-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KX97RrsI+xbHPdHWITsp1tn7tUr3aLwI1kfkLsY5d+YrnNLBgwNp/a/ziN0CJ3yK qF4UZCeIqrVXVF+D3+TTOw== 0000892569-98-000881.txt : 19980331 0000892569-98-000881.hdr.sgml : 19980331 ACCESSION NUMBER: 0000892569-98-000881 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTIMUMCARE CORP /DE/ CENTRAL INDEX KEY: 0000820474 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 330218003 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-17401 FILM NUMBER: 98579080 BUSINESS ADDRESS: STREET 1: 30011 IVY GLENN DR STE 219 CITY: LAGUNA NIGUEL STATE: CA ZIP: 92677 BUSINESS PHONE: 7144951100 MAIL ADDRESS: STREET 1: 30011 IVY GLENN DR STREET 2: SUITE 210 CITY: LAGUNA MIGUEL STATE: CA ZIP: 92677 10-K405 1 FORM 10-K405 FOR THE PERIOD 12/31/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) for the fiscal year ended December 31, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from ___________ to _______________ Commission file number 0-17401 Commission File Number: 0-17401 OPTIMUMCARE CORPORATION (Exact name of registrant as specified in its charter) Delaware 33-0218003 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30011 Ivy Glenn Drive, Suite 219 Laguna Niguel, California 92677 ------------------------- ----- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (714) 495-1100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ------------------- ---------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for, such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ The aggregate market value of the voting stock held by non-affiliates of the Company on February 17, 1998 (5,685,080 shares of Common Stock) was $5,326,920 based on the average bid and asked price of the Company's voting stock on February 17, 1998.* The number of shares outstanding of each of the Company's classes of Common Stock, as of February 17, 1998 was: Common Stock, - 6,902,611 shares $.001 par value
Documents Incorporated by Reference None. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] * This value is not intended to make any representation as to value or worth of the Company's shares of Common Stock. The number of shares held by non-affiliates of the Company has been calculated by subtracting shares held by controlling persons of the Company from the number of issued and outstanding shares of the Company. 2 PART I ITEM 1 - BUSINESS (a) General Development of Business OptimumCare Corporation (the "Company") was incorporated in California on November 25, 1986 and was reincorporated in Delaware on June 29, 1987. In mid-1987, the Company commenced the development and marketing of health care facility-based programs ("Programs") to be managed by the Company primarily for the treatment of depression and certain other mental health disorders ("PsychPrograms"), as well as programs for alcohol and drug abuse ("Treatment Programs"). After the Company obtains a contract for the establishment of one or more Programs at a host health care facility, the Company recruits and trains the staff needed to operate its programs. Typically, the host health care facility provides a specified number of beds for the Program, as well as all other support services required for the operation of the Program, including nursing, dietary, housekeeping, billing and other administrative functions. The Company recruits and trains the staff to operate the Program. The Company's staffing of a Program will usually include a medical director, a program director, a psychologist, a chief therapist and one or more counselors or social workers. Contracts are individually negotiated with the host health care facility and usually approximate 20 to 60 beds. Generally, the Company and the host health care facility negotiate a per patient management fee which depends on the scope of services provided by the Company, number of beds, rates charged and reimbursements received by the facility, and in some instances, a fixed monthly administrative fee and reimbursement of certain direct program costs. The health care facility charges the patient on a daily basis in accordance with a fee schedule of prescribed rates, except where the insurer provides for payment which is limited to a maximum number of days per patient. The health care facility pays the Company a fixed inpatient management fee per patient which averages $190 per patient inpatient day or in some cases, a reimbursement of direct costs plus a monthly administrative fee. The health care facility pays the Company a fixed outpatient management fee per visit which averages $120 per outpatient visit or in some cases, a percentage of collected revenues or a reimbursement of direct costs plus a monthly administrative fee for partial hospitalization contracts. Certain contracts contain provisions which deny portions or all of the management fee should patient days be ultimately appealed and denied by the patient payor. As of March 19, 1998, the Company has twelve (12) Programs that are hosted by four (4) hospitals and one community mental health center: Four PsychPrograms through Huntington InterCommunity Hospital, D/B/A Humana Hospital Huntington Beach, Huntington Beach, California, two PsychPrograms at St. Francis Medical Center, Lynwood, California, two PsychPrograms through Sherman Oaks Hospital and Health Center, Sherman Oaks, California, two PsychPrograms at Mission Community Hospital, San Fernando, California, and one PsychProgram at Friendship Community Mental Health Center, Phoenix, Arizona. 1 3 On February 13, 1997 OptimumCare formed a strategic alliance with Galaxy Health Care, Inc. (Galaxy) of Miami, Florida to develop community mental health centers (CMHC's) in the southwest, southeast, and northeast regions of the country over a three year period. CMHC's are community based, free-standing mental health treatment facilities which provide broad based outpatient psychiatric and psychological care for patients with mental illness and substance abuse problems. The alliance was intended to join together CMHC's, psychiatric providers, regional hospitals and primary care physicians in various regions of the country. During 1997, the Company entered into two 90 day consulting agreements with Galaxy for the operation of two partial hospitalization PsychPrograms in Tampa and Margate, Florida. Also during 1997, one partial hospitalization PsychProgram located in Long Beach, California was relicensed through Galaxy. Sites for facilities in Las Vegas, Nevada and Portland, Oregon were also secured. On March 19, 1998 the Company and Galaxy agreed to terminate the agreements for these three sites. During 1998, an insurance reimbursement audit of Galaxy's Florida treatment sites placed Galaxy under severe working capital constraints. At December 31, 1997 the Company has reserved approximately $560,000 against the receivables generated by the Galaxy alliance primarily due to the delay in Galaxy billing for services rendered at the Long Beach facility. The Company has a security interest in the receivables of the Long Beach facility which approximates $425,000 at year end. The Company is currently seeking another host for the Long Beach facility. On April 19, 1996 the Company completed the acquisition of a 70% interest in certain contracts of Professional Care Source, Inc. through the formation of OptimumCare Source, LLC (the LLC). OptimumCare Source, LLC provides management and other behavioral health services to skilled nursing and other similar bed & board facilities. As of February 17, 1998 the LLC has 10 contracts with the following facilities: Anaheim Healthcare Center, Anaheim, California; Care More Board & Care, Pacoima, California; Extended Care of Riverside, Riverside, California; Fountain Care Center, Orange, California; Garden Park Care Center, Garden Grove, California; North Valley Nursing Center, Tujunga, California; Paramount Convalescent Hospital, Paramount, California; Sun Mar Nursing Center, Anaheim, California; Sunset Manor Convalescent Hospital, El Monte, California; and Unicare, Garden Grove, California. During the fourth quarter, due to continued insignificant revenues, net losses and negative cash flow, the Company determined that the unamortized goodwill of $135,255 associated with the purchase of the interest in OptimumCare Source, LLC had little if any future value. Accordingly, the Company recorded a charge to earnings for the unamortized balance. (b) Financial Information About Industry Segments The Company operates in one industry segment which is the development, marketing and operation of Programs. (c) Narrative Description of the Business 2 4 (i) and (ii) Products OptimumCare's PsychPrograms ("PsychProgram") The PsychProgram is a medically-supervised psychiatric care program for certain types of mental health disorders that is offered on both an inpatient and partial hospitalization basis. The PsychProgram is directed at assisting the patient to return to a normal life. The PsychProgram is designed to treat patients with neuroses and personality disorders; however, the Company's marketing focus is to attract patients who exhibit symptoms of depression. Patients suffering from depressive mental illness manifest, among other things, loss of interest in the world generally, loss of activity and capacity to love, sadness, hopelessness, fatigue, boredom, restlessness, loss of belief in personal future, anxiety and feelings of ill-at-ease. At the outset, a patient receives a physical examination and diagnostic testing to eliminate any physical illnesses which may evidence some symptoms of mental disorders. Each PsychProgram also includes individual and group therapy and a full daily regimen of activities including sessions for relaxation, assertiveness training, exercise and men's and women's sexual awareness. The Company estimates that the average stay for a patient in a PsychProgram is 7-10 days. OptimumCare's Partial Hospitalization Program ("Partial Hospitalization") Partial Hospitalization is a relatively new behavioral medicine outpatient product that provides daytime treatment programs that employ an integrated and individualized schedule of recognized psychiatric treatment modalities. Partial Hospitalization is a treatment approach developed as an alternative to inpatient treatment. It includes the major psychiatric evaluation and treatment modalities (both psychosocial and biological), which are usually found in a comprehensive psychiatric inpatient program. It is designed for voluntary patients with serious mental disorders who require intensive and multi-disciplinary treatment which cannot be provided in an outpatient setting. By offering a medically-supervised alternative to inpatient treatment, it provides a more flexible, less costly and less restrictive form of treatment. Partial Hospitalization can be utilized by individuals who are mentally or emotionally impaired, but who are able to be maintained in the community at least part of each day, and present little risk of imminent danger to themselves or others. The Company believes that the benefits of partial hospitalization include: lessening the disruption of social, family, and community ties; allowing the patient to test new skills in a more natural environment than a hospital setting; providing a treatment milieu that fosters independence and self reliance; allowing daily feedback from the home environment thereby closely involving members of the patient's family or supportive environment in the treatment program; and providing flexibility in the number of treatment days per week thus allowing a patient to pursue other activities such as a shortening of the inpatient stay or preventing the need for full hospitalization. 3 5 Expansion of Products The Company is seeking to expand the scope of psychological services it offers by acquiring entities which offer complimentary mental health services. The Company believes that it can more effectively market its services to managed care payors by increasing the scope of services it provides. The Company completed the acquisition of a 70% interest in certain contracts of Professional Care Source, Inc. in April, 1996. Care Source provides management and other administrative behavioral healthcare services to skilled nursing and other similar bed and board facilities. Staffing The PsychProgram and Partial Hospitalization Programs are staffed by the Company with a medical director, a program manager, and in some cases, a psychologist, a chief therapist, and at least one counselor or social worker. The key staff members are the medical director and the program manager. The medical director is a licensed psychiatrist who is a staff member of the host health care facility and is engaged as an independent contractor charged with the responsibility for overseeing the administration of the Program from a medical/regulatory compliance viewpoint. In addition to the medical director who is responsible for administering the clinical aspects of the contract, the Company often engages co-medical directors in each community in which a Program is located. These co-medical directors are licensed psychiatrists or psychologists. They provide administrative assistance to a Program and represent it at various professional activities in the local community. The co-medical directors are compensated at a fixed monthly rate, depending on the amount of time they commit to supporting the Company's Programs. The Company's employees and contractors at each program are subject to approval and pre-employment screening by the host health care facility. The Company has not experienced any difficulty in locating qualified medical directors from the hospital staff to affiliate with the Company's Programs. The program manager is a full time employee of the Company and usually has completed either a bachelor's or master's degree program in psychology or social work, but is principally a marketing representative of the Company. Program managers are officed at their respective Program's facility. Contract Operations The Company provides a host health care facility with staff recruitment, a two-week pre-opening in-service nurse and hospital employee training program, program management, continuing education, community education, ongoing public relations and program quality assurance. The Company provides these training programs to the host health care facility at no charge. Typically, nursing, dietary, X-ray, laboratory, housekeeping, admissions and billing are the responsibility of the host health care facility. However, the Company has recently begun to assume some of the nursing and dietary aspects of the programs under certain contracts. The expanded scope of services has evolved from the desire of the host hospital to benefit from the Company's growing expertise in those functions. Existing contracts range from a period of one to five years and may be renewed for subsequent terms, of usually one year periods. In some cases, if the Company does not maintain a stipulated minimum average daily census for specified periods, the health care facility may terminate the contract on reasonable notice to the Company. 4 6 Payment for Services Patients are screened by the host healthcare facility prior to admission. Screening procedures include verification of the existence and extent of insurance coverage. It is the host health care facility's responsibility to bill and collect the fees charged to the patient for all program services. The Company in turn bills the host health facility for the total patient days of service provided at the specified contract rate. Generally, the Company bills the host health care facility fifteen (15) days after the close of the month in which the services were rendered. Except in the cases where the contracts provide for specific hold backs for ultimately denied days, the majority of the contracts do not specifically provide that the Company shall bear any risk of non-payment by the host healthcare facility. However, industry practice dictates that the Company acknowledge that a certain percentage of the fees will be uncollected by the host health care facility. Thus, accommodations are expected to be made on a case-by-case basis with each host health care facility (except where there is an express contractual provision which governs this issue) to offset some portion of Program patients' bad debts experienced by the host health care facility. Regulatory Matters Many of the hospitals the Company contracts with have a large number of Medicare and Medicaid patients. It is unknown, whether in the future other contracts or programs will be dependent on a disproportionate amount of Medicare/Medicaid patients. However, the Company has negotiated with these hospitals whereby it is paid either a flat per diem rate or a per diem rate with a hold back for days ultimately denied. Thus, the Company is not directly dependent on Medicare or Medicaid for payment under its current contracts. The healthcare facilities rely upon payment from Medicare. The healthcare facilities are reimbursed their costs on an interim basis by Medicare fiscal intermediaries and the health care facilities submit annual cost reimbursement reports to the fiscal intermediaries for audit and payment reconciliation. The healthcare facilities seek reimbursement of the Company's management fees from these fiscal intermediaries as part of their overall payments from Medicare. Pending legislative proposals revising Medicare/Medicaid reimbursement, if enacted, could have a negative effect on the revenues of the hospitals with which the Company contracts. Generally, the Company's agreements with hospitals require the Company and the hospital to renegotiate rates in the event of a significant legislative change which affects the compensation received by the hospital. It is uncertain at this time to what extent the Company's revenues may be impacted by changes to Medicare/Medicaid policies. Medicare is part of a federal health program which is administered by the U.S. Department of Health and Human Services which has established Health Care Financing Administration ("HCFA") to promulgate rules and regulations governing Medicare and the benefits associated therewith. All of the programs managed by the Company are treated as "provider based" programs by HCFA. This designation is important since partial hospitalization services are covered only when furnished by a "provider", i.e., a hospital or a CMHC. To the extent the partial hospitalization programs are not located in a site which is deemed by HCFA to be "provider-based", there would not be Medicare coverage for the services furnished at the site under Medicare's partial hospitalization benefit. In August, 1996, HCFA published criteria for determining when programs 5 7 operated in facilities separate from a hospital's or CMHC's main premises may be deemed to be "provider-based" programs. While management believes that the facilities in which its programs operate qualify as "provider based" programs, the proper interpretation and application of these criteria are not entirely clear, and there is a risk that some of the sites managed by the Company could be found not to be "provider-based". Historically, CMHC's, unlike hospitals, were not surveyed by a Medicare contractor before being permitted to participate in the Medicare program. However, HCFA is now in the process of surveying all CMHC's to confirm that they meet all applicable Medicare conditions for furnishing partial hospitalization programs. Management believes that the CMHC which contracts with the Company should be found to be in compliance with the applicable requirements. Currently proposed legislation would implement a prospective payment system for all outpatient hospital services for the calendar year beginning January 1, 1999. While the actual reimbursement rates have not been determined and thus their effect, positive or negative, is unknown, the Company may need to negotiate modifications to its contracts if such legislation is enacted. The amount paid by Medicare is the provider's reasonable cost less a "coinsurance" of twenty percent (20%) of the charges which is ordinarily to be paid by the patient. The coinsurance must be charged to the patient by the provider unless the patient is indigent. If the patient is indigent, or if the patient does not pay the provider the billed coinsurance amounts after reasonable collection efforts, the Medicare program has historically paid those amounts as allowable Medicare bad debts. The allowability of Medicare bad debts to providers for whom the Company manages partial hospitalization programs is significant since many of the patients in programs managed by the Company are indigent or have very limited resources. The reduction in allowable Medicare bad debts could have a materially adverse impact on Medicare reimbursement to the healthcare facilities for which the Company provides services and could further result in the restructuring or loss of contracts with the Company. To the extent that healthcare facilities which contract with the Company for management services suffer material losses in Medicare payments, there is a greater risk to the Company of non-payment, and a risk that the healthcare facilities will terminate or not renew their contracts with the Company. Thus, even though the Company does not submit claims to Medicare, it may be adversely affected by reductions in Medicare payments or other Medicare policies. The Company anticipates that additional legislation may be adopted focusing on controlling health care costs and improving access to medical services for persons who are uninsured. Such legislation may also affect the amount which health care providers can charge for services. The Company believes that it is well positioned to respond to these changes and that it is likely that the Company will experience a lesser impact than other companies in the health care industry based on the fact that the Company has already focused its efforts on shortening patient stays and has historically provided a greater percentage of its services to Medicaid patients than have many of its competitors. 6 8 Marketing The Company's marketing efforts are primarily directed toward increasing the number of management contracts by either the takeover of existing programs operated by others or the establishment of new Partial Hospitalization or PsychPrograms in geographically desirable areas. The Company believes that their ability to secure new contracts is based on its reputation as a quality provider coupled with its history of low length of patient stays resulting in less uncompensated care. Sales calls are primarily directed at health care facilities which may be experiencing a low or declining patient census and facilities in geographically desirable areas. After a contract is obtained, the Company prepares a detailed marketing development strategy aimed at attracting patients to the Programs. The program director for each PsychProgram at the host health care facility develops a media press kit for each Program. The program director coordinates all local advertising consistent with the Company's overall marketing plan. Each program director implements a local market development strategy to increase the public awareness of the Program, including the establishment of a media appearance and community speakers bureau which are referred to the broadcast media for further exposure. The co-medical directors direct local continuing professional education and community service programs on an as-needed basis. The host hospital's administrative and medical staffs are also encouraged to participate in community relations activities. Direct marketing to psychiatrists, psychologists and other licensed professionals by the Company is emphasized because these individuals motivate potential patients to seek inpatient treatment for their mental health. The Company's marketing approach to physicians and clinicians emphasizes involvement through one-on-one communication with the professionals who will provide patient referrals. These professionals are invited to the Company-sponsored community relations activities, speaker programs and continuing education seminars. (iii) Raw Materials Inapplicable. (iv) Patents and Trademarks The Company holds a federal service mark, Registration #1628745, for its tradename "OptimumCare". The Company has marketed its programs under the names "OptimumCare PsychProgram" and "OptimumCare Treatment Program". (v) Seasonality The Company has noted a trend that its business appears to be susceptible to some seasonal variation. Census tends to substantially decrease near various holidays, particularly during the fourth quarter. (vi) Working Capital Items The Company expects to experience an initial one-time maximum delay of up to 90 days in receipt of revenues after each Program is opened due to the normal processing time for the billing/payment cycle of the host health care facilities. However, this delay may vary as in the case of the Galaxy relicensure of the Long Beach facility during 1997. 7 9 (vii) Dependence on a Few Customers The Company presently has twelve (12) Programs operating through four (4) hospitals and one community mental health center. If any of these Programs were terminated, or if any of the accounts receivable from these contracts were to become uncollectible, such event could have a material adverse effect on the Company. During 1997, one termination required a reserve for uncollectibility of approximately $560,000. (viii) Backlog Inapplicable. (ix) Government Contracts Inapplicable. (x) Competition The Company competes with other health care management companies for contracts with acute care hospitals. Also, the Company's Programs will compete for patients with the programs of other hospitals and other health care facilities. The success of the Company's Programs is also dependent on its ability to establish relationships with sources of patient referrals. The Company's principal competitors include Charter Medical Corporation, Community Psychiatric Centers, Comprehensive Care Corporation, Mental Health Management, PMR Corporation and Horizon Health Services, most of which have greater financial and other resources and more experience than the Company. In addition, some health maintenance organizations ("HMOs") offer competing programs; however, the HMO-owned hospitals typically do not provide inpatient psychiatric services, nor coverage for these services. Most HMOs also do not provide programs for partial hospitalization or substance abuse, but often provide coverage for these programs, usually at a reduced rate. Other health care facilities offer comparable programs which compete with the Company's Programs in each service area. The Company believes, however, that in general its marketing efforts are primarily effective within a ten (10) mile radius around the host hospital and that patients outside such radius are not directly affected by such advertising unless their personal physician has admitting privileges and recommends the Company's program at that host hospital. The Company believes that the principal competitive factors in obtaining contracts with health care facilities are experience, reputation for quality programs, the availability of program support services and price. The primary competitive factors in attracting referral sources and patients are marketing, reputation, record of success, quality of care and location and scope of services offered by a host health care facility. The Company implements active promotional programs and believes it is competitive in attracting referral sources and patients based on these factors. (xi) Research and Development Inapplicable. (xii) Government Regulation and or Environmental Protection The health care industry is extensively regulated by federal, state and local governments. Regulations which affect the Company relate to controlling the growth of health care facilities, 8 10 requiring licensure of the host health care facility, requiring certification of the Program at the host facility and controlling reimbursement for health care services. Licensure of facilities and certification of Programs are state requirements, while certification for Medicare is a federal requirement. Compliance with the licensure and certification requirements is monitored by annual on-site inspections by representatives of the licensing agencies. Loss of licensure or Medicare certification by a host facility could result in termination of such contract. Certificate of need ("CON") laws in some states require approval for capital expenditures in excess of certain threshold amounts, expansion of bed capacity or facilities, acquisition of medical equipment or institution of new services. If a CON must be obtained, it may take up to 12 months to do so, and in some instances longer, depending upon the state involved and whether the application is contested by a competitor or the state agency. CON's usually are issued for a specified maximum expenditure and require implementation of the proposed improvement within a specified period of time. Certain states, including California, Texas, Utah, Colorado and Arizona, have enacted legislation repealing CON requirements for the construction of new health care facilities, the expansion of existing facilities and the institution of new services. Some states have enacted or have under legislative consideration "sunset" provisions which require the review, modification or deletion of these statutes when no longer needed. The Company is unable to predict whether such legislative proposals will be enacted but believes that the elimination of CON requirements positively impacts its business. The Joint Commission on the Accreditation of Healthcare Organizations ("JCAHO"), at a facility's request, will participate in the periodic surveys which are conducted by state and local health agencies to ensure continuous compliance with all licensing requirements by health care facilities. JCAHO accreditation satisfies certain of the certification requirements for participation in the Medicare and Medicaid programs. A facility found to comply substantially with JCAHO standards receives accreditation. A patient's choice of a treatment facility may be affected by JCAHO accreditation considerations because most third-party payers limit coverage to services provided by an accredited facility. All of the hospitals currently under contract with the Company have received JCAHO accreditation. The laws of various states in which the Company may choose to operate, including California, generally prevent corporations from engaging in the practice of medicine. These laws (e.g., Section 2052 of the California Business and Professions Code), as well as applicable case law, were enacted to protect the public from the rendering of unnecessary medical or other services for treatment of the ill. Although the Company has not obtained a legal opinion, it believes that the establishment and operation of Programs will not cause it to be engaged in the "practice of medicine" as that term is used in such laws and regulations. These laws and regulations are subject to interpretation and, accordingly, the issue is not free from doubt. Since the Company has not sought or obtained any rulings, there can be no assurance that state authorities or courts will not determine that the Company is engaged in the unauthorized practice of medicine. If such a determination is made and is not overturned, the Company would have to terminate its operations in that state. The Company's medical directors are engaged to provide administrative services, including but not limited to planning the clinical program, supervising the clinical staff, establishing standards of professional care, and advising the Company and staff on questions of policy. The co-medical 9 11 directors conduct public relations activities and assist the Company in marketing. Although the Company has not obtained a legal opinion, it believes that the proposed agreements between the Company and its medical and co-medical directors do not violate any fee-sharing prohibitions. The federal prohibition, as it relates to the Medicare program, is found at 42 U.S.C. 1320a-7b. Such prohibitions are found in Section 650 of the California Business and Professional Code and Section 445 of the California Health and Safety Code, as well as comparable statutes in other states. However, future judicial, legislative or administrative interpretations of these arrangements could prohibit the Company from hiring professionals which could have a materially adverse effect on the Company. Given the recent political mandate for health care reform, it appears likely that health care cost containment will occur. However, recent legislation has begun to recognize the need for placing mental health illness on par with other physical ailments. For example, new federal legislation effective in 1998, (the Kennedy-Kassebaum bill), mandates parity with other reimbursable medical services for those who receive behavioral health care. This new law raised the lifetime cap from the current $50,000 level to $1 million. The Company is practiced in administrating "managed care type" programs and is familiar with the pressures of improving productivity and reducing costs. (xiii) Employees As of February 17, 1998, the Company employed 132 persons full-time and 77 persons part-time. Those figures do not include physicians and psychiatrists who are medical directors of the Company's Programs and not employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales Inapplicable. ITEM 2 - PROPERTIES The Company maintains its corporate offices in an approximately 1,277-square-foot suite of executive offices in Laguna Niguel, California, under a lease agreement providing for a monthly base rent of $1,800 which expires June 30, 1998. The Company leases an additional satellite corporate office in Playa Del Rey, California under a lease agreement providing for a monthly base rent of $2,550 from May 1, 1997 to October 31, 1998 and an office in Mission Hills, California to service potential incoming patient inquiries under a lease agreement providing for a monthly base rent of $1,100 which expires October 14, 1999. The Company believes that this office space is adequate for its reasonably foreseeable needs. It is expected that the expiring leases will be renewed on similar terms. The Company has also leased space under seven separate lease agreements for the operation of its outpatient partial hospitalization programs. Two agreements are on a month to month basis. The remaining agreements expire June 30, 2000, August 31, 2000, September 30, 2000, September 30, 2000 and August 14, 2002 respectively. Aggregate monthly payments total $27,942 of which $12,037 are fully reimbursed through subleases with the Company's host hospitals. It is expected that the expiring leases and subleases will be renewed on similar terms. 10 12 ITEM 3 - LEGAL PROCEEDINGS Inapplicable. ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Inapplicable. 11 13 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS (a) Market Information The Company's common stock is currently quoted on the over the counter "OTC" electronic bulletin board under the symbol OPMC.
High Bid Low Bid 1997: Fourth Quarter 1 7/16 1 3/16 Third Quarter 1 3/8 1 1/16 Second Quarter 1 5/8 1 1/8 First Quarter 2 3/16 1 1/4 1996: Fourth Quarter 1 17/32 1 1/16 Third Quarter 1 3/16 1 9/32 Second Quarter 1 1/16 3/4 First Quarter 1 1/64 2 3/32
The listed prices represent inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The listed prices retroactively reflect the 20% stock dividend issued on October 18, 1996. (b) Holders The approximate number of holders of record each class of the Company's common equity securities as of the close of business on February 17, 1998 is set forth below:
Approximate Title of Class Number of Record Holders -------------- ------------------------ Common Stock, $.001 par value 200
The Company believes that there are approximately 838 beneficial owners of its common stock. (c) Dividends On October 18, 1996, the Company issued a dividend of two-tenths (.2) share for each share of the Company's common stock held by stockholders of record on October 1, 1996. The Board of Directors declared the stock dividend based on the Company's anticipated current year earnings. The Company accounted for the dividend by transferring from 1996 current year earnings and accumulated deficit to common stock and paid-in-capital an amount equal to the fair value of stock distributed as a dividend as of the date the dividend was declared. 12 14 The Company has never paid or declared cash dividends on its Common Stock. The Company does not anticipate the payment of cash dividends on its common stock in the foreseeable future. The transfer agent for the Company's common stock is American Stock Transfer & Trust Company, New York, New York. 13 15 ITEM 6 - SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the Financial Statements and Notes thereto of the Company included elsewhere herein, and such data should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The data at December 31, 1997 and December 31, 1996 and for each of the fiscal years in the three year period ended December 31, 1997 are derived from the Company's Financial Statements included elsewhere herein. A 20% stock dividend was declared by the Board of Directors on August 14, 1996 for stockholders of record on October 1, 1996. The stock dividend was issued on October 18, 1996. Per share amounts for all periods presented have been restated to reflect the stock dividend. STATEMENT OF OPERATIONS INFORMATION YEAR ENDED DECEMBER 31
1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- NET REVENUES $12,089,398 $10,676,237 $ 6,027,122 $ 5,596,283 $ 3,825,613 ----------- ----------- ----------- ----------- ----------- NET INCOME 454,350 876,716 2,070 465,045 365,189 ----------- ----------- ----------- ----------- ----------- BASIC EARNINGS* PER SHARE OF COMMON STOCK .07 .14 .00 .08 .06 ----------- ----------- ----------- ----------- ----------- DILUTED EARNINGS* PER SHARE OF COMMON STOCK .06 .13 .00 .07 .06 ----------- ----------- ----------- ----------- ----------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,870,049 6,237,751 5,892,824 5,871,660 5,865,920 ----------- ----------- ----------- ----------- ----------- TOTAL DILUTED SHARES 7,194,872 6,677,156 6,388,570 6,218,113 5,939,264 ----------- ----------- ----------- ----------- ----------- CASH DIVIDENDS PER COMMON SHARE 0 0 0 0 0 ----------- ----------- ----------- ----------- -----------
BALANCE SHEET INFORMATION AS OF DECEMBER 31
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- TOTAL ASSETS $3,921,171 $3,980,307 $2,059,537 $1,814,153 $1,299,215 CURRENT ASSETS 3,181,556 3,518,003 1,731,290 1,699,801 1,237,885 CURRENT LIABILITIES 647,704 1,244,909 381,531 333,209 269,343 NET WORKING CAPITAL 2,533,852 2,273,094 1,349,759 1,366,592 968,542 LONG-TERM OBLIGATIONS 0 0 166,000 0 0
*Earnings per share for all periods prior to 1997 have been restated to conform with the requirements of FASB Statement No. 128, "Earnings Per Share". 14 16 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe harbor statements under the Private Securities Litigation Reform Act of 1995 The statements in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-K are forward-looking in time and involve risks and uncertainties, including the risks associated with plans, the effect of changing economic and competitive conditions, government regulation which may affect facilities, licensing, healthcare reform which may affect payment amounts and timing, availability of sufficient working capital, Program development efforts and timing and market acceptance of new Programs which may affect future sales growth and/or costs of operations. (a) Liquidity and Capital Resources At fiscal year end 1997 and 1996, the Company's working capital was $2,533,852 and 2,273,094 respectively. The increase in working capital resulted from the growth in receivables arising from greater revenues among periods, and a decrease in the amount drawn under the Company's line of credit. The nature of the Company's business requires significant working capital to fund operations of its programs as well as to fund corporate expenditures until receivables can be collected. Moreover, because each of the existing contracts represents a significant portion of the Company's business, the cancellation of any one contract or the inability to collect any of the accounts receivable could materially and adversely affect the Company's liquidity. In February, 1997 OptimumCare formed a strategic alliance with Galaxy Health Care, Inc. (Galaxy) of Miami, Florida to develop community mental health centers (CMHC's) in the southwest, southeast, and northeast regions of the country over a three year period. During August 1997, one partial hospitalization PsychProgram located in Long Beach, California was relicensed through Galaxy. Recently, an insurance reimbursement audit of Galaxy has required more attention than anticipated on the part of its senior management. This has placed Galaxy under severe working capital constraints. In fact, all Medicare program receivables due Galaxy, primarily for its Florida treatment sites, are being held, pending the outcome of its audit of those operations by their fiscal intermediary. This has also delayed payment of approximately $427,000 due OptimumCare for services performed at Galaxy's Long Beach, California facility, which is not being audited, and approximately $133,000 due OptimumCare for various other administrative and consulting services provided during the year. The Company has perfected a security interest in all funds due Galaxy arising from the operation of the Long Beach program. On March 19, 1998 the Company and Galaxy agreed to terminate the agreements for operating the Long Beach program and the proposed Las Vegas, Nevada and Portland, Oregon sites. The Company has reserved all amounts due from Galaxy due to its delay in billing charges for services rendered at the Long Beach facility and its ongoing financial problems. Cash flows from operations were $438,559 for the year ended December 31, 1997, resulting primarily from income from operations, net of an increase in accounts receivable, and a decrease in accrued expenses. 15 17 Cash flows used in investing activities was $170,527 for the year ended December 31, 1997. Cash used in 1997 was due to an increase in a note receivable due from one officer and purchases of property and equipment. The cash used in financing activities was $436,437 for the year ended December 31, 1997. The decrease was primarily due to $446,000 in paydowns on the Company's line of credit agreement with a bank. The line of credit was renegotiated during May, 1997 for a maximum indebtedness of $1,500,000. Amounts allowable for draw are based on 75% of certain qualified accounts receivable. The line of credit expires May 1, 1998. As of February 17, 1998 approximately $1,500,000 is available for future draws under the line of credit agreement. The Company's principal sources of liquidity for the fiscal year 1998 are cash on hand, accounts receivable, the line of credit with a bank and continuing revenues from programs. (b) Results of Operations FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996. The Company operated twelve (12) programs during the year ended December 31, 1997 and fifteen (15) programs during the year ended December 31, 1996. As of February 17, 1998, the Company currently has twelve (12) operating programs. These are composed of three inpatient and nine partial hospitalization programs. Generally, the size and profit potential of inpatient programs are greater than partial hospitalization programs. Net revenues were $12,089,398 and $10,676,237 for the years ended December 31, 1997 and 1996, respectively. The increase in revenues in 1997 over 1996 is due to the increase in patient volume among periods. This has occurred particularly at two partial programs which the Company began managing in 1996. Cost of services provided were $8,894,987 and $8,313,317 for the years ended December 31, 1997 and 1996, respectively. The increase in the cost of services provided among years is primarily due to the increase in patient volume among years and an expanded scope of services provided in connection with certain contracts such as staffing, dietary, transportation and lease costs. Selling, general and administrative expenses have increased over the prior year due to the position change of one employee from an Inpatient Program Administrator, directly responsible for an individual program and previously included in the costs of services provided, to the Executive Vice President/Chief Operating Officer of the Company. Also contributing to the increase are higher insurance expenses associated with the Company's growing revenues and wages. The provision for uncollectible accounts increased from the prior year primarily due to a reserve placed on the Galaxy receivables previously discussed. During the fourth quarter, due to insignificant revenues, continued net losses and negative cash flows, associated with OptimumCare Source, LLC the Company determined that the unamortized goodwill of $135,255 associated with the purchase of the interest in OptimumCare Source, LLC had little if any future value. Accordingly, the Company recorded a charge to earnings for the unamortized balance. The Company's effective income tax rate increased to 36% from 12% in the prior year, due to the Company's utilization of its federal net operating loss carryforwards to offset 1996 taxable income. Net income was $454,350 and $876,716 for the years ended December 31, 1997 and 1996, respectively. The decrease was primarily attributable to an increase in the provision for uncollectible accounts. 16 18 The Company does not know of any events which are likely to materially change the costs of operating its Programs individually; however, plans to expand the number of operating programs do exist. Sites for Las Vegas, Nevada and Portland, Oregon have been secured for potential partial hospitalization programs. The Company is continuing all current service programs, and is exploring other expansion opportunities. The Company has continued to provide a larger scope of services to its customers for a greater management fee. During 1997, many of the new programs secured in 1996 matured. As a result, revenues continued to increase and gross profit continued to rise favorably and disproportionately due to the increase in costs for such programs. Conversely, should patient census and the resulting revenue decrease (especially below the minimum break even level) costs will be disproportionately high which would adversely impact the results of operations and the company's available resources. The Company's revenue is expected to increase in 1998 due to the expansion in the number of operational programs. Marketing plans for expanding the volume of the business by obtaining new contracts for programs currently exist. However, it is uncertain at this time, to what extent the Company's fixed costs will be impacted by this expansion. In addition, the collectibility of 1998 revenues generated through the Galaxy alliance remains uncertain. Due to the Company's dependence on a relatively small customer base presently consisting of only four (4) hospitals and one community mental health center, the loss of any of its customers could have a significant adverse effect on the Company's operations. Hence, there is a special emphasis paragraph in the report of the Company's independent auditors of the financial statements for the fiscal year ended December 31, 1997. The Company does not anticipate that the cost of addressing the year 2000 will be material to its financial position operating results or cash flows. However, it does appear that this is a major concern for its host hospitals and the various insurance companies from which the hospitals receive reimbursements. The large volume, small dollar transactions processed by these entities computer systems would most likely require reconfiguration to accommodate the year 2000. The trickle down effect of this situation to the Company is not yet known at this point in time. FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995 The Company operated fifteen (15) programs during the year ended December 31, 1996 and seventeen (17) programs during the year ended December 31, 1995. As of February 18, 1997, the Company currently has twelve (12) operating programs. These are composed of three inpatient and nine partial hospitalization programs. Generally, the size and profit potential of inpatient programs are greater than partial hospitalization programs. Net Revenues were $10,676,237 and $6,027,122 for the years ended December 31, 1996 and 1995, respectively. The increase in revenues in 1996 over 1995 is due to the increase in patient volume among periods and the increase in patient volume among periods and the increase in management fees charged, due to an expanded scope of services the Company now provides to many of its customers. This has occurred particularly at those programs which the Company began managing in late 1995 and early 1996. Cost of services provided were $8,313,317 and $5,022,040 for the years ended December 31, 1996 and 1995, respectively. The increase in the cost of services provided among years is primarily due to the increase in patient volume among years and an expanded scope of services provided in connection with certain contracts such as nursing, dietary, transportation and lease costs. Selling, general and administrative expenses have increased over the prior year due to increased corporate marketing wages and activities, and various professional fees incurred with the Company's contract and business acquisition efforts. The provision for uncollectible accounts decreased from the prior year due to the relicensing of three programs 17 19 to a new hospital during the latter part of 1995. Income taxes have increased over the prior year due to the Company's provision for state income taxes in 1996. The Company has utilized the majority of its federal net operating loss carryforwards to offset 1996 taxable income. Net income was $876,716 and $2,070 for the years ended December 31, 1996 and 1995, respectively. The increase was primarily attributable to revenue growth, generated by increased patient volume, and larger management fees, causing gross profit to rise favorably, and disproportionately, to the increase in the cost of services provided. 18 20 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OPTIMUMCARE CORPORATION INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page Number ------ Report of Independent Auditors F-4 Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996 F-5 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-6 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-7 Consolidated Statements of Cash Flows for the year ended December 31, 1997, 1996 and 1995 F-8 Notes to Consolidated Financial Statements F-9 through F-19
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 19 21 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) and (b) Identification of Directors and Executive Officers The directors and executive officers of the Company are:
NAME AGE POSITION Edward A. Johnson 52 President, Principal Financial Officer, Secretary and Chairman of the Board Gary L. Dreher 51 Director Michael S. Callison 59 Director, Vice President of Corporate Development Jon E. Jenett 45 Director Mulumebet E. Michael 49 Executive Vice President and Chief Operating Officer
Each director serves for a term of one year or until his successor has been elected and qualified. Each executive officer serves at the pleasure of the Board of Directors. Directors do not receive any director's fees or other compensation for their services, as such, but receive reimbursement for their expenses in attending meetings of the Board of Directors. (c) Identification of Certain Significant Employees Inapplicable. (d) Family Relationships Inapplicable. (e) Business Experience Mr. Johnson has been President, Chief Executive Officer and Chairman of the Board of the Company since co-founding the Company in November 1986. During May, 1990, Mr. Johnson assumed the role of Principal Financial Officer following the resignation of the former Chief Financial Officer. From August 1985 through July 1986, he was Executive Vice President of Behavioral Medicine Corporation, a joint venture between The Voluntary Hospital Association of America and Comprehensive Care Corporation. Mr. Johnson's duties principally included the development of psychiatric and substance abuse programs for hospitals throughout the United States. From 1969 until August 1985, Mr. Johnson was employed in various positions with Comprehensive Care Corporation, a significant provider of management programs for psychiatric disorders and substance abuse. Mr. Johnson's most recent position at Comprehensive Care Corporation was the Executive Vice President of Operations. His principal duties were to develop and implement marketing systems for that company's programs. Mr. Johnson received a M.S. degree in Psychology and a B.A. degree in Business from Colorado State College and is licensed in California as a Marriage and Family Counselor. 20 22 Mr. Dreher was elected to the Board of Directors during September, 1993. He received his B.S. degree in Microbiology and Lab Technology from California State University in 1971. He was recently named Vice President of Sales and Marketing for AMDL, an inventor and marketer of state-of-the-art diagnostic kits. Prior to this, Mr. Dreher was President of Medical Market International, a marketing and management services company he co-founded. Mr. Dreher also served as Vice President of International Sales for Apotex Scientific, an international distributor network for Esoteric Diagnostic Tests, from 1992 to 1996. Mr. Callison was elected to the Board of Directors during September, 1993. He received his B.A. degree in Economics from the University of Puget Sound, Tacoma, Washington in 1966. In 1994, Mr. Callison was promoted to Vice President of Corporate Development. From 1990 to 1993, he was a sales and marketing consultant to the Company, assisting in business development and responsible for securing various key management contracts for the Company. From 1984 to 1990, Mr. Callison was a Senior Account Executive for the Hill-Rom Company, and President of The Pearl Source. Mr. Jenett was elected to the Board of Directors during December, 1995. He received his B.A. degree in Economics from Harvard College in 1974 and his M.B.A. from Stanford Business School in 1978. For the past six years, he has served as the Chief Financial Officer of Mission Electronics Corporation, a wholesale broker of electronic components. From 1981-1990, he was a partner of Investment Group of Santa Barbara, an investment fund specializing in small public and private companies. Ms. Michael has been with the Company since 1993 in various management positions. She was promoted to Executive Vice President & Chief Operating Officer in 1997. Ms. Michael is a Licensed Registered Nurse. Prior to joining the Company, she was the Nursing Director at Brotman Medical Hospital from 1983 to 1993. Section 16(a) Beneficial Ownership Reporting Compliance No director, officer or beneficial owner of ten percent (10%) or more of the Company's common stock failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year or prior fiscal year as disclosed in Forms 3 and 4 amendments thereto furnished to the Company pursuant to Section 240.16a-3 during its most recent fiscal year and Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year and any written representation that no Form 5 was required. (f) Involvement in Certain Legal Proceedings Inapplicable. 21 23 ITEM 11 - EXECUTIVE COMPENSATION (a) (b) Cash Compensation The following table sets forth the elements of compensation paid, earned or awarded for the named individuals. All aspects of executive compensation is determined by the Board of Directors. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION - -------------------------------------------------------------------------------------------------------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS - -------------------------------------------------------------------------------------------------------------------------------- NAME & OTHER (#) ALL OTHER PRINCIPAL ANNUAL RESTRICTED OPTIONS PAYOUTS COMPEN- POSITION YEAR SALARY($) BONUS($) COMPEN- STOCK /SARs ($) SATION ($) SATION($) AWARDS($) - -------------------------------------------------------------------------------------------------------------------------------- EDWARD A. JOHNSON, 1997 $144,000 $127,474 0 $17,526 (1)(2) PRESIDENT 1996 144,000 123,234 200,000 16,736 (1)(2) 1995 144,000 40,259 50,000 11,602 (1)(2) MULUMEBET G. 1997 $156,180 $113,027 0 MICHAEL 1996 142,167 56,272 175,000 EXECUTIVE VICE 1995 103,433 30,833 25,000 PRESIDENT & CHIEF OPERATING OFFICER 1997 $ 58,020 $ 62,868 0 HELEN TVELIA 1996 55,500 56,733 25,000 PROGRAM 1995 55,500 33,504 25,000 DIRECTOR
# NUMBER OF UNITS $ DOLLAR AMOUNTS (1) CAR ALLOWANCE (2) LIFE INSURANCE PREMIUMS Other Compensation In addition to all other options held by him, the Company has obtained life insurance on the life of Mr. Johnson in the amount of $2,000,000, $1,000,000 for the benefit of the Company and $1,000,000 for the benefit of his estate. 22 24 Compensation Pursuant to Plans Stock Option Plans 1987 Plan The Company's 1987 Stock Option Plan (the "Plan"), adopted by the Board of Directors on July 28, 1987, and approved by the stockholders on August 28, 1987, provides for the grant to officers, directors, employees and consultants of nonqualified stock options and stock options to employees that qualify as incentive stock options under Section 422A of the Internal Revenue Code of 1986. The Plan terminates on July 28, 1997. The purpose of the Plan is to enable the Company to attract and retain qualified persons as employees, officers and directors and others whose services are required by the Company, and to motivate such persons by providing them with an equity participation in the Company. A maximum of 455,000 shares of the Company's Common Stock were reserved for issuance pursuant to the Plan. Options to purchase 25,000 shares were exercised during fiscal year ended December 31, 1997. There are currently 125,000 shares subject to options outstanding under the Plan. The Plan is administered by the Board of Directors, which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions under which they may be exercised. The exercise price of incentive stock options granted under the Plan is required to be not less than the fair market value of the common stock on the date of grant (110% in the case of a greater than 10% stockholder). The exercise price of nonqualified stock options can be no less than 85% of the fair market value on the date of grant, although the Company does not intend to grant any such stock options at less than fair market value. In the discretion of the Board, the exercise price may be payable in cash, by delivery of a promissory note or in Common Stock of the Company. The options are subject to forfeiture upon termination of employment or other relationship with the Company except by reason of death or disability and are nonassignable. Options may be granted for terms up to 10 years (five years in the case of incentive stock options granted to greater than 10% stockholders). No optionee may be granted incentive stock options such that the fair market value of the options which first become exercisable in any one calendar year exceeds $100,000. Options granted under the Plan to officers, employees or consultants may be exercised only while the optionee is employed or retained by the Company or within six (6) months after termination of the employment or consulting relationship by reason of death or permanent disability, and three months after termination for any other reason. 1994 Plan On December 20, 1994, the Board of Directors re-adopted the Company's 1994 stock option plan. The plan allows the Company to grant officers, directors, employees and consultants nonqualified stock options. The Plan terminates on March 22, 2004. The purpose of the Plan is to enable the Company to attract and retain qualified persons as employees, officers and directors and others whose services are required by the Company, and to motivate such persons by providing them with an equity participation in the Company. A maximum of 500,000 shares of the Company's common stock were reserved for issuance pursuant to the plan. No options to purchase shares were exercised during fiscal year ended December 31, 1997. There are currently 200,000 shares subject to option outstanding under the Plan. The Plan is administered by the Board of Directors, which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions under which they may be exercised. 23 25 The exercise price of nonqualified stock options can be no less than 85% of the fair market value on the date of grant, although the Company does not intend to grant any such stock options at less than fair market value. In the discretion of the Board, the exercise price may be payable in cash, by delivery of a promissory note or in Common Stock of the Company. The options are subject to forfeiture upon termination of employment or other relationship with the Company except by reason of death or disability and are nonassignable. Options may be granted for terms up to 10 years. Options granted under the Plan to officers, employees or consultants may be exercised only while the optionee is employed or retained by the Company or within six (6) months after termination of the employment or consulting relationship by reason of death or permanent disability, and three months after termination for any reason. Other Options The Company granted options to purchase 48,000 shares of common stock to various officers, directors, employees and consultants of the Company during 1997. These options are not currently registered under a formal stock option plan. During 1997, no other options previously granted were exercised. (c) Options/SAR Grants in Last Fiscal Year Inapplicable. (d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The following table summarizes options and SARs exercised during 1997, and presents the value of unexercised options and SARS held by the named individuals at fiscal year end: VALUE OF NUMBER OF UNEXERCISED IN-THE- UNEXERCISED MONEY OPTIONS/SARs SHARES ACQUIRED ON OPTIONS/SARs AT AT FISCAL YEAR-END NAME EXERCISE (#) VALUE REALIZED ($) FISCAL YEAR-END (#) ($)* - ------------------------------------------------------------------------------------------------------------------------------- EDWARD A. JOHNSON 0 0 250,000 18,575 - ------------------------------------------------------------------------------------------------------------------------------- MULU G. MICHAEL 0 0 200,000 675 - ------------------------------------------------------------------------------------------------------------------------------- HELEN TVELIA 0 0 75,000 8,163 ===============================================================================================================================
* The difference between fair market value at February 17, 1998 and the exercise price. ** 100,000 of options vest over five years, 20,000 of which are exercisable at 12/31/97. (g) Compensation of Directors Directors do not receive compensation for their services although they are entitled to reimbursement for expenses incurred in attending board meetings. Michael S. Callison received $66,000 of wages as Vice President of Corporate Development in 1997. Mr. Dreher received $12,000 in marketing fees during 1997 for the marketing of the Company's programs to the hospitals during 1997. 24 26 (k) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The entire Board of Directors is responsible for determining the Chief Executive Officer's compensation. The Board's philosophy has been to offer a stable base salary plus a monthly bonus based on a percentage of corporate monthly profits before income taxes. The committee's approach to base compensation is to offer competitive salaries in comparison with market practices. However, base salaries have become a relatively smaller element in the total executive officer compensation package as the Company has introduced incentive compensation programs which it believes reinforce strategic performance objectives. (L) STOCK PERFORMANCE GRAPH The following graph sets forth the cumulative total shareholder return (assuming reinvestment of dividends) to Company's stockholders during the five year period ended December 31, 1997 as well as the U.S. NASDAQ stock market index and the S&P Hospital Management Index. The Company does not currently meet the standards required for trading on the NASDAQ exchange, however the Company believes that the securities traded on this exchange most closely resemble its market capitalization.
OPMC S&P NASDAQ DEC 31, 1992 100 100 100 DEC 31, 1993 304 149 115 DEC 31, 1994 416 157 111 DEC 31, 1995 600 220 155 DEC 31, 1996 733 258 191 DEC 31, 1997 700 225 232
Note: The stock performance graph assumes $100 was invested on January 1, 1992. 25 27 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) and (b) Security Ownership The following table sets forth certain information regarding the ownership of the Company's Common Stock as of February 17, 1998, (i) by each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) by each of the Company's directors and named executive officers; and (iii) by all directors and named executive officers of the Company as a group. Unless otherwise indicated below, the person or persons named have sole voting and dispositive power.
AMOUNT & NATURE OF NAME (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS -------- -------------------- ---------------- EDWARD A. JOHNSON 911,820 (2) 12.6% MICHAEL S. CALLISON 561,000 (3) 8.0% GARY L. DREHER 261,245 (4) 3.7% JON E. JENETT 134,000 (5) 1.9% ALL OFFICERS AND DIRECTORS AS A GROUP (5 PERSONS) 2,192,531 (6) 24.7%
(1) The addresses of these persons are as follows: Mr. Johnson - 24 South Stonington Road, South Laguna, CA 92677; Mr. Callison - 21972 Summerwind Lane, Huntington Beach, CA 92646; Mr. Dreher - 6301 Acacia Hill Drive, Yorba Linda, CA 92686; Mr. Jenett - 8 South Vista De La Luna, South Laguna, CA 92677. (2) Includes presently exercisable options to purchase 350,000 shares of Common Stock. All shares are directly owned, except for 1,350 shares held indirectly through an individual retirement account. (3) Includes presently exercisable options to purchase 75,000 shares of Common Stock directly held, 480,000 shares held through a revocable living trust and 6,000 shares held as custodian for five of Mr. Callison's grandchildren. (4) Includes presently exercisable options to purchase 150,000 shares of Common Stock and 42,390 shares directly held, with 64,210 shares held indirectly through an individual retirement account and 4,645 held indirectly through an individual retirement account of Mr. Dreher's spouse. (5) Includes presently exercisable options to purchase 100,000 shares of Common Stock, with 34,000 shares held indirectly through an individual retirement account. (6) Includes presently exercisable options to purchase 975,000 shares of Common Stock. (c) Changes in Control Inapplicable. 26 28 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On February 3, 1998, the Company granted to Mr. Johnson options to purchase 100,000 shares of the Company's common stock and granted Mr. Callison, Mr. Dreher, and Mr. Jenett options to each purchase 25,000 shares of the Company's common stock at $1.00 per share. The options vest immediately and expire five years from the date of grant. (b) Certain Business Relationships Inapplicable. (c) Indebtedness of Management On December 29, 1997, the Company converted a series of short-term advances to Mr. Johnson and a $155,000 note dated December 30, 1995 into a $274,000 promissory note due from Mr. Johnson. The note was originally due December 31, 1997. On December 29, 1997, the Company extended the promissory note. The note accrues interest at the current prime rate and provides for a bi-monthly payment plan. (d) Transactions With Promoters Inapplicable. 27 29 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements Filed as a Part of this Report (Filed Under Item 8 above)
Page Number ------ Report of Independent Auditors F-4 Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996 F-5 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-6 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-7 Consolidated Statements of Cash Flows for the year ended December 31, 1997, 1996 and 1995 F-8 Notes to Consolidated Financial Statements. F-9 through F-19
(a) (2) List of Financial Statement Schedules filed as a Part of this Report Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) (3) List of Exhibits Filed as a Part of This Report 3.1 Certificate of Incorporation incorporated by reference from Form S-18 Registration Statement (Registration No. 0033-16313-LA) filed July 28, 1988, Exhibit 3.1. 3.2 Bylaws incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.2. 3.3 Certificate of Amendment of Certificate of Incorporation filed February 29, 1988. Incorporated by reference from Form S-18 Registration Statement (Registration No.33-16313-LA) filed July 28, 1988, Exhibit 3.5. 28 30 3.4 Restated Certificate of Incorporation, filed October 3, 1989. Incorporation by reference from Form 10-K for the year ended December 31, 1989. 10.1 Lease between the Company and Laguna Niguel Office Center dated June 23, 1988 which supersedes lease dated December 15, 1986, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.1. 10.6 Amended and Restated 1987 Stock Option Plan incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.6. 10.18 Form of Modification Agreement to Incentive Stock Option Agreement, dated January 20, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.18. 10.30 Lease amendment between the Company and Laguna Niguel Office Center dated September 24, 1990 which supersedes lease dated June 23, 1988 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1990, Exhibit 10.30. 10.34 Agreement between Huntington Intercommunity Hospital and the Company dated November 1, 1991 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1991, Exhibit 10.34. 10.38 Agreement between Huntington Intercommunity Hospital and the Company dated October 1, 1992 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1992, Exhibit 10.38. 10.43 Lease amendment between the Company and Laguna Niguel Office Center dated May 12, 1993 which supersedes lease dated June 23, 1988 incorporated by reference form Annual Report on Form 10-K for the year ended December 31, 1993, Exhibit 10.43. 10.48 Lease agreement between Columbia Healthcare Corporation and the Company dated October 18, 1993 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1993, Exhibit 10.48. 10.50 Unanimous written consent dated December 10, 1993 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 10, 1992, incorporated by reference from Form 10-K for the year ended December 31, 1992. 29 31 10.52 Lease agreement between Whittier Narrows Business Park and the Company dated January 10, 1994 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.52. 10.55 1994 Stock Option Plan incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.55. 10.56 Lease Agreement between Frank T. Howard and the Company dated May 4, 1994 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.56. 10.60 Lease amendment between the Company and Laguna Niguel Office Center dated July 7, 1994 which supersedes lease dated June 23, 1988 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.60. 10.64 Unanimous written consent dated December 30, 1994 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 10, 1993 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.64. 10.66 Agreement between Sherman Oaks Hospital and Health Center dated March 30, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.67 Loan Agreement between the Company and National Bank of Southern California dated March 31, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. (Modified) 10.68 Lease Agreement between the Company and Laguna Niguel Office Center dated June 5, 1995 which supersedes lease dated June 23, 1988, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.69 Sublease Agreements between the Company and Huntington Beach and Medical Center dated July 1, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.70 Lease Agreement between the Company and 757 Pacific Partnership dated July 3, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.71 Sublease Agreement between the Company and Huntington Beach Hospital and Medical Center dated July 24, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.72 Lease Agreement between the Company and Columbia Healthcare Corporation dated September 14, 1995 which supersedes lease dated October 18, 1993, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.73 Agreement between San Fernando Community Hospital, Inc. dba Mission Community Hospital and the Company dated October 6, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 30 32 10.75 Unanimous written consent dated December 29, 1995 of the Board of Directors amending the promissory note between the Company and Edward A. Johnson dated December 30, 1994, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.77 Operating Agreement for Optimum Care Source, LLC incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.77. 10.78 Master Joint Venture Agreement between Professional CareSource, Inc. and the Company dated April 19, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.78. 10.82 Registration Agreement between Professional CareSource, Inc. and the Company dated April 24, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.82. 10.83 Non-qualified stock option Agreement between Joseph H. Dadourian and the Company dated April 24, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.83. 10.84 Non-qualified stock option Agreement between Teri L. Jolin and the Company dated April 24, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.84. 10.85 Non-qualified stock option Agreement between Margaret M. Minnick and the Company dated April 24, 1996 incorporated by reference from March 1996 Form 10-Q Exhibit 10.85. 10.86 Agreement between Friendship Community Mental Health Center and the Company dated April 25, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.86. 10.87 Lease Agreement between the Company and Laguna Niguel Office Center dated April 30, 1996 which supersedes lease dated June 23, 1988, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.88 Lease Agreement between the Company and Jay Arteaga dated September 30, 1996, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.89 Lease Agreement between the Company and Solomon, Saltzman & Jameson dated October 15, 1996, incorporated by reference from Form 10-K for the year ended December 31, 1996. 31 33 10.90 Unanimous Written Consent dated December 31, 1996 of the Board of Directors amending the promissory note between the Company and Edward A. Johnson dated December 29, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.91 Change in terms Agreement between the Company and National Bank of Southern California dated January 28, 1997 (Modified), incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.92 Staffing Agreement between the Company and Treatment Resources, Inc. dated February 1, 1997, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.93 Community Mental Health Center Agreements (California and Nevada) between the Company and Treatment Resources, Inc. dated February 1, 1997 (Modified), incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.94 Change in Terms Agreement between the Company and National Bank of Southern California dated May 15, 1997. 10.95 Inpatient and Outpatient Psychiatric Unit Management Services Agreement between the Company and Catholic Healthcare West Southern California dated June 1, 1997. 10.96 Lease Agreement between the Company and The Ribeiro Corporation dated June 23, 1997. 10.97 Lease Agreement between the Company and Harriet Maizels, Daniel Gold, Lesley Gold and Mildred Gold dated July 8, 1997. 10.98 Lease Agreement between the Company and Michael F. Maluccio dated August 6, 1997. 10.99 Community Mental Health Center Agreement between the Company and Treatment Resources, Inc. dated August 27, 1997. 10.100 Lease Agreement between the Company and Laguna Niguel Office Center dated September 5, 1997 which supersedes lease dated June 23, 1988. 10.101 First Lease Extension Agreement between the Company and Whittier Narrows Business Park and the Company dated September 11, 1997 which supersedes lease dated January 10, 1994. 10.102 Lease Extension Agreement between the Company and 757 Pacific Avenue Partnership dated September 19, 1997 which supersedes lease dated July 3, 1995. 10.103 Unanimous Written Consent dated December 29, 1997 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 31, 1996. 10.104 Agreement to terminate agreements between the Company and Galaxy Health Care, Inc. dated March 19, 1998. 32 34 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule (b) Reports on Form 8-K On December 10, 1997 the Company filed Form 8K announcing plans to relicense three existing partial hospitalization programs with different host facilities. 33 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March ______ , 1998 OPTIMUMCARE CORPORATION By: /s/ EDWARD A. JOHNSON ------------------------------------------ Edward A. Johnson, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the registrant in the capacities and on the dates indicated. /s/ EDWARD A. JOHNSON March , 1998 - ------------------------------------------ Edward A. Johnson, Chief Executive Officer and Director (Principal Executive Officer and Principal Financial and Accounting Officer) /s/ MICHAEL S. CALLISON March , 1998 - ------------------------------------------ Michael S. Callison, Director /s/ GARY L. DREHER, March , 1998 - ------------------------------------------ Gary L. Dreher, Director /s/ JON E. JENETT March , 1998 - ------------------------------------------ Jon E. Jenett, Director 34 36 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS OPTIMUMCARE CORPORATION
COL. A COL. B COL. C COL. D COL. E ADDITIONS Charged Balance at Charged to Other Balance Beginning to Costs Accounts Deductions At End Description of Period & Expenses Describe Describe of Period --------- ---------- -------- -------- --------- YEAR ENDED DECEMBER 31, 1997 Reserves and allowances from asset accounts: Allowance for uncollectible accounts 0 602,643 (42,445) 560,198 YEAR ENDED DECEMBER 31, 1996 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts $ 0 $ 0 $ 0 $ 0 YEAR ENDED DECEMBER 31, 1995 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts 0 36,030 (36,030) 0
35 37 Financial Statements OptimumCare Corporation Years ended December 31, 1997 and 1996 with Report of Independent Auditors 38 OptimumCare Corporation Financial Statements Years ended December 31, 1997 and 1996 CONTENTS Report of Independent Auditors........................................... 1 Financial Statements Consolidated Balance Sheets.............................................. 2 Consolidated Statements of Income........................................ 3 Consolidated Statements of Stockholders' Equity.......................... 4 Consolidated Statements of Cash Flows.................................... 5 Notes to Consolidated Financial Statements............................... 6
39 Report of Independent Auditors The Stockholders and Board of Directors OptimumCare Corporation We have audited the accompanying consolidated balance sheets of OptimumCare Corporation as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 8 to the consolidated financial statements, the Company is dependent upon a small number of contracts, the loss of any of which could have a significant adverse effect on the Company's operations. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OptimumCare Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Orange County, California March 26, 1998 1 40 OptimumCare Corporation Consolidated Balance Sheets
DECEMBER 31 --------------------------------- 1997 1996 ----------- ----------- ASSETS Current assets: Cash $ 945,404 $ 1,113,809 Accounts receivable, net of allowance of $560,198 in 1997 and $0 in 1996 2,186,906 2,389,019 Prepaid expenses 49,246 15,175 ----------- ----------- Total current assets 3,181,556 3,518,003 Note receivable from officer 274,000 155,000 Furniture and equipment, less accumulated depreciation of $90,473 in 1997 and $52,135 in 1996 86,685 73,496 Intangible assets, less accumulated amortization of $1,428 in 1997 and $28,274 in 1996 647 176,679 Deferred tax asset 334,000 -- Other assets 44,283 57,129 ----------- ----------- Total assets $ 3,921,171 $ 3,980,307 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 270,178 $ 227,289 Accrued vacation 65,639 46,395 Accrued expenses 111,887 325,413 Line of credit 200,000 645,812 ----------- ----------- Total current liabilities 647,704 1,244,909 Commitments Stockholders' equity: Common stock, $.001 par value: Authorized shares - 20,000,000 Issued and outstanding shares - 6,902,611 in 1997 and 6,786,218 in 1996 6,903 6,786 Paid-in-capital 3,356,009 3,272,407 Retained deficit (89,445) (543,795) ----------- ----------- Total stockholders' equity 3,273,467 2,735,398 ----------- ----------- Total liabilities and stockholders' equity $ 3,921,171 $ 3,980,307 =========== ===========
See accompanying notes. 2 41 OptimumCare Corporation Consolidated Statements of Income
YEAR ENDED DECEMBER 31 ----------------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net revenues $12,089,398 $10,676,237 $ 6,027,122 Interest income 7,685 5,316 8,741 ----------- ----------- ----------- 12,097,083 10,681,553 6,035,863 Operating expenses: Costs of services provided 8,894,987 8,313,317 5,022,040 Selling, general and administrative 1,724,942 1,343,961 964,701 Provision for uncollectible accounts 602,643 -- 36,030 Goodwill impairment 135,255 -- -- Interest 31,906 26,544 10,222 ----------- ----------- ----------- 11,389,733 9,683,822 6,032,993 ----------- ----------- ----------- Income before income taxes 707,350 997,731 2,870 Income taxes 253,000 121,015 800 ----------- ----------- ----------- Net income $ 454,350 $ 876,716 $ 2,070 =========== =========== =========== Basic earnings per share $ .07 $ .14 $ .00 =========== =========== =========== Diluted earnings per share $ .06 $ .13 $ .00 =========== =========== ===========
See accompanying notes. 3 42 OptimumCare Corporation Consolidated Statements of Stockholders' Equity Years ended December 31, 1995, 1996 and 1997
NOTE COMMON STOCK TREASURY RECEIVABLE ------------------ PAID-IN RETAINED ----------------- FROM SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT OFFICER TOTAL --------- ------ ----------- ----------- ------ ------- --------- ---------- Balance at December 31, 1994 4,904,509 $4,905 $ 2,919,348 $(1,422,581) 8,500 $(5,075) $ (15,653) $1,480,944 Payment of note receivable from -- -- -- -- -- -- 15,653 15,653 officer Exercise of stock options 19,000 19 8,245 -- -- -- -- 8,264 Reissue of treasury stock -- -- -- -- (8,500) 5,075 -- 5,075 Net income -- -- -- 2,070 -- -- -- 2,070 --------- ------ ----------- ----------- ------ ------- --------- ---------- Balance at December 31, 1995 4,923,509 4,924 2,927,593 (1,420,511) -- -- -- 1,512,006 Exercise of stock options 740,000 740 324,936 -- -- -- -- 325,676 Optimum CareSource contributed capital -- -- 21,000 -- -- -- -- 21,000 Payment of stock dividend 1,122,709 1,122 (1,122) -- -- -- -- -- Net income -- -- -- 876,716 -- -- -- 876,716 --------- ------ ----------- ----------- ------ ------- --------- ---------- Balance at December 31, 1996 6,786,218 6,786 3,272,407 (543,795) -- -- -- 2,735,398 Exercise of stock options 25,000 25 9,350 -- -- -- -- 9,375 Common stock issued for 91,393 92 74,252 -- -- -- -- 74,344 consulting fees Net income -- -- -- 454,350 -- -- -- 454,350 --------- ------ ----------- ----------- ------ ------- --------- ---------- Balance at December 31, 1997 6,902,611 $6,903 $ 3,356,009 $ (89,445) -- $ -- $ -- $3,273,467 ========= ====== =========== =========== ====== ======= ========= ==========
See accompanying notes. 4 43 OptimumCare Corporation Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 --------------------------------------- 1997 1996 1995 ----------- ----------- --------- OPERATING ACTIVITIES Net income $ 454,350 $ 876,716 $ 2,070 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 38,338 17,753 8,919 Amortization 40,777 27,254 204 Provision for uncollectible accounts 602,643 -- 36,030 Common stock issued as consulting fees 74,344 -- -- Common stock issued as bonuses -- -- 5,075 Impairment of goodwill 135,255 -- -- Deferred taxes (334,000) -- -- Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (400,530) (852,326) 69,317 (Increase) decrease in prepaid expenses (34,071) 7,390 (10,383) Increase (decrease) in deposits and other 12,846 (27,207) -- assets Increase in accounts payable 42,889 34,546 40,208 Increase (decrease) in accrued expenses (194,282) 183,020 8,114 ----------- ----------- --------- Net cash provided by operating activities 438,559 267,146 159,554 INVESTING ACTIVITIES Intangible asset from business acquisition -- (202,878) -- Purchases of equipment (51,527) (65,632) (18,443) Deferred acquisition costs -- 138,753 (138,753) Note receivable from officer (119,000) -- (58,000) ----------- ----------- --------- Net cash used in investing activities (170,527) (129,757) (215,196) FINANCING ACTIVITIES Note payable to bank (445,812) 479,812 166,000 Note receivable from officer -- -- 15,653 Exercise of stock options 9,375 325,676 8,264 ----------- ----------- --------- Net cash provided by (used in) financing (436,437) 805,488 189,917 activities ----------- ----------- --------- Net increase (decrease) increase in cash (168,405) 942,877 134,275 Cash and cash equivalents at beginning of year 1,113,809 170,932 36,657 ----------- ----------- --------- Cash and cash equivalents at end of year $ 945,404 $ 1,113,809 $ 170,932 =========== =========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 32,912 $ 25,538 $ 8,720 Cash paid for income taxes $ 629,000 $ 95,133 $ 31,201
See accompanying notes. 5 44 OptimumCare Corporation Notes to Consolidated Financial Statements December 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION OptimumCare Corporation (the Company) develops, markets and manages hospital-based programs for the treatment of psychiatric disorders on both an inpatient and outpatient basis. The Company's programs are currently being marketed in the United States, principally California, to independent acute general hospitals and other health care facilities. Significant intercompany transactions have been eliminated in consolidation. BUSINESS ACQUISITION On April 19, 1996, the Company completed the acquisition of a 70% interest in certain contracts of Professional CareSource, Inc. through the formation of OptimumCareSource, LLC (the "LLC"). The Company acquired a 70% ownership interest in the LLC and Professional CareSource, Inc. holds a 30% ownership interest in the LLC. The Company considers the LLC to be a 70% owned subsidiary of the Company. The Company paid $11,000 in cash to each of the three principals of Professional CareSource, Inc. and made an initial contribution of $50,000 to the LLC for working capital. The Company is required to purchase all of Professional CareSource, Inc.'s interest in the LLC by April 29, 2001, but may elect to purchase the interest at any time after April 29, 2000 at a specified price, which approximates Professional CareSource's ownership percentage in the LLC multiplied by five (5) times the LLC's net profit after taxes as reflected on its most recent Form 1065 after agreed upon taxes. Three principals of Professional CareSource, Inc. were each given one year employment contracts with the LLC. In connection with the employment agreement, the Company granted nonqualified stock options to purchase 33,000 shares of common stock at $.92 per share, which vest over five years, to each of the principals of Professional CareSource, Inc. Optimum CareSource, LLC, headquartered in Southern California, provides mental health services at long-term care facilities. The purchase method of accounting has been used to record the transaction. No tangible assets of the LLC were acquired and as such, the purchase price was allocated to intangibles to be amortized over five years. 6 45 OptimumCare Corporation Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BUSINESS ACQUISITION (CONTINUED) During 1997, based on recurring losses at the LLC and a lack of substantive new contracts, management determined that this goodwill was impaired and based on its estimate of discounted cash flows the Company wrote off the remaining balance of $135,255 at December 31, 1997. The impairment loss is recorded as a separate line item in operating expenses. The Company did not proceed with a proposed business acquisition with Drs. Giem, Guerra and Meyers and expensed $96,000 of direct costs as selling, general and administrative expenses during 1996. FURNITURE AND EQUIPMENT Furniture and equipment is stated at cost. Depreciation is computed on the straight-line method based upon the estimated useful lives of the related assets, which range from three to five years. REVENUE RECOGNITION Revenues are recognized in the period services are provided and are recorded net of contractual adjustments representing the difference between standard rates and estimated net realizable amounts under reimbursement agreements with customers. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform with Statement 128 requirements. The calculation of earnings per share for all periods presented also reflects the effect of a stock dividend issued in 1996 (Note 5). 7 46 OptimumCare Corporation Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about the future that affect the amounts reported in the financial statements. These estimates include assessing the collectibility of accounts receivable and the usage and recoverability of long-lived assets. The actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts for prior periods have been reclassified to conform with the current year presentation. 2. NOTE RECEIVABLE FROM OFFICER On December 29, 1997, the Company converted a series of short-term advances and a $155,000 note dated December 30, 1995 into a promissory note from an officer totaling $274,000. The note accrues interest at the current prime rate and provides for a bi-monthly payment plan. During 1996 and 1995 the note accrued interest at the rate of 4.03%. 3. LINE OF CREDIT The Company has a line of credit, which allows the Company to borrow up to 75% of certain qualified receivables with a maximum indebtedness of $1,500,000. The interest rate is based on the Wall Street Journal prime plus 1.25%. The weighted average interest rate was 9.94% and 10.06% in the years ended December 31, 1997 and 1996, respectively. The line of credit matures on May 1, 1998 and is collateralized by substantially all of the Company's assets. At December 31, 1997, $1,300,000 was available for future draws under the line of credit agreement. 4. EMPLOYEE BENEFIT PLAN Effective January 1, 1997, the Company began to provide a 401(k) Plan for all employees having completed one year of service. Under the 401(k) Plan, eligible employees voluntarily contribute to the Plan up to 15% of their salary through payroll deductions. OptimumCare matches 50% of the first 4% of employee contributions to the plan through 8 47 OptimumCare Corporation Notes to Financial Statements (continued) payroll deductions. Expenses associated with employer contributions were $40,190 for 1997. 9 48 OptimumCare Corporation Notes to Financial Statements (continued) 5. LEASE COMMITMENT The Company leases three office facilities under lease agreements that expire June 30, 1998, October 31, 1998 and October 14, 1999, respectively. The Company also leased space under seven separate lease agreements for the operation of seven of its outpatient partial hospitalization psychiatric program sites, of which two agreements are on a month-to-month basis and the remaining agreements expire, June 30, 2000, August 31, 2000, September 30, 2000, September 30, 2000 and August 14, 2002, respectively. Aggregate future minimum lease payments under remaining noncancelable leases with terms in excess of one year are as follows: 1998 $301,423 1999 296,677 2000 194,865 2001 50,760 2002 33,840 -------- $877,565 ========
Subleases with two of the Company's host hospitals exist for 279,769 of aggregate future minimum lease payments above. Sublease rental income was $157,844, $160,596 and $154,621 for the years ended December 31, 1997, 1996 and 1995, respectively. Rent expense was $307,192, $244,185 and $191,251 for the years ended December 31, 1997, 1996 and 1995, respectively. 6. STOCKHOLDERS' EQUITY STOCK DIVIDEND On August 14, 1996, a 20% stock dividend was declared by the Board of Directors for shareholders of record on October 1, 1996. The stock dividend was issued on October 18, 1996. 10 49 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTION PLAN The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant. In July 1987, the Company adopted a stock option plan (the 1987 Plan) including incentive stock options and nonqualified stock options. A maximum of 455,000 shares of the Company's common stock has been reserved for issuance under the plan. Under the Plan, incentive stock options may be granted at an exercise price which is not less than 100% of the fair market value on the date of grant (110% for greater than 10% stockholders). In addition, nonqualified stock options may be granted at an exercise price which is no less than 85% of the fair market value on the date of grant. Options may be granted for terms up to 10 years (five years for greater than 10% stockholders). At December 31, 1997, 125,000 options have been granted under the 1987 Plan. In March 1994, the Company adopted and approved the 1994 Stock Option Plan (the 1994 Plan) including incentive stock options and nonqualified stock options. In December 1995, the Company readopted and approved the 1994 Stock Option Plan. A maximum of 500,000 shares of the Company's common stock has been reserved for issuance under the 1994 Plan. Under the 1994 Plan, incentive stock options may be granted at an exercise price which is not less than 100% of the fair market value on the date of grant (110% for greater than 10% stockholders). In addition, nonqualified stock options may be granted at an exercise price which is no less than 85% of the fair market value on the date of grant. Options may be granted for terms up to 10 years (five years for greater than 10% stockholders). At December 31, 1997, 200,000 options have been granted under the 1994 Plan. 11 50 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) In April 1996, the Company granted options to purchase 33,000 shares of its common stock to three principals of its newly acquired LLC (Note 1). The exercise price is $.92 per share, the fair market value at the date of grant. Options vest over five years. No options have been exercised under these grants. In October 1997, the Company granted non-qualified options to purchase 48,000 shares of its common stock at prices ranging from $1.21 to $1.81 per share which vest over six months. No options have been exercised under these grants. During various dates in 1996, the Company granted to certain officers, directors, employees and consultants, non-qualified options to purchase 675,000 shares of its common stock at prices ranging from $.901 to $1.50 per share. Options to purchase 475,000 shares are vested upon grant. Options to purchase 200,000 shares vest over three years. No options have been exercised under these grants. A summary of stock option activity under the 1987 and 1994 Plans during 1995, 1996 and 1997 is as follows:
WEIGHTED WEIGHTED Shares under option AVERAGE AVERAGE 1987 EXERCISE 1994 EXERCISE PLAN PRICE PLAN PRICE -------- ------- -------- ------- Outstanding at December 31, 1994 361,500 $ .35 225,000 $ .6375 Granted -- -- 250,000 .91 Exercised (19,000) .6375 -- -- Canceled (25,000) .375 -- -- -------- ------- -------- ------- Outstanding at December 31, 1995 317,500 .32 475,000 .78 Granted 100,000 1.08 -- -- Exercised (267,500) .34 (250,000) .66 Canceled -- -- -- -- -------- ------- -------- ------- Outstanding at December 31, 1996 150,000 .83 225,000 .68 Granted -- -- -- -- Exercised (25,000) .375 -- -- Canceled -- -- (25,000) .91 -------- ------- -------- ------- Outstanding at December 31, 1997 125,000 $ .92 200,000 $ .74 ======== ======= ======== =======
12 51 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------- ---------------------------- WEIGHTED- AVERAGE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE EXERCISE PRICE AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE ------------ ----------- ------------ ----------- ----------- --------- $.30 25,000 .5 years $ .30 25,000 $ .30 .6375 125,000 1.5 years .6375 125,000 .6375 .91 50,000 2.5 years .91 50,000 .91 .93 25,000 2.5 years .93 25,000 .93 1.08 100,000 3.5 years 1.08 20,000 1.08 ------------ ----------- ------------ ----------- ----------- --------- $.30 to $1.08 325,000 2.5 years $ .81 245,000 $ .72 ============ =========== ============ =========== =========== =========
A total of 881,000 shares of common stock are reserved for future issuance upon the exercise of stock options at December 31, 1997. A total of 52,500 options were available for future grant at December 31, 1997 under existing stock option plans. Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995, 1996 and 1997, respectively: risk-free interest rates of 6.625% for those options granted in 1997, 6.31% for those options expected to be exercised over a five year term and granted in 1995 and 1996 and 5.6% for those options granted in 1995 and exercised in 1996; a dividend yield of 0%; a volatility factor of the expected market price of the Company's common stock of .521 and .529, for 1997 and 1996, respectively. 13 52 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1997 1996 1995 ----------- ----------- ----------- Net income As reported $ 454,350 $ 876,716 $ 2,070 Pro forma $ 425,306 $ 538,255 $ (187,430) Earnings per share Basic as reported $ .07 $ .14 $ .00 Diluted as reported $ .06 $ .13 $ .00 Basic pro forma $ .06 $ .09 $ (.03) Diluted pro forma $ .06 $ .08 $ (.03) Weighted average exercise price of: Options whose exercise price equals the market price of the stock on the grant date $ -- $ 1.50 $ - Options whose exercise price is less than the market price of the stock on the grant date $ 1.21 $ 1.14 $ .72 Options whose exercise price is more than the market price of the stock on the grant date $ 1.81 $ -- $ - Weighted average fair value of: Options whose exercise price equals the market price of the stock on the grant date $ - $ .80 $ - Options whose exercise price is less than the market price of the stock on the grant date $ .67 $ .75 $ .42 Options whose exercise price is more than the market price of the stock on the grant date $ .52 $ - $ -
14 53 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1998. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 ---------- ---------- --------- Numerator $ 454,350 $ 876,716 $ 2,070 Denominator: Denominator for basic earnings per share--weighted-average shares 6,870,049 6,237,751 5,892,824 Dilutive employee stock options 324,823 439,405 495,746 ---------- ---------- --------- Denominator for diluted earnings per share 7,194,872 6,677,156 6,388,570 ========== ========== ========= Basic earnings per share $ .07 $ .14 $ .00 Diluted earnings per share $ .06 $ .13 $ .00 ========== ========== =========
A 20% stock dividend was declared by the Board of Directors on August 14, 1996 for shareholders of record on October 1, 1996. The stock dividend was issued on October 18, 1996 and all stock related data in this table reflects the stock dividend for all periods presented. 15 54 OptimumCare Corporation Notes to Financial Statements (continued) 7. INCOME TAXES A reconciliation of the provision for income taxes using the federal statutory rate to the book provision for income taxes follows:
1997 1996 1995 --------- --------- ------- Statutory federal provision for income $ 240,499 $ 339,229 $ 1,000 taxes Increase (decrease) in taxes resulting from: Change in valuation allowance (71,000) -- -- Current use of net operating loss carryforwards -- (339,229) (1,000) Federal alternative minimum tax -- 14,000 -- Permanent differences and other 25,596 -- -- State tax, net of federal benefit 57,905 107,015 800 --------- --------- ------- $ 253,000 $ 121,015 $ 800 ========= ========= =======
Significant components of the provision for income taxes are as follows:
1997 1996 1995 --------- -------- ---- Current: Federal $ 449,000 $ 14,000 $ -- State 138,000 107,015 800 --------- -------- ---- Total current 587,000 121,015 800 --------- -------- ---- Deferred: Federal (284,000) -- -- State (50,000) -- -- --------- -------- ---- Total deferred (334,000) -- -- --------- -------- ---- $ 253,000 $121,015 $800 ========= ======== ====
16 55 OptimumCare Corporation Notes to Financial Statements (continued) 7. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the net deferred tax asset at December 31, 1997, 1996 and 1995 consist of the following:
1997 1996 1995 ----------- -------------- ------------- Net operating loss carryforwards $ -- $ 23,000 $ 413,000 Alternative minimum tax credit carryforwards -- 18,000 4,000 Reserve for bad debt 224,000 -- -- Reserves and accruals not currently deductible for tax purposes 53,000 23,000 17,000 Depreciation and amortization not currently deductible for tax purposes 57,000 7,000 -- -------- -------- --------- Total deferred tax assets 334,000 71,000 434,000 Less valuation allowance -- (71,000) (434,000) -------- -------- --------- Net deferred tax asset $334,000 $ -- $ -- ======== ======== =========
8. MAJOR CUSTOMERS The Company is dependent upon a small number of hospitals, the loss of any contract could have a significant adverse effect on the Company's operations. Further, certain contracts are terminable on 90 days notice and if certain patient census is not maintained. Management intends to use its best efforts to retain existing contracts and expand the scope of services on these contracts, obtain new contracts, and maintain patient census at the same or higher levels than has historically been experienced. The following table summarizes the amount of revenue for each customer representing greater than 10% of total revenues for the:
YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1996 ------------------------- ------------------------- DOLLAR PERCENT DOLLAR PERCENT ----------- ------ ----------- ------ Hospital 1 $ 3,182,156 $ 26.3% $ 3,116,166 29.2% Hospital 2 1,433,494 11.9% 1,242,955 11.6% Hospital 3 4,753,094 39.3% 4,221,088 39.5% Other Hospitals and Community Mental Health Centers 2,720,654 22.5% 1,464,590 13.7% ----------- ------ ----------- ------ $12,089,398 100.0% $10,676,237 100.0% =========== ====== =========== ======
In addition, these hospitals accounted for approximately $1,846,846 and $1,973,715 of accounts receivable at December 31, 1997 and 1996, respectively. 17 56
EXHIBIT NO. DESCRIPTION --- ----------- 3.1 Certificate of Incorporation incorporated by reference from Form S-18 Registration Statement (Registration No. 0033-16313-LA) filed July 28, 1988, Exhibit 3.1. 3.2 Bylaws incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.2. 3.3 Certificate of Amendment of Certificate of Incorporation filed February 29, 1988. Incorporated by reference from Form S-18 Registration Statement (Registration No.33-16313-LA) filed July 28, 1988, Exhibit 3.5. 3.4 Restated Certificate of Incorporation, filed October 3, 1989. Incorporation by reference from Form 10-K for the year ended December 31, 1989. 10.1 Lease between the Company and Laguna Niguel Office Center dated June 23, 1988 which supersedes lease dated December 15, 1986, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.1. 10.6 Amended and Restated 1987 Stock Option Plan incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.6. 10.18 Form of Modification Agreement to Incentive Stock Option Agreement, dated January 20, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.18. 10.30 Lease amendment between the Company and Laguna Niguel Office Center dated September 24, 1990 which supersedes lease dated June 23, 1988 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1990, Exhibit 10.30. 10.34 Agreement between Huntington Intercommunity Hospital and the Company dated November 1, 1991 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1991, Exhibit 10.34. 10.38 Agreement between Huntington Intercommunity Hospital and the Company dated October 1, 1992 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1992, Exhibit 10.38. 10.43 Lease amendment between the Company and Laguna Niguel Office Center dated May 12, 1993 which supersedes lease dated June 23, 1988 incorporated by reference form Annual Report on Form 10-K for the year ended December 31, 1993, Exhibit 10.43. 10.48 Lease agreement between Columbia Healthcare Corporation and the Company dated October 18, 1993 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1993, Exhibit 10.48. 10.50 Unanimous written consent dated December 10, 1993 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 10, 1992, incorporated by reference from Form 10-K for the year ended December 31, 1992.
57
EXHIBIT NO. DESCRIPTION --- ----------- 10.52 Lease agreement between Whittier Narrows Business Park and the Company dated January 10, 1994 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.52. 10.55 1994 Stock Option Plan incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.55. 10.56 Lease Agreement between Frank T. Howard and the Company dated May 4, 1994 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.56. 10.60 Lease amendment between the Company and Laguna Niguel Office Center dated July 7, 1994 which supersedes lease dated June 23, 1988 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.60. 10.64 Unanimous written consent dated December 30, 1994 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 10, 1993 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.64. 10.66 Agreement between Sherman Oaks Hospital and Health Center dated March 30, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.67 Loan Agreement between the Company and National Bank of Southern California dated March 31, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. (Modified) 10.68 Lease Agreement between the Company and Laguna Niguel Office Center dated June 5, 1995 which supersedes lease dated June 23, 1988, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.69 Sublease Agreements between the Company and Huntington Beach and Medical Center dated July 1, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.70 Lease Agreement between the Company and 757 Pacific Partnership dated July 3, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.71 Sublease Agreement between the Company and Huntington Beach Hospital and Medical Center dated July 24, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.72 Lease Agreement between the Company and Columbia Healthcare Corporation dated September 14, 1995 which supersedes lease dated October 18, 1993, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.73 Agreement between San Fernando Community Hospital, Inc. dba Mission Community Hospital and the Company dated October 6, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995.
58
EXHIBIT NO. DESCRIPTION --- ----------- 10.75 Unanimous written consent dated December 29, 1995 of the Board of Directors amending the promissory note between the Company and Edward A. Johnson dated December 30, 1994, incorporated by reference from Form 10-K for the year ended December 31, 1995. 10.77 Operating Agreement for Optimum Care Source, LLC incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.77. 10.78 Master Joint Venture Agreement between Professional CareSource, Inc. and the Company dated April 19, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.78. 10.82 Registration Agreement between Professional CareSource, Inc. and the Company dated April 24, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.82. 10.83 Non-qualified stock option Agreement between Joseph H. Dadourian and the Company dated April 24, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.83. 10.84 Non-qualified stock option Agreement between Teri L. Jolin and the Company dated April 24, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.84. 10.85 Non-qualified stock option Agreement between Margaret M. Minnick and the Company dated April 24, 1996 incorporated by reference from March 1996 Form 10-Q Exhibit 10.85. 10.86 Agreement between Friendship Community Mental Health Center and the Company dated April 25, 1996 incorporated by reference from March 31, 1996 Form 10-Q Exhibit 10.86. 10.87 Lease Agreement between the Company and Laguna Niguel Office Center dated April 30, 1996 which supersedes lease dated June 23, 1988, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.88 Lease Agreement between the Company and Jay Arteaga dated September 30, 1996, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.89 Lease Agreement between the Company and Solomon, Saltzman & Jameson dated October 15, 1996, incorporated by reference from Form 10-K for the year ended December 31, 1996.
59
EXHIBIT NO. DESCRIPTION --- ----------- 10.90 Unanimous Written Consent dated December 31, 1996 of the Board of Directors amending the promissory note between the Company and Edward A. Johnson dated December 29, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.91 Change in terms Agreement between the Company and National Bank of Southern California dated January 28, 1997 (Modified), incorporated by reference from Form 10- K for the year ended December 31, 1996. 10.92 Staffing Agreement between the Company and Treatment Resources, Inc. dated February 1, 1997, incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.93 Community Mental Health Center Agreements (California and Nevada) between the Company and Treatment Resources, Inc. dated February 1, 1997 (Modified), incorporated by reference from Form 10-K for the year ended December 31, 1996. 10.94 Change in Terms Agreement between the Company and National Bank of Southern California dated May 15, 1997. 10.95 Inpatient and Outpatient Psychiatric Unit Management Services Agreement between the Company and Catholic Healthcare West Southern California dated June 1, 1997. 10.96 Lease Agreement between the Company and The Ribeiro Corporation dated June 23, 1997. 10.97 Lease Agreement between the Company and Harriet Maizels, Daniel Gold, Lesley Gold and Mildred Gold dated July 8, 1997. 10.98 Lease Agreement between the Company and Michael F. Maluccio dated August 6, 1997. 10.99 Community Mental Health Center Agreement between the Company and Treatment Resources, Inc. dated August 27, 1997. 10.100 Lease Agreement between the Company and Laguna Niguel Office Center dated September 5, 1997 which supersedes lease dated June 23, 1988. 10.101 First Lease Extension Agreement between the Company and Whittier Narrows Business Park and the Company dated September 11, 1997 which supersedes lease dated January 10, 1994. 10.102 Lease Extension Agreement between the Company and 757 Pacific Avenue Partnership dated September 19, 1997 which supersedes lease dated July 3, 1995. 10.103 Unanimous Written Consent dated December 29, 1997 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 31, 1996. 10.104 Agreement to terminate agreements between the Company and Galaxy Health Care, Inc. dated March 19, 1998. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule
32 EX-10.94 2 TERMS ARGMT. BETWEEN COMPANY AND NAT. BANK 5/15/97 1 EXHIBIT 10.94 CORPORATE RESOLUTION TO BORROW
=========================================================================================================== Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,500,000.00 05-01-1998 4000928 5005 423157 112 - -----------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: OPTIMUMCARE CORPORATION Lender: NATIONAL BANK OF SOUTHERN CALIFORNIA 30011 IVY GLENN DRIVE #219 COMMERCIAL LOAN DEPARTMENT LAGUNA NIGUEL, CA 92677 4100 NEWPORT PLACE NEWPORT BEACH, CA 92660
I, the undersigned Secretary or Assistant Secretary of OPTIMUMCARE CORPORATION (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of Delaware as a corporation for profit, with its principal office at 30011 IVY GLENN DRIVE, #219, LAGUNA NIGUEL, CA 92677, and is duly authorized to transact business in the State of California. I FURTHER CERTIFY that a meeting of the Directors of the Corporation, duly called and held on May 15, 1997, at which a quorum was present and voting,, or by other duly authorized corporate action in lieu of a meeting, the following resolutions were adopted: BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below: NAME POSITION ACTUAL SIGNATURE EDWARD A. JOHNSON PRESIDENT X acting for and on behalf of the Corporation and as its act and deed be, and he or she hereby is, authorized and empowered: Borrow Money. To borrow from time to time from NATIONAL BANK OF SOUTHERN CALIFORNIA ("Lender"), on such terms as may be agreed upon between the Corporation and Lender, such sum or sums of money as in his or her judgement should be borrowed; however, not exceeding at any time the amount of One Million Six Hundred Thousand & 00/100 Dollars ($1,600,000.00), in addition to such sum or sums of money as may be currently borrowed by the Corporation from Lender. Execute Notes. To execute and deliver to Lender the promissory note or notes, or other evidence of credit accommodations and/or revision agreement or other evidence of obligation of the Corporation, on Lender's forms at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any indebtedness of the Corporation to Lender, and also to execute and deliver to lender one or more renewals, extensions, modifications, refinancing, consolidations or substitutions for one or more of the notes, any portion of the notes, or any other evidence of credit accommodations. Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or otherwise encumber and deliver to Lender, as security for the payment of any loans or credit accommodations so obtained, any promissory notes so executed (including any amendments to or modifications, renewals, and extensions of such promissory notes)m or any other or further indebtedness of the Corporation to Lender at any tine owing, however, the same may be evidenced, any property now or hereafter belonging to the Corporation or in which the corporation now or hereafter may have an interest, including without limitation all real property and all personal property (tangible or intangible) of the Corporation. Such property may be mortgaged, pledged, transferred, endorsed, hypothecated, encumbered at the time such loans are obtained or such indebtedness is incurred, or at any other time or times, and may be either in addition to or in lieu of any property theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered. Execute Security Documents. To execute and deliver to Lender the forms of mortgage, deed of trust, pledge agreement, hypothecation agreement, and other security agreements and financing statements which may be required by Lender, and which shall evidence the terms and conditions under the pursuant to which such liens and encumbrances, or any of them, are given; and also to execute and deliver to Lender any other written instruments, any chattel paper, or any other collateral, of any kind or nature, which Lender may deem necessary or proper in connection with or pertaining to the giving of the liens and encumbrances. Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade acceptances, promissory notes, or the reevidences of indebtedness payable to or belonging to the Corporation in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Lender, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. Further Acts. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements, including agreements waiving the right to a trial by jury, as he or she may in his or her discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions. The following person or persons currently are authorized to request advances and authorize payments under the line of credit until Lender receives written notice of revocation of their authority: EDWARD A. JOHNSON, PRESIDENT. BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these Resolutions and performed prior to the passage of these Resolutions are hereby ratified 2 and approved, that these Resolutions shall remain in full force and effect and Lender may rely on these Resolutions until written notice of his or her revocation shall have been delivered to and received by Lender. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. BE IF FURTHER RESOLVED, that the Corporation will notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate form time to time) prior to any (a) change in the name of the corporation, (b) change in the assumed business name(s) of the Corporation, (c) change in the management of the Corporation, (d) change in the authorized signer(s), (e) conversion of the Corporation to a new or different type of business entity, or (f) change in any other aspect of the Corporation that directly or indirectly relates to any agreements between the Corporation and Lender. No change in the name of the Corporation will take effect until after Lender has been notified. I FURTHER CERTIFY that the officer, employee, or agent named above is duly elected, appointed, or employed by or for the Corporation as the case may be, and occupies the position set opposite the name; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the seal of the Corporation on May 15, 1997 and attest that the signatures set opposite the names listed above are their genuine signatures. CERTIFIED TO AND ATTESTED BY: X_____________________________ CORPORATE SEAL X_____________________________ NOTE: In case the Secretary or other certifying officer is designated by the foregoing resolutions as one of the signing officers, it is advisable to have this certificate signed by a second Officer or Director of the Corporation. 3 NATIONAL BANK OF SOUTHERN CALIFORNIA CHANGE IN TERMS AGREEMENT
=========================================================================================================== Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,500,000.00 05-01-1998 4000928 5005 423157 112 - ----------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. ===========================================================================================================
Borrower: OPTIMUMCARE CORPORATION Lender: NATIONAL BANK OF SOUTHERN CALIFORNIA 30011 IVY GLENN DRIVE #219 COMMERCIAL LOAN DEPARTMENT LAGUNA NIGUEL, CA 92677 4100 NEWPORT PLACE NEWPORT BEACH, CA 92660
Principal Amount: $1,500,000.00 Date of Agreement: May 15, 1997 DESCRIPTION OF EXISTING INDEBTEDNESS. ORIGINAL PROMISSORY NOTE DATED APRIL 14, 1995 IN THE PRINCIPAL AMOUNT OF $500,000.00. DESCRIPTION OF COLLATERAL. SECURITY AGREEMENT AND UCC-1 FILING ON ALL ACCOUNTS RECEIVABLE, INVENTORY, FIXED ASSETS AND EQUIPMENT. DESCRIPTION OF CHANGE IN TERMS. NOTE CHANGED FROM A NON-REVOLVING LINE OF CREDIT TO A FORMULA LINE OF CREDIT. MATURITY DATE EXTENDED TO MAY 1, 1998. PRINCIPAL NOTE AMOUNT INCREASED TO $1,500,000.00 INTEREST RATE CHANGED TO WALL STREET JOURNAL PRIME PLUS 1.25% ALL OTHER TERMS AND CONDITIONS SHALL REMAIN THE SAME. PROMISE TO PAY. OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION ("Borrower") promises to pay to NATIONAL BANK OF SOUTHERN CALIFORNIA ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Million Five Hundred Thousand & 00/100 Dollars ($1,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one payment of all outstanding principal plus all accrued unpaid interest on May 1, 1998. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning July 1, 1997, and all subsequent interest payments are due on the same day of each month after that. Interest on this Agreement is computed on a 365/365 simple interest basis; that is, by applying the ratio of the annual interest rate over the number of days in a year, multiplied by the outstanding principal balance multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount of any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change from time to time based on changes in an independent index which is the Prime rate as published in the Wall Street Journal. When a range of rates 4 has been published, the lower of the rates will be used (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each DAY. The index currently is 8.500% per annum. The Interest rate to be applied to the unpaid principal balance of this Agreement will be at a rate of 1.250 percentage points over the Index, resulting in an initial rate of 9.750% per annum. NOTICE: Under no circumstances will the interest rate on this Agreement be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Agreement, Borrower understands that Lender is entitled to a minimum interest charge of $100.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to be Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment of $10.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Agreement or any agreement related to this Agreement, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Agreement. (h) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. (i) Lender in good faith deems itself insecure. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the default within five (5) days; or (b) if the cure requires more than five (5) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Agreement and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also , if permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Agreement of 6.500 percentage points over the Index, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Agreement (including any increased rate). Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings 5 (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of ORANGE County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. (Initial Here ____) This Agreement shall be governed by and construed in accordance with the laws of the State of California. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's account with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Agreement against any and all such accounts. LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances under this Agreement may be requested only in writing by Borrower or by an authorized person. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized to request advances under the line of credit under Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: EDWARD A. JOHNSON, PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Agreement at any time may be evidenced by endorsements on this Agreement or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Agreement if: (a) Borrower or any guarantor is in default under the terms of this Agreement or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Agreement; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Agreement or any other loan with Lender; or (d) Borrower has applied funds provided pursuant to this Agreement for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Agreement or any other agreement between Lender and Borrower. CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender's right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions. MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The inclusion of specific default provisions or rights of Lender shall not preclude Lender's right to declare payment of this Agreement on its demand. Lender may delay or forgo enforcing any of its rights or remedies under this Agreement without losing them. Borrower and any other person who signs, guarantees or endorses this Agreement, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Agreement, and unless otherwise expressly stated in writing, no party who signs this Agreement, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may 6 renew or extend repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT. BORROWER: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: EDWARD A JOHNSON, PRESIDENT 7 DISBURSEMENT REQUEST AND AUTHORIZATION
=========================================================================================================== Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,500,000.00 05-01-1998 4000928 5005 423157 112 - ----------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. ===========================================================================================================
Borrower: OPTIMUMCARE CORPORATION Lender: NATIONAL BANK OF SOUTHERN CALIFORNIA A DELAWARE CORPORATION COMMERCIAL LOAN DEPARTMENT 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660
LOAN TYPE. This is a Variable Rate (1.250% over Prime rate as published in the Wall Street Journal. When a range of rates has been published, the lower of the rates will be used, making an initial rate of 9.750%), Revolving Line of Credit Loan to a Corporation for $1,500,000.00 due on May 1, 1998. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for (please initial): Personal, Family or Household Purposes or Personal Investment --- X Business (Including Real Estate Investment --- SPECIFIC PURPOSE. The specific purpose of this loan is: TO FINANCE SHORT-TERM CASH REQUIREMENTS. DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan have been satisfied. Please disburse the loan proceeds of $1,500,000.00 as follows: Undisbursed Funds: $1,054,187.61 Amount paid to others on Borrower's behalf: $ 445,812.39 $445,812.39 Payment on Loan #EXTEND 4000928 ------------- Note Principal: $1,500,000.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED MAY 15, 1997. BORROWER: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION By: EDWARD A. JOHNSON EDWARD A. JOHNSON, PRESIDENT 8 LOAN AGREEMENT
=========================================================================================================== Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,500,000.00 05-01-1998 4000928 5005 423157 112 - -----------------------------------------------------------------------------------------------------------
Borrower: OPTIMUMCARE CORPORATION Lender: NATIONAL BANK OF SOUTHERN CALIFORNIA 30011 IVY GLENN DRIVE #219 COMMERCIAL LOAN DEPARTMENT LAGUNA NIGUEL, CA 92677 4100 NEWPORT PLACE NEWPORT BEACH, CA 92660
THIS LOAN AGREEMENT between OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION ("BORROWER") and NATIONAL BANK OF SOUTHERN CALIFORNIA ("LENDER"), is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans". Borrower understands and agrees that: (a) In granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b)the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgement and discretion; and (c) all such Loans shall be and shall remain subject to the following germs and conditions to this Agreement. TERM. This Agreement shall be effective as of May 15, 1997, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Account. The word "Account" means a trade account, account receivable, or other right to payment for goods sold or services rendered owing to Borrower (or to a third party grantor acceptable to Lender). Account Debtor. The words "Account Debtor" mean the person or entity obligated upon an Account. Advance. The word "Advance" means a disbursement of Loan funds under this Agreement. Borrower. The word "Borrower" means OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION. The word "Borrower" also includes as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates". Borrowing Base. The words "Borrowing Base" mean, as determined by Lender from time to time, the lesser of (a) $1,500,000.00; or (b) 75.000% of the aggregate amount of Eligible Accounts. Business Day. The words "Business Day" mean a day on which commercial banks are open for business in the State of California. CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. 9 Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract or otherwise. Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender. The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do not include: (a) Accounts with respect to which the Account Debtor is an officer, an employee or agent of Borrower. (b) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with or related to Borrower or its shareholders, officers, or directors. c) Accounts with respect to which goods are placed on consignment, guaranteed sale, or the terms by reason of which the payment by the Account Debtor may be conditional. (d) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower. (e) Accounts which are subject to dispute, counterclaim, or setoff. (f) Accounts with respect to which the goods have not been shipped or delivered or the services have not been rendered, to the Account Debtor. (g) Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory. (h) Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due. (i) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States. (j) Accounts which have not been paid in full within 90 DAYS from the invoice date. The entire balance of any Account of any single Account debtor will be ineligible whenever the portion of the Account which has not been paid within 90 DAYS from the invoice date is in excess of 25.000% of the total amount outstanding on the Account. (k) That portion of the Accounts of any single Account Debtor which exceeds 25.000% of all of Borrower's Accounts. (l) THE FOLLOWING ACCOUNTS ARE EXCLUDED FROM THE CONCENTRATION LIMITATION: ST. FRANCIS HOSPITAL AND HUNTINGTON BEACH HOSPITAL AND MEDICAL CENTER d.b.a. HUMANA HOSPITAL. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT". 10 Expiration Date. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement. Grantor. The words "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the indebtedness, including without limitation all borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodations parties in connection with any Indebtedness. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "Lender" means NATIONAL BANK OF SOUTHERN CALIFORNIA, its successors and assigns. Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's receivables. Loan. The word "Loan" or Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans an financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender as well as any substitute, replacement or refinancing note or notes therefor. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. Subordinated Debt. The words "Subordinated Debt" means indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. Working Capital. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows. 11 Conditions Precedent to Each Advance. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: (a) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender. (b) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request. (c) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect. (d) All guaranties required by Lender for the Line of Credit shall have been executed by each guarantor, delivered to Lender and be in full force and effect. (e) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, books, records, and operations, and Lender shall be satisfied as to their condition. (f) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable. (g) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate." Making Loan Advances. Advances under the Line of Credit may be requested only in writing by authorized persons. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (a) when credited to any deposit account of Borrower maintained with Lender or (b) when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day. Under no circumstances shall Lender be required to make any Advance in an amount less than $1,000.00. Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. Loan Account. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect. COLLATERAL. To secure payment of the Line of Credit and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security Interests in such property and assets as Lender may require (the "Collateral"), including without limitation Borrower's present and future Accounts and general intangibles. Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender: Perfection of Security Interests. Borrower agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's Security interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will not Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and 12 will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender of any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender of any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity. Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and aging. Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender a schedule of Accounts and Eligible Accounts, in form and substance satisfactory to the Lender. Thereafter Borrower shall execute and deliver to Lender such supplemental schedules of Eligible Accounts and such other matters and information relating to Borrower's Accounts as Lender may request. Supplemental schedules shall be delivered according to the following schedule: MONTHLY. Representations and Warranties Concerning Accounts. With respect to the Accounts, Borrower represents and warrants to Lender: (a) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (b) all Account information listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; and (c) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect, examine, and audit Borrower's records and to confirm with Account Debtors the accuracy of such Accounts. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of the date of this Agreement and as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Delaware. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extend to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower's enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has 13 not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement shall have the same meanings as set forth in the "CERCLA", "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant of any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance on, under, or about any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the even Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer regulating from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the indebtedness and the termination or expiration of this Agreement and shall not be affected by Lenders' acquisition of any interest in any of the properties, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims or other events. If any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be file, have been files, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note and all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, and (iii) no steps have been taken to terminate any such plan. Location of Borrower's Offices and Records. The chief place of business of Borrower and the office or offices where Borrower keeps its records concerning the Collateral is located at 30011 IVY GLENN DRIVE, #219, LAGUNA NIGUEL, CA 92677. Information. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf 14 of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representation and Warranties. Borrower understands and agrees that Lender is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Loan and Note shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: Litigation. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all litigation and claims and all threatened litigation and claims affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Additional Information. Furnish such additional information and statements, lists of assets and liabilities, aging of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. Financial Covenants and Ratios. Comply with the following covenants and ratios: Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than $2,000,000.00. Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth of less than 1.00 to 1.00. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverage, and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverage will not be cancelled or diminished without at least ten (10) day's prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in factor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. IN connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing Insurance policy showing such information as Lender may reasonable request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. IN addition, upon request of Lender (however not more often then annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. 15 Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, government charges, levies and leans, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided, however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the resent executive and management personnel; provide written notice of Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificate. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result o fan intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have 16 occurred. AUDIT/INSPECTIONS. Borrower will permit employees or agents of Lender to inspect any and all collateral for loan and to examine or audit Borrowers books, accounts and records. These inspections will be performed at Borrowers expense on an annual basis. COLLATERAL INFORMATION. Borrower will furnish monthly aging of receivables and payables no later than 25 days from month end together with a completed Collateral Schedule, Formula Plan. ADDITIONAL PROVISION. SEE ATTACHED ADDENDUM WHICH IS MADE A PART OF THIS BUSINESS LOAN AGREEMENT. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Loans. Other Defaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This incudes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower or Grantor, as the case may be, as to the validity or reasonableness of the claim, which is the basis of the creditor or forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and furnishes reserves or a surety bond for the creditor or forfeiture proceeding satisfactory to Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent or any Guarantor revokes any guaranty of the indebtedness. Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure the Event of Default. 17 Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. Insecurity. Lender, in good faith, deems itself insecure. Right to Cure. If any default, other than a Default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default; (a) cures the default within five (5) days; or (b) if the cure requires more than five (5) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all Loans Immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity , or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative an may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not effect lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of ORANGE County, the State of California. (Initial Here EAR). Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now, or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's out-of-pocket expenses, including without limitation attorneys' fees incurred in connection with the preparation, execution, enforcement and collection of this Agreement or in connection 18 with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorney's fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgement collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. Notices. All notices required to be given under this Agreement shall be given in writing and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extend permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be strictest and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extend the context of any provisions of this Agreement make it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodations to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making o the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. Time is of the Essence. Time is of the essence in the performance of this Agreement. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any Lender's rights or of any obligations of Borrower of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. 19 BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISION OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MAY 15, 1997. BORROWER: OPTIMUMCARE CORPORATION BY: EDWARD A. JOHNSON --------------------------------- EDWARD A. JOHNSON, PRESIDENT LENDER: NATIONAL BANK OF SOUTHERN CALIFORNIA BY: --------------------------------- AUTHORIZED OFFICER --------------------------------- 20 ADDENDUM TO BUSINESS LOAN AGREEMENT This Addendum to Business Loan Agreement amends and replaces in their entirety the section on page 4 entitled "NEGATIVE COVENANTS" and supplements the section on "ADDITIONAL PROVISIONS". NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (a) Create, incur or assume any Indebtedness other than (i) trade payables incurred in the normal course of business, (ii) indebtedness to Lender contemplated by this Agreement, (iii) indebtedness in connection with capital leases in excess of an aggregate of $50,000 in any calendar year, and (iv) contractual obligations to suppliers and customers in the ordinary course of business; (b) sell, transfer, assign, pledge, lease or grant a security interest in or encumber any of Borrower's assets except for purchase money security interests, if any, granted in the ordinary course of business; or (c) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged; (b) cease operations, liquidate, merge or consolidate with any other entity, dissolve or transfer or sell Collateral out of the ordinary course of business; (c) make any other material change in its capital structure or operations which would adversely effect the repayment of the Indebtedness. Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or assets in one or more transactions which in the aggregate exceed $100,000 in any calendar year; (b) purchase, create or acquire any interest in any other enterprise or entity which transaction involves a cost in excess of $100,000; or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. ADDITIONAL PROVISIONS. 1. Within 120 days after fiscal year end, Borrower shall supply Lender with audited financial statements and Borrower's Form 10-K and within 45 days after each fiscal quarter Borrower shall supply Lender with Borrower's Form 10-Q for such quarter (which will include the quarterly financial statements). 2. Borrower shall maintain its principal depository relationship with Lender. 3. Borrower shall maintain a Debt Coverage Ratio at all times (calculated on an annualized basis) of at least 1.5 to 1. "Debt Coverage Ratio" means to ratio of; (a) the sum of (i) net income, (ii) depreciation and amortization, and (iii) interest expense to (b) the sum of (i) the current portion of long term debt, and (ii) interest expense. 4. Borrower shall not incur capital expenditures in any fiscal year in an amount in excess of $50,000 over Borrower's annual depreciation and amortization expense for such fiscal year. 5. Advances/ Notes receivable from officers, shareholders are to be limited to $155,000. 6. In the event Borrower obtains additional equity financing, whether through a public or private offering or venture capital financing and such funding exceeds, in one or more transactions, an aggregate of at least $2 million, Lender may request that the Lender be repaid in full unless Borrower shall satisfy Lender that the disposition of such funding will not adversely impact the repayment of the Loan. Borrower: Lender: OPTIMUMCARE CORPORATION NATIONAL BANK OF SOUTHERN CALIFORNIA By: By: ---------------------------- ------------------------------------ Edward A. Johnson, President Raymond T. Way, First Vice President 21 AGREEMENT TO PROVIDE INSURANCE
=========================================================================================================== Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,500,000.00 05-01-1998 4000928 5005 423157 112 - -----------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: OPTIMUMCARE CORPORATION, A DELAWARE Lender: NATIONAL BANK OF SOUTHERN CALIFORNIA CORPORATION NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 ===========================================================================================================
INSURANCE REQUIREMENTS. OPTIMUMCARE CORPORATION ("Grantor") understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to Grantor by Lender. These requirements are set forth in the security documents. The following minimum insurance coverages must be provided on the following described collateral (the "Collateral"): Collateral: All Inventory, Equipment and Fixtures. Type. All risks, including fire, theft and liability. Amount. Full insurable value. Basis. Replacement value. Endorsements. Lender's loss payable clause with stipulation that coverage will not be cancelled or diminished without a minimum of ten (10) days' prior written notice to Lender. INSURANCE COMPANY. Grantor may obtain insurance from any insurance company Grantor may choose that is reasonably acceptable to Lender. Grantor understands that credit may not be denied solely because insurance was not purchased through Lender. FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, thirty (30) days from the date of this Agreement, evidence of the required insurance as provided above, with an effective date of May 15, 1997, or earlier. Grant acknowledges and agrees that if Grantor fails to provide any required insurance or fails to continue such insurance in force, Lender may do so at Grantor's expense as provided in the applicable security document. These cost of any such insurance, at the option of Lender, shall be payable on demand or shall be added to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS. AUTHORIZATION. For the purposes of insurance coverage on the Collateral, Grantor authorizes Lender to provide to any person (including any insurance agent or company) all information Lender deems appropriate, whether regarding Collateral, the loan or other financial accommodations, or both. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 15, 1997. GRANTOR: OPTIMUMCARE CORPORATION By: ---------------------------- EDWARD A. JOHNSON, PRESIDENT ================================================================================ FOR LENDER USE ONLY INSURANCE VERIFICATION DATE:_______________________________ PHONE: _____________________________ AGENT'S NAME:__________________________________ INSURANCE COMPANY:_____________________________ POLICY NUMBER:_________________________________ EFFECTIVE DATES:_______________________________ COMMENTS:______________________________________ ================================================================================ 22
=========================================================================================================== Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,500,000.00 05-01-1998 4000928 5005 423157 112 - -----------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: OPTIMUMCARE CORPORATION, A DELAWARE Lender: NATIONAL BANK OF SOUTHERN CALIFORNIA CORPORATION NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 ===========================================================================================================
TO:______________________________ DATE: May 15, 1997 Dear Insurance Agent: OPTIMUMCARE CORPORATION ("Grantor") is obtaining a loan from NATIONAL BANK OF SOUTHERN CALIFORNIA. Please send appropriate evidence of insurance to NATIONAL BANK OF SOUTHERN CALIFORNIA, together with the requested endorsements, on the following property, which Borrower is giving as security for the loan. Collateral: All Inventory, Equipment and Fixtures. Type. All risks, including fire, theft and liability. Amount. Full insurable value. Basis. Replacement value. Endorsements. Lender's loss payable clause with stipulation that coverage will not be cancelled or diminished without a minimum of ten (10) days' prior written note to Lender. BORROWER: OPTIMUMCARE CORPORATION By: ---------------------------------------- EDWARD A. JOHNSON, PRESIDENT MAIL TO: NATIONAL BANK OF SOUTHERN CALIFORNIA 4100 NEWPORT PLACE, SUITE 120 NEWPORT BEACH, CA 92660 EX-10.95 3 INPATIENT AND OUTPATIENT PSYCHIATRIC UNIT MNGT. 1 EXHIBIT 10.95 PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT THIS PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT ("Agreement") is made and entered into by and between CATHOLIC HEALTHCARE WEST SOUTHERN CALIFORNIA, a California nonprofit public corporation doing business as St. Francis Medical Center ("Medial Center"), and OPTIMUMCARE CORPORATION, a Delaware corporation ("Manager"). RECITALS A. Medical Center operates a general acute care hospital in which is located a mental health unit which provides adult inpatient psychiatric services ("Inpatient Program"). B. Manager is in the business of providing management and other services for the treatment of inpatient psychiatric patients in compliance with industry, regulatory, and governmental standards and requirements through its OPTIMUMCARE PSYCH UNIT PROGRAM. C. Medical Center and Manager desire to enter into this Agreement in order to set forth the terms and conditions upon which Manager will provide Inpatient Program management and other services to or for the benefit of Medical Center. NOW, THEREFORE, in consideration of the mutual covenants, conditions, and promises set for the herein, and for such other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Term and Termination. 1.1 Term: Unless sooner terminated in accordance with the provisions of Sections 10 hereof, this agreement shall commence at 12:01 a.m. on June 1, 1997 and shall remain in full force and effect for a term of one (1) year, expiring at 11:59 p.m. on May 31, 1998. 1.2 Termination: In addition to any other events causing termination under this Agreement, this Agreement may be terminated on the first to occur of any of the following: 1.2.1 Either party, at any time during the term of this Agreement, may terminate this Agreement without cause upon ninety (90) days' prior written notice. 1.2.2 Either party shall have the right to terminate this Agreement on thirty (30) days' prior written notice to the other party if the party to whom such notice is given is in breach of any material provision of this Agreement. The party claiming the right to terminate hereunder shall set forth, in the notice of intended termination required hereby, the facts underlying its claim that the other party is in breach of this Agreement. Notwithstanding 2 the foregoing, this Agreement shall not terminate in the event that the breaching party cures the breach within ten (10) days of the receipt of such notice, or if such breach is not reasonably capable of cure within such period, diligently prosecutes such cure to completion within the thirty (30) day notice period. 1.2.3 In the event there are any changes effected in the California Medical Assistance Program ("Medi-Cal"), Title XVIII of the Federal Social Security Act ("Medicare"), and/or substantial changes under other public or private health and/or hospital care insurance programs or policies which may have a material effect on the operations of Medical Center, Medical Center may elect to renegotiate this Agreement upon written notice of Manager. Medical Center shall indicate the basis upon which it has determined that such a material impact on its operations may result. In any case where such notice is provided, both parties shall negotiate a revised agreement, which, to the extent reasonably practicable, under the circumstances, each party will adequately protect its interests and fulfill its objectives in light of the governmental program or private insurance policy changes which constituted the basis for the exercise of this provision. In the event the parties are unable to negotiate a revised agreement within said period, Medical Center may thereupon elect to terminate this Agreement upon thirty (30) days' prior written notice. 1.3 Subject to the provisions of the sections above, Manager shall immediately cause the removal of any Inpatient Program Director, Medical Director or any physician or licensed professional providing professional services for the Inpatient Program under Manager's employment or contract, who is subject to or under disciplinary action by licensing or other authorities, or whose performance results in disciplinary action by the Medical Staff, and/or whose performance results in a final judgement awarding damages of $100,000 or more against the Medical Center and/or if any such physician(s) loses (or has suspended or modified or placed on probation) his or her Medical Staff membership and/or clinical privileges to practice psychiatry or his or her profession at the Medical Center. If Manager fails to immediately terminate any such professional, then Medical Center may immediately terminate this Agreement. 1.4 If either party to this Agreement should be declared bankrupt or become insolvent or liquidate for any reason, the other party may transmit to the former party written notice of its intention to immediately terminate this Agreement, specifying with particularity the event justifying such notice; provided, that the delay or failure of a party so to transmit written notice shall not constitute a waiver by said party of any default hereunder or of any other or further default under this Agreement by the former party. If the event justifying such notice is the bankruptcy, insolvency or liquidation of the party receiving such notice, this Agreement shall terminate forthwith. 1.5 This Agreement may be terminated by Medical Center immediately on written notice if: 1.5.1 Medical Center gives written notice to Manager (specifying in reasonable detail the reasons and events giving rise to the delivery of such notice) that the Inpatient Program operated by manager has failed to meet licensing, payor certification, or 3 JCAHO standards of patient care or requirements, or Medical Center's or its Medical Staff's standards, and Manager fails to remedy such deficiencies to Medical Center's absolute satisfaction within thirty (30) days of receipt of such notice. 1.5.2 Manager initiates or undergoes, without Medical Center's prior written approval, (a) any sale or transfer of all or substantially all of its assets other than in the ordinary course of business; (b) any dissolution, merger or reorganization; or (c) any change, individually or through a series of transactions, in a 20% or greater ownership, voting or control interest in Manager or any change in Manager's management with responsibility over the Inpatient Program. 2. Covenants of the Medical Center. Medical Center shall: 2.1 Subject to availability and budgetary constraints, shall provide space that shall accommodate a minimum of forty (40) inpatient beds in a discrete contiguous wing of the Medical Center facility for Program inpatients ("Unit"). Medical Center shall also provide the services, facilities and support of other Medical Center departments, including without limitation, available diagnostic facilities, as Medical Center determines is reasonably necessary for Program patients and as ordered by said patients' attending physicians. Medical Center shall also provide office space for Manager's Program Director within the Unit as Medical Center reasonably determines is necessary for the operation of the Program, subject to space and budgetary constraints. Manager shall accept such space, facilities, etc. of Medical Center in "as is" condition, and title to such space, facilities, etc. shall remain at all times in Medical Center. Said Unit space shall be used solely for the operation of the Program and for no other purposes. 2.2 Provide the Inpatient Program with qualified nursing personnel, at staffing levels sufficient to meet Inpatient Program needs as determined by Medical Center in its sole discretion, who are trained and experienced in psychiatric nursing and provide other non-physician personnel, such personnel collectively referred to herein as "Medical Center Personnel". Medical Center shall be responsible for employing or engaging such Medical Center Personnel and are solely liable to such personnel for payment of their wages, compensation and employee benefits. Said personnel shall comply with the Inpatient Program policies and procedures as developed by Medical Center. 2.3 Assist Manager in maintaining accreditation of the Inpatient Program by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), Accreditation Council for Psychiatric Facilities, and pay all related application fees, and assist Manager in the preparation of any and all information, data and materials required in connection with application or renewal for such accreditation. Medical Center shall also obtain, with Manager's full cooperation and assistance, any and all certifications or approvals from the Medicare and MediCal Programs and from any other governmental or private payment or reimbursement programs. Medical Center shall also obtain, with manager's full assistance and cooperation, any consents or approvals to maintain the Program as an inpatient service under Medical Center's general acute care hospital license. manager shall be solely liable for any costs or expenses that it incurs 4 in connection with providing assistance to, and cooperating with, Medical Center in obtaining the consents and approvals described in this Section 2.4. 2.4 Acknowledges that the selection, continued employment and termination of employment and overall supervision and direction of Medical Center Personnel for the Inpatient Program shall be at the sole discretion of Medical Center's Administration. However, Medical Center agrees that it shall consult with Manager in the event Manager desires the removal from the Program of any Medical Center Personnel, provided that such request is made in writing specifying with particularity the cause for such request and such request shall not be made unreasonably. 2.5 Provide: (1) maintenance of the patient care areas used for the Inpatient Program as Medical Center determines is necessary upon consultation with Manager; (2) dietary service for Program patients as is normally available to other Medical Center patients; (3) housekeeping services for patients and Manager's offices at the Medical Center as is normally available to other Medical Center patients; (4) telephone and utilities for patient areas and Manager's offices at the Medical enter as is normally available for Medical Center facilities; and (5) other services of Medical Center departments customarily provided in the ordinary course of business to Medical Center patients (e.g. record keeping); all of which as reasonably determined by Medical Center to be necessary for the efficient operation of the Program. 2.6 Provide oversight and supervision for appropriate utilization review ("UR") and quality improvement ("QI") programs and procedures developed and implemented by Manager in cooperation with Medical Center for the Inpatient Program, and integrate such programs and procedures with Medical Center's other such programs and procedures. 2.7 Review and, if acceptable, approve Manager's publicity and marketing plans and advertising, publicity and marketing materials for the Program, from time to time. 2.8 Maintain its general and professional liability insurance, or self-insurance, coverage for Medical Center and Medical Center employees or agents. 3. Covenants of Manager. Manager shall: 3.1 Provide professional and general liability insurance coverage of at least Three Million Dollars ($3,000,000) per occurrence with an aggregate limitation of Five Million Dollars ($5,000,000) with respect to Manager and Manager's employees, agents, and contractors that Manager retains to provide services to the Program. If Manager provides a claims-made policy, Manager shall either maintain such insurance coverage in force following the termination of this Agreement, or provide evidence of adequate "tail" coverage, with such terms and conditions approved in advance by medical Center. Manager shall also ensure that each physician providing professional services on behalf of the Inpatient Program maintains professional liability insurance in the minimum coverage amounts and subject to the terms specified herein. All insurance policies providing coverage as described above shall provide for 5 at least thirty (30) days' prior written notice to Medical Center prior to any modification, amendment or cancellation of such coverage taking effect. Manager shall provide Medical Center with certificates evidencing the insurance coverage required above immediately upon the execution of this Agreement. 3.2 Subject to Medical Center's approval, Manager shall develop, implement and supervise the Inpatient Program. The Inpatient Program shall include intensive, specialized inpatient services for the care and treatment of adult psychiatric patients. Manager shall, in general, develop clinical treatment programs that meet the clinical needs and community standards, and are in compliance with the licensure and accreditation requirements for governmental and regulatory agencies and payors. Manager shall provide ongoing management and support services for the Inpatient Program. 3.3 Provide the following personnel for the Inpatient Program: (1) a Medical Director assigned exclusively full-time to the Program (who shall be a psychiatrist duly licensed in good standing by the State of California, shall be certified by the Board of Psychiatry, and shall be a member in good standing of the Medical Center's Medical Staff with clinical privileges in Psychiatry); (2) a Program Director assigned exclusively full-time to manage the Inpatient Program and who shall have day-to-day management responsibility for the Program and Program personnel, (3) clinical psychologist(s) in a number acceptable to Medical Center, one of whom shall be designated as chief therapist; (4) A Program Coordinator, with such licensure and background as shall be approved in advance by Medical Center; and (5) occupational/recreational therapist(s) in numbers sufficient to meet Inpatient Program needs, additional licensed counselors in numbers sufficient to meet Inpatient Program needs, and any other non-physician personnel required for the Inpatient Program who are not provided by Medical Center hereunder. Any and all non-Medical Center personnel employed or contracted for by Manager to render services in the Inpatient Program shall be subject to prior approval by Medical Center and, as applicable, its Medical Staff and shall be compatible with Medical Center's employment standards, and Medical Center shall be furnished a job description and resume of qualifications and work experience with respect to such personnel as well as any completed applications as may be required by Medical Center or its Medical Staff. Such personnel shall not be deemed employees or agents of Medical Center, and Manager shall have full responsibility for wages, vacation pay, sick leave, payroll and other employment taxes, pension and retirement plan contributions, worker's compensation and unemployment insurance, social security, or any other benefits, or other pay or compensation whatsoever (collectively, "employee benefits") for any of Manager's employees or contractors provided hereunder, or providing services under this Agreement, as defined below. 3.4 Consult with the Medical Center for the development of clinical needs for the selection of Program nursing staff. 3.5 Provide, at its sole cost and expense, qualified personnel of Manager to conduct on-site orientation programs, to enable Medical Center to train the Program nursing staff and selective nursing personnel from other units of the Medical Center to act as back-up for the Program nursing staff. 6 3.6 Consult, manage and support the Inpatient Program treatment team's effort to provide quality psychiatric treatment working collaboratively with Medical Center's Medical Staff, and care management, UR and Discharge Planning personnel. 3.7 Any employee or contractor of Manager who, Medical Center, in its sole discretion, determines is incompatible with the goals, bylaws, rules, regulations, policies or procedures of Medical Center and/or its Medical Staff shall be removed by Manager upon thirty (30) days' prior written notice. Medical Center shall have the right, in its sole discretion, to approve or disapprove in advance in writing any proposed replacement or substitute for any of Manager's personnel hereunder. Any employee or contractor of Manager shall be immediately removed if Medical Center, in its sole discretion, determines that the individual's presence is a threat to patient care or the Medical Center's operations. Professionals provided by Manager shall apply for and maintain in good standing appropriate membership as an allied health professional or physician (as applicable) on Medical Center's Medical Staff with appropriate clinical privileges, as required by the Medical Staff bylaws, rules and regulations and shall not cause any suspension, reduction or termination of such membership or privileges or be placed on probation by the Medical Staff. 3.8 Submit monthly status reports for the Program to Medical Center's Administration in a form acceptable to Medical Center that will review Program operations during the previous month and outline planned activities for the coming month. 3.9 Initiate a comprehensive public information, education, marketing and referral development program, which shall be reviewed and approved periodically in coordination with other Medical Center public relations and marketing plans. Within thirty (30) days following the commencement date hereof, Manager shall present Medical Center for its review and approval with a detailed publicity and marketing plan, and Manager shall implement such plan within no later than thirty (30) days following Medical Center's approval thereof. Such publicity and marketing activities shall be conducted at Manager's sole cost and expense, which costs and expenses may include, without limitation, development of patient handbooks or brochures; printing of articles, business cards, stationery, and the like; development of public service announcements, advertising campaigns, press releases and radio commercials; preparation of invitations and announcements for educational programs; preparation of referral letters; and hosting seminars and workshops. Medical Center shall have the right and must approve or disapprove in advance all marketing programs, which approval shall not be unreasonably withheld. Manager shall not be permitted to use Medical Center's or Medical Center's name, logo or likeness without Medical Center's prior written approval. 3.10 Develop and implement operational policies and procedures for the Inpatient Program, including, without limitation, UR/QI procedures, in collaboration with Medical Center. Any and all Inpatient Program policies, procedures, programs and activities are subject to prior review and approval by Medical Center's administration and its Medical Staff. 3.11 Use its best efforts to assist Medical Center in working with governmental agencies, third-party payors and others to secure necessary licenses, permits, approvals, 7 accreditation and certifications for the Program. 3.12 Follow admission policies and procedures developed by Medical Center in respect to patients of Inpatient Program, as well as other authorizations for admission of patients to the Program and the provision of services to such patients on behalf of Medical Center as are required by governmental agencies or any other third-payor prior to the patient's admission. Utilize its best efforts to obtain additional Treatment Authorization Record's ("TAR's") and approvals for continued hospitalization and/or services as necessary to promote timely payment. 3.13 Obtain and maintain worker's compensation insurance for its employees and agents as required by California law. If permitted, Medical Center shall be added as an additional insured on such policy. 3.14 Commit no act or omission which adversely affects Medical Center's licensure reimbursement or certification or accreditation in connection with the management and operation of the Inpatient Program. 3.15 Cause patients to be admitted to the Inpatient Program (including but not limited to Medicare and Medi-Cal patients) only if the admission is ordered by a physician who is a member in good standing of the Medical Center Medical Staff with admitting privileges, and strictly in compliance with Medical Center's admission policies and procedures (as described above). 4. Representation and Warranties of Manager. Manager hereby represents and warrants to Medical Center as follows, which representations and warranties shall be true, accurate and complete on the date of this Agreement (as defined herein) and at all other times during the term hereof: 4.1 Manager is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware with the power and authority to carry on the business in which it is engaged and to perform its obligations under this Agreement. 4.2 The execution of this Agreement and the performance of the obligations of the Manager hereunder will not result in any breach of any of the terms, conditions or provisions of any agreement or other instrument to which the Manager is a party or by which it may be bound or affected, or contravene any governmental license, franchise, permit or other authorization possessed by either party, nor will such execution and performance violate any federal, state or local law, rule or regulation. This Agreement is a legal and binding obligation of Manager, and all corporate actions and approvals have been taken and obtained in order for Manager to enter into this Agreement. No approval, authorization or other action by, or filing with, any governmental authority or any other third party is required in connection with either party performing its duties and obligations hereunder. 4.3 There is no litigation, administrative proceedings or investigation pending 8 or threatened against Manager (nor is it subject to any judgement, order, decree or regulations of any court or other governmental administrative agency) pending or affect Manager which would materially adversely affect the performance of Manager's obligations hereunder. Without limiting the foregoing, Manager represents and warrants that it has strictly complied, is currently in compliance and shall strictly comply with any and all statutes, rules, regulations, decisions and guidelines applicable to the operation, management, reimbursement and/or payment of services provided by inpatient psychiatry programs which Manager is, has or shall be operating and/or managing, under the Medicare and Medi-Cal Programs and any other public or private third party reimbursement or payment program, and that Manager is not, has not been and shall not be under investigation, audit or challenge by any federal or state agency or authority in connection with any of its operations, policies or procedures. 4.4 Any and all personnel and professionals provided by Manager to the Inpatient Program shall be duly licensed and qualified, as applicable, and shall fulfill each of their terms, duties, obligations covenants, representations, warranties, responsibilities and indemnities applicable to them hereunder at all times while performing services for the Program. 5. Compensation. 5.1 Compensation payable to Manager by Medical Center shall be on a fixed fee basis and shall be the sum of Eighty Five Thousand Dollars ($85,000) per month for each month of service provided hereunder. On or before the fifth (5th) day of each calendar month Manager will forward to Medical Center an invoice from the previous month for the fees due and payable by Medical Center under this Section 5. Medical Center shall have ten (10) days following receipt of any such invoice to dispute Manager's days of service or claim for reimbursement in writing, which shall set forth the reasons for such dispute. If Medical Center does not dispute an invoice, the payment of the Management Fee is expressly conditioned upon Manager: (1) preparing and submitting to Medical Center on a periodic basis, as determined by Medical Center, complete and accurate time records on such forms specified by Medical Center, and complying with all requirements and supplying all documents necessary to otherwise substantiate claims by Medical Center to third party payors for services of Manager, Medical Director, Inpatient Program Director and Manager's other personnel; and (2) otherwise at all times being in compliance with the terms and conditions of this Agreement. Except as otherwise provided herein, a failure by Medical Center to pay the submitted invoice by the thirtieth (30th) day following receipt of the invoice shall be a material breach of this Agreement by Medical Center, which shall give Manager the right to terminate this Agreement for cause, unless such failure is due to Manager's default under this or any other provision of this Agreement. Any such termination of this Agreement by Manager shall not affect Medical Center's obligation to pay undisputed amounts due Manager under this Agreement, less any applicable credits, withholds or deductions. Should this Agreement terminate for any reason as provided for under this Agreement prior to the end of a calendar month, Manager shall be paid a pro-rata amount for services rendered prior to the termination as payment in full for services provided under this Agreement. 5.2 Medical Center or its duly authorized agents shall have the exclusive and sole right to bill and collect all charges for services rendered by Manager to patients in the 9 Inpatient Program. All amounts collected by Medical Center or its duly authorized agents pursuant to such invoices shall belong to Medical Center, and Manager shall have no right or interest in the same; provided however, this in no way restricts the Medical Director or other members of the Medical Center Medical Staff from billing and collecting fees for professional services rendered to patients in the Inpatient Program. 5.3 Both parties agree to evaluate the impact which HMO, Managed Care, PPO, and other group business opportunities may have on Inpatient Program operations, and to work collaboratively in the strategic planning and marketing processes. 5.4 If Medical Center is denied reimbursement for ten percent (10%) or more of the patient days billed under the Inpatient Program, compensation payable to Manager under Section 5.1 shall be decreased at the rate of Two Hundred and Fifty Dollars ($250.) per day denied in excess of that ten percent (10%). A denied day is defined as reimbursement that is denied by any third party payor, including MediCal, which denial has been appealed through the appropriate appeals process in accordance with Medical Center's regular billing and collection standards and practices. 5.4.1 The percentage of denied days shall be determined as follows: 5.4.2.1 The number of patient days billed under the Inpatient Program shall be identified for each six (6) month period of services ("billing period") provided hereunder. At the end of that billing period, the percentage of denied days for that billing period shall equal the sum of the number of denied days for that billing period divided by the total number of patient days billed. 6. Confidential Information. 6.1 For purposes of this Agreement, the term "Confidential Information" shall include the following: (1) all documents and other materials including but not limited to the Proposal, memoranda, manuals, handbooks, pamphlets, production books and audio or visual recordings, which contain written information relating to the Inpatient Program (excluding written materials distributed to patients in the Inpatient Program or as promotion for the Inpatient Program), (2) all methods, techniques and procedures utilized in providing psychiatric treatment services to patients in the Inpatient Program at the Medical Center not readily available through sources in the public domain; and (3) all trademarks, tradenames and service marks of Manager. 6.2 Medical Center agrees and acknowledges that Confidential Information is disclosed to it in confidence with the understanding that it constitutes valuable business information developed by Manager at great expenditure of time, effort and money. Medical Center agrees it shall not, without the express prior written consent of Manager, use Confidential Information for any purpose other than the performance of this Agreement. Medical Center further agrees to keep strictly confidential and hold in trust all Confidential Information and not disclose or reveal such information to any third party without the express prior written consent of Manager. It is expressly understood that Medical Center will continue to disclose patient 10 information to insurers and governmental agencies as mandated. 6.3 Medical Center acknowledges that the disclosure of Confidential Information to it by Manager is done in reliance upon the Medical Center's representation and covenants in this Agreement. Upon termination of this Agreement by either party for any reason whatsoever, Medical Center shall forthwith return all material constituting or containing Confidential Information and Medical Center will not thereafter use, appropriate, or reproduce such information or disclose such information to any third party, except as mandated by law. 6.4 Non-Disclosure. Manager acknowledges that during the term of this Agreement she may be given access to certain proprietary information and trade secrets of Medical Center ("Trade Secrets"). The Trade Secrets will include information relative to Medical Center and may also include information encompassed in business plans, proposals, marketing and development plans, financial information, costs and other concepts, ideas or know-how related to the business or developments of CHWSC which have not been publicly released by Medical Center or its duly authorized representatives. Manager shall preserve and maintain as confidential all Trade Secrets that have been or may be obtained by her in the courses of her performance of services under this Agreement. Manager also shall not, without the prior written consent of Medical Center, use for her own benefit or purposes, or disclosure to others, either during the term of this Agreement hereunder or thereafter, any Trade Secret. All Trade Secrets shall constitute "trade secrets" under the Uniform Trade Secrets Act contained in California Civil Code Sections 3426 et seq., and Medical Center shall be entitled to all protection and be afforded all remedies available under such Act. 7. Recruitment of Employees and Independent Contractors. 7.1 Medical Center acknowledges that Manager has and will continue to expend substantial time, effort, and money training its employees and independent contractors in the operation of the Program. The employees and independent contractors of manager who will operate the program at the Medical Center will have access to and possess Confidential Information of Manager. Medical Center acknowledges that to employ or contract with former employees or independent contractors of Manager would likely result in the use of Manager's Confidential Information in violation of Section 6 hereof. Medical Center, therefore, agrees that during the term of this Agreement and for one (1) year thereafter, it will not, and it will cause Medical Center, not to employ, solicit the employment of, or in any way retain the services of any employee, former employee, or independent contractor of Manager if such individual has been employed or retained by Manager and has provided services under this Agreement as Medical Center at any time during the immediate preceding one (1) year unless Manager gives Medical Center prior written consent thereto. 7.2 Manager agrees that during the same respective period of time, it will not employ or solicit the employment of or in any way retain the services of any employee, former employee, or contracted personnel or former agent of Medical Center without Medical Center's prior written consent thereto. 8. Service Mark License. 11 Medical Center acknowledges that "OptimumCare" and "OptimumCare Unit" are registered service marks belonging exclusively to OptimumCare, and that during the term of this Agreement only, Medical Center is licensed to utilized these service marks in the marketing of professional services for the treatment of adult psychiatric patients in the Program. Medical Center's use of these service marks shall inure to the benefit of OptimumCare, and shall not give Medical Center any right or title therein, and any common law service marks rights acquired as a consequence of Medical Center's use thereof are hereby assigned exclusively to OptimumCare. At the termination of this Agreement, Medical Center shall immediately terminate the use of these service marks unless a separate written service mark license agreement, specifically authorizing continues use of such service marks, is entered into by the parties hereto at that time. Medical Center will not cause any documents to be printed bearing such service marks without an accompanying mark indicating that such service marks are registered service marks. Manager likewise agrees that all publication and information pieces developed or utilized for any purpose involving the Medical Center must first have specific authorization of the Medical Center. 9. Compliance with Regulations. Manager will conduct its activities and operations in strict compliance with all rules and regulations of the Medical Center, its medical staff and applicable state and other government authorities and agencies. Manager's employees and representatives shall comply with and observe such rules and regulations. 10. Jeopardy. Notwithstanding anything to the contrary hereinabove contained, in the event the performance by either party hereto of any term, covenant, condition or provision of this Agreement should jeopardize the licensure of Medical Center, its participation in, or its certification or reimbursement from, Medicare, Medi-Cal, Blue Cross or any other reimbursement or payment program, or its full accreditation by JCAHO or any other state or nationally recognized accreditation, organization, or if for any reason said performance should be in violation or be deemed unethical by any recognized body, agency or association in the Medical or hospital fields, Medical Center may at its option terminate this Agreement forthwith. 11. Miscellaneous. Compulsory Arbitration: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration in accordance with the rules of the American Arbitration Association, and judgement on the award rendered may be entered in any court having jurisdiction. However, this shall not apply with respect to any claim for indemnity for bodily injury or death. 12. Attorney Fees. If any legal action (including arbitration) is necessary to enforce the term of this Agreement, the prevailing party shall be entitled to reasonably attorney's fees and costs awarded 12 against the other party in addition to any other relief to which that party may be entitled. 13. Governing Law. The validity of this Agreement, the interpretation of the rights and duties of the parties hereunder and the construction of the terms hereof shall be governed in accordance with the internal laws of the State of California. 14. Federal Government Access. Until the expiration of four (4) years after the furnishing of services pursuant to this Agreement, Manger shall make available, upon request to the Secretary of Health and Human Services, or upon request to the Controller General, or any of their duly authorized representatives, this Agreement, books, documents and records of manager that are necessary to certify the nature and extent of the cost claimed to Medicare with respect to the services provided under this Agreement. 15. Notice. All notices hereunder shall be in writing, delivered personally or by Certified or Registered postal mails, postage prepaid, return receipt requested, and shall be deemed given when delivered personally or when deposited in the United States mail, addressed as below with proper postage affixed, but each may change his address by written notice in accordance with this Paragraph. Medical Center's Address: St. Francis Medical Center 3630 East Imperial Highway Lynwood, CA 90262 Attention: Administrator Copy to: CHW Southern California 790 E. Colorado Blvd., Suite 600 Pasadena, CA 91101 Attention: Corporate Counsel Manager's Address: OptimumCare Corporation 428 Culver Blvd. Playa Del Rey, CA 90293 16. Severability. If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any court or other tribunal, then the application of such clause or provision in contexts or to situations, circumstances or persons other than that in or to which it is held unenforceable, invalid or in 13 violation of law shall not be affected thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect. 17. Captions. Any captions to or headings of the Articles, Paragraphs or subparagraphs of this Agreement are solely for the convenience of the parties, ad shall not be interpreted to affect the validity of this Agreement or to limit or affect any rights, obligations, or responsibilities of the parties arising hereunder. 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 19. Entire Agreement; Amendment. This Agreement constitutes the full and complete agreement and understanding between the parties hereto and shall supersede all prior written and oral agreements concerning the subject matter contained herein. Unless otherwise provided herein, this Agreement may be modified, amended or waived only by a written instrument executed by all of the parties hereto. 20. Force Majeure. Neither party shall be liable nor deemed to breach this Agreement for any delay or failure in performance or other interruption of service resulting, directly or indirectly, from Acts of God, civil or military authority, acts of the public enemy, riots or civil disobedience, war, accidents, fires, explosions, earthquakes, floods, failure of transportation, machinery or supplies, vandalism, strikes or other work interruptions by the employees of any party, or any other cause beyond the reasonable control of the party affected thereby. However, each party shall utilize its best good faith efforts to perform under this Agreement in the event of any such occurrence or circumstance. 21. Gender and Number. Whenever the context hereof requires, the gender of all terms shall include the masculine, feminine, and neuter, and the number shall include the singular and plural. 22. Ambiguities. The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to such ambiguous provision. 14 23. Waiver. No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, or to exercise any right, power or remedy hereunder or under law or consequent upon a breach hereof or thereof shall constitute a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party from exercising any such right, power or remedy at any later time or times. 24. Indemnification. Manager and Medical Center shall each indemnify, defend and hold the other harmless against all claims and liabilities (including reasonable attorney's fees and costs of suit) that may arise as a result of the negligent, intentional or wrongful acts or omissions of the indemnifying party. 25. Independent Contractors. 25.1 In the performance of Manager's duties and obligations arising under this Agreement, Manager is at all times acting and performing as an independent contractor. Nothing in this Agreement is intended nor shall be construed to create between Manager and Medical Center, with respect to their relationship under this Agreement, either an employer/employee, joint venture, partnership, or landlord/tenant (lease) relationship. In the event that a determination is made for any reason that an independent contractor relationship does not exist between Manager and Medical Center, Medical Center may terminate this Agreement immediately upon written notice to Manager. 25.2 Manager shall reimburse Medical Center for the employee portion of all employee-related taxes, charges or levies which may be collected from Medical Center in the event that Manager is determined to be an employee of Medical Center and not an independent contractor. 15 SIGNATURE PAGE TO THE PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT IN WITNESS WHEREOF, this Agreement has been executed on JUNE 1, 1997, at LYNWOOD, California. Manager Medical Center OPTIMUMCARE CORPORATION CHW SOUTHERN CALIFORNIA doing business as ST. FRANCIS MEDICAL CENTER By: EDWARD A. JOHNSON By: GERALD T. KA.. ------------------------- ---------------------------- Edward A. Johnson Administrator, COO President By: MULU G. MICHAEL -------------------------- Mulu G. Michael Executive Vice President & Chief Operating Officer 16 SUPPORT ACTIVITIES OptimumCare Corporation Responsibilities: Patient Handbooks Brochure Reprints of Selected Articles Printing of Business Cards for OptimumCare Program Team Printing of Personalized OptimumCare Program Stationery, is desired Public Service Announcement Campaign - Including Materials Prepared for Television/Radio/Print Public Relations Campaigns Typing of Press Releases Typing of Radio and Television Spots of Medical Center Stationery, Addressing and Mailing of Invitations, Announcements and General Program Correspondence Marketing Expertise Medical Center Responsibilities: Typing of Public Relations and Referral Letters Providing Telephone System for the OptimumCare Program 17 EXHIBIT 10.95 OUTPATIENT PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT THIS OUTPATIENT PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT ("Agreement") is made and entered into by and between CATHOLIC HEALTHCARE WEST SOUTHERN CALIFORNIA, a California nonprofit public corporation doing business as St. Francis Medical Center ("Medial Center"), and OPTIMUMCARE CORPORATION, a Delaware corporation ("Manager"). RECITALS A. Medical Center operates a general acute care hospital in which is located a mental health unit which provides an adult partial hospitalization program for outpatient psychiatric services ("Outpatient Program"). B. Manager is in the business of providing management and other services for the treatment of inpatient psychiatric patients in compliance with industry, regulatory, and governmental standards and requirements through its OPTIMUMCARE PSYCH UNIT PROGRAM. C. Medical Center and Manager desire to enter into this Agreement in order to set forth the terms and conditions upon which Manager will provide Inpatient Program management and other services to or for the benefit of Medical Center. NOW, THEREFORE, in consideration of the mutual covenants, conditions, and promises set for the herein, and for such other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Term and Termination. 1.1 Term: Unless sooner terminated in accordance with the provisions of Sections 10 hereof, this agreement shall commence at 12:01 a.m. on June 1, 1997 and shall remain in full force and effect for a term of one (1) year, expiring at 11:59 p.m. on May 31, 1998. 1.2 Termination: In addition to any other events causing termination under this Agreement, this Agreement may be terminated on the first to occur of any of the following: 1.2.1 Either party, at any time during the term of this Agreement, may terminate this Agreement without cause upon ninety (90) days' prior written notice. 1.2.2 Either party shall have the right to terminate this Agreement on thirty (30) days' prior written notice to the other party if the party to whom such notice is given is in breach of any material provision of this Agreement. The party claiming the right to terminate hereunder shall set forth, in the notice of intended termination required hereby, the 18 facts underlying its claim that the other party is in breach of this Agreement. Notwithstanding the foregoing, this Agreement shall not terminate in the event that the breaching party cures the breach within ten (10) days of the receipt of such notice, or if such breach is not reasonably capable of cure within such period, diligently prosecutes such cure to completion within the thirty (30) day notice period. 1.2.3 In the event there are any changes effected in the California Medical Assistance Program ("Medi-Cal"), Title XVIII of the Federal Social Security Act ("Medicare"), and/or substantial changes under other public or private health and/or hospital care insurance programs or policies which may have a material effect on the operations of Medical Center, Medical Center may elect to renegotiate this Agreement upon written notice of Manager. Medical Center shall indicate the basis upon which it has determined that such a material impact on its operations may result. In any case where such notice is provided, both parties shall negotiate a revised agreement, which, to the extent reasonably practicable, under the circumstances, each party will adequately protect its interests and fulfill its objectives in light of the governmental program or private insurance policy changes which constituted the basis for the exercise of this provision. In the event the parties are unable to negotiate a revised agreement within said period, Medical Center may thereupon elect to terminate this Agreement upon thirty (30) days' prior written notice. 1.3 Subject to the provisions of the sections above, Manager shall immediately cause the removal of any Outpatient Program Director, Medical Director or any physician or licensed professional providing professional services for the Outpatient Program under Manager's employment or contract, who is subject to or under disciplinary action by licensing or other authorities, or whose performance results in disciplinary action by the Medical Staff, and/or whose performance results in a final judgement awarding damages of $100,000 or more against the Medical Center and/or if any such physician(s) loses (or has suspended or modified or placed on probation) his or her Medical Staff membership and/or clinical privileges to practice psychiatry or his or her profession at the Medical Center. If Manager fails to immediately terminate any such professional, then Medical Center may immediately terminate this Agreement. 1.4 If either party to this Agreement should be declared bankrupt or become insolvent or liquidate for any reason, the other party may transmit to the former party written notice of its intention to immediately terminate this Agreement, specifying with particularity the event justifying such notice; provided, that the delay or failure of a party so to transmit written notice shall not constitute a waiver by said party of any default hereunder or of any other or further default under this Agreement by the former party. If the event justifying such notice is the bankruptcy, insolvency or liquidation of the party receiving such notice, this Agreement shall terminate forthwith. 1.5 This Agreement may be terminated by Medical Center immediately on written notice if: 1.5.1 Medical Center gives written notice to Manager (specifying in reasonable detail the reasons and events giving rise to the delivery of such notice) that the 19 Outpatient Program operated by manager has failed to meet licensing, payor certification, or JCAHO standards of patient care or requirements, or Medical Center's or its Medical Staff's standards, and Manager fails to remedy such deficiencies to Medical Center's absolute satisfaction within thirty (30) days of receipt of such notice. 1.5.2 Manager initiates or undergoes, without Medical Center's prior written approval, (a) any sale or transfer of all or substantially all of its assets other than in the ordinary course of business; (b) any dissolution, merger or reorganization; or (c) any change, individually or through a series of transactions, in a 20% or greater ownership, voting or control interest in Manager or any change in Manager's management with responsibility over the Outpatient Program. 2. Covenants of the Medical Center. Medical Center shall: 2.1 Subject to availability and budgetary constraints, shall provide space that shall accommodate a minimum of forty (40) inpatient beds in a discrete contiguous wing of the Medical Center facility for Program inpatients ("Unit"). Medical Center shall also provide the services, facilities and support of other Medical Center departments, including without limitation, available diagnostic facilities, as Medical Center determines is reasonably necessary for Program patients and as ordered by said patients' attending physicians. Medical Center shall also provide office space for Manager's Program Director within the Unit as Medical Center reasonably determines is necessary for the operation of the Program, subject to space and budgetary constraints. Manager shall accept such space, facilities, etc. of Medical Center in "as is" condition, and title to such space, facilities, etc. shall remain at all times in Medical Center. Said Unit space shall be used solely for the operation of the Program and for no other purposes. 2.2 Provide the Inpatient Program with qualified nursing personnel, at staffing levels sufficient to meet Inpatient Program needs as determined by Medical Center in its sole discretion, who are trained and experienced in psychiatric nursing and provide other non-physician personnel, such personnel collectively referred to herein as "Medical Center Personnel". Medical Center shall be responsible for employing or engaging such Medical Center Personnel and are solely liable to such personnel for payment of their wages, compensation and employee benefits. Said personnel shall comply with the Inpatient Program policies and procedures as developed by Medical Center. 2.3 Assist Manager in maintaining accreditation of the Inpatient Program by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), Accreditation Council for Psychiatric Facilities, and pay all related application fees, and assist Manager in the preparation of any and all information, data and materials required in connection with application or renewal for such accreditation. Medical Center shall also obtain, with Manager's full cooperation and assistance, any and all certifications or approvals from the Medicare and MediCal Programs and from any other governmental or private payment or reimbursement programs. Medical Center shall also obtain, with manager's full assistance and cooperation, any consents or approvals to maintain the Program as an inpatient service under Medical Center's general 20 acute care hospital license. manager shall be solely liable for any costs or expenses that it incurs in connection with providing assistance to, and cooperating with, Medical Center in obtaining the consents and approvals described in this Section 2.4. 2.4 Acknowledges that the selection, continued employment and termination of employment and overall supervision and direction of Medical Center Personnel for the Inpatient Program shall be at the sole discretion of Medical Center's Administration. However, Medical Center agrees that it shall consult with Manager in the event Manager desires the removal from the Program of any Medical Center Personnel, provided that such request is made in writing specifying with particularity the cause for such request and such request shall not be made unreasonably. 2.5 Provide: (1) maintenance of the patient care areas used for the Inpatient Program as Medical Center determines is necessary upon consultation with Manager; (2) dietary service for Program patients as is normally available to other Medical Center patients; (3) housekeeping services for patients and Manager's offices at the Medical Center as is normally available to other Medical Center patients; (4) telephone and utilities for patient areas and Manager's offices at the Medical enter as is normally available for Medical Center facilities; and (5) other services of Medical Center departments customarily provided in the ordinary course of business to Medical Center patients (e.g. record keeping); all of which as reasonably determined by Medical Center to be necessary for the efficient operation of the Program. 2.6 Provide oversight and supervision for appropriate utilization review ("UR") and quality improvement ("QI") programs and procedures developed and implemented by Manager in cooperation with Medical Center for the Outpatient Program, and integrate such programs and procedures with Medical Center's other such programs and procedures. 2.7 Review and, if acceptable, approve Manager's publicity and marketing plans and advertising, publicity and marketing materials for the Program, from time to time. 2.8 Maintain its general and professional liability insurance, or self-insurance, coverage for Medical Center and Medical Center employees or agents. 3. Covenants of Manager. Manager shall: 3.1 Provide professional and general liability insurance coverage of at least Three Million Dollars ($3,000,000) per occurrence with an aggregate limitation of Five Million Dollars ($5,000,000) with respect to Manager and Manager's employees, agents, and contractors that Manager retains to provide services to the Program. If Manager provides a claims-made policy, Manager shall either maintain such insurance coverage in force following the termination of this Agreement, or provide evidence of adequate "tail" coverage, with such terms and conditions approved in advance by medical Center. Manager shall also ensure that each physician providing professional services on behalf of the Outpatient Program maintains professional liability insurance in the minimum coverage amounts and subject to the terms 21 specified herein. All insurance policies providing coverage as described above shall provide for at least thirty (30) days' prior written notice to Medical Center prior to any modification, amendment or cancellation of such coverage taking effect. Manager shall provide Medical Center with certificates evidencing the insurance coverage required above immediately upon the execution of this Agreement. 3.2 Subject to Medical Center's approval, Manager shall develop, implement and supervise the Outpatient Program. The Outpatient Program shall include intensive, specialized inpatient services for the care and treatment of adult psychiatric patients. Manager shall, in general, develop clinical treatment programs that meet the clinical needs and community standards, and are in compliance with the licensure and accreditation requirements for governmental and regulatory agencies and payors. Manager shall provide ongoing management and support services for the Outpatient Program. 3.3 Provide the following personnel for the Inpatient Program: (1) a Medical Director assigned exclusively full-time to the Outpatient Program (who shall be a psychiatrist duly licensed in good standing by the State of California, shall be certified by the Board of Psychiatry, and shall be a member in good standing of the Medical Center's Medical Staff with clinical privileges in Psychiatry); (2) an Outpatient Program Director assigned exclusively full-time to manage the Outpatient Program and who shall have day-to-day management responsibility for the Outpatient Program and Outpatient Program personnel, (3) clinical psychologist(s) in a number acceptable to Medical Center, one of whom shall be designated as chief therapist; (4) A Partial Hospitalization Program Coordinator, with such licensure and background as shall be approved in advance by Medical Center; and (5) occupational/recreational therapist(s) in numbers sufficient to meet Outpatient Program needs, additional licensed counselors in numbers sufficient to meet Outpatient Program needs, and any other non-physician personnel required for the Outpatient Program who are not provided by Medical Center hereunder. Any and all non-Medical Center personnel employed or contracted for by Manager to render services in the Outpatient Program shall be subject to prior approval by Medical Center and, as applicable, its Medical Staff and shall be compatible with Medical Center's employment standards, and Medical Center shall be furnished a job description and resume of qualifications and work experience with respect to such personnel as well as any completed applications as may be required by Medical Center or its Medical Staff. Such personnel shall not be deemed employees or agents of Medical Center, and Manager shall have full responsibility for wages, vacation pay, sick leave, payroll and other employment taxes, pension and retirement plan contributions, worker's compensation and unemployment insurance, social security, or any other benefits, or other pay or compensation whatsoever (collectively, "employee benefits") for any of Manager's employees or contractors provided hereunder, or providing services under this Agreement, as defined below. 3.4 Consult with the Medical Center for the development of clinical needs for the selection of Program nursing staff. 3.5 Provide, at its sole cost and expense, qualified personnel of Manager to conduct on-site orientation programs, to enable Medical Center to train the Program nursing staff and selective nursing personnel from other units of the Medical Center to act as back-up for the 22 Program nursing staff. 3.6 Consult, manage and support the Outpatient Program treatment team's effort to provide quality psychiatric treatment working collaboratively with Medical Center's Medical Staff, and care management, UR and Discharge Planning personnel. 3.7 Any employee or contractor of Manager who, Medical Center, in its sole discretion, determines is incompatible with the goals, bylaws, rules, regulations, policies or procedures of Medical Center and/or its Medical Staff shall be removed by Manager upon thirty (30) days' prior written notice. Medical Center shall have the right, in its sole discretion, to approve or disapprove in advance in writing any proposed replacement or substitute for any of Manager's personnel hereunder. Any employee or contractor of Manager shall be immediately removed if Medical Center, in its sole discretion, determines that the individual's presence is a threat to patient care or the Medical Center's operations. Professionals provided by Manager shall apply for and maintain in good standing appropriate membership as an allied health professional or physician (as applicable) on Medical Center's Medical Staff with appropriate clinical privileges, as required by the Medical Staff bylaws, rules and regulations and shall not cause any suspension, reduction or termination of such membership or privileges or be placed on probation by the Medical Staff. 3.8 Submit monthly status reports for the Outpatient Program to Medical Center's Administration in a form acceptable to Medical Center that will review Outpatient Program operations during the previous month and outline planned activities for the coming month. 3.9 Initiate a comprehensive public information, education, marketing and referral development program, which shall be reviewed and approved periodically in coordination with other Medical Center public relations and marketing plans. Within thirty (30) days following the commencement date hereof, Manager shall present Medical Center for its review and approval with a detailed publicity and marketing plan, and Manager shall implement such plan within no later than thirty (30) days following Medical Center's approval thereof. Such publicity and marketing activities shall be conducted at Manager's sole cost and expense, which costs and expenses may include, without limitation, development of patient handbooks or brochures; printing of articles, business cards, stationery, and the like; development of public service announcements, advertising campaigns, press releases and radio commercials; preparation of invitations and announcements for educational programs; preparation of referral letters; and hosting seminars and workshops. Medical Center shall have the right and must approve or disapprove in advance all marketing programs, which approval shall not be unreasonably withheld. Manager shall not be permitted to use Medical Center's or Medical Center's name, logo or likeness without Medical Center's prior written approval. 3.10 Develop and implement operational policies and procedures for the Outpatient Program, including, without limitation, UR/QI procedures, in collaboration with Medical Center. Any and all Outpatient Program policies, procedures, programs and activities are subject to prior review and approval by Medical Center's administration and its Medical Staff. 23 3.11 Use its best efforts to assist Medical Center in working with governmental agencies, third-party payors and others to secure necessary licenses, permits, approvals, accreditation and certifications for the Program. 3.12 Follow admission policies and procedures developed by Medical Center in respect to patients of Outpatient Program, as well as other authorizations for admission of patients to the Program and the provision of services to such patients on behalf of Medical Center as are required by governmental agencies or any other third-payor prior to the patient's admission. Utilize its best efforts to obtain additional Treatment Authorization Record's ("TAR's") and approvals for continued participation in the Outpatient Program and/or services as necessary to promote timely payment. 3.13 Obtain and maintain worker's compensation insurance for its employees and agents as required by California law. If permitted, Medical Center shall be added as an additional insured on such policy. 3.14 Commit no act or omission which adversely affects Medical Center's licensure reimbursement or certification or accreditation in connection with the management and operation of the Outpatient Program. 3.15 Cause patients to be admitted to the Outpatient Program (including but not limited to Medicare and Medi-Cal patients) only if the admission is ordered by a physician who is a member in good standing of the Medical Center Medical Staff with admitting privileges, and strictly in compliance with Medical Center's admission policies and procedures (as described above). 4. Representation and Warranties of Manager. Manager hereby represents and warrants to Medical Center as follows, which representations and warranties shall be true, accurate and complete on the date of this Agreement (as defined herein) and at all other times during the term hereof: 4.1 Manager is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware with the power and authority to carry on the business in which it is engaged and to perform its obligations under this Agreement. 4.2 The execution of this Agreement and the performance of the obligations of the Manager hereunder will not result in any breach of any of the terms, conditions or provisions of any agreement or other instrument to which the Manager is a party or by which it may be bound or affected, or contravene any governmental license, franchise, permit or other authorization possessed by either party, nor will such execution and performance violate any federal, state or local law, rule or regulation. This Agreement is a legal and binding obligation of Manager, and all corporate actions and approvals have been taken and obtained in order for Manager to enter into this Agreement. No approval, authorization or other action by, or filing with, any governmental authority or any other third party is required in connection with either party performing its duties and obligations hereunder. 24 4.3 There is no litigation, administrative proceedings or investigation pending or threatened against Manager (nor is it subject to any judgement, order, decree or regulations of any court or other governmental administrative agency) pending or affect Manager which would materially adversely affect the performance of Manager's obligations hereunder. Without limiting the foregoing, Manager represents and warrants that it has strictly complied, is currently in compliance and shall strictly comply with any and all statutes, rules, regulations, decisions and guidelines applicable to the operation, management, reimbursement and/or payment of services provided by Outpatient psychiatry programs which Manager is, has or shall be operating and/or managing, under the Medicare and Medi-Cal Programs and any other public or private third party reimbursement or payment program, and that Manager is not, has not been and shall not be under investigation, audit or challenge by any federal or state agency or authority in connection with any of its operations, policies or procedures. 4.4 Any and all personnel and professionals provided by Manager to the Outpatient Program shall be duly licensed and qualified, as applicable, and shall fulfill each of their terms, duties, obligations covenants, representations, warranties, responsibilities and indemnities applicable to them hereunder at all times while performing services for the Program. 5. Compensation. 5.1 Compensation payable to Manager by Medical Center shall be on a fixed fee basis and shall be the sum of Eighty Five Thousand Dollars ($85,000) per month for each month of service provided hereunder. On or before the fifth (5th) day of each calendar month Manager will forward to Medical Center an invoice from the previous month for the fees due and payable by Medical Center under this Section 5. Medical Center shall have ten (10) days following receipt of any such invoice to dispute Manager's days of service or claim for reimbursement in writing, which shall set forth the reasons for such dispute. If Medical Center does not dispute an invoice, the payment of the Management Fee is expressly conditioned upon Manager: (1) preparing and submitting to Medical Center on a periodic basis, as determined by Medical Center, complete and accurate time records on such forms specified by Medical Center, and complying with all requirements and supplying all documents necessary to otherwise substantiate claims by Medical Center to third party payors for services of Manager, Medical Director, Outpatient Program Director and Manager's other personnel; and (2) otherwise at all times being in compliance with the terms and conditions of this Agreement. Except as otherwise provided herein, a failure by Medical Center to pay the submitted invoice by the thirtieth (30th) day following receipt of the invoice shall be a material breach of this Agreement by Medical Center, which shall give Manager the right to terminate this Agreement for cause, unless such failure is due to Manager's default under this or any other provision of this Agreement. Any such termination of this Agreement by Manager shall not affect Medical Center's obligation to pay undisputed amounts due Manager under this Agreement, less any applicable credits, withholds or deductions. Should this Agreement terminate for any reason as provided for under this Agreement prior to the end of a calendar month, Manager shall be paid a pro-rata amount for services rendered prior to the termination as payment in full for services provided under this Agreement. 5.2 Medical Center or its duly authorized agents shall have the exclusive and 25 sole right to bill and collect all charges for services rendered by Manager to patients in the Outpatient Program. All amounts collected by Medical Center or its duly authorized agents pursuant to such invoices shall belong to Medical Center, and Manager shall have no right or interest in the same; provided however, this in no way restricts the Medical Director or other members of the Medical Center Medical Staff from billing and collecting fees for professional services rendered to patients in the Outpatient Program. 5.3 Both parties agree to evaluate the impact which HMO, Managed Care, PPO, and other group business opportunities may have on Outpatient Program operations, and to work collaboratively in the strategic planning and marketing processes. 5.4 If Medical Center is denied reimbursement for ten percent (10%) or more of the patient days billed under the Outpatient Program, compensation payable to Manager under Section 5.1 shall be decreased at the rate of One Hundred Dollars ($100.) per day denied in excess of that ten percent (10%). A denied day is defined as reimbursement that is denied by any third party payor, including MediCal, which denial has been appealed through the appropriate appeals process in accordance with Medical Center's regular billing and collection standards and practices. 5.4.1 The percentage of denied days shall be determined as follows: 5.4.2.1 The number of outpatient days billed under the Outpatient Program shall be identified for each six (6) month period of services ("billing period") provided hereunder. At the end of that billing period, the percentage of denied days for that billing period shall equal the sum of the number of denied days for that billing period divided by the total number of patient days billed. 6. Confidential Information. 6.1 For purposes of this Agreement, the term "Confidential Information" shall include the following: (1) all documents and other materials including but not limited to the Proposal, memoranda, manuals, handbooks, pamphlets, production books and audio or visual recordings, which contain written information relating to the Outpatient Program (excluding written materials distributed to patients in the Outpatient Program or as promotion for the Outpatient Program), (2) all methods, techniques and procedures utilized in providing psychiatric treatment services to patients in the Inpatient Program at the Medical Center not readily available through sources in the public domain; and (3) all trademarks, tradenames and service marks of Manager. 6.2 Medical Center agrees and acknowledges that Confidential Information is disclosed to it in confidence with the understanding that it constitutes valuable business information developed by Manager at great expenditure of time, effort and money. Medical Center agrees it shall not, without the express prior written consent of Manager, use Confidential Information for any purpose other than the performance of this Agreement. Medical Center further agrees to keep strictly confidential and hold in trust all Confidential Information and not disclose or reveal such information to any third party without the express prior written consent 26 of Manager. It is expressly understood that Medical Center will continue to disclose patient information to insurers and governmental agencies as mandated. 6.3 Medical Center acknowledges that the disclosure of Confidential Information to it by Manager is done in reliance upon the Medical Center's representation and covenants in this Agreement. Upon termination of this Agreement by either party for any reason whatsoever, Medical Center shall forthwith return all material constituting or containing Confidential Information and Medical Center will not thereafter use, appropriate, or reproduce such information or disclose such information to any third party, except as mandated by law. 6.4 Non-Disclosure. Manager acknowledges that during the term of this Agreement she may be given access to certain proprietary information and trade secrets of Medical Center ("Trade Secrets"). The Trade Secrets will include information relative to Medical Center and may also include information encompassed in business plans, proposals, marketing and development plans, financial information, costs and other concepts, ideas or know-how related to the business or developments of CHWSC which have not been publicly released by Medical Center or its duly authorized representatives. Manager shall preserve and maintain as confidential all Trade Secrets that have been or may be obtained by her in the courses of her performance of services under this Agreement. Manager also shall not, without the prior written consent of Medical Center, use for her own benefit or purposes, or disclosure to others, either during the term of this Agreement hereunder or thereafter, any Trade Secret. All Trade Secrets shall constitute "trade secrets" under the Uniform Trade Secrets Act contained in California Civil Code Sections 3426 et seq., and Medical Center shall be entitled to all protection and be afforded all remedies available under such Act. 7. Recruitment of Employees and Independent Contractors. 7.1 Medical Center acknowledges that Manager has and will continue to expend substantial time, effort, and money training its employees and independent contractors in the operation of the Program. The employees and independent contractors of manager who will operate the program at the Medical Center will have access to and possess Confidential Information of Manager. Medical Center acknowledges that to employ or contract with former employees or independent contractors of Manager would likely result in the use of Manager's Confidential Information in violation of Section 6 hereof. Medical Center, therefore, agrees that during the term of this Agreement and for one (1) year thereafter, it will not, and it will cause Medical Center, not to employ, solicit the employment of, or in any way retain the services of any employee, former employee, or independent contractor of Manager if such individual has been employed or retained by Manager and has provided services under this Agreement as Medical Center at any time during the immediate preceding one (1) year unless Manager gives Medical Center prior written consent thereto. 7.2 Manager agrees that during the same respective period of time, it will not employ or solicit the employment of or in any way retain the services of any employee, former employee, or contracted personnel or former agent of Medical Center without Medical Center's prior written consent thereto. 27 8. Service Mark License. Medical Center acknowledges that "OptimumCare" and "OptimumCare Unit" are registered service marks belonging exclusively to OptimumCare, and that during the term of this Agreement only, Medical Center is licensed to utilized these service marks in the marketing of professional services for the treatment of adult psychiatric patients in the Program. Medical Center's use of these service marks shall inure to the benefit of OptimumCare, and shall not give Medical Center any right or title therein, and any common law service marks rights acquired as a consequence of Medical Center's use thereof are hereby assigned exclusively to OptimumCare. At the termination of this Agreement, Medical Center shall immediately terminate the use of these service marks unless a separate written service mark license agreement, specifically authorizing continues use of such service marks, is entered into by the parties hereto at that time. Medical Center will not cause any documents to be printed bearing such service marks without an accompanying mark indicating that such service marks are registered service marks. Manager likewise agrees that all publication and information pieces developed or utilized for any purpose involving the Medical Center must first have specific authorization of the Medical Center. 9. Compliance with Regulations. Manager will conduct its activities and operations in strict compliance with all rules and regulations of the Medical Center, its medical staff and applicable state and other government authorities and agencies. Manager's employees and representatives shall comply with and observe such rules and regulations. 10. Jeopardy. Notwithstanding anything to the contrary hereinabove contained, in the event the performance by either party hereto of any term, covenant, condition or provision of this Agreement should jeopardize the licensure of Medical Center, its participation in, or its certification or reimbursement from, Medicare, Medi-Cal, Blue Cross or any other reimbursement or payment program, or its full accreditation by JCAHO or any other state or nationally recognized accreditation, organization, or if for any reason said performance should be in violation or be deemed unethical by any recognized body, agency or association in the Medical or hospital fields, Medical Center may at its option terminate this Agreement forthwith. 11. Miscellaneous. Compulsory Arbitration: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration in accordance with the rules of the American Arbitration Association, and judgement on the award rendered may be entered in any court having jurisdiction. However, this shall not apply with respect to any claim for indemnity for bodily injury or death. 12. Attorney Fees. 28 If any legal action (including arbitration) is necessary to enforce the term of this Agreement, the prevailing party shall be entitled to reasonably attorney's fees and costs awarded against the other party in addition to any other relief to which that party may be entitled. 13. Governing Law. The validity of this Agreement, the interpretation of the rights and duties of the parties hereunder and the construction of the terms hereof shall be governed in accordance with the internal laws of the State of California. 14. Federal Government Access. Until the expiration of four (4) years after the furnishing of services pursuant to this Agreement, Manger shall make available, upon request to the Secretary of Health and Human Services, or upon request to the Controller General, or any of their duly authorized representatives, this Agreement, books, documents and records of manager that are necessary to certify the nature and extent of the cost claimed to Medicare with respect to the services provided under this Agreement. 15. Notice. All notices hereunder shall be in writing, delivered personally or by Certified or Registered postal mails, postage prepaid, return receipt requested, and shall be deemed given when delivered personally or when deposited in the United States mail, addressed as below with proper postage affixed, but each may change his address by written notice in accordance with this Paragraph. Medical Center's Address: St. Francis Medical Center 3630 East Imperial Highway Lynwood, CA 90262 Attention: Administrator Copy to: CHW Southern California 790 E. Colorado Blvd., Suite 600 Pasadena, CA 91101 Attention: Corporate Counsel Manager's Address: OptimumCare Corporation 428 Culver Blvd. Playa Del Rey, CA 90293 16. Severability. If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any court or other 29 tribunal, then the application of such clause or provision in contexts or to situations, circumstances or persons other than that in or to which it is held unenforceable, invalid or in violation of law shall not be affected thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect. 17. Captions. Any captions to or headings of the Articles, Paragraphs or subparagraphs of this Agreement are solely for the convenience of the parties, ad shall not be interpreted to affect the validity of this Agreement or to limit or affect any rights, obligations, or responsibilities of the parties arising hereunder. 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 19. Entire Agreement; Amendment. This Agreement constitutes the full and complete agreement and understanding between the parties hereto and shall supersede all prior written and oral agreements concerning the subject matter contained herein. Unless otherwise provided herein, this Agreement may be modified, amended or waived only by a written instrument executed by all of the parties hereto. 20. Force Majeure. Neither party shall be liable nor deemed to breach this Agreement for any delay or failure in performance or other interruption of service resulting, directly or indirectly, from Acts of God, civil or military authority, acts of the public enemy, riots or civil disobedience, war, accidents, fires, explosions, earthquakes, floods, failure of transportation, machinery or supplies, vandalism, strikes or other work interruptions by the employees of any party, or any other cause beyond the reasonable control of the party affected thereby. However, each party shall utilize its best good faith efforts to perform under this Agreement in the event of any such occurrence or circumstance. 21. Gender and Number. Whenever the context hereof requires, the gender of all terms shall include the masculine, feminine, and neuter, and the number shall include the singular and plural. 22. Ambiguities. The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of 30 the parties with respect to such ambiguous provision. 23. Waiver. No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, or to exercise any right, power or remedy hereunder or under law or consequent upon a breach hereof or thereof shall constitute a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party from exercising any such right, power or remedy at any later time or times. 24. Indemnification. Manager and Medical Center shall each indemnify, defend and hold the other harmless against all claims and liabilities (including reasonable attorney's fees and costs of suit) that may arise as a result of the negligent, intentional or wrongful acts or omissions of the indemnifying party. 25. Independent Contractors. 25.1 In the performance of Manager's duties and obligations arising under this Agreement, Manager is at all times acting and performing as an independent contractor. Nothing in this Agreement is intended nor shall be construed to create between Manager and Medical Center, with respect to their relationship under this Agreement, either an employer/employee, joint venture, partnership, or landlord/tenant (lease) relationship. In the event that a determination is made for any reason that an independent contractor relationship does not exist between Manager and Medical Center, Medical Center may terminate this Agreement immediately upon written notice to Manager. 25.2 Manager shall reimburse Medical Center for the employee portion of all employee-related taxes, charges or levies which may be collected from Medical Center in the event that Manager is determined to be an employee of Medical Center and not an independent contractor. 31 SIGNATURE PAGE TO THE OUTPATIENT PSYCHIATRIC UNIT MANAGEMENT SERVICES AGREEMENT IN WITNESS WHEREOF, this Agreement has been executed on JUNE 1, 1997, at LYNWOOD, California. Manager Medical Center OPTIMUMCARE CORPORATION CHW SOUTHERN CALIFORNIA doing business as ST. FRANCIS MEDICAL CENTER By: EDWARD A. JOHNSON By: GERALD T. KA --------------------------- ------------------------------------ Edward A. Johnson Administrator, COO President By: MULU G. MICHAEL -------------------------- Mulu G. Michael Executive Vice President & Chief Operating Officer 32 SUPPORT ACTIVITIES OptimumCare Corporation Responsibilities: Patient Handbooks Brochure Reprints of Selected Articles Printing of Business Cards for OptimumCare Program Team Printing of Personalized OptimumCare Program Stationery, is desired Public Service Announcement Campaign - Including Materials Prepared for Television/Radio/Print Public Relations Campaigns Typing of Press Releases Typing of Radio and Television Spots of Medical Center Stationery, Addressing and Mailing of Invitations, Announcements and General Program Correspondence Marketing Expertise Medical Center Responsibilities: Typing of Public Relations and Referral Letters Providing Telephone System for the OptimumCare Program EX-10.96 4 LEASE AGRMT. BETWEEN THE COMPANY AND RIBEIRO CORP. 1 EXHIBIT 10.96 THE RIBEIRO CORPORATION This Lease made and entered into June 23, 1997, by and between QUAIL PARK IV, AND NV LTD PARTNERSHIP hereinafter called "Lessor", and OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION hereinafter called "Lessee". WITNESSETH: DEMISED PREMISES Lessor hereby leases, demises and lets unto Lessee, and Lessee hereby leases, hires and takes from Lessor those certain Premises hereinafter called the "Demised Premises," located in the certain building (the "Building"), described as follows: THAT APPROXIMATE 3,840 SQUARE FEET OF OFFICE SPACE LOCATED AT 2810 W. CHARLESTON, LAS VEGAS, NEVADA 89102, KNOWN AS UNIT #77 & #78 AS INDICATED IN RED ON EXHIBIT "B" ATTACHED. This lease is made upon the following terms, covenants, and conditions to which the parties hereby agree: TERM: 1. The term of this Lease shall commence on AUGUST 1, 1997, and shall continue for a term of THIRTY-SIX (36) months from and after said date of commencement. If the Demised Premises require improvements to be constructed by the Lessor prior to occupancy of the said Demised Premises require improvements shall be set out in "Exhibit A" attached hereto, consisting of plans, specifications and descriptions of the work to be performed prior to said date of occupancy, together with the specification as to the cost of such improvements and the party to bear such cost of improvement. If, despite Lessor's best efforts, said Demised Premises, as improved in accordance with the agreement of the parties, are not delivered by Lessor on or before N/A 19 , this Lease shall have no further force or effect and each party shall be relieved of all obligations each to the other, provided that said date will be extended for a period equal to the time construction has been delayed due to causes beyond the reasonable control of Lessor. RENTAL 2. (a) Lessee agrees to pay a Base Monthly Rental (plus any excise, privilege or sales taxes or any tax levied on the rentals or the receipt thereof, except Lessor's income tax) on the first day of each calendar month throughout the demised term without offset or deduction of any kind. Rental to be paid in lawful monthly of the United States of America, which shall be legal tender at the time of payment of rents, as follows: 10/1/97 - 9/30/98: FIVE THOUSAND NINE HUNDRED FIFTY-TWO ($5,952.00) DOLLARS 10/1/98 - 9/30/99: SIX THOUSAND ONE HUNDRED FORTY-FOUR ($6,144.00) DOLLARS 10/1/99 - 9/30/00: SIX THOUSAND THREE HUNDRED THIRTY-SIX ($6,336.00) DOLLARS (b) Lessee understands that the issuance of a check or draft without funds or with intent to defraud is a criminal offense punishable by imprisonment or by a fine or both 2 fine and imprisonment. (c) In the event the term of this Lease commences other than on the first day of a calendar month, or if the termination date is not the last day of a month, a prorated monthly installment shall be paid for the fractional month during which this Lease commences and/or terminates. Payment of rent shall be made by Lessee to Lessor at such addresses as shall from time to time be designated by Lessor to Lessee in writing. (d) If any payment of Base Monthly Rental is not received by Lessor by the fifth (5th) day of the calendar month in which it is due, then that Base Monthly Rental payment shall be increased by five percent (5%) for that month. Nothing in this Lease shall be construed to permit the payment of rent after the date on which it is due. The parties hereby agree that such late charges represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptable of such late charged by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor excuse or cure any default by Lessee under this Lease, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. (e) "Rent", "Rental", "rent", or "rental" includes the Base Monthly Rental and other sums as may be due from Lessee pursuant to any of the provisions of this Lease, and any other sums, payable, or becoming payable to lessor under this Lease. (f) In the event a check comes back for insufficient funds, a service fee of $25.00 will be assessed to the Lessee. DEPOSIT 3. For and as additional consideration for the making of this Lease, Lessee shall pay to Lessor, upon execution of this Lease, the sum of: SIX THOUSAND FOUR HUNDRED THIRTY-SIX ($6,436.00) DOLLARS As a security deposit to insure Lessee's faithful performance of the terms, conditions, covenants and agreements of this Lease. The security deposit may not be applied against rental payments by the Lessee. If the Lessee fully complies with all the terms, conditions, covenants an agreements of this Lease, then within thirty (30) days after the expiration of the Lease term, and cleanup completed in conjunction with paragraph 33, the security deposit without interest shall be refunded to Lessee (or, at Lessor's option to the last permitted assignee of Lessee's interests hereunder) less the reasonable value of damages suffered by the Lessor, including but not limited to rental delinquencies, costs of repairs, cleaning, lock and key change charges and other obligations of Lessee to Lessor. TAXES, INSURANCE AND ASSESSMENTS 4.(a) As additional rent, Lessee agrees to pay to Lessor in each year of the term of this Lease a prorated amount equal to any rate increase of liability and casualty insurance required by the insurance company upon the building and Demised Premises in addition to an amount equal to an increase in taxes, general or special assessments, improvements or retrofitting expenses assessed by any federal, state or municipal authority for the real property of which the Building and Demised Premises are a part of. The proration of the insurance, taxes and assessments set forth above shall be based upon the percentage of the total floor space of the Building and Demised Premises, whether occupied or not, to the amount of floor space being leased by Lessee. Such additional rental shall be paid as soon as the amount thereof shall have been determined and upon written demand thereof by Lessor to Lessee, with the next succeeding installment of rental. Such additional rental shall be prorated for the first and last years of the demised terms to reflect 3 periods during either or both said years not included within the demised term. PURPOSED 5. Lessee agrees to use and occupy the Demised Premises during the term of this Lease for the purpose of: ADULT PSYCHIATRIC DAYCARE SERVICE & RELATED ACTIVITIES And for no other purpose whatsoever without the written consent of Lessor, Lessee shall not use, or permit the Demised Premises, or any part thereof, to be used, for any purpose or purposes other than the purpose for which said Demised Premises are hereby leased; and no use shall be made of the Demised Premises, or acts done, which will increase the rate of insurance upon the Building in which said Demised Premises may be located over the standard rate of insurance prevailing in the area in which said Demised Premises are located, or cause a cancellation of any part thereof, or make it impossible for Lessor to obtain an insurance policy covering the Building or any part thereof. If the rate of any insurance carried by Lessor is increased as a result of Lessees use, Lessee shall pay to Lessor the increase within ten (10) days after Lessor delivers to Lessee a certified statement from Lessor's insurance carrier stating that the rate of increase was caused solely by an activity of Lessee on the Premises as permitted in this Lease. Any other provision hereof to the contrary notwithstanding Lessee shall not do or permit anything to done in or about the Premises which will in any way obstruct or interfere with the rights of other Lessees or occupants of the Building or injure or annoy them or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause maintain or permit any nuisance in, on or about the Premises. Lessee will not commit or suffer to be committed any waste in or upon the Premises. ALTERATIONS AND ADDITIONS 6. (a) Lessee shall not, without Lessor's prior written consent, make any alterations, additions or utility installation, in, on or about the Demised Premises. As used in this Paragraph 6(a), the term "utility installation" shall include ducting, power panels, florescent fixtures, space heaters, conduit and wiring. As a condition to giving such consent, Lessor may require the Lessee agree to remove any such alterations, additions, improvements or utility installations at the expiration of the demised term and to restore the Demised Premises to their prior condition. As a further condition to giving such consent, Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1-1/2) times the estimated cost of such improvements, to insure Lessor against any liability for mechanics' and materialmen's liens and to insure completion of the work. (b) Unless Lessor requires their removal, as set forth in Paragraph 6(a), all alterations, additions, improvements and utility installments (whether or not such utility installations constitute trade fixtures of Lessee), which may be made on the Demised Premises, shall at the expiration or earlier termination of the Lease become the property of Lessor an remain upon and be surrendered with the Demised Premises. Notwithstanding the provision of the Paragraph 6(b), personal property, business and trade fixtures, cabinetwork, furniture, moveable partitions, machinery and equipment other than that which is affixed to the Demised Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 33, at any time during the term of this Lease when Lessee is not in default hereunder. (c) If the space is equipped with air conditioning and heating system, Lessor has designed air conditioning and heating system for standard office occupancy only. Such systems are NOT designed for excessive traffic, exposure to outside temperatures, excessive equipment, excessive personnel, nor computer room environment. Upgrading of air conditioning and heating systems can be done at Lessee's expense. GLASS AND 4 DOORS 7. Lessee shall be responsible for all doors and glass damages by wind, vandalism, etc., on the Demised Premises, and Lessee shall forthwith replace or repair same at Lessor's sole expense. ABANDONMENT 8. Lessee agrees not to vacate or abandon the Demised Premises at any time during the demised term. Should Lessee vacate or abandon the Demised Premises or be dispossessed by process of law or otherwise, such abandonment, vacation or dispossession shall be a default hereunder. Lessee agrees that any property not claimed within thirty (30) days after the abandonment of the Demised Premises by the Lessee, or after the expiration of thirty (30) days after the expiration or earlier termination of this Lease, becomes the property of the Lessor and shall be sold by the Lessor and the Lessor is to retain the proceeds derived therefrom as reimbursement for costs related to storing said property, and not as a penalty. LESSOR'S CONVEYANCE 9. If during the term of this Lease, Lessor shall repair and maintain the Demised Premises and every part thereof, including but not limited to all glazing, skylights, and signs in good, safe and sanitary condition, except those portions which Lessor agrees to maintain in this Paragraph 10. Lessor shall, at Lessor's expense, repair and maintain only the heating and air conditioning equipment and the exterior walls, exterior roof and cement-embedded or sub surface non-accessible plumbing serving the Demised Premises, sidewalks, driveways, landscaping and parking lots, except that Lessee shall reimburse Lessor for any costs incurred by Lessor in repair and maintenance of damage caused by the intentional or negligent act of Lessee, its officers, agents, partners, employees, tradesmen or customers. Lessor shall not be liable to Lessee or any other party whatsoever for any damage or injury caused by Lessor's failure to keep or maintain said heating and air conditioning equipment, exterior walls, exterior roof, cement-embedded or sub-surface, non-accessible plumbing, landscaping, sidewalks, driveways and parking lots unless Lessee has given Lessor written notice of the need to repair said portions of the Demised Premises and Lessor has failed to make said repairs within a reasonable time after receiving written notice. By entry hereunder, Lessee accepts the Demised Premises as being in good and sanitary order, condition and repair. It is understood and agreed that Lessor has no obligation to alter, remodel, improve, repair, decorate or paint the Demised premises or any part thereof, except as specifically herein set forth, and no representation's respecting the condition of the Demised Premises have been made by Lessor to Lessee, except as specifically herein set forth. LAWS AND REGULATIONS 11. (a) Lessee at its own cost and expense shall comply promptly with all laws, rules, and orders of all Federal, State and Municipal Governments, or departments which may be applicable to the Demised Premises. (b) Lessee shall faithfully observe and comply with the rules and regulations adopted by Lessor from time to time and all modifications of any additions thereto from time to time put into effect by Lessor. Lessor shall not be responsible to Lessee for the nonperformance by any other lessee or occupant of the Building of any of said rules and regulations. INDEMNIFICATION 12. Lessor shall not be liable to Lessee, its officers, agents, employees, customers, invitees or third parties for any loss or damage to property, including goods, wares and merchandise, or for any injury or death to persons, in, on, or about the Demised Premises. Lessee agrees to indemnify and save Lessor harmless of and from any and all costs, expenses, claims, demands, obligations and liabilities, cause or causes of action by reason of or in connection with the condition of state or repair or use of the Building, common areas, Demised Premises or appurtenances thereto including all adjacent sidewalks, alleys, and parking lots. 5 SIGNS AND AUCTIONS 13. Lessee shall not place or permit to be placed any advertising, sign, marquee, awning, decoration or other attachment on the common areas, in or on the Building or the real property on which the Building is situated or on the roof, front, windows, doors or exterior walls of the Demised Premises without the prior written consent of Lessor. Lessor may without liability, enter upon the Demised Premises or elsewhere and remove any such advertising, sign, marquee, awning, decoration or attachment affixed in violation of this Paragraph 13, all at Lessee's expense. Lessee shall not conduct any auction in the Demised Premises, the Building, or on any portion of the real property on which the Building and Demised Premises are situated, without Lessor's written consent. Any sign on any Building must be approved by Lessor in writing. UTILITIES 14. (a) Lessee, from time to time it first enters the Demised Premises for the purpose of setting fixtures, or from the commencement of the Term of this lease, whichever date shall first occur, and throughout the Term of this Lease shall pay prior to delinquency for all water, gas, heat, light, power, telephone service and all other utilities and services supplied to or consumed in or on the Demised Premises, whether or not separately metered. As additional rent, Lessee agrees to pay to Lessor the additional sum of ONE HUNDRED DOLLARS ($100.00) per month for water and sewer. In the event that there is an increase in water and sewer rates, Lessee shall pay that portion (the determination to be made by Lessor) of increase to Lessor within ten (10) days of written demand therefore by Lessor to Lessee. As additional rent, Lessor agrees to pay to Lessor an additional cost of N/A DOLLARS ($N/A) per month for gas. In the event that there is an increase in gas rates, Lessee shall pay its portion (the determination to be made by Lessor) of increase as the floor area of the Demised Premises bears to the total floor area of the Building, whether occupied or not. (b) LESSOR shall not be held responsible for any interruption in utilities whatsoever. ENTRY BY LESSOR 15. Lessee shall permit Lessor and its agents to enter the Demised Premises at all reasonable times or any of the following purposes: To inspect the same; to show said Demised Premises to prospective purchasers; to maintain the Building; to make such repairs to the Demised Premises as Lessor is obligated or elects to make; to make repairs, alterations, additions or utility installations to any other portion of the Building; to post notices of non-responsibility for alterations, additions, repairs or utility installations; for the purpose of placing upon the property in which said Premises are located any ordinary "for sale" sign. Lessee shall permit Lessor within sixty (60) days prior to the expiration of this Lease to place upon the Demised Premises ordinary "for lease" signs, and to show said Demised Premises to prospective Lessees during reasonable business hours. PARTIAL AND TOTAL DESTRUCTION 16. Lessor shall carry insurance on the Demised Premises under a standard form of fire and extended coverage policy and in the event of partial destruction of the Demised Premises during the term of this Lease from any cause insured under said policy, Lessor shall forthwith repair the same, provided such repairs can be made within ninety (90) days from date of such destruction, under the then applicable laws and regulations of Federal, State, County and Municipal authorities and in light of the extent of such damage and the then condition of the labor market and availability of materials and supplied, but such partial destruction shall in no way annual or void this Lease, except that Lessee shall be entitled to a proportionate reduction of rent while such repairs shall interfere with the business carried on by Lessee in the Demised Premises. IN the event that the building is destroyed to the extent of not less than fifty percent (50%) of the replacement cost of the Building, Lessor may elect to terminate this Lease, whether the Demised Premises be injured or not. A total destruction of the Building shall automatically terminate this 6 lease. Anything in this Paragraph 16 to the contrary, if at the time of any such damage there is less than two (2) months terms remaining on this Lease, then this Lease may at the option of Lessor, be cancelled by notice in writing to Lessee within ten (10) days from the date of such damage. ASSIGNMENT AND SUBLETTING 17. Lessee shall not assign this Lease or any interest herein, nor lease or sublet the Demised Premises, or any party thereof, or any right or privilege appurtenant thereto, nor permit the occupancy or use of any part thereof by any other person, without the written consent of Lessor first had and obtained, and a consent to one assignment, subletting, occupancy or use. The Lessor may refuse its consent without giving any reason whatsoever, and such refusal shall nevertheless be binding on Lessee. DEFAULT GROUNDS 18. If default shall be made in the payment of rent or any installment thereof or in the payment of any other amount required to be paid by Lessee under this Lease, or any other agreement between Lessor and Lessee, or if default shall be made in the performance of any of the other covenants, terms, conditions, or agreements which Lessee is required to observe and perform hereunder, or if the interest of Lessee in its assets and/or this Lease shall be levied on or seized under execution or other legal process, or if any petition shall be filed or other action taken to reorganize or modify Lessee's capital structure, or if Lessee be declared insolvent according to law, or if any assignment of Lessee's property shall be made for the benefit of creditors, or if a receiver or trustee is appointed for Lessee or its property, or if Lessee shall abandon or vacate the Demised Premises during the term of this Lease, and thereupon at its option may, without notice or demand or any kind to Lessee or any other person, have any one or more of the remedies specified in Paragraph 19, in addition to all other rights and remedies provided at law or in equity. DEFAULT REMEDIES 19. (a) Lessor may re-enter the Demised Premises with or without process of law and take possession of the same and of all equipment and fixtures of Lessee therein and expel or remove Lessee and all other parties occupying the Demised Premises, using such force as may be reasonably necessary to do so, without being liable to any prosecution for such re-entry or for the use of such force and without terminating this Lease, at any time and from time to time to relet the Demised Premises or any part thereof for the account of Lessee, for such term, upon such conditions and at such rental as Lessor may deem proper. IN such event Lessor may receive and collect the rent from such reletting and apply it against any amounts due from Lessee hereunder (including without limitation such expenses as Lessor may have incurred in recovering possession of the Demised Premises, placing the same in good order and condition, altering or repairing the same for reletting, and all other expenses, commissions and charges including attorney's fees which Lessor may have paid or incurred in connection with such repossession on reletting). Lessor may execute any lease made pursuant hereto in Lessor's name or in the name of Lessee as Lessor may see fit, and Lessee thereunder shall be under no obligation to see to the application by Lessor of any rent collected by Lessor nor shall Lessee have any right to collect any rent thereunder. Whether or not the Demised Premises are relet, Lessee shall pay Lessor all amounts required to be paid by Lessee up to the date of Lessor's re-entry and thereafter Lessee shall pay Lessor, until the end of the term hereof, the amount of all rent and other charges required to be paid by Lessee hereunder, less the proceeds of such reletting during the term hereof, if any, after payment of Lessor's expenses as provided above. Such payments by Lessee shall be due at such times as are provided elsewhere in this Lease, and Lessor need not wait until the termination of the Lease to recover them by legal action or otherwise. Lessor shall not, by 7 any re-entry or other act, be deemed to have terminated this Lease or the liability of Lessee for the total rent hereunder unless Lessor shall give Lessee written notice of Lessor's election to terminate this Lease. (b) Lessor may give written notice to Lessor's election to terminate this Lease, re-enter the Demised Premises with or without process of law and take possession of the same and of all equipment and fixtures therein, and expel or remove Lessee and all other parties occupying the Demised Premises, using such force as may be reasonably necessary to do so, without being liable to any prosecution for such re-entry or for the use of such force. In such event Lessor shall thereupon be entitled to recover form Lessee the worth, at the time of such termination, of the excess, if any, of the rent and other charges required to be paid by Lessee hereunder for the balance of the term hereof (if this lease had not been so terminated) over the then reasonable rental value of the Demised premises for the same period. (c) Lessee hereby released, indemnifies, and holds harmless Lessor from any lability whatsoever for the removal of persons and the removal and storage of property pursuant to subparagraphs (a) and (b) of this Paragraph 19. (d) To secure the full and timely performance of all of the Lessee's obligations under this Lease, Lessee hereby grants to Lessor a security interest and lien in all of Lessee's equipment, goods, fixtures, furnishings, furniture, inventory, machinery, trade fixtures, other property, and the proceeds therefrom, now or hereafter to be located within the Demised Premises. In the event of default or breach by Lessee, then with respect to the security interest, Lessor may exercise all of the rights and remedies granted a secured party under the Uniform Commercial Code as adopted to Nevada in effect at the time. (e) The remedies given to Lessor in this Paragraph 19 shall be in addition to and supplemental to all other rights and remedies which Lessor may have under the laws then in force. HOLDING OVER 20. If Lessee holds possession of all or a part of the Demised Premises after the expiration of the term of this Lease, with or without the express or implied consent of Lessor, Lessee shall become a Lessee from month-to-month only, upon the terms, covenants, conditions and agreements herein specified, so far as applicable. Such holding over shall not constitute an extension or renewal of this Lease. During such holding over, the Base Monthly Rental shall be increased fifty percent (50%) over the Base Monthly Rental provided in Paragraph 2. WAIVER 21. No covenant, term, condition or agreement or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver or the breach of any covenant, term, condition or agreement shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant, term, condition or agreement. Acceptance by Lessor of any performance by Lessee after the time the same shall have become due shall not constitute a waiver by Lessor of the breach or default of any covenant, term, condition or agreement unless otherwise expressly agreed to by Lessor in writing. NOTICES 22. Except as otherwise provided in this lease, all notices or demands of any kind required or desired to be given by Lessor to Lessee hereunder shall be in writing and shall be deemed delivered when hand-delivered or forty-eight (48) hours after depositing the notice or demand in the United States mail, certified or registered, postage prepaid, addressed to the Lessee at the Demised Premises, whether or not Lessee has departed from, abandoned or vacated the Demised Premises. All notices or demands of any kind by Lessee to Lessor shall be in writing and shall be deemed delivered when hand-delivered or forty-eight (48) hours after depositing the notice or demand in the United States mail, certified or registered, postage prepaid, addressed to the Lessor at such address as shall from time to time be designated by Lessor to Lessee in writing. 8 CONDEMNATION 23. In the event any condemnation proceedings shall be commenced affecting the Demised Premises, Lessee shall have no right to claim any valuation for its leasehold interest or otherwise by reason of its occupancy of or improvements to said Demised Premises, and any condemnation award (whether adjudicated or by way of settlement) shall belong in its entirety to Lessor. In the event of condemnation of a part of the Demised Premises, the rent shall be reduced in the proportion that the floor area taken bears to the total floor area prior to the taking. If condemnation takes more than twenty-five percent (25%) of the floor area of the Demised Premises or if the amount of Lessee's parking area following condemnation is not sufficient to meet the deed restrictions, if any, concerning parking on the real property on which the Demised Premises are situated, or the local parking ordinances, if any, only then, may Lessee, at Lessee's option, terminate this Lease as of the date the condemning authority takes possession of said condemned portion by giving written notice of termination to Lessor within ten (10) days after the condemning authority takes such possession. If Lessee does not terminate this Lease as hereinabove immediately provided, then the rent payable shall be reduced as set forth above. SUBORDINATION 24. This Lease at Lessor's option shall be subject and subordinate to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the real property or improvements, or either thereof, of which the Demised Premises are a part, or on or against Lessor's interest or estate therein, without the necessity of the execution and delivery of any further instruments on the part of Lessee to effectuate such subordination. If any mortgagee or trustee shall elect to have this Lease prior to the lien of its mortgage or deed of trust, whether this Lease is date prior or subsequent to the date of said mortgage or deed of trust or the date of the recording thereof. Lessee covenants and agrees to execute and deliver upon demand, without charge therefore, such further instruments evidencing such subordination of this Lease to the lien of any such mortgages or deeds of trust as may be required by Lessor. Lessee hereby appoints Lessor as Lessee's attorney-in-fact, irrevocably, to execute and deliver any such agreements, instruments, releases or other documents. PARKING AND COMMON AREA 25. (a) Lessee and its customers, employees and tradesmen may park only operating vehicles on the surfaced parking lot adjacent to the Demised Premises only during Lessee's normal business hours on terms and conditions as may be established by Lessor from time to time during the term of this Lease. The parking areas referred to in the Paragraph 25 shall be used on a non-exclusive basis with other occupants of the Building. The parking lot may not be used to store vehicles or to work on vehicles. No vehicle shall be parked a parking lot for more than twenty-four (24) consecutive hours. Any vehicles parked in the parking lots in breach of these terms may be towed away at Lessee's expense. Lessee releases, indemnifies, and holds harmless Lessor and Lessor's officers, employees and agents from any claims arising from or relating to such towing of vehicles including any consequential damages or loss of property or loss of the use of the vehicle or other property. The right to tow a vehicle in addition to Lessor's rights under the Lease for default or breach of any of the terms hereof. (b) Other than parking, egress and ingress, Lessee has no right to use the common areas, and Lessee shall not obstruct the common areas, including the sidewalks, landscaped areas, paved areas, parking lots, or driveways. Animals including watchdogs, are not allowed on the Demised Premises or common areas. SUCCESSORS 26. All the terms, covenants and conditions hereof shall be binding upon and insure to the benefit of the heirs, executors, administrators, successors and assigns of the parties hereto, provided that nothing in this paragraph shall be deemed to permit any assignment, sub-letting, occupancy or use contrary to the provisions of Paragraph 17. 9 ENTIRE AGREEMENT 27. This lease, along with any exhibits an attachments hereto, constitutes the entire agreement between Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance with in such thirty (30) day period and thereafter diligently prosecutes the same to completion. LIABILITY INSURANCE 28. Lessor shall not be in default under this Lease unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance within thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. LIABILITY INSURANCE 29. Lessor shall, at Lessee's sole cost and expense, obtain and keep in force urging the term of this Lease a policy of comprehensive public liability insurance insuring Lessor, Lessee and Lessor's mortgagee against any liability arising out of the ownership, use, occupancy or maintenance of the Demised Premises and all areas appurtenant thereto. Such insurance shall be in the amount of not less that $1,000,000.00 for injury or death of one person in any one accident or occurrence and in the amount of not less than $1,000,000.00 for injury or death or more than one person in any one accident or occurrence. Such insurance shall further insure Lessor and Lessee against liability for property damage of at least $500,000.00. The limit of any such insurance shall not, however, limit the liability of the Lessee hereunder, Lessee may provide this insurance under a blanket policy, provided that said insurance shall have a Lessor's protective liability endorsement attached thereto. If Lessee shall fail to procure and maintain said insurance, Lessor may, but shall not be required to, procure and maintain same, but a the expense of Lessee. Insurance required hereunder shall be in companies approved by Lessor which approval shall not be unreasonably withheld. Lessee shall deliver to Lessor, upon request, copies of policies of liability insurance required herein or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Lessor. No policy shall be cancelable or subject to reduction of coverage without thirty (30) days prior written notice to Lessor. All such policies not contributing with and not in excess of coverage which Lessor may carry. ESTOPPEL CERTIFICATE 30. Lessee shall at any time upon not less than ten (10) days prior written notice form Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by a prospective purchaser or encumbrancer of the Demised Premises. Lessee's failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are not uncured defaults in Lessor's performance, and (iii) that not more than one (1) month's rent has been paid in advance. If Lessor desires to finance or refinance the Demised Premises, or any part 10 thereof, Lessee hereby agrees to deliver to any lender designated by lessor such financial statements of Lessee as may be reasonably required by such lender. Such statements shall include the past three (3) years financial statements of Lessee. All such financial statements shall be received by Lessor in confidence and shall be used only for the purposes herein set forth. COSTS OF SUIT 31. (a) If Lessee or Lessor shall bring any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Lessor for the recovery of rent or possession of the Demised Premises, the losing party shall pay the successful party a reasonable sum for attorney's fees which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not such action is prosecuted to judgment. (b) Should Lessor, without fault on Lessor's part, be made a party to any litigation instituted by Lessee or by a third party against Lessee, or by or against any person holding under or using the Demised Premises by license of Lessee, or for the foreclosure of any lien for labor or material furnished to or for Lessee for any such other person, Lessee covenants to save and hold Lessor harmless from any judgment rendered against Lessor or the Demised Premises or any part thereof, and all costs and expenses, including reasonable attorney's fees, incurred by Lessor in or in connection with such litigation. CHOICE OF LAW 32. This Lease shall be governed, construed and enforced by the laws of the state of Nevada. SURRENDER 33. Upon the expiration or earlier termination of this Lease, Lessee shall remove all of its signs from the Demised Premises, return the keys and surrender the Demised Premises in a condition satisfactory to Lessor. Lessee, at its sole costs and expense, agrees to repair any damage to the Demised Premises caused by or in connection with the removal of any articles of personal property, business or trade fixtures, machinery, equipment, cabinetwork, furniture, moveable partitions, or permanent improvements or additions, including without limitation thereto, repairing the floor and patching and painting the wall where required by Lessor to Lessor's reasonable satisfaction. Lessee shall indemnify Lessor against any loss or liability resulting from delay by Lessee in so surrendering the Demised Premises, including without limitation, any claims made by any succeeding Lessee founded on such delay. MISCELLANEOUS 34. The marginal captions of this Lease are for convenience only and shall not in any way limit or be deemed to construe or interpret the terms and provisions hereof. The words "Lessor" and "Lessee" as used herein shall include the plural as well as the singular. Words used in neuter gender include the masculine and feminine, words in the masculine or feminine gender include the neuter. If there be more than one Lessor or Lessee, the obligations hereunder imposed upon Lessor lessee shall be joint and several. TIME 35. Time is of the essence of this Lease and each and all of its provisions. PARKING LIMITS 36. (a) Lessor shall have the right to limit the amount of vehicles parked on the Demised Premises in connection with Lessee's business during the term of this Lease. (b) No storage, repairs, or cleaning of vehicles, parts, or equipment outside the units will be permitted. PROMOTIONAL 11 MATERIAL 37. Lessee shall not use pictures of Lessor's properties for, but not limited to, brochures, advertising, or promotional activities without written consent of Lessor. ALARM SYSTEMS 38. No alarm systems shall be attached to the exterior walls of the Building. When installing a system, the alarm box must be inside the unit. Lessee shall, at Lessee's sole expense, be responsible for removal of alarm system and restoring the Demised Premises to its original condition. USE OF DUMPSTERS 39. "In the areas where dumpsters are provided, Lessee may utilize the dumpsters for wastepaper trash only". Packing skids, boxes and garbage form the complex or home are not to be placed in or around dumpsters. It is the sole responsibility of Lessee to dispose of excessive trash and packaging materials somewhere else or obtain their own dumpster. "In areas where dumpsters are not provided, it is Lessee's sole responsibility to dispose of their trash or provide their own dumpster". Trash stored outside Building, not in dumpster, is prohibited and Lessor shall have the right to charge a find to lessee for committing said storage or waste on the Premises. 40. Lessee agrees not to park vehicles in front of other units whether vacant or occupied. 41. Lessee agrees not to wash or work on vehicles outside Demised Premises. 42. Lessee is with understanding that he is allotted one (1) parking space per 300 square feet of office space. 43. Lessee shall be held responsible for verifying zip code of said unit address. TOXIC WASTE 44. Lessee guarantees that, to the best of his knowledge, neither he nor any of his employees, agents or visitors to the Demised Premises shall use, store or dispose of any hazardous or toxic materials or chemicals within the subject Demised Premises or any other area within the Project that Premises is a part of. Any such use or storage of any hazardous or toxic materials or chemicals within the subject Demised Premises or other parts of the Project shall constitute a material breach of this lease, and Lessor shall be entitled to implement all means necessary to recover form this breach (as outlined within the Lease). In addition, Lessee shall have sole financial and legal responsibility for the proper and legal clean-up of any spillage or other contamination caused by any use of toxic or hazardous material within Lessee's leased Demised Premises or the Project in general. It is further agrees, that if upon written notice form Lessor that Lessee has violated the above provisions of this Agreement, Lessee does not complete necessary steps (as outlined in said written notice from Lessor), to achieve satisfactory clean-up within 72 hours, Lessor shall have the right to complete the necessary clean-up and bill entire cost (including any legal costs incurred by Lessor) of same to Lessee. Lessee shall also bear the entire cost of any government clean-up order or any third-party lawsuit. Hazardous or toxic material means any substance now, or hereafter, identified by any government agency as requiring special handling, disposal or control unlike regular refuse. VERBAL DISCLAIMER 45. All agreements and concessions between LESSOR and LESSEE for the demised Premise, are included as Addenda or attached letters (no verbal agreements). Any modifications, remodels, or maintenance of leased unit(s), required after Lessor and Lessee have signed this Lease, that are not specifically described in this Lease, Addenda, attached letters, and walk-through will be at no cost to the Lessor. Prior to vacating unit(s), Lessee agrees to restore unit(s) 12 to the condition in which it was received, except for normal wear and tear, at Lessee's expense, unless changes to the unit are approved in writing by Lessor. Discrepancies identified during the initial walk-through inspection not repaired by Lessor will be included in the Lease file and Lessee will not be charged for such repairs. KEY AUTHORIZATION 46. The Ribeiro Corporation makes every effort to protect your property. One of the areas that we have found to be very important is the authorization of lock changes and the release of keys that open your unit. In order to protect you, please list in the space provided, the names of the people authorized to order lock changes and keys.
NAME SOCIAL SECURITY HOME TELEPHONE # - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- =====================================================================================================
IN WITNESS WHEREOF, the parties hereto have executed this Lease, or as the case may be, have caused their officers thereunto duly authorize to execute this Lease in duplicate, the day and year first above written. QUAIL PARK IV, A NV LTD PARTNERSHIP LESSOR PAM CASE Leasing Division THE RIBEIRO CORPORATION OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION LESSEE BY: - ------------------------------- EDWARD JOHNSON AS: - ------------------------------- PRESIDENT/CEO - ------------------------------- DATE: 13 TOXIC AND/OR HAZARDOUS MATERIALS ADDENDUM This Addendum affects the Lease dated June 23, 1997, between QUAIL PARK IV, A NV LTD PARTNERSHIP, hereinafter known as LESSOR, and OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION, hereinafter known as LESSEE, for the property located at 2810 W. CHARLESTON, LAS VEGAS, NEVADA 89102, UNIT(S) #77 & #78. Lessee guarantees that neither he nor any of his employees, agents or visitors to this premises shall use, store or dispose of any hazardous or toxic materials or chemicals within the subject Demised Premises or any other area within the Project that Demised Premises is a part of. Any such use or storage of any hazardous or toxic materials or chemicals within the subject Demised Premises or other parts of the Project shall constitute a material breach of this lease, and Lessor shall be entitled to implement all means necessary to recover from this breach (as outlined within the Lease). In addition, Lessee shall have sole financial and legal responsibility for the proper and legal clean-up of any spillage or other contamination caused by any use of toxic or hazardous material within Lessee's leased Demised Premises or the Project in general. It is further agreed, that if upon written notice from Lessor that Lessee has violated the above provisions of this Agreement, Lessee does not complete necessary steps (as outlined in said written notice from Lessor), to achieve satisfactory clean-up within 72 hours, Lessor shall have the right to completed the necessary clean-up and bill entire cost (including any legal costs incurred by Lessor) of same to Lessee. Lessee shall also bear the entire cost of any government, clean-up order or any third-party lawsuit. Hazardous or toxic material means any substance now, or hereafter, identified by any government agency as requiring special handling, disposal or control unlike regular refuse. QUAIL PARK IV, NV LTD PARTNERSHIP OPTIMUMCARE CORP, A DELAWARE CORPORATION - --------------------------------- ---------------------------------------- LESSOR LESSEE PAM CASE EDWARD A. JOHNSON - -------- ----------------- LEASING DIVISION EDWARD JOHNSON THE RIBEIRO CORPORATION 7/16/97 7/15/97 - ------- ------- DATE DATE 14 DISCLAIMER All agreements and concessions between LESSOR and LESSEE for the property located at 2810 W. CHARLESTON, LAS VEGAS, NEVADA 89102, UNIT(S) #77 & #78, contained within this Lease, dated June 23, 1997, Addenda or attached letters (no verbal agreements). Any modifications, remodels, or maintenance of leased unit(s), required after Lessor and Lessee have signed this Lease, that are not specifically described in this Lease, Addenda, attached letters, and walk-through will be at no cost to the lessor. Prior to vacating unit(s), Lessee agrees to restore unit(s) to the condition in which it was received, except for normal wear and tear, at Lessee's expense, unless changes to the unit are approved in writing by Lessor. Discrepancies identified during the initial walk-through inspection not repaired by Lessor will be included in the Lease file and Lessee will not be charged for such repairs. QUAIL PARK IV, NV LTD PARTNERSHIP OPTIMUMCARE CORP, A DELAWARE CORPORATION - --------------------------------- ---------------------------------------- LESSOR LESSEE PAM CASE EDWARD A. JOHNSON - -------- ----------------- LEASING DIVISION EDWARD JOHNSON THE RIBEIRO CORPORATION 7/16/97 7/15/97 - ------- ------- DATE DATE 15 RULES AND REGULATIONS It is further agreed that the following rules and regulations shall be and are hereby made a part of this Lease, and the Lessee agrees that its employees and agents, or any others permitted by the Lessee to occupy or enter said Demised Premises, will at all times abide by said rules and regulations and that a default in the performance and observance thereof shall operate the same as any other defaults herein: 1. The sidewalks, entries, and driveways shall not be obstructed by the Lessee, or its agents, or used by them for any purpose other than ingress and egress to and from their Demised Premises. Lessor may remove any such obstruction or thing including ashtrays, a-frame signs, trailers, etc. (unauthorized by Lessor) without notice or obligation to Lessee and at the Lessee's sole cost. 2. Lessee shall not place any moveable objects, including, antennas, trash cans, outdoor furniture, etc., in the parking areas, landscaped area or other areas outside of said Demised Premises, or on the roof of said Demised Premises. 3. Lessee shall not use, keep or permit to be used or to be kept any foul or noxious gas or substance in the Demised Premises, or permit or suffer the Demised Premises to be occupied or used in a manner offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odor and/or vibrations, or interfere in any way with other Lessees or those having business therein. Lessee shall maintain the leased Demised Premises free from mice, bugs, and ants at Lessee's expense. 4. Lessor reserves the right to exclude or expel from the complex any person who in the judgement of the Lessor, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the said project. 5. No outside storage of pallets, boxes, cartons, drums or any other containers or materials used in shipping or transport of goods is allowed. Lessee shall place all refuse in proper receptacles provided by Lessee at Lessee's expense on the Premises or inside enclosures (if any) provided by Lessor for the Building, and shall keep sidewalks and driveways outside the Building and lobbies, corridor stairwells, ducts or shafts of the Building free of all refuse. 6. No person shall go on the roof without Lessor's permission. 7. All goods, including material used to store goods, delivered to the Demised Premises or Lessee shall be immediately moved into the Premises and shall not be left in parking or receiving areas overnight. 8. Lessee shall not install or operate any steam or gas engine or boiler in the Building. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed hazardous shall not be brought into the Building. Lessees shall not use any other method of heating than that supplied by Lessor. 9. The water closets, urinals, waste lines, vents or flues of the Building shall not be used for any purpose other than those for which they were constructed, and no rubbish, acids, vapors, newspapers or other such substances of any kind shall be thrown into them. The expense caused by any breakage, stoppage, or damage resulting from a violation of this rule by any Lessee, its employees visitors, guests or licensees, shall be paid by Lessee. 10. The Demised Premises shall not be used or permitted to be used for residential, lodging or sleeping purposes. 16 11. Except as permitted by Lessor, Lessee shall not mark upon, paint signs upon, cut, drill into, drive nails or screws into, or in any way deface the walls, ceilings, partitions or floors of their Demised Premises or of the Building, and the repair cost of any defacement, damage, or injury caused by Lessee, its agent or employees shall be paid by the Lessee. 12. The cost of repairing any damage to the public partitions of the Building or the public facilities, or to any facilities used in common with other tenants, caused by any Lessee or the employees, licensees, agents or invitees of the Lessee, shall be paid by such Lessee. 13. Lessor reserves the right to restrict or prohibit canvassing, soliciting or peddling in the Building. 14. The Lessor reserves the right to make such other and further reasonable rules and regulations as in its judgement may from time to time be needful and desirable and for the safety, care and cleanliness of the Demised Premises and for the preservation of good order therein. QUAIL PARK IV, NV LTD PARTNERSHIP OPTIMUMCARE CORP, A DELAWARE CORPORATION - --------------------------------- ---------------------------------------- LESSOR LESSEE PAM CASE EDWARD A. JOHNSON - -------- ----------------- LEASING DIVISION EDWARD JOHNSON THE RIBEIRO CORPORATION 7/16/97 7/15/97 - ------- ------- DATE DATE 17 DUTIES OWED BY A NEVADA REAL ESTATE LICENSEE In Nevada, a real estate licensee can (1) act for only one party to a real estate transaction, (2) act for more than one party to a real estate transaction with written consent of each party, or (3) if licensed as a broker, assign different licensees affiliated with the broker's company to separate parties to a real estate transaction. A licensee, acting as an agent, must act in one of the above capacities in every real estate transaction. LICENSEE: The Licensee in the real estate transaction is PAM CASE ("Licensee") whose license number is 38603. The Licensee is acting for THE LESSOR. BROKER: The Broker in the real estate transaction is BOB SZEMANSKI ("Broker"), whose company is THE RIBEIRO CORPORATION ("Company"). A Nevada Real Estate licensee in a real estate transaction shall: 1. Disclose to each party to the real estate transaction as soon as is practicable: a) Any material and relevant facts, date or information which Licensee knows, or which by the exercise of reasonable care and diligence licensee should have known, relating to the property which is the subject of the real estate transaction. b) Each source from which Licensee will receive compensation as a result of the transaction. c) That Licensee is a principal to the transaction or has an interest in a principal to the transaction. d) Any changes in Licensee's relationship to a party to the real estate transaction. 2. Disclose, if applicable, that Licensee is acting for more than one party to the transaction. Upon making such a disclosure the Licensee must obtain the written consent of each party to the transaction for whom Licensee is acting before Licensee may continue to act in Licensee's capacity as agent. 3. Exercise reasonable skill and care with respect to all parties to the real estate transaction. 4. Provide to each party to the real estate transaction this form. 5. Not disclose, except to the Broker, confidential information relating to the client. 6. Exercise reasonable skill and care to carry out the terms of the brokerage agreement and to carry out Licensee's duties pursuant to the terms of the brokerage agreement. 7. Not disclose confidential information relating to a client for 1 year after the revocation or termination of the brokerage agreement, unless Licensee is required to do so by order of the court. Confidential Information includes, but is not limited to the client's motivation to purchase, sell or trade and other information of a personal nature. 8. Promote the interest of his client by: a) Seeking a sale, lease or property at the price and terms stated in the brokerage agreement or at a price acceptable to the client. b) Presenting all offers made to or by the client as soon as practicable. c) Disclosing to the client material facts of which the licensee has knowledge concerning the transaction. d) Advising the client to obtain advice from an expert relating to matters which are beyond the expertise of the licensee. e) Accounting for all money and property Licensee receives in which the client may have an interest as soon as is practicable. 9. Not deal with any party to a real estate transaction in a manner which is deceitful, fraudulent or dishonest. 10. Abide by all duties, responsibilities an obligations required of Licensee in chapters 119, 119A, 119B, 645, 645A, and 645C of the NRS. In the event any party to the real estate transaction is also represented by a licensee who is affiliated with the same Company, the Broker may assign another licensee to act for that party. The above Licensee will continue to act for you. As set forth above, no confidential information will be disclosed. I/We acknowledge receipt of a copy of this list of licensee duties, and have read an understand this disclosure. Lessee __________________ Date _______________ Time ____________________am/pm 18 Lessor __________________ Date _______________ Time ____________________am/pm CONFIRMATION REGARDING REAL ESTATE AGENT RELATIONSHIP Property Address 2810 W. CHARLESTON, #77 & #78, LAS VEGAS, NV 89102 I/We confirm the duties of a real estate licensee of which has been presented and explained to me/us. My/our representative is: PAM CASE is the AGENT of [X] Lessor Exclusively* [ ] Both Lessee & Lessor is the AGENT of [ ] Lessee Exclusively [ ] Lessor Exclusively [ ] Both Lessee & Lessor IF LICENSEE IS ACTING FOR MORE THAN ONE PARTY IN THIS TRANSACTION, you will be provided a Consent to Act for your review, consideration and approval or rejection. A licensee can legally represent both the Lessor and Lessee in a transaction, but ONLY with the knowledge and written consent of BOTH the Lessor and Lessee. A licensee who is acting for the Lessor exclusively, is not representing the Lessee and has no duty to advocate or negotiate for the Lessee. A licensee who is acting for the Lessee exclusively, is not representing the Lessor and has no duty to advocate or negotiate for the Lessor. THE RIBEIRO CORPORATION DAVID LEWIS & ASSOCIATES - ----------------------- ------------------------ Listing Company Date Lessee's Company Date by PAM CASE 7/16/97 by - ----------------------------------- ------------------------------------- Licensed Real Estate Agent Date Licensed Real Estate Agent Date Lessor PAM CASE 7/16/97 Lessee EDWARD A.JOHNSON 7/16/97 - ----------------------------------- ------------------------------------- EX-10.97 5 LEASE AGRMT. BETWEEN THE CO. AND HARRIET MAIZELS 1 EXHIBIT 10.97 THIS INDENTURE OF LEASE, entered into this 8th day of July, 1997, between Harriet Maizels, Daniel Gold, Lesley Gold, Mildred Gold hereinafter called the lessor, and Optimumcare Corporation, hereinafter called the lessee, WITNESSETH: In consideration of the covenants herein, the lessor hereby leases unto the lessee those certain premises, as is, situated in the City of Portland, County of Multnomah and State of Oregon, hereinafter called the premises, described as follows: That certain east-side office building area of approximately 5,153 square feet and including one-half of the parking lot (to be shared with a subsequent tenant) whose address is 2040 S.E. Powell Blvd., Portland, Oregon. (See Exhibit A) Combined legal description of building and parking lot: Tax Lot 1, Lots 1 & 2, Block 4 of Smith's Sub & Addition to East Portland; Tax Lot 3 of Lots 1 & 2, Block 4 of Smith's Sub & Addition to East Portland. (See Exhibit A) To Have and to Hold the premises commencing with the 15th day of August, 1997, and ending at midnight on the 14th day of August, 2002 for a rental of $240,645.00 for the whole term, which lessee agrees to pay, at 621 S.W. Morrison Street, Suite 1450, City of Portland, State of Oregon, at the following times and int he following amounts, to-wit: $8,095.00 receipt of which is hereby acknowledged of which $3,865.00 is recognized as first month's rental, and $4,230.00 is recognized as last month's rental. The rental for months 1-36 shall be $3,864.00/mo. The rental for months 37-60 shall be $4,230.00/mo. In addition to the monthly rental Lessee shall pay one-half of the real estate taxes when due-assessed against the building and parking lot. All rents are due in advance, payable on the first day of the month. Rents not paid b y the 10th shall be considered delinquent, and subject to a late charge of $25.00 for each additional month the rent remains unpaid. LESSEE'S ACCEPTANCE OF LEASE (1) The lessee accepts this letting and agrees to pay to the order of the lessor the monthly rentals above stated for the full term of this lease, in advance, at the times and int he manner aforesaid. (2) The lessee shall use the premises during the term of this lease for the conduct of the following business: conducting the operations and programs normally associated with the counseling center and for no other purpose whatsoever without lessor's written consent. 2 (2b) The lessee will not make any unlawful, improper or offensive use of the premises; the lessee will not suffer any strip or waste thereof; the lessee will not permit any objectionable noise or odor to escape or to be emitted from the premises or do anything or permit anything to be done upon or about the premises in any way tending to create a nuisance, the lessee will not sell or permit to be sold any product, substance or service upon or about the premises, excepting such a lessee may be licensed by law to sell and as may be herein expressly permitted. (2c) The lessee will not allow the premises at any time to fall into such a state of repair or disorder as to increase the fire hazard thereon; the lessee will not install any power machinery on the premises except under the supervision and with written consent of the lessor; the lessee will not store gasoline or other highly combustible materials on the premises at any time; the lessee will not use the premises in such a way or for such a purpose that the fire insurance rate on the improvements on the premises is thereby increased or that would prevent the lessor from taking advantage of any rulings of any agency of the state in which the premises are situated, or which would allow the lessor to obtain reduced premium rates of long term fire insurance policies. (2d) The lessee shall comply at lessee's own expense with all laws and regulations of any municipal, county, state, federal or other public authority respecting the use of the premises. These include, without limitation, all laws, regulations and ordinance pertaining to air and water quality, Hazardous Materials as herein defined, waste disposal, air emissions, and other environmental matters. As used herein, Hazardous Material means any hazardous or toxic substance, material, or waste, including but not limited to those substances, materials, and waste listed in the U.S. Department of Transportation Hazardous Materials Table or by the U.S. Environmental Protection Agency as hazardous substances and amendments thereto, petroleum products, or such other substances, materials, and waste that are or become regulated under any applicable local, state or federal law. (2e) The lessee shall regularly occupy and use the premises for the conduct of lessee's business, and shall not abandon or vacate the premises for more than ten days without written approval of lessor. (2f) Lessee shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the premises by lessee, its agents, employees, contractors, or invitees without the prior written consent of lessor, which consent will not be unreasonably withheld so long as lessee demonstrates to lessor's reasonable satisfaction that such Hazardous Material is necessary or useful to lessee's business and will be used, kept, and stored in a manner that will comply at all times with all laws regulating any such Hazardous Material so brought upon or used or kept on or about the premises. UTILITIES (3) The lessee shall pay for all heat, light, water, power, and other services or utilities used in the premises during the term of this lease. REPAIRS AND IMPROVEMENTS 3 (4a) The lessor shall not be required to make any repairs, alterations, additions or improvements to or upon the premises during the term of this lease, except only those hereinafter specifically provided for; the lessee hereby agrees to maintain and keep the premises, including all interior and exterior walls and doors, heating, ventilating and cooling systems, interior wiring, plumbing and drain pipes to sewers or septic tank, in god order and repair during the entire term of this lease, at lessee's own cost and expense, and to replace all glass which may be broken or damaged during the term hereof in the windows and doors of the premises with glass of as good or better quality as that now in use; it is further agreed that the lessee will make no alterations, additions or improvements to or upon the premises without the written consent of the lessor first being obtained. (4b) The lessor agrees to make all necessary structural repairs to the building, including exterior walls, foundation, roof, gutters and downspouts, and the abutting sidewalks. The lessor reserves and at any and all times shall have the right to alter, repair or improve the building of which the premises are a part, or to add thereto, and for that purpose at any time may erect scaffolding and all other necessary structures about and upon the premises and lessor and lessor's representatives, contractors and workers for that purpose may enter in or about the premises with such materials as lessor may deem necessary therefor, and lessee waives any claim to damages, including loss of business resulting therefrom. LESSOR'S RIGHT OF ENTRY (5) It shall be lawful for the lessor, the lessor's agents and representatives, at any reasonable time to enter into or upon the premises for the purpose of examining into the condition thereof, or for any other lawful purpose. RIGHT OF ASSIGNMENT (6) The lessee will not assign, transfer, pledge, hypothecate, surrender or dispose of this lease, or any interest herein, sublet, or permit any other person or persons whomsoever to occupy the premises without the written consent of the lessor being first obtained in writing; this lease is personal to lessee; lessee's interests, in whole or in part, cannot be sold, assigned, transferred, seized or taken by operation at law, or under or by virtue of any execution or legal process, attachment or proceedings had in regard to the lessee, or in any other manner, except as above mentioned. LIENS (7) The lessee will not permit any lien of any kind, type or description to be placed or imposed upon the improvements in which the premises are situated, or any part thereof, and the land on which they stand. ICE, SNOW, DEBRIS 4 (8) If the premises are located at street level, then at all times lessee shall keep the sidewalks in front of the premises free and clear of ice, snow, rubbish, debris and obstruction; and if the lessee occupies the entire building, the lessee will not permit rubbish, debris, ice or snow to accumulate on the roof of the building so as to stop up or obstruct gutters or downspouts or cause damage to the roof, and will save harmless and protect the lessor against any injury whether to lessor or to lessor's property or to any other person caused by lessee's failure in that regard. OVERLOADING OF FLOORS (9) The lessee will not overload the floors of the premises in such a way as to cause any undue or serious stress or strain upon the building in which the premises are located, or any part thereof, and the lessor shall have the right at any time, to call upon any competent engineer or architect whom the lessor may choose, to decide whether or not the floors of the premises, or any part thereof, are being overloaded so as to cause any undue or serious stress or strain on the building, or any part thereof, and the decision of the engineer or architect shall be final and binding upon the lessee; and in the event that it is the opinion of the engineer or architect that the stress or strain is such as to endanger or injure the building, or any part thereof, then and in that event the lessee agrees immediately to relieve the stress or strain, either by reinforcing the building or by lightening the load which causes such stress or strain, in a manner satisfactory to the lessor. ADVERTISING SIGNS (10) The lessee will not use the outside walls of the premises, or allow signs or devises of any kind to be attached thereto or suspended therefrom, for advertising or displaying the name or business of the lessee or for any purpose whatsoever without the written consent of the lessor; however, the lessee may make use of the windows of the premises to display lessee's name and business when the workmanship of such signs shall be of good quality and permanent nature; provided further that the lessee may not suspend or place within said windows or paint thereon any banners, signs, sign-boards or other devices in violation of the intent and meaning of this section. LIABILITY INSURANCE (11) At all times during the term thereof, the lessee will, at the lessee's own expense, keep in effect and deliver to the lessor liability insurance policies in form, and with an insurer, satisfactory to the lessor. Such policies shall insure both the lessor and the lessee against all liability for damage to persons or property in, upon, or about the premises. The amount of such insurance shall be not less than $1,000,000.00 for injury to one person, not less than $1,000,000 for injuries to all persons arising out of any single incident, and not less than $100,000.00 for damage to property, or a combined single limit of not less than $1,000,000.00. It shall be the responsibility of lessor to purchase casualty insurance with extended coverage so as to insure any structure on the premises against damage caused by fire or the effects of fire (smoke, heat, means of extinguishment, etc.) or any other means of loss. It shall be the responsibility of the lessee to insure all of the lessee's belongings upon the premises, of whatsoever nature, against 5 the same. With respect to these policies, lessee shall cause the lessor to be named as an additional insured party. Lessee agrees to and shall indemnify and hold lessor harmless against any and all claims and demands arising from the negligence of the lessee, lessee's officers, agents, invitees and/or employees, as well as those arising from lessee's failure to comply with any covenant of this lease on lessee's part to be performed, and shall at lessee's own expense defend the lessor against any and all suits or actions arising out of such negligence, actual or alleged, and all appeals therefrom and shall satisfy and discharge any judgement which may be awarded against lessor in any such suit or action. FIXTURES (12) All partitions, plumbing, electrical wiring, additions to or improvements upon the premises, whether installed by the lessor or lessee, shall be and become a part of the building in which the premises are located as soon as installed and the property of the lessor unless otherwise herein provided. LIGHT AND AIR (13) This lease does not grant any rights of access to light and air over the premises or any adjacent property. DAMAGE BY CASUALTY, FIRE AND DUTY TO REPAIR (14) In the event of the destruction of the improvement in which the premises are located by fire or other casualty, either party hereto may terminate this lease as of the date of fire or casualty, provided however, that in the event of damage to the improvements by fire or other casualty to the extent of 50 percent or more of the sound value thereof, the lessor may or may not elect to repair the same; written notice of lessor's elections shall be given lessee within fifteen days after the occurrence of the damage; if notice is not so given, lessor conclusively shall be deemed to have elected not to repair; in the event lessor elects not to repair, then and in that event this lease shall terminate with the date of the damage; but if the improvements in which the premises are located be but partially destroyed and the damage so occasioned shall not amount to the extend indicated above, or if greater than said extent and lessor elects to repair as aforesaid, then the lessor shall repair the same with all convenient speed and shall have the right to take possession of and occupy, to the exclusion of the lessee, all or any part thereof in order to make the necessary repairs, and the lessee hereby agrees to vacate upon request, all or any part thereof which the lessor may require for he purpose of making necessary repairs, and for the period of time between the day of such damage and until such repairs have been substantially completed there shall be such an abatement of rent as the nature of the injury or damage and its interference with the occupancy of the premises by the lessee shall warrant; however, if the premises be but slightly injured and the damage so occasioned shall not cause any material interference with the occupation of the premises by lessee, then there shall be no abatement of rent and the lessor shall repair the damage with all convenient speed. 6 WAIVER OF SUBROGATION RIGHTS (15) Neither the lessor nor the lessee shall be liable to the other for loss arising out of damage to or destruction of the premises, or the building or improvement of which the premises are a part or with which they are connected, or the contents of any thereof, when such loss is caused by any of the perils which are or could be included within or insured against by a standard form of fire insurance with extended coverage, including sprinkler leakage insurance, if any. All such claims for any and all loss, however caused, hereby ar waived. Such absence of liability shall exist whether or not the damage or destruction is caused by the negligence of either lessor or lessee or by any of their respective agents, servants or employees. It is the intention and agreement of the lessor and the lessee that the rentals reserved by this lease have been fixed in contemplation that both parties shall look to their respective insurance carriers for reimbursement of any such loss, and further, that the insurance carriers involved shall not be entitled to subrogation under any circumstances against any party to this lease. Neither the lessor or nor the lessee shall have any interest or claim in the other's insurance policy or policies, or the proceeds thereof, unless specifically covered therein as a joint assured. EMINENT DOMAIN (16) In case of the condemnation or purchase of all or any substantial part of the premises by any public or private corporation with the power of condemnation this lease may be terminated, effective on the date possession is taken by either party hereto on written notice to the other an din that case the lessee shall not be liable for any rent after the termination date. Lessee shall not be entitled to and hereby expressly waives any right to any part of the condemnation award or purchase price. FOR SALE AND FOR RENT SIGNS (17) During the period of 60 days prior to the date above fixed for the termination of this lease, the lessor herein may post on the premises or in the windows thereof signs of moderate size notifying the public that the premises are "for sale" or "for lease". DELIVERING UP PREMISES ON TERMINATION (18) At the expiration of the lease term or upon any sooner termination thereof, the lessee will quit an deliver up the premise and all future erections or additions to or upon the same, broom-clean, to the lessor or those having lessor's estate in the premises, peaceably, quietly, and in as good order and condition, reasonable use and wear thereof, damage by fire, unavoidable casualty and the elements along excepted, as the same are now in or hereinafter may be put in by the lessor. ADDITIONAL COVENANTS OR EXCEPTIONS (19) Providing Lessee has complied with all terms and conditions of this lease, Lessee shall be granted an option to renew this lease for an additional five (5) years, on terms agreed upon between the parties, or set by standard arbitration procedures in accordance with Oregon 7 statutes. A new lease must be executed by both parties at lease six (6) months prior to the end of the present leasehold period, if the option is exercised. (20) See addendum for additional terms and conditions. ATTACHMENT BANKRUPT DEFAULT PROVIDED, ALWAYS, and these presents are upon these conditions, that (1) if the lessee shall be in arrears in the payment of rent for a period of ten days after the same becomes due, or (2) if the lessee shall fail or neglect to perform or observe any of the covenants and agreements contained herein on lessee's part to be done kept, performed and observed and such default shall continue for ten days or more after written notice of such failure or neglect shall be given to lessee, or (3) if the lessee shall be declared bankrupt or insolvent according to law, or (4) if any assignment of lessee's property shall be made for the benefit of creditors, or (5) if on the expiration of this lease lessee fails to surrender possession of the premises, the lessor or those having lessor's estate in the premises, may terminate this lease and, lawfully, at lessor's option immediately or at any time thereafter, without demand or notice enter into and upon the premises and every part thereof and repossess the same, and expel lessee and those claiming by, through and under lessee and remove lessee's effects at lessee's expense, forcibly if necessary and store the same, all without being deemed guilty of trespass and without prejudice to any remedy which otherwise might be used for arrears of rent or preceding breach of covenant. Neither the termination of this lease by forfeiture nor the taking or recovery of possession of the premises shall deprive lessor of any other action, right, or remedy against lessee for possession, rent or damages, nor shall any omission by lessor to enforce any forfeiture, right or remedy to which lessor may be entitled be deemed a waiver by lessor of the right to enforce the performance of all terms and conditions of this lease by lessee. In the event of any re-entry by lessor, lessor may lease or relet the premises in whole or in part to any tenant or tenants who may be satisfactory to lessor, for any duration, and for the best rent terms and conditions as lessor may reasonably obtain. Lessor shall apply the rent received from any such tenant first to the cost of retaking and reletting the premises, including remodeling required to obtain any such tenant, and then to any arrears of rent and future rent payable under this lease and any other damages to which lessor may be entitled hereunder. Any property which lessee leaves on the premises after abandonment or expiration of the lease, or for more than ten days after any termination of the lease by landlord, shall be deemed to have been abandoned, and lessor may remove and sell the property at public or private sale as lessor sees fit, without being liable for any prosecution therefor or for damages by reason thereof, and the net proceeds of any such sale shall be applied toward the expenses of landlord and rent as aforesaid, and the balance of such amounts, if any, shall be held for and paid to the lessee. 8 HOLDING OVER In the event the lessee for any reason shall hold over after the expiration of this lease, such holding over shall not be deemed to operate as a renewal or extension of this lease, but shall only create a tenancy at sufferance which may be terminated at will at any time by the lessor. ATTORNEY FEES AND COURT COSTS In case suit or action is instituted to enforce compliance with any of the terms, covenants or conditions of this lease, or to collect the rental which may become due hereunder, or any portion thereof, the losing party agrees to pay the prevailing party's reasonable attorneys fee incurred throughout such proceeding, including a trail, on appeal, and for post-attorney's fees that shall arise form enforcing any provision or covenants of this lease even though no suit or action is instituted. Should the lessee be or become the debtor in any bankruptcy proceeding, voluntarily, involuntarily or otherwise, either during the period this lease is in effect or while there exists any outstanding obligation of the lessee created by this lease in favor of the lessor, the lessee agrees to pay the lessor's reasonable attorney fees and costs which the lessor may incur as the result of lessor's participation in such bankruptcy proceedings. It is understood and agrees by both parties that applicable federal bankruptcy law or rules of procedure may affect, alter, reduce or nullify the attorney fee and cost awards mentioned in the proceeding sentence. WAIVER Any waiver by the lessor of any breach of any covenant herein contained to be kept and performed by the lessee shall not be deemed or considered as a continuing waiver, and shall not operate to bar or prevent the lessor from declaring a forfeiture for any succeeding breach, either of the same condition or covenant or otherwise. NOTICES Any notice required by the terms of this lease to be given by one party hereto to the other or desired so to be given, shall be sufficient if in writing, contained in a sealed envelope and sent first class mail, with postage fully prepaid, and if intended for the lessor herein, then if addressed to the lessor at 621 S.W. Morrison, Suite 1450, Portland, Oregon 97205, Attn: Richard Maizels and if intended for the lessee, then if addressed to the lessee at 428 Culver Blvd, Playa Del Rey, CA 90293. Any such notice shall be deemed conclusively to have been delivered to the addressee forty-eight hours after the deposit thereof in the U.S. Mail. HEIRS AND ASSIGNS All rights, remedies and liabilities herein given to or imposed upon either of the parties hereto shall extend to, insure to the benefit of and bind, as the circumstances may require, the heirs, successors, personal representatives and so far as this lease is assignable by the terms 9 hereof, to the assigns of such parties. In construing this lease, it is understood that the lessor or the lessee may be more than one person; that if the context so requires, the singular pronoun shall be taken to mean and include the plural, and that generally all grammatical changes shall be made, assumed and implied to make the provisions hereof apply equally to corporations and to individuals. IN WITNESS WHEREOF, the parties have executed this lease on the day and year first hereinabove written, any corporation signature being by authority of its Board of Directors. LESSOR(S): HARRIET MAIZELS LESSEE: EDWARD A. JOHNSON DATE: 7/17/97 DATE: 7/17/97 The publisher strongly recommends that both the lessor and the lessee become familiar with the American with Disabilities Act of 1990, Public Laws 101-336. The Act may impose certain duties and responsibilities upon either or both parties to this lease. These duties and responsibilities may include but not be limited to the removal of certain architectural barriers and ensuring that disabled persons are not denied the opportunity to benefit from the same goods and services as those available to persons without disabilities. Under the Act, prohibition against discrimination applies to any person who is the owner, operator, lessor, or lessee of a place of public accommodation. 10 ADDENDUM TO LEASE FOR 2040 S.E. POWELL BLVD. PORTLAND, OREGON The following terms and conditions are incorporated into this Lease Agreement: (21) Lessor at Lessor's sole expense shall: GENERAL Wall prep/interior walls Paint interior walls Replace damaged ceiling tiles SPECIFIC #1 Wall up existing door #2 Install one (1) kitchen 25 + 22 single stainless sink w/ Delta faucet in lunch room #3 Wall added to demise the space #5 Add a door to match existing #8 Remove wall to create one large group room #9 Create dining area; sink & plumbing included in line item #2 a) Cabinet upper & lower b) Floor prep and lay vinyl #10 Remove existing pass through window to create access to adjacent room #11 Change flooring to vinyl #12 Move existing awning from west building wall and relocate to this location #13 Construct new solid wood fence to designate an outdoor break area HVAC Modifications to the existing HVAC, acceptable to Tenant ELECTRICAL Wire in new 200 amp meter, splice into existing circuits as required and refeed into existing 150 amp main breaker panel All circuits which will feed power into the new tenant space will not be fed from this panel. All circuits which feed power into the original tenant area will be fed from the existing 200 amp main breaker panel. Relabel panels. Doesn't include splitting up additional circuits outside the panel. This to be done on a T & M basis. 11 (22) First Right of Refusal: Lessee shall be granted a first right of refusal to lease the balance of the building (5,000 sq. ft./approx.) under the same terms and conditions Lessor is willing to accept in wiring from another prospective tenant; by notifying Lessor in writing of its intent to do so, within forty-eight (48) hours after receipt from Landlord of the "acceptable proposal to lease". Failure of Lessee to notify Lessor or its written intent to exercise its first right of refusal within this forty-eight (48) hours period will result in forfeiture of Lessee's right under this provision hereinafter, for the balance of the lease term. (23) Brokers: Grubb & Ellis represents the Lessor in this transaction, the Real Estate Investment Group represents the Lessee in the transaction. The Lessor shall pay a real estate fee to Grubb & Ellis, which shall be shared equally with the Real Estate Investment Group in accordance with a separate listing agreement. 12 GRUBB & ELLIS SALE/LEASE AMERICANS WITH DISABILITIES ACT, HAZARDOUS MATERIALS AND TAX DISCLOSURE The Americans With Disabilities Act is intended to make many business establishments equally accessible to persons with a variety of disabilities; modifications to real property may be required. State and local laws also may mandate changes. The real estate brokers in this transaction are not qualified to advise you as to what, if any, changes may be required now, or in the future. Owners and tenants should consult the attorneys and qualified design professionals of their choice for Information regarding these matters. Real estate brokers cannot determine which attorneys or design professionals have the appropriate expertise in this area. Various construction materials may contain items that have been or may be in the future be determined to be hazardous (toxic) or undesirable and may need to be specifically treated/handled or removed. For example, some transformers and other electrical components contain PCB's and asbestos has been used in components such as fireproofing, heating and cooling systems, air duct insulation, spray-on and tile acoustical materials, linoleum, floor tiles, roofing, dry wall and plaster. Due to prior or current uses of the Property or in the area the Property may have hazardous or undesirable metals (including lead-based paint), minerals, chemicals, hydrocarbons, or biological or radioactive items (including electric and magnetic field) in soils, water, building components, above or below-ground containers or elsewhere in areas that may or may not be accessible or noticeable. Such items may leak or otherwise be released. Real estate agents have no expertise in the detection or correction of hazardous or undesirable items. Expert inspections are necessary. Current or future laws may require clean up by past, present, and/or future owners and/or operators. It is the responsibility of the Seller/Lessor and Buyer/Tenant to retain qualified experts to detect and correct such matters and to consult with legal counsel of their choice to determine what provisions, if any, they may wish to include in transaction documents regarding the Property. Sale, lease and other transactions can have local, state and federal tax consequences for the seller/lossor and/or buyer/tenant. In the event of a sale Internal Revenue Code Section 1445 requires that all buyers of an interest in any real property located in the United States must withhold and pay over to the Internal Revenue Service (IRS) an amount equal to ten percent (10%) of he gross sales price within ten (10) days of the date of the sale unless the buyer can adequately establish that the seller was not a foreigner generally by having the seller sign a Non-Foreign Seller Certificate. Note that depending upon the structure of the transaction, the tax withholding liability could exceed the net cash proceeds to be paid to the seller at closing. Consult your tax and legal advisor. Real estate brokers are not qualified to give legal or tax advice or to determine whether any other person is properly qualified to provide legal or tax advice. SELLER/LESSOR BUYER/TENANT By: HARRIET MAIZELS By: EDWARD A. JOHNSON Title: Title: C.E.O. Date: Date: 7/15/97 EX-10.98 6 LEASE AGRMT. BETWEEN THE CO. MICHAEL F. MALUCCIO 1 EXHIBIT 10.98 STANDARD OFFICE LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Basic Lease Provisions ("Basic Lease Provisions") 1.1 Parties: This Lease, dated, for reference purposes only, August 6, 1997, is made by and between Michael F. Maluccio, (herein called "Lessor") and OptimumCare Corporation, doing business under the name of OptimumCare Corporation (herein called "Lessee"). 1.2 Premises: Suite Number(s) B, C and D first floors, consisting of approximately 3,620 feet, more or less, as defined in paragraph 2 and as shown on Exhibit "A" hereto (the "Premises"). 1.3 Building. Commonly described as being located at 662 West Broadway in the City of Glendale, County of Los Angeles, State of California, as more particularly described in Exhibit hereto, and as defined in paragraph 2. 1.4Use: out-patient mental health program facility and general office uses., subject to paragraph 6. 1.5 Term: thirty six (36) months commencing September 1, 1997 ("Commencement Date") and ending August 31, 2000, as defined in paragraph 3. 1.6 Base Rent: $5,240.00 per month, payable on the 1st day of each month, per paragraph 4.1. 1.7 Base Rent Increase: On September 1, 1999, the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below (See Addendum NO. 51). 1.8 Rent Paid Upon Execution: $5,249.00 for September 1, 1997 through September 30, 1997. 1.9 Security Deposit: $5,249.00. 1.10 Lessee's Share of Operating Expense Increase: -0- as defined in paragraph 4.2. 2. Premises, Parking and Common Areas. 2.1 Premises: The Premises are a portion of a building, herein sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic Lease Provisions. "Building" shall include adjacent parking structures used in connection therewith. The Premises, the Building, the Common Areas, the land upon which the same are located, along with all other buildings and improvements thereon or thereunder, are herein collectively referred to as the "Office Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, the real property referred to in the Basic Lease Provisions, paragraph 1.2, as the "Premises," including rights to the Common Areas as hereinafter specified. unreserved 2.2 Vehicle Parking: So long as Lessee is not in default, and subject to the rules and regulations attached hereto, and as established by Lessor from time to time, Lessee shall be entitled to rent and use 10 parking spaces in the Office Building Project at the monthly rate applicable form time to time for monthly parking as set by Lessor and/or its licensee. 2.2.1 If Lessee commits, permits or allows any of the prohibited activities described in the Lease or the rules then in effect, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.2.2 The monthly parking rate per parking space will be $ -0- per month at the commencement of the term of this Lease, and is subject to change upon five (5) days prior written notice to Lessee. Monthly parking fees shall be payable one month in advance prior to the first day of each calendar month. 2 2.3 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Office Building Project that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Office Building Project and their respective employees, suppliers, shippers, customers and invitees, including but not limited to common entrances, lobbies, corridors, stairways and stairwells, public restrooms, elevators, escalators, parking areas to the extent not otherwise prohibited by this Lease, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas and decorative walls. 2.4 Common Areas - Rules and Regulations. Lessee agrees to abide by and conform to the rules and regulations attached hereto as Exhibit B with respect to the Office Building Project and Common Areas, and to cause its employees, suppliers, shippers, customers and invitees to so abide and conform. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to modify, amend and enforce said rules and regulations. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees, their agents, employees and invitees of the Office Building Project. 2.5 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Building interior and exterior and Common Areas, including, without limitation, changes in the location, size, shape, number, and appearance thereof, including but not limited to the lobbies, windows, stairways, air shafts, elevators, escalators, restrooms, driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, decorative walls, landscaped areas and walkways; provided, however, Lessor shall at all times provide the parking facilities required by applicable law; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land and improvements outside the boundaries of the Office Building Project to be a part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Office Building Project; (d) To add additional buildings and Improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Office Building Project, or any portion thereof; (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Office Building Project as Lessor may, int he exercise of sound business judgement deem to be appropriate. 3. Term. 3.1 Term. The term and Commencement Date of this Lease shall be as specified in paragraph 1.5 of the Basic Lease Provisions. 3.2 Delay in Possession. Notwithstanding said Commencement Date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date and subject to paragraph 3.2.2, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease of the obligations of Lessee hereunder or extend the term thereof; but, in such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided int his Lease, until possession of the Premises is tendered to Lessee, as hereinafter defined; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days following said commencement Date, as the same may be extended under the terms of a Work Letter executed by Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged form all operations hereunder; provided, however, that, as to Lessee's obligations, Lessee first reimburses Lessor for all costs incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor shall return any money previously deposited by Lessee (less any offsets due Lessor for Non-Standard Improvements); and provided further, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.2.1 Possession Tendered - Defined. Possession of the Premises shall be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to be provided by Lessor under this Lease are substantially completed. (2) the Building utilities are ready for use in the Premises, (3) Lessee has reasonable access to the Premises, and (4) ten (10) days shall have expired following advance written notice to Lessee of the occurrence of the matters described in (1), (2) and (3), above of this paragraph 3.2.1. 3.2.2 Delays Caused by Lessee. There shall be no abatement of rent, and the sixty (60) day period following the Commencement Date before which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended to the extent of any delays caused by acts or omissions of Lessee, Lessee's agents, employees and contractors. 3 3.3 Early Possession. If Lessee occupies the Premises prior to said Commencement Date, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not change the termination date, and Lessee shall pay rent for such occupancy. 3.4 Uncertain Commencement. In the event commencement of the Lease term is defined as the completion of the improvements, Lessee and Lessor shall execute an amendment to this Lease establishing the date of Tender of Possession (as defined in paragraph 3.2.1) or the actual taking of possession by Lessee, whichever first occurs, as the Commencement Date. 4. Rent. 4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph 4.3, and except as may be otherwise expressly provided in this Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days of the calendar month involved. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.3.4 Lessee shall continue to pay the rent at the rate previously in effect until the increase, if any, is determined. Within five (5) days following the date on which the increase is determined, Lessee shall make such payment to Lessor as will bring the increased rental current, commencing with the effective date of such increase through the date of any rental installments then due. Thereafter the rental shall be paid at the increased rate. 4.3.5 At such time as the amount of any change in rental required by this Lease is known or determined, Lessor and Lessee shall execute an amendment to this Lease setting forth such change. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefore deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly Base Rent shall, from time to time, increase during the term of this Lease. Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth in paragraph 1.6 of the Base Lease Provisions. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not heretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for the purpose set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is reasonably comparable to that use and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to alterations or improvements made by Lessee or the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record or any applicable building code, regulations or ordinance in effect on such Lease term Commencement Date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expenses, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises. Lessee shall conduct its business in a lawful manner and shall not use or permit the use of the Premises or the Common Areas in any manner that will tend to create waster or a nuisance or shall tend to disturb other occupants of the Office Building Project. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee in a clean condition on the Lease Commencement Date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and heating system in the Premises shall be in good operating condition. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt 4 of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost; rectify such violation. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises and the Office Building Project in their condition existing as of the Lease Commencement Date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any easements, covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that it has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Lessor nor Lessor's agent or agents has made any representation or warranty as to the present or future suitability of the Premises, Common Areas, or Office Building Project for the conduct of Lessee's business. 7. Maintenance, Repairs, Alterations and Common Area Services. 7.1 Lessor's Obligations. Lessor shall keep the Office Building Project, including the Premises, interior and exterior walls, roof,and common areas, and the equipment whether used exclusively for the Premises or in common with other premises, in good condition and repair; provided, however, Lessor shall not be obligated to paint, repair or replace wall coverings, or to repair or replace any improvements that are not ordinarily a part of the Building or area above then Building standards. Except as provided in paragraph 9.5, there shall be no abatement of rent or liability of Lessee on account of any injury or Interference with Lessee's business with respect to any improvements, alterations or repairs made by Lessor to the Office Building Project or any part thereof. Lessee expressly waives the benefits of any statute now or hereafter inn effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 Lessee's Obligations. (a) Notwithstanding Lessor's obligation to keep the Premises in good condition and repair, Lessee shall be responsible for payment of the cost thereof to Lessor as additional rent for that portion of the cost of any maintenance and repair of the Premises, or any equipment (wherever located) that serves only Lessee or the Premises, to the extent such cost is attributable to causes beyond normal wear and tear. Lessee shall be responsible for the cost of painting, repair or replacing wall coverings, and to repair or replace any Premises improvements that are not ordinarily a part of the Building or that are above then Building standards. Lessor may, at its option, upon reasonable notice, elect to have Lessee perform any particular such maintenance or repairs the cost of which is otherwise Lessee's responsibility hereunder. Lessee is to be responsible for maintaining all plumbing within the leased space. 5 (b) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Lessee. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Except as otherwise stated in this Lease, Lessee shall leave the airlines, power panels, electrical distribution systems, lighting fixtures, air conditioning, window coverings, wall coverings, carpets, wall panelling, ceilings, and plumbing on the Premises and in good operating condition. 7.3 Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, utility installations or repairs in, on, or about the Premises, or the Office Building Project. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and wall coverings, power panels, electrical distribution systems, lighting fixtures, air conditioning, plumbing, and telephone and telecommunication wiring and equipment. At the expiration of the term, Lessor may require the removal of any or all of said alterations, improvements, additions or Utility installations, and the restoration of the Premises and the Office Building Project to their prior condition, at Lessee's expense. Should Lessor permit Lessee to make its own alterations, improvements, additions or Utility Installations, Lessee shall use only such contractor as has been expressly approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any part or all of the same. (b) Any alterations, improvements, additions or Utility Installations in or about the Premises or the office Building Project that Lessee shall desire to make shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent to Lessee's making such alteration, improvement, addition or Utility Installation, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from the applicable governmental agencies, furnishing a copy thereof to Lessor prior to the commencement of the work, and compliance by Lessee with all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, the Building or the Office Building Project, or any interest therein. (d) Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises by Lessee, and Lessor shall have the right to post notices of non-responsibility in or on the Premises of the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgement that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, the Building or the Office Building Project, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premise, the Building and the Office Building Project free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's reasonable attorneys' fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest so to do. (e) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee) which may be made to the Premises by Lessee, including but not limited to, floor coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, and lighting and telephone or communication systems, conduit, wiring and outlets, shall be made and done in a good and workmanlike manner and of good and sufficient quality and materials and shall be the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided Lessee is not in default, notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal property and equipment, other than that which is affixed to the premises so that it cannot be removed without material damage to the Premises or the Building, and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. (f) Lessee shall provide Lessor with as-built plans and specification for any alterations, improvements, additions or Utility Installations. 7.4 Utility Additions. Lessor reserves the right to install new or additional utility facilities throughout the Office Building Project for the benefit of Lessor or Lessee, or any other lessee of the Office Building Project, including, but not by way of limitation, such utilities as plumbing, electrical systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. 8. Insurance; Indemnity. 8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Comprehensive General Liability insurance utilizing an Insurance Services Office standard form with Broad Form General Liability Endorsement (GL0404), or equivalent, in an amount of not less than $1,000,000 per occurrence of bodily injury and properly damage combined or in a greater amount as reasonably determined by Lessor and shall insure Lessee with Lessor as an additional insured against liability arising out of the use, occupancy or maintenance of the premises. Compliance with the above requirement shall not, however, limit the liability of Lessee hereunder. 6 8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Broad Form Property Damage Insurance, plus coverage against such other risks Lessor deems advisable from time to time, insuring Lessor, but not Lessee, against liability arising out of the ownership, use, occupancy or maintenance of the Office Building Project in an amount not less than $5,000,000.00 per occurrence. 8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease for the benefit of Lessee, replacement cost fire and extended coverage insurance, with vandalism and malicious mischief, sprinkler leakage and earthquake sprinkler leakage endorsements, in an amount sufficient to cover not less than 100% of the full replacement cost, as the same may exist from time to time, of all of Lessee's personal property, fixtures, equipment and tenant improvements. 8.4 Property Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Office Building Project improvements, but not Lessee's personal property, fixtures, equipment or tenant improvements, in the amount of the full replacement cost thereof, as the same may exist from time to time, utilizing Insurance Services Office standard form, or equivalent, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, plate glass, and such other perils as Lessor deems advisable or may be required by a lender having a lien on the Office Building Project. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. Lessee will not be named in any such policies carried by Lessor and shall have no right to any proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender may determine. In the event that the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof, the deductible amounts under the applicable insurance premium for the Office Building Project over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessor's Insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the commencement Date of this Lease. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals thereof. 8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other, for direct or consequential loss or damage arising out of or incident to the perils covered by property insurance carried by such party, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. If necessary all property insurance policies required under this Lease shall be endorsed to so provide. 8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its agents, Lessor's master or ground lessor, partners and lenders, from and against any and all claims for damage to the person or property of anyone or any entity arising from Lessee's use of the Office Building Project, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims, costs and expenses arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, employees, or invitees, and from and against all costs, attorney's fees, expenses and liabilities incurred by Lessor as the result of any such use, conduct, activity, work, things done, permitted or suffered, breach, default or negligence, and in dealing reasonably therewith, including, but not limited to the defense or pursuit of any claim or any action or proceeding involved therein; and in case any action or proceeding be brought against Lessor by reason of any such matter, Lessee upon notice form Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate wit Lessee in such defence. Lessor need not have first paid any such claim in order to be so indemnified. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Office Building Project arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for loss of or damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Office Building Project, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from theft, fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Office Building Project, or of the equipment, fixtures or appurtenances applicable thereto, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible, Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Office Building Project, nor from the failure of Lessor to enforce the provisions of any other lease of any other lessee of the Office Building Project. 8.9 No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified in this paragraph 8 are adequate to cover Lessee's property or obligations under this Lease. 9. Definitions. (a) "Premises Damage" shall mean if the Premises are damaged or destroyed to any extent. 7 (b) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent (50%) of the then Replacement cost of the building. (c) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent (50%) or more of the then Replacement Cost of the Building. (d) "Office Building Project Buildings" shall mean all of the buildings on the Office Building Project site. (e) "Office Building Project Buildings Total Destruction" shall mean if the Office Building Project Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent (50%) or more of the then Replacement Cost of the Office Building Project Buildings. (f) "Insured Loss" shall mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. The fact that an Insured Loss has a deductible amount shall not make the loss an uninsured loss. (g) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring, excluding all improvements made by lessees, other than those installed by Lessor at Lessee's expense. 9.2 Premises Damage: Premises Building Partial Damage. (a) Insured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this lease there is damage which is an Insured Loss and which falls into the classification of either Premises Damage or Premises Building Partial Damage; then Lessor shall, as soon as reasonably possible and to the extent the required materials and labor are readily available through usual commercial channels, at Lessor's expense, repair such damage (but not Lessee's fixtures, equipment or tenant improvements originally paid for by Lessee) to its condition existing at the time of the damage, and this Lease shall continue in full force and effect. (b)Uninsured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Damage or Premises Building Partial damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from making any substantial use of the Premises, Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage, in which event this Lease shall terminate as of the date of the occurrence of such damage. 9.3 Premises Building Total Destruction; Office Building Project Total Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, which falls into the classifications of either (i) Premises Building Total Destruction, or (ii) Office Building Project Total Destruction, then Lessor may at Lessor's option either (i) repair such damage or destruction as soon as reasonably possible at Lessor's expense (to the extent the required materials are readily available through usual commercial channels) to its condition existing at the time of the damage, but not Lessee's fixtures, equipment or tenant improvements, and this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this lease shall terminate as of the date of the occurrence of such damage. 9.4 Damage Near End of Term. (a) Subject to paragraph 9.4(b), if at any time during the last twelve (12) months of the term of this Lease there is substantial damage to the Premises, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), In the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to e exercised at all, no later than twenty (20) days after the occurrence of an insured loss falling within the classification of Premises Damage during the last twelve (12 months) of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 8 9.5 Abatement of Rent; Lessee's Remedies (a) In the event Lessor repairs or restores the Building or Premises pursuant to the provisions of this paragraph 9, and any part of the Premises are not usable (Including loss of use due to loss of access or essential services), the rent payable hereunder (including Lessee's Share of Operating Expense Increase) for the period during which such damage, repair or restoration continues shall be abated, provided (1) the damage was not the result of the negligence of Lessee, and (2) such abatement shall only be to the extent the operation and profitability of Lessee's business as operated from the Premises is adversely affected. Except for said abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises or the Building under the provisions of this Paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such occurrence, or if Lessor shall not complete the restoration and repair within six (6) months after such occurrence, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement or completion, respectively, of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. (c) Lessee agrees to cooperate with Lessor in connection with any such restoration and repair, including but not limited to the approval and/or execution of plans and specifications required. 9.6 Termination - Advance Payments. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor, Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.7 Waiver. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10.1 Payment of taxes. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Office Building Project subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2. 10.2 Additional Improvements. Lessee shall not be responsible for paying any Increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Office Building Project by other lessees or by lessor for the exclusive enjoyment of any other lessee. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Office Building Project or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other Improvement district thereof, as against any legal or equitable interest of Lessor in the Office Building Project or in any portion thereof, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Office Building Project. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) In substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax", or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a change in ownership, as defined by applicable local statutes for property tax purposes, of the Office Building Project or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such change of ownership, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the improvements or property, the taxes for which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not separately assessed, Lessee's portion of that tax shall be equitably determined by Lessor from the respective valuations assigned in the assessor's worksheets or such other information (which may include the cost of construction) as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment nd all other personal property of Lessee contained in the Premises or elsewhere. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 9 11. Utilities. Lessee shall pay for all utilities to the leased space. 11.1 Services Provided by Lessor. Lessor shall provide heating, ventilation, air conditioning and janitorial service as reasonably required, reasonable amounts of electricity for normal lighting and office machines, water for reasonable and normal drinking and lavatory use, and replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures. 11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas heat, light, power, telephone and other utilities and services specially or exclusively supplied and/or metered exclusively to the Premises or to Lessee, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises in the Building. 11.3 Hours of Service. Said services and utilities shall be provided during generally accepted business days and hours or such other days or hours as may hereafter be set forth. Utilities and services required at other times shall be subject to advance request and reimbursement by Lessee to Lessor of the cost thereof. Lessee to contract directly with the City of Glendale for all services and utilities to the leased space. 11.4 Excess Usage by Lessee. Lessee shall not make connection to the utilities except by through existing outlets and shall not install or use machinery or equipment in or about the Premises that uses excess water, lighting or power, or suffer or permit any act that causes extra burden upon the utilities or services, including but not limited to security services, over standard office usage for the Office Building Project. Lessor shall require Lessee to reimburse Lessor for any excess expenses or costs that may arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion, install at Lessee's expense supplemental equipment and/or separate metering applicable to Lessee's excess usage or loading. 11.5 Interruptions. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor' reasonable control or in cooperation with governmental request or directions. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a material default and breach of this Lease without the need for notice to Lessee under paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include the transfer or transfers aggregating: (a) if Lessee is a corporation, more than twenty-five percent (25%) of the voting stock of such corporation, or (b) if Lessee is a partnership, more than twenty-five percent (25%) of the profit and loss participation in such partnership. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the mergeror consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate"; provided that before such assignment shall be effective, (a) said assignee shall assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall be given written notice of such assignment and assumption. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of who shall not be necessary. 12.3 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, no assignment or subletting shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's Share of Operating Expense Increase, and to perform all other obligations to be performed by Lessee hereunder. (b) Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. (c) Neither a delay in the approval or disapproval of such assignment or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 12 or this Lease. (d) If Lessee's obligations under this Lease have been guaranteed by third parties, then an assignment or sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (e) The consent by Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability under this Lease or said sublease; however, such persons shall not be responsible to the extent any such amendment or modification enlarges or increases the obligations of the Lessee or sublessee under this Lease or such sublease. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or anyone else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor or Lessee. 10 (g) Lessor's written consent to any assignment or subletting o the Premises by Lessee shall not constitute an acknowledgement that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (h) The discovery of the fact that any financial statement relied upon by Lessor in giving its consent to an assignment or subletting was materially false shall, at Lessor's election, render Lessor's said consent null and void. 12.4 Additional Terms and Conditions Applicable to Subletting. Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a default shall occur i the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under a such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice form Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request form Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublessee as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublease shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform an comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within three (3) days after service of said notice of default upon such sublessee , and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 Lessor's Expenses. In the event Lessor shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable costs and expenses incurred in connection therewith, including attorneys', architects', engineers' or other consultants' fees. 12.6 Conditions to Consent. Lessor reserves the right to condition any approval to assign or sublet upon Lessor's determination that (a) the proposed assignee or sublessee shall conduct a business on the Premises of a quality substantially equal to that of Lessee and consistent with the general character of he other occupants of the Office Building Project and not in violation of any exclusives or rights then held by other tenants, and (b) the proposed assignee or sublessee be at least as financially responsible as Lessee was expected to be at the time of the execution of this Lease or of such assignment or subletting, whichever is greater. 13.1 Default. The occurrence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacation or abandonment of the Premises by Lessee. Vacation of the Premises shall include the failure to occupy the Premises for a continuous period of sixty (60) days or more, whether or not the rent is paid. (b) The breach by Lessee of any of the covenants, conditions or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or subletting), 13.1 (a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f) (false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33 (auctions), or 41.1 (easements), all of which are hereby deemed to be material, non-curable defaults without the necessity of any notice by Lessor to Lessee thereof. (c) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. 11 (d) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee other than those referenced in subparagraphs (b) and (c), above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. To the extent permitted by law, such thirty (30) days notice shall constitute the sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. (e) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors: (ii) Lessee becoming a "debtor" as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed with in sixty (60) days; (iii) the appointment of a trustee or receive to take possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's obligation hereunder, was materially false. 13.2 Remedies. In the event of any material default or breach of this Lease by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. IN such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid, the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 14 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently pursues the same to completion. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense increase or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be impose on Lessor by the terms of any mortgage or trust deed covering the Office Building Project. Accordingly, if any installment of Base Rent, Operating Expense Increase, or any other sum due form Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such later charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. 14. Condemnation. If the Premises or any portion thereof or the Office Building Project are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation") this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs; provided that if so much of the Premises or the Office Building Project are taken by such condemnation as would substantially and adversely affect the operation and profitability of Lessee's business conducted from the Premises, Lessee shall have the option, to be exercised only in writing within thirty (30) days after the condemning authority shall have taken possession), to terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent and Lessee's Share of Operating Expense Increase shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises. Common Areas taken shall be excluded from the Common Areas usable by Lessee and no reduction of rent shall occur with respect thereto or by reason thereof. Lessor shall have the option in its sole discretion to terminate this Lease as of the taking of possession by the condemning authority, by giving written notice to Lessee of such election within thirty (30) days after receipt of notice of a taking by condemnation of any part of the Premises or the Office Building Project. Any award for the taking of all or any part of the Premises 12 or the Office Building Project under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any separate award for loss of or damage to Lessee's trade fixtures, removable personal property and unamortized tenant improvements that have been paid for by Lessee. For that purpose the cost of such improvements shall be amortized over the original term of this Lease excluding any options. IN the event that this Lease is not terminated y reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. Broker's Fee. (a) The brokers involved in this transaction are Stevenson Real Estate Services as "listing broker" and Dorn-Platz & Company as "cooperating broker," licensed real estate broker(s). A "cooperating broker" is defined as any broker other than the listing broker entitled to a share of any commission arising under this Lease. Upon execution of this Lease by both parties, Lessor shall pay to said brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of per separate agreement, for brokerage services rendered by said broker(s) to Lessor in this transaction. (b) Lessor further agrees that (i) if Lessee exercises any Option, as defined in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or any subsequently granted option which is substantially similar to an Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or (iii) if Lessee remains in possession of the Premises after the expiration of the term of this Lease after having failed to exercise an Option, or (iv) if said broker(s) are the procuring cause of any other lease or sale entered into between the parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest or (v) if the Base Rent is increased, whether by agreement or operation of an escalation clause contained herein, there as to any of said transactions or rent increases, Lessor shall pay said broker(s) a fee in accordance with the schedule of said broker(s) in effect at the time of execution of this Lease. Said fee shall be paid at the time such increased rental is determined. (c) Lessor agrees to pay said fee not only on behalf of Lessor, but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this paragraph 15. Each listing and cooperating broker shall be a third party beneficiary of the provisions of this paragraph 15 to the extent of their interest in any commission arising under this Lease and may enforce that right directly against Lessor; provided, however, that all brokers having a right to any part of such total commission shall be a necessary party to any suit with respect thereto. (d) Lessee and Lessor each represent and warrant to the other that neither has had any dealings with any person, firm, broker or finder (other than the person(s), if any, whose names are set forth in paragraph 14(a), above) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and no other broker or other person, firm or entity is entitled to any commission or finder's fee in connection with said transaction and Lessee and Lessor do each hereby indemnify and hold the other harmless form and against any costs, expenses, attorney's fees or liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying party. 16. Estoppel Certificate (a) Each party (as "responding party") shall at any time upon not less than ten (10) days' prior written notice form the other party ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date in which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Office Building Project or of the business of Lessee. (b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, (ii) there are no uncured defaults in the requesting party's performance, and (iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Office Building Project, or any part thereof, or for Lessor's internal use, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean only the owner or owners, at the time in question, of the fee title or a lessee's interest in a ground lease of the Office Building Project, and except as expressly provided in paragraph 14, and in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after 13 the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law or judgments from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee not on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Lease. 21. Additional Rent. All monetary obligations of Lessee to Lessor under the terms of this Lease, including but not limited to Lessee's Share of Operating Expense increase and any other expense payable by Lessee hereunder shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in paragraph 14 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Office Building Project and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified or registered mail, and shall be deemed sufficiently given if delivered or addressed to Lessee or to Lessor at the address noted below or adjacent to the signature of the respective parties, as the case may be. Mailed notices shall be deemed given upon actual receipt at the address required, or forty-eight hours following deposit in the mail, postage prepaid, whichever first occurs. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach of time of acceptance of such rent. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, except that the rent payable shall be two hundred percent (200% of the rent payable immediately preceding the termination date of this Lease, and all Options, if any, granted under the terms of this Lease shall be deemed terminated and be no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Office Building Project is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Office Building Project is located. 14 30. Subordination. (a) This Lease, and any Option or right of first refusal granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage deed of trust, or any other hypothecation or security now or hereafter placed upon the Office Building Project and to any and all advances made on the security thereof and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination, or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fees. 31.1 If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, trial or appeal thereon, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court in the same or a separate suit, and whether or not such action is pursued to decision or judgement. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 31.2 The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred in good faith. 31.3 Lessor shall be entitled to reasonable attorney's fees and all other costs and expenses incurred in the preparation and service of notice of default and consultations in connection therewith, whether or not a legal transaction is subsequently commenced in connection with such default. 32. Lessor's Access. 32.1 Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, performing any services required of Lessor, showing the same to prospective purchasers, lenders, or lessees, taking such safety measures, erecting such scaffolding or other necessary structures, making such alterations, repairs, improvements or additions to the Premises or to the Office Building Project as Lessor may reasonably deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee's use of the Premises. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs. 32.2 All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 32.3 Lessor shall have the right to retain keys to the Premises and to unlock all doors in or upon the Premises other than to files, vaults and safes, and in the case of emergency to enter the Premises by any reasonably appropriate means, and any such entry shall not be deemed a forceable or unlawful entry or detainer of the Premises or any eviction. Lessee waives any charges for damages or injuries or interference with Lessee's property or business in connection therewith. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. The holding of any auction on the Premises or Common Areas in violation of this paragraph shall constitute a material default of this Lease. 34. Signs. Lessee shall not place any sign upon the Premises or the Office Building Project without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Office Building Project. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may , at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 15 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Office Building Project. 39. Options. 39.1 Definition. As used in this paragraph the word "option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option of right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Office Building Project or other property of Lessor or the right of first offer to lease other space within the Office Building Project or other property of Lessor; (3) the right or option to purchase the Premises or the Office Building Project, or the right of first refusal to lease other space within the Office Building Project or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 Options Personal. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the Intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee; provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4. Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after the monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option, (iv) if Lessee has committed any non-curable breach, including without limitation those described in paragraph 13.1(b), or is otherwise in default of any of the terms, covenants or conditions of this Lease. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(d) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessor gives to Lessee three or more notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if Lessee has committed any non-curable breach, including without limitation those described in paragraph 13.1(b), or is otherwise in default of any of the terms, covenants and conditions of this Lease. 40. Security Measures - Lessor's Reservations. 40.1 Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Office Building Project. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, form providing security protection for the Office Building Project or any part thereof, in which event the cost thereof shall be included within the definition of operating Expenses, as set forth in paragraph 4.2(b). 40.2 Lessor shall have the following rights: (a) To change the name, address or title of the Office Building Project or building in which the Premises are located upon not less than 90 days prior written notice; 16 (b) To, at Lessee's expense, provide and install Building standard graphics on the door of the Premises and such portions of the Common areas as Lessor shall reasonably deem appropriate; (c) To permit any lessee the exclusive right to conduct any business as long as such exclusive does not conflict with any rights expressly given herein; (d) To place such signs, notices or displays as Lessor reasonably deems necessary or advisable upon the roof, exterior of the buildings or the Office Building Project or on pole signs in the Common Areas; 40.3 Lessee shall not: (a) Use a representation (photographic or otherwise) of the Building or the Office Building Project or their name(s) in connection with Lessee's business; (b) Suffer or permit anyone, except in emergency, to go upon the roof of the Building. 41. Easements. 41.1 Lessor reserves to itself the right, form time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights dedications Maps and restriction do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 41.2 The obstruction of Lessee's view, air, or light by any structure erected in the vicinity of the Building, whether by Lessor or third parties, shall in no way affect this Lease or impose any liability upon Lessor. 42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provision of this Lease. 43. Authority. If Lessee is a corporation, trust, or general or limited partnership, Lessee and each individual executing this Lease on behalf of such entity represent and warrant that such individual is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to Lessee to Lease this Lease shall become binding upon Lessor and Lessee only when fully executed by both parties. 46. Lender Modification. Lessee agrees to make such reasonable modifications to this Lease as may be reasonably required by an institutional lender in connection with the obtaining of normal financing ore refinancing of the Office Building Project. 47. Multiple Parties. If more than one person or entity is named as either Lessor or Lessee herein, except as otherwise expressly provided herein, the obligations of the Lessor or Lessee herein shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee, respectively. 48. Work Letter. This Lease is supplemental by that certain Work Letter of even date executed by Lessor and Lessee, attached hereto as Exhibit C, and incorporated herein by this reference. 49. Attachments. Attached hereto are the following documents which constitute a part of this Lease: 50. Relocation. Lessor shall have the right, at its option, upon at least thirty (30) days written notice to Lessee, to relocate Lessee and to substitute for the Premises (the "Original Premises") other space (the "Substituted Premises") in the building of which the premises are a part, containing at least as much rentable area as the Original Premium. Should Lessee not approve of the Substituted Premise, which approval shall not be unreasonable withheld, Lessee's sole remedy shall be to cancel this Lease. This Substituted Premises shall be improved at Lessor's expense, with decorations and improvements at least equal in quantity and quality to those in the Original Premises and may include improvements form the Original Premises and existing improvements in the Substituted Premises. Lessor shall pay the expenses reasonably incurred by Lessee in connection with such substitution of Premises, in an amount not to exceed $1,000.00 in the aggregate. Such expenses shall include, without limitation, costs of moving, door lettering, telephone relocation and reasonable quantities of new stationary, but shall not include any compensation for any alleged interruption of Lessee's business. 17 51. Confidentiality of Lease. Lessee acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Lessor and Lessee. Disclosure of the terms hereof could adversely affect the ability of Lessor to negotiate other leases with respect to the Building or impair Lessor's relationship with other tenants of the Building. Lessee agrees that it and its partners, officer,s directors, employees and attorneys shall not disclose the terms and conditions of this Lease to any other persons without the prior written consent of Lessor. IT is understood and agreed that damages would be inadequate remedy for the breach of this provision by Lessee, and Lessor shall have the right to performance of this provision and to injunctive to prevent breach or continued breach. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. LESSOR LESSEE Michael F. Maluccio OptimumCare Corporation By: MICHAEL F. MALUCCIO By: EDWARD A. JOHNSON Its: Owner Its: C.E.O. 662 W. Broadway Glendale, CA 91204 by: by: ------------------------- ---------------------------- Its: Its: ----------------------- --------------------------- Executed at: Executed at: --------------- ------------------- on: 10/2/96 on: Address: Address: 18 ADDENDUM TO STANDARD OFFICE LEASE-GROSS DATED AUGUST 6, 1997 BY AND BETWEEN MICHAEL F. MALUCCIO ("LESSOR") AND OPTIMUMCARE CORPORATION ("LESSEE") FOR THE PROPERTY LOCATED AT 662 WEST BROADWAY, UNITS B, C AND D, GLENDALE, CALIFORNIA 50. Lessor, at Lessor's sole cost, agrees to paint the interior of the premises, and Lessee agrees to take the premises at present condition. Landlord shall warrant the satisfactory operation of the HVAC, electrical, and plumbing system of the Premises for the first twelve (12) months of the Lease term. 51. The base rent shall be as follows:
Months Rent/Month 1-24 $5,249.00 25-36 $5,430.00
The above referenced rental rates are quoted on a monthly, per rentable square foot basis with the Tenant being responsible for utilities and janitorial. Tenant also agrees to maintain the common area restrooms within the 662 W. Broadway building and to prohibit patients from congregating in the building's common areas. Landlord shall be responsible for Real Estate Taxes, insurance, and the maintenance of the exterior of the Premises. 52. The Lease shall be contingent upon Tenant receiving a license from the State of California for the operation of a out-patient mental health program at the Premises. (Tenant is currently licensed for such use at another location in Glendale). Should Tenant not receive said licensing within 120 days from the acceptance of the proposal to lease (August 5, 1997), Tenant shall have the right to terminate the lease within thirty (30) days written notice to Landlord. 53. Tenant shall not be responsible for increases in the Buildings operating expenses during the initial term of the Lease. 54. Tenant shall have the right to sublease the premises to Sherman Oaks Hospital and Mental Health Center without further consent form Landlord. Tenant shall have the future right, subject to Landlord's consent which shall not be unreasonably withheld, delayed, or conditioned to Sublease or Assign the Premises, at any time during the Initial Term or extension thereof. 55. Tenant shall have access to the Building and its respective parking garage seven (7) days per week, twenty four (24) hours per day. 56. Tenant acknowledges and agrees that Tenant's patients shall not loiter or smoke in the Building's common areas. Tenant and Tenant's patients shall be allowed the use of the area directly in front of Tenants' Premises provided Tenant's patients are supervised. 57. Tenant shall be allowed mutually acceptable Building signage, subject to City approval at Tenant's sole cost and expense. 19 RULES AND REGULATIONS FOR STANDARD OFFICE LEASE Dated: August 6, 1997 By and Between: Michael F. Maluccio and OptimumCare Corporation GENERAL RULES 1. Lessee shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways and stairways. 2. Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety, reputation, or property of the Office Building Project and its occupants. 3. Lessee shall not make or permit any noise or odors that annoy or interfere with other lessees or persons having business within the Office Building Project. 4. Lessee shall not keep animals or birds within the Office Building Project, and shall not bring bicycles, motorcycles or other vehicles into areas not designated as authorized for same. 5. Lessee shall not make, suffer or permit litter except in appropriate receptacles for that purpose. 6. Lessee shall not alter any lock or install new or additional locks or bolts. 7. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein. 8. Lessee shall not deface the walls, partitions or other surfaces of the premises or Office Building Project. 9. Lessee shall not suffer or permit anything in or around the Premises or Building that causes excessive vibration or floor loading in any part of the office Building Project. 10. Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessor's knowledge and consent, and subject to such reasonable limitations, techniques and timing, as may be designated by Lessor. Lessee shall be responsible for any damage to the Office Building Project arising from any such activity. 11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor. 12. Lessor reserves the right to close and lock the Building on Saturdays, Sundays and legal holidays, and on other days between the hours of 7:00 P.M. and 7:00 A.M. of the following day. If Lessee uses the Premises during such periods, Lessee shall be responsible for securely locking any doors it may have opened for entry. 13. Lessee shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost. 14. No window coverings, shades or awnings shall be installed or used by Lessee. 15. No Lessee, employee or invitee shall go upon the roof of the Building. 16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by Lessor or by applicable governmental agencies as non-smoking areas. 17. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor. 18. Lessee shall not install, maintain or operate any vending machines upon the Premises without Lessor's written consent. 19. The Premises shall not be used for lodging or manufacturing, cooking or food preparation. 20. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency. 21. Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee. 20 22. Lessee assumes all risks from theft or vandalism and agrees to keep its premises locked as may be required. 23. Lessor reserves the right to make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Office Building Project and its occupants. Lessee agrees to abide by these and such rules and regulations. PARKING RULES 1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called "Permitted Size Vehicles". Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles". 2. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 3. Parking stickers or identification devices shall be the property of Lessor and be returned to Lessor by the holder thereof upon termination of the holder's parking privileges. Lessee will pay such replacement charge as is reasonably established by Lessor for the loss of such devices. 4. Lessor reserves the right to refuse the sale of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements. 5. Lessor reserves the right to relocate all or a part of parking spaces from floor to floor, within one floor, and/or to reasonably adjacent offsite location(s), and to reasonably allocate them between compact and standard size spaces, as long as the same complies with applicable laws, ordinances and regulations. 6. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking. 7. Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Lessor will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area. 8. Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking. 9. The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas is prohibited. 10. Lessee shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements. 11. Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory rules, regulations, laws and agreements. 12. Such parking use as is herein provided is intended merely as a license only and no bailment is intended or shall be created hereby. EX-10.99 7 COMMUNITY MENTAL HEALTH CENTER AGREEMENT 1 EXHIBIT 10.99 COMMUNITY MENTAL HEALTH CENTER MANAGEMENT AGREEMENT THIS AGREEMENT constitutes a modification and amendment agreeable to both parties which supersedes and replaces the prior Management Agreement executed on the first day of February 1997 by and between Galaxy Health Care, Inc., (Galaxy) a Florida Corporation, d/b/a Treatment Resources of California, Inc. (TR-CMHC), a wholly owned subsidiary of Galaxy Health Care, and OptimumCare Corporation (Manager), a Delaware Corporation. The Management Contract executed on the first day of February 1997 is null and void. The present Management Agreement between Galaxy Health Care, Inc., a Florida Corporation d/b/a Treatment Resources of California, Inc. (TR-CMHC), and OptimumCare Corporation (Manager), a Delaware Corporation, is entered into this 27th day of August, 1997. RECITALS A. Galaxy owns and operates a Community Mental Health Center in the State of California called Treatment Resources of California, Inc. (TR-CMHC) for the treatment of psychiatric disorders, and TR-CMHC desires to operate a Partial Hospitalization Program (the "Out-Patient Program"); located at 757 Pacific Avenue, Long Beach, CA 90813; its Medical Provider number 05-4668. B. Manager is in the business of providing certain management services for the treatment of patients with psychiatric disorders as well as creating and/or managing Partial Hospitalization Programs with TR-CMHCs and; C. TR-CMHC desires to retain Manager, and Manager desires to be retained, to provide the services described herein to TR-CMHC. THEREFORE, it is mutually agreed as follows: 1. DEFINITIONS (a) "Confidential Information" of the Manager shall mean all documents and other materials provided by Manager not available through sources in the public domain. Manager's documents and other materials may include, but are not limited to, memoranda, manuals, handbooks, production books and audio and visual recordings, which contain information relating to the Out-Patient Program (including written materials distributed to Out-Patient Program patients or for promotion of the Out-Patient Program); and all models, techniques, formulations and procedures used to provide psychiatric services to Program patients. (b) "Employee Benefits" shall include, by way of illustration and not limitation, the employer's contribution under the Federal Insurance Contributions Act, unemployment compensation and related insurance, payroll and other employment taxes, pension and retirement plan contributions, worker's compensation and related insurance, group life, health, disability and accident insurance, severance and other benefits. (c) "Out-Patient Program" shall mean the out-patient partial hospitalization psychiatric program managed by Manager at TR-CMHC. 1 2 2. TERM (a) This Agreement shall have an initial term of five (5) years commencing (effective) on August 27, 1997 and termination August 27, 2002; the agreement will continue automatically for a second term of five (5) years unless the termination provisions set forth in Section (11) becomes applicable. (b) Thereafter, each party may exercise the option to continue the agreement for a succession of one (1) year terms by exercising an "option for continuation" within sixty (60) days prior to the expiration date in each succeeding year; the option may be exercised by providing written notice to the other parties address as set forth herein. (c) Termination provisions as in Section (11) of this Agreement. 3. RESPONSIBILITIES OF GALAXY D/B/A TR-CMHC (a) Galaxy will cooperate with manager in locating appropriate program space for potential capacity of at least twenty-five (25) chairs. (b) Galaxy will provide all services relating to billing, collection and bad debt procedures for all Medicare, Medicaid, Private Pay, and other insurer Out-Patient Program charges due for patient services, and provide record keeping as customary in the ordinary course of TR-CMHC's business. (c) Maintain license from the California Department of Health Services and pay all related fees associated with this license. (d) Provide Manager's employees and contracted personnel with copies of all relevant TR-CMHC Policies and Procedures, as amended from time to time relating to billing, collection and bad debts and MIS procedures. (e) Indemnify, save harmless, and defend Manager from all claims and liability and expenses (including reasonable attorney's fees) arising solely from the negligence of or breach of this Agreement by TR-CMHC or its employees or contracted personnel. (f) Maintain professional and comprehensive general liability insurance for itself and its employees and contracted personnel in an amount not less than $1,000,000 per occurrence or claim and whenever reasonably requested provide Manager with a certificate from the insurer stating that such insurance is in effect and which also states that Manager will be given at least ten (10) days advance written notice of any cancellation, non-renewal, or changes in policy limits, deductible, or co-insurance. Any deductible or co-insurance or aggregate limits shall be subject to Managers approval which shall not be unreasonably withheld. Manager agrees that $100,000 is an unacceptable deductible or co-insurance. TR-CMHC shall use reasonable efforts to maintain "tail" coverage if necessary for any terminated "claims made" policy so as to apply to any of its acts or omissions which occur during the term of this Agreement until the expiration of any applicable statute of limitation but not to exceed seven (7) years. (g) Staff training for initial operating date as well as continued oversight and training specifically for staff procedures relating to billing, collections and MIS procedures. (h) Supervision of staff hiring relating specifically to billing, collections and MIS procedures. (i) Implementation of training on basic Medicare regulation policies as to operational policies specifically with respect to billing, collections, bad debt and MIS procedures. (j) Oversight of MIS software and hardware installation, maintenance, upgrading and continual training. (k) Hiring and oversight of QA/TQM personnel and consultant specifically with respect to claims, billing, collections and bad debt policies and procedures. 2 3 (l) Implementation of employee policies. (m) Installation of policies and procedures, intake forms, patient chart documents and all forms and documents required to commence, maintain and oversee proper procedures relating to claims filing, billing, collections and MIS procedures. (n) Staff training and oversight development through in-services (for billing or collection procedures). (o) Continued collaboration and suggestions as to legal and accounting consultants. (p) Implementation and continued oversight of Galaxy's corporate compliance and integrity policies with respect to internal control mechanisms for fraud and abuse prevention protocols. (q) Collaboration with preparation for year-end cost audit report with Accounting and Legal Consultant. 4. COVENANTS OF MANAGER Manager will do the following at its own cost and expense: (a) Provide out-patient program consultation, orientation, direction and training for the program. (b) Rent facility program space for the duration of this Agreement. (c) Provide the following staffing: (I) A full-time Partial Hospitalization Program Director, (ii) Social services, (iii) Psychological Services; (iv) Therapy/Activities and other services as appropriate. (v) A Medical Director (who shall be a physician duly licensed in the State of California (vi) registered nurse services (vii) professional counseling staff and (viii) qualified unit secretary as needed to provide for the professional counseling of Out-Patient Program patients and other personnel as required to adequately supervise and operate the Out-Patient Program. All such personnel shall be subject to TR-CMHC approval but TR-CMHC shall be deemed to have accepted such personnel unless it informs Manager otherwise in writing within five (5) business days of receipt of all such required information. Such personnel shall not be deemed employees or contracted personnel or borrowed servants of TR-CMHC. Manager shall have full responsibility for their wages, compensation and employee benefits and acts or Omissions. (d) Indemnify, save harmless, and defend TR-CMHC from all claims and liability and expenses (including reasonable attorney's fees) (1) arising solely from the negligence of or breach of this Agreement by Manager or its employees or contracted personnel or (2) arising out of TR-CMHC negligence if the sole basis for any such negligence consists of entering into this Agreement with Manger, failing to properly supervise, monitor or oversee Manager or its employees or agents, or failing to properly supervise, monitor or oversee Manager or its employees or agents, or failing to properly review or act upon its review of the qualifications of Manager or its employees or contracted personnel. (e) Oversight of compliance with OSHA regulations and fire inspection. (f) Oversight of acquisition of equipment leases, furniture lease and office lease, including interior planning. (g) Oversight of all employment contract preparation. (h) Oversight and suggestions as to all necessary contractual relationships. (i) All other necessary continued management and regulatory compliance services as to day to day operations. (j) Oversight of continued TQM and QA. (k) Continued oversight of reimbursement/expenditure issues. 3 4 (l) Development of strategic policies regarding surplus funds issues. (m) Continued development and training of staff as to personnel policies and procedures, compliance with Federal Labor Laws, and oversight of EAP Consultant; installation of Employee Manual, patient handbooks, external EAP and Drug Free work place policies. (n) Continued training in admissions and in-take protocols. (o) Consulting computer, technology and communications consulting as to (p) services, as required for day to day operational management of Facility. (q) Consult, manage and support the Out-Patient Program treatment team's effort to provide quality psychiatric treatment while maintaining prudent control of patient length of stay. (r) Maintain professional and comprehensive general liability insurance for itself and its employees and contracted personnel in an amount not less than $5,000,000 per occurrence or claim and whenever reasonably requested provide TR-CMHC with a certificate from the insurer stating that such insurance is in effect and which also states that TR-CMHC will be given at least ten (10) days advance written notice of any cancellation, non-renewal, changes in policy limits, deductible, or co-insurance or aggregate limits shall be subject to TR-CMHC's approval which shall not be unreasonably withheld. TR-CMHC agrees that $100,000 is an acceptance deductible or co-insurance. Manager shall use reasonable efforts to maintain "tail" coverage if necessary for any terminated "claims made" policy so as to apply to any of its acts or omissions which occur during the term of this Agreement until the expiration of any applicable statute o limitation but not to exceed seven (7) years. Manager shall use reasonable efforts to have TR-CMHC named as an additional insured on Manager's insurance with respect to any claim or liability arising solely out of any act of omission by Manager, its employees, or contracted personnel. (s) Until the expiration of four (4) years after the furnishing of any services to be provided under this Agreement made available, upon request, to the Secretary of Health and Human Services or to the Comptroller General of the United States of America, or their duly authorized representatives, this Agreement and books, documents and records which are necessary to certify the nature and extent of reimbursable costs under the Medicare laws. (t) Comply with all applicable laws (including but not limited to 42.U.S.C.1395(nn)(b) or any similar law or regulations, TR-CMHC policies and procedures, program policies and procedures any applicable standards of care. (u) Use reasonable efforts to resolve any issues regarding acceptability of Out-Patient Program Personnel to TR-CMHC personnel and to Out-Patient Program patients which may arise with respect to any of Manager's employees or contracted personnel. (v) Provide monthly written reports to TR-CMHC regarding all pertinent aspects of the operation of the Out-Patient Program. (w) Commit no act or omission which adversely affects the TR-CMHC license. (x) Admit patients to the Out-Patient Program (including but not limited to Medicare, medicaid or Managed Care or private pay patients) only if the admission is ordered by a physician on the Out-Patient Program staff with admitting privileges. (y) Provide appropriate utilization review and quality assessment services for all out-patient program patients. Utilization and review extends to filing and pursuing clinical appeals with the TR-CMHC's fiscal intermediary. 4 5 5. REPRESENTATION AND WARRANTS OF TR-CMHC TR-CMHC hereby represents to Manager as follows: (a) Tr-CMHC is a corporation duly organized and validly existing in good standing under the laws of the State of California with the power and authority to carry on the business in which it is engaged and to perform its obligations under this Agreement subject to maintaining the license described in subpart (d) of Section (3). (b) The execution of this Agreement and the performance of the obligations of the TR-CMHC hereunder will not result in any breach of any of the terms, conditions or provisions of any Agreement or other instrument to which TR-CMHC is a party or by which it may be bound or affected, or any governmental license, franchise, permit or other authorization processed by the TR-CMHC, nor will such execution and performance violate any Federal, State, or local law, rule or regulation. (c) There is no litigation, administrative proceeding or investigation pending or threatened against TR-CMHC (nor is the TR-CMHC subject to any judgement, order, decree or regulation of any court or other governmental administrative agency) which would materially adversely affect the performance of TR-CMHC's obligations hereunder. (d) No Certificate of Need is required by TR-CMHC from any state regulatory agency for the operation of the Out-Patient Program. 6. REPRESENTATIONS OF MANAGER Manager hereby represents to TR-CMHC as follows: (a) Manager is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware with the power and authority to carry on the business in which it is engaged and to perform its obligations under this Agreement. (b) The execution of this Agreement and the performance of the obligations of the Manager hereunder will not result in any breach of any of the terms, conditions or provisions of any Agreement or other instrument to which the manager is a party or by which it may be bound or affected, or any governmental license, franchise, permit or other authorization possessed by the Manager, nor will such execution and performance violate any Federal State or local, law, rule or regulation. (c) There is no litigation, administrative proceeding or investigation pending or threatened against Manager (nor is Manager subject to any judgement, order, decree or regulation of any court or other governmental administrative agency) which would materially adversely affect the performance of Manager's obligations hereunder. 7. MANAGEMENT FEES AND STAFFING FEES (a) TR-CMHC shall pay to Manager a monthly staffing fee of 130% composed of all monthly direct costs of staffing including but not limited to wages, payroll, taxes, health insurance, benefits (401k) and worker's compensation insurance. (b) $20,000.00 per month on an administrative management fee plus repayment of all direct costs advanced for operation of the program of 110%. (c) TR-CMHC shall pay Manager within fifteen (15) working days of receiving Manager's invoice regarding the above. (d) For all funds (including fees) advanced by OptimumCare including, without limitation staffing costs and fees and facility location costs, prior to TR-CMHC (TR) receiving its initial reimbursement check from Medicare. 1. TR-CMHC will repay to OptimumCare 1/2 of all funds advanced to be fully paid within fifteen (15) days after TR-CMHC is in receipt of the first reimbursement check. 5 6 2. Balance payable over succeeding twelve (12) months in consecutive equal installments including an additional 10% profit on the unpaid balance. 8. EQUIPMENT LEASING Upon being presented with the vendor invoices, OptimumCare will purchase and lease back to TR-CMHC business equipment as needed for operation of facility including communications, MIS, furniture, copier and a fax. Such lease will be paid by TR-CMHC over 36 months in equal consecutive monthly payments including a 10% profit per year over direct costs to OptimumCare. At the end of 36 months, TR-CMHC shall own the said equipment. 9. CONFIDENTIAL AND PROPRIETARY INFORMATION (a) TR-CMHC agrees and acknowledges that Confidential Information is disclosed to it in confidence with the understanding that it constitutes business information developed by Manager. TR-CMHC further agrees that it shall not use such Confidential Information for any purpose other than in connection with the Out-Patient Program. TR-CMHC further agrees not to disclose such Confidential Information to any third party except a required by law or regulation or in order to serve the purposes of the Out- Patient Program or as permitted by written authorization of Manger. (b) Manager hereby grants to TR-CMHC for the term of this Agreement, a non-exclusive license to use the registered service marks of Manger when identifying the Out-Patient Program. These service marks are the exclusive property of Manager. (c) Manager agrees not to disclose confidential information pertaining to the TR-CMHC business or Out-Patient Program patients except as required by law or regulation or as permitted by written authorization of TR-CMHC or the respective patient as the case may be. 10. RECRUITMENT OF EMPLOYEES AND AGENTS (a) TR-CMHC acknowledges that Manager has expended and will continue to expend substantial time, effort, and money to train its employees and contracted personnel in the operation of the Out-Patient Program. The employees and contracted personnel of Manger who will operate the Out-Patient Program at the TR-CMHC will have access to and possess Confidential Information of Manager TR-CMHC, therefore, agrees that for the earlier of two (2) years after the cessation of the employment or agency relationship between the Manager and the employee or agent or two (2) years after termination of this Agreement, it will not knowingly (and it will not induce any of its affiliates to) employ or solicit the employment of, or in any way retain the services of any employee, former employee, or contracted personnel or former agent of Manger if such individual has been employed or retained by Manager if such individual has been employed or retained by Manager in the Out-patient Program unless Manager gives TR-CMHC prior written consent thereto or unless this Agreement is terminated by TR-CMHC pursuant to paragraph (10) of this Agreement. (b) Manager agrees that during the same respective period of time, it will not knowingly (and it will not induce any of its affiliates to) employ or solicit the employment in any way retain the services of any employee, former employee, or contracted personnel or former agent of TR-CMHC without TR-CMHC's prior written consent thereto. 11. TERMINATION (a) Termination of Manager: (1) By written notice to TR-CMHC, if TR-CMHC should have a bankruptcy, 6 7 reorganization or similar action filed by or against it, become insolvent, go liquidation for any purpose. (2) In the event TR-CMHC has failed to comply with the terms of this Agreement in any material respect, including substantial completion of all refurbishing in the identified program space, manager shall, in writing, notify all of the nature of the breach and TR-CMHC shall have thirty (30) days to cure such breach or else the Agreement will thereupon be terminated upon written notice to TR-CMHC. (3) By written notice to TR-CMHC if TR-CMHC fails to maintain any license granted to it by a regulatory agency without which the Out-Patient Program would be materially and adversely affected. (4) By written notice to TR-CMHC if TR-CMHC fails to maintain professional and general liability insurance in the minimum amount of $1,000,000. (b) Termination by TR-CMHC: 1. By written notice to Manager if manager should have a bankruptcy, reorganization or similar action filed by or against it, become insolvent or go into liquidation for any purpose. 2. In the event Manager has failed to comply with the terms of this Agreement in any material respect, TR-CMHC shall, in writing, notify Manager of the nature of the breach, and Manager shall have thirty (30) days to cure such breach or else the Agreement will thereupon be terminated upon written notice to Manager. 3. By written notice to Manger if Manager fails to provide professional and general liability insurance in the minimum amount of $5,000,000. (c) Termination by either party. 1. In the event that Medicare, Medicaid, a third party payor or other Federal, State, Local Laws, rules, regulations, or interpretations thereof at any time during this Agreement duration, prohibit, restrict or substantially change the method, payment or amount of reimbursement or the like for services provided under this Agreement, then the TR-CMHC and Manager in good faith shall amend the Agreement to provide for payment of compensation to each other in a manner consistent with any such prohibition restriction and/or limitation. If this Agreement is not or cannot be amended prior to any event as above or to the mutual satisfaction of the TR-CMHC and Manager, then this Agreement may be terminated by either party with thirty (30) days written notice. (d) Governing Law: The validity of this Agreement and any of its terms or provisions, the interpretation of the rights and duties of the parties hereunder, and the construction of the terms or provisions hereof shall be government in accordance with the laws of the State of California. (e) Force Majeure: If either of the parties hereto is delayed or prevented from fulfilling any of its obligations under this Agreement by force majeure, said party shall not be liable for said delay or failure. "Force Majeure" means any cause beyond the reasonable control of a party, including but not limited to an act of God, act or omission of civil military authorities, fire, strike, flood, riot, war, delay of transportation, or inability due to the aforementioned causes to obtain necessary labor, materials, or facilities. (f) Severability: If any part of this Agreement is held to be void or unenforceable, such part will be treated as severable, leaving valid the remainder of this Agreement notwithstanding the part found void or unenforceable. 7 8 (g) Waiver: A waiver by either party of a breach or failure to perform shall not constitute a waiver of any provision hereof or of any other breach or failure whether or not similar. There shall be no waiver unless in writing signed by the party against whom the waiver is sought to be enforced. (h) Binding Effect: This Agreement shall be binding on the successors, and assigns of the respective parties, provided, however, neither party may assign or otherwise transfer this Agreement or delegate obligations hereunder without the other's written consent. (i) Complete Agreement: This Agreement and the Security Agreement dated July 1, 1997, constitutes the complete understanding of the parties and supersedes all other Agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof, and no other Agreement, representation, statement, or promise relating to the subject matter of this Agreement which is of contained herein shall be valid or binding. There shall be no amendment unless in writing signed by both parties. (j) No Agency or Partnership: The relationship between Manager and TR-CMHC is that of independent contractors and nothing in the Agreement shall be deemed to create an agency, joint venture, partnership or similar relationship between the parties hereto. Neither party shall have the right to bid for the other or enter into any contract or commitment in the name of, or on behalf of the other. (k) Notice: All notices hereunder shall be in writing, delivered personally or by U.S. Certified or Registered post mails, postage prepaid, return receipt requested, and shall be deemed given when delivered personally or upon the earlier of actual receipt or five (5) days after deposit in said United States Mail, addressed as below with proper postage affixed, but each party may change his address by written notice in accordance with this paragraph. 13. MISCELLANEOUS PROVISIONS (a) Compulsory Arbitration: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration in accordance with the rules of the American Arbitration Association, and judgement on the award rendered may be entered in any court having jurisdiction. However, this shall not apply with respect to any claim for indemnity for bodily injury or death. (b) UCC1 Filing: Galaxy agrees to allow OptimumCare to file a UCC1 payment promising against Galaxy's psychiatric out-patient accounts receivable for the facilities referred to in the staffing and/or Management Agreements. (c) Attorney's Fees: If any legal action (including arbitration) is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs awarded against the other party in addition to any other relief to which that party may be entitled. 8 9 TR-CMHC's Address: Galaxy Health Care Inc./Treatment Resources of California, Inc. 290 N.W. 165th Street, Suite PH-1 Miami, Florida 33169 Manager's Address: OptimumCare Corporation 30011 Ivy Glenn Drive, #219 Laguna Niguel, California 92677 IN WITNESS WHEREOF, this Agreement has been executed at Laguna Niguel, California at Miami, Florida Manager: OPTIMUMCARE CORPORATION GALAXY HEALTH CARE, INC. d/b/a TREATMENT RESOURCES OF CALIFORNIA, INC. By:________________________________ By:________________________________ Edward A. Johnson Dale P. Redlich President Chief Executive Officer Date:______________________________ Date:______________________________ 9 EX-10.100 8 LEASE AGRMNT. BETWEEN THE CO. AND LAGUNA NIGUEL 1 EXHIBIT 10.100 LEASE AMENDMENT That certain OFFICE BUILDING LEASE dated June 23, 1988 and amended on September 27, 1989, September 24, 1990, July 7, 1992, June 5, 1995, April 30, 1996 and May 19, 1997 by and between LAGUNA NIGUEL OFFICE CENTER, a California Limited Partnership, as Landlord and OPTIMUMCARE CORPORATION, a Delaware Corporation, as Tenant, is hereby amended as follows: 1) Lease expiration date shall remain June 30, 1998. 2) Lease shall be amended for Suite 219 only. Square footage shall increase approximately 230 square feet for a new total of 1,277 square feet. Tenant is relinquishing a total of 943 square feet in Suite 218 effective September 15, 1997 for tenant improvement work to be completed. 3) Rental amount shall increase to $1,800.00 per month effective October 1, 1997. 4) Security Deposit of $800 shall remain on Suite 219. No additional Security will be required. 5) All other terms and conditions of the original lease shall remain the same. IN WITNESS WHEREOF, the paries hereto have executed this Amendment as of September 5, 1997. LAGUNA NIGUEL OFFICE CENTER OPTIMUMCARE CORPORATION a California Limited Partnership a Delaware Corporation BY:CARL J. GREENWOOD BY:EDWARD JOHNSON ---------------------------------- --------------------------- Carl J. Greenwood, General Partner Edward Johnson, President (Landlord) (Tenant) EX-10.101 9 FIRST LEASE EXTENSION AGREEMENT 1 EXHIBIT 10.101 FIRST LEASE EXTENSION This First Extension of the Lease dated January 10, 1994 is made and entered into this 11th day of September, 1997, by and between Whittier Narrows Business Park, a California General Partnership, c/o Liberty West, Inc. ("Landlord"), and OptimumCare Corporation, a Delaware Corporation ("Tenant"). R E C I T A L S This First Extension is made with reference to the following facts and objectives: A. By Lease and Addendum to Lease, dated January 10, 1994, (collectively, the "Lease"), Tenant leased from Landlord the premises described in Section 2 of the Lease (the "Premises") which consists of approximately 2946 rentable square feet located in that certain building identified as Whittier Narrows Business Park, 1170 Durfee Avenue, Suites D & E, in the City of South El Monte, State of California. B. Said Lease had an original expiration date of May 31, 1997 and Tenant is currently holding over on a month to month basis. C. Tenant desires to extend the term of the Lease for an additional three (3) year period. D. Tenant desires to have the interior of the Suites repainted as needed. E. Tenant desires to have the carpet replaced as needed and the remainder cleaned. NOW, THEREFORE, in consideration of the Premises, the Lease, the mutual covenants hereinafter set forth and for other valuable consideration, the receipt an adequacy of which hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Landlord and Tenant have fully and faithfully performed all of the terms and conditions of the Lease required to be performed. 2. The term of the Lease shall be extended through September 30, 2000. 3. Landlord agrees to extend the Lease under the following terms and conditions: a. Per item 2(j) of the Lease, effective October 01, 1997, monthly installments of Base Rent to be $3,387.90 fixed for the term of this extension. b. Landlord to repaint the interior of the Suites as reasonably needed at Landlord's expense. c. Landlord to replace carpeting as reasonably needed and clean the remainder at Landlord's expense. 2 4. Tenant to increase current security deposit of $3,240.60 to $3,387.90 payable with the October 1997 rent payment. 5. As Tenant is already occupying Suites D & E, notwithstanding items 3b and 3c above, Tenant accepts same in its current "as-is" condition. 6. Except as specifically modified herein above, the Lease shall continue and shall remain unchanged. The parties hereto do hereby ratify and affirm the Lease. 7. This agreement sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. In case of any inconsistency between the provisions of the Lease and this agreement, the latter provisions shall govern and control. 8. This agreement shall extend to and be binding upon the heirs, devisees, executors, administrators, successors in interest and assigns of both Landlord and Tenant. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and date first written above. LANDLORD: WHITTIER NARROWS BUSINESS PARK c/o LIBERTY WEST, INC. BY:ADAM MILSTEIN ----------------------------------- Adam Milstein, President DATE:SEPTEMBER 12, 1997 --------------------------------- TENANT: OPTIMUMCARE CORPORATION A DELAWARE CORPORATION BY:EDWARD A JOHNSON ----------------------------------- Edward A. Johnson, President DATE:SEPTEMBER 10, 1997 --------------------------------- EX-10.102 10 LEASE EXT. AGRMT. BETWEEN CO. AND 757 PACIFIC 1 EXHIBIT 10.102 757 PACIFIC PARTNERSHIP 1250 PACIFIC AVENUE, LONG BEACH, CA 90813 TEL: (562) 437-0831, EXT 229 FAX: (562) 624-2735 LEASE EXTENSION AGREEMENT The OptimumCare Corporation proposes to continue the lease for the premises located at 757 Pacific Avenue, Long Beach, California 90813 for an additional 36 months beginning July 1, 1997 and terminating June 30, 2000 at a total monthly rate of $2,950.00 a month. OptimumCare may not terminate the lease prior to June 30, 2000. Other terms and conditions outlined in the original lease document dated July 1995 remain the same. It is further understood that the "smaller structure" located immediately adjacent to the main building will be opened soon and made usable as office space by OptimumCare. The lessor has agreed to renovate this space at its own cost. Agreed, Landlord HELEN TANG Date:9/19/97 -------------------------- ------------ Agreed, OptimumCare EDWARD A. JOHNSON Date:9/3/97 ----------------------- ------------ EX-10.103 11 UNANIMOUS WRITTEN CONSENT DATED 12/29/97 1 EXHIBIT 10.103 UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF OPTIMUMCARE CORPORATION A DELAWARE CORPORATION ================================================================================ The undersigned, being all of the directors of OptimumCare Corporation, a Delaware corporation (the "Corporation"), hereby adopt the following resolutions by their written consent thereto, effective as of December 29, 1997, hereby waiving all notice of and the holding of any meeting of the board of directors to act upon such resolutions. WHEREAS, the Company has previously converted $155,000 of temporary advances of Mr. Johnson to loans. WHEREAS, temporary advances of approximately $119,000 exist for 1997. WHEREAS, a payment plan of $500 per pay period currently exists. NOW, THEREFORE, BE IT RESOLVED, that the Company hereby convert a total of $274,000 of temporary advances into a one year loan with interest deferred for one year to be computed at the current prime rate. RESOLVED FURTHER, that the officers of the Company be and are hereby authorized, empowered and directed to do or cause to be done any and all such further acts and things and to execute any and all such further documents as they may deem necessary or advisable in order to carry into effect the purposes and intent of the foregoing resolutions. RESOLVED, FURTHER, that this transaction be neither void nor voidable, the interests of Mr. Johnson being known to this Board of Directors and the transactions being fair and reasonable to the Corporation. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent effective as of December 29, 1997. - ----------------------------------- Edward A. Johnson - ----------------------------------- Michael S. Callison - ----------------------------------- Gary L. Dreher - ----------------------------------- Jon E. Jenett EX-10.104 12 AGRMT. TO TERMINATE AGRMT. BETWEEN CO. AND GALAXY 1 Exhibit 10.104 AGREEMENT TO TERMINATE AGREEMENTS This Agreement to Terminate Agreements ("Agreement") is entered into this 10th day of March, 1998 by and between GALAXY HEALTH CARE, INC., a Florida corporation and its wholly-owned subsidiaries TREATMENT RESOURCES, INC., TREATMENT RESOURCES II, INC., TREATMENT RESOURCES OF CALIFORNIA, INC. AND TREATMENT RESOURCES OF OREGON, INC. (collectively, "Galaxy") and OPTIMUMCARE CORPORATION, a Delaware corporation ("OptimumCare"). R E C I T A L S A. The parties have previously entered into a Community Mental Health Center Management Agreement dated August 27, 1997 ("Long Beach Agreement") pursuant to which OptimumCare provided management services for the treatment of patients with psychiatric disorders at a partial hospitalization program located at 757 Pacific Avenue, Long Beach, California 90813 (the "Long Beach Facility"). Treatment Resources of California, Inc. is the holder of the provider number for the Long Beach Facility and is the responsible party for treatment of patients at the Long Beach Facility. OptimumCare has the obligation to provide management services for the Long Beach Facility as set forth in the Long Beach Agreement. B. The parties have previously entered into a Community Mental Health Center Agreement dated February 1, 1997 ("Las Vegas Agreement") pursuant to which OptimumCare agreed to provide management services for the treatment of patients with psychiatric disorders at a partial hospitalization program located in Las Vegas, Nevada. C. The parties have previously entered into a Community Mental Health Center Agreement dated August 1, 1997 ("Portland Agreement") pursuant to which OptimumCare agreed to provide management services for the treatment of patients with psychiatric disorders at a partial hospitalization program located in Portland, Oregon. D. The parties have agreed to terminate the Long Beach Agreement, Las Vegas Agreement and Portland Agreement. NOW, THEREFORE, it is mutually agreed as follows: A G R E E M E N T 1. Termination of Long Beach Agreement. The Long Beach Agreement will be terminated effective April 15, 1998 or such earlier date as OptimumCare is able to arrange for licensing of the Long Beach Facility. 2. Galaxy's Billing Obligations for the Long Beach Facility Services. Notwithstanding termination of the Long Beach Agreement, Galaxy agrees on or before March 31, 1998 to complete the billing to Blue Cross (Medicare) and Medi-Cal for services rendered through February 28, 1998 at the Long Beach Facility and to complete the billing for services rendered from March 31, 1998 through termination of the program at the Long 1 2 Beach Facility within thirty (30) days following termination of the program. In the event Galaxy completes the billing to Blue Cross (Medicare) and Medi-Cal for services rendered at the Long Beach Facility through February 28, 1998 on or before March 31, 1998, Galaxy shall be entitled to receive a billing fee equal to eight percent (8%) of the net reimbursement for such services which billing fee shall be included on the cost reports filed by Galaxy for the program. In the event OptimumCare receives the billing fee as part of its net reimbursement, OptimumCare shall apply an amount equal to the billing fee to Galaxy's obligations to OptimumCare and shall advise Galaxy how the billing fee has been applied. In the event Galaxy does not complete such billing on or before March 31, 1998, Galaxy hereby confirms the appointment of OptimumCare as its attorney-in-fact under the Security Agreement dated July, 1997 to take all steps necessary to maintain the receivables pledged to OptimumCare thereunder including without limitation to bill for the services rendered to patients at the Long Beach Facility. 3. Galaxy's Obligations under the Long Beach Agreement. In connection with the Long Beach Agreement, Galaxy will be obligated to pay OptimumCare the following sums: August 1997 $ 11,145.10 September 1997 $104,895.03 October 1997 $106,422.08 November 1997 $ 97,956.55 December 1997 $106,292.50 January 1998 $106,000.00 (estimated) February 1998 $106,000.00 (estimated) The Long Beach Agreement provides that Galaxy will pay OptimumCare for all funds (including fees) advanced by OptimumCare including, without limitation staffing costs and fees and facility location costs, prior to Galaxy receiving its initial reimbursements check from Medicare on the following basis: (a) one-half (1/2) of all funds advanced to be fully paid within fifteen (15) days after Galaxy is in receipt of the first reimbursement check and (b) the balance payable over the succeeding twelve (12) months in consecutive installments including an additional ten percent (10%) profit on the unpaid balance. In light of the delay in receipt of the first reimbursement check and the termination of the Long Beach Agreement, Galaxy agrees that all reimbursement checks received by it will be payable to OptimumCare immediately following their receipt up to the total of the amounts owing by Galaxy to OptimumCare. The failure of Galaxy to receive reimbursement checks for the services rendered at the Long Beach Facility as a result of the offset of such amounts for obligations of Galaxy resulting from the pending audit of Galaxy which are unrelated to performance of services at the Long Beach Facility shall not relieve Galaxy from its obligation to pay OptimumCare for funds (including fees) advanced by OptimumCare including, without limitation staffing costs and fees and facility location costs. 4. Amendment to Security Agreement. Galaxy agrees to enter into an amendment to the Security Agreement dated July, 1997 to provide that the receivables for services rendered at the Long Beach Facility are pledged to secure all obligations of Galaxy to OptimumCare 2 3 5. Cooperation Of Galaxy And Optimumcare. Galaxy and OptimumCare agree to cooperate fully with each other in the orderly transfer and changeover of the Long Beach Facility program to the party designated by OptimumCare and the discharge of patients from the existing program and readmission of patients to the new program. Galaxy and OptimumCare agree to cooperate fully with each other in the transfer of patient records and charts and in promptly the preparation and filing an interim and/or final cost report as required in connection with the change in ownership and operation of the Long Beach Facility program. 6. No Release Of Claims. The termination of the Long Beach Agreement, shall not constitute a release of any obligations of Galaxy or OptimumCare to the other pursuant to the Long Beach Agreement. 7. Termination Of Las Vegas Agreement. The Las Vegas Agreement will be terminated effective immediately and Galaxy and OptimumCare hereby release each other for any financial obligations which the other may have to it pursuant to the Las Vegas Agreement. Galaxy agrees to transfer the provider number for the Las Vegas facility without charge to OptimumCare or to any party designated by OptimumCare. Immediately following execution of this Agreement, OptimumCare shall pay Galaxy a termination fee of $5,000 for the termination of the Las Vegas Agreement. 8. Termination Of Portland Agreement. The Portland Agreement will be terminated effective immediately and Galaxy and OptimumCare hereby release each other for any financial obligations which the other may have to it pursuant to the Portland Agreement. 9. Reimbursement Of Galaxy Travel Expenses. Immediately following execution of this Agreement, OptimumCare shall pay Galaxy $13,309.49 representing the balance of Galaxy's travel expenses of $18,492.96, $5,183.47 of which has previously been paid. 10. No Termination Of Other Agreements Or Obligations. Except as provided herein, this Agreement shall not constitute a termination of any other agreement between Galaxy and OptimumCare or the release of any obligations of Galaxy or OptimumCare to the other. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. GALAXY HEALTH CARE, INC., a Florida corporation By:__________________________________________ Dale P. Redlich, Chief Executive Officer [Signatures continue.] 3 4 TREATMENT RESOURCES, INC. By:_____________________________________________ Dale P. Redlich, Chief Executive Officer TREATMENT RESOURCES II, INC. By:_____________________________________________ Dale P. Redlich, Chief Executive Officer TREATMENT RESOURCES OF CALIFORNIA, INC. By:_____________________________________________ Dale P. Redlich, Chief Executive Officer TREATMENT RESOURCES OF OREGON, INC. By:_____________________________________________ Dale P. Redlich, Chief Executive Officer OPTIMUMCARE CORPORATION, a Delaware corporation By:_____________________________________________ Edward A. Johnson, President 4 EX-23 13 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-8833 and 33-78340) pertaining to the 1987 and 1994 Stock Option Plans of OptimumCare Corporation of our report dated March 26, 1998, with respect to the consolidated financial statements and schedule of OptimumCare Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1997. Orange County, California March 26, 1998 EX-27 14 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 945,404 0 2,186,906 0 0 3,181,556 86,685 90,473 3,921,171 647,704 0 0 0 6,903 3,356,009 3,273,467 12,089,398 12,097,083 8,894,987 11,389,733 0 602,633 31,906 707,350 253,000 454,350 0 0 0 454,350 0.07 0.06
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