EXHIBIT 10.75
JOINT VENTURE AGREEMENT
This Agreement is made as of the 21st day of February, 1997, by and
among Coventry Corporation, a Kansas corporation ("SGH-SUB") and a
subsidiary of SGH, and STERLING HOUSE CORPORATION., a Kansas
corporation ("SGH") and SDR Development, Inc., a Florida corporation
("JOINT VENTURE PARTNER").
R E C I T A L S:
A. SGH-SUB and JOINT VENTURE PARTNER have agreed to
form a joint venture for the purpose of developing, constructing and operating
one (1) or more STERLING HOUSE residences; and
B. The parties are entering into this Agreement to set forth their
mutual understanding and agreements with respect to the terms and
conditions of such joint venture.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to the other definitions contained herein, the following
definitions shall apply for purposes of this Agreement:
1.1 Affiliate. "Affiliate," when such term is used with
respect to another Person which is a legal entity, means (a) any Person who
(together with Family Members) directly or indirectly Controls, is Controlled
by or is under common Control with such other Person, (b) any Person who is a
director or officer of a privately-owned company, member in or trustee
of, or who serves in a similar capacity with respect to, such other Person, or
(c) any Person who directly or indirectly is the beneficial owner of 20% or
more of such other Person. When the term "Affiliate" is used with respect to
another Person who is an individual, it means (i) any Family Member of such
Person, or (ii) any corporation, partnership, limited liability company, trust
or other entity of which such other Person serves as an officer, director,
general partner, manager, trustee or in a similar capacity.
1.2 Ancillary Agreements. "Ancillary Agreements"
means all of the agreements executed and delivered by SGH-SUB or SGH and/or
JOINT VENTURE PARTNER (or any JOINT VENTURE PARTNER
Affiliate), pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement.
1.3 Business. "Business" means the business of
developing or acquiring, and owning, operating and financing, the Facilities,
and activities related or incidental thereto.
1.4 Call Option Price. "Call Option Price" means the
purchase price payable upon SGH's exercise of the Call Option as set forth
on the attached Schedule 3.8(B).
1.5 Capital Investment Schedule. "Capital Investment
Schedule" means the schedule attached as Exhibit 3.2.
1.6 Closing. "Closing" means the closing of the
transactions provided for in this Agreement, which shall take place on the
Closing Date at the offices of SGH in Wichita, Kansas or such other place as
the parties may agree upon.
1.7 Closing Date. "Closing Date" means the date on
which a Closing occurs.
1.8 Control. "Control" as applied to a Person means the
direct or indirect ownership of more than 50% of the voting common stock
(in the case of a corporation) or other voting interests (in the case of a legal
entity which is not a corporation);
1.9 Development Term. "Development Term" means the
five (5) year period commencing on the date of execution of this Agreement.
However, either party may terminate this Agreement during the Development
Term immediately upon written notice if no contract has been entered into for
the acquisition of a Facility or site for a Facility (or an option to acquire a
Facility or a site for a Facility) during any consecutive twelve (12) month
period commencing after the date of this Agreement. Providing such
termination shall not affect the obligations of JOINT VENTURE PARTNER
and SGH to complete any Facilities then under development.
1.10 Facility. "Facility" means the land and improvements
constituting an assisted living residence facility which is developed pursuant
to or as contemplated by this Agreement.
1.11 Family Member. "Family Member" means, with
respect to any individual, (a) the spouse of such individual, (b) any child of
such individual, or any parent, grandparent, brother or sister living in the
same house as such individual, or the spouse of any of the foregoing individuals
described in this clause (b), (c) a custodian, guardian or personal
representative of an individual described in clause (a) or (b); or (d) a trust
for the exclusive benefit of one or more of the individuals described in clause
(a) or (b).
1.12 Initial Closing Date. "Initial Closing Date" means the
date on which the first Closing takes place.
1.13 JOINT VENTURE PARTNER Affiliate. "JOINT
VENTURE PARTNER Affiliate" means any Affiliate of JOINT VENTURE
PARTNER.
1.14 JOINT VENTURE PARTNER Ancillary
Agreements. "JOINT VENTURE PARTNER Ancillary Agreements" means
any Ancillary Agreement to which JOINT VENTURE PARTNER or any
Affiliate of JOINT VENTURE PARTNER is a party.
1.15 JOINT VENTURE PARTNER's Responsibilities
Schedule. "JOINT VENTURE PARTNER's Responsibilities Schedule"
means the schedule attached as Exhibit 3.4(B).
1.16 License Agreement. "License Agreement" means a
License Agreement is substantially thef orm of the License Agreement
together with changes to properly reflect the identity and location of the
Facility being licensed, attached as Exhibit 3.6(A).
1.17 Licensing Date. "Licensing Date" means the date
when a license to operate a Facility as an adult congregate living and/or
extended congregate, care facility or an equivalent license is issued for the
Facility by the applicable state agency.
1.18 Management Agreement. "Management Agreement"
means a Management Agreement in substantially the form of the
Management Agreement, together with changes to properly reflect the
identity and location of the Facility being managed, substantially in the form
attached as Exhibit 3.5.
1.19 Operating Agreement. "Operating Agreement"
means an Operating Agreement in substantially the form of the Operating
Agreement, together with changes to properly reflect the identity and location
of the Facility being managed, substantially in the form attached as Exhibit
3.1.
1.20 Percentage Interest. "Percentage Interest" means, as
applied to any Project Entity, the ownership interest of SGH-SUB or JOINT
VENTURE PARTNER in such Entity.
1.21 Person. "Person" means a natural person, corporation,
trust, partnership, limited liability company, governmental entity (or agency,
branch or department thereof) or any other legal entity.
1.22 Project Agreements. The agreements entered into by
SGH-SUB, JOINT VENTURE PARTNER and/or their Affiliates in
connection with the formation of a Project Entity, including without
limitation any Operating Agreement or other organizational documents.
1.23 Project Entity. "Project Entity" means any limited
liability company or other entity which owns a Facility.
1.24 SGH Affiliate. "SGH Affiliate" means any Affiliate
of SGH, including BCI.
1.25 SGH-SUB Ancillary Agreements. "SGH-SUB
Ancillary Agreements" means any Ancillary Agreement to which SGH-SUB
is a party.
1.26 SGH-SUB Responsibilities Schedule. "SGH-SUB
Responsibilities Schedule" means the schedule attached as Exhibit 3.4(A).
1.27 Territory. "Territory" means the geographic area
described on the attached Exhibit 1.27.
1.28 Third Party Developer. "Third Party Developer"
means any Partner who is not SGH, an SGH Affiliate, JOINT VENTURE
PARTNER, or a JOINT VENTURE affiliate.
ARTICLE 2
PURPOSE OF JOINT VENTURE
The parties are entering into the joint venture contemplated by this
Agreement in order for SGH-SUB and JOINT VENTURE PARTNER,
through jointly owned limited liability companies or other entities agreed
upon by the parties, to develop or acquire, and own, operate and finance, the
Facilities in targeted market areas throughout the Territory. The number of
Facilities that shall be developed hereunder and the respective deadlines for
commencing and completing construction of the same are set forth on the
attached Exhibit 2. Upon execution of this Agreement and in consideration
of development opportunities to be deferred or relinquished, JOINT
VENTURE PARTNER shall pay to SGH, in addition to any other sums due
hereunder, the sum of Seventy-Five Thousand Dollars ($75,000).
ARTICLE 3
COVENANTS
3.1 Formation and Capitalization of Project Entities.
At each Closing, SGH-SUB and JOINT VENTURE PARTNER shall form
one of the Project Entities contemplated by this Agreement by entering into
an Operating Agreement. A Project Entity shall be formed at least as soon as
a site for a Facility has been identified by SGH. Unless the parties agree
otherwise, the Project Entity shall be a limited liability company, and the
parties shall enter into an Operating Agreement with respect to each such site
selected. Capital contributions shall be made by SGH-SUB and JOINT
VENTURE PARTNER or a JOINT VENTURE PARTNER Affiliate in such
proportions, at such times and in such amounts as the parties agree on, as
more fully set forth in the Capital Investment Schedule.
3.2 Capitalization of Project Entities. During the
Development Term, the parties shall make mandatory initial capital
contributions to each Project Entity as more fully set forth in the Operating
Agreement for such Project Entity. The mandatory initial capital
contributions for all Project Entities shall each be subject to a contribution
schedule which shall not exceed in the aggregate the amounts shown in the
Capital Investment Schedule, unless the parties otherwise agree. Neither
SGH-SUB nor JOINT VENTURE PARTNER shall have any obligation to
make any expenditure, provide capital or loan funds to any Project Entity
except as may specifically be required by this Agreement, any Ancillary
Agreement (including any Operating Agreement), by applicable law, or as
otherwise agreed by SGH-SUB and JOINT VENTURE PARTNER from time
to time.
3.3 Project Financing. The parties will use their best
efforts to cause each Project Entity to obtain the necessary construction and
permanent financing for the Facility owned by it. The parties will use their
best efforts to cause each Project Entity to obtain permanent financing (i.e.,
mortgage financing or sale leaseback) when a Facility reaches a level of 90%
of full occupancy. SGH-SUB along with SGH and the Project Entity shall be the
guarantors of such construction and permanent financing if a guaranty
is required, but JOINT VENTURE PARTNER shall not be required to
personally guaranty any financing for any such Facility, nor shall JOINT
VENTURE PARTNER, in the event that SGH-SUB, SGH or such Entity are
called upon to pay such obligations pursuant to their guaranties, be required
to compensate or otherwise reimburse SGH-SUB, SGH or such Entity, as the
case may be, for any loss or costs incurred by any of them under any such
guaranty. It is understood that SGH-SUB and SGH reserve the right to secure
the repayment of any funds loaned to a Project Entity by the use of a first
mortgage or similar security device.
3.4 Responsibilities of the Parties.
A) SGH-SUB shall be responsible for the duties and activities set
forth on the SGH-SUB Responsibilities Schedule.
B) JOINT VENTURE PARTNER shall be responsible for the
duties and activities set forth on the JOINT VENTURE PARTNER's Responsibilities
Schedule. To the extent that JOINT VENTURE PARTNER is to be reimbursed or
compensated for such services, the terms and conditions of same shall be set
forth on the JOINT VENTURE PARTNER Responsibilities Schedule.
C) All charges associated with the foregoing services provided
by SGH-SUB or JOINT VENTURE PARTNER or any Affiliate including, without
limitation, premarketing, pre-opening, operating, pre-development, third party,
overhead and aborted project costs, shall be paid by the specific Project
Entity benefiting from such services or as agreed on by both parties in writing.
3.5 Construction. SGH-SUB reserves the right and
option to appoint BCI Construction, Inc. ("BCI"), an SGH Affiliate, to
provide development and construction supervision services to any Project
Entity which develops a Facility. A construction agreement shall be
executed by the applicable Project Entity and BCI or another construction
company selected by SGH-SUB, for such Facilities when the respective
Project Entity is formed. Such construction agreement shall provide that such
Project Entity will pay BCI a construction fee, if BCI is selected by SGH-
SUB to be the Construction Manager, and/or a development fee. The
construction fee payable to BCI shall be payable in accordance with the
applicable construction agreement. SGH-SUB reserves the right to appoint
itself, any SGH Affiliate, any JOINT VENTURE PARTNER affiliate, or a
THIRD PARTY DEVELOPER as the developer of record for any proposed
Project Facility.
3.6 Project Management. In addition to the provisions
of Section 3.4(A), SGH-SUB shall perform management services for each
Project Entity, as more fully set forth in the applicable Operating Agreement.
SGH-SUB shall enter into an Operating Agreement for each Project Entity
when it is formed. SGH-SUB shall be entitled to charge one-time
compensation of up to $50,000 and as manager of each Project Facility shall
be entitled to receive a management fee equal to seven percent (7%) of such
entities gross revenues in accordance with the terms of each Management
Agreement; such agreement shall be executed by SGH-SUB or an Affiliate of
SGH-SUB and the respective Project Entity upon the purchase of the real
estate to be developed for each Project Facility.
In addition, SGH-SUB shall be entitled to be reimbursed for all costs and
overhead expenses relating to the development, construction and start-up
activities of each Project Facility. SGH-SUB or an Affiliate of SGH-SUB
shall be entitled to charge a monthly fee of up to $500 per month per Project
Facility in return for providing accounting services to each Project Facility.
SGH and the respective Project Entity shall also execute a License
Agreement upon the purchase of the real estate to be developed for each
Project Facility.
3.7 Restrictions on Transferability of Interests. From
and after the Closing Date, neither SGH-SUB, JOINT VENTURE
PARTNER or any JOINT VENTURE PARTNER Affiliate shall transfer its
ownership interest in any Project Entity except to the other party; provided,
however, that SGH-SUB may transfer a portion of its interest to an Affiliate
prior to the exercise of a put or call option pursuant to Section 3.8 so as to
preserve the existence of the Project Entity following such purchase. A
transfer means any disposition of an interest or any interest therein,
including,
without limitation, any sale, gift, assignment, pledge or encumbrance,
whether such disposition occurs voluntarily, by operation of law or otherwise.
The organizational documents of JOINT VENTURE PARTNER shall
provide at all times that the beneficial ownership interests of each beneficial
owner shall be subject to a right of first refusal in favor of JOINT VENTURE
PARTNER, and to the extent not exercised then to the other owners of
JOINT VENTURE PARTNER, and then to the extent not exercised to SGH-SUB.
Further, at the time of each Closing, JOINT VENTURE PARTNER
shall obtain from each such owner, written assurance in a form acceptable to
SGH-SUB, that such owner is not subject to any litigation, arbitration,
proceeding, governmental investigation, citation or action of any kind
pending, or to the knowledge of such Person, proposed or threatened against
them which could have a material adverse effect on the transactions
contemplated hereby.
3.8 Options to Sell or Purchase Ownership Interests.
A) SGH hereby grants to JOINT VENTURE PARTNER the
right ("put option") to sell JOINT VENTURE PARTNER's ownership interest in any
one or more Project Entities to SGH at the respective fair market value
(determined as set forth below) of such Project Entity or Entities. The put
option for each Project Entity shall be exercisable commencing on the ten (10)
month anniversary of the Licensing Date of the Facility owned by such Project
Entity and any time thereafter prior to the tenth (10th) anniversary of the
Licensing Date. Such option shall be exercised by written notice from JOINT
VENTURE PARTNER to SGH prior to such tenth (10th) anniversary. The exercise
by JOINT VENTURE PARTNER of its put option for one Project Entity shall not
preclude JOINT VENTURE PARTNER from later exercising one or more put options
for additional Project Entities.
B) JOINT VENTURE PARTNER hereby grants to SGH the
right ("call option") to purchase JOINT VENTURE PARTNER's ownership interest
in each Project Entity at the Call Option Price of such Project Entity or
Entities. The call option for each Project Entity shall be exercisable on the
six (6) month anniversary of the Licensing Date of such Facility owned by such
Project Entity and any time thereafter prior to the tenth (10th) anniversary
of the Licensing Date of such Facility. Such option shall be exercised by
written notice from SGH to JOINT VENTURE PARTNER prior to such tenth (10th)
anniversary. The exercise by SGH from later exercising one or more call options
for additional Project Entities.
C) The fair market value of JOINT VENTURE PARTNER's
ownership interest in each Project Entity shall be based upon the fair market
value of such Project Entity (including all of its assets and liabilities),
determined as of the end of the calendar month preceding the date on which a
put option is exercised. The fair market value of a Project Entity shall be
the fair market value of such Project Entity as established by an appraiser
agreed on by the parties. SGH and Joint Venture Partner shall each give the
other party notice of the name of an acceptable appraiser 15 days after the
giving of notice of their intent to exercise an option. The two appraisers will
then select a third appraiser within an additional 5 days. Within 5 days after
designation, each appraiser shall submit a resume to SGH and Joint Venture
Partner, setting forth such appraiser's qualifications, including education
and experience with similar properties. A notice of objections to the
qualifications of any appraiser shall be given within 10 days after receipt of
such resume. If either party fails to timely object to the qualifications of
an appraiser, then the appraiser shall be conclusively deemed satisfactory.
If a party gives a timely notice of objection to the qualifications of an
appraiser,
then the disqualified appraiser shall be replaced by an appraiser selected by
the qualified appraisers or, if all appraisers are disqualified, then by an
appraiser selected by a commercial arbitrator acceptable to SGH and Joint
Venture. The "fair market value" shall be determined by the appraisers
within 60 days thereafter as follows. Each of the appraisers shall be
instructed to prepare an appraisal of the Project Facility in accordance with
the following instructions:
The Project Facility is to be valued upon the
three conventional approaches to estimate value known as the Income, Sales
Comparison and Cost Approaches. Once the approaches are completed, the
appraiser correlates the individual approaches into a final value conclusion.
The Three approaches to estimate value are summarized as
follows:
Income Approach: This valuation approach recognizes that
the value of the operating tangible and intangible asset can be represented
by the expected economic viability of the business giving returns on and of
the assets and shall use a management fee of 7%.
Sales Comparison Approach: This valuation approach is
based upon the principal of substitution. When a facility is replaceable in
the market, the market approach assumes that value tends to be set at the
price of acquiring an equally desirable substitute facility. Since health
care market
conditions change and frequently are subject to regulatory and financing
environments, adjustments need to be considered. These adjustments also
consider the operating differences, such as services and demographics.
Cost Approach: This valuation approach estimates the value
of the tangible assets only. Value is represented by the market value of the
land plus the depreciated reproduction cost of all improvements and equipment.
In general, the Income and Sales Comparison Approaches are
to be considered the best representation of value, because they cover both
tangibles and intangible assets, consider the operating characteristics of the
business and have the most significant influence on attracting potential
investors.
The appraised values submitted by the three appraisers shall
be ranked from highest value to middle value to lowest value, the appraised
value (highest or lowest) which is furthest from the middle appraised value
shall be discarded, and the remaining two appraised values shall be averaged
to arrive at fair market value.
In determining the fair market value of a Project Entity, the
assumption shall be made that the Management Agreement will continue
indefinitely and that the percentage management fee would continue to be
charged to the applicable Project Entity. Each appraiser selected hereunder
shall be a reputable appraisal firm which has substantial experience in
appraising commercial real estate, which shall mean that at a minimum the
appraiser must be state certified, a member in good standing with the American
Institute of Real Estate Appraisers and a member in good standing with the
Appraisal Institute. All appraisers shall have complete access to the
relevant books and records of the Project Entity they are appraising during
the conduct of their appraisals. If the fair market value of a Project Entity
is finally determined in accordance with this Section 3.8(C), and a put or call
option is exercised within four (4) months from the date of such final
determination, then such fair market value shall be used in connection with
the purchase and sale occurring as a result of such exercise.
