EXHIBIT 10.31
AGREEMENT
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AGREEMENT dated as of June 3, 1997, by and among MEDGROUP MANAGEMENT, INC.,
a Kentucky corporation ("MMI"), ATRIA COMMUNITIES, INC., a Kentucky corporation
("Atria"), and Atrium at St. Xxxxxxxx, LLC a Kentucky limited liability company
("Atrium").
WITNESSETH:
WHEREAS, by means of Articles of Organization, filed with the Commonwealth
of Kentucky on March 5, 1997, MMI and Atria formed Atrium under the limited
liability company laws of the Commonwealth of Kentucky, and became initial
Members thereof; and,
WHEREAS, MMI and Atria, as initial Members of Atrium, have authorized,
approved and promulgated an Operating Agreement for Atrium, on even date
herewith, which includes provisions covering, among other items, initial
contributions to Atrium, management of the entity, events resulting in
dissociation, and procedures for dissolution; and,
WHEREAS, certain agreements reached between MMI and Atria, as accepted and
acknowledged by Atrium, in regard to mortgage financing to be supplied to Atrium
by Atria, and certain rights of first refusal granted by Atria to MMI, affect
Atrium and/or the relationship between MMI and Atria, but are not appropriately
cited in said Operating Agreement, or in a certain Management Agreement,
executed by and between Atrium and Atria on even date herewith; and,
WHEREAS, MMI, Atria and Atrium desire to formalize these other agreements.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, covenants, and conditions herein contained, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
1. Financing for the Atrium Project. Thirty (30) days after the Effective
Date hereof, which is also the effective date of the Operating Agreement for
Atrium, Atria agrees to provide mortgage financing to Atrium, in an amount of
$4,160,000; this amount representing the difference between the consideration
contributed by both MMI and Atria as their initial Capital Contributions to
Atrium, as set forth in Exhibit A to the Operating Agreement, and the
anticipated total costs of the project of $5,200,000 being undertaken by Atrium,
located at Hubbards Lane, Louisville, Kentucky, which will include 70 units of
assisted living facility, as described in more detail in Exhibit I hereto (the
"Project"). Such mortgage financing will be upon such terms, conditions and
provisions as are mutually
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acceptable to Atrium, MMI, and Atria; provided, however, the interest rate
charged by Atria to Atrium for the permanent mortgage financing shall be equal
to Twenty-Five (25) basis points, in excess of Atria's cost of funds (the "Cost
of Funds") (i.e., the amount Atria pays pursuant to its $200,000,000 Credit
Facility Agreement dated August 15, 1996 by among Atria, as Borrower, and the
lending institution named therein, PNC Bank as Administrative Agent, as the same
may be amended from time to time. Atria's Cost of Funds shall include interest
paid by Atria under the Credit Facility Agreement and the guaranty fee (the
"Guaranty Fee") paid by Atria to Vencor, Inc., at the rate of 1-1/2% per annum
on the unpaid principal balance directly advanced for the construction of the
Project within the development pool (the "Development Pool") under the Credit
Facility Agreement, until construction of the Project has been completed and the
Project has been placed in the mature property pool (the "Mature Property Pool")
under the Credit Facility Agreement, at which time Atria's obligation to pay the
Guaranty Fee to Vencor, Inc. shall automatically cease and terminate. As of the
execution of this Agreement, Atria's Cost of Funds is currently 7.1562%. The
parties also acknowledge that, pursuant to this Credit Facility Agreement, a
mortgage must be given on the real estate associated with the Project, and
Atrium must guarantee said Credit Facility. Other than the initial mortgage
financing for the Atrium Project as referenced above, and any other additional
financing, including additional financing necessary to fund operating losses
incurred by the Project during its first two years of operation, shall not
exceed $500,000. Any other additional or subsequent financing for Atrium or the
Project shall require unanimous written consent of MMI and Atria.
2. Exclusive Option and Territory. MMI shall have the exclusive right by
way of execution of a right of first refusal agreement between MMI and Atria,
within forty-five (45) days after receipt of a written notice from Atria, to
become the sole participant with Atria in any and every other, future assisted
living projects and facilities (similar in concept to Atrium), in which Atria
may become involved hereafter, from the date of the execution of the Agreement,
that may be sited in Louisville and Jefferson County, Kentucky; Lexington and
Fayette County, Kentucky; Elizabethtown and Xxxxxx County, Kentucky; Southern
Indiana, including, but not limited to, Xxxxx, Xxxxx, Washington and Xxxxx
Counties; and including all contiguous areas within a fifty (50) mile radius
from each of such locations. It is understood that, in the event that MMI shall
fail to exercise its exclusive right to participate in any given assisted living
project with Atria, Atria has the right to pursue said project, either alone or
with any third party. MMI shall, nevertheless, have a continuing right to
exercise the exclusive option to participate, granted herein, in regard to the
ownership of any other facilities or projects as Atria may suggest that are
located at the sites referred to above in this Section. It is specifically
understood and agreed by the parties that if MMI does exercise its right of
first refusal described above, MMI shall be permitted to purchase, at inception,
a minimum equity interest of ten percent (10%) in any such future Atria
project(s) and facility(ies) and exercises its option right, or in an entity to
be organized for such a project, up to a maximum of forty percent (40%). The
purchase price for MMI's interest shall be, on a pro rata basis, equal to the
purchase price for the other participants in the
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project. The parties agree that the same forms of operating and management
agreements will be utilized in all future projects, unless modified by all of
the parties hereto. All future projects and facility(ies) in which MMI exercises
its exclusive right of first refusal shall be financed upon the same terms as
contained herein and that the LLC which shall owns such future project(s) and
facility(ies) shall issue a mortgage and a guarantee as required by Atrium
hereunder.
Notwithstanding anything to the contrary hereinabove expressed, MMI shall
not have an exclusive option to become a participant with Atria in, nor shall
Atria be precluded from being involved with, any future project to be
constructed on the campus or the contiguous expansion of the campus of, or on
any property currently owned by, any other health care organization in any
geographical area, , including without limitation, those listed above.
3. Termination. Any of the parties hereto may terminate this
Agreement if the other party or parties fail to perform their undertakings, set
forth above, provided that the party desiring to terminate shall give the other
party or parties written notice specifying the failure to perform and an
opportunity to cure within thirty (30) days of notice. If the failure of
performance is not cured, or good faith, diligent effort to cure said failure of
performance is not commenced within said notice period, then this Agreement
shall terminate at the end of the notice period.
4. Put Option. MMI shall have the right, at its sole option, to put and
tender its interest in Atrium to Atria at anytime. Notice of MMI's election to
put its interest to Atria must be given in writing as set forth in Section 6(g)
herein. The purchase price that Atria must pay for MMI's interest in Atrium
shall be forty-percent (40%) of the fair market value ("Fair Market Value") of
the Project less its unpaid principal balance ("Unpaid Principal Balance"), or
forty-percent (40%) of the equity ("Equity") in the Project. For the purpose
of this Section, the terms "Fair Market Value", Unpaid Principal Balance, and
"Equity" shall mean as follows:
(a) Fair Market Value. The term "Fair Market Value" shall be determined
by an independent MAI qualified appraiser selected by mutual agreement
of MMI and Atria. In the event MMI and Atria are unable to agree on
an appraiser, then each shall select their own appraiser to determine
fair market value. Should the difference on the fair market value by
the two appraisers be less than 20% of the higher of the two
appraisals, then the two appraisals will be averaged to determine fair
market value. If the difference between the two appraisals exceed 20%
of the highest appraisal, then the two appraisers shall select a third
independent MAI qualified appraiser and the three appraisals shall be
averaged to determine fair market value.
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(b) Unpaid Principal Balance. The term "Unpaid Principal Balance" shall
mean the initial mortgage financing on the Project of $4,160,000,
reduced by principal payments of $208,000 on an annualized basis and
$17,333 on a monthly basis over a 20 year period. For example, at the
end of 5 years the Unpaid Principal Balance would be $3,120,000. The
Unpaid Principal Balance shall also include any additional financing
permitted and approved under the terms of this Agreement.
(c) Equity. The term "Equity" shall mean the difference between the Fair
Market Value of the Project and the Unpaid Principal Balance.
(d) Example. Should MMI put its interest in Atrium to Atria after a 5
year period, MMI would be entitled to receive $2,752,000 as computed
below:
Fair Market Value (as determined by appraisal process) $10,000,000
Unpaid Principal Balance 3,120,000
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Equity in Project $ 6,880,000
MMI Pro Rata Percentage 40%
PUT PURCHASE PRICE $ 2,752,000
5. Assignment. Neither party may assign its interest, nor delegate the
performance of its obligations under this Agreement without obtaining the prior
written consent of the other party.
6. Provision of Medical and Other Healthcare Services to Project.
Atria shall manage and provide all services at the facility that constitute
assistance with activities of daily living, in accordance with the management
agreement (the "Management Agreement") which is attached hereto and incorporated
here and by reference, in its entirety, and marked Exhibit "A". Atria and MMI
jointly shall agree on the operation of the wellness clinic to be developed at
the facility. With respect to any healthcare services that involve third party
reimbursement of any kind and which require a CON, MMI, an affiliate of Jewish
Hospital Healthcare Services, Inc. and any of MMI's other affiliates, shall be
the provider of those services at the facility to the extent legally and
practicably possible. Atria and MMI shall enter into agreements which properly
reflect the intent set forth herein.
7. Miscellaneous
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(a) Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement, shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that
provision or of any other provision of this Agreement by that party or
any other party.
(b) Governing Law. This Agreement shall in all respects be subject
to, and governed by, the internal laws of the Commonwealth of
Kentucky.
(c) Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or
enforceability of any other provision and this Agreement shall be
construed in all respects as if such invalid or unenforceable
provision had never been in the Agreement.
(d) Amendments. This Agreement may be amended at any time by mutual
consent of the parties, with any such amendment to be invalid unless
executed in writing by both parties.
(e) Entire Agreement. This Agreement contains the entire agreement
and understanding by and among Atria, MMI and Atrium, as appropriate,
with respect to mortgage financing for the Project and rights of first
refusal regarding participation in future Atria ventures, and no
representations, promises, agreements, or understandings, written or
oral, relating to the said financing covenants and/or rights of first
refusal provided by Atria to MMI and/or Atrium not contained in this
Agreement shall be of any force or effect.
(f) Headings. The various headings in this Agreement are inserted for
convenience only and are not to be used in interpreting the Agreement.
(g) Notices. All notices and other communications shall be in
writing, shall be given either by personal delivery or by telex,
facsimile, courier or telegraph or sent by registered or certified
mail, return receipt requested. All notices and other communications
shall be deemed given when actually received by a party. Notice shall
be directed to a party at its address set forth below or such other
address as shall be given in accordance with this Section:
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(i) If to Atria:
W. Xxxxxxx Xxxxxx, XX
President & CEO
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
or to such other address as Atria may from time to time
designate, by notice to the other parties;
(ii) If to Atrium:
W. Xxxxxxx Xxxxxx, XX
President & CEO
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
or to such other address as Atrium may from time to time
designate, by notice to Atria and MMI;
(iii) If to MMI:
Xxxxxx Xxxxxxxxx, Xx. Vice President
Jewish Hospital HealthCare Services, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
cc: Xxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxx
Xxxxxxxx & Xxxxxxx, P.S.C.
0000 Xxxxxxxx Xxxx Xxxxx
Xxxxxxxxxx, XX 00000
or to such other address as MMI may from time to time designate,
by notice to the other parties.
IN WITNESS WHEREOF, the MMI, Atrium and Atria have duly executed this
Agreement as of the day and year first above written.
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ATRIA COMMUNITIES, INC.
BY: /s/ W. Xxxxxxx Xxxxxx, XX
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TITLE: President & Chief Executive Officer
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MEDGROUP MANAGEMENT, INC.
BY: /s/ Xxxxxx Xxxxxxxxx
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TITLE: Vice President
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ATRIUM AT ST. XXXXXXX, LLC
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BY: /s/ W. Xxxxxxx Xxxxxx, XX
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TITLE: President & Chief Executive Officer
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EXHIBIT A
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BOOK VALUE OF CAPITAL CONTRIBUTIONS
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___________________, 1997
Membership
Member Capital Contributions Date Interest
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Medgroup Management, Inc. $ 416,000 40%
Atria Communities, Inc. 624,000 60%
TOTAL: $1,040,000
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