EXHIBIT 10.68
MASTER FRANCHISE AGREEMENT
BETWEEN
INTEGRATED HEALTH SERVICES FRANCHISING CO., INC.
AND
LYRIC HEALTH CARE LLC
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DATED AS OF JANUARY 13, 1998
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TABLE OF CONTENTS
ARTICLES
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ARTICLE 1. Definitions
ARTICLE 2. Grant and Acceptance of Franchise
ARTICLE 3. [omitted]
ARTICLE 4. Term
ARTICLE 5. Annual Continuing Fees
ARTICLE 6. Proprietary Materials; Trade Names; IHS Systems
ARTICLE 7. Preferred Provider Status
ARTICLE 8. "800" Telephone Number
ARTICLE 9. Enhancement of the IHS Systems
ARTICLE 10. Other Business
ARTICLE 11. [omitted]
ARTICLE 12. Statements, Records and Fee Payments
ARTICLE 13. Additional Covenants of Lyric
ARTICLE 14. Franchisor Not to Compete
ARTICLE 15. Negative Covenants of Lyric
ARTICLE 16. Transfer and Assignment
ARTICLE 17. Rights of Aggrieved Party upon Default
ARTICLE 18. [omitted]
ARTICLE 19. Indemnification and Independent Contractor
ARTICLE 20. Written Approvals, Waivers and Amendment
ARTICLE 21. Enforcement
ARTICLE 22. Entire Agreement
ARTICLE 23. Notices
ARTICLE 24. Governing Law and Dispute Resolution
ARTICLE 25. Severability, Construction and Other Matters
ARTICLE 26. Post Term Obligations
ARTICLE 27. Taxes, Permits and Indebtedness
ARTICLE 28. Acknowledgments
ARTICLE 29. Guaranty of Franchisee Obligations
EXHIBITS
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EXHIBIT 1 - Franchise Agreement
EXHIBIT 2 - List of Facilities
EXHIBIT 3 - [omitted]
EXHIBIT 4 - List of Individual Franchisee Names, Names of Businesses,
and Territories
EXHIBIT 5 - Guidelines for Determining Territories
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MASTER FRANCHISE AGREEMENT
MASTER FRANCHISE AGREEMENT, dated as of January 13, 1998, by
and between INTEGRATED HEALTH SERVICES FRANCHISING CO., INC. ("Franchisor"), a
Delaware corporation with its principal office at 10065 Red Run Boulevard,
Owings Mills, MD 21117, and LYRIC HEALTH CARE LLC, a Delaware limited liability
company ("Lyric"), with its principal office at 8889 Pelican Bay Boulevard,
Suite 500, Naples, Florida 34103.
INTRODUCTORY STATEMENT
Integrated Health Services, Inc. ("IHS") developed valuable
"Trade Names" and "Proprietary Materials" (including the "IHS Systems"), all as
defined below, relating to businesses which IHS operates and services which IHS
provides. These have substantial value and materially enhance and facilitate
IHS's business and operations. IHS formed Lyric for the purpose of engaging in
the same or similar enterprises and, to launch Lyric's business, contributed to
Lyric the shares of five corporations operating health-care facilities under the
Trade Names. Lyric and its subsidiaries desire to obtain the benefit of the
Proprietary Materials and the Trade Names, and Franchisor, on behalf of IHS, is
willing to grant a franchise for such purpose, subject to the terms and
conditions set forth below. Neither IHS nor Franchisor has previously franchised
to others the use of such Trade Names and Proprietary Materials.
An affiliate of Franchisor (the "Manager") has entered into
agreements (the "Management Agreements") to manage the health care facilities
which the Franchisees (defined below) lease or own. The Manager will be
responsible, to the extent specified in the Management Agreements, for assisting
the respective Franchisees to comply with their obligations under this
Agreement.
ARTICLE 1. DEFINITIONS
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1.1 The following words and phrases have the following
meanings in this Agreement:
"Affiliate" means any person, corporation or other entity,
which, directly or indirectly, controls, is controlled by, or is under common
control with, another person, corporation, or other entity.
"Business Day" means any day other than Saturday, Sunday or
any other day on which banking institutions in the State of Maryland are
authorized by law or executive action to close.
"Control" means the power, directly or indirectly, to direct
or cause the direction of the management and policies of a corporation or other
entity.
"EBITDA" means earnings before interest, taxes, depreciation,
and amortization of Lyric on a consolidated basis as shown on Lyric's monthly
financial statements regularly prepared by Lyric.
"Facility" means a facility owned or leased by Lyric or a
Franchisee in which any Health Care Business is conducted.
"Facility Franchise Agreement" means an agreement between
Franchisor and a Franchisee in the form of the agreement attached hereto as
Exhibit 1.
"Franchisee" means, as of any particular date, any entity
designated as such pursuant to a Facility Franchise Agreement.
"GAAP" means United States generally accepted accounting
principles consistently applied.
"Gross Revenues" means, for any period, all revenues and
income of any kind derived directly or indirectly by the entity specified during
such period (including rental or other payment from concessionaires, licensees,
tenants, and other users of such entity's facilities and from the sale of
products and/or the furnishing of services, including all revenues or receipts
derived from or associated with the Proprietary Materials (but excluding
therefrom all bequests, gifts, or similar donations), whether on a cash basis or
on credit, paid or unpaid, collected or uncollected, as determined in accordance
with GAAP, excluding, however:
(a) federal, state, and municipal excise, sales, and
use taxes collected directly from patients as a part of the sales
prices of any goods or services;
(b) proceeds of any life insurance policies;
(c) gains or losses arising from the sale or other
disposition of capital assets;
(d) any reversal or accrual of any contingency or tax
reserve;
(e) interest earned on sinking funds, Special
Security Accounts, bonds funds, etc. originally and specifically formed
as a requirement of any bond issue (if any) utilized to finance the
Facility; and
(f) bad debt expense.
The proceeds of business interruption insurance or proceeds as a result of
Medicare and Medicaid audits shall be included in Gross Revenues. However, funds
required to be repaid as a result of Medicare and Medicaid audits shall be
deducted from Gross Revenues.
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"Health Care Business" means any business now or in the future
operated by IHS, Franchisor, Lyric, or any Franchisee involving the provision of
health care services of any and every kind.
"IHS Systems" means the systems, protocols, procedures,
software, contracts and contract forms and documentation, manuals, guides,
instructions, forms, employee benefit plans and programs, used and developed by
IHS previously, now, and in the future for the treatment, servicing, and
processing of patients, customers, and/or clients for the financial,
administrative, human resources, procurement, management, and other operations
of IHS's businesses and activities.
"Lease" means any net lease of a Facility from Lessor or any
other lessor.
"Lessor" means each lessor or lessors from time to time under
a Lease.
"Lyric's Business" means and includes the business of Lyric
and all Lyric Franchisees on a consolidated basis.
"Operating Agreement" means the Operating Agreement of Lyric.
"Proprietary Materials" means Trade Names; trademarks; service
marks; copyrighted materials and copyrightable materials; software, manuals,
protocols, procedures, systems, documentation, methods, contracts and contract
forms and documents; trade dress; uniforms; and other materials for treatment,
servicing, and processing of patients, customers, and/or clients and for the
financial, administrative, procurement, human resources, quality control,
management, and operations of the Health Care Business (including the IHS
Systems).
"Territory" means each territory within which Lyric and the
Franchisees may operate a Health Care Business. The Territories of the
Franchisees are described in the Facility Franchise Agreements. Lyric's
Territory is the aggregate of the Territories of the Franchisees (as such
Territories change from time to time) as such Territories are defined in the
respective Facility Franchise Agreements.
"Trade Names" means "Integrated Health Services," "IHS" and
every other name or description previously, now, or in the future used in, or
associated with the Health Care Business, including any and all
"doing-business-as" names or trade names.
1.2 Wherever used in this Agreement:
(a) the words "include" or "including" shall be
construed as incorporating, also, "but not limited to" or
"without limitation";
(b) the word "day" means a calendar day unless
otherwise specified;
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(c) the word "party" means each and every person or
entity whose signature is set forth at the end of this
Agreement;
(d) the word "law" (or "laws") means any law, rule,
regulation, order, statute, ordinary, resolution, regulation,
order, statute, ordinance, resolution, regulation, code,
decree, judgment, injunction, mandate or other legally binding
requirement of a government entity;
(e) each reference to a Facility (or any part or
component thereof) shall be deemed to include "and/or any
portion thereof";
(f) the word "notice" shall mean notice in writing
(whether or not specifically so stated);
(g) "month" means a calendar month unless otherwise
specified; and
(h) the word "amended" means "amended, modified,
extended, renewed, changed, or otherwise revised"; and the
word "amendment" means "amendment, modification, extension,
change, renewal, or other revision".
1.3 Certain other words and phrases are defined elsewhere in
this Agreement, including the Exhibits and Schedules hereto. Words and phrases
defined in any part of this Agreement shall have the same meaning in all parts
of this Agreement.
ARTICLE 2. GRANT AND ACCEPTANCE OF FRANCHISE
2.1 Existing and New Facilities and Businesses. Subject to
Section 2.2 and the other terms and conditions of this Agreement, Franchisor
grants to Lyric and to each Franchisee the right and franchise to use and employ
the Proprietary Materials in accordance with this Agreement. Franchisor shall
enter into a Franchise Agreement:
(a) for each facility listed on Exhibit 2 with the
Franchisee specified in such Exhibit; and
(b) with Lyric or any of its subsidiaries which
develop, acquire, or lease any additional Health Care Business,
provided that such additional business meets Franchisor's standards and
requirements (which shall be consistent with those set forth in the
Confidential Operating Manual and otherwise required of Lyric and the
Franchisees hereunder) and provided further that such additional
business is not located (i) in the Territory of any other Franchisee
(or other franchisee of Franchisor) or (ii) in a geographic area in
which Franchisor is prohibited by law or contract from granting a
franchise to operate a Health Care Business.
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2.2 Condition. The grant of each franchise pursuant to Section
2.1, and Franchisor's obligation to enter into any Franchise Agreement, shall be
subject to: (a) execution and delivery of the particular Franchise Agreement to
Franchisor by the particular Franchisee; and (b) compliance by Franchisor and
the respective Franchisee with laws, rules and regulations applicable to the
creation of such Franchise Agreement (and Franchisor and Lyric agree to use
commercially reasonable best efforts to comply with such laws, rules and
regulations).
ARTICLE 3. [OMITTED]
ARTICLE 4. TERM
4.1 Initial Term. Unless sooner terminated pursuant to Article
16, this Agreement shall extend for an initial term (the "Initial Term") ending
on January 31, 2011.
4.2 Extended Terms. This Agreement shall automatically renew
for two consecutive thirteen year renewal terms (collectively, the "Extended
Terms"). Each Extended Term shall commence on the day succeeding the end of the
Initial Term or the preceding Extended Term, as applicable. All terms,
covenants, conditions, and provisions of this Agreement shall apply to each
Extended Term (except that Lyric may not extend the Term beyond the expiration
of the Extended Term). Notwithstanding the foregoing, Franchisor may decide not
to renew in any such case by giving notice to Lyric not less than six (6) months
prior to the last day of the Term or Extended Term.
4.3 Effect on Franchisees. Any extension of the Term by Lyric
under this Article shall automatically extend the Term for the same period, and
upon the same terms and conditions, of each Franchise Agreement between
Franchisor and a Franchisee.
ARTICLE 5. ANNUAL CONTINUING FEES
5.1 Annual Continuing Fee. For each "Contract Year" (as
hereinafter defined) during the Initial Term, Lyric shall pay Franchisor an
annual continuing fee (the "Annual Continuing Fee") in the amount of one percent
(1%) of the Lyric Gross Revenues (as defined below).
5.2 Definition of "Contract Year". In this Agreement,
"Contract Year" means any period which begins on January 1st and ends on the
earlier of the following December 31st or the effective date of expiration or
termination of this Agreement (except that the first Contract Year may be a
partial year which commences on the date hereof and ends on December 31st and
the last Contract Year may end on a date earlier than December 31st).
5.3 Monthly Installments. During each Contract Year, Lyric
shall make monthly installments on account of the Annual Continuing Fee for such
Contract Year. The installment for each month shall be equal to 1% of the Lyric
Gross Revenues for each month, and shall be paid on or before the 25th day of
the following calendar month, subject to Section 5.5.
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5.4 Annual Continuing Fee for Short Contract Year. If the Term
includes any Contract Year of less than 365 days, the Annual Continuing Fee for
such Contract Year shall be equal to the product of the Annual Continuing Fee
for such Contract Year multiplied by a fraction, the numerator of which is the
number of days this Agreement was in effect during such Contract Year and the
denominator of which is 365.
5.5 Credit for Payments by Lyric Franchisees. Amounts paid
directly by Franchisees to Franchisor (if any) pursuant to the Franchise
Agreements shall reduce dollar for dollar Lyric's obligation under Sections 5.1,
5.3 and 5.4. If and to the extent that Lyric and its Franchisees experience bad
debts or poor collections exceeding the amounts reserved for such items in their
respective current revenue budgets, and as a result Lyric is unable to pay all
or any part of the monthly installment of the Annual Continuing Fee for a
particular month, the unpaid portion of such installment shall accrue and be
payable as soon as cash flow permits but in no event later than at the end of
the current Contract Year. The foregoing sentence shall not apply for more than
one Contract Year.
5.6 Payment Following Contract Year End. If the aggregate
dollar amount of payments delivered by Lyric to Franchisor in payment of the
Annual Continuing Fee for any Contract Year under Section 5.3 differs from the
Annual Continuing Fee for such Contract Year, the appropriate party shall pay to
the other the amount of such overpayment or underpayment within one hundred five
(105) days after the end of such Contract Year.
5.7 Taxes. Lyric shall pay to Franchisor the amount of all
sales taxes, use taxes, and similar taxes imposed upon or required to be
collected on account of the Annual Continuing Fee and of goods or services
furnished to Lyric and Lyric Franchisees by Franchisor, whether such goods or
services are furnished by sale, lease or otherwise.
5.8 Lyric Gross Revenues. "Lyric Gross Revenues" means the sum
of:
(a) the Gross Revenues of all Franchisees; plus
(b) the Business Gross Revenues of all the businesses
which are the subject of joint ventures to which Lyric and/or any
Franchisee is a party (the "Joint Venture Businesses") and the
businesses which are the subject of management agreements and other
agreements and arrangements of Lyric or any Franchisee pursuant to
which Lyric or any Franchisee provides management, consulting or other
services for so long as any such agreements or arrangements are in
effect (the "Managed Businesses"); plus
(c) all other Gross Revenues of Lyric.
5.9 Additional Remedies for Past Due Annual Continuing Fees.
In addition to all other rights and remedies under this Agreement and at law or
in equity, if any Annual Continuing Fees are past due from Lyric to Franchisor
(subject to Section 5.5) for more than 120 days after notice from Franchisor),
Franchisor shall have the right, in addition to Franchisor's
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other rights and remedies under this Agreement, to require reconsideration and
revision of Lyric's current annual and capital budgets and to require Lyric to
comply with the negative covenants of Lyric under Article 15 as if Franchisor
had sold its interest in Lyric. The foregoing rights are cumulative. Lyric
agrees that, upon the exercise of any such right by Franchisor, Lyric will cease
taking any prohibited action and will take the action required by Franchisor and
will otherwise cooperate with Franchisor in carrying out the purpose and intent
of this Section.
5.10 Interest. Lyric shall pay Franchisor interest on any
amounts past due at the lower of (i) the maximum rate permitted by law or (ii)
the prime rate of Citibank, N.A. plus two percent (2%) per annum (the "Prime
Rate"); but interest shall not accrue on past due amounts to the extent Lyric
(or a particular Franchisee) fails to achieve EBITDA sufficient to pay such
amounts as long as Lyric or the applicable Franchisee is operating within its
then-current budget).
5.11 Negotiation of Fees. Each party agrees that: (a) the
Annual Continuing Fee payable under this Article 5 was established by extensive,
good faith, arms-length negotiations between the parties in which each party was
represented by counsel and advised by accountants familiar with the health care
industry and franchising, and (b) each party is satisfied that the Annual
Continuing Fee payable pursuant to this Article 5 represents the present, and
(as applicable) reasonably anticipated during the Initial Term, fair market
value of the franchise.
5.12 Advances by Franchisor. Lyric shall pay to Franchisor all
amounts, if any, advanced by Franchisor or which Franchisor has paid (or for
which Franchisor has become obligated) on behalf of Lyric or any Lyric
Franchisees.
ARTICLE 6. PROPRIETARY MATERIALS; TRADE NAMES; IHS SYSTEMS
6.1 Proprietary Materials. Franchisor hereby grants Lyric the
right to use the Proprietary Materials in connection with the businesses
franchised by Franchisor pursuant to Article 2, the management and
administration of existing Joint Venture Businesses, the existing Managed
Businesses, and any Other Business pursuant to Article 10. To enhance the public
image and reputation of businesses operating under the IHS Systems, to protect
the goodwill associated with the Proprietary Materials, and to increase the
demand for services and products provided by Franchisor and all Franchisees, the
parties agree to the further provisions set forth below.
6.2 Ownership. Franchisor represents and warrants that IHS
owns the Proprietary Materials and the IHS Systems and that Franchisor is duly
authorized to grant Lyric and the Franchisees the rights in the Proprietary
Materials and the IHS Systems described in the Franchise Agreements on behalf of
IHS. Lyric expressly acknowledges IHS' and Franchisor's rights in and to the
Proprietary Materials and agrees not to represent or claim in any manner that
Lyric has acquired any ownership rights in the Proprietary Materials. Lyric
agrees further that any and all goodwill associated with the IHS System and
identified by the Proprietary Materials shall inure directly and exclusively to
the benefit of Franchisor and IHS.
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6.3 Authorized Use. Lyric agrees that any use of the
Proprietary Materials except as expressly authorized by this Agreement may
constitute an infringement of Franchisor's and/or IHS' rights and that any right
to use the Proprietary Materials granted under this Agreement shall not extend
beyond the termination or expiration of this Agreement. Lyric agrees that,
during the term of this Agreement and thereafter, Lyric shall not, directly or
indirectly, commit any act of infringement or contest or aid others in
contesting the validity or registration of Franchisor's and/or IHS' right to use
the Proprietary Materials or take any other action in derogation thereof.
6.4 Infringement. Lyric shall notify Franchisor promptly of
any claim, demand or cause of action that Franchisor may have based upon or
arising from any unauthorized attempt by any person or legal entity to use the
Proprietary Materials, any colorable variation thereof, or any other mark, name
or indicia in which Franchisor or IHS has or claims a proprietary interest (an
"Unauthorized Third Party Use"). Lyric shall assist Franchisor, upon request and
at Franchisor's expense, in taking such action (if any) as Franchisor deems
appropriate to halt such Unauthorized Third Party Use, but shall take no action
nor incur any expense on Franchisor's behalf without Franchisor's prior written
approval. If Franchisor undertakes the defense or prosecution of any litigation
relating to the Proprietary Materials, Lyric agrees to execute any and all
documents and to do such acts and things as may, in the opinion of Franchisor's
legal counsel, be reasonably necessary to carry out such defense or prosecution.
If Franchisor does not take action to halt any Unauthorized Third Party Use,
Lyric at its expense may take action as it deems appropriate to halt such
Unauthorized Third Party Use.
6.5 Operation With Proprietary Materials. Lyric and the
Franchisees further agree to operate and advertise only under the names or marks
from time to time designated by Franchisor for use as part of the Proprietary
Materials; to adopt and use the Proprietary Materials solely in the manner
prescribed by Franchisor; to refrain from using the Proprietary Materials to
perform any activity or to incur any obligation or indebtedness in such a manner
as may, in any way, subject Franchisor or IHS to liability therefor; to observe
all laws with respect to the registration of trade names and assumed or
fictitious names, to include in any application therefor a statement that
Lyric's use of the Proprietary Materials is limited by the terms of this
Agreement; to provide Franchisor with a copy of any such application and other
registration document(s); to observe such requirements with respect to trademark
and service mark registrations and copyright notices as Franchisor may, from
time to time, require, including, without limitation, affixing "SM", "TM" or (R)
adjacent to any portions of the Proprietary Materials in any and all uses
thereof as requested by Franchisor; and to utilize such other appropriate notice
of ownership, registration and copyright as Franchisor may require.
6.6 Modification/Replacement of Proprietary Materials.
Franchisor reserves the right, in its sole discretion, to designate one or more
new, modified or replacement Proprietary Materials for use by Lyric and/or any
Franchisee and to require the use by Lyric and/or any Franchisee of any such
new, modified or replacement Proprietary Materials in addition to or in lieu of
any previously designated Proprietary Materials. Any expenses or costs
associated with the use by Lyric and/or any Franchisee of any such new, modified
or replacement Proprietary Materials shall be the sole responsibility of Lyric
and/or the respective Franchisees.
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6.7 Use of IHS Systems. Franchisor hereby grants to Lyric the
right and license to utilize the IHS Systems in connection with the management
and administration of the businesses franchised by Franchisor pursuant to
Article 2, the management and administration of existing Joint Venture
Businesses, the existing Managed Businesses and all Other Business pursuant to
Article 10. Franchisor shall establish and Lyric shall maintain standards of
quality, appearance and operation for Lyric's Business.
6.8 Compliance with IHS Systems. Lyric agrees in connection
with Lyric's business, and each Franchisee agrees for itself, to use and comply
with all treatment protocols, treatment, financial, legal and other programs and
procedures, quality standards, quality assessment methods, performance
improvement and monitoring programs and other matters which now or hereafter
comprise the IHS Systems, and to comply with the rules, regulations, policies
and standards of the IHS Systems, including all such contained in the
"Confidential Operating Manual" (as hereinafter defined).
6.9 Compliance With Law. Lyric and each Franchisee agree at
all times to operate its business, and to keep all premises at which it and each
Franchisee operates, in compliance with all applicable federal, state and local
laws, rules and regulations.
6.10 Joint Commission on Accreditation of Health Care
Organizations (JCAHO). Lyric agrees to cause any applicable Franchisee to
maintain throughout the term of this Agreement any accreditation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") previously
issued to the particular Franchisee (and Lyric shall cause the Franchisees to
use commercially reasonable best efforts to seek and obtain such accreditation
if and as necessary or appropriate). Lyric agrees also to endeavor to obtain and
maintain accreditation by other organizations which may be necessary or
desirable in a particular case. Lyric (or the applicable Franchisee) shall pay
all costs of obtaining and maintaining any such accreditation(s).
6.11 Maintenance of Standards. Lyric and each Franchisee agree
to maintain all premises from or at which its business is conducted, and all
furnishings and equipment thereon, in conformity with Franchisor's then-current
standards, at all times during the term of this Agreement, and to make such
repairs and replacements thereto as Franchisor may require. Without limiting the
generality of the foregoing, Lyric and each Franchisee agree:
(a) to keep all such premises at all times in a high
degree of sanitation, repair, order and condition, including such
periodic repainting of the exterior and interior of the premises, and
such maintenance and repairs to all fixtures, furnishings, signs and
equipment, as Franchisor may from time to time reasonably direct; and
(b) to meet and maintain at all times governmental
standards, certifications and ratings applicable to the operation of
the premises and such business or such higher minimum standards,
certifications and ratings as reasonably set forth by Franchisor from
time to time in its Confidential Operating Manual or otherwise in
writing.
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6.12 Operation in Conformity with Prescribed Methods,
Standards and Specifications. Lyric and each Franchisee agree to operate its
business in conformity with such methods, standards and specifications as
Franchisor may prescribe from time to time in its Confidential Operating Manual
to insure that Franchisor's required degree of quality, service and image is
maintained; and to refrain from deviating therefrom or otherwise operating in
any manner which adversely reflects on Franchisor's or IHS' name and goodwill,
or on the Proprietary Materials.
6.13 Printed Materials; Marketing. Lyric and each Franchisee
shall use only marketing and advertising materials which have been approved in
advance by Franchisor; and Lyric and each Franchisee shall use business
stationery, business cards, and similar materials which are consistent with the
Proprietary Materials and their obligations under this Agreement. Lyric and each
Franchisee shall not employ any person to act as a representative of Lyric or
such Franchisee in connection with local promotion of their business in any
public media without the prior written approval of Franchisor. Supplies or
materials purchased, leased or licensed by Lyric or any Franchisee shall meet
the standards reasonably specified by Franchisor from time to time.
6.14 Ownership Identification. In all advertising displays and
materials and at all premises from or at which their respective business is
conducted, Lyric and each Franchisee shall, in such form and manner as may be
specified by Franchisor in the Confidential Operating Manual, notify the public
that Lyric or the respective Franchisee is operating the business licensed
hereunder as a franchisee of Franchisor and shall identify its business location
in the manner specified by Franchisor in the Confidential Operating Manual.
6.15 Patient Relations. Lyric and each Franchisee shall
respond promptly to patient complaints and shall take such other steps as may be
required to insure positive patient relations.
6.16 Right to Inspect. Lyric and each Franchisee hereby grant
to Franchisor and its agents the right to enter upon any premises from which
they conduct their business, without notice, at any reasonable time for the
purpose of conducting inspections of the premises and their books and records;
and each agrees to render such assistance as may reasonably be requested and to
take such steps as may be necessary to correct any deficiencies upon the request
of Franchisor or its agents.
6.17 Variation of Standards. Because complete and detailed
uniformity under many varying conditions may not be possible or practical,
Franchisor specifically reserves the right and privilege, in its sole discretion
and as it may deem in the best interests of all concerned in any specific
instance, to vary standards for any Franchisees based upon the peculiarities of
a particular circumstance, or any other conditions which Franchisor deems to be
of importance to the successful operation of the particular business. Neither
Lyric nor any Franchisee shall have recourse against Franchisor on account of
any variation from standard specifications and practices granted to Lyric or any
Franchisee and shall not be entitled to require Franchisor to grant others a
like or similar variation hereunder.
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6.18 Accounting Equipment and Software. Lyric and each
Franchisee agree to maintain, develop, update and replace any equipment and
software as reasonably necessary for the purpose of recording, collecting or
otherwise supporting revenues.
6.19 Discoveries and Ideas. Lyric and each Franchisee agree to
disclose promptly to Franchisor all discoveries made or ideas conceived by Lyric
or such Franchisee, their Affiliates, or their employees, pertaining to the IHS
Systems (including any enhancements and updates). To the fullest extent
permitted by law, Lyric and each Franchisee hereby grant to Franchisor all
right, title and interest to such discoveries and ideas, and agree to cooperate
with Franchisor in securing Franchisor's rights to such discoveries and ideas.
"Discoveries" and "ideas" shall be interpreted broadly and shall not be limited
to those discoveries or ideas which are potentially patentable or copyrightable.
Franchisor shall not be obligated to compensate Lyric or any Franchisee for any
such discoveries or ideas.
6.20 Compliance with Confidential Operating Manual. In order
to protect the reputation and goodwill of the businesses operating under the IHS
Systems and to maintain standards of operation under the Proprietary Materials,
Lyric and each Franchisee shall conduct its business operated under the IHS
Systems in accordance with various written instructions and confidential manuals
(hereinafter and previously referred to as the "Confidential Operating Manual"),
including such amendments thereto as Franchisor may publish from time to time,
all of which Lyric and each Franchisee acknowledge belong solely to Franchisor
and shall be on loan from Franchisor during the term of this Agreement. When any
provision in this Agreement requires that Lyric or a Franchisee comply with any
standard, specification or requirement of Franchisor, unless otherwise
indicated, such standard, specification or requirement shall be such as is set
forth in this Agreement or as may, from time to time, be set forth by Franchisor
in the Confidential Operating Manual.
6.21 Revisions to Confidential Operating Manual. Lyric and
each Franchisee understand and acknowledge that Franchisor may, from time to
time, revise the contents of the Confidential Operating Manual to implement new
or different requirements for the operation of their business, and Lyric and
each Franchisee expressly agree to comply at their expense with all such
reasonable changed requirements which are by their terms mandatory; provided
that such requirements shall also be applied in a reasonably nondiscriminatory
manner to comparable businesses operated under the IHS Systems by other
Franchisees.
6.22 Operating Assistance. Franchisor reserves the right to
require Lyric and each Franchisee to maintain standards of quality, appearance
and service at all their Facilities, thereby maintaining the public image and
reputation of the IHS System and the demand for the services and products
provided thereunder, and to that end Franchisor shall provide Lyric and each
Franchisee with the following ongoing assistance:
(a) advertising and marketing assistance including
consultation, access to media buying programs and access to broadcast
and other advertising pieces and materials produced by Franchisor from
time to time;
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(b) risk management services, including risk
financing planning, loss control and claims management;
(c) outcomes monitoring; and
(d) consultation by telephone or at Franchisor's
offices with respect to matters relating to their business in which
Franchisor has expertise, including matters relating to reimbursement,
government relations, clinical strategies, regulatory matters,
strategic planning and business development.
ARTICLE 7. PREFERRED PROVIDER STATUS
Franchisor shall use commercially reasonable best efforts,
subject to applicable law, to cause the Franchisees to have "preferred provider"
status in connection with Franchisor's managed behavioral Health Care Business
on a basis substantially consistent with existing covenants, terms and
conditions, unless the customer directs otherwise.
ARTICLE 8. "800" TELEPHONE NUMBER
Franchisor agrees to continue to operate or will provide a
toll free "800" telephone number and related service facility (the "800 Call
Center"), to provide a telephone "Help" line and also a telephone "Fraud and
Abuse" line to the Franchisees substantially the same as those now provided by
IHS' 800 Call Center operating immediately prior to the execution of this
Agreement, subject to such modifications as Franchisor deems advisable from time
to time to comply with applicable law or subject to such restructuring as Lyric
and Franchisor shall agree. Each party agrees to use commercially reasonable
best efforts to negotiate any such restructuring to comply with applicable law.
Lyric and the Franchisees shall have the right (and Lyric agrees to cause all
Franchisees) to advertise such "800" telephone number and otherwise cooperate
with Franchisor to use the 800 Call Center for the intended purposes. Lyric and
the Franchisees shall each pay, from time to time promptly following receipt of
an invoice from Franchisor, a proportionate share of the costs of operating the
800 Call Center.
ARTICLE 9. ENHANCEMENT OF THE IHS SYSTEMS
Franchisor, Lyric, and all Franchisees agree to cooperate in
the creation, enhancement and updating of written manuals and materials setting
forth the treatment, financial, legal and other protocols, programs and
procedures, quality standards, quality assessment methods, performance
improvement and monitoring programs and other matters comprising the IHS
Systems. Such manuals and other materials (together, the "IHS Systems
Materials") shall be prepared in a manner suitable for use by Franchisor in
franchising others to use the IHS Systems. No changes shall be made by Lyric or
any Franchisee to the IHS Systems or the IHS Systems Materials without the
Franchisor's express written consent which shall not be unreasonably withheld.
All protocols, programs, procedures, standards and methods, all IHS Systems
Materials, and all upgrades, enhancements, and modifications to same (whether
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developed by Franchisor, Lyric or any Franchisee), shall be owned by Franchisor
and may be used by Lyric and the Franchisees only under and pursuant to this
Agreement and the Franchise Agreements.
ARTICLE 10. OTHER BUSINESS
Lyric and each Franchisee agree not to enter into any new
Joint Venture Businesses, Managed Businesses or consulting or other agreements
or arrangements relating to a Health Care Business (collectively, "Other
Business") during the Term of this Agreement except and unless (i) Franchisor
and Lyric or the respective Franchisee enter into a Franchise Agreement with
respect to such Other Business, or (ii) with Franchisor's written consent in
each instance, and in each instance in which Franchisor has given such written
consent, Franchisor and Lyric (or the applicable Franchisee) have previously
agreed (A) to pay Franchisor, in addition to all other amounts payable pursuant
to this Agreement, a percentage of the gross receipts from such Other Business
agreeable to Franchisor or (B) to the inclusion in Gross Revenues of any such
Other Business.
ARTICLE 11. [OMITTED]
ARTICLE 12. STATEMENTS, RECORDS AND FEE PAYMENTS
12.1 Maintenance of Records; Audit Rights. Lyric and each
Franchisee shall maintain, in a manner reasonably satisfactory to Franchisor,
original, full and complete records, accounts, books, data, licenses, contracts
and invoices which accurately reflect all particulars relating to their business
and such statistical and other information or records as Franchisor may require
(and shall keep such information for not less than three years even after
termination of this Agreement). Lyric and each Franchisee shall compile and
provide to Franchisor any statistical or financial information regarding the
operation of their business, services, and products, or data of a similar
nature. Franchisor (and its agents) may examine and audit such records,
accounts, books and data at all reasonable times to monitor compliance with this
Agreement. In connection with any such examination or audit, Franchisor shall
not be entitled to any adjustment to the extent that Gross Revenues for Lyric or
the applicable Franchisee have been computed in accordance with Section 5.8. If
such inspection discloses that Gross Revenues during any scheduled reporting
period exceeded the amount reported by Lyric by two percent (2%) or more of the
amount originally reported to Franchisor, Lyric shall bear the cost of such
inspection and audit and shall pay, on demand, any such deficiency (with
interest from the date due at the lesser of the highest rate permitted by
applicable law, or the Prime Rate plus two percent (2%) per annum).
12.2 Financial Statements. Lyric and the Franchisees shall
prepare and deliver (or cause to be prepared and delivered) to Franchisor, with
respect to each Facility and Other Business, all monthly, quarterly, and annual
financial statements and compliance reports and other reports, in the same form,
and within the same periods, as Lyric prepares or receives under Article 12 of
Lyric's Operating Agreement.
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12.3 Tax Reports. Upon Franchisor's request, Lyric shall
furnish Franchisor with a copy of each of Lyric's and any or all Franchisees'
reports and returns of sales, use and gross receipt taxes and complete copies of
any state or federal income tax returns covering the operation of the businesses
of Lyric and all Franchisees.
12.4 Reports. Upon Franchisor's request, Lyric shall furnish
Franchisor with a copy of each of reports filed by Lyric and/or any Franchisees
under applicable federal and state laws, rules and regulations (including but
not limited to reports required under "Medicare" and "Medicaid" laws, rules and
regulations).
ARTICLE 13. ADDITIONAL COVENANTS OF LYRIC
13.1 Covenant During Term. During the Term of this Agreement,
Lyric and each Franchisee covenant not to engage directly or indirectly as an
owner, operator, in any managerial capacity, or otherwise in any business other
than (i) as a franchisee of the Proprietary Materials pursuant to a Franchise
Agreement; (ii) Other Business (but only as permitted by Franchisor pursuant to
Article 10); or (iii) through management and administration of the businesses
franchised by Franchisor pursuant to Article 2.
13.2 Covenant Not to Compete Post-Term. For a period expiring
three (3) years after the expiration, termination or assignment of this
Agreement, Lyric and each Franchisee covenant not to engage (directly or
indirectly) as an owner, operator, franchisee, or consultant in any business
which was conducted at any of the Facilities or any Other Business on the date
of expiration, termination or assignment of this Agreement or during the two (2)
years prior thereto. The geographic area of the restrictions under this Section
13.2 shall be limited to (i) the Territories of Lyric and all Franchisees at the
date of the termination, expiration or assignment of this Agreement and during
the two years prior thereto (which shall from time to time be included by
addendum in Exhibit 3 hereto); and (ii) the geographic areas within a ten (10)
mile radius of any Other Business in existence at the date of the expiration,
termination or assignment of this Agreement or during the two (2) years prior
thereto.
13.3 Acknowledgment of Reasonableness. The parties agree that
Sections 13.1 and 13.2 have been negotiated fully and fairly by the parties,
each being represented and advised by counsel. Lyric and each Franchisee
acknowledge that Lyric and such Franchisee willingly and freely accept the
provisions of Section 13.1 and 13.2 as reasonable and necessary under the
circumstances. One of the acknowledged reasonable business purposes of
Franchisor is to protect Franchisor's goodwill and proprietary rights. Lyric and
each Franchisee acknowledge further that Franchisor would not enter into this
Agreement without the covenants of Sections 13.1 and 13.2, and that it is fair
and reasonable for Lyric and every Franchisee to be subject to such covenants.
13.4 Confidential Information. During the Term of this
Agreement and following the expiration, termination or assignment of the
Agreement, Lyric and each Franchisee covenant not to communicate directly or
indirectly, nor to divulge to or use for its benefit or the benefit of any other
person or legal entity, any trade secrets included in the Proprietary Materials
or which
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are otherwise proprietary to Franchisor or IHS or any information, knowledge or
know-how otherwise deemed confidential by Franchisor except as permitted by
Franchisor (all such, "Confidential Information"). Notwithstanding the
foregoing, "Confidential Information" shall not include information: (a) which
at the time of disclosure is readily available to the trade or public; (b) which
after disclosure becomes readily available to the trade or public other than
through breach of this Agreement; (c) which is subsequently lawfully and in good
faith obtained by such party from an independent third party without breach of
this Agreement; or (d) which is disclosed to others in accordance with the terms
of a prior written authorization between the parties to this Agreement. In event
of any termination, expiration, assignment, or non-renewal of this Agreement,
Lyric and each Franchisee agree that Lyric and such Franchisee will never use
the Proprietary Materials or any other confidential information, trade secrets,
methods of operation or any proprietary components of Franchisor in the design,
development or operation of any Health Care Business. The protection granted
hereunder shall be in addition to and not in lieu of all other protections for
such trade secrets and confidential information as may otherwise be afforded in
law or in equity.
13.5 Confidential Agreements with Certain Employees.
Consistent with Franchisor's existing policies with respect to employee
non-disclosure agreements, Lyric and each Franchisee agree to maintain and cause
new employees of Lyric to execute employee non- disclosure agreements, in the
form used by IHS as of the date hereof (or such other form as reasonably
requested by Franchisor), which shall prohibit disclosure by such parties to any
other person or legal entity of any Confidential Information. Franchisor shall
be a third party beneficiary of each such agreement; and Lyric or the respective
Franchisee shall not amend, modify or terminate any such agreement without
Franchisor's prior written consent.
13.6 Severability. The parties agree that each of the
foregoing covenants shall be construed as independent of any other covenant or
provision of this Agreement. If any part of one or more of these restrictions is
deemed unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and if such part is capable of enforcement by
reduction of any or all thereof, Lyric and Franchisor agree that the same shall
be enforced to the fullest extent permissible under the law. Also, Franchisor
may at any time, in its sole discretion, revise any of the covenants in this
Article 13 so as to reduce the obligations of Lyric or any one or more
Franchisees hereunder. The running of any period of time specified in this
Article 13 shall be tolled and suspended for any period of time in which Lyric
is found by a court of competent jurisdiction to have been in violation of any
covenant under this Agreement. Lyric agrees further that the existence of any
claim Lyric may have against Franchisor (whether or not arising under this
Agreement) shall not be a defense to enforcement by Franchisor of the covenants
in this Article 13.
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ARTICLE 14. FRANCHISOR NOT TO COMPETE
Franchisor agrees not to compete with Lyric or the applicable
Franchisee in any business which is covered by a Franchise Agreement in the
Territory covered by such Franchise Agreement.
ARTICLE 15. NEGATIVE COVENANTS OF LYRIC
If Integrated Health Services, Inc. sells its entire
membership interest in Lyric pursuant to Article 16 of the Operating Agreement,
Lyric shall not do any of the following, without the prior written consent of
Franchisor, if Lyric is in default in paying any monthly installment of the
Annual Continuing Fee for 30 days after written notice from Franchisor:
15.1 Restriction of Indebtedness. Create, incur or assume any
indebtedness for borrowed money or the deferred purchase price of any asset
(including obligations under capitalized leases), except indebtedness
subordinated to all debts, obligations and liabilities of Lyric to Franchisor
and its Affiliates pursuant to a subordination agreement on terms and conditions
acceptable to Franchisor.
15.2 Restrictions on Liens. Create or permit to be created any
mortgage, pledge, encumbrance or other lien or security interest in any property
or assets, except for any such that individually or in the aggregate are
immaterial to Lyric.
15.3 Dividends and Redemptions. Make any distribution to
Lyric's members, or redeem, purchase or otherwise acquire directly or
indirectly, any membership interest of Lyric's members, except that Lyric shall
have the right to make cash distributions to its members so long as no default
has occurred and is continuing in the payment of any amount due from Lyric to
Franchisor pursuant to this Agreement and so long as, after giving effect to the
payment of the distribution sufficient working capital is available to pay
Annual Continuing Fees and budgeted operating expenses for the three full
calendar months following the payment of such distribution.
15.4 Acquisitions and Investments. Acquire any material assets
or any other business or make any material loan, advance or extension of credit
to, or investment in, any other person, corporation or other entity, including
investments acquired in exchange for stock or other securities or obligations of
any nature (other than to subsidiaries or in connection with cash management
functions in the ordinary course of business), or create or participate in the
creation of any subsidiary or joint venture.
15.5 Liquidation; Merger; Disposition of Assets. Liquidate or
dissolve; or merge with or into or consolidate with or into any corporation or
other entity; or sell, lease, transfer or otherwise dispose of all or any
substantial part of its property, assets or business (other than sales made in
the ordinary course of business).
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15.6 Increases in Salaries. Increase any salaries, bonuses,
profit-sharing payments, or other compensation of any kind (including severance
agreements) for any employees receiving (or likely to receive) more than
$100,000 in total annual compensation.
15.7 Affiliates. Amend any Lease to increase the amount or
accelerate the payment of the rent under such Lease or any installment thereof
or engage in any material transaction with (i) any Affiliate, (ii) Lessor or
(iii) an Affiliate of Lessor, other than pursuant to contracts or ongoing
arrangements existing at the time Integrated Health Services, Inc. sells its
membership interest in Lyric, including amending in any material respect any
such contracts or other ongoing arrangements existing at the time of such sale.
15.8 No Bankruptcy. (i) Dissolve or liquidate, in whole or in
part, or institute proceedings to be adjudicated bankrupt or insolvent, (ii)
consent to the institution of bankruptcy or insolvency proceedings against it,
(iii) file a petition seeking or consenting to reorganization or relief under
any applicable federal or state law relating to bankruptcy, (iv) consenting to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of Lyric or a substantial part of its property, (v) make
a general assignment for the benefit of creditors, (vi) admit in writing its
inability to pay its debts generally as they become due, or (vii) take any
corporate or other action to authorize any of the actions set forth in clauses
(i) through (vi) of this paragraph.
ARTICLE 16. TRANSFER AND ASSIGNMENT
16.1 Assignment by Franchisor. This Agreement and all rights
and duties hereunder may not be assigned or transferred by Franchisor except (i)
with Lyric's prior written consent (which shall not be unreasonably withheld,
conditioned or delayed); or (ii) to an entity which simultaneously acquires all
or substantially all of Franchisor's business and assets, provided that such
transferee/assignee assumes each and every obligation of Franchisor under this
Agreement. Franchisor may grant a security interest for collateral purposes in
Franchisor's rights and interest (but not its obligations) under this Agreement
to any of Franchisor's (or its Affiliates') lenders.
16.2 Assignment by Lyric. This Agreement and all rights and
duties hereunder may not be assigned or transferred by Lyric except (i) with the
written consent of Franchisor, or (ii) to an entity which simultaneously
acquires all or substantially all of Lyric's business and assets (including
ownership of all Franchisees), provided that such transferee/assignee assumes
each and every obligation of Lyric under this Agreement (and executes an
assumption agreement to such effect in form and substance satisfactory to
Franchisor). At the time of assignment of Lyric's rights pursuant to the
preceding sentence, Lyric may transfer simultaneously the Franchisees' interests
in all of the Facility Franchise Agreements to the same person or entity to whom
Lyric's interest in this Agreement is assigned.
16.3 Consent Not a Waiver. Franchisor's consent (if granted)
to an assignment by Lyric shall not constitute a waiver of any claims of
Franchisor against the transferring party,
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nor a waiver of Franchisor's right to demand exact compliance with all terms of
this Agreement by the transferee.
16.4 Parties Bound and Benefitted. This Agreement shall be
binding on the parties and their respective successors and assigns. This
Agreement shall inure to the benefit of the parties and their respective
permitted successors and assigns.
ARTICLE 17. RIGHTS OF AGGRIEVED PARTY UPON DEFAULT
17.1 Franchisor's Right to Terminate. Franchisor may terminate
this Agreement prior to the expiration of its term for "good cause", which shall
exist, at Franchisor's election, if:
(a) Lyric or any Franchisee violates any prohibition
against transfer and assignment in Article 16;
(b) Lyric or any Franchisee violates any covenant of
confidentiality or non-disclosure contained in Section 13.4 or Section
13.5;
(c) Lyric fails to keep, observe, or perform any
covenant, agreement, term or provision (other than payments covered by
(d) below) and such failure continues for sixty (60) days after notice
from Franchisor, provided that if such failure can be cured but such
cure cannot be completed with due diligence within such period and if
Lyric commences to cure such failure promptly after notice thereof and
thereafter prosecutes such cure with due diligence, such period shall
be extended as necessary to cure such failure with due diligence;
(d) Lyric shall apply for or consent to the
appointment of a receiver, trustee, or liquidator of Lyric or of all or
a substantial part of its assets, file a voluntary petition in
bankruptcy or admit in writing its inability to pay its debts as they
become due, make a general assignment for the benefit of creditors,
file a petition or any answer seeking reorganization or arrangement
with creditors or take advantage of any insolvency law, or if an order,
judgment or decree shall be entered by a court of competent
jurisdiction, on the application of a creditor, adjudicating Lyric
bankrupt or appointing a receiver, trustee, or liquidator of Lyric with
respect to all or a substantial part of the assets of Lyric, and such
order, judgment or decree shall continue unstayed and in effect for any
period of ninety (90) consecutive days;
(e) Lyric or any Franchisee defaults under any Lease
or mortgage of any Facility, and the respective Lessor or mortgagee
commences legal proceedings to enforce its rights thereunder;
(f) subject to Section 5.5 Lyric fails to pay the
Annual Continuing Fee owed to Franchisor under this Agreement when due
or within sixty (60) days thereafter,
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or fails to pay any other amounts owed to Franchisor under this
Agreement within sixty (60) days after notice from Franchisor of such
obligation.
Upon the happening of any of the foregoing events, Franchisor may terminate the
rights of Lyric and all Franchisees hereunder by notice to Lyric; and the rights
of Lyric and all Franchisees hereunder shall terminate automatically effective
thirty (30) days after the giving of such notice. If in any jurisdiction a
franchisee is entitled by law to notice and/or cure periods longer than those
set forth above, then with respect to any Franchise Agreement (to which Lyric or
a Franchisee is a party) governed by the law of such jurisdiction, the notice
and/or cure periods, as applicable, shall be deemed to be extended automatically
to the minimum notice and/or cure periods required in such jurisdiction.
17.2 Lyric's Right to Terminate. Lyric may not terminate this
Agreement prior to the expiration of its term (whether because of Franchisor's
breach, material or otherwise) except with the prior written consent of
Franchisor.
17.3 Defaults Caused by Manager. Notwithstanding anything in
this Agreement to the contrary, during any period while an Affiliate of
Franchisor is acting is the Manager of any Facility of a Franchisee pursuant to
a Management Agreement, if and to the extent that such Manager, through its
action or failure to act, shall have caused Lyric or the respective Franchisee
to be in default of their obligations under this Agreement, then such default
shall not be the basis for Franchisor to exercise any rights under this Article
or under Section 5.9; provided, however, the foregoing sentence shall not apply
if the respective Manager is unable to act (or prevented from acting) by reason
of the failure of Lyric or the respective Franchisee to comply with its own
obligation under the particular Management Agreement (including the payment of
funds to Manager to cover necessary expenditures, the giving of required
approvals or directions, etc.).
ARTICLE 18. [OMITTED]
ARTICLE 19. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
19.1 Indemnification and Hold Harmless. Lyric agrees to
protect, defend, indemnify, and hold Franchisor, IHS and their respective
directors, officers, agents, attorneys and shareholders, harmless from and
against all claims, actions, proceedings, damages, costs, expenses and other
losses and liabilities, directly or indirectly incurred (including without
limitation reasonable attorneys' and accountants' fees) as a result of, arising
out of, or connected with the operation of Lyric's Business, except those
directly resulting from Franchisor's or IHS' willful misconduct or fraud.
Franchisor agrees to protect, defend, indemnify and hold Lyric and each
Franchisee, and their respective directors, officers, agents, attorneys and
members, harmless from and against all claims, actions, proceedings, damages,
costs, expenses and other losses and liabilities, directly or indirectly arising
out of or connected with the operation of Lyric's Business arising directly from
Franchisor's willful misconduct or fraud.
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19.2 Independent Contractor. In all dealings with third
parties including employees, suppliers and patients, Lyric shall disclose in an
appropriate manner reasonably acceptable to Franchisor that it is an independent
entity. Nothing in this Agreement is intended to create a fiduciary relationship
between the parties hereto nor to constitute Lyric an agent, legal
representative, subsidiary, joint venturer, partner, employee or servant of
Franchisor for any purpose. It is agreed that Lyric is an independent contractor
and is not authorized to make any contract, warranty or representation or to
create any obligation on behalf of Franchisor.
ARTICLE 20. WRITTEN APPROVALS, WAIVERS AND AMENDMENT
20.1 Prior Approvals. Whenever this Agreement requires
Franchisor's prior approval, Lyric shall make a timely written request. Unless a
different time period is specified in this Agreement, Franchisor shall respond
with its approval or disapproval within fifteen (15) days of receipt of such
request. If Franchisor has not specifically approved a request within such
fifteen (15) day period, such failure to respond shall be deemed disapproval of
any such request.
20.2 No Waiver. No failure of Franchisor to exercise any power
reserved to it by this Agreement and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of Franchisor's right
to demand exact compliance with any of the terms herein. No waiver or approval
by Franchisor of any particular breach or default by Lyric, nor any delay,
forbearance or omission by Franchisor to act or give notice of default or to
exercise any power or right arising by reason of such default hereunder, nor
acceptance by Franchisor of any payments due hereunder shall be considered a
waiver or approval by Franchisor of any preceding or subsequent breach or
default by Lyric of any term, covenant or condition of this Agreement.
20.3 Written Amendments. Except as otherwise specifically
provided in this Agreement, no amendment, change or variance from this Agreement
shall be binding upon either Franchisor or Lyric except by mutual written
agreement.
ARTICLE 21. ENFORCEMENT
21.1 Inspections. In order to ensure compliance with this
Agreement and to enable Franchisor to carry out its obligations under this
Agreement, Lyric agrees that Franchisor and its designated agents shall be
permitted, with or without notice, full and complete access during business
hours to inspect all premises at which Lyric's Business is conducted and all
records thereof, including, but not limited to, records relating to Lyric's and
Lyric's Franchisees' patients, suppliers, employees and agents. Lyric shall
cooperate fully with Franchisor and its designated agents requesting such
access.
21.2 No Right to Offset. Lyric will not, for any reason,
withhold payment of any monthly payment, fee or any other fees or payments due
to the Franchisor under this Agreement or pursuant to any other contract,
agreement or obligation to the Franchisor or any of its Affiliates. Lyric shall
not have the right to "offset" any liquidated or unliquidated amounts, damages
or other funds allegedly due to Lyric from the Franchisor against any monthly
payment,
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fee or any other fees or payments due to the Franchisor or any of its Affiliates
under this Agreement or otherwise.
ARTICLE 22. ENTIRE AGREEMENT
This Agreement and the Transaction Documents contain the
entire agreement of the parties. No other agreements, written or oral, shall be
deemed to exist, and all prior agreements and understandings are superseded
hereby. There are no conditions to this Agreement which are not expressed herein
or in the Transaction Documents.
ARTICLE 23. NOTICES
All notices, consents or other communications under this
Agreement (any such, a "notice") must be in writing and addressed to each party
at its respective addresses set forth above (or at any other address which the
respective party may designate by notice given to the other party). Any notice
required by this Agreement to be given or made within a specified period of
time, on or before a date certain, shall be deemed given or made if sent by
hand, by fax with confirmed answerback received, or by registered or certified
mail (return receipt requested and postage and registry fees prepaid). Delivery
"by hand" shall include delivery by commercial express or courier service. A
notice sent by registered or certified mail shall be deemed given on the date of
receipt (or attempted delivery if refused) indicated on the return receipt. All
other notices shall be deemed given when actually received.
ARTICLE 24. GOVERNING LAW AND DISPUTE RESOLUTION
24.1 Governing Law. This Agreement shall be interpreted,
construed, applied and enforced in accordance with the laws of the State of
Maryland (without giving effect to principles of conflicts of laws). Subject to
Sections 24.2 and 24.3, any action to enforce, arising out of, or relating in
any way to, any of the provisions of this Agreement may be brought and
prosecuted in such court or courts located in the State of Maryland, and the
parties consent to the jurisdiction of said court or courts.
24.2 In the event of any dispute or controversy arising under
or in connection with this Agreement, the parties shall attempt to resolve such
dispute or controversy by mediation as provided in this Section prior to
exercising any rights under the remaining provisions of Article 24. Either party
may commence mediation by notice to the other party (the "Mediation Notice"),
which notice shall name a proposed Mediator (as defined below) to resolve the
dispute. The party receiving the Mediation Notice, within seven days after
receipt, shall send the other party notice accepting the proposed Mediator (the
"Acceptance Notice") or proposing an alternate Mediator (the "Alternate
Notice"). Within seven (7) days after receipt of an Alternate Notice, the
receiving party shall deliver notice accepting or rejecting the alternate
Mediator. Within five (5) days after the Mediator has been selected the dispute
shall be submitted to him or her by both parties, and the Mediator shall decide
the dispute within fourteen (14) days thereafter. The decision of the Mediator
shall not be binding upon the parties, and after the Mediator issues a
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decision either party may submit the dispute to arbitration, as provided in
Section 24.3 and 24.4. If the parties fail to agree upon a Mediator within
twenty (20) days after receipt of the Mediation Notice, the dispute may be
resolved as provided in Section 24.3. "Mediator" means an individual with
experience relevant to the matter in dispute who is not employed by or
affiliated with either party and who does not have (and is not an officer,
employee or director of an entity which has) significant business contacts with
either party. Franchisor and Lyric shall share equally all costs of the
Mediator.
24.3 (a) Subject to Section 24.2, any dispute between Lyric
and Franchisor regarding a financial, tax, or accounting issue shall be resolved
exclusively through arbitration conducted by a principal of KPMG Peat Marwick
(the "Financial Arbitrator"). Either party may commence arbitration hereunder by
notice to the other party and to the Financial Arbitrator, who shall decide the
dispute. Franchisor and Lyric shall share equally all costs of the Financial
Arbitrator. The Financial Arbitrator shall conduct the arbitration in any manner
he or she elects; however, the Financial Arbitrator shall issue a final decision
with respect to such dispute within thirty (30) days after the dispute is
referred to him or her. The decision of such Financial Arbitrator shall be final
and binding upon the parties and shall not be subject to appeal. Judgment upon
the award rendered by the Financial Arbitrator may be entered in any court
having in personam and subject matter jurisdiction over the parties.
(b) Subject to Sections 24.2 and 24.3(a), any dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration, conducted before a panel of three arbitrators in
Baltimore, Maryland, in accordance with the rules of the American Arbitration
Association then in effect, and judgement may be entered on the arbitrators'
award in any court having in personam and subject matter jurisdiction over the
parties. Franchisor and Lyric shall share equally the costs of the American
Arbitration Association and the arbitrators. Each party shall select one
arbitrator, and the two so designated shall select a third arbitrator. If either
party shall fail to designate an arbitrator within seven (7) days after
arbitration is requested, or if the two arbitrators shall fail to select a third
arbitrator within fourteen (14) days after arbitration is requested, then an
arbitrator shall be selected by the American Arbitration Association upon
application of either party. In considering any issue under this Agreement, the
arbitrators shall construe and interpret this Agreement strictly in accordance
with the specific terms and provisions hereof and in accordance with the
judicial decisions, statutes, and other indicia of Maryland law.
ARTICLE 25. SEVERABILITY, CONSTRUCTION AND OTHER MATTERS
25.1 Severability. Should any provision of this Agreement be
for any reason held invalid, illegal or unenforceable by a court of competent
jurisdiction, such provision shall be deemed restricted in application to the
extent required to render it valid; and the remainder of this Agreement shall in
no way be affected and shall remain valid and enforceable for all purposes. In
the event that any provision of this Agreement should be for any reason held
invalid, illegal or unenforceable by a court of competent jurisdiction, or in
the event the performance or compliance by any party with any provision of this
Agreement shall result in such party being in violation of
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any law, rule or regulation of any governmental authority, then in any of such
events the parties agree to use commercially reasonable best efforts to amend in
a manner reasonably consistent with each party's economic interests the
obligations of the parties under and pursuant to the Agreement so as to cause
the parties' obligations hereunder to be enforceable and not in violation of any
law, rule or regulation of any governmental authority. In the event such total
or partial invalidity or unenforceability of any provision of this Agreement
exists only with respect to the laws of a particular jurisdiction, this
paragraph shall operate upon such provision only to the extent that the laws of
such jurisdiction are applicable to such provision. Each party agrees to execute
and deliver to the other any further documents which may be reasonably required
to effectuate fully the provisions hereof. Lyric understands and acknowledges
that Franchisor shall have the right, in its sole discretion, on a temporary or
permanent basis, to reduce the scope of any covenant or provision of this
Agreement binding upon Lyric, or any portion hereof, without Lyric's consent,
effective immediately upon receipt by Lyric of written notice thereof, and Lyric
agrees that it will comply forthwith with any covenant as so modified, which
shall be fully enforceable.
25.2 Regulatory Reports. Each party agrees to reasonably
cooperate with the other in providing on a timely basis all documents and
information in its possession or reasonably available to it, reasonably required
by the other for reports or filings required by any governmental or other
regulatory authority.
25.3 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but such counterparts together shall constitute one and the
same instrument.
25.4 Table of Contents, Headings and Captions. The table of
contents, headings and captions contained herein are for the purposes of
convenience and reference only and are not to be construed as a part of this
Agreement. All terms and words used herein shall be construed to include the
number and gender as the context of this Agreement may require. The parties
agree that each section of this Agreement shall be construed independently of
any other section or provision of this Agreement.
ARTICLE 26. POST TERM OBLIGATIONS
Upon the expiration, termination or assignment of this
Agreement, Lyric and every Franchisee shall immediately:
26.1 Cease Operations. Cease to be a Franchisee of Franchisor
under this Agreement and cease to operate its business under the IHS Systems.
Lyric and each Franchisee shall not thereafter, directly or indirectly,
represent to the public that their business is or was operated or in any way
connected with the IHS Systems or hold itself out as a present (or, publicly, as
a former) franchisee of Franchisor at or with respect to any premises from or at
which its business operated.
26.2 Pay All Sums Outstanding. Pay all sums owing to
Franchisor.
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26.3 Return Confidential Operating Manual. Return to
Franchisor the Confidential Operating Manual and all trade secret and other
confidential materials, equipment and other property owned by Franchisor, and
all copies thereof, including all such provided to any third party by Lyric or
any Franchisee with Franchisor's prior consent pursuant to this Agreement. Lyric
and the Franchisees shall retain no copy or record of any of the foregoing.
26.4 Cease Use of IHS Systems. Cease to use in advertising, or
in any manner whatsoever, any methods, procedures, protocols, programs,
procedures or techniques associated with the IHS Systems in which Franchisor or
IHS has a proprietary right, title or interest; cease to use the Proprietary
Materials and any other marks and indicia of operation associated with the IHS
Systems and remove all trade dress, physical characteristics, color combinations
and other indications of operation under the IHS Systems from any premises from
or at which Lyric or any Franchisee operated. Without limiting the foregoing,
Lyric and each Franchisee agree that in the event of any termination or
expiration of this Agreement, it will remove all signage bearing the Proprietary
Materials, and will remove from their respective premises any items which are
characteristic of the IHS Systems "trade dress".
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ARTICLE 27. TAXES, PERMITS AND INDEBTEDNESS
27.1 Payment. Lyric and each Franchisee shall promptly pay
when due any and all federal, state and local taxes (including unemployment and
sales taxes) levied or assessed with respect to any services or products
furnished, used or licensed pursuant to this Agreement and all accounts or other
indebtedness of every kind incurred by Lyric and each Franchisee in the
operation of their business.
27.2 Compliance with all Laws and Regulations. Lyric and each
Franchisee shall comply with all federal, state and local laws, rules and
regulations and timely obtain any and all permits, certificates and licenses
required for the full and proper conduct of their business.
27.3 Full Responsibility. Lyric and each Franchisee hereby
expressly covenant and agree to accept full and sole responsibility for any and
all debts and obligations incurred in the operation of their business.
ARTICLE 28. ACKNOWLEDGMENTS
28.1 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT FRANCHISOR OR
ITS AGENT HAS PROVIDED LYRIC AND EACH FRANCHISEE WITH A FRANCHISE OFFERING
CIRCULAR NOT LATER THAN THE EARLIER OF THE FIRST PERSONAL MEETING HELD TO
DISCUSS THE SALE OF A FRANCHISE, TEN (10) BUSINESS DAYS BEFORE THE EXECUTION OF
THIS AGREEMENT, OR TEN (10) BUSINESS DAYS BEFORE ANY PAYMENT OF ANY
CONSIDERATION. LYRIC AND EACH FRANCHISEE FURTHER ACKNOWLEDGE THAT LYRIC AND EACH
FRANCHISEE HAVE READ SUCH FRANCHISE OFFERING CIRCULAR AND UNDERSTAND ITS
CONTENTS.
28.2 LYRIC ACKNOWLEDGES THAT FRANCHISOR HAS PROVIDED LYRIC
WITH A COPY OF THIS AGREEMENT AND ALL RELATED DOCUMENTS, FULLY COMPLETED, AT
LEAST FIVE (5) BUSINESS DAYS PRIOR TO LYRIC'S EXECUTION HEREOF OR SUCH
FRANCHISEE'S EXECUTION OF ITS FRANCHISE AGREEMENT.
28.3 LYRIC AND EACH FRANCHISEE ARE AWARE OF THE FACT THAT
OTHER PRESENT OR FUTURE FRANCHISE OWNERS OF FRANCHISOR MAY OPERATE UNDER
DIFFERENT FORMS OF AGREEMENT(S), AND CONSEQUENTLY THAT FRANCHISOR'S OBLIGATIONS
AND RIGHTS WITH RESPECT TO ITS VARIOUS FRANCHISE OWNERS MAY DIFFER MATERIALLY IN
CERTAIN CIRCUMSTANCES.
28.4 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT THIS
INSTRUMENT CONSTITUTES THE ENTIRE AGREEMENT OF THE PARTIES RELATING
TO THE SUBJECT MATTER HEREOF. EXCEPT AS SET FORTH IN THE TRANSACTION
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DOCUMENTS, THIS AGREEMENT TERMINATES AND SUPERSEDES ANY PRIOR AGREEMENT BETWEEN
THE PARTIES CONCERNING THE SAME SUBJECT MATTER.
28.5 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT COMPUTER
SOFTWARE LICENSED HEREUNDER IS FURNISHED "AS IS". FRANCHISOR MAKES NO
WARRANTIES, WHETHER EXPRESS OR IMPLIED WITH RESPECT TO SUCH SOFTWARE AND
DOCUMENTATION DESCRIBING SUCH SOFTWARE, ITS QUALITY, ITS PERFORMANCE,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE
QUALITY AND PERFORMANCE OF SOFTWARE AND DOCUMENTATION DESCRIBING SUCH SOFTWARE
IS WITH LYRIC.
28.6 LYRIC AND EACH FRANCHISEE ACKNOWLEDGE THAT THIS
FRANCHISE OFFER WAS MADE TO LYRIC AND THE FRANCHISEES IN THE STATE
OF FLORIDA.
ARTICLE 29. GUARANTY OF FRANCHISEE OBLIGATIONS
29.1 Definition of "Obligations". In this Article 29
"Obligations" means any and all debts, obligations, and liabilities of every
Franchisee to Franchisor arising out of or relating to the Franchisees'
respective Franchise Agreements with Franchisor, whether such Franchise
Agreements and/or such debts, obligations and liabilities are previously, now,
or subsequently made, incurred, or created, whether voluntary or involuntary,
liquidated or unliquidated, secured or unsecured, and whether or not any or all
such debts, obligations and liabilities are or become unenforceable by operation
of bankruptcy or insolvency laws.
29.2 Guaranty. Lyric hereby (a) unconditionally guarantees the
full and prompt payment and performance of the Obligations when due, whether by
acceleration or otherwise, (b) agrees to pay all costs, expenses and reasonable
attorneys' fees incurred by Franchisor in enforcing this guaranty and the
Obligations and realizing on any collateral therefor, and (c) agrees to pay to
Franchisor the amount of any payments which were made to Franchisor or another
in full or partial satisfaction of the Obligations and which are recovered from
Franchisor by a trustee, receiver, creditor or other party pursuant to
applicable law. This is a guarantee of payment, and not of collection.
Franchisor shall not be obligated to: (i) take any steps to collect from, or to
file any claim of any kind against, any Franchisee, any guarantor, or any other
person or entity liable for payment or performance of the Obligations, or (ii)
take any steps to protect, accept, obtain, enforce, take possession of, perfect
its interest in, foreclose or realize on collateral or security (if any) for
payment or performance of any of the Obligations or any guarantee of any of the
Obligations, or (iii) in any other respect exercise any diligence in collecting
or attempting to collect any of the Obligations.
29.3 Liability Absolute. Lyric shall have the right to assert
any defenses to enforcement of the Obligations that would be available to
Franchisees, other than defenses based on bankruptcy or insolvency laws.
However, except for the preceding sentence, Lyric's liability
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for payment and performance of the Obligations shall be absolute and
unconditional; and Lyric unconditionally and irrevocably waives each and every
defense which, under principles of guaranty or suretyship law, would otherwise
operate to impair or diminish such liability; and nothing except actual full
payment and performance to Franchisor of the Obligations shall operate to
discharge Lyric's liability under this Article 29. Without limiting the
foregoing, Franchisor shall have the right, from time to time and without
notice, to: (a) extend any credit to any Franchisee, (b) accept any collateral,
security or guarantee for any Obligations or any other credit, (c) determine
how, when and what application of payments, credits and collections, if any,
shall be made on the Obligations and any other credit and accept partial
payments, (d) determine what (if anything) shall be done with respect to any
collateral or security, (e) subordinate, sell, transfer, surrender, release or
otherwise dispose of any such collateral or security, and purchase or otherwise
acquire any such collateral or security at foreclosure or otherwise, and (f)
with or without consideration grant, permit or enter into any waiver, amendment,
extension, modification, refinancing, indulgence, compromise, settlement,
subordination, discharge or release of any of the Obligations.
29.4 Additional Waivers. Lyric waives (a) presentment, notice
of dishonor, protest, demand for payment and all notices of any kind, including
notice of acceptance hereof, notice of the creation of any of the Obligations,
notice of nonpayment, nonperformance or other default on any of the Obligations,
and notice of any action taken to collect upon or enforce any of the
Obligations, (b) any claim for contribution against any co-guarantor, until the
Obligations have been paid or performed in full and such payments are not
subject to any right of recovery, and (c) any setoffs against Franchisor which
would otherwise impair Franchisor's rights against Lyric or any Franchisee
hereunder.
29.5 Continuing Effect. This is a continuing guarantee which
shall continue in effect as to those of the Obligations arising out of or
relating to each Franchise Agreement until the particular Franchise Agreement
has terminated in accordance with its terms.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Master Franchise Agreement under seal as of the date first written above.
FRANCHISOR:
INTEGRATED HEALTH SERVICES
FRANCHISING CO., INC.
By:
---------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
LYRIC:
LYRIC HEALTH CARE LLC
By: Integrated Health Services, Inc.
Its: Managing Director
By:
--------------------------------------
Name: Daniel J. Booth
Title: Senior Vice President
S-1
EXHIBIT 1
FRANCHISE AGREEMENT
Exh. 1-1
EXHIBIT 2
LIST OF FACILITIES
1. Integrated Health Services at Gainesville
4000 S.W. 20th Avenue
Gainesville, Florida 32607
352-377-1981
352-377-7340 (fax)
2. Integrated Health Services of Chestnut Hill
8833 Stenton Avenue
Wyndmoor, Pennsylvania 19038
215-836-2100
215-233-3551 (fax)
3. Integrated Health Services of New Hampshire at Claremont
RFD 3 Box 47, Hanover Street Ext.
Claremont, New Hampshire 03743
603-452-2606
603-453-0479 (fax)
4. Integrated Health Services of St. Petersburg
811 Jackson Street N.
St. Petersburg, Florida 33705
813-896-3651
813-821-2453 (fax)
5. Governor's Park
1420 South Barrington Rd.
Barrington, IL 60010
847-382-6664
847-382-6693 (fax)
(including 2.5 acres of unimproved land)
Exh. 2-1
EXHIBIT 3
[OMITTED]
Exh. 3-1
EXHIBIT 4
LIST OF INDIVIDUAL FRANCHISEE NAMES,
NAMES OF BUSINESSES,
AND TERRITORIES
- ----------------------------------------------------------------------------------------------------------
FRANCHISEE NAME NAME OF BUSINESS TERRITORY
--------------- ---------------- ---------
Gainesville Health Care Integrated Health Services at The area within a fifteen-
Center, Inc. Gainesville mile radius of Integrated
Health Services at
Gainesville
- ----------------------------------------------------------------------------------------------------------
Rest Haven Nursing Center Integrated Health Services at The area within a fifteen-
(Chestnut Hill), Inc. Chestnut Hill mile radius of Integrated
Health Services at Chestnut
Hill
- ----------------------------------------------------------------------------------------------------------
Claremont Integrated Health, Integrated Health Services of The area within a fifteen-
Inc. New Hampshire at mile radius of Integrated
Claremont Health Services of New
Hampshire at Claremont
- ----------------------------------------------------------------------------------------------------------
Rikad Properties, Inc. Integrated Health Services of The area within a fifteen-
St. Petersburg mile radius of Integrated
Health Services of St.
Petersburg
- ----------------------------------------------------------------------------------------------------------
Integrated Management - Governor's Park Nursing The area within a fifteen-
Governor's Park, Inc. and Rehabilitation Center mile radius of Governor's
Park Nursing and
Rehabilitation Center
- ----------------------------------------------------------------------------------------------------------
Exh. 4-1
EXHIBIT 5
GUIDELINES FOR DETERMINING TERRITORIES
The "Territory" for each "Health Care Business" shall be determined on a
case-by-case basis (with the specific "Territory" for each business listed in
Exhibit 3 to the Franchise Agreement for such business) based on the following
guidelines:
o The location of a majority of the main facility's patients (based on Zip
Codes);
o The drive time to the main facility for a majority of its patients;
o The population of the relevant metropolitan area where the main facility is
located;
o The location of all competitors in the relevant market area;
o The location of ancillary services offered by the business; and
o The territorial restrictions agreed to by IHS or competitors in previous
sales of facilities in comparable geographical areas.
Based on the foregoing factors, a "Territory" will be determined for each
facility measured in miles from a radius originating at the facility's main
operation (Hospital or RTC).
Exh. 5-1