EXHIBIT 2.5
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into
effective as of September 1, 1998, by and between PINNACLE HEALTH FACILITIES OF
LOUISIANA, L.L.C., a Texas limited liability company with offices at 0000 Xxxxxx
Xxxxxxx. Xxxxx Xxxxx 00000 ("Tenant") and INTEGRATED HEALTH SERVICES AT
FRANKLIN, INC., a Delaware corporation with offices at 00000 Xxx Xxx Xxxxxxxxx,
Xxxxxx Xxxxx, XX 00000 ("Manager").
WHEREAS, Louisiana Two Associates, LLC, a California limited liability
company ("Owner") is the owner of (i) a skilled nursing facility named Franklin
Nursing Home located at 0000 Xxxxx Xxxxx Xx., Xxxxxxxx, XX 00000, together with
the equipment, furnishings, and other tangible personal property to be used in
connection therewith ("Franklin"), and (ii) a skilled nursing facility named St.
Mary's Guest House located at 000 Xxxxx Xx., Xxxxxx Xxxx, XX 00000, together
with the equipment, furnishings, and other tangible personal property to be used
in connection therewith ("Xxxxxx", and together with Franklin, the "Facilities"
and each, individually, a "Facility"); and
WHEREAS, pursuant to that certain lease agreement dated June 1, 1998
between Owner and Tenant (the "Lease"), Tenant has leased the Facilities from
Owner, together with the equipment, furnishings, and other tangible personal
property to be used in connection therewith, for a term of 20 years; and
WHEREAS, the Manager is engaged in the ownership and operation of similar
facilities and is experienced in various phases of the management, operation and
ownership thereof; and
WHEREAS, the Tenant desires to engage the Manager to manage the Facilities
for Tenant's account during the term herein provided, and the Manager desires to
accept such engagement, upon the terms and subject to the conditions contained
herein.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
RETENTION OF THE MANAGER
1.1 RETENTION. For and during the term of this Agreement, the Tenant hereby
grants to the Manager the sole and exclusive right, and employs the Manager to
supervise, manage, and operate the Facilities in the name and for the account of
the Tenant upon the terms and conditions hereinafter set forth.
1.2 ACCEPTANCE. The Manager accepts such appointment and agrees that it
will (a) faithfully perform its duties and responsibilities hereunder, (b) use
its best efforts to supervise and direct the management and operation of the
Facilities in accordance with the operating budget contemplated in Section
3.11(a)(iii), (c) consult with the Tenant and keep the Tenant advised of all
major policy matters relating to the Facilities, and (d) cooperate with Tenant
in Tenant's administration of the terms of the Lease. Subject to the foregoing
and to the other provisions of this Agreement, the Manager, without the approval
of the Tenant (unless such approval is herein specifically required as to
policies and manner of operation) shall have sole control and discretion with
regard to the operation and management of the Facilities for all customary
purposes (including the exercise of its rights and performance of its duties
provided for in Article III hereof), and the right to determine all policies
affecting the appearance, maintenance, standards of operation, or quality of
service, and any other matter affecting the Facilities or the operation thereof.
1.3 INDEPENDENT CONTRACTOR. It is expressly agreed by Tenant and Manager
that Manager is at all times acting and performing under this Agreement as an
independent contractor, and that no act, commission or omission by either Tenant
or Manager shall be construed to make or constitute the other its partner,
principal, agent, joint venturer or associate, except to the extent specified
herein.
1.4 OWNERSHIP OF LICENSES AND CONTRACTS. Tenant shall be the owner and
holder of all licenses, permits and contracts obtained with respect to the
Facilities, and shall be the "provider" within the meaning of all third-party
contracts for the Facilities. Specifically, and without limitation, Tenant shall
own the Medicare and Medicaid provider numbers, the Medicare provider agreements
with Health Care Financing Administration (HCFA), and Medicare and Medicaid
certifications with respect to the Facilities.
ARTICLE II
TERM
2.1 TERM. The initial term of this Agreement ("Term") shall immediately
commence upon the date hereof (the "Commencement Date") and shall be for a
period of thirty (30) months from the date hereof; provided that this Agreement
shall immediately terminate upon any termination or expiration of the Lease.
2.2 OPTION TO TRANSFER MANAGEMENT. Manager shall have the option,
exercisable in its discretion by the giving of thirty (30) days advance written
notice (the "Option Notice") to Tenant at any time prior to February 28, 2001
(the "Option Date"), to cause the Facilities to be managed under and pursuant to
that certain Management Agreement (the "Preferred Care Agreement"), dated March
29, 1995, by and among Xxxxxx Xxxxx, Preferred Care, Inc. ("Preferred Care"),
and Integrated Health Services at Big Sail, Inc. ("IHS at Big Sail"). In the
event that such election is made, the transfer of management of the Facilities
to IHS at Big Sail shall be consummated not later than thirty (30) days after
the Option Notice is made to Tenant, and at the closing of such transaction the
parties hereto shall execute and deliver such agreements, instruments and other
documents, and do or cause
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to be done such other things, as shall be necessary or desirable to include the
Facilities among the nursing facilities managed by IHS at Big Sail under the
Preferred Care Agreement, including, without limitation, joining Tenant as a
party thereunder, and upon such transfer, this Agreement shall terminate,
subject to Section 8.3 hereof. In the event that Manager exercises the option
referred to in this Section 2.2, the Facilities shall also be subject to that
certain Purchase Option Agreement dated March 29, 1995 (the "Option Agreement")
by and among Preferred Care, certain affiliates of Preferred Care, and IHS at
Big Sail, and shall be added as "Additional Properties" under said Option
Agreement, to the extent therein set forth. In the event that Manager fails to
exercise the option referred to in this Section 2.2 by the Option Date, this
Agreement shall forthwith terminate, subject to Section 8.3 hereof.
ARTICLE III
RIGHTS AND DUTIES OF THE MANAGER
During the term of this Agreement, and in the course of its management and
operation of the Facilities:
3.1 EMPLOYEES. Manager, on Tenant's behalf, shall hire, promote, discharge,
and supervise the work of the administrators, assistant administrators and
department heads of the Facilities, and all operating and service employees
performing services in and about the Facilities. All of such employees shall be
employees of the Tenant, except for the Facility Administrators and Directors of
Nurses, who shall be employees of the Manager, and the aggregate compensation,
including fringe benefits, with respect to all such employees, including the
Administrators and Directors of Nurses, shall be charged to Tenant as an expense
of the operation of the Facilities. The term "fringe benefits" as used herein
shall include but not be limited to the employer's contribution of FICA,
unemployment compensation, and other employment taxes, retirement plan
contributions, xxxxxxx'x compensation, group life, accident, and health
insurance premium, profit sharing contributions, disability, and other similar
benefits paid or payable by Manager with respect to other facilities which may
be managed by Manager. The cost of same shall be charged to Tenant as additional
expenses of the operation of the Facilities.
3.2 LABOR CONTRACTS. Manager, if requested by Tenant, will negotiate, on
Tenant's behalf and at Tenant's expense, with any labor union lawfully entitled
to represent the employees at the Facilities, but any collective bargaining
agreement or labor contract resulting therefrom must first be approved by Tenant
who shall be the only person authorized to execute the same. Tenant agrees that
all fees and costs of outside professionals in conducting and concluding such
negotiations shall be charged to Tenant as an expense of the operation of the
Facilities, provided that if any such fees and expenses are charged in
connection with services provided by an affiliate of Manager, such services must
be rendered at levels of quality and pricing that are reasonably competitive
with those otherwise available in the community.
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3.3 CONCESSIONAIRES, ETC. Manager shall negotiate and consummate in the
name and at the expense of the Tenant, contracts or arrangements with
concessionaires, licensees, subtenants, and other intended users of the
Facilities. Any fees and expenses incurred in connection therewith shall be
charged to the Tenant as an expense of the operation of the Facilities, provided
that if any such fees and expenses are charged in connection with services
provided by an affiliate of Manager, such services must be rendered at levels of
quality and pricing that are reasonably competitive with those otherwise
available in the community
3.4 ANCILLARY SERVICES, UTILITIES, ETC. Manager shall enter into such
contracts in the name of and at the expense of Tenant as may be deemed necessary
or advisable for the furnishing of all ancillary services, utilities,
concessions, supplies and other services as may be needed from time to time for
the maintenance and operation of the Facilities. Manager is authorized to
contract for or provide ancillary services, including, but not limited to,
pharmacy (drug and I.V.), rehabilitation and respiratory therapy services, and
mobile diagnostic services, through providers which are affiliates of Manager,
provided that such services are rendered at levels of quality and pricing that
are competitive with those available in the community.
3.5 PURCHASES. Manager shall be solely responsible for purchase of food,
beverages, operating supplies, and other materials and supplies in the name of
and for the account and at the expense of Tenant as may be needed from time to
time for the maintenance and operation of the Facilities, provided that if any
such purchases are made from any affiliate of Manager, such purchases must be at
levels of quality and pricing that are reasonably competitive with those
otherwise available in the community.
3.6 REPAIRS. Manager shall make or install or cause to be installed at
Tenant's expense and in the name of the Tenant any proper repairs, replacements,
additions, and improvements in and to the Facilities and the furnishings and
equipment thereof as Manager, in its reasonable judgment, shall deem necessary
in order to keep and maintain the same in good repair, working order and
condition, and outfitted and equipped for the proper operation thereof in
accordance with industry standards comparable to those prevailing in other
similar facilities, and all applicable state or local rules, regulations, or
ordinances, or as otherwise required by Owner under the Lease. Without limiting
the generality of the foregoing, Tenant acknowledges that Manager shall be
making capital expenditures, at Tenant's expense, for the Facilities of not less
than $175,000 in the aggregate during the first twenty-four (24) months
following the Commencement Date (it being understood that Manager shall have the
right, exercisable in its sole and absolute discretion, to cause such capital
expenditures to be made, in whole or in part, at any time, or from time to time,
during such 24-month period, including causing all such capital expenditures to
be made immediately upon the commencement of the Term of this Agreement).
3.7 LICENSES AND PERMITS. Manager shall apply for and use its reasonable
best efforts to obtain and maintain in the name and at the expense of the
Tenant, all licenses and permits required in connection with the management and
operation of the Facilities. The Tenant agrees to cooperate with Manager in
applying for, obtaining, and maintaining such licenses and permits.
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3.8 GOVERNMENTAL REGULATION.
(A) The Manager shall use its reasonable best efforts to take such
action as shall be reasonably necessary to insure that each Facility and the
management thereof by the Manager complies with all federal, state and local
laws, regulations and ordinances applicable to such Facility or the management
thereof by the Manager.
(B) The Manager shall promptly provide to the Tenant as and when
received by the Manager, all notices, reports or correspondence from
governmental agencies that assert material deficiencies or charges against the
Facilities or that otherwise threaten the suspension, revocation, or any other
action adverse to any approval, authorization, certificate, determination,
license or permit required or necessary to own or operate the Facilities. The
Manager shall promptly provide to the Tenant as and when received by the Manager
copies of all surveys taken by Federal and state health and life safety code
agencies. The Manager may, in its name or in the name of the Tenant, but in any
event at the expense of the Tenant, appeal any action taken by any governmental
agency against the Facilities or contest by proper legal proceedings the
validity of any statute, ordinance, law, regulation or order adverse to the
Facilities; provided, however, that if the Manager pursues any such appeal or
asserts any such legal proceeding, the Tenant shall adequately secure and
protect the Manager from loss, cost, damage or expense by bond or other means
satisfactory to Manager. If any action taken by any government agency against
any Facility could result in a loss, cost, damage, or expense as to which
Manager must indemnify Tenant under this Agreement, as determined by Manager,
then Manager shall be permitted to appeal or contest such action without the
necessity of Tenant's consent, and the Tenant shall have no obligation to secure
and protect the Manager from any loss, cost, damage or expense that arises
directly out of any such appeal or contest.
3.9 TAXES. The Manager shall cause all taxes, assessments, and charges of
every kind imposed upon the Facilities by any governmental authority ("Facility
Taxes"), including interest and penalties thereon, to be paid when due.
Notwithstanding the foregoing the Manager shall not cause Facility Taxes to be
paid, if (i) same are in good faith being contested by the Tenant at its sole
expense and without cost to the Manager, (ii) enforcement thereof is stayed, and
(iii) Tenant shall have given Manager written notice of such contest and stay
and authorized the non-payment thereof, not less than ten (10) days prior to the
date on which such tax assessment, or charge is due and payable. Interest or
penalty payments shall be reimbursed by Manager to Tenant if imposed upon Tenant
by reason of negligence on the part of the Manager in making the payment if
funds are available therefor.
3.10 DEPOSIT AND DISBURSEMENT OF FUNDS. Manager shall deposit in a banking
institution which is a member of the FDIC in accounts in Manager's name as agent
for Tenant, all monies arising from the operation of the Facilities or otherwise
received by Manager for and on behalf of Tenant ("Facility Funds"), and shall
disburse and pay the same from said accounts on behalf and in the name of Tenant
in the following order of priority and, in each case, in such amounts and at
such times as such Facility Funds are required to be paid in connection with:
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(A) Payment of Facility Debt Service (as defined below), any and all
payments required under the Lease, and all costs, fees and expenses,
whether operating or capital, arising out of the leasing, maintenance, and
operation of the Facilities, including, without limitation, the
reimbursable expenses, plus all accrued and unpaid interest on any unpaid
balances thereon, of Manager as set forth in Section 3.16 hereof hereto;
(B) Payment of Manager's Base Management Fee provided for in Article
V, below (including any accrued and unpaid Base Management Fees, plus all
accrued and unpaid interest thereon, for prior periods);
(C) Payment of Manager's Incentive Management Fee provided for in
Article V, below (including any accrued and unpaid Incentive Management
Fees, plus all accrued and unpaid interest thereon, for prior periods);
(D) The balance of such funds, after provision for such adequate
working capital reserves on a monthly basis as shall be determined by
Manager in its reasonable business judgment, shall be distributable to
Tenant.
As used herein, "Facility Debt Service" means scheduled payments of the
principal and interest with respect to:
(X) debt service payments pursuant to Schedule C hereof; and
(Y) any additional indebtedness incurred by Tenant for the
improvement, maintenance, or operation of the Facilities as mutually agreed
upon by Tenant and Manager.
"Facility Debt Service" does not include any amounts payable by reason of
voluntary prepayments or the acceleration of such indebtedness for any reason.
3.11 STATEMENTS.
(A) Manager shall deliver or cause to be delivered to Tenant
statements and budgets as follows:
(I) Within thirty (30) days following the end of each calendar
month, a profit and loss statement and balance sheet statement (both
prepared on an accrual basis in accordance with Generally Accepted
Accounting Principles ("GAAP") ) showing the results of operation of the
Facilities for such calendar month and the year-to-date, and having annexed
thereto a computation of the management fee (as determined under Article V
hereof) for such preceding month and the year-to-date; and
(II) On or before one hundred eighty (180) days after the close
of each fiscal year during the term of this Agreement, Manager will also
deliver or cause to be delivered to the Tenant a balance sheet and related
statement of profit and loss prepared in
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accordance with GAAP showing the assets employed in the operation of the
Facilities and the liabilities incurred in connection therewith as of the
end of the fiscal year, and the results of the operation of the Facility
during the preceding twelve (12) months then ended, and having annexed
thereto (A) a copy of the Medicare and Medicaid cost report prepared by
Manager with respect to each Facility for such twelve month period, and (B)
a computation of the management fee for such twelve (12) month period. In
its discretion, Tenant may elect to have such annual statements certified
by an independent public accounting firm of Tenant's choice. Should Tenant
so elect, it will notify Manager not later than 31 days after the end of
the calendar year with respect to which such election is made.
(III) An operating budget and a capital budget that provide for
maintaining and continuing standards of operation of the Facilities as
nursing homes at levels consistent with similar nursing facilities managed
by Manager shall be prepared by Manager and approved by the Tenant (such
approval not to be unreasonably withheld or unduly delayed) prior to the
beginning of each year of this Agreement; provided that at the Manager's
election a calendar year budget may be used rather than a budget for each
annual period commencing with the date of this Agreement. It is agreed that
an initial operating budget and capital budget, as required by this
Agreement, will be prepared by the Manager and approved by Tenant within
fifteen (15) business days from the date hereof. Should capital repairs,
replacement, additions and/or improvements exceed the pre-approved capital
budget by $25,000 per any specific item or by $100,000 in the aggregate for
all items, any expenditures beyond that level will require the prior
written approval of the Tenant. Manager shall not exceed any operating
expense line item of any annual operating budget by $25,000 or all
operating expense items of any annual operating budget by $100,000 in the
aggregate, in either case without the prior written approval of the Tenant.
(B) All costs and expenses incurred in connection with the preparation
of any statements, schedules, computations, and other reports required under
this Section 3.11(a)(ii) shall be charged to the Tenant as an expense of the
operation of the Facilities.
3.12 LEGAL ACTIONS. Manager may institute, in its own name or in the name
of the Tenant, but in any event at the expense of the Tenant, any and all legal
actions or proceedings relating to the operations of the Facilities, including,
without limitation, to collect charges, rent, or other sums due the Facilities
or to lawfully oust or dispossess tenants or other persons in possession under,
or lawfully cancel, modify, or terminate any lease, license, or concession
agreement for the breach thereof or default thereunder by the tenant, licensee,
or concessionaire thereunder.
Unless otherwise directed by Tenant, Manager may take, at Tenant's expense,
appropriate steps to protect and/or litigate to final judgment in any
appropriate court any violation or order affecting the Facilities. Any counsel
to be engaged under this or the immediately preceding paragraph of this Section
shall be approved by Tenant, which approval shall not be unreasonably withheld.
Manager shall promptly notify Tenant of all legal actions filed in respect of
any of the Facilities.
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3.13 DATA PROCESSING. Manager shall, directly or through an affiliate,
provide the data processing required to maintain the financial, payroll, and
accounting records of the Facilities.
3.14 BOOKS AND RECORDS. Manager on behalf of the Tenant shall supervise and
direct the keeping of full and accurate books of account and such other records
reflecting the results of operation of the Facilities as required by law.
3.15 REIMBURSABLE EXPENSES; INTEREST. Manager may from time to time (but
shall not be obligated to) advance or incur expenses in respect of the operation
or maintenance of the Facilities, including, without limitation, the items
listed on Exhibit A. Such expenses, with the exception of Manager consultant
travel expenses (which shall remain an obligation and expense of Manager), shall
be immediately reimbursable to Manager out of Facility Funds, in the priority
set forth in Section 3.10(a). To any extent that Facility Funds are not
available for such purpose, such advances by Manager shall be repayable by
Tenant to Manager, with interest, within twenty four (24) hours of demand
therefor. Any such expenses advanced by Manager which are not repaid by Tenant
within said twenty-four (24) hour period shall bear interest from the date that
demand therefor is made until paid in full at a rate per annum equal to the
prime rate of Citibank, NA, as then in effect, plus four (4%) percent. Except as
may otherwise be provided herein or on Exhibit A, the cost to Manager of
performing its duties enumerated in Article III of this Agreement shall not
constitute reimbursable expenses.
3.16 MANAGEMENT SERVICES. Manager shall endeavor to provide the Facilities
with substantially the same level of management services and techniques, if
applicable, which Manager employees in operating other nursing facilities which
it manages and which may be applicable to and beneficial to the Facilities.
ARTICLE IV
RIGHTS AND DUTIES OF THE TENANT
During the term of this Agreement:
4.1 RIGHT OF INSPECTION. Tenant shall have the right to enter upon any part
of the Facilities, upon reasonable advance notice to the Manager, for the
purpose of examining or inspecting same or examining or making copies of books
and records of the Facilities, but the same shall be done with as little
disruption to the business of the Facilities as possible. However, the books and
records of the Facilities shall not be removed from the Facility without the
express written consent of the Manager. Tenant acknowledges that some books and
records will be maintained at Manager's principal place of business, and Manager
acknowledges that Tenant shall have the right upon reasonable advance notice to
Manager to examine and inspect such books and records during reasonable business
hours.
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Tenant shall direct all inquiries regarding operations, procedures,
policies, employee relations, patient care, and all other matters concerning the
Facilities to Integrated Health Services' Skilled Nursing Facility Regional
Manager for the Southwest Region or other officer of Manager as Manager may from
time to time designate in a written notice to Tenant.
4.2 COOPERATION WITH MANAGER. Tenant will fully cooperate with Manager in
operating and supervising the operations of the Facilities.
4.3 OPERATING CAPITAL.
(A) Tenant shall provide Manager with such amount of working capital
as may be required from time to time for the operation of the Facilities on a
sound financial basis, including, without limitation, amounts required to pay
Facility Taxes and amounts necessary to pay the items set forth at subsections
(a), (b) and (c) of Section 3.10. If additional working capital is required,
Manager shall notify Tenant thereof in writing and Tenant shall provide Manager
with such increase in working capital within fifteen (15) days thereafter. If
Tenant fails to provide such additional working capital, Manager may, but is not
obligated to, provide the same as a loan to Tenant in accordance with Section
3.15.
(B) In order to induce Manager to enter into and perform this
Agreement, Xx. Xxxxxx Xxxxx ("Xxxxx") the principal owner of Tenant, hereby
personally, unconditionally and irrevocably guarantees the payment of all
amounts required to be paid or advanced to Manager by Tenant hereunder. This
guaranty shall become immediately due and payable upon written notice by Manager
to Xxxxx following the default by Tenant to comply with its obligations
hereunder regarding the payment or provision of money to Manager. Xxxxx'x
guaranty is in no way conditional or contingent, except as expressly stated in
the immediately preceding sentence, and constitutes a valid, present,
continuing, irrevocable and absolute obligation of Xxxxx as guarantor. Xxxxx
agrees to pay all costs and expenses, including reasonable attorneys' fees, in
connection with the collection of amounts guaranteed hereunder and the
enforcement of his guaranty.
4.4 CAPITAL IMPROVEMENTS. Tenant shall provide Manager with such amount of
funds as may be required from time to time to make all necessary capital
improvements to the Facilities pursuant to the capital budget provided for in
Section 3.11(a)(iii) above, in order to maintain and continue standards of
operation of the Facilities as nursing homes and otherwise to comply with
requirements, if any, regarding capital improvements set forth in the Lease.
4.5 INSURANCE. Manager shall apply for, obtain and maintain on Tenant's
behalf and at Tenant's expense at all times during the term of this Agreement
the following insurance with respect to each Facility, in such amounts and
coverage as may be mutually agreed upon by the Tenant and Manager, or as may be
required by the Lease, but in any event no less than the amounts specified
below:
(A) (I) Commercial General Liability insurance in the amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate for bodily injury
and property damage;
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(II) Products and Completed Operations insurance coverage in the
amount of $2,000,000 in the aggregate;
(III) Auto Liability insurance coverage in the amount of
$1,000,000 bodily injury/property damage combined single limit per
occurrence;
(IV) Professional Liability insurance in the amount of $1,000,000
per occurrence and $3,000,000 in the aggregate.
The policies listed in subsections 4.5(a)(i)-(iv) above will insure the
Tenant and name Manager as an Additional Insured
(B) Such workers' compensation and other similar insurance as may be
required by law or as may be required to insure Tenant against loss or the
payment of damages for such liabilities as may be imposed by law;
(C) Unemployment Compensation insurance through the appropriate state
agencies; and
(D) Fidelity and honesty insurance.
(E) Business interruption insurance.
All insurance provided for under the foregoing provisions of this Section
shall be effected by policies issued by insurance companies with at least an
"A-VI" rating from A.M. Best and Company of good reputation, of sound adequate
financial responsibility, and properly licensed and qualified to do business in
the State of Louisiana.
Each of the policies of insurance referred to in Paragraphs (a) through (d)
of this Section shall insure the Tenant, the subject Facility, the Owner and
their respective officers, partners, directors, shareholders, members, managers
and employees. Manager, its respective officers, partners, directors,
shareholders, managers and employees shall, to the extent permissible, be named
as additional insured under all such policies of insurance.
ARTICLE V
COMPENSATION AND DISTRIBUTIONS
5.1 As full and exclusive compensation for all of the services to be
rendered by Manager during the Term of this Agreement, the Tenant shall pay to
the Manager at its principal office, or at such other place as the Manager may
from time to time designate in writing, and at the times hereinafter specified:
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(A) A monthly fee (the "Base Management Fee") equal to six and
one-half (6 1/2 %) percent of Adjusted Gross Revenues (as defined below)
derived from the operation of the Facilities determined on the accrual
method of accounting. The Base Management Fee shall be payable five days
after delivery to Tenant of the monthly financial statement referred to in
Section 3.11 (each such date being hereinafter referred to as a "Payment
Date") and shall be calculated based upon the Adjusted Gross Revenues of
the Facilities during the preceding month as set forth in such financial
statements; and
(B) A quarterly fee (the "Incentive Management Fee") equal to forty
(40%) percent of the Adjusted EBITDA (as defined below) of the Facilities
for each quarterly period during the term of this Agreement. The Incentive
Management Fee for each quarter shall be: (1) calculated and earned on a
quarterly basis as of the last day of such quarter; and (2) paid to Manager
on the next succeeding Payment Date.
For the purposes hereof, "Adjusted EBITDA" for any period means the
earnings of the Facilities for such period before interest, taxes, depreciation
and amortization, and before consideration of the Incentive Management Fee, as
determined in accordance with GAAP, and after adjustment to eliminate prior
period income and expense items.
5.2 For the purposes of determining the Base Management Fee, "Adjusted
Gross Revenues" for any period shall be determined on the basis of all revenues
and income of any kind derived directly or indirectly from the Facilities during
such period (including rental or other payment from concessionaires, licensees,
tenants, and other users of the Facilities, 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,
consistently applied, 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 utilized to finance the Facilities;
and
(F) recovery of bad debt expense taken with respect to periods prior
to the term of this Agreement;
(G) Uncollectible accounts receivable accrued during the term of this
Agreement.
(H) Third party contractual adjustments accrued during the term of
this Agreement.
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(I) Disallowance for reimbursement claims accrued during the
term of this Agreement.
The proceeds of business interruption insurance or proceeds as a result of
Medicare and Medicaid audits shall be included in gross revenues of the
Facilities. However, funds required to be repaid as a result of Medicare and
Medicaid audits shall be deducted from gross revenues of the Facilities.
5.3 Notwithstanding the foregoing, the Base Management Fee and Incentive
Management Fee (including any amount carried over pursuant to the succeeding
sentence hereof) shall be payable on each Payment Date only to the extent that
Facility Funds (as defined in Section 3.10) shall be sufficient as of such date.
In the event that any portion of the Base Management Fee or Incentive Management
Fee is not paid when due because of the insufficiency of Facility Funds, Manager
shall make written demand for immediate payment thereof by Tenant. If Tenant
does not remit payment for the amount so demanded within twenty four (24) hours
of such demand, interest shall accrue on such unpaid amount from the date
demanded at a rate per annum equal to the prime rate of Citibank, NA, as then in
effect, plus four (4%) percent, and such total amount shall be carried over and
be payable on the immediately succeeding Payment Date. Any and all accrued and
unpaid Base Management Fee and Incentive Management Fee shall become immediately
and fully payable by Tenant upon the expiration or any termination of this
Agreement.
5.4 (A) In order to secure performance and payment of all obligations and
liabilities of Tenant to Manager under this Agreement whether now existing or
hereafter arising, including, without limitation, the payment of all Base
Management Fees, Incentive Management Fees, and reimbursable expenses of Manager
(the "Obligations"), Tenant hereby grants to Manager a security interest in all
of the assets of the Facilities owned by Tenant, including, but not limited to,
the following described property (collectively, the "Collateral"):
(I) Tenant's fee simple interest in any real property;
(II) Tenant's leasehold interest in any real property leased by
Tenant (other than the Facilities) and any and all rights that Tenant now
has or may hereafter acquire to purchase such real property (other than the
Facilities);
(III) all accounts receivable now owned or hereafter acquired by
Tenant in connection with the Facilities;
(IV) all equipment, furniture, and fixtures now owned or
hereafter acquired by the Tenant and located at or used in connection with
the Facilities;
(V) all contract rights now owned or hereafter acquired by Tenant
in connection with the operation of the Facilities;
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(VI) all inventory, supplies, goods, merchandise, work in
progress, finished goods, and other personal property other than accounts
receivable now owned or hereafter acquired by Tenant and located at or used
in connection with the Facilities;
(VII) all licenses, permits and other intangible assets; and
(VIII) any and all proceeds of any of the foregoing.
(B) Tenant represents, warrants and agrees that (i) Tenant owns good
and indefeasible title to the Collateral, (ii) no security interest or lien
has been created by Tenant, or is known by Tenant to exist with respect to
any Collateral, (iii) no financing statement or other security instrument
is on file in any jurisdiction covering such Collateral, and (iv) Tenant
will not create any other security interest or lien and will not file or
permit to be filed any other financing statement or other security
instrument with respect to the Collateral without the consent of Manager.
Tenant will execute, deliver and file such mortgages, financing statements,
security agreements and other documents as may be requested by Manager from
time to time to confirm, perfect and preserve the security interest created
hereby, and, in addition, hereby authorizes Manager to execute on behalf of
Tenant, deliver and file such financing statements, security agreements and
other documents without the signature of Tenant, all at the expense of
Tenant. The lien herein referred to as security for the obligations, in
favor of Manager, is and shall be first, prior and superior to all other
liens with respect to the Collateral.
(C) Manager shall have, in any jurisdiction where enforcement of this
Agreement is sought, in addition to any and all other rights and remedies
it may have under this Agreement, or at law, in equity, by statute or
otherwise, all the rights and remedies of a secured creditor under the
Uniform Commercial Code, including, but not limited to, the right to any
deficiency remaining after disposition of the Collateral.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TENANT
Tenant represents and warrants to Manager as follows:
6.1 ORGANIZATION AND STANDING OF THE TENANT. The Tenant is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Texas. Copies of the Certificate of Formation and Operating
Agreement of the Tenant, and all amendments thereof to date, have been, if
requested, delivered to Manager and are complete and correct. The Tenant has the
power and authority to own the property and assets now owned by it and to
conduct the business presently being conducted by it.
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6.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement, including all Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated hereby and thereby
("Transaction Documents") by the Tenant, nor the performance by the Tenant of
the transactions contemplated hereby and thereby, conflicts with, or constitutes
a breach of or a default or requires the consent of any third party under (i)
the Certificate of Formation or Operating Agreement of the Tenant; or (ii) any
applicable law, rule, judgment, order, writ, injunction, or decree of any court,
currently in effect; or (iii) any applicable rule or regulation of any
administrative agency or other governmental authority currently in effect; or
(iv) the Lease or any other agreement, indenture, contract or instrument to
which the Tenant is now a party or by which the assets of the Tenant are bound.
6.3 CONSENTS. Except as set forth in Schedule 6.3, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement by the Tenant.
6.4 MEMBERSHIP INTERESTS. Schedule 6.4 sets forth a complete list and
description of all classes and series of membership interests of the Tenant, and
the identity of each member of the Tenant, in each case indicating the
percentage of all classes and series of membership interests held. The Tenant
does not have outstanding any warrants, options, or other rights to subscribe
for or purchase from the Tenant any interests of the Tenant, nor are there
outstanding any securities convertible into or exchangeable for such interests.
6.5 FINANCIAL STATEMENTS.
(A) The unaudited balance sheets of each Facility as of December 31,
1997, and the related statements of operations for the year then ended,
annexed hereto as Exhibit 6.5(a), present fairly in all material respects
the financial condition and results of operations of such Facility at and
for the periods therein specified and were prepared in accordance with
GAAP, consistently applied.
(B) The unaudited balance sheets and the related statements of
operations of each Facility as of April 30, 1998, for the 4 month period
then ended, certified by the chief financial officer of the Tenant, annexed
hereto as Exhibit 6.5(b), present fairly in all material respects the
financial condition and results of operations of the Facility at and for
the periods therein specified and were prepared in accordance with GAAP,
consistently applied.
(C) Except as set forth on Schedule 6.5(c), or as expressly set forth
on the above-described financial statements, the Tenant has no material
liabilities or obligations (whether absolute, accrued, contingent or
otherwise and whether due or to become due, including, without limitation,
any guarantees of any obligations of any other person or entity) of any
kind or nature whether or not required by GAAP to be reflected in a
corporate balance sheet and/or the notes thereto.
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6.6 MATERIAL CHANGES. Since January 1, 1998, there has not been any
material adverse change in the condition (financial or otherwise) of the assets,
properties or operations of the Tenant and the Facilities, whether or not
covered by insurance, and during such period of time the businesses of the
Facilities have been conducted only in the ordinary and normal course.
6.7 LICENSES AND PERMITS. Schedule 6.7 sets forth a description of all
licenses and other governmental or other regulatory permits or approvals
required for the operation of the Facilities (excluding individual therapists
licenses) that are now in effect (collectively, the "Licenses"). The Tenant has
delivered to Manager copies of all of the Licenses. The Tenant or the
individuals listed on Schedule 6.7 own, possess or have the legal right to use
the Licenses, free and clear of all liens, pledges, claims or other encumbrances
of any nature whatsoever. The Tenant is not in material default under any such
License, and the Tenant has not received any notice of any default or any other
claim or proceeding relating to any such License. No member, director or
officer, employee or former employee of the Tenant, or any person, firm or
corporation other than the Tenant owns or has any proprietary, financial or
other interest, direct or indirect, in whole or in part in any of the Licenses,
other than Licenses necessary for such individuals to practice their own
professions.
6.8 LEGAL PROCEEDINGS. Other than as set forth on Schedule 6.8, there are
no claims, actions, suits or proceedings or arbitrations, either administrative
or judicial, pending, or, to the knowledge of Tenant, overtly threatened against
or affecting the Facilities or the Tenant, its members or affiliates, at law or
in equity or otherwise, before or by any court or governmental agency or body,
domestic or foreign, or before an arbitrator of any kind.
6.9 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT PRACTICES, ETC.
During the two years prior to the Commencement Date, there has been no material
adverse change in the relationship between the owner or operator of the
Facilities and its employees, nor any strike or material labor disturbance by
such employees affecting the business of the Facilities and, to the knowledge of
the Tenant, there is no indication that such a change, strike or labor
disturbance is likely. Except as set forth on Schedule 6.9, the employees of the
Facilities are not represented by any labor union or similar organization and
the Tenant has no reason to believe that there are pending or threatened any
activities, the purpose of which is to achieve such representation, of all or
some of such employees. Except as set forth on Schedules 6.9, there are no
collective bargaining or other labor contracts, employment contracts, pension,
profit-sharing, retirement, insurance, bonus, deferred compensation or other
employee benefit plans, agreements or arrangements with respect to the employees
of the Facilities. The Tenant is in material compliance with the requirements
prescribed by all Federal, state and local statutes, orders and governmental
rules and regulations applicable to any of its employee benefit plans,
agreements and arrangements, including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
6.10 RELATIONSHIPS. Except as disclosed on Schedule 6.10 hereto, no
affiliate of the Tenant has, or at any time within the last two (2) years has
had, a material ownership interest in any business, corporate or otherwise, that
is a party to, or in any property that is the subject of, business relationships
or arrangements of any kind relating to the operation of the Facilities by which
the Tenant will be bound after the Commencement Date.
15
6.11 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 6.11, since
January 1, 1998:
(A) there have not been any sales, assignments or transfers of any of
assets or properties of the Facilities, except in the ordinary course of
business;
(B) the Facilities or any assets of the Facilities have not been
mortgaged, pledged or subjected to any lien, pledge, mortgage, security
interest, conditional sales contract or other encumbrance of any nature
whatsoever, nor has the Tenant's interest in the Facilities or in such
assets been subject to any of the foregoing;
(C) no material contract, commitment, instrument or agreement of or
relating to the Facilities has been amended or terminated, other than in
the ordinary course of business;
(D) except in the ordinary course of business, or otherwise as
necessary to comply with any applicable minimum wage law, there has been no
increase to the salaries or other compensation of any of the employees of
the Facilities, nor has there been any increase in, or any additions to,
any other benefits to which any of such employees may be entitled;
(E) the Tenant has not failed to pay or discharge when due any of its
liabilities, and there has been no failure to pay or discharge when due any
liabilities of or relating to the Facilities, in either case the failure to
pay or discharge of which has caused or will cause any material damage or
give rise to the risk of a material loss to the Facilities or the Tenant;
(F) there has been no change to any of the accounting principles
followed by the Tenant and the facilities, or any change to the methods of
applying any such accounting principles;
(G) there has been no material transaction entered into with respect
to the Tenant or the Facilities, other than in the ordinary course of
business; or
(H) no notice has been given of any adverse determination made by any
licensing authority or reimbursement source which may reasonably be
expected to have a material adverse effect on the revenues or operations of
the Facilities. The Tenant shall report to Manager, within five (5)
business days after receipt thereof, any written notices that the Tenant or
the Facilities is not in compliance in any material respect with any of the
foregoing.
6.12 COMPLIANCE WITH LAWS. Except for notices of non-compliance as to which
the Tenant has taken corrective action acceptable to the applicable governmental
agency, and as set forth in Schedule 6.12, within the period of twelve months
preceding the date of this Agreement, no written notice has been served on
Tenant or any prior owner or operator of the Facilities that such party or any
Facility fails to comply in any material respect with any applicable Federal,
state, local
16
or other governmental laws or ordinances, or any applicable order, rule or
regulation of any Federal, state, local or other governmental agency having
jurisdiction over such party or the Facilities ("Governmental Requirements").
The Tenant shall report to Manager, within five (5) business days after receipt
thereof, any written notices that the Tenant or any Facility is not in
compliance in any material respect with any of the foregoing.
6.13 TAX RETURNS. Except as set forth on Schedule 6.13, all Federal, state,
county and local income, excise, property, employment-related and other tax
returns and abandoned property reports (if any) to date that are due and
required to be filed with respect to the Facilities have been so filed, and
there are no claims, liens, or judgments for taxes due with respect to the
Facilities, and to the knowledge of the Tenant, no basis for any such claim,
lien, or judgment exists.
6.14 CONTRACTS. Schedule 6.14 sets forth a complete and correct list of all
agreements, contracts, and commitments to which directly pertain to the
operation of the Facilities or by which the Facilities or any of the assets of
the Facilities are bound (the "Contracts"). Except as indicated on Schedule
6.14, each of the Contracts was entered into and requires performance in the
ordinary course of business and is in full force and effect. The Tenant is not
in material default under any Contract and there has not been asserted, either
by or against the Tenant under any Contract, any written notice of default,
set-off or claim of default. To the knowledge of the Tenant, the parties to the
Contracts other than the Tenant are not in material default of any of their
respective obligations under the Contracts, and there has not occurred any event
which with the passage of time or the giving of notice (or both) would
constitute a material default or material breach under any Contract. All amounts
payable under the Contracts are on a current basis.
6.15 THE LEASE. Tenant has delivered to Manager a true and correct copy of
the Lease. The Lease was entered into and requires performance in the ordinary
course of business and is in full force and effect. The Tenant is not in default
under the Lease and there has not been asserted, either by or against the Tenant
under the Lease, any written notice of default, set-off or claim of default. To
the knowledge of the Tenant, the Owner is not in material default of its
obligations under the Lease, and there has not occurred any event which with the
passage of time or the giving of notice (or both) would constitute a material
default or material breach under the Lease. All amounts payable under the Lease
are on a current basis.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF MANAGER
7.1 ORGANIZATION AND STANDING OF THE MANAGER. Manager represents and
warrants to the Tenant that the Manager is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Copies of
the Articles of Incorporation and By-Laws of the Manager, and all amendments
thereof to date, have been, if requested, delivered to the Tenant and are
complete and correct. The Manager has the power and authority to own the
property and assets now owned by it and to conduct the business presently being
conducted by it.
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ARTICLE VIII
TERMINATION RIGHTS
This Agreement may be terminated and, except as to liabilities or claims of
either party hereto which shall have theretofore accrued or arisen, the
obligations of the parties hereto with respect to this Agreement may be
terminated, upon the happening of any of the following events:
8.1 TERMINATION BY THE TENANT: If at any time or from time to time during
the term of this Agreement any of the following events shall occur and not be
remedied within the applicable period of time herein specified, namely:
(A) The Manager shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of the Manager of all or a substantial
part of its assets, file a voluntary petition in bankruptcy, make a general
assignment for the benefit of creditors, file a petition or an 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
any court of competent jurisdiction, on the application of a creditor,
adjudicating the Manager as bankrupt or insolvent or approving a petition
seeking reorganization of the Manager or appointing a receiver, trustee, or
liquidator of the Manager or of all or substantial part of its assets, and
such order, judgment or decree shall continue unstayed and in effect for
any period of ninety (90) consecutive days; or
(B) The Manager shall fail to keep, observe, or perform any material
covenant, agreement, term or provision of this Agreement to be kept,
observed, or performed by the Manager, and such default shall continue for
a period of forty-five (45) days after written notice thereof by the Tenant
to the Manager;
then in case of any such event and upon the expiration of the period of grace
applicable thereto, the term of this Agreement shall expire, at the Tenant's
option and upon ten (10) days written notice to the Manager.
8.2 TERMINATION BY THE MANAGER: If at any time or from time to time during
the term of this Agreement any of the following events shall occur and not be
remedied within the applicable period of time herein specified, namely:
(A) The Tenant shall fail to keep, observe, or perform any material
covenants, agreement, term or provision of this Agreement to be kept,
observed, or performed by the Tenant and such default shall continue for a
period of forty-five (45) days after written notice thereof by the Manager
to the Tenant, except for Tenant's duty to provide for adequate working
capital under Section 4.3 hereof, which shall continue uncured for a period
of thirty (30) days after written notice thereof;
18
(B) The Facilities or any portion thereof shall be damaged or
destroyed by fire or other casualty and (i) the Tenant shall fail to
undertake to repair, restore, rebuild, or replace any such damage or
destruction within forty-five (45) days after such fire or other casualty,
or shall fail to complete such work diligently, and (ii) such Tenant shall
fail to permit the Manager to undertake to repair, restore, rebuild, or
replace, at Tenant's expense, any such damage or destruction within
forty-five (45) days after such fire or other casualty;
(C) The Tenant shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of the Tenant 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 to 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 the Tenant bankrupt or appointing a receiver, trustee, or
liquidator of the Tenant with respect to all or substantial part of the
assets of the Tenant, and such order, judgment or decree shall continue
unstayed and in effect for any period of ninety (90) consecutive days;
(D) Any license, lease or sub-lease for the operation of any Facility,
including the Lease, is at any time suspended, terminated, or revoked and
such suspension, termination, or revocation shall continue unstayed and in
effect for a period of thirty (30) consecutive days; or
(E) management fees payable to the Manager pursuant to Article V are
accrued and unpaid with respect to any three (3) month period, and Facility
Funds or funds under Section 4.3 shall be insufficient for the payment
thereof;
then in case of any such event and upon the expiration of the period of grace
applicable thereto, the term of this Agreement shall expire, at the Manager's
option and upon ten (10) days written notice to the Tenant.
8.3 SURVIVING RIGHTS UPON TERMINATION. If either party exercises its option
to terminate pursuant to this Article VIII, each party shall forthwith account
for and pay to the other all sums due and owing pursuant to the terms of this
Agreement. Without limiting the generality of the foregoing, upon any
termination of this Agreement, Tenant shall be obligated fully and immediately
to pay to Manager all accrued and unpaid Base Management Fees, Incentive
Management Fees, and reimbursable expenses of Manager, together with all accrued
and unpaid interest thereon, notwithstanding that available Facility Funds may
not be sufficient for such purposes. All other rights and obligations of the
parties under this Agreement shall terminate, except for the rights and
obligation of any party under Section 4.3(b), Article X, and Article XII
hereof).
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ARTICLE IX
ADDITIONAL COVENANTS REGARDING THE LEASE
Tenant covenants, represents and agrees that it will promptly and fully pay
and perform when due all amounts and obligations required to be paid and
performed by it under the Lease, except to the extent that Manager has
undertaken to pay such amounts or perform such obligations pursuant to the terms
of this Agreement, and that it shall not commit or permit any default to occur
under the Lease. Tenant agrees that if, during the term of this Agreement, it
shall be given notice by Owner of any default under the Lease, it shall, within
two (2) days of receipt thereof, provide Manager with a copy of such default
notice.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION OF TENANT BY MANAGER. Manager shall indemnify and hold
Tenant and its respective officers, directors, employees and affiliates harmless
from any and all claims, losses, judgments, damages, expenses and liabilities
whatsoever incurred by Tenant and its respective officers, directors, employees
and affiliates, including reasonable attorneys' fees, arising out of Manager's
material breach of this Agreement or any third party claims which are caused in
whole or in part by any negligent act or omission of Manager in connection with
the performance of its duties under this Agreement. However, Manager's
obligation to indemnify Tenant shall not extend to any Medicare or Medicaid cost
disallowances. Manager's obligations under this Section 10.1 shall survive
termination of this Agreement.
10.2 INDEMNIFICATION OF MANAGER BY TENANT. The Tenant shall at all times
indemnify and hold harmless the Manager, its officers, directors, employees, and
shareholders, from and against any and all claims, losses, liabilities, actions,
proceedings, and expenses (including reasonable attorneys fees) arising out of
(i) the ownership or operation of the Facilities prior to the term of this
Agreement, (ii) the breach by Tenant of any of its obligations hereunder, or
(iii) any breach of the representations and warranties made by Tenant in Article
VI of this Agreement. The provisions of this Section 10.2 shall survive the
termination or expiration of this Agreement.
10.3 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS. A party seeking
indemnification under this Article X shall give the other party prompt written
notice of the claim for which it seeks indemnification. Failure of the party
seeking indemnification to give such prompt notice shall not relieve the other
party of its indemnification obligation, provided that such indemnification
obligation shall be reduced by any damages suffered by such other party
resulting from a failure to give prompt notice hereunder. The party receiving
the aforementioned notice shall provide the defense of such claim, including,
without limitation, retention and payment of attorneys.
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ARTICLE XI
ENGAGEMENT FEE
11.1 ENGAGEMENT FEE. In consideration for the appointment of Manger
pursuant to this Agreement, Integrated Health Services, Inc. ("IHS") shall pay
to Xxxxx a single engagement fee (the "Engagement Fee") in the sum of Three
Hundred Fifty Thousand and 00/100 ($350,000) Dollars, payable to Xxxxx on the
Commencement Date by the delivery to Xxxxx of newly issued shares of Common
Stock, par value $.001 of IHS (the "IHS Stock"), in accordance with the
following:
(A) SHARE VALUE. The number of shares of IHS Stock issuable to Tenant
pursuant to this Section 11.1 shall be valued based upon a price per share of
such stock equal to the average closing NYSE price of such stock for the fifteen
(15) trading day period immediately preceding the date which is two (2) trading
days before the Commencement Date.
(B) REGISTRATION RIGHTS. IHS will use its best efforts to cause to be
prepared, filed and declared effective by the Securities and Exchange Commission
(the "Commission") within one hundred twenty (120) days following the
Commencement Date, a registration statement for the registration under the
Securities Act of 1933 (the "Securities Act") of the IHS Stock issued to Tenant
pursuant to this Agreement, and IHS shall maintain the effectiveness of such
registration statement for a period of one (1) year following the date on which
it becomes effective (the "Registration Date"), or until Tenant shall not own
any of the IHS Stock issued pursuant to this Agreement, whichever shall occur
first, in each case except to the extent that an exemption from registration may
be available.
(C) REGISTRATION EXPENSES. Tenant shall not be responsible for, and
IHS shall bear, all of the reasonable expenses of IHS related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act of the
registration statement and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final prospectus and each
amendment or supplement thereto to underwriters, dealers and other purchasers of
IHS Stock and the costs and expenses (including fees and disbursements of its
counsel) incurred in connection with the qualification of IHS Stock under the
Blue Sky laws of various jurisdictions. IHS, however, shall not be required to
pay underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs and expenses in excess in the aggregate of $20,000 for Blue Sky
qualifications of the Tenant's (and any transferee's) IHS Stock, or to pay any
costs or expenses arising out of the Tenant's or any transferee's failure to
comply with its obligations under this Article XI.
(D) RESALE LIMITATIONS. Except as otherwise expressly provided in this
Section, all resales of IHS Stock issued pursuant to this Agreement shall be
effected solely through Xxxxx Xxxxxx Inc., as broker.
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(E) REGISTRATION PROCEDURES, ETC. In connection with the registration
rights granted to the Tenant with respect to the IHS Stock as provided in this
Section 11.1, IHS covenants and agrees as follows:
(I) At IHS's expense, IHS will keep the registration and
qualification under this Section 11.1 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate for a period
of one (1) year following the date on which the registration becomes effective,
except to the extent that an exemption from registration may be available. IHS
will immediately notify the Tenant, at any time when a prospectus relating to a
registration statement under this Section 11.1 is required to be delivered under
the Securities Act, of the happening of any event known to IHS as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(II) IHS shall furnish the Tenant with such number of
prospectuses as shall reasonably be requested.
(III) IHS shall take all necessary action which may be required
in qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by the Tenant, provided that IHS shall not be obligated
to qualify as a foreign corporation or dealer to do business under the laws of
any such jurisdiction.
(IV) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 11.1 will not, at the time
any such registration statement becomes effective, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein as necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier filing of such registration statement or any
amendments thereto. The registration statement will comply in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. IHS shall indemnify the holders of IHS Stock to be sold pursuant to
the registration statement, their successors and assigns, and each person, if
any, who controls such holders within the meaning of ss.15 of the Securities Act
or ss.20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), against all
loss, claim, damage expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Securities Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by IHS or based upon written information
furnished by IHS filed in any jurisdiction in order to qualify IHS Stock under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, NYSE or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless such
statement or omission was made in reliance upon and
22
in conformity with written information furnished to IHS by the Tenant expressly
for use in such registration statement, any amendment or supplement thereto or
any application, as the case may be. If any action is brought against the Tenant
or any controlling person of the Tenant in respect of which indemnity may be
sought against IHS pursuant to this subsection 11.1(e)(iv), the Tenant or such
controlling person shall within thirty (30) days after the receipt thereby of a
summons or complaint, notify IHS in writing of the institution of such action
and IHS shall assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably satisfactory to
the Tenant or such controlling person). The Tenant or such controlling person
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of the Tenant or
such controlling person unless (A) the employment of such counsel shall have
been authorized in writing by IHS in connection with the defense of such action,
or (B) IHS shall not have employed counsel to have charge of the defense of such
action, or (C) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to IHS (in which case, IHS shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for the Tenant and/or such controlling person shall
be borne by IHS. Except as expressly provided in the previous sentence, in the
event that IHS shall not previously have assumed the defenses of any such action
or claim, IHS shall not thereafter be liable to the Tenant or such controlling
person in investigating, preparing or defending any such action or claim. IHS
agrees promptly to notify the Tenant of the commencement of any litigation or
proceedings against IHS or any of its officers, directors or controlling persons
in connection with the resale of IHS Stock or in connection with such
registration statement.
(V) The holders of IHS Stock to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify IHS, its officers and directors and each person, if any,
who controls IHS within the meaning of ss.15 of the Securities Act or ss.20(a)
of the Exchange Act against all loss, claim, damage, or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Securities Act, the Exchange Act or any other statute, common law or
otherwise, arising from information furnished by or on behalf of such holder, or
its successors or assigns for specific inclusion in such registration statement.
(F) NOTICE OF SALE. If the Tenant desires to transfer all or any
portion of the IHS Stock, the Tenant will deliver written notice to IHS,
describing in reasonable detail its intention to effect the transfer and the
manner of the proposed transfer. If the transfer is to be pursuant to an
effective registration statement as provided herein, the Tenant will sell the
IHS Stock in compliance with the disclosure therein and discontinue any offers
and sales thereunder upon notice from IHS that the registration statement
relating to the IHS Stock being transferred is not "current" until IHS gives
further notice that offers and sales may be recommenced. In the event of any
such notice from IHS, IHS agrees to file expeditiously such amendments to the
registration statement as may be necessary to bring it current during the period
specified in Section 11.1(b) and to give prompt notice to the Tenant when the
registration statement has again become current. If the Tenant delivers to IHS
an opinion of counsel reasonably acceptable to IHS and its counsel and to the
effect that the proposed transfer of IHS Stock may be made without registration
under the Securities Act, the Tenant will be entitled to transfer IHS Stock in
accordance with the terms of the notice and opinion of its counsel.
23
(G) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of IHS to take any action pursuant to this Article XI that the
Tenant shall furnish to IHS such information regarding itself, the IHS Stock
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of the IHS Stock. In that connection,
each transferee of the Tenant shall be required to represent to IHS that all
such information which is given is both complete and accurate in all material
respects. The Tenant shall deliver to IHS a statement in writing from the
beneficial owners of such securities that they bona fide intend to sell,
transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 11.1
is required to be delivered under the Securities Act, of the happening of any
event known to such transferee as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the statements as then existing.
(H) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be issued
hereunder will be newly issued shares of IHS. The Tenant represents and warrants
to IHS that the IHS Stock being issued hereunder is being acquired, and will be
acquired, by the Tenant for investment for its own account and not with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act or the applicable state securities law; the Tenant
acknowledges that the IHS Stock constitutes restricted securities under Rule 144
promulgated by the Commission pursuant to the Securities Act, and may have to be
held indefinitely, and the Tenant agrees that no shares of IHS Stock may be
sold, transferred, assigned, pledged or otherwise disposed of except pursuant to
an effective registration statement or an exemption from registration under the
Securities Act, the rules and regulations thereunder, and under all applicable
state securities laws. The Tenant has the knowledge and experience in financial
and business matters, is capable of evaluating the merits and risks of the
investment, and is able to bear the economic risk of such investment. The Tenant
has had the opportunity to make inquiries of and obtain from representatives and
employees of IHS such other information about IHS as it deems necessary in
connection with such investment.
(I) LEGEND. It is understood that, prior to sale of any shares of IHS
Stock pursuant to an effective registration pursuant to subsection (b) above,
the certificates evidencing such shares of IHS Stock shall bear the following
(or a similar) legend (in addition to any legends which may be required in the
opinion of IHS's counsel by the applicable securities laws of any state), and
upon sale of such shares pursuant to such an effective registration, new
certificates shall be issued for the shares sold without such legends except as
otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
24
(J) CERTAIN TRANSFEREES. Prior to the effective date of registration
of the IHS Stock, no transferee shall transfer any shares of IHS Stock to any
person or entity unless such transferee shall have agreed in writing to be bound
by the provisions applicable to the Tenant under this Article XI.
ARTICLE XII
CONFIDENTIALITY; NON-SOLICITATION
12.1 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Tenant acknowledges that
Manager's business involves the development and use of Confidential Information
(defined below) and that Manager will make available such Confidential
Information to Tenant in connection with Manager's duties under this Agreement.
Manager acknowledges that Tenant's business involves the development and use of
Confidential Information and that Tenant will make available such Confidential
Information to Manager in connection with Manager's duties under this Agreement.
Except as Tenant and Manager may disclose in fulfillment of their duties and
responsibilities under this Agreement or as may be required to be disclosed by
Tenant, the Facilities and Manager by law, the parties and their respective
officers, directors, employees or agents shall not, at any time during or after
the term of this Agreement, divulge, furnish or make accessible Confidential
Information to any person or entity for any purpose whatsoever. "Confidential
Information" means any confidential or proprietary information, including,
without limitation, manuals, forms, policies and procedures, computer programs,
system documentation and related software, patient records and patient
information, and any other information of any kind with respect to the finances,
business plans or business operations of the parties.
12.2 NON-USE AND RETURN OF MATERIALS. Effective upon a termination of this
Agreement for any reason whatsoever, the parties and their respective officers,
directors, employees or agents shall not use any Confidential Information for
any purpose whatsoever, including, but not limited to, use in connection with
the operation and management of the Facilities.
12.3 NON-SOLICITATION. Tenant and Manager agree that, for the entire term
of this Agreement and for twelve (12) months after the date that this Agreement
is terminated, (i) Tenant shall not entice or induce, directly or indirectly,
any employee to leave the employ of Manager to work with or for the Tenant, or
to work with any person or entity with whom Tenant becomes affiliated to provide
nursing home or skilled nursing facility care services, and (ii) Manager shall
not entice or induce, directly or indirectly, any employee to leave the employ
of Tenant to work with or for Manager, or to work with any other person or
entity with whom Manager is or becomes affiliated.
25
12.4 REMEDIES. The parties agree that an aggrieved party who is the
beneficiary of any restriction contained herein may not be adequately
compensated for damages for a breach of the covenants contained in this Article
XII, and such aggrieved party shall be entitled to injunctive relief and
specific performance in addition to all other remedies. If a court of competent
jurisdiction shall finally determine that the restraints provided for in this
Article XII are too broad as to the activity, geographic area or time covered,
said activity, geographic area or time covered will be reduced to whatever
extent the court deems necessary, and such covenant shall be enforced as to such
reduced activity, geographic area or time period.
12.5 PROPRIETARY MATERIAL. The Tenant acknowledges and agrees that the
systems, methods, programs, software, brochures, manuals, forms, data,
procedures, and related information used by Manager in the performance of
Manager's obligations under this Agreement are proprietary in nature, shall be
and remain (along with any corresponding copyrights or similar rights) the sole
property of Manager and shall not at any time be directly or indirectly used,
distributed, disclosed, copied or otherwise employed by the Tenant or the
Facilities, except in the operation of the Facilities under Manager's management
during the term of this Agreement. Upon termination of this Agreement, the
Tenant shall to return to the Manager all such proprietary materials and
information and all documents (including all copies thereof) containing such
information in the Tenant's or Facilities' possession or within its control, and
use its best efforts to ensure that its employees have not retained any such
materials, information or documents or copies thereof and, upon request by
Manager, confirm compliance with the foregoing in writing.
ARTICLE XIII
CONDEMNATION
If the whole of either Facility shall be taken or condemned in any eminent
domain, condemnation, compulsory acquisition, or like proceeding by a competent
authority for any public or quasi-public use or purpose or if such portion
thereof shall be taken or condemned as to make it unsuitable for its primary
intended use, then the term of this Agreement shall cease and terminate as to
such Facility on the date on which the Tenant shall be required to surrender
possession of such Facility. The Manager shall continue to supervise and direct
the management of such Facility until such time as the Tenant shall be required
to surrender possession of such Facility as a consequence of such taking or
condemnation.
If only a part of a Facility shall be taken or condemned and the taking or
condemnation of such part does not make it unsuitable for its primary intended
use, this Agreement shall not terminate.
In the event that the parties herein are unable within a period of thirty
(30) days after controversy arising between them to agree upon the apportionment
of any award or are otherwise in dispute as to any matter arising under this
Article XIII, any such dispute shall be resolved by arbitration in accordance
with the provision of Article XIV hereof and the costs thereof or incurred
therein shall be borne or apportioned and paid as determined by said
arbitration.
26
ARTICLE XIV
ARBITRATION
If any controversy should arise between the parties in performance,
interpretation, or application of this Agreement which involves any matter,
either party may, after their good faith efforts to resolve the dispute as set
forth below, serve upon the other a written notice stating that such party
desires to have the controversy reviewed by an arbitrator. If the parties cannot
agree within fifteen (15) days from the service of such notice upon the
selection of such arbitrator, an arbitrator shall be selected or designated by
the American Arbitration Association upon written request of either party
hereto. Arbitration of such controversy, disagreement, or dispute shall be
conducted in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association and the decision and award of the
arbitrator so selected shall be binding upon the Tenant and Manager. The
arbitration will be held in Baltimore, Maryland .
As a condition precedent to serving notice for the appointment of any
arbitrator, both parties shall be required to make a good faith effort to
resolve the controversy which effort shall continue for a period of thirty (30)
days prior to any demand for arbitration. The cost of any such arbitration shall
be shared equally be the parties. Each party shall pay its own costs incurred as
a result of its participation in any such arbitration.
If the issue to be arbitrated is Manager's alleged breach of this Agreement
and as a result thereof, Tenant has the right to terminate this Agreement,
Manager shall continue to manage the Facilities hereunder pending the outcome of
such arbitration.
The Arbitrator shall have no authority to award punitive damages or any
other damages in excess of the prevailing party's actual damages, and may not
make any ruling, finding or award that does not conform to the terms and
conditions of this Agreement.
ARTICLE XV
SUCCESSORS AND ASSIGNS
15.1 ASSIGNMENTS BY THE MANAGER. The Manager, without the consent of the
Tenant, shall have the right to assign this Agreement to a wholly or majority
owned subsidiary provided that the Manager shall not thereby be released from
its obligations hereunder.
In the event that all or substantially all the assets of the Manager or its
capital stock shall during the term of this Agreement be acquired by another
corporation (hereinafter referred to as the "Acquiring Corporation") as a result
of a merger, consolidation, reorganization, or other transaction, and the
Acquiring Corporation assumes all of the obligations of the Manager then accrued
hereunder, if any, then Manager shall be relieved of all such obligations (and
if such Acquiring Corporation shall be acquired by a subsequent Acquiring
Corporation which assumes all of the obligations of the Manager, then the first
Acquiring Corporation shall be relieved of liability hereunder).
27
Except as otherwise permitted herein, the Manager shall have no right to
assign this Agreement.
15.2 SALE, ASSIGNMENT, OR SUB-LEASE BY THE TENANT. Any sale, sub-lease, or
assignment with respect to the Facilities, other than to the Manager, shall be
expressly subject to the terms and provisions of this Agreement and shall not
relieve the Tenant of its liability or obligations hereunder, and Tenant shall
cause any purchaser, assignee, or sub-lessee to deliver to the Manager written
acknowledgment of its agreement to perform hereunder including the payment of
the management fee described herein.
The Tenant may not at any time, without the prior written consent of the
Manager, which shall not be unreasonably withheld, incur any additional debt or
subject its interest in the Facilities or any part thereof to the lien of one or
more deeds of trust, mortgages, or other security instruments. In the event that
such consent is given, such additional debt or security interest shall be
subordinate to Manager's rights and security interest granted pursuant to this
Agreement.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 NOTICES. Any notice or other communication by either party to the
other shall be in writing and shall be given and be deemed to have been duly
given, upon the date delivered if delivered personally or upon the date received
if mailed postage pre-paid, registered, or certified mail, addressed as follows:
To the Tenant: Pinnacle Health Facilities of Louisiana, LLC
0000 Xxxxxx xxxxxxx
Xxxxx, Xxxxx 00000
Attn: Xxxx Xxxxxxxxx
To the Manager: Integrated Health Services at Franklin, Inc.
00000 Xxx Xxx Xxxxxxxxx
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxxxxx X. Xxxxx, Executive Vice-President
Xxxxxxxx X. Xxxxxx, Esq.
With a copy to: Blass & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
or to such other address, and to the attention of such other person or officer
as either party may designate in writing by notice.
28
16.2 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in the Agreement
shall constitute or be construed to be or create a partnership or joint venture
between the Tenant, its successors, or assigns on the one part and the Manager,
its successors, or assigns on the other part. Notwithstanding the foregoing, the
parties hereby agree that they shall each have a duty to act in good faith and
to deal fairly with the other party hereto.
16.3 MODIFICATIONS AND CHANGES. This Agreement cannot be changed or
modified except by another agreement in writing signed by the party sought to be
charged therewith or by its duly authorized agent.
16.4 UNDERSTANDING AND AGREEMENTS. This Agreement constitutes the entire
understanding and agreements of whatsoever nature or kind existing between the
parties with respect to the Manager's management of the Facilities.
16.5 HEADINGS. The article and paragraph headings contained herein are for
convenience of reference only and are not intended to define, limit, or describe
the scope of intent of any provision of this Agreement.
16.6 APPROVAL OR CONSENT. Whenever under any provisions of this Agreement,
the approval or consent of either party is required, the decision thereon shall
be promptly given and such approval or consent shall not be unreasonably
withheld. It is further understood and agreed that whenever under any provisions
of this Agreement the approval or consent of the Tenant is required, such
approval or consent is given by the person or any one of the persons, as the
case may be, designated in a notification signed by or on behalf of the Tenant.
For all purposes under this Agreement, the Manager shall determine solely from
the latest such notification received by it the person or persons authorized to
give such approval or consent. The Manager shall rely exclusively and
conclusively on the designation set forth in such notification, notwithstanding
any notice of knowledge to the contrary.
16.7 GOVERNING LAW. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the State of
Maryland.
16.8 ENFORCEABILITY. Should any provision of this Agreement be
unenforceable as between the parties, such unenforceability shall not affect the
enforceability of the other provisions of this Agreement.
16.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
29
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Management Agreement effective as of the day and year first above written.
TENANT: MANAGER:
PINNACLE HEALTH INTEGRATED HEALTH
FACILITIES OF LOUISIANA, L.L.C. SERVICES AT FRANKLIN, INC.
By: /s/ XXXXXX XXXXX By: /s/ XXXXXXXXX X. XXXXX
----------------------------- -------------------------------
Title: Title: EVP, Corporate Development
-------------------------- ----------------------------
AGREED AS TO ARTICLE XI: INTEGRATED HEALTH
SERVICES, INC.
/s/ XXXXXX XXXXX
-------------------------------- By: /s/ XXXXXXXXX X. XXXXX
XXXXXX XXXXX -------------------------------
Title: EVP, Corporate Development
----------------------------
AGREED AS TO SECTION 4.3(B):
/s/ XXXXXX XXXXX
--------------------------------
XXXXXX XXXXX
30
STATE OF TEXAS )
ss:
COUNTY OF: )
On the 4th day of September, 1998, duly appeared Xxxxxx Xxxxx, to me known,
who, being by me duly sworn, did depose and say that he resides at , that he is
the individual who executed the above Management Agreement in his individual
capacity, as guarantor of Tenant thereunder, and he thereupon duly acknowledged
that he executed same.
/s/ Xxxxxxx X. Xxxxxxxx
-----------------------
Notary Public
NOTARY PUBLIC
STATE OF TEXAS
[SEAL]
Xxxxxxx X. Xxxxxxxx
Notary Public, State of Texas
My Commission Expires
March 17, 2001
31
EXHIBIT A
The following is a list of items and travel expenses not included in the
management fee. These facility specific expenses are passed directly to the
facility in which the expense was incurred.
o Administrator wages, benefits and related travel expenses. (This
includes an annual administrator conference).
o Computer hardware and software purchased for Facilities.
o Facility specific legal and accounting fees.
o Facility specific fees associated with union organization attempts,
elections, etc.
o Outside consultants used for Medicare or Medicaid cost reports and
Medicare exception requests.
o Travel costs for facility personnel training.
o All other costs incurred related to facility-specific matter.
SCHEDULE 6.3
CONSENTS
None
SCHEDULE 6.4
MEMBERSHIP INTERESTS
Xxxxxx X. Xxxxx 50%
Xxxxx X. Xxxxx 50%
