide that any loss
otherwise payable thereunder shall be payable notwithstanding (i) any
foreclosure or other action or proceeding taken by any Facility Mortgagee
pursuant to any provision of a mortgage, note, assignment or other document
evidencing or securing a loan upon the happening of an event of default therein
or (ii) any change in title to or ownership of the Leased Property, provided
that the name of the new owner shall be provided to the insurance company.
14.5. Change in Limits.
In the event that Landlord shall at any time reasonably, and
in good faith, determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Section 14.1.2 is
insufficient, the parties shall endeavor to agree on the proper and reasonable
limits for such insurance to be carried; and such insurance shall thereafter be
carried with the limits thus agreed on until further changed pursuant to the
provisions of this Section 14.5. Notwithstanding the foregoing, the deductibles
for such insurance or the amount of such insurance which is self-retained by
Tenant shall be as reasonably determined by Tenant so long as Tenant can
reasonably demonstrate its ability to satisfy such deductible or amount of such
self-retained insurance.
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14.6. Blanket Policy.
Notwithstanding anything to the contrary contained in this
Article XIV, Tenant's obligations to carry the insurance provided for herein may
be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all other
requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article XIV are
otherwise satisfied. The amount of the total insurance shall be specified either
(i) in each such "blanket" or umbrella policy or (ii) in a written statement,
which Tenant shall deliver to Landlord and Facility Mortgagee, from the insurer
thereunder. A certificate of each such "blanket" or umbrella policy shall
promptly be delivered to Landlord and Facility Mortgagee.
ARTICLE XV
APPLICATION OF INSURANCE PROCEEDS
15.1. Insurance Proceeds.
Subject to the requirements of any Facility Mortgage, all
proceeds of insurance payable by reason of any loss or damage to the Leased
Property, or any portion thereof, and insured under any policy of insurance
required by Article XIV or under any other insurance carried by Tenant shall (i)
if greater than Two Hundred Fifty Thousand Dollars ($250,000), be paid to
Landlord and held by Landlord and (ii) if less than such amount, be paid to
Tenant and held by Tenant. All such proceeds shall be held in trust and shall be
made available for reconstruction or repair, as the case may be, of any damage
to or destruction of the Leased Property, or any portion thereof.
15.1.1. Disbursement of Proceeds.
Any proceeds held by Landlord or Tenant shall be paid out by
Landlord or Tenant from time to time for the reasonable costs of such
reconstruction or repair; provided, however, that, subject to the requirements
of any Facility Mortgagee, and subject further to the following requirements:
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(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the
restoration shall have been approved by Landlord, which
approval shall not be unreasonably withheld or delayed and (B)
appropriate waivers of mechanics' and material supplier's
liens shall have been filed, if and to the extent permissible
in the State;
(ii) at the time of any disbursement, subject to Article XIII,
no mechanics' or material supplier's liens shall have been
filed against the Leased Property and remain undischarged,
unless a satisfactory bond shall have been posted in
accordance with the laws of the State;
(iii) prior to completion of the restoration, Landlord shall
be authorized to holdback, as a reserve against future
disbursements, ten percent (10%) of such proceeds;
(iv) if Landlord shall reasonably determine that the proceeds
are not sufficient to cover the total cost of the restoration,
Tenant shall be obligated to deposit with Landlord the amount
of such shortfall immediately upon receiving written notice
thereof from Landlord;
(v) disbursements shall be made from time to time in an amount
not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence, of
the stage of completion, the estimated total cost of
completion and performance of the work to date in a good and
workmanlike manner in accordance with the contracts, plans and
specifications, (B) waivers of liens to the extent that a
general waiver was not previously provided, (C) a satisfactory
bring-down of title insurance and (D) other evidence of cost
and payment so that Landlord and Facility Mortgagee can verify
that the amounts disbursed from time to time are represented
by work that is completed, in place and free and clear of
mechanics' and material supplier's lien claims;
(vi) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by an authorized officer of
Tenant, describing the work for which payment is requested,
stating the cost incurred in connection therewith, stating
that Tenant has not previously received payment for such work
and, upon completion of the work, also stating that the work
has been fully completed and complies with the applicable
requirements of this Lease;
(vii) to the extent actually held by Landlord and not by a
Facility Mortgagee, (A) the proceeds shall be held in a
separate account and shall not be commingled with Landlord's
other funds, and (B) interest shall accrue on funds so held at
the money market rate of interest and such interest shall
constitute part of the proceeds; and
(viii) such other reasonable conditions as Landlord may
reasonably impose, or such other conditions as may be required
by a Facility Mortgagee, including, without limitation,
payment by Tenant of reasonable costs of administration
imposed by or on behalf of Facility Mortgagee should the
proceeds be held by Facility Mortgagee.
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15.1.2. Excess Proceeds.
Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property (or in
the event neither Landlord nor Tenant is required or elects to repair and
restore) shall be paid to Tenant, upon completion of any such repair and
restoration except as otherwise specifically provided below in this Article XV.
All salvage resulting from any risk covered by insurance shall belong to
Landlord except to the extent relating to Tenant's Personal Property.
15.2. Reconstruction Covered by Insurance.
15.2.1. Destruction Rendering Facility Unsuitable for its
Primary Intended Use.
If during the Term the Leased Property is totally or partially
destroyed and the Facility thereby is rendered Unsuitable For Its Primary
Intended Use, Tenant shall diligently restore the Facility to substantially the
same condition as existed immediately before the damage or destruction;
provided, however, if the Facility cannot be fully repaired or restored within a
twelve (12) month period from the date of damage or destruction to substantially
the same condition as existed immediately before the damage or destruction, then
Tenant may terminate this Lease by giving Landlord written notice of such
termination within sixty (60) days after the date of such damage or destruction,
and the effective date of such termination shall be thirty (30) days following
such notice of termination; provided, however, that if (i) Landlord notifies
Tenant in writing within fifteen (15) days after Landlord's receipt of Tenant's
notice of termination that Landlord intends to restore the Facility to
substantially the same condition as existed immediately before the damage and
destruction, and (ii) Landlord diligently commences and prosecutes such
restoration and completes such restoration within fourteen (14) months after the
date of damage or destruction, then Tenant's election to terminate this Lease
shall be deemed rescinded and this Lease shall remain in full force and effect.
Upon any such termination of this Lease by Tenant or upon Landlord's election to
restore the Facility as provided in this section, Landlord shall be entitled to
retain all insurance proceeds, grossed up by Tenant to account for any
deductible; provided, further, that Tenant shall be entitled to retain or
receive all insurance proceeds relating to Tenant's Personal Property and the
Tenant Improvements to the extent that same is not Landlord's Personal Property
or has not been deemed Landlord's Personal Property pursuant to Section 6.5
hereof.
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15.2.2. Destruction Not Rendering Facility Unsuitable for its
Primary Intended Use.
If during the Term, the Leased Property is partially destroyed
but the Facility is not thereby rendered Unsuitable For Its Primary Intended
Use, Tenant shall diligently restore the Facility to substantially the same
condition as existed immediately before the damage or destruction; provided,
however, Tenant shall not be required to restore Tenant's Personal Property or
any Tenant Improvements if failure to do so does not adversely affect the amount
of Additional Rent payable hereunder. Such damage or destruction shall not
terminate this Lease; provided further, however, if Tenant and Landlord cannot
within twelve (12) months after said damage obtain all necessary governmental
approvals, including building permits, licenses, conditional use permits and any
certificates of need, after diligent efforts to do so, necessary to be able to
perform all required repair and restoration work to restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction, Tenant may terminate this Lease upon thirty (30) days prior written
notice to Landlord; provided further, however, if Landlord notifies Tenant in
writing within fifteen (15) days after Landlord's receipt of Tenant's notice of
termination that Landlord intends to restore the Facility to substantially the
same condition as existed immediately before the damage and destruction, and
(ii) Landlord diligently commences and prosecutes such restoration and completes
such restoration within twelve (12) months after the date of Tenant's notice of
termination, then Tenant's election to terminate this Lease shall be deemed
rescinded and this Lease shall remain in full force and effect. Upon any such
termination of this Lease by Tenant or upon Landlord's election to restore the
Facility as provided in this section, Landlord shall be entitled to retain all
insurance proceeds, grossed up by Tenant to account for any deductible;
provided, further, that Tenant shall be entitled to retain or receive all
insurance proceeds relating to Tenant's Personal Property and the Tenant
Improvements to the extent that same is not Landlord's Personal Property or has
not been deemed to be Landlord's Personal Property pursuant to Section 6.5
hereof.
15.2.3. Costs of Repair.
If Tenant elects to restore the Facility as provided in
Section 15.2.1 or Section 15.2.2 above and the cost of the repair or restoration
exceeds the amount of proceeds received by Landlord or Tenant from the insurance
required under Article XIV, Tenant shall pay for such excess cost of repair or
restoration. If Landlord elects to restore the Facility as provided in Section
15.2.1 or Section 15.2.2 above and the cost of the repair or restoration exceeds
the amount or proceeds received by Landlord as provided in those sections,
Landlord shall pay for such excess cost of repair or restoration.
15.3. No Abatement of Rent.
Except as otherwise provided in Section 15.2.1 or Section
15.2.2 above, this Lease shall remain in full force and effect and Tenant's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the period required for repair and
restoration; provided, however, that if there is no Event of Default, Tenant
shall be entitled to retain any proceeds of rental value or business
interruption insurance coverage.
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15.4. Waiver.
Tenant hereby waives any statutory rights of termination which
may arise by reason of any damage or destruction of the Facility which Landlord
or Tenant is obligated to restore or may restore under any of the provisions of
this Lease.
15.5. Damage Near End of Term.
Notwithstanding any other provision to the contrary in this
Article XV, if damage to or destruction of the Leased Property occurs during the
last twelve (12) months of the Term, and if such damage or destruction cannot
reasonably be expected to be fully repaired or restored prior to the date that
is six (6) months prior to the end of the then-applicable Term, then Landlord or
Tenant shall have the right to terminate this Lease on thirty (30) days' prior
notice to the other party by giving notice thereof to the other party within
sixty (60) days after the date of such damage or destruction. Upon any such
termination, Landlord shall be entitled to retain all insurance proceeds,
grossed up by Tenant to account for the deductible or any self-insured
retention; provided however, that Tenant shall be entitled to retain or receive
all insurance proceeds relating to Tenant's Personal Property and Tenant
Improvements.
15.6. Proceeds Paid to Facility Mortgagee
If during the Term, the Leased Property is totally or
partially destroyed and the Facility is thereby rendered Unsuitable For Its
Primary Intended Use as a result of damage or destruction and the Facility
Mortgagee elects to retain the proceeds of insurance in satisfaction of the
Facility Mortgage rather than disbursing such proceeds for the cost of
reconstruction or repair and Landlord has not elected to make funds equal to
such proceeds available for the cost of reconstruction or repair, Tenant may
terminate this Lease by giving Landlord written notice of such termination
within thirty (30) days after the date Landlord elects not to make funds equal
to such proceeds available for the cost of reconstruction or repair and the date
of such termination shall be the date of such election by Landlord. If during
the Term, the Leased Property is partially damaged or destroyed and the Leased
Property is not rendered Unsuitable For Its Primary Intended Use and Facility
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Mortgagee elects to retain the proceeds of insurance in satisfaction of the
Facility Mortgage rather than disbursing such proceeds for the cost of
reconstruction or repair and Landlord has not elected to make funds equal to
such proceeds available for the cost of reconstruction or repair, Tenant may
terminate this Lease by giving Landlord written notice of such termination
within thirty (30) days after the date Landlord elects not to make funds equal
to such proceeds available for the cost of reconstruction or repair, Rent
hereunder shall be equitably adjusted to account for the effect of such damage
and destruction on the suitability of the Leased Premises for its Primary
Intended Use. In the event that the Facility Mortgagee fails to disburse
insurance proceeds for the cost of reconstruction, Landlord hereby agrees that
it shall notify Tenant within ninety (90) days following the destruction as to
whether it will make funds equal to such proceeds available for reconstruction,
and the failure of Landlord to provide such notice within such ninety (90) day
period shall be deemed to constitute notice of Landlord's intention not to make
funds available for reconstruction.
ARTICLE XVI
CONDEMNATION
16.1. Total Taking.
If at any time during the Term the Leased Property is totally
and permanently taken by Condemnation, this Lease shall terminate on the Date of
Taking and Tenant shall promptly pay all outstanding rent and other charges
through the date of termination.
16.2. Partial Taking.
If a portion of the Leased Property is taken by Condemnation,
this Lease shall remain in effect if the Facility is not thereby rendered
Unsuitable For its Primary Intended Use, but if the Facility is thereby rendered
Unsuitable For Its Primary Intended Use, this Lease shall terminate on the Date
of Taking.
16.3. Restoration.
If there is a partial taking of the Leased Property and the
Lease remains in full force and effect pursuant to Section 16.2, Landlord at its
cost shall accomplish all necessary restoration up to but not exceeding the
amount of the Award payable to Landlord, as provided herein. If Tenant receives
an Award under Section 16.4, Tenant shall repair or restore any Tenant
Improvements up to but not exceeding the amount of the Award payable to Tenant
therefore.
16.4. Award Distribution.
The entire Award attributable to the Leased Property shall
belong to and be paid to Landlord, except that, subject to the rights of the
Facility Mortgagee, Tenant shall be entitled to receive from the Award, if and
to the extent such Award specifically includes such items, a sum attributable to
the value, if any, of Tenant's Personal Property and any Tenant Improvements to
the extent that same is not Landlord's Personal Property or has not been deemed
to be Landlord's Personal Property pursuant to Section 6.5 hereof.
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16.5. Temporary Taking.
The taking of the Leased Property, or any part thereof, by
military or other public authority shall constitute a taking by Condemnation
only when the use and occupancy by the taking authority has continued for longer
than six (6) months. During any such six (6) month period, which shall be a
temporary taking, all the provisions of this Lease shall remain in full force
and effect with no abatement of rent payable by Tenant hereunder. In the event
of any such temporary taking, the entire amount of any such Award made for such
temporary taking allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Tenant.
16.6. Awards Paid to Facility Mortgagee.
If during the Term, the Leased Property is totally or
partially taken by condemnation and the Facility is thereby rendered Unsuitable
For Its Primary Intended Use as a result of such taking and the Facility
Mortgagee elects to retain the proceeds of the Award in satisfaction of the
Facility Mortgage rather than disbursing such proceeds for the cost of restoring
the Facility's suitability for its Primary Intended Use and Landlord has not
elected to make funds equal to such proceeds available for the cost of restoring
the Facility's suitability for its Primary Intended Use, Tenant may terminate
this Lease by giving Landlord written notice of such termination within thirty
(30) days after the date Landlord elects not to make funds equal to such
proceeds available for the cost of restoring the Facility's suitability for its
Primary Intended Use and the date of such termination shall be the date of such
election by Landlord. If during the Term, the Leased Property is partially taken
by condemnation and the Leased Property is not thereby rendered Unsuitable For
Its Primary Intended Use and Facility Mortgagee elects to retain the proceeds of
the Award in satisfaction of the Facility Mortgage, Rent hereunder shall be
equitably adjusted to account for the effect of such taking on the suitability
of the Leased Premises for its Primary Intended Use.
ARTICLE XVII
EVENTS OF DEFAULT
17.1. Events of Default.
If any one or more of the following events (individually, an "Event of Default")
shall occur:
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(a) if the Tenant under this Lease shall fail to make payment
of the Rent payable the Tenant under this Lease when the same
becomes due and payable, and such failure continues for a
period of five (5) days following the date such payment is
due; provided, however, that Landlord shall be required to
notify Tenant of any such failure up to two (2) times within
any twelve (12) month period and an Event of Default shall
only occur if Tenant shall have failed to cure such
non-payment within two (2) Business Days following the receipt
of such notice;
(b) if the Tenant shall fail to observe or perform any
material term, covenant or condition of this Lease and such
failure is not cured by Tenant within a period of thirty (30)
days after receipt by Tenant of notice thereof from Landlord,
unless such failure cannot with due diligence be cured within
a period of thirty (30) days, in which case such failure shall
not be deemed to continue if Tenant proceeds promptly and with
due diligence to cure the failure and diligently completes the
curing thereof within ninety (90) days following the
expiration of said thirty (30) day period.
(c) if the tenant or the guarantor of any Simultaneous Lease
shall:
(i) admit in writing its inability to pay its debts
generally as they become due,
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act,
(iii) make an assignment for the benefit of its
creditors,
(iv) be unable to pay its debts as they mature,
(v) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property, or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or
any other applicable law or statute of the United
States of America or any state thereof;
(d) if, a petition in bankruptcy is filed against the tenant
or the guarantor of any Simultaneous Lease; and
(i) such petition shall not have been dismissed or
stayed within sixty (60) days,
(ii) a court of competent jurisdiction shall enter an
order or decree appointing, without the consent of
such tenant or guarantor, a receiver of such tenant
or such guarantor or of the whole or substantially
all of its property, and such judgment, order or
decree shall not be vacated or set aside or stayed
within sixty (60) days from the date of the entry
thereof,
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(iii) a court of competent jurisdiction shall enter
an order or decree approving, without the consent of
such tenant or such guarantor, a petition filed
against such tenant or such guarantor seeking
reorganization or arrangement of such tenant or such
guarantor under the federal bankruptcy laws or any
other applicable law or statute of the United States
of America or any state thereof, and such judgment,
order or decree shall not be vacated or set aside or
stayed within sixty (60) days from the date of the
entry thereof, or
(iv) such tenant or such guarantor shall be
adjudicated as bankrupt;
(e) if the tenant or the guarantor of any Simultaneous Lease
shall be liquidated or dissolved, or shall begin proceedings
toward such liquidation or dissolution;
(f) if the estate or interest of the tenant under any
Simultaneous Lease in the leased property covered by such
Simultaneous Lease or any part thereof shall be levied upon or
attached in any proceeding and the same shall not be vacated,
bonded over or discharged within the later of ninety (90) days
after commencement thereof or thirty (30) days after receipt
by such tenant of notice thereof or from Landlord (unless such
tenant shall have bonded over such levy or attachment or shall
be contesting such lien or attachment in accordance with
Article XIII); provided, however, that such notice shall be in
lieu of and not in addition to any notice required under
applicable law;
(g) if, except as a result of damage, destruction or a partial
or complete Condemnation or other Unavoidable Delays, if the
Tenant voluntarily ceases operations on the Leased Property
for a period in excess of one hundred eighty (180) consecutive
days;
(h) if any representation or warranty made by the Tenant under
this Lease or in any certification, demand or request made
pursuant thereto proves to be incorrect, now or hereafter, in
any material respect and any materially adverse effect on
Landlord of any such misrepresentation or breach of warranty
has not been corrected to Landlord's satisfaction within
twenty (20) days after the Tenant becomes aware of, or is
notified by Landlord of the fact of, such misrepresentation or
breach of warranty;
(i) [INTENTIONALLY DELETED]
(j) if the Facility's applicable license or third-party
provider reimbursement agreements material to the Facility's
operation for its Primary Intended Use, if any, shall at any
time be terminated or revoked or suspended for more than sixty
(60) days (and, in the case of a third-party provider, the
Tenant shall have failed to replace said third-party provider
within said sixty (60) day period) or if the Facility is
banned from admitting residents for a period in excess of
ninety (90) days;
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(k) if the Tenant shall receive any notice, claim or demand
from any governmental authority, or any officer acting on
behalf thereof, of any material violation of any law, order,
ordinance, rule or regulation with respect to the operation of
the Facility that is not corrected or cured to Landlord's
satisfaction within thirty (30) days from the date Tenant
received such notice, claim or demand, unless such failure
cannot with due diligence be cured within a period of thirty
(30) days, in which case such failure shall not be deemed to
continue if Tenant proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof
within ninety (90) days following the expiration of said
thirty (30) day period;
(l) if the tenant under any Simultaneous Lease shall fail to
make any payment of Rent, as applicable, when due thereunder,
or fails to pay any Impositions, Impound payments, real estate
taxes, utility charges, insurance premium or any other payment
required to be made by the tenant under any Simultaneous Lease
when due and payable, and such failure continues beyond the
expiration of any applicable notice and cure period provided
for therein; or
(m) if the Simultaneous Lease Coverage is less than the
Required Lease Coverage for two (2) consecutive quarters
following the expiration of the Mandatory Employment Period
(as hereinafter defined). Beginning on the Commencement Date,
if the Simultaneous Lease Coverage is less than the Required
Lease Coverage for a period of five (5) consecutive quarters,
Tenant shall employ, at Tenant's expense, a property
management consultant for a period of ninety (90) days (the
"Mandatory Employment Period") in order to improve the
operations at the Facilities.
THEN, Landlord may terminate this Lease by giving Tenant not
less than ten (10) days' notice (or no notice for clauses (c), (d), (e), (f),
and (j)) of such termination, and upon the expiration of the time fixed in such
notice, the Term shall terminate and all rights of Tenant under this Lease shall
cease. Notwithstanding anything contained in this Lease to the contrary,
Landlord shall have all rights at law and in equity available to Landlord as a
result of Tenant's breach of this Lease.
Notwithstanding the foregoing, the Bankruptcy Proceeding and
any plan of reorganization entered into by Tenant or Guarantor pursuant thereto,
shall not constitute an Event of Default under this Lease.
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17.2. Payment of Costs.
Tenant shall, to the extent permitted by law, pay as
Additional Rent all costs and expenses incurred by or on behalf of Landlord,
including, without, limitation, reasonable attorneys' fees and expenses, as a
result of any Event of Default hereunder.
17.3. Certain Remedies.
If an Event of Default shall have occurred and be continuing,
whether or not this Lease has been terminated pursuant to Section 17.1, Tenant
shall, to the extent permitted by law, if required by Landlord so to do,
immediately surrender to Landlord the Leased Property pursuant to the provisions
of Section 17.1 and quit the same and Landlord may enter upon and repossess the
Leased Property by reasonable force, summary proceedings, ejectment or
otherwise, and may remove Tenant and any and all other Persons and any and all
Tenant's Personal Property from the Leased Property subject to any requirement
of law.
17.4. Damages.
None of (a) the termination of this Lease pursuant to Section
17.1, (b) the repossession of the Leased Property, (c) the failure of Landlord
to relet the Leased Property, (d) the reletting of all or any portion thereof,
nor (e) the failure of Landlord to collect or receive any rentals due upon any
such reletting, shall relieve Tenant of its liability and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. In
the event of any such termination, Tenant shall forthwith pay to Landlord all
Rent due and payable with respect to the Leased Property through and including,
the date of such termination. Thereafter, Tenant shall forthwith pay to
Landlord, at Landlord's option, either:
(a) the sum of:
(i) the worth, at the time of the termination, of the
amount by which the unpaid Rent for the balance of
the Term after the time of such termination exceeds
the amount of such rental loss that Tenant proves
could be reasonably avoided; and
(ii) any other amount necessary to compensate
Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under
this Lease;
provided, that in making the above determination, (A) the
worth at the time of the termination shall be determined using
the 90-day Treasury bill rate, (B) the Minimum Rent for the
remainder of the Term shall be deemed to be the same as for
the then current Lease Year, as determined pursuant to Section
3.2, and (C) Additional Rent for the remainder of the Term
shall be deemed to be payable monthly in an amount equal to
one-fourth (1/4) of the aggregate amount paid by Tenant as
Additional Rent during the Fiscal Quarter immediately
preceding the termination; or
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(b) with or without termination of Tenant's right to
possession of the Leased Property, each installment of said
Rent and other sums payable by Tenant to Landlord under this
Lease as the same become due and payable, which Rent and other
sums shall bear interest at the Overdue Rate from the date
when due until paid, and Landlord may enforce, by action or
otherwise, any other term or covenant of this Lease.
17.5. Additional Remedies.
Landlord may avail itself of all other remedies that may be
available to Landlord under applicable law.
17.6. Appointment of Receiver.
Upon the occurrence of an Event of Default, and upon filing of
a suit or other commencement of judicial proceedings to enforce the rights of
Landlord hereunder, Landlord shall be entitled, as a matter of right, to the
appointment of a receiver or receivers acceptable to Landlord of the Leased
Property and the Facility and of the revenues, earnings, income, products and
profits hereof, pending such proceedings, with such powers as the court making
such appointment shall confer.
17.7. WAIVER.
IF THIS LEASE IS TERMINATED PURSUANT TO SECTION 17.1 OR IF
TENANT'S RIGHT TO POSSESSION OF THE LEASED PROPERTY IS OTHERWISE TERMINATED,
TENANT WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) ANY RIGHT OF
REDEMPTION, RE-ENTRY OR REPOSSESSION AND (B) ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF ANY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE XVII.
17.8. Application of Funds.
Any payments received by Landlord under any of the provisions
of this Lease during the existence or continuance of any Event of Default (and
such payment is made to Landlord rather than Tenant due to the existence of an
Event of Default) shall be applied to Tenant's obligations in the order which
Landlord may determine or as may be prescribed by the laws of the State in which
the Leased Property is located.
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17.9. Impounds.
(a) Landlord shall have the right at any time to require
Tenant to pay to Landlord, in accordance with the payment procedures specified
herein, an additional monthly sum (each an "Impound Payment") sufficient to pay
the Impound Charges (as hereinafter defined) as they become due. As used herein,
"Impound Charges" shall mean, real estate taxes on the Leased Property or
payments in lieu thereof and premiums on any insurance required by this Lease.
Subject to the provisions of the Facility Mortgage, Landlord shall determine the
amount of the Impound Charges and of each Impound Payment. Subject to the
provisions of the Facility Mortgage, the Impound Payments shall be held in a
separate account and shall not be commingled with other funds of Landlord and
interest thereon shall be held for the account of Tenant. Landlord shall apply
the Impound Payments to the payment of the Impound Charges in such order or
priority as Landlord shall determine or as required by law or as required by the
Facility Mortgagee. If at any time the Impound Payments theretofore paid to
Landlord shall be insufficient for the payment of the Impound Charges, Tenant,
within ten (10) days after the Landlord's demand therefore, shall pay the amount
of the deficiency to the Landlord plus interest thereon at the Overdue Rate for
each day beyond the tenth (10th) day following such demand until paid.
Notwithstanding the foregoing, it is hereby agreed that Tenant
shall pay all real estate taxes on the Leased Property on a monthly installment
basis in accordance with the payment procedures hereinabove set forth. In
addition, Landlord and Tenant agree that Tenant shall not be required to pay
insurance premiums on a monthly installment basis as set forth above unless it
is so required by a Facility Mortgagee.
(b) Landlord shall have the right at any time to require
Tenant to pay to Landlord an additional sum (each a "Capital Impound Payment")
sufficient to fund the Capital Impound Reserves (as hereinafter defined) or the
depletion thereof as applicable. As used herein, "Capital Impound Reserves"
shall mean any capital replacement reserves required by any Facility Mortgagee
or by Landlord. Landlord shall initially fund the Capital Impound Reserves and
any increases thereto required by any Facility Mortgagee or as required by
Landlord. In any event, Tenant shall be required to fund any draws upon, or
depletion of, the Capital Impound Reserves which are made either by Landlord or
the Facility Mortgagee to repair or replace capital items necessitated by
Tenant's failure to maintain the Leased Property pursuant to the terms of this
Lease. Subject to the provisions of the Facility Mortgage, Landlord shall
determine the amount of the capital impound charges and of each Capital Impound
Payment. Subject to the provisions of any Facility Mortgage, the Capital Impound
Payments shall be held in a separate account and shall not be commingled with
other funds of Landlord and interest thereon shall be held for the account of
Tenant. Landlord shall apply the Capital Impound Payments to the payment of the
capital impound charges in such order or priority as Landlord shall determine or
as required by law or as required by any Facility Mortgagee. If at any time the
Capital Impound Payments theretofore paid to Landlord shall be insufficient for
the payment of the capital impound charges, Tenant, within ten (10) days after
the Landlord's demand therefore, shall pay the amount of the deficiency to the
Landlord plus interest thereon at the Overdue Rate from the date of such demand
until paid. Tenant hereby acknowledges Landlord's right to assign and turn over
to any Facility Mortgagee any and all of the Capital Impound Payments and/or
Capital Impound Reserves.
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ARTICLE XVIII
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant shall fail to make any payment or to perform any act
required to be made or performed under this Lease, and to cure the same within
the relevant time periods provided in Section 17.1, Landlord, after notice to
and demand upon Tenant, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Tenant.
Landlord may, to the extent permitted by law, enter upon the Leased Property for
such purpose and take all such action thereon as, in Landlord's opinion, may be
necessary or appropriate therefore. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, to the extent
permitted by law) so incurred, together with interest thereon at the Overdue
Rate from the date on which such sums or expenses are paid or incurred by
Landlord, shall be paid by Tenant to Landlord on demand. The obligations of
Tenant and rights of Landlord contained in this Article XVIII shall survive the
expiration or earlier termination of this Lease.
ARTICLE XIX
LEGAL REQUIREMENTS
Subject to Article XIII regarding permitted contests, Tenant,
at its expense, shall promptly (a) comply with all material Legal Requirements
and Insurance Requirements in respect of the use, operation, maintenance, repair
and restoration of the Leased Property, whether or not compliance therewith
shall require structural changes in any of the Leased Improvements or interfere
with the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof. In
addition to and without limiting the generality of the foregoing, Tenant shall
adopt and implement a compliance program adequate to assure such compliance. The
compliance program shall include all material elements of an effective program
to prevent and detect violations of law as identified in Commentary 3(k) of
Section 8A1.2 of the federal Sentencing Guidelines to the extent applicable.
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ARTICLE XX
HOLDING OVER
If Tenant shall for any reason remain in possession of the
Leased Property after the expiration of the Term or earlier termination of the
Term, such possession shall be as a month-to-month tenant during which time
Tenant shall pay as rental each month, (a) one hundred fifty percent (150%) of
the aggregate of (i) the Minimum Rent payable with respect to the Leased
Property during the last Lease Year of the preceding Term, plus any charges or
penalties for late payment, (ii) one-twelfth (1/12) of the aggregate Additional
Rent payable with respect to the Leased Property during the last Lease Year of
the preceding Term, excluding therefrom, however, any Impositions and insurance
premiums, (iii) all Additional Rent accruing during the month, excluding
therefrom, however, any Impositions and insurance premiums; (b) all Impositions
and insurance premiums accruing during the month; and (c) all other sums, if
any, payable by Tenant pursuant to the provisions of this Lease with respect to
the Leased Property . During any such period of month-to-month tenancy, Tenant
shall be obligated to perform and observe all of the terms, covenants and
conditions of this Lease, but shall have no rights hereunder other than the
right, to the extent given by law to month-to-month tenancies, to continue its
occupancy and use of the Leased Property. Nothing contained herein shall
constitute the consent, express or implied, of Landlord to the holding over of
Tenant after the expiration or earlier termination of this Lease. During any
such period of month-to-month tenancy, Tenant shall deliver to Landlord, at the
end of each Lease Year, the Officer's certificates referred to in Section 3.2.1.
Notwithstanding the foregoing, if Landlord is not prepared to take possession of
the Leased Property at the end of the Term, or otherwise to transfer possession
of the Leased Property to a new tenant, and provided that Tenant is not
responsible for Landlord's inability to do so, Landlord and Tenant shall
negotiate in good faith as to the payment of any Minimum Rent and/or Additional
Rent during the holdover period.
ARTICLE XXI
RISK OF LOSS
21.1. Risk of Loss.
During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property as a consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than by Landlord and those claiming from, through or under
Landlord) is assumed by Tenant. In the absence of gross negligence, willful
misconduct or breach of this Lease by Landlord pursuant to Section 25.3,
Landlord shall in no event be answerable or accountable therefore nor shall any
of the events mentioned in this Article XXI entitle Tenant to any abatement of
Rent (except as provided in Section 21.2) or otherwise relieve Tenant of its
obligations hereunder and under each Lease.
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21.2. Unavoidable Events.
If at any time during the Term, the Facility is rendered
Unsuitable For Its Primary Intended Use for a period in excess of one hundred
eighty (180) consecutive days by reason of one or more of the following events
(each, an "Unavoidable Event"):
(a) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of the Leased Property or any substantial portion thereof,
including without limitation any such prohibition or restriction resulting from
Legal Requirements enacted after the date hereof (excepting any such prohibition
or restriction caused by the actions, negligence or intentional misconduct of
Tenant); or
(b) declared or undeclared war, sabotage, riot or other acts
of civil disobedience, or the acts or omissions by governmental agencies.
THEN Tenant shall have the right to terminate the Lease by giving Landlord
written notice of such termination. The effective date of such termination shall
be ninety (90) days after Landlord's receipt of said written notice of
termination; provided, however, if Landlord elects to remedy or remove the
restrictions or interference referenced above or otherwise correct or restore
the Facility and within said ninety (90) day period the Facility is made
suitable for its Primary Intended Use, Tenant's election to terminate the Lease
shall be deemed rescinded and the Lease shall remain in full force and effect.
This Article XXI shall not limit or restrict Tenant's rights or obligations
under Article XV of this Lease.
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ARTICLE XXII
INDEMNIFICATION
22.1. Tenant's Indemnification of Landlord.
Except as otherwise provided in Section 7.3, Article IX and
Section 22.2, and notwithstanding the existence of any insurance provided for in
Article XIV, and without regard to the policy limits of any such insurance,
Tenant shall protect, indemnify, save harmless and defend Landlord and each
Facility Mortgagee from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon or incurred by or asserted against Landlord or such Facility
Mortgagee by reason of:
(a) any accident, injury to or death of Persons or loss of or
damage to property occurring on or about the Leased Property
or adjoining sidewalks during the Term;
(b) any use, misuse, non-use, condition, maintenance or repair
by Tenant of the Leased Property during the Term;
(c) any failure on the part of Tenant to pay any Impositions
(which are the obligations of the Tenant to pay pursuant to
the applicable provisions of this Lease) during the Term;
(d) any failure on the part of Tenant to perform or comply
with any of the terms of this Lease;
(e) the non-performance of any of the terms and provisions of
any and all existing or future subleases of the Leased
Property to be performed by Tenant thereunder; and
(f) any liability Landlord or such Facility Mortgagee may
incur or suffer as a result of any permitted contest by Tenant
pursuant to Article XIII during the Term.
22.2. Landlord's Indemnification of Tenant.
Landlord shall protect, indemnify, save harmless and defend
Tenant from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees) imposed upon or incurred by or asserted against
Tenant or the Leased Property as a result of Landlord's gross negligence or
willful misconduct.
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22.3. Mechanics of Indemnification.
As soon as reasonably practicable after receipt by the
indemnified party of notice of any liability or claim incurred by or asserted
against the indemnified party that is subject to indemnification under this
Article XXII, the indemnified party shall give notice thereof to the
indemnifying party. The indemnified party may at its option demand indemnity
under this Article XXII as soon as a claim has been threatened by a third party,
regardless of whether an actual loss has been suffered, so long as the
indemnified party shall in good faith determine that the indemnified party may
be liable for, or otherwise incur, a loss as a result thereof and shall give
notice of such determination to the indemnifying party. The indemnified party
shall permit the indemnifying party, at its option and expense, to assume the
defense of any such claim by counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party, and to settle or otherwise
dispose of the same; provided, however, that the indemnified party may at all
times participate in such defense at its expense; and provided further, however,
that the indemnifying party shall not, in defense of any such claim, except with
the prior written consent of the indemnified party, consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff in question to the
indemnified party and its affiliates a release of all liabilities in respect of
such claims, or that does not result only in the payment of money damages by the
indemnifying party. If the indemnifying party shall fail to undertake such
defense within thirty (30) days after such notice, or within such shorter time
as may be reasonable under the circumstances, then the indemnified party shall
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the indemnifying party.
22.4. Survival of Indemnification Obligations.
Tenant's or Landlord's obligation to indemnify under this
Article XXII arising during the Term shall survive any termination of this Lease
for a period of one (1) year following such termination.
ARTICLE XXIII
SUBLETTING AND ASSIGNMENT
23.1. Prohibition Against Subletting and Assignment.
Except as provided in Section 23.3 or Section 23.4, Tenant
shall not, without the prior written consent of Landlord (which consent Landlord
may grant or withhold in its sole and absolute discretion), assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer (except to an Affiliate of
Tenant) this Lease or any interest in this Lease, all or any part of the Leased
63
Property or suffer or permit this Lease or the leasehold estate created hereby
or any other rights arising under this Lease to be assigned, transferred,
mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law. For purposes of this Section
23.1, an assignment of this Lease shall be deemed to include any Change of
Control of Tenant, as if such Change of Control were an assignment of this
Lease. Notwithstanding the foregoing, any Change of Control of Tenant that
occurs in connection with the Bankruptcy Proceeding or any plan or
reorganization entered into pursuant thereto, shall, for purposes hereof, be
deemed to be a Change of Control made with Landlord's consent.
23.2. Changes of Control.
A "Change of Control" requiring the consent of Landlord shall
mean:
(a) the issuance or sale by Tenant or the sale by any
stockholder of Tenant of a Controlling interest in Tenant to a
Person other than an Affiliate of Tenant other than a
distribution to the public pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (a "Registered Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise), excluding the sale of all or
substantially all of the assets of Guarantor; or
(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity owned
and Controlled by an Affiliate of Tenant), and Tenant is not
the surviving entity.
23.3. Subleases.
23.3.1. Permitted Subleases.
(a) Tenant may, with Landlord's prior written consent, which
may not be unreasonably withheld, sublease or license portions of the Leased
Property to concessionaires or licensees to operate any portions (but not the
entirety) of the Leased Property customarily associated with or incidental to
the operation of the Facility, and Landlord's consent to any proposed sublease
or license shall not be considered unreasonably withheld if Landlord believes
that (i) the rental or other amounts to be paid by the proposed sublessee or
licensee thereunder would be based, in whole or in part, on the income or
profits derived by such proposed sublessee or licensee from the Facility or the
Leased Property, (ii) the Landlord owns an interest, directly or indirectly (by
applying the constructive ownership rules of Section 856(d)(5) of the Code) in
the proposed sublessee or licensee or (iii) the proposed sublease or license
would cause (x) a portion of the amounts received by Landlord pursuant to this
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Lease or any sublease or license to fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the Code, or any similar
successor provision thereto, or (y) any other income of Landlord to fail to
qualify as income described in Section 856(c)(2) of the Code. In addition to the
foregoing, in the event that Landlord consents to any such sublease or license
of any portions of the Leased Property, Landlord shall have the right to
reasonably approve the form of any sublease or license, which Landlord agrees to
do on a diligent and prompt basis.
(b) Notwithstanding the foregoing, Tenant shall, without
Landlord's prior approval, be permitted to sublease portions of the Leased
Property to residents of the Facility; provided, however, that Tenant shall not
require or accept prepayment for more than three (3) months' use of individual
units or rooms in any Facility. Amounts charged to residents for individual
units or rooms shall not be materially less than fair market value.
23.3.2. Terms of Sublease.
Each sublease of any portion of the Leased Property shall be
subject and subordinate to the provisions of this Lease and shall provide that
Landlord, at its option and without any obligation to do so, may require any
sublessee to attorn to Landlord, in which event Landlord shall undertake the
obligations of Tenant, as sublessor under such sublease from the time of the
exercise of such option to the termination of such sublease, and in such case,
Landlord shall not be liable (i) for any prepaid rents or security deposit paid
by such sublessee to Tenant unless Landlord actually receives the same from
Tenant or (ii) for any other defaults of Tenant under such sublease. In the
event that Landlord shall not require such attornment with respect to any
sublease, then such sublease shall automatically terminate upon the expiration
or earlier termination of this Lease, including any earlier termination by
mutual consent of Landlord and Tenant. No sublease made as permitted by Section
23.3.1 shall affect or reduce any of the obligations of Tenant hereunder, and
all such obligations shall continue in full force and effect as if no sublease
had been made. No sublease shall impose any additional obligations on Landlord
under this Lease.
23.3.3. Copies.
Tenant shall, within ten (10) days after the execution and
delivery of any sublease permitted by Section 23.3.1, deliver a duplicate
original thereof to Landlord.
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23.3.4. Assignment of Rights in Subleases.
As security for performance of its obligations under this
Lease, Tenant hereby grants, conveys and assigns to Landlord all right, title
and interest of Tenant in and to all subleases now in existence or hereinafter
entered into for any or all of the Leased Property, and all extensions,
modifications and renewals thereof and all rents, issues and profits therefrom.
Landlord hereby grants to Tenant a license to collect and enjoy all rents and
other sums of money payable under any sublease of any portion of the Leased
Property; provided, however, that Landlord shall have the absolute right at any
time after the occurrence and continuance of an Event of Default upon notice to
Tenant and any subtenants to revoke said license and to collect such rents and
sums of money and to retain the same. Tenant shall not (i) after the occurrence
and continuance of an Event of Default, consent to, cause or allow any material
modification or alteration of any of the terms, conditions or covenants of any
of the subleases or the termination thereof, without the prior written approval
of Landlord nor (ii) accept any rents (other than customary security deposits)
more than ninety (90) days in advance of the accrual thereof nor permit anything
to be done, the doing of which, nor omit or refrain from doing anything, the
omission of which, will or could be a breach of or default in the terms of any
of the subleases.
23.3.5. Licenses.
For purposes of Section 23.1 and this Section 23.3, subleases
shall be deemed to include any licenses, concession arrangements, or other
arrangements relating to the possession of any part of the Leased Property.
23.4. Assignment.
Except as expressly provided in this Section 23.4, Tenant may
assign this Lease (including, without limitation, upon a Change of Control of
Tenant as provided in Section 23.2) only upon the written consent of Landlord,
which consent shall not be unreasonably withheld. If Tenant desires at any time
to assign this Lease, it shall first notify Landlord of its desire to do so and
shall submit in writing to Landlord: (i) the name of the proposed assignee; (ii)
the terms and provisions of the proposed assignment; and (iii) such financial
information as Landlord reasonably may request concerning the proposed assignee.
Except as provided in Section 23.4.3 below, any assignment by Tenant of this
Lease shall be solely of Tenant's entire interest in and under this Lease. The
consent by Landlord to any assignment shall not constitute a consent to any
subsequent or successive assignment by the assignee. Any purported assignment or
other transfer of all or any portion of Tenant's interest in this Lease in
contravention of this Section 23.4 shall be void, shall constitute an Event of
Default hereunder, and, at the option of Landlord, shall terminate this Lease.
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23.4.1. Financial Condition of Assignee.
Landlord may, as a condition to granting its consent to any
proposed assignment by Tenant, require that the obligations of any assignee
which is an Affiliate of another Person, be guaranteed by its parent or
controlling Person. Furthermore, any assignment agreement entered into by Tenant
shall expressly provide that the assignee shall furnish Landlord with such
financial and operational information as Landlord may request from time to time.
23.4.2. Assignment to Affiliate.
Tenant may, upon notice to Landlord, but without Landlord's
consent, assign this Lease to an Affiliate of Tenant (including, without
limitation, pursuant to a Change of Control of Tenant as provided in Section
23.2); provided further an assignment pursuant to this Section 23.4.2 shall not
be permitted in the event (i) the rental or other amounts to be paid by the
proposed assignee thereunder would be based, in whole or in part, on the income
or profits derived by such proposed assignee from the Facility or the Leased
Property, (ii) the Landlord owns an interest, directly or indirectly (by
applying the constructive ownership rules of Section 856(d)(5) of the Code) in
the proposed assignee or (iii) the proposed assignment would cause (x) a portion
of the amounts received by Landlord pursuant to this Lease to fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Code, or
any similar successor provision thereto, or (y) any other income of Landlord to
fail to qualify as income described in Section 856(c)(2) of the Code.
Furthermore, any assignment agreement entered into by Tenant shall expressly
provide that the assignee shall furnish Landlord with such financial and
operational information as Landlord may request from time to time.
23.4.3. Assignment in Bankruptcy.
If, pursuant to the provisions of Title 11 of the United
States Code or any statute of similar purpose or nature (the "Bankruptcy Code"),
Tenant assumes this Lease and proposes to assign this Lease to any Person who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment shall be given to
Landlord by Tenant no later than twenty (20) days after receipt of such offer by
Tenant, but in any event no later than ten (10) days prior to the date that
Tenant shall file any application or motion with a court of competent
jurisdiction for authority and approval to enter into such assumption and
assignment. Such notice shall set forth (a) the name and address of the
assignee, (b) all of the terms and conditions of such offer and (c) the proposal
for providing adequate assurance of future performance by such Person under this
Lease, including, without limitation, the assurance referred to in Section 365
of the Bankruptcy Code. Any Person to whom this Lease is assigned pursuant to
the provisions of the Bankruptcy Code shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease from and
after the date of such assignment. Any such assignee shall execute and deliver
to Landlord upon demand an instrument confirming such assumption.
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23.4.4. Adequate Assurance of Future Performance.
The term "adequate assurance of future performance" as used in
Section 23.4.3 shall mean the assurances called for in Section 365(f) of the
Bankruptcy Code.
23.4.5. Disaffirmance or Rejection.
If, at any time after Tenant may have assigned Tenant's
interest in this Lease pursuant to this Section 23.4, this Lease shall be
disaffirmed or rejected in any proceeding, or in the event of termination of
this Lease following an Event of Default, Tenant, upon notice of Landlord given
within thirty (30) days next following any such disaffirmance, rejection or
termination (and actual notice thereof to Landlord in the event of a
disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall pay to Landlord all Minimum Rent and Additional Rent due and
owing by the assignee to Landlord under this Lease to and including the date of
such disaffirmance, rejection or termination.
23.4.6. Costs.
Tenant shall reimburse Landlord for Landlord's reasonable
costs and expenses incurred in conjunction with the processing and documentation
of any assignment permitted hereunder, including, without limitation, reasonable
attorneys', architects', engineers' and other consultants' fees and expenses,
whether or not any such assignment is actually consummated.
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23.4.7. No Release of Tenant's Obligation.
No assignment of this Lease shall relieve Tenant of its
obligation to pay Rent and to perform all of the other obligations to be
performed by Tenant hereunder. The liability of Tenant named herein and any
immediate or remote successor in interest of Tenant, and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed,
shall not in any way be discharged, released or impaired by any (i) agreement
which modifies any of the rights or obligations of the parties under this Lease,
(ii) stipulation which extends the time within which an obligation under this
Lease is to be performed, (iii) waiver of the performance of an obligation
required under this Lease or (iv) failure to enforce any of the obligations set
forth in this Lease.
23.4.8. Assignment by Landlord; Subordination.
Tenant hereby acknowledges that Landlord has assigned its
rights under this Lease, including without limitation its right to payments
required from Tenant under this Lease, to a Facility Mortgagee and may hereafter
make other such assignments. Tenant and Landlord hereby agree, for the benefit
of each Facility Mortgagee that upon the occurrence of an event of default under
the Facility Mortgage and upon receipt by Tenant of notice from the Facility
Mortgagee directing that all payments due from Tenant under this Lease be made
directly to the Facility Mortgagee, Tenant shall make all payments due under
this Lease to the Facility Mortgagee in accordance with the Facility Mortgagee's
instructions, and Facility Mortgagee shall be entitled to enforce all of
Landlord's rights under this Lease.
ARTICLE XXIV
ESTOPPEL CERTIFICATES AND OTHER STATEMENTS
24.1. Estoppel Certificates.
24.1.1. Estoppel Certificate of Tenant.
At any time, and from time to time within twenty (20) days
after a written request from Landlord, Tenant will furnish to Landlord an
Officer's Certificate certifying:
(a) that this Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as modified
and setting forth the modifications);
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(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Tenant, Landlord
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each
such default of which Tenant may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Tenant before or by any court or
administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Tenant;
(e) the current responses to such other questions or
statements of fact as Landlord shall reasonably request.
Tenant's failure to deliver such statement within such time
shall constitute an acknowledgment by Tenant that this Lease is unmodified and
in full force and effect except as may be represented to the contrary by
Landlord, Landlord is not in default in the performance of any covenant,
agreement or condition contained in this Lease and the other matters set forth
in such request, if any, are true and correct. Any such certificate furnished
pursuant to this Section 24.1.1 may be relied upon by Landlord and any Facility
Mortgagee.
24.1.2. Estoppel Certificate of Landlord.
At any time, and from time to time within twenty (20) days
after a written request from Tenant, Landlord will furnish to Tenant an
Officer's Certificate certifying:
(a) that this Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as modified
and setting forth the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Landlord, Tenant
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each
such default of which Landlord may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Landlord before or by any court or
administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Landlord;
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(e) the current responses to such other questions or
statements of fact as Tenant shall reasonably request.
Landlord's failure to deliver such statement within such time shall constitute
an acknowledgment by Landlord that this Lease is unmodified and in full force
and effect except as may be represented to the contrary by Tenant, Tenant is not
in default in the performance of any covenant, agreement or condition contained
in this Lease and the other matters set forth in such request, if any, are true
and correct. Any such certificate furnished pursuant to this Section 24.1.2 may
be relied upon by Tenant.
24.2. Financial Statements of the Facility and Guarantor.
24.2.1. Quarterly Financial Statements
Tenant will furnish to Landlord, as soon as practicable, and
in any event within forty-five (45) days after the end of each Fiscal Quarter,
an unaudited consolidated balance sheet of the Facility and Guarantor as at the
end of such Fiscal Quarter and unaudited consolidated statement of income and
expense of the Facility and Guarantor for each such Fiscal Quarter, and for that
part of the Fiscal Year to date.
24.2.2. Annual Financial Statements
Tenant will furnish to Landlord, within one hundred twenty
(120) days after the end of Tenant's Fiscal Year, an audited consolidated
balance sheet of Guarantor and the Facility as of the end of such Fiscal Year
and an audited consolidated statement of income and consolidated cash flow of
Guarantor and the Facility for such Fiscal Year, setting forth in each case, in
comparative form, the corresponding figures for the preceding Fiscal Year,
prepared in accordance with GAAP. Tenant will furnish to Landlord, within sixty
(60) days of the commencement of Tenant's Fiscal Year, operating and capital
expenditure budgets of Tenant and the Facility, certified by an authorized
officer of Tenant, for Tenant's then current Fiscal Year. Landlord and Tenant
hereby acknowledge that the current Facility Mortgage encumbering the Leased
Property does not require audited financial statements. Notwithstanding the
foregoing, Tenant hereby agrees that it shall furnish such audited financial
statements for the Facility and the Guarantor as may be required by any Facility
Mortgage encumbering the Leased Property; provided, however, Landlord shall use
reasonable good faith efforts to exclude such a requirement for audited
financial statements from any Facility Mortgage.
24.3. Environmental Statements.
Immediately upon Tenant's learning, or having reasonable cause
to believe, that any Hazardous Material in a quantity sufficient to require
remediation or reporting under applicable law is located in, on or under the
Leased Property or any adjacent property, Tenant shall notify Landlord in
writing of (a) any enforcement, cleanup, removal, or other governmental or
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regulatory action instituted, completed or threatened; (b) any claim made or
threatened by any Person against Tenant or the Leased Property relating to
damage, contribution, cost recovery, compensation, loss, or injury resulting
from or claimed to result from any Hazardous Material; and (c) any reports made
to any federal, state or local environmental agency arising out of or in
connection with any Hazardous Material at, on, removed or released from the
Leased Property, including any complaints, notices, warnings or asserted
violations in connection therewith.
24.4. Charges.
Tenant acknowledges that the failure to furnish Landlord with
any of the certificates or statements required by this Article XXIV will cause
Landlord to incur costs and expenses not contemplated hereunder. Accordingly,
without limitation of Landlord's rights under Article XVII, if Tenant shall fail
to furnish Landlord with any of the certificates or statements required by this
Article XXIV, Tenant shall pay to Landlord upon demand an amount equal to the
costs and expenses actually incurred by Landlord as a result of such failure to
furnish the certificates or statements as required up to Two Thousand Five
Hundred Dollars ($2,500) for each such failure as Additional Rent.
24.5. Provision of Information.
(1) Tenant will furnish to Landlord on or before thirty (30)
days after the end of each calendar quarter the following items, each certified
by Tenant as being true and correct, in such format and in such detail as
Landlord may request:
(a) quarterly and year-to-date operating statements
of the Facility prepared for each calendar quarter during each such reporting
period detailing the total revenues received, total expenses incurred, total
costs of all capital improvements, total debt service and total cash flow;
(b) quarterly census information of the Facility as
of the end of such quarter in sufficient detail to show by patient-mix (i.e.,
private, Medicare, Medicaid (if hereafter applicable), and V.A.), the average
monthly census of the Facility and statements of the average daily occupancy
rate for beds or units, as applicable at the facility, expressed as a percentage
of Operating Capacity, certified by the chief financial officer of Tenant; and
(c) within thirty (30) days of the end of each month,
an aged accounts receivable report from the Facility in sufficient detail to
show amounts due from each class of patient-mix by the account age
classifications of thirty (30) days, sixty (60) days, ninety (90) days, one
hundred twenty (120) days, and over one hundred twenty (120) days, certified by
the chief financial officer of Tenant to be true and correct.
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(2) Tenant shall furnish to Landlord the following items:
(a) within ten (10) days of the receipt by Tenant,
any and all notices (regardless of form) from any licensing and/or certifying
agency that the Facility's license or the Medicare or Medicaid certification of
the Facility is being downgraded to a substandard category, revoked, or
suspended, or that action is pending or being considered to downgrade to a
substandard category, revoke, or suspend the Facility's license or
certification;
(b) within ten (10) days of the date of the required
filing of cost reports of the Facility with the Medicaid agency or the date of
actual filing of such cost report of the Facility with such agency, whichever is
earlier, furnish to Landlord a complete and accurate copy of the annual Medicaid
cost report of the Facility, which will be prepared by an independent certified
public accountant or by an experienced cost report preparer reasonably
acceptable to Landlord, and promptly furnish Landlord any amendments filed with
respect to such reports and all responses, audit reports or inquiries with
respect to such reports; and
(c) Within ten (10) days of receipt, a copy of any
Medicare, Medicaid or other licensing agency survey or report and any statement
of deficiencies, and within the time period required by the particular agency
for furnishing a plan of correction also furnish or cause to be furnished to
Landlord a copy of the plan of correction generated from such survey or report
for the Facility, and correct or cause to be corrected any deficiency. the
curing of which is a condition of continued licensure or for full participation
In Medicare and Medicaid for existing patients or for new patients to be
admitted with Medicare or Medicaid coverage, by the date required for cute by
such agency (plus extensions granted by such agency).
ARTICLE XXV
LANDLORD MORTGAGES
25.1. Landlord May Grant Liens; Tenant's Non-Disturbance Rights.
Without the consent of Tenant, Landlord may, from time to
time, directly or indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement ("Landlord's Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing or other obligation of
Landlord. This Lease is and at all times shall be subject and subordinate to any
ground or underlying leases, mortgages, trust deeds or like encumbrances, which
may now or hereafter affect the Leased Property and to all renewals,
modifications, consolidations, replacements and extensions of any such lease,
mortgage, trust deed or like encumbrance. This clause shall be self-operative
and no further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee or beneficiary, affecting this Lease or
the Leased Property; provided, however, the subordination of this Lease shall be
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subject to Tenant's receipt of a non-disturbance agreement to the effect that so
long as this Lease has not been terminated by reason of the occurrence of an
Event of Default, the lessor or the Facility Mortgagee, and its successors in
interest, will be bound by all of the terms and provisions of this Lease, a
default by the Landlord under such lease or by the mortgagor under such Facility
Mortgage shall not have any effect upon Tenant's right to occupy the Leased
Premises in accordance with all of the terms and provisions of this Lease, and
the term, estate and options of Tenant under this Lease shall not be terminated
or otherwise affected by a foreclosure and sale or other action instituted under
or in connection with such Facility Mortgage, except that the Facility
Mortgagee, or its successors in interest, shall not (i) be liable for any act or
omission of, or default by, Landlord under this Lease occurring before the date
on which the Facility Mortgagee becomes the Landlord under this Lease, except to
the extent such acts or omissions are continuing in nature (in which case the
Facility Mortgagee's liability with respect to continuing acts or omissions
shall be limited to damages arising on and after the date on which the Facility
Mortgagee becomes the Landlord under this Lease), (ii) be subject to any
credits, claims, setoffs, or defenses which Tenant might have against Landlord
as a result of any acts or omissions of Landlord occurring before the date
referred to in clause (i), (iii) be bound by any Rent which Tenant may have paid
to Landlord more than thirty (30) days in advance of the month to which such
payment relates, or (iv) be bound by any amendment of or modification to this
Lease made without the Facility Mortgagee's written consent. Tenant agrees that,
within ten (10) Business Days after receipt of a request therefor from Landlord,
it will, from time to time, execute and deliver any reasonable instrument or
other document required by any such Facility Mortgagee to subordinate this Lease
and its leasehold interest to the lien of such Facility Mortgage. If, at any
time, or from time to time during the Term, a Facility Mortgagee shall request
that this Lease have priority over the lien of such Facility Mortgage, this
Lease and Tenant's leasehold interest shall have priority over the lien of such
Facility Mortgage and all renewals, modifications, replacements, consolidations
and extensions thereof and all advances made thereunder and the interest
thereon, and Tenant shall, within ten (10) Business Days after receipt of a
request therefor from Landlord, execute, acknowledge and deliver any and all
reasonable documents and instruments confirming the priority of this Lease and
Tenant's leasehold interest.
25.2. Attornment.
In the event of the purchase or other acquisition of the
Leased Premises or Landlord's interest therein in a foreclosure sale or by deed
in lieu of foreclosure under any Facility Mortgage or pursuant to a power of
sale contained in any Facility Mortgage, then in any of such events Tenant
shall, at the request of Landlord or Landlord's successor in interest, attorn to
and recognize the transferee or purchaser of Landlord's interest, as the lessor
under this Lease for the balance then remaining of the Term, and thereafter this
Lease shall continue as a direct lease between such Person, as "Landlord", and
Tenant, as "Tenant," except that such lessor, transferee or purchaser shall not
be liable for any act or omission of Landlord before such lease termination or
74
before such Person's succession to title, nor be subject to any offset, defense
or counterclaim accruing before such lease termination or before such Person's
succession to title, nor be bound by any payment of Rent before such lease
termination or before such Person's succession to title for more than one month
in advance. Tenant shall, within ten (10) Business Days after request by
Landlord or the transferee or purchaser of Landlord's interest execute and
deliver an instrument or instruments confirming the foregoing provisions of this
Section. Tenant hereby waives the provisions of any present or future law or
regulation which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease, or the obligations of Tenant hereunder,
upon or as a result of the completion of any such foreclosure and sale.
25.3. Breach by Landlord.
It shall be a breach of this Lease if Landlord shall fail to
observe or perform any material term, covenant or condition of this Lease on its
part to be performed and such failure shall continue for a period of thirty (30)
days after notice thereof from Tenant, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Landlord, within said thirty (30) day
period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within ninety (90) days following the
expiration of said thirty (30) day period. The time within which Landlord shall
be obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay.
25.4. Facility Mortgage Protection.
Tenant agrees that the holder of any Landlord's Encumbrance
shall have no duty, liability or obligation to perform any of the obligations of
Landlord under this Lease, but that in the event of Landlord's default with
respect to any such obligation, Tenant will give any such holder whose name and
address have been furnished to Tenant in writing for such purpose, notice of
Landlord's default specifying such default in reasonable detail and allow such
holder thirty (30) days following receipt of such notice for the cure of said
default before invoking any remedies Tenant may have by reason thereof; provided
that if such default cannot be cured with reasonable diligence and continuity
within thirty (30) days, such holder shall have any additional time as may be
reasonably necessary to cure the default with reasonable diligence and
continuity; and provided, further, that if the default cannot reasonably be
cured without such holder having obtained possession of the Facility or the
Leased Premises, then such holder shall have such additional time as may be
reasonably necessary under the circumstances to obtain possession of the
Facility or the Leased Premises, and thereafter to cure the default with
reasonable diligence and continuity.
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ARTICLE XXVI
INTENTIONALLY OMITTED.
ARTICLE XXVII
MISCELLANEOUS
27.1. Landlord's Right to Inspect.
Landlord, its agents, servants or employees, or any other
persons authorized in writing by Landlord may enter the Leased Property at
reasonable hours and upon forty-eight (48) hours written notice to Tenant to:
(a) inspect the same, including conducting such tests as Landlord may require,
(b) determine whether Tenant is complying with its obligations under Section
7.3, or (c) comply with any Legal Requirements (hereinafter collectively the
"Inspection"); provided, however, that the Inspection shall be done as promptly
as reasonably possible and so as to cause as little interference to Tenant as
reasonably possible. Landlord shall use reasonable efforts not to interfere with
Tenant's business when it enters the Premises. Such Inspections shall be subject
to any security, health, safety or confidentiality requirements relating to the
Leased Property, or imposed by law or applicable regulations. Landlord shall
indemnify Tenant for all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Tenant by reason of Landlord's willful misconduct or gross negligence during any
inspection pursuant to this Section 27.1. Notwithstanding any provision of this
Section 27.1 to the contrary, Landlord shall be entitled to enter the Leased
Property without notice in the event of an emergency.
27.2. No Waiver.
No failure by Landlord to insist upon the strict performance
of any term of this Lease or to exercise any right, power or remedy consequent
upon a breach of this Lease, and no acceptance of full or partial payment of
Rent during the continuance of any such breach, shall constitute a waiver of any
such breach or of any such term. To the extent permitted by law, no waiver of
any breach shall affect or alter this Lease, each of which shall continue in
full force and effect with respect to any other then existing or subsequent
breach.
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27.3. Remedies Cumulative.
To the extent permitted by law, each legal, equitable or
contractual right, power and remedy of Landlord now or hereafter provided in
this Lease or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power and remedy. The exercise or
beginning of the exercise by Landlord of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise by
Landlord of any or all of the such other rights, powers and remedies.
27.4. Acceptance of Surrender.
No surrender to Landlord of this Lease or of the Leased
Property or any part thereof, or of any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Landlord and no act by
Landlord or any representative or agent of Landlord, other than such a written
acceptance by Landlord, shall constitute an acceptance of any such surrender.
27.5. No Merger of Title.
There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly, (a) this Lease or the leasehold estate
created hereby or any interest in this Lease or such leasehold estate and (b)
the fee estate in the Leased Property.
27.6. Conveyance by Landlord.
If Landlord shall convey the Leased Property in accordance
with the terms hereof other than as security for a debt, Landlord shall, upon
the written assumption by the transferee of the Leased Property of all
liabilities and obligations of this Lease be released from all future
liabilities and obligations under this Lease arising or accruing from and after
the date of such conveyance or other transfer as to the Leased Property. All
such future liabilities and obligations shall thereupon be binding upon the new
owner.
27.7. Quiet Enjoyment.
So long as Tenant shall pay all Rent as the same becomes due
and shall fully comply with all of the terms of this Lease and fully perform its
obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy
the Leased Property for the Term hereof, free of any claim or other action by
Landlord or anyone claiming by, through or under Landlord, but subject to all
liens and encumbrances of record as of the date hereof and all Landlord's
Encumbrances.
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27.8. Notices.
All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties at the addresses below:
If to Landlord:
ET-Sub-Berkshire Limited Partnership, L.P.
c/o Elder Trust
101 East State Street, Suite 100
Kennett Square, Pennsylvania 19348
Attention: D. Lee McCreary, Jr.,
President and Chief Executive Officer
Telephone: (610) 925-4200
Telecopy: (610 925-4351
If to Tenant:
Assisted Living Associates of Berkshire, Inc.
101 East State Street
Kennett Square, Pennsylvania 19348
Attention: Law Department
Telephone: (610) 444-6350
Telecopy: (610) 925-4242
Any notice under this Lease shall be deemed to have been given (a) when
personally delivered; (b) on the next business day after it is delivered to a
nationally recognized overnight commercial carrier (charges prepaid); or (c) on
the third day after it is deposited in any depository regularly maintained by
the United States Postal Service, postage prepaid, certified or registered mail,
return receipt requested. Either Landlord or Tenant may change its address or
addresses for purposes of this Section 27.8 by giving ten (10) days' prior
written notice in accordance with this Section 27.8.
27.9. Survival of Claims.
With the exception of the indemnities set forth in Article IX
hereof, all claims against, and liabilities of, Tenant or Landlord arising prior
to any date of termination of this Lease shall survive such termination for a
period of one (1) year following termination.
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27.10. Invalidity of Terms or Provisions.
If any term or provision of this Lease or any application
thereof shall be invalid or unenforceable, the remainder of this Lease and any
other application of such term or provision shall not be affected thereby.
27.11. Prohibition Against Usury.
If any late charges provided for in any provision of this
Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
27.12. Amendments to Lease.
Neither this Lease nor any provision hereof or thereof may be
changed, waived, discharged or terminated except by an instrument in writing and
in recordable form signed by Landlord and Tenant.
27.13. Successors and Assigns.
All the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto. All permitted assignees or
sublessees shall be subject to the terms and provisions of this Lease.
27.14. Titles.
The headings in this Lease are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof or thereof.
27.15. Governing Law.
This Lease shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania (but not including its
conflict of laws rules).
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27.16. Memorandum of Lease.
Landlord and Tenant shall, promptly upon the request of
either, enter into a short form memorandum of this Lease (a "Memorandum of
Lease"), in form and substance reasonably satisfactory to Landlord and suitable
for recording in the State. Tenant shall pay all costs and expenses of recording
such Memorandum of Lease.
27.17. Attorneys' Fees.
In the event of any dispute between the parties hereto
involving the covenants or conditions contained in this Lease or arising out of
the subject matter of this Lease, the prevailing party shall be entitled to
recover against the other party reasonable attorneys' fees and expenses. Any
reference in this Lease (including, without limitation, this Section 27.17) to
attorneys' fees and expenses shall be deemed to include, without limitation, all
reasonable costs for administrative, paralegal and support staff, and all
reasonable travel expenses.
27.18. Non-Recourse as to Landlord.
Anything contained herein to the contrary notwithstanding, any
claim based on or in respect of any liability of Landlord under this Lease shall
be enforced only against the Leased Property and, subject and subordinate to any
other valid lien thereon, any insurance and/or condemnation proceeds with
respect to the Leased Property, and not against any other assets, properties or
funds of (a) Landlord, (b) any trustee, director, officer, general partner,
limited partner, member, manager, employee or agent of Landlord, or with respect
to any general partner of Landlord, any of their respective general partners,
stockholders, or members (or any legal representative, heir, estate, successor
or assign of any thereof), (c) any predecessor or successor partnership or
corporation (or other entity) of Landlord, or any of their respective general
partners, either directly or through either Landlord or their respective general
partners or any predecessor or successor partnership, limited liability company
or corporation or their stockholders, officers, directors, members, managers,
employees or agents (or other entity), or (d) any other Person affiliated with
any of the foregoing, or any trustee, director, officer, member, manager,
employee or agent of any thereof.
27.19. No Relationship.
Landlord shall in no event be construed for any purpose to be
a partner, joint venturer or associate of Tenant or of any subtenant, operator,
concessionaire or licensee of Tenant with respect to the Leased Property or
otherwise in the conduct of their respective businesses.
80
27.20. Signs; Reletting.
If Tenant does not timely exercise its option to extend or
further extend the Term in accordance with the provisions of Section 2.3, or if
an Event of Default occurs, then Landlord shall have the right during the
remainder of the Term then in effect (i) to advertise the availability of the
Leased Property for sale or reletting but not to erect upon the Leased Property
signs indicating such availability and (ii) to show the Leased Property to
prospective purchasers or tenants or their agents at such reasonable times as
Landlord may elect.
27.21. Further Assurances.
In addition to the obligations required to be performed under
this Lease by Tenant and Landlord, the parties shall perform, from time to time,
such other acts and shall execute, acknowledge or deliver such other
instruments, documents and other materials as the other party may reasonably
request in order to consummate the transaction contemplated by this Lease,
including, without limitation, executing and delivering any modification,
addendum or amendment required by Landlord, to restructure rent payments so that
income from this Lease will be qualified income in connection with qualification
as a real estate investment trust; provided however, that such modification,
addendum or amendment shall not materially affect either party's economic
position with respect to this Lease.
27.22. Arbitration.
Except with regard to the payment of Rent, in case any
controversy shall arise between the parties hereto as to any of the requirements
of this Lease or the performance of any obligations under this Lease, which the
parties shall be unable to settle by agreement or as otherwise provided herein,
such controversy shall be determined by arbitration to be initiated and
conducted as provided in Exhibit F hereto.
27.23. Licenses.
Upon the expiration or earlier termination of this Lease,
Tenant shall use its best efforts to transfer to Landlord or Landlord's nominee
and shall cooperate with Landlord or Landlord's designee or nominee in
connection with the processing by Landlord or Landlord's designee or nominee of
any applications for all licenses, operating permits and other governmental
authorizations, all contacts, including contracts with governmental or
quasi-governmental entities, business records, data, patient and resident
records, and patient and resident trust accounts, which may be necessary or
useful for the operation of the Facility; provided that the costs and expenses
of any such transfer or the processing of any such application shall be paid by
Landlord or Landlord's designee or nominee. Tenant shall not commit any act or
81
be remiss in the undertaking of any act that would jeopardize the licensure or
certification of the Facility, and Tenant shall comply with all requests for an
orderly transfer of the same upon the expiration or early termination of the
Term. In addition, upon request, Tenant shall promptly deliver copies of all
books and records relating to the Leased Property and its operation to Landlord
or Landlord's designee or nominee but Tenant shall not be required to deliver
corporate financial records or proprietary materials. Tenant shall indemnify,
defend, protect and hold harmless Landlord from and against any and all loss,
damage, cost or expense incurred by Landlord or Landlord's designee or nominee
in connection with the correction of any and all deficiencies of a physical
nature identified by any governmental authority responsible for licensing the
Leased Property in the course of any change of ownership inspection and audit
and previously identified during the Term by such governmental authority.
27.24. Counterparts.
To facilitate execution, this Lease may be executed in as many
counterparts as may be required. It shall not be necessary that the signature of
or on behalf of each party appears on each counterpart, but it shall be
sufficient that the signature of or on behalf of each party appears on one or
more of the counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in any proof of this Lease to
produce or account for more than a number of counterparts containing the
respective signatures of or on behalf of all of the parties.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease as of the date first above written.
ET SUB-BERKSHIRE LIMITED PARTNERSHIP, L.P., a Delaware
limited partnership
By: ET Berkshire, LLC, general partner
By: Elder Trust Operating Limited
Partnership, sole member
By:
--------------------------
Its:
--------------------------
"Landlord"
ASSISTED LIVING ASSOCIATES OF
BERKSHIRE,INC., a Pennsylvania
corporation
By:
-----------------------------------
Its:
----------------------------------
"Tenant"
82
EXHIBIT A
---------
LEGAL DESCRIPTION OF LAND
-------------------------
[TO BE ATTACHED]
A-1
EXHIBIT B
---------
[INTENTIONALLY DELETED]
B-1
EXHIBIT C
---------
APPRAISAL PROCESS
-----------------
If Landlord and Tenant are unable to agree upon the fair
market value of the Leased Property or the fair market rental value of the
Leased Property within any relevant period provided in this Lease, each shall
within ten (10) days after written demand by the other select one MAI Appraiser
(as defined below) to participate in the determination of fair market value. For
all purposes under this Lease, the fair market value of the Leased Property
shall be the fair market value of the Leased Property unencumbered by this
Lease. Within ten (10) days of such selection, the MAI Appraisers so selected by
Landlord and Tenant shall select a third MAI Appraiser ("Third MAI Appraiser").
The three (3) selected MAI Appraisers shall each determine the fair market value
of the Leased Property or the fair market rental value of the Leased Property,
as applicable, within thirty (30) days of the selection of the third appraiser.
The fees and expenses of any MAI Appraiser retained pursuant to this Exhibit C
shall be borne by the party retaining such MAI Appraiser, with the exception of
the Third MAI Appraiser whose fees and expenses shall be borne by the Landlord
and Tenant equally.
In the event either Landlord or Tenant fails to select an MAI
Appraiser within the time period set forth in the foregoing paragraph, the MAI
Appraiser selected by the other party shall alone determine the fair market
value of the Leased Property or the fair market rental value of the Leased
Property, as applicable, in accordance with the provisions of this Exhibit C and
the fair market value so determined shall be binding upon Landlord and Tenant.
In the event the MAI Appraisers selected by Landlord and
Tenant are unable to agree upon a third MAI Appraiser within the time period set
forth in the first paragraph of this Exhibit C, either Landlord or Tenant shall
have the right to apply at Tenant's expense to the presiding judge of the court
of original trial jurisdiction in the jurisdiction in which the Leased Property
is located to name the third MAI Appraiser.
Within five (5) days after completion of the third MAI
Appraiser's appraisal, all three MAI Appraisers shall meet and a majority of the
MAI Appraisers shall attempt to determine the fair market value of the Leased
Property or the fair market rental value of the Leased Property, as applicable.
If a majority are unable to determine the fair market value at such meeting, the
three appraisals shall be added together and their total divided by three. The
resulting quotient shall be the fair market value of the Leased Property. If,
however, either or both of the low appraisal or the high appraisal are more than
ten percent (10%) lower or higher than the middle appraisal, any such lower or
higher appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by two,
and the resulting quotient shall be such fair market value. If both the lower
appraisal and higher appraisal are disregarded as provided herein, the middle
appraisal shall be such fair market value. In any event, the result of the
foregoing appraisal process shall be final and binding.
C-1
For purposes hereof, "MAI Appraiser" shall mean an appraiser
licensed or otherwise qualified to do business in the State where the Leased
Property is located and who has substantial experience in performing appraisals
of facilities similar to the Leased Property and is certified as a member of the
American Institute of Real Estate Appraisers or certified as a SRPA by the
Society of Real Estate Appraisers, or, if such organizations no longer exist or
certify appraisers, such successor organization or such other organization as is
approved by Landlord.
C-2
EXHIBIT D
---------
FORM OF GUARANTEE
-----------------
[TO BE ATTACHED]
D-1
EXHIBIT E
---------
[INTENTIONALLY DELETED]
E-1
EXHIBIT F
---------
ARBITRATION
-----------
Any controversy, dispute or claim arising out of or relating
to this Lease, any modification or extension hereof or thereof, or any breach
hereof or thereof (including the question whether any particular matter is
subject to arbitration hereunder) shall be settled exclusively by arbitration,
in Philadelphia, Pennsylvania in accordance with the rules of the American
Arbitration Association then in force (the "Rules"). The party requesting
arbitration shall serve upon the other party to the controversy, dispute or
claim a written demand for arbitration stating the substance of the controversy,
dispute or claim and the contention of the party requesting arbitration and the
name and address of the arbitrator appointed by it. The recipient of such demand
shall within twenty (20) days after such receipt appoint an arbitrator, and the
two arbitrators shall appoint a third. The decision or award of any two
arbitrators shall be final and binding upon the parties. In the event that the
two arbitrators fail to appoint a third arbitrator within twenty (20) days of
the appointment of the second arbitrator, either arbitrator, or either party to
the arbitration, may apply to a judge of the United States District Court for
the Eastern District of Pennsylvania for the appointment of the third
arbitrator, and the appointment of such arbitrator by such judge on such
application shall have precisely the same force and effect as if such arbitrator
had been appointed by the two arbitrators. If for any reason the third
arbitrator cannot be appointed in the manner prescribed by the preceding
sentence, either regularly appointed arbitrator, or either party to the
arbitration, may apply to the American Arbitration Association for appointment
of the third arbitrator in accordance with the Rules. Should the party upon whom
the demand for arbitration has been served fail or refuse to appoint an
arbitrator within twenty (20) days, the single arbitrator shall have the right
to decide alone, and such arbitrator's decision or award shall be final and
binding upon the parties.
Each arbitrator chosen by a party shall be a fit person, and
the third arbitrator however chosen shall be a fit and impartial person, in each
case having at least ten (10) years experience in litigating, adjudicating or
otherwise administering cases and controversies related to the subject matter of
the controversy, dispute or claim being submitted to arbitration.
The parties hereto agree to abide by all awards and decisions
rendered in an arbitration proceeding in accordance with the foregoing, and all
such awards and decisions may be filed by the prevailing party with any court
having jurisdiction over the person or property of the other party as a basis
for judgment and the issuance of execution thereon. The fees of each arbitrator
and related expenses of arbitration shall be borne by the party not prevailing
in the arbitration.
Unless otherwise agreed by the parties to the arbitration, all
hearings shall be held, and all submissions shall be made by the parties, within
ten (10) days of the date of the selection of the third arbitrator, and the
decisions of the arbitrators shall be made within thirty (30) days of the later
of the date of the closing of the hearings or the date of the final submissions
by the parties.
F-1
The parties consent to the jurisdiction of the Supreme Court
of the Commonwealth of Pennsylvania and of the United States District Court for
the Eastern District of Pennsylvania, for all purposes in connection with the
arbitration. The parties consent that any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested, or by
personal service, or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed.
F-2
SCHEDULE 3
----------
SIMULTANEOUS LEASES
-------------------
1. Lease Agreement by and between ET SUB-Berkshire Limited Partnership, L.P., as
Landlord, and Assisted Living Associates of Berkshire, Inc., as Tenant.
2. Lease Agreement by and between ET SUB-Lehigh Limited Partnership, L.P., as
Landlord, and Assisted Living Associates of Lehigh, Inc., as Tenant.
3. Lease Agreement by and between ET SUB - Sanatoga Limited Partnership, L.P.,
as Landlord, and Assisted Living Associates of Sanatoga, Inc., as Tenant.
SCHEDULE 4
----------
LANDLORD'S PERSONAL PROPERTY
----------------------------
[TO BE PROVIDED]
SCHEDULE 5
----------
IMMEDIATE TENANT REPAIRS
------------------------
Estimated
Cost
Repair deficiencies in fire suppression system as described in $5,000
the EMG draft Property Condition Assessment Report for Berkshire
Commons dated March, 1, 2000, updated October 24, 2000.
SCHEDULE 6
----------
TENANT'S PERSONAL PROPERTY
--------------------------
TENANT'S PERSONAL PROPERTY SHALL CONSIST OF SPECIALIZED AND PROPRIETARY
SOFTWARE, OPERATING MANUALS AND SUCH OTHER ITEMS OF PERSONAL PROPERTY WHICH ARE
ELECTRICALLY OR OPERATIONALLY CONNECTED TO THE OPERATING SYSTEMS OF THE
GUARANTOR OR ITS AFFILIATED COMPANY, GENESIS HEALTH VENTURES, INC., INCLUDING
FOR EXAMPLE, INTERCONNECTED ELECTRONIC TIME CLOCKS, SO LONG AS A
NON-INTERCONNECTED ITEM OF EQUAL VALUE REMAINS.
EXHIBIT "C"
INDIVIDUAL MODIFICATIONS TO FACILITY LEASES
1. The Landlords for the individual Lease Agreements shall be as
follows:
a. ET Sub-Berkshire Limited Partnership
b. ET Sub-Lehigh Limited Partnership
c. ET Sub-Sanatoga Limited Partnership
2. The Tenants for the individual Lease Agreements shall be as
follows:
a. Assisted Living Associates of Berkshire, Inc.
b. Assisted Living Associates of Lehigh, Inc.
c. Assisted Living Associates of Sanatoga, Inc.
3. Minimum Rent - The Minimum Rent (as defined in Article I) for
each Facility shall be as follows:
a. Berkshire: $282,391.00
b. Lehigh: $108,860.00
c. Sanatoga: $400,310.00
4. Security Deposit - The Security Deposit (as defined in Section
8.1) for each Facility shall be as follows:
a. Berkshire: $ 94,000.00
b. Lehigh: $ 36,000.00
c. Sanatoga: $133,000.00
5. Operating Capacity - The Operating Capacity (as defined in
Article I) for each Facility shall be as follows:
a. Berkshire: 75 beds
b. Lehigh: 75 beds
c. Sanatoga: 85 beds
6. Exhibit A - Legal Description of Land (as referenced in
Section 2.1) shall differ in each individual Facility Lease.
7. Schedule 4 - Landlord's Personal Property (as referenced in
Section 2.1) shall differ in each individual Facility Lease.
-25-
8. Schedule 5 - Immediate Tenant Repairs (as referenced in
Section 5.2) shall differ in each individual Facility Lease.
-26-
EXHIBIT "D"
FORM OF LEASE GUARANTY
LEASE GUARANTY AND SURETYSHIP AGREEMENT
(Berkshire)
THIS LEASE GUARANTY AND SURETYSHIP AGREEMENT (sometimes herein referred
to as the Guaranty), dated as of the ________ day of ____________, 2000 by
GENESIS ELDERCARE CORP., a Pennsylvania corporation, having an address at 101
East State Street, Kennet Square, Pennsylvania 19348 (the Guarantor) in favor of
ET SUB-BERKSHIRE LIMITED PARTNERSHIP, L.P., having an address at 101 East State
Street, Kennett Square, Pennsylvania 19348 (the Landlord).
WITNESSETH:
WHEREAS, Assisted Living Associates of Berks, Inc., (the Tenant) and
Landlord have entered into a certain lease agreement dated of even date herewith
for the real property and buildings and improvements known as Berkshire Commons,
a/k/a Park Lane Commons at Berkshire, Reading, Pennsylvania (the Lease);
WHEREAS, The Multicare Companies Inc., a Delaware
Corporation (Multicare) is a wholly owned subsidiary of the
Guarantor; and
WHEREAS, the Tenant is a wholly owned subsidiary of Multicare; and
WHEREAS, Landlord has required that the Guarantor guaranty and act as
surety for Tenants performance under the Lease in the manner hereinafter set
forth as a condition to the effectiveness of the Lease; and
WHEREAS, the Guarantor shall receive direct and indirect benefits from
the entry by the Landlord into the Lease with Tenant.
NOW, THEREFORE, to induce the Landlord to enter into the Lease,
Guarantor hereby agrees as follows:
1. The Guarantor unconditionally guarantees to the Landlord and agrees
to be surety for the full and punctual payment, performance and observance by
the Tenant, of all the terms, covenants and conditions in the Lease contained on
Tenants part to be kept, performed or observed. This Guaranty shall include any
liability of Tenant that shall accrue under the Lease for any period preceding
as well as any period following the term in the Lease specified. Without
limitation of the foregoing, if at any time Tenant shall default in the payment,
performance or observance of any of the terms, covenants or conditions in the
Lease contained on the Tenants part to be kept, performed or observed, the
Guarantor will keep, perform and observe the same, as the case may be, in place
and stead of the Tenant.
2. The Guarantor hereby waives: (a) notice of acceptance of this
Guaranty; (b) presentment and demand for any payments due Landlord; (c) protest
and notice of dishonor or default to the Guarantor or to any other person or
party with respect to the terms of the Lease or any portion thereof; (d) notice
of Tenants nonpayment, nonperformance or nonobservance, other than as expressly
required under the Lease.
3. This is a guaranty of performance and payment and not of collection,
and the Guarantor waives any right to require that any action be brought against
the Tenant or to require that resort be had to any credit on the books of the
Landlord in favor of the Guarantor or any other person or party.
4. Any act of the Landlord, or the successors or assigns of the
Landlord, consisting of a waiver of any of the terms or conditions of the Lease,
or the giving of any consent to any manner or thing relating to the Lease, or
the granting of any indulgences or extensions of time to the Tenant, may be done
without notice to the Guarantor and without releasing the obligations of the
Guarantor hereunder.
5. The obligations of the Guarantor hereunder shall not be released by
Landlords receipt, application or release of security given for the performance
and observance of covenants and conditions in the Lease contained on Tenants
part to be performed or observed; nor by any modification of the Lease, but in
case of any such modification, the liability of the Guarantor shall be deemed
modified in accordance with the terms of any such modification of the Lease.
6. The obligations, covenants and agreements of Guarantor under this
Guaranty shall in no way be affected or impaired by reason of the happening from
time to time of any of the following, although without notice to or the further
consent of Guarantor:
(a) the waiver by Landlord of the performance or observance by
Guarantor, Tenant or any other party of any of the agreements,
covenants or conditions contained in the Lease or this
Guaranty;
(b) the extension, in whole or in part, of the time for
payment by Guarantor or Tenant of any sums owing or payable
under the Lease or this Guaranty, or of any other sums or
obligations under or arising out of or on account of the Lease
or this Guaranty, or the renewal of the Lease or this
Guaranty;
(c) any assignment of the Lease or subletting of the Premises
or any part thereof;
(d) the modification or amendment (whether material or
otherwise) of any of the obligations of Guarantor or Tenant
under the Lease or this Guaranty;
(e) the doing or the omission of any of the acts referred to
in the Lease or this Guaranty (including, without limitation,
the giving of any consent referred to therein);
(f) any failure, omission or delay on the part of Landlord to
enforce, assert or exercise any right, power or remedy
conferred on or available to Landlord in or by the Lease or
this Guaranty, or any action on the part of Landlord granting
indulgence or extension in any form whatsoever;
-2-
(g) the voluntary or involuntary liquidation, dissolution,
sale of all or substantially all of the assets, marshaling of
assets and liabilities, receivership, conservatorship,
insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or
readjustment of, or other similar proceeding affecting Tenant
or Guarantor or any of its assets; or
(h) the release of Guarantor or Tenant from the performance or
observance of any of the agreements, covenants, terms or
conditions contained in the Lease or this Guaranty by
operation of law.
7. Until all the covenants and conditions in the Lease to be performed
and observed on the Tenants part are fully and indefeasibly performed and
observed, the Guarantor: (a) shall have no right of subrogation against the
Tenant by reason of any payments or acts of performance by the Guarantor, in
compliance with the obligations of the Guarantor hereunder; (b) subordinates to
the rights of Landlord any right to enforce any remedy which the Guarantor now
or hereafter shall have against the Tenant by reason of any one or more payment
or acts of performance in compliance with the obligations of the Guarantor
hereunder; and (c) subordinates any liability or indebtedness of the Tenant now
or hereafter held by the Guarantor to the obligations of the Tenant to the
Landlord under the Lease.
8. This Guaranty shall apply to the Lease, any extension or renewal
thereof and to any holdover term following the term thereby granted.
9. The Guarantor represents and warrants to Landlord that, as of the
date hereof:
(a) It is a Pennsylvania corporation, duly constituted and validly
existing under the laws of such state, and has the power and authority to own
its assets and to conduct its business.
(b) It has full corporate power and authority to execute and deliver
this Guaranty and to perform its obligations hereunder.
(c) This Guaranty has been duly authorized, executed and delivered by
the Guarantor and constitutes the legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms.
(d) The Tenant is a wholly owned subsidiary of Multicare, and Multicare
is a wholly owned subsidiary of the Guarantor.
(e) All recent financial statements and other information concerning
the Guarantor delivered to the Landlord by or on behalf of the Tenant or the
Guarantor are true, correct and complete in all material respects, fairly
represent Guarantors financial condition as of the date hereof and thereof, and
no information has been omitted which would make the information previously
furnished misleading or incorrect in any material respect.
(f) All consents, approvals, filings and registrations with or of any
court, governmental authority or regulatory body or any political subdivision
thereof required in connection with the execution, delivery and performance by
the Guarantor of the Guaranty have been obtained or made; and the execution,
delivery and performance by the Guarantor of this Guaranty will not conflict
with or result in a violation of any of the terms or provisions of, or
constitute a default under, any law or the regulations thereunder,
organizational documents of the Guarantor, or any material agreement or material
instrument to which the Guarantor is a party or by which it is bound.
-3-
(g) The execution, delivery and performance of this Guaranty
constitutes private and commercial acts rather than public or governmental acts.
10. Each notice and other communication under this Guaranty shall be in
writing. Each notice, communication or document to be delivered to any party
under this Guaranty shall be sent by hand delivery or facsimile transmission
(promptly confirmed by courier) to it at the address herein contained, and
marked for the attention of the person (if any), from time to time designated by
such party for the purpose of this Guaranty. The initial address and person (if
any) so designated by each party are set out opposite such partys signature to
this Guaranty. Any communication or document shall be deemed to be received, if
sent by facsimile transmission, when the recipient confirms legible transmission
thereof or, if sent by hand delivery or by courier, when delivered at the
address specified by the addressee for purposes of this Guaranty.
11. Solely with respect to any suit, action or proceeding arising out
of or relating to this Guaranty (each, a Proceeding), the Guarantor hereby
irrevocably submits to the jurisdiction of any United States federal or state
court sitting in the Commonwealth of Pennsylvania. The Guarantor hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such Proceeding
brought in such court and any claim that any such Proceeding brought in such
court has been brought in an inconvenient forum. The Guarantor hereby agrees
that a final, non-appealable judgment in any such Proceeding brought in such
court shall be conclusive and binding upon it.
12. Each reference herein to the Landlord shall be deemed to include
its successors and assigns, in whose favor the provisions of this Guaranty shall
also inure. Each reference herein to the Guarantor shall be deemed to include
any permitted successors and assigns of the Guarantor (including any successor
entity resulting from a merger or consolidation), in whose favor the provisions
of this Guaranty shall also inure and all of whom shall be bound by the
provisions of this Guaranty. In connection therewith, the Guarantor shall
execute such reaffirmations of this Guaranty as may be reasonably requested from
time to time by the Landlord. Notwithstanding the foregoing, it is hereby agreed
that Guarantor shall have no rights to transfer or assign this Guaranty by
operation of law or otherwise, without the express written consent of the
Landlord, which consent may be withheld by the Landlord in the Landlords sole
discretion, and any such transfer or assignment made without the Landlords
consent shall be null and void and shall be deemed a default hereunder.
13. No delay on the part of the Landlord in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of such
rights; no notice to or demand on the Guarantor shall be deemed to be a waiver
of the obligation of the Guarantor or of the right of the Landlord to take
further action without notice or demand as provided herein; nor in any event
shall any modification or waiver of the provisions of this Guaranty be effective
unless in writing nor shall any such waiver be applicable except in the specific
instance for which given.
-4-
14. In the event of a default under any of the terms of the Lease,
Landlord shall have the right to proceed directly and immediately against the
Guarantor and such proceeding is not to be deemed an irrevocable election of
remedies.
15. This Guaranty is, and shall be deemed to be entered into, under and
pursuant to the laws of the Commonwealth of Pennsylvania and shall be in all
respects governed, construed, applied and enforced in accordance with the laws
of said Commonwealth; and no defense given or allowed by the laws of any other
state or country shall be interposed in any action or proceeding hereon unless
such defense is also given or allowed by the laws of the Commonwealth of
Pennsylvania.
16. Guarantor shall furnish to Landlord, as soon as practicable, and in
any event within thirty (30) days after the end of each month during the Term of
the Lease, an unaudited consolidated balance sheet of Guarantor as at the end of
such month and unaudited consolidated statement of income and expense of
Guarantor for each such month, and for that part of Guarantors fiscal year to
date. In addition, within one hundred twenty (120) days of the end of each
fiscal year of Tenant during the Term of the Lease, Guarantor shall provide
Landlord with an audited consolidated balance sheet of Guarantor as of the end
of such fiscal year and an audited consolidated statement of income and
consolidated cash flow of Guarantor for such fiscal year, setting forth in each
case, in comparative form, the corresponding figures for the preceding fiscal
year, prepared in accordance with GAAP, and a copy of its financial statements
for such year certified by an appropriate officer of Guarantor and audited by an
independent certified public accountant. Landlord may provide such financial
statements to its consultants, lenders and investors, but otherwise shall not
provide the financial statements to third parties without the prior consent of
Guarantor.
17. This instrument may not be changed, modified, discharged or
terminated orally or in any manner other than by an agreement in writing signed
by the Guarantor and the Landlord.
18. If any term or provision of this Guaranty or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Guaranty, or the application of such term
or provision to persons or circumstances other than those to which it is held
invalid or unenforceable, shall not be affected thereby and all other terms and
provisions of this Guaranty shall be valid and enforced to the fullest extent
permitted by law.
19. THE GUARANTOR AND THE LANDLORD AGREE THAT ANY SUIT, ACTION OR
PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY THE LANDLORD OR THE
GUARANTOR ON OR WITH RESPECT TO THIS GUARANTY OR THE LEASE, SHALL BE TRIED ONLY
BY A COURT AND NOT BY A JURY. THE LANDLORD AND THE GUARANTOR EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN
ANY SUCH SUIT, ACTION OR PROCEEDING.
-5-
IN WITNESS WHEREOF, the Guarantor has hereunto executed and delivered
this Guaranty as of the day and year first above written.
Witness: GENESIS ELDERCARE CORP.
By:
- ------------------------------- ---------------------------------
Name:
Title:
-6-
EXHIBIT "E"
ET FINANCIAL STATEMENTS
-28-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-13807
ElderTrust
(Exact name of registrant as specified in its charter)
Maryland 23-2932973
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or
organization)
101 East State Street, Suite 100, Kennett Square, PA 19348
(Address of principal executive offices) (Zip Code)
(610) 925-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 10, 2000
- ------------------------------------- ----------------------------------
Common shares of beneficial interest, 7,119,000
$0.01 par value per share
Exhibit index is located on page 37
ELDERTRUST
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999....................................................... 1
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 2000 and 1999....................... 2
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999................................ 3
Notes to Unaudited Condensed Consolidated Financial Statements................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 34
PART II: OTHER INFORMATION
Item 3. Defaults Upon Senior Securities................................................. 35
Item 6. Exhibits and Reports on Form 8-K................................................ 35
SIGNATURES........................................................................................ 36
EXHIBIT INDEX..................................................................................... 37
i
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
ELDERTRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
September 30, December 31,
2000 1999
---------------- ---------------
ASSETS
Assets:
Real estate properties, at cost $165,719 $165,206
Less - accumulated depreciation (14,565) (10,180)
Land 16,693 16,655
-------- --------
Net real estate properties 167,847 171,681
Real estate loans receivable, net of allowance of $18,106 and $0, respectively 30,540 48,646
Cash and cash equivalents 2,925 3,605
Restricted cash 7,633 7,194
Accounts receivable, net 373 629
Accounts receivable from unconsolidated entities 2,073 1,068
Prepaid expenses 412 1,000
Investment in and advances to unconsolidated entities, net of allowance of
$1,187 and $0, respectively 19,714 31,129
Other assets, net of accumulated amortization and depreciation of $2,673 and
$2,148, respectively 1,471 1,530
-------- --------
Total assets $232,988 $266,482
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank credit facility $ 38,977 $ 39,670
Accounts payable and accrued expenses 1,380 1,535
Accounts payable to unconsolidated entities 872 13
Mortgages and bonds payable 108,141 109,005
Notes payable to unconsolidated entities 1,032 1,079
Other liabilities 3,482 3,751
-------- --------
Total liabilities 153,884 155,053
-------- --------
Minority interest 5,736 7,989
Shareholders' Equity:
Preferred shares, $.01 par value; 20,000,000 shares authorized; none
outstanding - -
Common shares, $.01 par value; 100,000,000 shares authorized; 7,119,000 shares
issued and outstanding 71 71
Capital in excess of par value 119,106 119,106
Distributions in excess of earnings (45,809) (14,747)
Note receivable from former officer for common shares sold, net - (990)
-------- --------
Total shareholders' equity 73,368 103,440
-------- --------
Total liabilities and shareholders' equity $232,988 $266,482
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
1
ELDERTRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues:
Rental revenues $4,692 $4,662 $14,058 $13,884
Interest, net of amortization of deferred loan
origination costs 491 1,350 2,801 4,368
Interest from unconsolidated equity investees 771 959 2,482 2,850
Other income 37 51 155 90
------ ------- -------- --------
Total revenues 5,991 7,022 19,496 21,192
------ ------- -------- --------
Expenses:
Property operating expenses 244 277 852 848
Interest expense, including amortization of
deferred finance costs 3,561 3,422 10,448 9,578
Depreciation 1,458 1,439 4,399 4,332
General and administrative 649 564 2,661 2,026
Bad debt expense 15 - 20,282 -
Separation agreement expenses -- - - 2,800
------ ------- -------- --------
Total expenses 5,927 5,702 38,642 19,584
------ ------- -------- --------
Net income (loss) before equity in losses of
unconsolidated entities, minority interest and
extraordinary items 64 1,320 (19,146) 1,608
Equity in losses of unconsolidated entities, net (688) (657) (9,570) (1,877)
Minority interest 40 (46) 1,926 13
------ ------- -------- --------
Net income (loss) before extraordinary item (584) 617 (26,790) (256)
Extraordinary item:
Extinguishment of debt - 1,296) - (1,296)
Minority interest in extraordinary item - 86 - 86
------ ------- -------- --------
Net loss ($584) ($593) ($26,790) ($1,466)
====== ======= ======== ========
Basic and diluted weighted average number of common
shares outstanding 7,119 7,201 7,119 7,206
====== ======= ======== ========
Net income (loss) per share before extraordinary item
- basic and diluted ($0.08) $0.09 ($3.76) ($0.04)
======= ======== ======== ========
Net loss per share - basic and diluted ($0.08) ($0.08) ($3.76) ($0.20)
======= ======== ======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
2
ELDERTRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine months ended
September 30,
-----------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($26,790) ($1,466)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 4,999 5,707
Provision for bad debts 20,282 -
Extraordinary loss on extinguishment of debt - 1,296
Non-cash separation expense from debt forgiveness to officer - 2,600
Minority interest and equity in losses from unconsolidated entities 7,644 1,778
Net changes in assets and liabilities:
Accounts receivable and prepaid expenses (932) 2,735
Accounts payable and accrued expenses 704 421
Other 440 (105)
-------- --------
Net cash provided by operating activities 6,347 12,966
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate loans receivable - (5,096)
Payments received on real estate loans receivable - 4,247
Capital expenditures (112) (1,656)
Proceeds from collection on advances to unconsolidated entities 659 720
Net increase in reserve funds and deposits - restricted cash (887) (2,610)
Other - 161
-------- --------
Net cash used in investing activities (340) (4,234)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred financing fees (484) (2,004)
Borrowings under Credit Facility - 9,518
Payments under Credit Facility (693) (23,790)
Proceeds from mortgages payable - 32,695
Payments on mortgages and bonds payable (864) (11,218)
Payments on notes payable - (3,000)
Distributions to shareholders (4,272) (7,885)
Distributions to minority interests (327) (562)
Repurchases of common shares - (424)
Prepayment penalty on mortgage loan - (1,157)
Other (47) (95)
-------- --------
Net cash used in financing activities (6,687) (7,922)
-------- --------
Net increase (decrease) in cash and cash equivalents (680) 810
Cash and cash equivalents, beginning of period 3,605 2,272
-------- --------
Cash and cash equivalents, end of period $2,925 $3,082
======== ========
Supplemental cash flow information:
Cash paid for interest $9,957 $8,484
See accompanying notes to unaudited condensed consolidated financial statements.
3
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of ElderTrust and its consolidated subsidiaries ("ElderTrust" or the "Company")
have been prepared assuming the Company will continue as a going concern. As
discussed in Note 2, Genesis Health Ventures, Inc. ("Genesis"), the Company's
principal tenant, The Multicare Companies, Inc., a 43.6% owned consolidated
subsidiary of Genesis, ("Multicare") and several of their subsidiaries have
filed for reorganization under the provisions of Chapter 11 of the Bankruptcy
Reform Act of 1978 ("Bankruptcy Code"). In addition, the Company has a working
capital deficit of $59.1 million at September 30, 2000, resulting primarily from
the classification of its bank credit facility (the "Credit Facility") with an
outstanding balance of $39.0 million at September 30, 2000 as current based on
its maturity date of June 30, 2001, the classification of two bonds payable
totaling $20.0 million at September 30, 2000 as current based on the Company's
failure since June 30, 2000 to meet the minimum net worth and interest coverage
requirements under guarantee agreements relating to the underlying mortgages and
the classification of one mortgage payable with an outstanding balance of $2.8
million at September 30, 2000 as current based on the bankruptcy filing by
Genesis. The Company also continued not to meet the minimum tangible net worth,
the minimum net asset value and the interest coverage ratio requirements under
the Credit Facility at September 30, 2000.
The interim condensed consolidated financial statements do not include
all of the footnotes for complete financial statements. The December 31, 1999
condensed consolidated balance sheet was derived from audited financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation of the financial statements for the interim periods
presented have been included. Operating results for the three and nine months
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the full fiscal year ending December 31, 2000. Certain amounts
included in the unaudited condensed consolidated financial statements as of and
for the three and nine months ended September 30, 1999 have been reclassified
for comparative purposes.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 1999 included in the Company's
Form 10-K filed with the Securities and Exchange Commission.
2. Certain Significant Risks and Uncertainties
Genesis and Multicare Bankruptcy Filings
On June 22, 2000, Genesis and Multicare announced that they had filed
for Chapter 11 bankruptcy protection following debt restructuring discussions
with their senior lenders.
4
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Approximately 70% of the Company's consolidated assets at September 30,
2000 consisted of real estate properties leased to or managed by subsidiaries of
Genesis and loans on real estate properties made to consolidated and
unconsolidated subsidiaries of Genesis or Multicare. Revenues recorded by the
Company for the nine months ended September 30, 2000 in connection with these
leases and loans totaled $12.9 million, or 66% of the Company's total revenues.
In addition, certain unconsolidated entities of the Company, accounted for under
the equity method, also lease properties to these entities and recognized
revenues of $9.7 million for the same period. The Company's investments in and
advances to such unconsolidated entities totaled $16.2 million at September 30,
2000.
Included in the Company's consolidated assets at September 30, 2000 are
$19.5 million in loans to wholly-owned subsidiaries of Multicare. These loans
are secured by real estate and 20% of the principal balance is guaranteed by
Multicare. The loans have a weighted average annual interest rate of 10.5%.
ElderTrust also has $14.8 million in loans to wholly-owned subsidiaries of
Genesis. These loans are secured by real estate and a 100% guarantee by Genesis.
The loans have a weighted average annual interest rate of 9.3%.
As a result of the Genesis and Multicare bankruptcy filings, the
borrowers ceased making interest payments to the Company during June 2000. It is
not expected that the borrowers on these loans will be permitted to make further
interest payments to the Company unless such payments are approved by the
bankruptcy court. During the bankruptcy reorganization process, the Company will
retain its security position in the collateral underlying the loans. Ultimate
recovery under the loans is dependent upon the value of the assets securing the
loans, which may be determined by the bankruptcy court. To the extent the loan
balance exceeds such collateral, recovery of the difference will be dependent on
the general unsecured creditors' recovery on their prepetition claims. See Note
3 for discussion of the allowance for loan losses recorded by the Company in
relation to these loans.
In addition, a tenant in bankruptcy has the ability to reject executory
contracts, including leases, to which they are a party. In the period before a
lessee elects whether to assume or reject a lease, lessees in bankruptcy are
required to continue to make lease payments. If Genesis rejects one or more of
the leases, the Company would be required to re-lease, operate or sell the
property subject to the rejected leases. Any such alternative may significantly
decrease the Company's cash flow and could significantly and adversely affect
its financial condition and results of operations. If the Company were required
to operate one or more of the properties, it may have insufficient cash flow to
do so. Alternatively, a debtor may assume a lease, in which case it is required
to continue making lease payments.
5
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
As Genesis and Multicare are not currently permitted to make interest
payments to ElderTrust under bankruptcy filing rules, the Company's cash flow
has been significantly reduced. As a result, the Company has suspended further
distributions to its shareholders. The Company believes the distributions made
to shareholders to-date during 2000 will be sufficient to satisfy its REIT
distribution requirements for 2000. The Company believes that it can continue to
meet its debt service requirements after giving effect to this reduction in cash
flow; however, any further reduction in cash flow would significantly and
adversely affect the Company's ability to continue to meet its debt service
requirements and could further significantly and adversely affect its financial
condition and results of operations.
Liquidity
The Company has a working capital deficit of $59.1 million at September
30, 2000, resulting primarily from the classification of the Credit Facility
with an outstanding balance of $39.0 million at September 30, 2000 as current
based on its maturity date of June 30, 2001, the classification of two bonds
payable totaling $20.0 million at September 30, 2000 as current based on the
Company's failure since June 30, 2000 to meet the minimum net worth and interest
coverage requirements under guarantee agreements relating to the underlying
mortgages and the classification of one mortgage payable with an outstanding
balance of $2.8 million at September 30, 2000 as current based on the bankruptcy
filing by Genesis. The Company also continued not to meet the minimum tangible
net worth, the minimum net asset value and the interest coverage ratio
requirements under the Credit Facility at September 30, 2000. If the Company is
unable to pay-off or obtain replacement financing of the Credit Facility by June
30, 2001, or is unable to negotiate a further extension of the current Credit
Facility at that time, or the Company is unable to obtain waivers of the failed
covenants or a forbearance agreement from the lender, the bank could exercise
its right to foreclose on the collateral securing the Credit Facility. If the
Company is unable to obtain waivers of the failed covenants under the bonds and
mortgage payable or a forbearance agreement from the lenders, the lenders could
exercise their rights to accelerate the related indebtedness or foreclose on the
underlying collateral immediately. Foreclosure by the lenders would have a
significant adverse affect on the Company's ability to continue its operations.
The unaudited financial statements do not include adjustments, if any,
to reflect the possible effects on the recoverability and classification of
recorded assets or the amounts and classification of liabilities that may result
from the outcome of the uncertainties related to the matters discussed above
under "Genesis and Multicare Bankruptcy Filings" and "Liquidity."
6
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Real Estate Loans Receivable
The following is a summary of real estate loans receivable (dollars in
thousands):
Stated Scheduled Balance at Balance at
Type of Interest Maturity September 30, December 31,
Property Loan Rate Date 2000 1999
- --------------------------------------- --------------- ------------ ------------- ----------------- -----------------
Harbor Place Melbourne, FL Term 9.5% 6/2000 $ 4,828 $ 4,828(1)
Mifflin Shillington, PA Term 9.5% 6/2000 5,164 5,164(2)
Coquina Place Ormond Beach, FL Term 9.5% 6/2000 4,577 4,577(2)
Lehigh Macungie, PA Term 10.5% 6/2000 6,665 6,665(2)
Berkshire Reading, PA Term 10.5% 6/2000 6,167 6,167(2)
Oaks Wyncote, PA Construction 9.0% 1/2001 5,033 5,033(2)
Montchanin Wilmington, DE Construction 10.5% 8/2000 9,496 9,496(3)
Sanatoga Pottstown, PA Construction 10.5% 1/2001 6,716 6,716(2)
-------- --------
48,646 48,646
Allowance for credit losses (18,106) -
-------- --------
$ 30,540 $ 48,646
======== ========
- --------
(1) This loan went into default on June 22, 2000 when the loan was not repaid
by the borrower upon its maturity. Genesis is the manager of the facility.
(2) These loans went into default on June 22, 2000 when the borrowers ceased
making interest payments to the Company. See Note 2.
(3) This loan went into default on August 1, 2000 when the loan was not repaid
upon its maturity.
The unfunded portion of the Company's construction loan commitments
amounted to $347,000 and $352,000 at September 30, 2000 and December 31, 1999,
respectively. Due to certain defaults by the borrowers under the loan
agreements, the Company believes it is no longer obligated to provide any
further funding.
The Company previously was obligated, or had an option, to purchase and
leaseback, upon the maturity of the related loan or the facility reaching
stabilized occupancy, the eight assisted living facilities underlying the term
and construction loans. The Company believes it is no longer bound by the
purchase and leaseback obligations contained in seven of the loan documents
because the borrowers have, from time to time, not complied with all loan
provisions. The Company did not exercise its option to purchase the remaining
facility, Montchanin, upon its August 1, 2000 maturity date. The Company has
declared this loan, with a principal balance of $9.5 million at September 30,
2000, in default and is pursuing its remedies to collect the amounts due.
The four term loans secured by the Mifflin, Coquina Place, Lehigh and
Berkshire facilities, with a principal balance of $8.9 million at September 30,
2000, net of allowance for credit losses, matured on June 28, 2000. In addition,
the loan secured by the Sanatoga facility went into default as a result of the
bankruptcy filing by Genesis. Due to the Chapter 11 bankruptcy filings by
Genesis and Multicare, the Company is prohibited from pursuing collection on
these loans.
7
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition, the Company had one loan in the amount of $4.8 million
with an annual interest rate of 9.50%, secured by the Harbor Place facility, to
an entity in which Genesis accounts for its investment using the equity method
of accounting, which was not included in the June 22, 2000 bankruptcy filing.
This loan matured on June 22, 2000. The Company has declared this loan in
default and this transaction's resolution is currently under negotiation with
the borrower and Genesis, the property manager. Due to certain defaults by the
borrower under the loan agreement, a default interest rate, which equals 2% plus
the stated interest rate, is being assessed on this loan.
As previously disclosed, the Company, Genesis and Multicare have been
discussing a proposed restructuring of the loans and other relationships among
the parties. These discussions are continuing. Any restructuring is subject to
approval by the Boards of the Company, Genesis and Multicare and the bankruptcy
court. No assurance can be given that the proposed restructuring will be
completed.
Based on the Company's assessment of the collateral value underlying
the loans as compared to the net book value of the loans, the Company recorded
an allowance for credit losses of $18.1 million during the nine months ended
September 30, 2000.
4. Investments in Unconsolidated Entities
The Company has several investments in entities in which the
controlling interest is owned by Mr. D. Lee McCreary, Jr., the Company's
President, Chief Executive Officer and Chief Financial Officer. Mr. McCreary
owns all of the voting interest in ET Capital Corp., representing a 5% equity
interest. Mr. McCreary also owns a 1% general partner interest in ET
Sub-Meridian, LLP and a 1% managing member interest in ET Sub-Vernon Court, LLC,
ET Sub-Cabot Park, LLC and ET Sub-Cleveland Circle, LLC, through a limited
liability company of which he is the sole member. As the Company also has an
option to acquire Mr. McCreary's 1% managing interest in ET Sub-Vernon Court,
LLC for a nominal amount, this company is consolidated into the Company's
condensed consolidated financial statements at September 30, 2000.
8
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summary combined financial information as of and for the nine months
ended September 30, 2000 for these unconsolidated entities is as follows
(dollars in thousands):
ET ET Sub- ET
Sub-Meridian, ET Capital Cabot Sub-Cleveland
LLP Corp. Park, LLC Circle, LLC Total
--------------------------------- --------------- -----------------------------
Current assets $310 $535 $126 $135 $1,106
Real estate properties (1) 103,912 - 16,695 13,782 134,389
Notes receivable - 4,409 - - 4,409
Other assets 1,301 - 541 513 2,355
Total assets 105,523 4,944 17,362 14,430 142,259
Current liabilities 2,174 640 679 739 4,232
Long-term debt (2) 105,757 9,291 16,769 13,584 145,401
Total deficit (4,116) (4,988) (355) (119) (9,578)
Rental revenue 7,350 - 1,232 1,088 9,670
Interest income, ElderTrust (3) - 477 - - 477
Interest income, other 19 256 30 28 333
Interest expense, ElderTrust (3) 1,605 591 412 238 2,846
Interest expense, other 4,950 - 621 555 6,126
Depreciation/amortization 2,634 118 420 346 3,518
Bad debt expense - 7,800 - - 7,800
Net loss (1,863) (7,860) (215) (47) (9,985)
Percent ownership 99% 95% 99% 99%
---------------
(1) Includes properties under capital lease.
(2) Includes capital lease obligations.
(3) Includes ElderTrust and its unconsolidated subsidiaries.
As of September 30, 2000, ET Capital Corp. ("ET Capital") owned a $7.8
million second trust mortgage note executed by AGE Institute of Florida, which
it acquired from Genesis during 1998. This note is secured by a second lien on
11 Florida skilled nursing facilities owned by AGE Institute of Florida and a
second lien on accounts receivable and other working capital assets. The
facilities are managed by subsidiaries of Genesis. This note matures on
September 30, 2008 with payments of interest only, at a fixed annual rate of 13%
due quarterly until the note is paid in full. The borrower ceased making
interest payments to ET Capital during the quarter ended June 30, 2000.
In June 2000, the senior lender on the $40.0 million first trust
mortgage to the AGE Institute of Florida notified ET Capital that the borrower
was in default of the first trust mortgage due to a default by Genesis, the
guarantor, under an amendment to the loan agreement and that no forbearance or
waiver of such default has been granted.
9
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
Additionally, the senior lender is seeking recovery from ET Capital of
an interest payment totaling approximately $250,000 received by ET Capital from
the AGE Institute of Florida in April 2000, for the quarter ended March 31,
2000.
The AGE Institute of Florida has been working to obtain replacement
financing of the $40.0 million first trust mortgage loan. If the AGE Institute
of Florida is unable to refinance the $40.0 million first trust loan, or is
otherwise unable to reach acceptable extension terms with the senior lender, the
senior lender may take actions to recover its investment in such first trust
loan. ET Capital has no control over the actions of the senior lender and such
actions could be unfavorable to ET Capital.
Management of ET Capital has determined, based on a decrease in the
underlying cash flows generated by the properties securing the note, the value
of the underlying collateral may not be sufficient to satisfy the borrowers'
obligation under the note. As a result, a bad debt allowance of $7.8 million was
recorded by ET Capital during the nine months ended September 30, 2000. The
Company recorded 95% of this loss based on its 95% equity interest in ET
Capital, which reduces its investment and advances to ET Capital.
ET Capital's long-term debt includes two demand promissory notes
payable to the Company aggregating $5.9 million at September 30, 2000 in
connection with the above second mortgage transaction. These notes bear interest
at a weighted average rate of 12.1% per annum with interest only payable
quarterly. ET Capital ceased making interest payments to the Company during the
quarter ended June 30, 2000. Management of the Company has determined that these
notes are fully impaired at September 30, 2000. The Company recorded an
impairment loss of $1.2 million against the remaining balance of these notes
during the nine months ended September 30, 2000.
As of September 30, 2000, ET Sub-Meridian owns the leasehold and
purchase option rights to seven skilled nursing facilities located in Maryland
and New Jersey, which it purchased from Genesis for $35.5 million in cash and
issuance of $8.5 million in term loans during September 1998. The purchase
options are exercisable by ET Sub-Meridian in September 2008 for a cash exercise
price of $66.5 million. The $8.5 million promissory note bears interest at an
annual rate of 8.0% for the first year, 9.0% for the second year and 10.0% for
remainder of the term of the note, with interest payable monthly through
September 3, 2003. The note is guaranteed by the Company and may be in default
due to ET Sub-Meridian's failure to make a principal payment of $3.0 million due
on September 3, 1999. However, ET Sub-Meridian and the Company believe that
Genesis agreed to extend the principal payment due on September 3, 1999 until
the maturity date of September 3, 2003. The Company, ET Sub-Meridian and Genesis
are working to resolve the dispute. Any agreement reached by the parties will be
subject to bankruptcy court approval. The Company does not have sufficient cash
available to satisfy the guarantee if it were required to do so.
10
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
ET Sub-Meridian, whose ownership of the facilities is in the form of a
capital lease, subleased the facilities to Genesis for an initial ten-year
period with a ten-year renewal option. The nominal property owner has encumbered
the properties with mortgage loan financing. These loans are in default as a
result of the Genesis bankruptcy filing. The Company is assisting the nominal
owner in obtaining waivers of these defaults.
5. Credit Facility
At September 30, 2000, the Company had $39.0 million outstanding under
the Credit Facility. The interest rate on borrowings outstanding under the
Credit Facility at September 30, 2000 was 9.44%, 2.75% over one-month LIBOR.
There were no borrowings under the $5.75 million revolving credit portion of the
Credit Facility at September 30, 2000. Any such borrowings are subject to prior
approval from the issuing bank.
The Company is currently seeking a waiver for its failure to meet the
minimum tangible net worth, minimum net asset value and minimum interest
coverage ratio requirements under the Credit Facility at September 30, 2000 and
June 30, 2000, principally resulting from the bad debt charges recorded on real
estate loans receivable (see Note 3), investments in and advances to
unconsolidated entities (see Note 4) and a note receivable from a former officer
of the Company and certain other assets (see Note 7) during the second quarter
of 2000.
On January 3, 2000, the term of the Credit Facility was extended from
January 1, 2000 to June 30, 2001 through an amendment which also reduced
borrowings available under the Credit Facility to $45.4 million. The Company
paid financing fees and other related costs of approximately $484,000 for the
nine months ended September 30, 2000, primarily in connection with the January
3, 2000 amendment to the Credit Facility. Unamortized deferred financing costs
in connection with the Credit Facility and mortgages payable aggregated
approximately $1.4 million at September 30, 2000. Deferred financing costs of
$464,000 were amortized during the nine months ended September 30, 2000 and
included as a component of interest expense.
11
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Loss Per Share
The following table sets forth the computation of basic and diluted
loss per share for the periods indicated (in thousands, except per share data):
For the three months ended For the nine months ended
September 30, September 30,
------------------------------- ---------------------------------
2000 1999 2000 1999
------------- -------------- ------------- --------------
Net loss available for basic and diluted loss
per share ($584) ($593) ($26,790) ($1,466)
====== ====== ======== =======
Weighted average common shares outstanding for
basic and diluted net loss per share
7,119 7,201 7,119 7,206
====== ====== ======== =======
Basic and diluted net loss per share ($0.08) ($0.08) ($3.76) ($0.20)
====== ====== ======== =======
The effect of outstanding share options is antidilutive and thus not
reflected in the determination of weighted average common shares outstanding for
the diluted net loss per share calculation. The operating partnership units are
not included in the determination of weighted average common shares outstanding
since they are not considered to be common share equivalents as they are
redeemable for cash at the Company's discretion.
7. Other Charges
During the second quarter of 2000, the Company recorded bad debt
charges of approximately $990,000 related to a note receivable from a former
officer of the Company.
In addition, the Company wrote-off $682,000 of costs incurred in
connection with property due diligence for investment transactions that were not
completed because of adverse conditions in the capital markets and the June 22,
2000 Chapter 11 filings of Genesis and Multicare. These write-offs are included
as a component of general and administrative expenses.
8. NYSE Listing Criteria
On September 22, 2000, ElderTrust announced that it had been notified by
the New York Stock Exchange ("NYSE") that is has fallen below the continued
listing criteria relating to total market capitalization and minimum share
value.
Under the market capitalization requirement, the Company's market
capitalization must meet or exceed $15 million. Under the NYSE rules, the NYSE
may grant a period of up to 18 months ending February 10, 2002 during which the
Company would need to meet the requirement. The Company has formally requested
12
ELDERTRUST
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (continued)
that this time period be granted and has submitted a business plan to the NYSE
to demonstrate its ability to achieve compliance with this standard. If the plan
is accepted, the Company will be subject to quarterly monitoring by the NYSE in
the interim period. The Company has not been notified by the NYSE if the plan
has been accepted.
Under the minimum share value requirement, the Company's shares must trade
at a value exceeding $1 for thirty consecutive trading days. As a result of the
notification, the Company must meet this requirement by the later of either its
next annual meeting, currently scheduled for May 2001, or March 20, 2001 to
retain its listing.
9. Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure the instrument at
fair value. The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and the resulting designation. SFAS No.
133 and subsequent amendments, SFAS No. 137 and SFAS No. 138, are effective for
the Company on January 1, 2001. The Company does not expect the adoption of
Statement 133 to have a material adverse impact on the Company's financial
condition or results of operations because the Company does not use derivative
instruments other than interest rate cap agreements.
13
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward-looking statements with respect to
results of operations and financial condition of ElderTrust and its consolidated
subsidiaries (collectively, "ElderTrust" or the "Company"). In general, these
statements are identified by the use of forward-looking words or phrases,
including "intended," "will," "should," "could," "may," "continues,"
"continued," "estimate," "estimated," "expects," "expected," "believes,"
"anticipates" and "anticipated" or the negative or variations thereof or similar
terminology. These statements are not guarantees of the Company's future
performance and are subject to risks and uncertainties, and other important
factors that could cause the Company's actual performance or achievements to be
materially different from those expressed or implied by these forward-looking
statements. These risks, uncertainties and factors include, but are not limited
to:
o the ability of Genesis Health Ventures, Inc. ("Genesis"), the
Company's principal tenant, and The Multicare Companies, Inc., a
43.6% owned consolidated subsidiary of Genesis, ("Multicare") to
resume making loan payments and continue making lease payments to
the Company;
o the outcome of the Genesis and Multicare bankruptcy proceedings;
o the Company's ability to pay-off or refinance its bank credit
facility (the "Credit Facility) when it becomes due on June 30,
2001;
o the Company's ability to cure its failure to meet debt covenants or
obtain waivers from its lenders;
o the NYSE acceptance of the Company's business plan;
o interest rates;
o availability, terms and use of capital;
o general economic, business and regulatory conditions;
o federal and state government regulation;
o changes in Medicare and Medicaid reimbursement programs; and
o competition.
Refer to the Company's annual report on Form 10-K for the year ended
December 31, 1999 for a discussion of these and other factors which management
believes may impact the Company. The forward-looking statements included herein
represent the Company's judgment as of the date of this Form 10-Q and should be
read in conjunction with the unaudited condensed consolidated financial
statements and notes thereto appearing elsewhere in this report. Although the
Company believes that the expectations reflected in these forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove to be correct. All subsequent written and oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
cautionary statements. The Company disclaims, however, any intent or obligation
to update its forward-looking statements.
14
General
The Company is a self-managed and self-administered real estate
investment trust ("REIT") that invests principally in senior housing and other
healthcare facilities, including skilled nursing facilities, assisted and
independent living facilities and medical office and other buildings. The
Company conducts primarily all of its operations through ElderTrust Operating
Limited Partnership (the "Operating Partnership"), of which ElderTrust is the
sole general partner. The Company's consolidated assets consist primarily of the
assets of the Operating Partnership and its consolidated subsidiaries. As of
September 30, 2000, skilled nursing, assisted and independent living facilities
comprised approximately 93% of the Company's consolidated investments in real
estate properties and loans. Approximately 70% of the Company's consolidated
assets at September 30, 2000 consisted of real estate properties leased to or
managed by subsidiaries of Genesis and loans on real estate properties made to
consolidated and unconsolidated subsidiaries of Genesis or Multicare.
On June 22, 2000, Genesis and Multicare announced that they had filed
for Chapter 11 bankruptcy protection following debt restructuring discussions
with their senior lenders.
The accompanying unaudited condensed consolidated financial statements
of ElderTrust and its consolidated subsidiaries have been prepared assuming the
Company will continue as a going concern. As previously discussed, Genesis, the
Company's principal tenant, and Multicare have filed for reorganization under
the provisions of Chapter 11 of the Bankruptcy Reform Act of 1978 ("Bankruptcy
Code"). In addition, the Company has a working capital deficit of $59.1 million
at September 30, 2000, resulting primarily from the classification of its bank
credit facility (the "Credit Facility") with an outstanding balance of $39.0
million at September 30, 2000 as current based on its maturity date of June 30,
2001, the classification of two bonds payable totaling $20.0 million at
September 30, 2000 as current based on the Company's failure since June 30, 2000
to meet the minimum net worth and interest coverage requirements under guarantee
agreements relating to the underlying mortgages and the classification of one
mortgage payable with an outstanding balance of $2.8 million at September 30,
2000 as current based on the bankruptcy filing by Genesis. The Company also
continued not to meet the minimum tangible net worth, the minimum net asset
value and the interest coverage ratio requirements under the Credit Facility at
September 30, 2000. The unaudited financial statements do not include
adjustments, if any, to reflect the possible effects on the recoverability and
classification of recorded assets or the amounts and classification of
liabilities that may result from the outcome of the uncertainties related to the
foregoing matters.
15
Revenues recorded by the Company for the nine months ended September
30, 2000 in connection with leases and loans to Genesis and Multicare totaled
$12.9 million, or 66% of the Company's total revenues. In addition, certain
unconsolidated entities of the Company, accounted for under the equity method,
also lease properties to these entities and recognized revenues of $9.7 million
for the same period. The Company's investments in and advances to such
unconsolidated entities totaled $16.2 million at September 30, 2000.
As a result of these relationships, the Company's revenues and ability
to meet its obligations depends, in significant part, upon:
o the ability of Genesis and entities in which Genesis accounts for
its investment using the equity method of accounting ("Genesis
Equity Investees") to meet their lease and loan obligations;
o the outcome of the Genesis and Multicare bankruptcy proceedings; and
o the revenues derived from, and the successful operation of, the
facilities leased to or managed by Genesis or Genesis Equity
Investees.
Included in the Company's consolidated assets at September 30, 2000 are
$19.5 million in loans to wholly-owned subsidiaries of Multicare. These loans
are secured by real estate and 20% of the principal balance is guaranteed by
Multicare. The loans have a weighted average annual interest rate of 10.5%.
ElderTrust also has $14.8 million in loans to wholly-owned subsidiaries of
Genesis. These loans are secured by real estate and a 100% guarantee by Genesis.
The loans have a weighted average annual interest rate of 9.3%.
The four term loans secured by the Mifflin, Coquina Place, Lehigh and
Berkshire facilities, with a principal balance of $8.9 million at September 30,
2000, net of allowance for credit losses, matured on June 28, 2000. In addition,
the loan secured by the Sanatoga facility went into default as a result of the
bankruptcy filing by Multicare. Due to the June 22, 2000 Chapter 11 bankruptcy
filings by Genesis and Multicare, the Company is prohibited from pursuing
collection on these loans.
As previously disclosed, the Company, Genesis and Multicare have been
discussing a proposed restructuring of the loans and other relationships among
the parties. These discussions are continuing. Any restructuring is subject to
approval by the Boards of the Company, Genesis and Multicare and the bankruptcy
court. No assurance can be given that the proposed restructuring will be
completed.
As a result of the Genesis and Multicare bankruptcy filings, the
borrowers ceased making interest payments to the Company during June 2000. It is
not expected that the borrowers on these loans will be permitted to make further
interest payments to the Company unless such payments are approved by the
16
bankruptcy court. During the bankruptcy reorganization process, the Company will
retain its security position in the collateral underlying the loans. Ultimate
recovery under the loans is dependent upon the value of the assets securing the
loans, which may be determined by the bankruptcy court. To the extent the loan
balance exceeds such collateral, recovery of the difference will be dependent on
the general unsecured creditors' recovery on their prepetition claims. Based on
the Company's assessment of the collateral value underlying the loans as
compared to the net book value of the loans, the Company recorded an allowance
for credit losses of $18.1 million during nine months ended September 30, 2000.
In addition, a tenant in bankruptcy has the ability to reject executory
contracts, including leases, to which they are a party. In the period before a
lessee elects whether to assume or reject a lease, lessees in bankruptcy are
required to continue to make lease payments. If Genesis rejects one or more of
the leases, the Company would be required to re-lease, operate or sell the
property subject to the rejected leases. Any such alternative may significantly
decrease the Company's cash flow and could significantly and adversely affect
its financial condition and results of operations. If the Company were required
to operate one or more of the properties, it may have insufficient cash flow to
do so. Alternatively, a debtor may assume a lease, in which case it is required
to continue making lease payments.
As Genesis and Multicare are not currently permitted to make interest
payments to ElderTrust under bankruptcy filing rules, the Company's cash flow
has been significantly reduced. As a result, the Company has suspended further
distributions to its shareholders. The Company believes the distributions made
to shareholders to date during 2000 will be sufficient to satisfy its REIT
distribution requirements for 2000. The Company believes that it can continue to
meet its debt service requirements after giving effect to this reduction in cash
flow; however, any further reduction in cash flow would significantly and
adversely affect the Company's ability to continue to meet its debt service
requirements and could further significantly and adversely affect its financial
condition and results of operations.
The Company has a working capital deficit of $59.1 million at September
30, 2000, resulting primarily from the classification of the Credit Facility
with an outstanding balance of $39.0 million at September 30, 2000 as current
based on its maturity date of June 30, 2001, the classification of two bonds
payable totaling $20.0 million at September 30, 2000 as current based on the
Company's failure since June 30, 2000 to meet the minimum net worth and interest
coverage requirements under guarantee agreements relating to the underlying
mortgages and the classification of one mortgage payable with an outstanding
balance of $2.8 million at September 30, 2000 as current based on the bankruptcy
filing by Genesis. The Company also continued not to meet the minimum tangible
net worth, the minimum net asset value and the interest coverage ratio
requirements under the Credit Facility at September 30, 2000. If the Company is
unable to pay-off or obtain replacement financing of the Credit Facility by June
30, 2001, or is unable to negotiate a further extension of the current Credit
Facility at that time, or the Company is unable to obtain waivers of the failed
17
covenants or a forbearance agreement from the lender, the bank could exercise
its right to foreclose on the collateral securing the Credit Facility. If the
Company is unable to obtain waivers of the failed covenants under the bonds and
mortgage payable or a forbearance agreement from the lenders, the lenders could
exercise their rights to accelerate the related indebtedness or foreclose on the
underlying collateral immediately. Foreclosure by the lenders would have a
significant adverse affect on the Company's ability to continue its operations.
The Company has incurred indebtedness to acquire its assets and may
incur additional short and long-term indebtedness, and related interest expense,
from time to time. The Company has unfunded construction loan commitments at
September 30, 2000 of approximately $347,000 which, if required, it expects to
fund with cash flows from operations and funds available under the Credit
Facility. Due to certain defaults by the borrowers under the loan agreements,
the Company believes it is no longer obligated to provide any further funding.
The Company also was obligated, or had an option, to purchase eight assisted
living facilities underlying term or construction loans, which will generally be
leased back to the sellers pursuant to long-term leases. As previously
disclosed, the Company is currently negotiating with Genesis and Multicare to
restructure seven of these relationships. The Company did not exercise its
option to purchase the remaining facility upon its August 1, 2000 maturity date.
See "Liquidity and Capital Resources."
Substantially all of the Company's revenues are currently derived from
rents received under long-term leases of healthcare-related real estate.
The Company has incurred operating and administrative expenses, which
principally include compensation expense for its executive officers and other
employees, office rental and related occupancy costs.
The Company is self-administered and managed by its executive officers
and staff, and has not engaged a separate advisor or paid an advisory fee for
administrative or investment services, although the Company has engaged legal,
accounting, tax and financial advisors as needed from time to time.
The primary non-cash expenses of the Company are the depreciation of
its healthcare facilities, amortization of its deferred loan origination costs
and deferred financing costs.
Investments in Equity Investees
The Company's Equity Investees represent entities in which the
controlling interest is owned by Mr. D. Lee McCreary, the Company's President,
Chief Executive Officer and Chief Financial Officer. As a result, the Company
records its investments in, and results of operations from, these entities using
the equity method of accounting in the unaudited condensed consolidated
financial statements included herein.
18
ET Capital Corp.
The Company has a nonvoting 95% equity interest in ET Capital. The
remaining voting 5% equity interest in ET Capital is owned by Mr. McCreary. As
of September 30, 2000, ET Capital owned a $7.8 million second trust mortgage
note executed by AGE Institute of Florida, which it acquired from Genesis during
1998. This note is secured by a second lien on 11 Florida skilled nursing
facilities owned by AGE Institute of Florida and a second lien on accounts
receivable and other working capital assets. The facilities are managed by
subsidiaries of Genesis. This note matures on September 30, 2008 with payments
of interest only, at a fixed annual rate of 13% due quarterly until the note is
paid in full. ET Capital recorded interest income on the note of $256,000 and
$769,000 during the nine months ended September 30, 2000 and 1999, respectively.
The borrower ceased making interest payments to ET Capital during the quarter
ended June 30, 2000.
In September 1999, the senior lender on the $40.0 million first trust
mortgage to the AGE Institute of Florida, which is guaranteed by Genesis,
notified the borrower that it was in default of the loan due to the borrowers'
failure to meet certain financial covenants. In November 1999, ET Capital
notified the borrower that it was in default of the $7.8 million second trust
mortgage loan held by ET Capital because of the default in the $40.0 million
first trust mortgage loan. Subsequently, the senior lender extended the maturity
date of the first mortgage trust loan from September 30, 1999 to March 28, 2000
to permit the AGE Institute of Florida time to obtain refinancing of the loan. A
letter agreement dated December 22, 1999 made certain modifications and defined
certain rights of the senior lender and ET Capital related to their respective
loans to the AGE Institute of Florida.
In June 2000, the senior lender on the $40.0 million first trust
mortgage to the AGE Institute of Florida notified ET Capital that the borrower
was in default of the first trust mortgage due to a default by Genesis, the
guarantor, under an amendment to the loan agreement and that no forbearance or
waiver of such default has been granted. Additionally, the senior lender is
seeking recovery from ET Capital of an interest payment totaling approximately
$250,000 received by ET Capital from the AGE Institute of Florida in April 2000,
for the quarter ended March 31, 2000.
The AGE Institute of Florida has been working to obtain replacement
financing of the $40.0 million first trust mortgage loan. If the AGE Institute
of Florida is unable to refinance the $40.0 million first trust loan, or is
otherwise unable to reach acceptable extension terms with the senior lender, the
senior lender may take actions to recover its investment in such first trust
loan. ET Capital has no control over the actions of the senior lender and such
actions could be unfavorable to ET Capital.
19
Management of ET Capital has determined, based on a decrease in the
underlying cash flows generated by the properties securing the note, the value
of the underlying collateral may not be sufficient to satisfy the borrower's
obligation under the note. As a result, a bad debt allowance of $7.8 million was
recorded by ET Capital during the nine months ended September 30, 2000. The
Company recorded 95% of this loss based on its 95% equity interest in ET
Capital, which reduces its investment and advances to ET Capital.
ET Capital's long-term debt includes two demand promissory notes
payable to the Company aggregating $5.9 million at September 30, 2000 in
connection with the above second mortgage transaction. These notes bear interest
at a weighted average rate of 12.1% per annum with interest only payable
quarterly. ET Capital ceased making interest payments to the Company during the
quarter ended June 30, 2000. Management of the Company has determined that these
notes are fully impaired at September 30, 2000.
In addition to the AGE Institute of Florida second trust mortgage note
and related notes payable to the Company, ET Capital has notes receivable
aggregating $4.4 million at September 30, 2000 from two of the Company's Equity
Investees and one of the Company's consolidated subsidiaries. These loans mature
at various dates from April 2008 to December 2011 and bear interest at 14% per
annum with interest and principal payable monthly. ET Capital has loans payable
to the Company aggregating $3.4 million, bearing interest at 15% and maturing at
various dates from April 2008 to December 2011.
The Company recorded $591,000 and $966,000 in interest income for the
nine months ended September 30, 2000 and 1999, respectively, on the notes
receivable from ET Capital. The Company also recorded a loss of $7.5 million and
income of $176,000 related to its equity interest in ET Capital's results of
operations for the nine months ended September 30, 2000 and 1999, respectively.
In addition, the Company recorded an impairment loss of $1.2 million on the
remaining balance of the notes receivable from ET Capital issued in connection
with the above second mortgage note transaction. See Note 4 of the Company's
unaudited condensed consolidated financial statements included herein.
ET Sub-Meridian Limited Partnership, L.L.P.
The Company has a 99% limited partnership interest in ET Sub-Meridian.
The 1% general partner interest is owned by a limited liability company of which
Mr. McCreary is the sole member. ET Sub-Meridian owns the leasehold and purchase
option rights to seven skilled nursing facilities located in Maryland and New
Jersey, which it purchased from Genesis for $35.5 million in cash and issuance
of $8.5 million in term loans during September 1998. The $8.5 million promissory
note bears interest at an annual rate of 8.0% for the first year, 9.0% for the
second year and 10.0% for remainder of the term of the note, with interest
payable monthly through September 3, 2003. The note is guaranteed by the
Company. The purchase options are exercisable by ET Sub-Meridian in September
2008 for a cash exercise price of $66.5 million. ET Sub-Meridian subleased the
facilities to Genesis for an initial ten-year period with a ten-year renewal
option. Genesis has guaranteed the subleases.
20
Genesis has declared ET Sub-Meridian in default of the $8.5 million
loan based on the fact that a principal payment of $3.0 million due on September
3, 1999 was not made. However, ET Sub-Meridian and the Company believe that
Genesis agreed to extend the principal payment due on September 3, 1999 until
the maturity date of September 3, 2003. The Company, ET Sub-Meridian and Genesis
are working to resolve the dispute. Any agreement reached by the parties will be
subject to bankruptcy court approval. The Company does not have sufficient cash
available to satisfy the guarantee if it were required to do so.
As part of the transaction, the Company agreed to indemnify the
property owners for any loss of deferral of tax benefits prior to August 31,
2008 due to a default under a sublease or if a cure of a default by the Genesis
subsidiary leasing the facilities resulted in a taxable event to the owners. The
Company also agreed to indemnify Genesis for any amounts expended by Genesis
under the back-up indemnity provided by Genesis to the current owners for the
same loss.
The Company recorded a loss of $1.8 million related to its equity
interest in ET Sub-Meridian's results of operations for each of the nine months
ended September 30, 2000 and 1999. ET Sub-Meridian has real estate investments
and long-term debt of $103.9 million and $105.8 million, respectively, at
September 30, 2000. See Note 4 of the Company's unaudited condensed consolidated
financial statements included herein. At September 30, 2000, ET Sub-Meridian had
a $17.6 million subordinated demand loan bearing interest at 12% per annum
payable to the Company in connection with the above transaction. The Company
recorded $1.6 million in interest income on this loan during each of the nine
months ended September 30, 2000 and 1999.
ET Sub-Heritage Andover, LLC
ET Sub-Vernon Court, LLC
ET Sub-Cabot Park, LLC
ET Sub-Cleveland Circle, LLC
The Company, through four limited liability companies (ET Sub-Heritage
Andover, LLC, ET Sub-Vernon Court, LLC, ET Sub-Cabot Park, LLC, and ET
Sub-Cleveland Circle, LLC), has member interests in three assisted living
facilities and one independent living facility, which it acquired during
December 1998 from an unrelated third party. A Genesis Equity Investee leases
each of the facilities.
The Company is the sole member of ET Sub-Heritage Andover, LLC, which,
accordingly, is consolidated into the Company's unaudited condensed consolidated
financial statements at September 30, 2000. In each of the remaining three
limited liability companies, the Company has a 99% member interest. The 1%
managing member interest in these three companies is owned by a limited
liability company of which Mr. McCreary is the sole member. The Company
currently has the option to acquire the 1% managing member interest in ET
21
Sub-Vernon Court, LLC from Mr. McCreary. The option exercise price is $3,200. As
the Company has the ability to acquire the 1% managing member interest in ET
Sub-Vernon Court, LLC for a nominal amount, this company is consolidated into
the Company's unaudited condensed consolidated financial statements at September
30, 2000.
Three of these limited liability companies have subordinated demand
loans in the aggregate amount of $5.1 million with the Company at September 30,
2000, bearing interest at 12% per annum. The Company recorded $286,000 and
$285,000 in interest income for the nine months ended September 30, 2000 and
1999, respectively, in connection with the demand loans, aggregating $3.1
million at September 30, 2000, payable to the Company by the two unconsolidated
limited liability companies. Additionally, three of the limited liability
companies have loans payable to ET Capital aggregating $4.4 million at September
30, 2000, maturing at various dates from April 2008 to December 2011 and bearing
interest at 14% per annum with interest and principal payable monthly.
The Company recorded aggregate losses of $259,000 and $298,000 related
to its equity interest in ET-Sub-Cabot Park, LLC's and ET Sub-Cleveland Circle,
LLC's results of operations for the nine months ended September 30, 2000 and
1999, respectively. These two entities have real estate investments and
aggregate long-term debt of $30.5 million and $30.4 million, respectively, at
September 30, 2000. See Note 4 of the Company's unaudited condensed consolidated
financial statements included herein.
Results of Operations
Three months ended September 30, 2000 compared with the three months
ended September 30, 1999
Revenues
Rental revenues of $4.7 million were generated for each of the three
months ended September 30, 2000 and 1999.
Interest income of $491,000, net of amortization of deferred loan costs
of $10,000, was earned for the three months ended September 30, 2000. This
represented a 63.6% decrease from $1.4 million for the corresponding period in
1999. This decrease was primarily comprised of a $883,000 decrease in interest
earned on term and construction loans, resulting primarily from the non-receipt
of third quarter 2000 interest due from Genesis and Multicare subsidiaries that
were part of the June 22, 2000 Genesis and Multicare bankruptcy filings and a
$34,000 decrease in interest earned on a note receivable from a former officer
resulting from the non-receipt of third quarter 2000 interest due from the
former officer, partially offset by lower amortization of deferred loan costs of
$72,000.
22
Interest from unconsolidated equity investees of $771,000 was earned
during the three months ended September 30, 2000. This represented a 19.6%
decrease from $959,000 for the corresponding period in 1999. This decrease
resulted primarily from ET Capital not making its third quarter 2000 interest
payment to the Company on its note payables related to the AGE Institute of
Florida second mortgage held by ET Capital that is in default.
Expenses
Interest expense, which included amortization of deferred financing
costs of $155,000, was $3.6 million for the three months ended September 30,
2000. This represented a 4.1% increase in interest expense from $3.4 million for
the corresponding period in 1999. This increase was primarily due to higher
interest expense on third-party debt of $433,000 resulting from the refinancing
of eleven properties during the last half of 1999 at higher interest rates and a
higher interest rate on the variable-rate Credit Facility, partially offset by a
decrease in amortization of deferred financing costs of $294,000. During the
last half of 1999, the Company completed refinancings of $41.2 million on seven
properties with a fixed weighted average interest rate of 8.37% and $30.0
million on four properties with a variable interest rate of 3.00% over one-month
LIBOR. Approximately $55.1 million of the debt proceeds were used to pay down
the Company's outstanding Credit Facility, with a variable interest rate of
1.80% to 2.75% over one-month LIBOR during 1999, and approximately $10.4 million
was used to pay-off an existing mortgage with an effective interest rate of
7.81%. The weighted average interest rate on outstanding third-party debt
increased from 7.9% at September 30, 1999 to 8.8% at September 30, 2000. The
Company's interest expense increased as a result of an increase in the one-month
LIBOR from 5.38% at June 30, 1999 to 6.69% at September 30, 2000. The Company's
interest rate on the Credit Facility was 9.44% at September 30, 2000 compared to
8.13% at September 30, 1999. The Company's interest rate on its variable rate
mortgages was 9.69% at September 30, 2000.
General and administrative expenses were $649,000 for the three months
ended September 30, 2000. This represented a 15.1% increase from $564,000 for
the corresponding period in 1999. This increase was primarily a result of third
quarter legal fees incurred in connection with the June 22, 2000 Chapter 11
filings of Genesis and Multicare.
An extraordinary loss of $1.2 million, net of a minority interest
benefit of $86,000, was recorded during the three months ended September 30,
1999 in connection with the prepayment of an existing mortgage loan.
23
Nine months ended September 30, 2000 compared with the nine months
ended September 30, 1999
Revenues
Rental revenues of $14.1 million were generated for the nine months
ended September 30, 2000. This represented a 1% increase from $13.9 million for
the corresponding period in 1999.
Interest income of $2.8 million, net of amortization of deferred loan
costs of $137,000, was earned for the nine months ended September 30, 2000. This
represented a 35.9% decrease from $4.4 million for the corresponding period in
1999. This decrease was primarily comprised of a $1.3 million decrease in
interest earned on term and construction loans, resulting primarily from the
non-receipt of June through September 2000 interest due from the Genesis and
Multicare subsidiaries which were part of the June 22, 2000 bankruptcy filings
as well as the 1999 sale of a construction loan receivable to a commercial bank,
partially offset by additional funding of one construction loan during 1999, a
$138,000 decrease in interest earned on a note receivable from a former officer
resulting from the 1999 cancellation of indebtedness payable by the former
officer to the Company of $2.6 million and a $70,000 decrease in interest earned
on a third party receivable which was paid in 1999. During the nine months ended
September 30, 2000, the Company recorded interest income of $1.5 million on
loans to Genesis and Multicare subsidiaries that were part of the June 22, 2000
Genesis and Multicare bankruptcy filings. The recorded interest income on these
loans represented interest payments for the period from January 2000 through May
2000. Interest payments on these loans, with an aggregate principal balance of
$34.3 million prior to allowance for credit losses, ceased beginning with the
June 2000 payment.
Interest from unconsolidated equity investees of $2.5 million was
earned during the nine months ended September 30, 2000. This represented a 12.9%
decrease from $2.9 million for the corresponding period in 1999. This decrease
resulted primarily from ET Capital not making its second or third quarter 2000
interest payment to the Company on its note payables related to the AGE
Institute of Florida second mortgage transaction.
Expenses
Interest expense, which included amortization of deferred financing
costs of $464,000, was $10.4 million for the nine months ended September 30,
2000. This represented a 9.1% increase in interest expense from $9.6 million for
the corresponding period in 1999. This increase was primarily due to higher
interest expense on third-party debt of $1.6 million resulting from the
refinancing of eleven properties during the last half of 1999 at higher interest
rates and a higher interest rate on the variable-rate Credit Facility partially
offset by a decrease in amortization of deferred financing costs of $743,000.
24
During the last half of 1999, the Company completed refinancings of $41.2
million on seven properties with a fixed weighted average interest rate of 8.37%
and $30.0 million on four properties with a variable interest rate of 3.00% over
one-month LIBOR. Approximately $55.1 million of the debt proceeds were used to
pay down the Company's outstanding Credit Facility, with a variable interest
rate of 1.80% to 2.75% over one-month LIBOR during 1999, and approximately $10.4
million was used to pay-off an existing mortgage with an effective interest rate
of 7.81%. The weighted average interest rate on outstanding third-party debt
increased from 7.9% at September 30, 1999 to 8.8% at September 30, 2000. The
Company's interest expense increased as a result of the increase in the interest
rate on the Credit Facility in June 1999 from a margin of 1.80% to 2.75% over
one-month LIBOR and an increase in the one-month LIBOR from 5.38% at September
30, 1999 to 6.69% at September 30, 2000. The Company's interest rate on the
Credit Facility was 9.44% at September 30, 2000 compared to 8.13% at September
30, 1999. The Company's interest rate on its variable rate mortgages was 9.69%
at September 30, 2000.
General and administrative expenses were $2.7 million for the nine
months ended September 30, 2000. This represented a 31.3% increase from $2.0
million for the corresponding period in 1999. This increase was primarily a
result of a second quarter 2000 write-off of $682,000 of costs incurred in
connection with property due diligence for investment transactions that were not
completed because of adverse conditions in the capital markets and the June 22,
2000 Chapter 11 filings of Genesis and Multicare, as well as an increase in
third quarter 2000 legal fees incurred in connection with the June 22, 2000
Chapter 11 filings of Genesis and Multicare.
Bad debt expenses of $20.3 million were recorded during the nine months
ended September 30, 2000 resulting from impairment charges recorded on real
estate loans receivable of $18.1 million, investments in and advances to
unconsolidated entities of $1.2 million and a note receivable from a former
officer of the Company of $990,000 during the nine months ended September 30,
2000.
Separation agreement expenses of $2.8 million were recorded during the
nine months ended September 30, 1999 in connection with the resignation of a
former officer of the Company. These expenses were comprised of cancellation of
indebtedness payable by the former officer to the Company of $2.6 million and
$200,000 in costs payable to third parties in connection with a separation
agreement with the former officer.
See "Three months ended September 30, 2000 compared with the three
months ended September 30, 1999" for discussion of amounts recorded in
connection with an extraordinary loss associated with debt extinguishment.
The Company recorded aggregate losses of $9.6 million and $1.9 million
for the nine months ended September 30, 2000 and 1999, respectively, in
connection with its portion of the losses incurred by the Company's Equity
Investees. This increase is primarily due to the $7.8 million credit loss
recorded by ET Capital on the AGE Institute of Florida second mortgage
transaction during the second quarter of 2000.
25
Liquidity and Capital Resources
Net cash provided by operating activities was $6.3 million for the nine
months ended September 30, 2000 compared to $13.0 million for the corresponding
period in 1999. The decrease in net cash provided by operating activities is
primarily the result of net changes in assets and liabilities, a decrease in
interest revenue and an increase in interest expense.
Net cash used in investing activities was $340,000 for the nine months
ended September 30, 2000 compared to $4.2 million for the corresponding period
in 1999. Net cash used in investing activities for the nine months ended
September 30, 2000 principally included additional funding of reserve funds and
deposits of $887,000 and capital expenditures of $112,000 partially offset by
repayments of advances to unconsolidated entities of $659,000. Net cash used in
investing activities for the nine months ended September 30, 1999 principally
included funding of (a) $5.1 million in construction loans, (b) $2.6 million in
reserve funds and deposits and (c) $1.7 million in capital expenditures,
partially offset by $4.2 million in payments received on term and construction
loans receivable and $720,000 of proceeds received from unconsolidated entities.
Net cash used in financing activities was $6.7 million for the nine
months ended September 30, 2000 compared to $7.9 million for the corresponding
period in 1999. The decrease in net cash used in financing activities was
primarily due to a 1999 prepayment penalty on a mortgage loan of $1.2 million
During 2000, the Company had no new borrowings and continued repayment of
existing borrowings in 2000, while in 1999, debt repayments were partially
offset by new borrowings. Distributions to shareholders and minority interests
also decreased from 1999 to 2000.
At September 30, 2000, the Company's consolidated net real estate
investments in properties and loans aggregated $198.3 million. The Company has a
working capital deficit of $59.1 million at September 30, 2000, resulting
primarily from the classification of the Credit Facility with an outstanding
balance of $39.0 million at September 30, 2000 as current based on its maturity
date of June 30, 2001, the classification of two bonds payable totaling $20.0
million at September 30, 2000 as current based on the Company's failure since
June 30, 2000 to meet the minimum net worth and interest coverage requirements
under guarantee agreements relating to the underlying mortgages and the
classification of one mortgage payable with an outstanding balance of $2.8
million at September 30, 2000 as current based on the bankruptcy filing by
Genesis. The Company also continued not to meet the minimum tangible net worth,
the minimum net asset value and the interest coverage ratio requirements under
the Credit Facility at September 30, 2000. Cash and cash equivalents were $2.9
million and $3.6 million, at September 30, 2000 and December 31, 1999,
respectively.
26
As of September 30, 2000, the Company had shareholders' equity of $73.4
million and Credit Facility borrowings and mortgages and bonds payable to third
parties aggregating $147.1 million, which represents a debt to equity ratio of
2.01 to 1. This was an increase from the debt to equity ratio of 1.44 to 1 at
December 31, 1999. This increase was due primarily to a net decrease in
shareholder's equity of $30.1 million, which resulted from a net loss of $25.8
million and distributions to shareholders of $4.3 million for the nine months
ended September 30, 2000.
At September 30, 2000, the Company's third party indebtedness of $147.1
million consisted of $69.0 million in variable rate debt and $78.1 million in
fixed rate debt. The weighted average annual interest rate on this debt was
8.72%. Based on interest rates at September 30, 2000, quarterly debt service
requirements related to this debt approximate $3.9 million. In addition, the
Company has guaranteed an additional $8.5 million of indebtedness of ET
Sub-Meridian.
The unfunded portion of construction loan commitments made by the
Company were approximately $347,000 at September 30, 2000. Due to certain
defaults by the borrowers under the loan agreements, the Company believes it is
no longer obligated to provide any further funding.
The Company previously was obligated to purchase and leaseback, upon
the maturity of the related loan or the facility reaching stabilized occupancy,
five assisted living facilities (Mifflin, Coquina Place, Lehigh, Berkshire and
Harbor Place) securing term loans and two assisted living facilities (Oaks and
Sanatoga) securing construction loans made by the Company in January 1998. Of
these seven loans, which had an aggregate principal balance at September 30,
2000 of $21.0 million, net of allowance for credit losses, three loans, secured
by the Mifflin, Coquina Place and Oaks facilities, were made to wholly-owned
subsidiaries of Genesis, three loans, secured by the Lehigh, Berkshire and
Sanatoga facilities, were made to wholly-owned subsidiaries of Multicare and one
loan, secured by the Harbor Place facility, was made to a Genesis Equity
Investee. The Company believes it is no longer bound by the purchase and
leaseback obligations contained in the loan documents because the borrowers
have, from time to time, not complied with all loan provisions. The Company is
in discussions with Genesis and Multicare about a possible restructuring of
transactions between the companies.
The Company also had the option to purchase and leaseback one facility
from an unaffiliated company for $13.0 million upon maturity of the related
construction loan. The Company did not exercise its option to purchase this
facility upon the August 1, 2000 maturity date.
On January 3, 2000, the term of the Credit Facility was extended from
January 1, 2000 to June 30, 2001 through an amendment which also reduced
borrowings available under the Credit Facility to $45.4 million. At September
30, 2000, the Company had $39.0 million outstanding under the Credit Facility.
27
The Credit Facility contains various financial and other covenants,
including, but not limited to, minimum net asset value, minimum tangible net
worth, a total leverage ratio and minimum interest coverage ratio. The Company's
owned properties and properties underlying loans receivable with an aggregate
cost of $58.5 million, net of allowance for credit losses, are included in the
Credit Facility borrowing base and pledged as collateral at September 30, 2000.
The terms require the Company to make monthly payments of principal equal to
.22% of the outstanding balance on the first day of the prior calendar month. In
addition, the Company is required to pay a monthly facility fee in an amount
equal to .0625% of the outstanding balance. Re-borrowings are not permitted
after repayment, except for the $5.75 million revolving credit portion of the
Credit Facility. Any borrowings under the revolving credit portion of the Credit
Facility are subject to prior approval from the issuer and are restricted to
certain specified purposes, including dividend distributions. Dividend
distributions over the term of the loan are limited to $3.0 million plus 95% of
the Company's funds from operations, as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") prior to January 1, 2000.
The Company is currently seeking a waiver for its failure to meet the
minimum tangible net worth, minimum net asset value and minimum interest
coverage ratio requirements under the Credit Facility at September 30, 2000 and
June 30, 2000, principally resulting from the bad debt charges recorded on real
estate loans receivable, investments in and advances to unconsolidated entities
and a note receivable from a former officer of the Company and certain other
assets during the second quarter of 2000.
Amounts outstanding under the Credit Facility bear interest at floating
rates ranging from 2.75% to 3.25% over one-month LIBOR, as determined by the
percentage of the Credit Facility outstanding as compared to the borrowing base.
The interest rate on borrowings outstanding under the Credit Facility at
September 30, 2000 was 9.44%, 2.75% over one-month LIBOR.
The Company paid financing fees and other related costs of
approximately $484,000 for the nine months ended September 30, 2000 primarily in
connection with the January 3, 2000 amendment to the Credit Facility.
Unamortized deferred financing costs in connection with the Credit Facility and
mortgages payable aggregated approximately $1.4 million at September 30, 2000.
Deferred financing costs of $464,000 were amortized during the nine months ended
September 30, 2000 and included as a component of interest expense.
The Company expects net cash provided by operations and funds available
under the Credit Facility to be sufficient to enable it to meet its short-term
cash flow requirements through December 31, 2000. Any further reduction in the
Company's cash flows relating to the bankruptcy filings of Genesis and Multicare
or otherwise, however, would adversely affect the Company's ability to meet its
debt service requirements and could further significantly and adversely affect
its financial condition and results of operations. The Credit Facility currently
matures on June 30, 2001. If the Company is unable to pay-off or obtain
28
replacement financing of the Credit Facility by June 30, 2001, or is unable to
negotiate a further extension of the current Credit Facility at that time, or
the Company is unable to obtain waivers of the failed covenants or a forbearance
agreement from the lender, the bank could exercise its right to foreclose on the
collateral securing the Credit Facility. The Company also failed to meet the
minimum net worth and interest coverage requirements under guarantee agreements
relating to two bonds payable totaling $20.0 million at September 30, 2000. If
the Company is unable to obtain waivers of the failed covenants under the bonds
payable or a forbearance agreement from the bondholders, the bondholders could
exercise their rights to accelerate the related indebtedness or foreclose on the
underlying collateral immediately. Foreclosure by the lenders would also have a
significant adverse affect on the Company's ability to continue its operations.
Future increases in interest rates, as well as any defaults by tenants on their
leases with the Company, also could adversely affect the Company's cash flow and
its ability to pay its obligations. See "Item 3. Quantitative and Qualitative
Disclosures About Market Risk."
To qualify as a REIT, the Company must distribute to its shareholders
each year at least 95% (90% for taxable years beginning after December 31, 2000)
of its net taxable income, excluding any net capital gain. If the Company is
unable to make required shareholder distributions, then the Company may be
unable to qualify as a REIT and be subject to federal income taxes. As Genesis
and Multicare are not permitted to make interest payments to ElderTrust during
the pendency of their bankruptcy filings, these filings have significantly
reduced the Company's cash flow. As a result, the Company has suspended further
quarterly distributions to its shareholders. The Company believes the
distributions made to shareholders to date during 2000 will be sufficient to
satisfy its REIT distribution requirements for 2000.
Facilities owned by the Company and leased to third parties under
percentage and minimum rent triple net leases require the lessee to pay
substantially all expenses associated with the operation of such facilities.
Facilities owned by the Company and subject to percentage and minimum rent
leases represent approximately 91% of the Company's investments in owned
facilities at September 30, 2000. As a result of these arrangements, the Company
does not believe it will be responsible for significant expenses in connection
with the facilities during the terms of the leases. However, there can be no
assurance the Company will not be responsible for significant expenses of its
leased properties in the event one or more of its lessees default on their
leases with the Company.
29
Funds from Operations
The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT defines Funds from Operations (FFO) as net income (loss),
computed in accordance with generally accepted accounting principles, excluding
gains (or losses) from sales of properties, plus real estate related
depreciation and amortization and after comparable adjustments for the Company's
portion of these items related to unconsolidated partnerships and joint
ventures. In October 1999, NAREIT clarified the definition of FFO to include
both recurring and non-recurring results of operations, except those results
defined as "extraordinary items" under generally accepted accounting principles
and gains and losses from sales of depreciable property. This clarified
definition is effective for periods beginning January 1, 2000 and all prior
periods presented.
The Company believes that Funds from Operations is helpful to investors
as a measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures and to fund other cash needs. The
Company computes Funds from Operations using standards established by NAREIT
which may not be comparable to Funds from Operations reported by other REITs
that do not define the term using the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities using
generally accepted accounting principles and should not be considered as an
alternative to net income as an indication of the Company's financial
performance, or to cash flow from operating activities as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
30
The following table presents the Company's Funds from Operations for
the periods presented below:
For the three months For the nine months ended
Ended September 30, September 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- ---------------
(in thousands)
Funds from Operations:
Net loss ($584) ($593) ($26,790) ($1,466)
Minority interest (40) (40) (1,926) (99)
-------- -------- -------- --------
Net loss before minority interest (624) (633) (28,716) (1,565)
Adjustments:
Real estate depreciation and amortization:
Consolidated entities 1,463 1,517 4,522 4,477
Unconsolidated entities 1,122 1,122 3,366 3,367
Extraordinary loss on debt extinguishment - 1,296 - 1,296
-------- -------- -------- --------
Funds from Operations before allocation to
minority interest 1,961 3,302 (20,828) 7,575
Less:
Funds from Operations allocable to minority
interest (133) (221) 1,396 (507)
-------- -------- -------- --------
Funds from Operations attributable to the
common shareholders $1,828 $3,081 ($19,432) $7,068
======== ======== ======== ========
31
Summary Condensed Consolidated Financial Data of Genesis
As leases with and loans to Genesis represent a significant portion of
the Company's consolidated assets and revenues, the Company has included certain
summary condensed consolidated financial data of Genesis for the periods
discussed below. The summary condensed consolidated financial data of Genesis
was extracted from Genesis' quarterly report on Form 10-Q for the quarter ended
June 30, 2000 as filed with the Securities and Exchange Commission (the "SEC").
On June 22, 2000, Genesis and Multicare announced that they had filed
for Chapter 11 bankruptcy protection following debt restructuring discussions
with their senior lenders.
The Genesis financial data presented includes only the most recent
interim reporting period. The Company can make no representation as to the
accuracy and completeness of Genesis' public filings. It should be noted that
Genesis has no duty, contractual or otherwise, to advise the Company of any
events subsequent to such dates which might affect the significance or accuracy
of such information.
Genesis is subject to the information filing requirements of the
Securities and Exchange Act of 1934, as amended, and in accordance therewith, is
obligated to file periodic reports, proxy statements and other information with
the SEC relating to its business, financial condition and other matters. Such
reports, proxy statements and other information may be inspected at the offices
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should
also be available at the following Regional Offices of the Commission: 7 World
Trade Center, New York, N.Y. 10048, and 500 West Madison Street, Suite 1400,
Chicago, IL 60661. The SEC also maintains an Internet web site that contains
reports, proxy statements and other information regarding issuers, like Genesis,
that file electronically with the SEC. The address of that site is
http://www.sec.gov.
32
The following table sets forth certain summary condensed consolidated
financial data for Genesis as of and for the periods indicated. Genesis
consolidates the results of Multicare, in which Genesis has a 43.6% interest.
The non-Genesis shareholders' remaining 56.4% in Multicare is recorded as
minority interest.
For the three months For the nine months
ended June 30, ended June 30,
---------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- ------------
(in thousands, except per share data)
Operations Data
- -----------------------------------------------------
Net revenues $615,851 $465,088 $1,807,578 $1,408,911
Operating income before restructuring and capital
costs (1) 20,242 60,430 123,129 183,794
Multicare joint venture restructuring charge - - 420,000 -
Depreciation and amortization 29,423 18,887 87,578 55,453
Lease expense 9,661 6,655 28,674 19,641
Interest expense, net 61,180 29,515 170,682 85,295
Income (loss) before income taxes, minority
interest, equity in net loss of unconsolidated
affiliates, extraordinary item and cumulative
effect of accounting change (80,022) 5,373 (583,805) 23,405
Income tax expense (benefit) (20,233) 2,901 (35,968) 10,851
Income (loss) before minority interest, equity in
net loss of unconsolidated affiliates,
extraordinary item and cumulative effect of
accounting change (59,789) 2,472 (547,837) 12,554
Minority interest 10,268 - 23,295 -
Equity in net loss of unconsolidated affiliates - (3,475) - (8,626)
Income (loss) before extraordinary item and
cumulative effect of accounting change (49,521) (1,003) (524,542) 3,928
Extraordinary item, net of tax - - - (2,100)
Cumulative effect of accounting change (3) - - (10,412) -
Net income (loss) (49,521) (1,003) (534,954) 1,828
Net loss available to common shareholders (2) ($60,937) ($5,858) ($566,051) ($12,740)
Per common share data:
Basic and diluted
Loss before extraordinary items and cumulative
effect of accounting change ($1.25) ($0.17) ($11.94) ($0.30)
Net loss ($1.25) ($0.17) ($12.16) ($0.36)
Weighted average shares common stock and
equivalents 48,641,154 35,371,499 46,542,614 35,268,910
---------------
(1) Capital costs include depreciation and amortization, lease expense and
interest expense.
(2) Net income (loss) reduced by preferred stock dividends.
(3) Cumulative effect of accounting change relates to October 1, 1999
adoption of American Institute of Certified Public Accountant's
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities," which requires start-up costs to be expensed as incurred.
33
June 30, September 30,
---------------- -----------------
2000 1999
---------------- -----------------
(dollars in thousands)
Balance Sheet Data
- -----------------------------------------
Working capital $ 555,793 $ 235,704
Total assets 3,447,554 2,429,914
Long-term debt 101,440 1,484,510
Liabilities subject to compromise 2,481,890 -
Shareholders' equity $ 71,258 $ 587,890
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company provides fixed rate mortgage loans to operators of
healthcare facilities as part of its normal operations. The Company also has
mortgages and bonds payable which bear interest at fixed rates. Changes in
interest rates generally affect the fair market value of the underlying fixed
interest rate loans receivable or payable, but not earnings or cash flows. Refer
to the Company's annual report on Form 10-K for the year ended December 31, 1999
for discussion of the market risk associated with these financial instruments.
The Company is exposed to market risks related to fluctuations in
interest rates on its Credit Facility and variable rate mortgages. The Company
utilizes interest rate cap agreements to limit the impact that interest rate
fluctuations have on its variable rate mortgages. Interest rate cap agreements
are used for hedging purposes rather than for trading purposes. The Company does
not utilize interest rate swaps, forward or option contracts on foreign
currencies or commodities, or any other type of derivative financial instrument,
other than interest rate cap agreements.
For variable rate debt, changes in interest rates generally do not
impact fair market value, but do affect future earnings and cash flows. The
weighted average interest rate on borrowings outstanding under the Credit
Facility and variable rate mortgages was 9.55% at September 30, 2000. Assuming
the Credit Facility and variable rate mortgage balances outstanding at September
30, 2000 of $69.0 million remains constant, each one percentage point increase
in interest rates from 9.55% at September 30, 2000 would result in an increase
in interest expense for the next twelve months of approximately $690,000, based
on the current interest rate terms. Amounts outstanding under the Credit
Facility bear interest at floating rates ranging from 2.75% to 3.25% over
one-month LIBOR, as determined by the percentage of the Credit Facility
outstanding as compared to the borrowing base. Variable rate mortgages bear
interest at 3.00% over one-month LIBOR.
The Company may borrow additional money with variable interest rates in
the future. Increases in interest rates, therefore, would result in increases in
interest expense, which could adversely affect the Company's cash flow and its
ability to pay its obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
34
PART II - OTHER INFORMATION
ITEM 3. Defaults Upon Senior Securities
Events of default have been declared under two bonds payable totaling
$20.0 million at September 30, 2000, which are guaranteed by the Company, based
on the Company's failure since June 30, 2000 to meet the minimum net worth and
interest coverage requirements under guarantee agreements relating to the
underlying mortgages. In addition, an event of default has occurred under one
mortgage payable with an outstanding balance of $2.8 million at September 30,
2000 based on the bankruptcy filing by Genesis. The Company also continued not
to meet the minimum tangible net worth, the minimum net asset value and the
interest coverage ratio requirements under the Credit Facility at September 30,
2000.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed with this report are listed in the exhibit index on
page 37.
(b) Reports on Form 8-K
On July 7, 2000, ElderTrust filed a Form 8-K addressing the June 22,
2000 Chapter 11 bankruptcy filings by Genesis and Multicare. The Form
8-K also described impairment charges on loans and other investments
anticipated to be recorded by ElderTrust during the quarter ended June
30, 2000 and announced the suspension of quarterly distributions to
shareholders and that certain events of default had been declared under
its Credit Facility and certain other outstanding indebtedness.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 13, 2000.
ElderTrust
/s/ D. Lee McCreary, Jr.
-----------------------------------------------------
D. Lee McCreary, Jr.
President, Chief Executive Officer,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
36
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.1 Computation of basic and diluted loss per share for the three
and nine months ended September 30, 2000 and 1999.
27.1 Financial Data Schedule for the nine months ended
September 30, 2000.
37
EXHIBIT 11.1
COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The following calculation is submitted in accordance with requirements
of the Securities Exchange Act of 1934:
For the three months ended For the nine months
September 30, ended September 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(amounts in thousands)
Net loss available for common
shareholders ($584) ($593) ($26,790) ($1,466)
====== ====== ======== =======
Weighted average common
shares outstanding used in
calculating basic and
diluted net loss per
common share 7,119 7,201 7,119 7,206
====== ====== ======== =======
Basic and diluted net loss per
common share ($0.08) ($0.08) ($3.76) ($0.20)
====== ====== ======== =======
38