UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
______________________ _____________________
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COMMISSION FILE NUMBER 1-12607
Ohio 31-0621189
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(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
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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 filings requirements for the past 90 days.
Yes [X] No [ ]
The number of Common Shares, without par value, outstanding as of November 9, 2001 was 4,976,342.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
2001 2001
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,410 $ 3,186
Receivables - net 9,973 10,878
Inventories 1,823 1,759
Prepaid expenses and other 1,404 1,670
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Total Current Assets 14,610 17,493
Property, Plant and Equipment, At Cost 27,853 26,917
Less accumulated depreciation 790 202
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Property, Plant and Equipment - Net 27,063 26,715
Net Noncurrent Assets of Discontinued Operations -- 3,263
Other Assets 257 240
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Total Assets $ 41,930 $ 47,711
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 3,249 $ 3,947
Third-party payor settlements 5,742 6,041
Short-term bridge loan 3,000 4,000
Accrued expenses 5,757 5,584
Income taxes 56 56
Net current liabilities of discontinued operations 154 1,109
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Total Current Liabilities 17,958 20,737
Lont-term Liabilities:
Long-term debt 16,916 15,913
Noncurrent liability for general and professional liability risks 414 531
Noncurrent liabilities of discontinued operations 1,800 899
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Total Long-term Liabilities 19,130 17,343
Shareholders' Equity:
Common shares, no par value:
Issued and outstanding, 4,976 at September 30, 2001
and March 31, 2001 2,488 2,488
Additional paid-in capital 3,604 3,604
Retained earnings (deficit) (1,012) 3,650
Accumulated other comprehensive loss (238) (111)
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Total Shareholders' Equity 4,842 9,631
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Total Liabilities and Shareholders' Equity $ 41,930 $ 47,711
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See notes to condensed consolidated financial statements
SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
------------------------
Net Revenues $ 21,549 $ --
Operating Expenses:
Salaries, wages and benefits 10,662 140
Provision for bad debts 2,822 --
Supplies 2,431 --
Purchased services 1,782 --
Other operating expenses 2,959 156
Rents and leases 523 7
Depreciation 288 1
------------------------
Operating Profit (Loss) 82 (304)
Other Income (Expense):
Interest expense (688) --
Interest income 14 138
------------------------
Loss From Continuing Operations Before
Income Taxes (592) (166)
Income Tax Benefit -- (62)
------------------------
Loss From Continuing Operations (592) (104)
Discontinued Operations:
Loss from operations of Housewares Segment (226)
Gain on disposal of Housewares Segment 254
Loss from operations of Life Sciences and
Engineering and Child Safety Segments
(net of tax expense of $0 and $66, respectively) (8) (255)
------------------------
Net Loss $ (346) $ (585)
========================
Loss Per Share:
Continuing Operations:
Basic $ (0.12) $ (0.02)
========================
Diluted $ (0.12) $ (0.02)
========================
Net Loss:
Basic $ (0.07) $ (0.12)
========================
Diluted $ (0.07) $ (0.12)
========================
Weighted-Average Common Shares Outstanding:
Basic 4,976 4,976
========================
Diluted 4,976 4,976
========================
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See notes to condensed consolidated financial statements
SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
-----------------------
Net Cash Used in Operating Activities $ (306) $ (240)
Cash Flows From Investing Activities:
Proceeds from sale of land 315
Expenditures for property, plant and equipment (1,000) --
-----------------------
Net Cash Used In Investing Activities (685) --
Cash Flows From Financing Activities:
Payment of long-term debt (1,000)
-----------------------
Net Cash Used In Financing Activities (1,000)
Effect of Exchange Rate Changes on Cash 4 (12)
-----------------------
Net Decrease in Cash and Cash Equivalents (1,987) (252)
Cash and Cash Equivalents at Beginning of Period 3,397 6,734
-----------------------
Cash and Cash Equivalents at End of Period $ 1,410 $ 6,482
=======================
Supplemental Disclosure of Cash Flow Information:
Cash Paid For:
Interest $ 154
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Noncash Investing and Financing Activities:
Long-term debt issued as payment-in-kind for interest payable $ 510
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See notes to condensed consolidated financial statements.
SUNLINK HEALTH SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2001
(DOLLARS IN THOUSANDS)
NOTE 1. -- BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements for the three months ended September 30, 2001 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and, as such, do not include all information required by accounting principles generally accepted in the United States of America. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements included in SunLink Health Systems, Inc. (the "Corporation") (formerly known as KRUG International Corp.) Annual Report on Form 10-K for the fiscal year ended March 31, 2001 filed on June 29, 2001. In the opinion of management, the Condensed Consolidated Financial Statements, which are unaudited, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the periods indicated. The results of operations for the three months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.
NOTE 2. - BUSINESS OPERATIONS AND CORPORATE STRATEGY
The Corporation has redirected its business strategy toward the operation of community hospitals in the United States. SunLink Health Systems, Inc. operates six community hospitals and related businesses which it acquired for approximately $26,500 on February 1, 2001 ("SunLink Acquisition"). The community hospitals are operated through its wholly-owned subsidiary, SunLink Healthcare Corp. ("SunLink"). On October 5, 2001, the Corporation sold all the capital stock of its wholly-owned United Kingdom ("U.K.") housewares subsidiary, Beldray Limited ("Beldray") and now no longer has any operating businesses outside the United States. See Note 3 - "Discontinued Operations." The Corporation changed its name to SunLink Health Systems, Inc. and changed its fiscal year end from March 31 to June 30 in August 2001.
NOTE 3. - DISCONTINUED OPERATIONS
Housewares Segment - Beldray, the Corporation's U.K. housewares subsidiary, was sold on October 5, 2001. See Note 7 - "Subsequent Events." During the quarter ended September 30, 2001, a gain from discontinued operations of $254 related to the disposal of the housewares segment was reported. The gain resulted from realized currency gains on certain transactions and adjustments to the foreign currency translation adjustment component of the Corporation's shareholders' equity related to the housewares segment. During the quarter ended June 30, 2001, the Corporation reported a charge to discontinued operations relating to Beldray of $3,988. The charge was composed of losses from operations of $2,433 (including an asset impairment provision of $2,088 to reduce the carrying value of Beldray's net assets to net realizable value of $0) and a loss on disposal of Beldray of $1,556, including $687 for operating losses through the disposal date.
The net current liabilities of discontinued operations related to the housewares segment of $154 at September 30, 2001 represent the reserve for operating losses through sale date and estimated costs and expenses related to disposal. The noncurrent liability of discontinued operations relating to the Housewares Segment is $990 which represents the reserve for long-term expenses related to the Corporation's guarantee of the Beldray lease. Revenues of
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Beldray were $6,098 and $6,981 for the three months ended September 30, 2001 and 2000, respectively.
Child Safety Segment - On January 29, 2001, the Corporation sold its European child safety subsidiary, Klippan Limited ("Klippan"). The results of Klippan for the quarter ended September 30, 2000 are therefore reported in discontinued operations. Revenue of Klippan was $2,874 for the three months ended September 30, 2000.
Industrial Segment - In fiscal 1989, the Corporation discontinued the operations of its industrial segment and subsequently disposed of substantially all related net assets. However, obligations may remain relating to product liability claims for products sold prior to the disposal. The noncurrent liability of discontinued operations relating to the Industrial Segment at September 30, 2001 was $810 which represents the reserve for any such claims. A charge of $8 was recorded in loss from discontinued operations for the quarter ended September 30, 2001 for pension expense related to this discontinued segment.
The Corporation has over the past twelve years discontinued operations carried on by its former industrial, U.K. leisure marine, life sciences and engineering and U.K. child safety segments as well as the U.K. housewares segment. Reserves relating to discontinued operations represent management's best estimate of the Corporation's possible liability for property, product liability and other claims for which the Corporation believes it may incur liability. These estimates are based on management's judgments using currently available information as well, as in certain instances, consultation with its insurance carriers and legal counsel. The Corporation historically has purchased insurance policies to reduce certain of its product liability exposure and anticipates it will continue to purchase such insurance if available at commercially reasonable rates. While the Corporation has based its estimates on its evaluation of available information, it is not possible to predict with certainty the ultimate outcome of many contingencies relating to discontinued operations. The Corporation intends to adjust its estimates of the reserves as additional information is developed and evaluated. However, management believes that the final resolution of these contingencies will not have a material adverse impact on the financial position, cash flows, or results of operations of the Corporation.
NOTE 4. - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations". SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Corporation does not believe the adoption of
SFAS 141 will have a material impact on its consolidated financial statements.
In July, 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which the Corporation
will adopt July 1, 2002. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles,
reassessment of the useful lives of existing recognized intangibles,
reclassifications of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairment of goodwill. SFAS 142 also requires the Corporation to complete a
transitional goodwill impairment test six months from the date of adoption. The
Corporation does not believe the adoption of SFAS 142 will have a material
impact on its consolidated financial statements. In October 2001, the FASB
issued Statement of Financial Accounting No. 144 ("SFAS 144"), "Accounting for
the Impairment or Disposal of
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-Lived Assets." This Statement establishes a single accounting model for the impairment or disposal of long-lived assets. As required by SFAS 144, the Corporation will adopt this new accounting standard on July 1, 2002. The Corporation has not yet evaluated what the impact of the adoption of SFAS 144 will have on its consolidated financial statements.
NOTE 5. - BRIDGE LOAN
In connection with the SunLink Acquisition, the Corporation entered into a short-term bridge loan with three separate private equity funds in the original amount of $4,000, which is due February 1, 2002. The bridge loan had an interest rate of prime plus 12.5% (18.25% at September 30, 2001) and the interest rate increases monthly by 2% to a maximum rate of prime plus 20.5% on January 2, 2002. The short-term bridge loan is secured by a pledge of the real and personal property as well as the capital stock owned by SunLink and its subsidiaries. Each of the hospital subsidiaries of SunLink is a guarantor of the bridge loan. A prepayment of $1,000 was made on the bridge loan in August 2001. It is management's intention to repay or refinance the bridge loan prior to maturity, and is currently evaluating refinancing options with two potential lenders. The failure to refinance the bridge loan could have a material adverse effect on the Corporation's financial position and results of operations.
NOTE 6. - LONG-TERM DEBT
SEPTEMBER 30, MARCH 31,
2001 2001
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Senior subordinated note, net of
unamortized discount $15,395 $14,476
Senior subordinated zero coupon note,
net of unamortized discount 1,521 1,437
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$16,916 $15,913
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In connection with the SunLink Acquisition, SunLink issued an 8.5% senior subordinated note in the face amount of $17,000 and a senior subordinated zero coupon note in the face amount of $2,000, both to the seller. The senior subordinated note is due on January 31, 2006 with interest payable semi-annually either in cash or additional promissory notes through February 1, 2003 and in cash thereafter. An additional promissory note of $482 for interest from February 1, 2001 through May 31, 2001 was issued June 1, 2001 and the accrued interest payable at September 30, 2001 of $495 is included in the senior subordinated note. Accrued interest of $237 as of March 31, 2001 was included in the senior subordinated note at that date. The stated interest rate of 8.5% on the senior subordinated note was considered a below-market interest rate; therefore, the note was discounted to market value at an effective interest rate of 12.3%. The original discount recorded on the senior subordinated note was $2,809. The unamortized debt discount on the senior subordinated note was $2,582 and $2,761 at September 30, 2001 and March 31, 2001, respectively. The purchase agreement for the six hospitals includes a potential adjustment to the senior subordinated note to the extent working capital at the purchase date is finally determined to be greater or lesser than an agreed-upon amount. The Corporation has submitted to the seller a proposed working capital adjustment which would reduce the balloon note by $1,300. The seller has objected to the adjustment and the Corporation and seller currently are seeking to conclude the working capital settlement under the dispute provisions of the sale agreement. No adjustment for any working capital settlement has been made to the balloon note at September 30, 2001.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The senior subordinated zero coupon note is due January 31, 2004. The interest rate on the senior subordinated zero coupon note was considered less than a market rate; therefore, the note was discounted to a market interest rate of 11.3%. The original issue discount on the senior subordinated zero coupon note was $594. The unamortized debt discount on the senior subordinated zero coupon note was $479 and $563 at September 30, 2001 and March 31, 2001, respectively.
The discounts on the long-term debt were determined by the Corporation in consultation with its financial advisor based on high-yield debt instruments of similar health care providers and are being amortized over the term of the specific debt instrument using the effective interest method. For the three months ended September 30, 2001, the Corporation recognized amortization expense on the discounts of $139.
The loan agreement pursuant to which the senior subordinated note and the senior subordinated zero coupon note were issued requires that SunLink grant to the lender a security interest in and mortgage on collateral consisting of all SunLink's and its subsidiaries' real and personal property. However, the loan agreement also requires that the lender release the collateral if SunLink incurs senior indebtedness that meets certain conditions. The $3,000 short-term bridge loan satisfied these conditions. Consequently, the senior subordinated note and the senior subordinated zero coupon note are not presently collateralized. Upon repayment of the short-term loan, SunLink will be required to secure the senior subordinated note and the senior subordinated zero coupon note unless SunLink enters into a new loan for senior indebtedness meeting certain conditions. Also, each of the individual hospital subsidiaries of SunLink is a guarantor of these notes. Further, these notes are subordinate in payment and collateral to all defined senior indebtedness of SunLink which in the aggregate does not exceed $15,000, other than debt incurred in connection with future acquisitions.
NOTE 7. - SUBSEQUENT EVENTS
On October 5, 2001, the Corporation completed the previously announced sale of all the capital stock of its wholly-owned U.K. housewares subsidiary, Beldray, to senior officers of Beldray for nominal consideration. The sale was effected in connection with a U.K. court supervised arrangement under which Beldray refinanced its secured debt, certain unsecured creditors agreed to forgiveness of 75% of Beldray's current liabilities totaling approximately $3,000 and the Corporation's U.K. subsidiaries were released as guarantors of the secured debt. This forgiveness of debt will result in a non-cash extraordinary gain of approximately $3,000 and a corresponding non-cash loss of approximately $3,000 in discontinued operations in the quarter ending December 31, 2001. One of the Corporation's U.K. subsidiaries remains contingently liable as guarantor of Beldray's obligations under a lease covering a portion of Beldray's manufacturing location, and one of the Corporation's U.K. subsidiaries has an option to repurchase the capital stock of Beldray for nominal consideration if any subsidiary is called upon to perform under the lease guarantee, or under certain other conditions.
On November 5, 2001, the Corporation sold its senior preferred stock of LTS Holdings Inc., the parent company of Wyle Laboratories, Inc. ("Wyle") to LTS Holdings Inc. for $850 cash. A gain from discontinued operations of approximately $850 on the sale will be reported in the quarter ending December 31, 2001. The Corporation acquired the preferred stock in connection with the sale of its interest in Wyle to LTS Holdings Inc. in November 1999. The preferred stock had been recorded by the Corporation at a value of zero due to the highly leveraged nature of the management buyout transaction.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. -- COMPREHENSIVE LOSS
Comprehensive loss for the Corporation includes foreign currency translation and minimum pension liability adjustments. Total comprehensive loss for the following periods was as follows:
THREE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
2001 2000
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Net loss: $ (346) $ (585)
Other comprehensive
Income net of tax:
Change in equity due to
Foreign currency
translation adjustments (119) (208)
Minimum pension liability
adjustment (7)
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Comprehensive loss $ (465) $ (800)
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NOTE 9. CONTINGENCIES
As a part of a nationwide Medicare audit project regarding hospital (inpatient) billing practices with respect to the diagnosis of pneumonia, the federal government (the "Government") has reviewed certain medical records of two of SunLink's hospitals Chestatee Regional Hospital and Mountainside Medical Center (collectively, the "Hospitals") prior to their purchase by Sunlink. The review sought to determine whether claims were improperly coded for Medicare purposes and whether the Hospitals' submission of those claims violated applicable law, including the False Claims Act 31 U.S.C. ss.ss. 3729. Based upon its review, the Government has projected that 103 Medicare claims by Chestatee, and 91 Medicare claims by Mountainside were coded improperly. Review and analysis of all medical records identified by the Government has been substantially completed and interviews have been conducted by both the U.S. Attorney's Office, Northern District, Georgia, and the U.S. Department of Health and Human Services, Office of the Inspector General. Based upon the Government's projections and the application of the multiple damage provision of the False Claims Act, the Corporation estimates that, if the Government's projections were substantiated, the total potential aggregate liability to the Hospitals in this matter could be as great as $1,500.
The Corporation disputes and intends to vigorously resist all Government claims of any such improper coding and believes the Government's projections do not accurately represent the facts. Settlement discussions are underway between SunLink and the Government. Government representatives informally have indicated that the Government most likely would not pursue a false claims charge, require either of the Hospitals to enter into a corporate integrity agreement, or seek double or triple damages providing a settlement is reached between the parties. No audit has been conducted by the Government of any other SunLink hospitals in connection with pneumonia coding investigations. As of September 30, 2001, the Corporation accrued a liability associated with this investigation. Management believes the liability is a reasonable estimate of the future settlement of this investigation with the Government.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Corporation is also subject to various claims and suits arising in the ordinary course of business, including claims for personal injuries and other matters. Such pending claims and suits are either insured or, in the opinion of management, the ultimate resolution of such claims and suits should not have a material adverse effect on the Corporation's results of operations or financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND ADMISSIONS DATA)
CERTAIN CAUTIONARY STATEMENTS
In addition to historical information, Items 1 and 2 of this report contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the Corporation's business strategy and management's outlook for each of its businesses and the sufficiency of the Corporation's liquidity and sources of capital. These forward-looking statements are subject to certain risks, uncertainties and other factors which could cause actual results, performance and achievements to differ materially from those anticipated, including, without limitation, general economic and business conditions in the U.S. and U.K., restrictions imposed by debt agreements, competition in the community hospital business, demographic changes, governmental budgetary constraints, the regulatory environment for the Corporation's businesses, consolidation and acquisition trends in the Corporation's businesses, competition in the acquisition market including the acquisition of hospitals and healthcare facilities, changes in exchange rates (including in Europe the effects of the European currency, the Euro), changes in prices of raw materials and services, the purchasing practices of significant customers, the availability of qualified management and staff personnel, including physicians, in each subsidiary, the functionality of the Corporation's computer systems and claims asserted against the Corporation for product liability and other claims from continuing and discontinued operations. See risks, uncertainties and other factors disclosed in more detail in the Corporation's Annual Report on Form 10-K for the year ended March 31, 2001.
CORPORATE BUSINESS STRATEGY
The Corporation has redirected its business strategy toward the operation of community hospitals in the United States. SunLink Health Systems, Inc. operates six community hospitals and related businesses which it acquired for approximately $26,500 on February 1, 2001 (the "SunLink Acquisition"). The community hospitals are operated by the Corporation's wholly-owned subsidiary, SunLink Healthcare Corp. ("SunLink"). On October 5, 2001, the Corporation sold all the capital stock of its wholly-owned United Kingdom housewares subsidiary, Beldray and now no longer owns any operating businesses outside the United States. The Corporation changed its name to SunLink Health Systems, Inc. and changed its fiscal year end from March 31 to June 30 in August 2001.
FINANCIAL SUMMARY
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
------------------------
NET REVENUES:
Community hospital segment $ 21,549
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LOSS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES:
Community hospital segment $ 577
Corporate expenses (U.S. and U.K.) (495) $ (304)
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82 (304)
Interest expense (688) --
Interest income 14 138
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Loss from Continuing Operations
Before Income Taxes $ (592) $ (166)
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RESULTS OF OPERATIONS
All of the Corporation's net revenues relate to the U.S. community hospital segment which was acquired February 1, 2001. No net revenues from continuing operations were reported for the quarter ended September 30, 2000 because the operations of the Corporation's two business segments during that period, U.K. housewares and child safety products, are reported in discontinued operations.
The Corporation's U.S. community hospital segment reported aggregate net revenues of $21,549, a total of 4,067 adjusted admissions and revenues of $5,245 per adjusted admission for the quarter ended September 30, 2001. The Corporation added four new doctors at the six facilities during the quarter ended September 30, 2001. The Corporation seeks to increase adjusted admissions by attracting additional physicians to its hospitals and upgrading the services offered by its hospitals.
Operating expenses including depreciation were $21,467 and $304 for the three quarters ended September 30, 2001 and 2000, respectively. The increase in the quarter ended September 30, 2001 was due to the inclusion of the community hospital segment in the current year. Salaries, wages and benefits were 49.5% of net revenues for the current quarter. The Corporation has undertaken cost control initiatives in each facility to reduce labor and other cost. However, the level of hospital and corporate costs is expected to remain relatively high until such time as the Corporation increases net revenues, whether by internal growth or acquisitions. Provision for bad debts was 13.1% of net revenues in the quarter, reflecting the Corporation's high level of self-pay patients. The Corporation is providing assistance to the hospitals in implementing additional business office systems and procedures designed to reduce bad debts. Supplies expense was 11.3% of net revenues for the quarter, reflecting a lower level and volume of specialty services performed in the Corporation's hospitals. The Corporation expects supplies expense to increase as additional specialty services are provided by its hospitals. Included as a reduction of other operating expenses for the three months ended September 30, 2001 is a gain on the sale of an operating asset of $19.
Interest expense of $688 in the quarter ended September 30, 2001 resulted from the debt incurred in connection with the community hospitals acquired on February 1, 2001. Cash paid
for interest during the quarter ended September 30, 2001 of $154 was on the short-term bridge loan only.
No tax expense was recorded for the three months ended September 30, 2001 while an income tax benefit of $62 was recorded for the same period of the previous year. The prior year tax benefit was the result of a taxable loss in the U.K.
The loss from continuing operations was $592 ($0.12 per share) in the quarter ending September 30, 2001 compared to a loss from continuing operations of $104 ($0.02 per share) in the comparable quarter last year. The operating profit of $82 for fiscal 2002 resulted from operating profit of $577 achieved by the community hospital segment offset by corporate expenses of $495. The prior year operating loss of $104 resulted from corporate expenses. The loss from continuing operations increased in the current year primarily due to the net interest expense of $688 for the current quarter compared to net interest income of $138 last year. The current year interest expense resulted from debt incurred in the February 1, 2001 purchase of community hospitals.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation used $306 of cash from operating activities during the quarter ended September 30, 2001 compared to a use of $240 during the comparable period last year. The cash used in the current year resulted primarily from a net increase in outstanding receivables of the community hospital segment and was offset in part by increased accounts payable, non-cash interest expense and accrued liabilities. The cash use in the quarter ended September 30, 2000 resulted from payment of corporate expenses.
The Corporation expended $1,000 for capital improvements at its hospitals during the quarter ended September 30, 2001. In addition to routine capital expenditures of $744 during the quarter, primarily new and replacement equipment, the Corporation expended $208 for costs related to a replacement hospital in Jasper, Georgia and $48 for exterior renovations at Chilton Medical Center in Clanton, Alabama. Management believes an attractive physical facility assists in recruiting quality staff and physicians as well as attracting patients, and, subject to availability of financing, the Corporation expects to expend approximately $2,500 for capital expenditures during the twelve months ended June 30, 2002.
At September 30, 2001, the Corporation had outstanding U.S. debt of $19,916, all of which was incurred in connection with the February 1, 2001 purchase of the six community hospitals and related businesses.
The U.S. debt includes a short- term bridge loan of $3,000, a seller financed balloon note of $15,395 and a seller financed zero coupon note of $1,521. The short-term bridge loan was made to SunLink by a group of three private equity funds and matures February 1, 2002. The short-term loan bears interest at the prime rate plus 12.5% (18.5% at September 30, 2001) and the rate escalates monthly in increments of 2 % to a rate of prime plus 20.5% beginning January 2, 2002. The bridge loan had a balance of $3,000 at September 30, 2001 after the Corporation made a prepayment of $1,000 in August 2001. It is management's intention to repay or refinance the bridge loan prior to maturity, and is currently evaluating refinancing options with two potential lenders. The failure to refinance the short-term bridge loan could have a material adverse effect on the Corporation's financial position and results of operations.
The balloon note, due January 31, 2006, has a face amount of $17,000 and a stated interest rate of 8.5% which, because it was considered a below market interest rate, has been discounted for financial reporting purposes to a market interest rate of 12.3%. The balloon note has a
payment-in-kind (PIK) feature for interest accrued through January 31, 2003. Interest due and payable through that date may be paid in additional balloon notes due in 2006 and the Corporation presently intends to issue PIK notes for interest due through January 31, 2003. An additional promissory note was issued June 1, 2001 for $482 for interest from February 1, 2001 to May 31, 2001, and the interest accrued through September 30, 2001 of $495 has been included in the principal amount of the balloon note at September 30, 2001.
The purchase agreement for the six hospitals provides for an adjustment to the balloon note to the extent working capital at the purchase date was greater or less than an agreed upon amount. The Corporation has submitted to the seller a proposed working capital adjustment which would reduce the balloon note by $1,300. The seller has objected to the adjustment and the Corporation and seller currently are seeking to conclude the working capital settlement under the dispute provisions of the sale agreement. No adjustment for any working capital settlement has been made to the balloon note at September 30, 2001.
The zero coupon note is due January 31, 2004, has a face amount of $2,000, and has been discounted to a market interest rate of 11.3%. The principal amount of the zero coupon note is subject to reduction for certain indemnified items pursuant to the purchase agreement. The Corporation has not to date made any claims for reduction of the zero coupon note.
The Corporation believes it has adequate financing and liquidity in the U.S. to support its current level of operations. The Corporation is however, in the process of evaluating the working capital and capital project needs of its new healthcare subsidiary and seeking third-party refinancing of the $3,000 short-term bridge loan. There can be no assurance that the Corporation will be able to refinance this debt or fund all of its identified capital project needs. The Corporation disposed of its U.K. housewares business in October 2001 and received no net proceeds from the disposal.
Contingent obligations remain relating to product liability claims for products manufactured and sold before the disposal of the Corporation's discontinued industrial segment in fiscal 1989. The Corporation reviewed the provision for losses from such discontinued operations during the quarter and no changes were deemed necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation is exposed to interest rate changes, primarily as a result of our U.S. short-term bridge loan. No action has been taken to cover interest rate market risk, and the Corporation is not a party to any interest rate market risk management activities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Federal government (the "Government") reviewed certain medical records of two of the SunLink hospitals, Chestatee Regional Hospital ("Chestatee") and Mountainside Medical Center ("Mountainside") (collectively, the "Hospitals"), prior to their purchase by SunLink, as a part of a nationwide Medicare audit project regarding hospital (inpatient) billing practices with respect to the diagnosis of pneumonia. The review sought to determine whether claims were improperly coded for Medicare purposes and whether the Hospitals' submission of those claims violated applicable law including the Federal False Claims Act. 31 U.S.C. ss.ss. 3729 et. seq. Based upon its review, the Government has projected that 103 Medicare claims were coded improperly by Chestatee and 91 Medicare claims were coded improperly by Mountainside. SunLink believes the review and analysis of all medical records identified by the Government has been substantially completed, and interviews have been conducted by both the U.S. Attorney's Office for the Northern District of Georgia and the U.S. Department of Health and Human Services, Office of the Inspector General. Based upon the Government's projections and the application of the multiple damage provisions of the Federal False Claims Act, the Corporation estimates that, if the Government's projections were substantiated, the total potential aggregate liability of the Hospitals in this matter could be as high as $1.5 million. The Corporation disputes and intends to vigorously resist all claims based upon any such allegedly improper coding and believes the Government's projections do not accurately represent the facts. Settlement discussions are underway between SunLink and the Government. Government representatives informally have indicated that the Government most likely would not pursue a false claims charge, require either of the Hospitals to enter into a corporate integrity agreement, or seek double or treble damages if a settlement is reached between the parties. To management's knowledge, no audit has been conducted by the Government of any other SunLink facility in connection with pneumonia coding investigations. Under the terms of the Stock Purchase Agreement between SunLink and NetCare Health Systems, Inc. ("Seller") for SunLink's purchase of the six community hospitals, SunLink would be responsible for any settlement relating to the claims against the Hospitals arising prior to their purchase by SunLink, but has limited right of indemnification from the Seller for any future claims which were not disclosed at the date of purchase.
The Corporation is also subject to various claims and suits arising in the ordinary course of business, including claims for personal injuries and other matters. Such pending claims and suits are either insured or, in the opinion of management, the ultimate resolution of such claims and suits should not have a material adverse effect on the Corporation's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 20, 2001, the Corporation held its Annual Meeting of
Shareholders. At the meeting, (i) four directors, James J. Mulligan, Ronald J.
Vannuki, Dr. Steven J. Baileys and Michael W. Hall were elected to two year
terms of office expiring at the Annual Meeting of Shareholders in 2003, (ii) a
proposed amendment the Corporation's Amended Articles of Incorporation to change
the name of the Corporation to "SunLink Health Systems, Inc." was adopted, (iii)
a proposed amendment to the Corporation's Code of Regulations to change the date
of the Annual Meeting of Shareholders to reflect the change in the Corporation's
fiscal year-end to June 30 as described in the 2001 proxy statement was adopted,
(iv) the 2001 Long Term Stock Option Plan as described in the 2001 proxy
statement was approved and (v) the 2001 Outside Directors' Stock Ownership and
Stock Option Plan as described in the 2001 proxy statement was approved.
3,950,636 shares were voted in favor of electing Mr. Mulligan and 21,943 shares
were withheld. 3,955,902 shares were voted in favor of electing Mr. Vannuki and
16,677 shares were
withheld. 3,955,944 shares were voted in favor of electing Dr. Baileys and 16,585 shares were withheld. 3,924,869 shares were voted in favor of electing Mr. Hall and 47,710 shares were withheld. 3,961,922 shares were voted in favor of adopting the amendment to the Corporation's Amended Articles of Incorporation to change the name of the Corporation to "SunLink Health Systems, Inc.", 6,989 shares were voted against, 3,668 shares abstained and 1,003,763 broker shares were not voted. 3,965,840 shares were voted in favor of adopting the amendment to the Corporation's Code of Regulations to change the date of the Annual Meeting of Shareholders to reflect the change in the Corporation's fiscal year-end to June 30 as described in the 2001 proxy statement, 4,343 shares were voted against, 2,432 shares abstained and 1,003,763 broker shares were not voted. 2,222,698 shares were voted in favor of adopting the 2001 Long Term Stock Option Plan as described in the 2001 proxy statement, 171,970 shares were voted against, 220,523 shares abstained and 1,352,388 broker shares were not voted. 2,215,173 shares were voted in favor of adopting the 2001 Outside Directors' Stock Ownership and Stock Option Plan as described in the 2001 proxy statement, 157,737 shares were voted against, 247,281 shares abstained and 1,352,388 brokers shares were not voted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 3.1 - Code of Regulations of SunLink Health Systems, Inc.
(B) Exhibit 3.2 - Certificate of Amendment by Shareholders to Amended Articles of Incorporation of SunLink Health Systems, Inc.
(C) Exhibit 10.1 - Rent Review Memorandum between Rootmead Limited, Beldray Limited and KRUG International (UK) Limited dated August 30, 2000.
(D) Exhibit 10.2 - Counterpart/Revisionary Lease between Rootmead Limited, Beldray Limited and KRUG International (UK) Limited dated August 30, 2000.
(E) Exhibit 10.3 - Pre-emption Agreement between Rootmead Limited, Beldray Limited and KRUG International (UK) Limited dated August 30, 2000.
(F) Exhibit 10.4 - Lease between Barton Industrial Park Limit, Beldray Limited and Butterfield-Harvey Limited dated June 8, 1979
(G) Exhibit 10.5 - 2001 Long-Term Stock Option Plan
(H) Exhibit 10.6 - 2001 Outside Directors' Stock Ownership and Stock Option Plan
(I) Reports on Form 8-K - During the quarter ended September 30, 2001, the Corporation filed one report on Form 8-K. The report was dated September 6, 2001 reporting "Item 5." Other Events which reported that the Corporation's shareholders had approved the changing of the corporate name to SunLink Health Systems, Inc. The report also reported "Item 8." Change in Fiscal Year which reported that the Corporation had changed its fiscal year end from March 31 to June 30. In addition, on October 19, 2001, the Corporation filed a report on Form 8-K reporting "Item 2." Acquisition or Disposition of Assets, related to the sale of all of the capital stock of Beldray Limited on October 5, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, SunLink Health Systems, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SunLink Health Systems, Inc.
By: /s/ Mark J. Stockslager
-------------------------
Mark J. Stockslager
Principal Accounting Officer
Dated: November 14, 2001
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EXHIBIT 3.1
Amended July 22 and 24, 1986; August 17,
1990; July 16, 1996; and August 20,
2001
SUNLINK HEALTH SYSTEMS, INC.
CODE OF REGULATIONS
ARTICLE I
Office
The principal office of the Corporation shall be located in the City of Dayton, Montgomery County, Ohio.
ARTICLE II
Meeting of Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of the Corporation for the purpose of electing directors and transacting such other business as may be specified in the notice thereof shall be held at the principal office of the Corporation or at such other place either within or without the State of Ohio as may be specified in said notice, on such date during the month of October or November each year as shall be determined by the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders may be called by the President, or in case of the President's absence, death or disability, the Vice President authorized to exercise the authority of the President, or the Board of Directors by action at a meeting, or a majority of the directors acting without a meeting, and shall be called by the Secretary upon written request of shareholders holding of record fifty (50) percent or more of all shares outstanding and entitled to vote thereat. Any such request for a special meeting of shareholders shall state the purpose or purposes of the meeting.
Special meetings of the shareholders may be held at such time and place, either within or without the State of Ohio, as may be designated in the notice thereof.
Section 3. Notice of Meetings. Unless waived by him, a written or printed notice of each annual or special meeting stating the time and place and the purpose or purposes thereof shall be mailed postage prepaid to each shareholder of record entitled to notice thereof, not more than sixty (60) days nor less than seven (7) days before any such meeting. If mailed, it shall be addressed to the shareholder at his address as it appears upon the records of the Corporation. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting.
Notice of the time, place and purposes of any meeting of shareholders, whether required by law, the Articles of Incorporation or this code of Regulations, may be waived in
writing either before or after the holding of such meeting by any shareholder, which writing shall be filed with or entered upon the records of the meeting. The attendance of any shareholder at any such meeting without protesting prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him of notice of such meeting.
Section 4. Quorum. At any meeting, the holders of shares entitling them to exercise a majority of the voting power of the Corporation, present in person or represented by proxy, shall constitute a quorum for all purposes, except when a greater proportion is required by law. At any meeting at which a quorum is present, all questions and business which shall come before the meeting shall be determined by the vote of the holders of a majority of the voting shares held by shareholders present in person or by proxy at the meeting, except when a different proportion is required by law.
At any meeting, whether a quorum is present or not, the holders of a majority of the voting shares held by shareholders present in person or by proxy may adjourn from time to time and from place to place without notice other than by announcement at the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which may be transacted at the meeting as originally notified or held.
Section 5. Proxies. The instrument appointing a proxy shall be in a writing signed by the person making the appointment. The person so appointed need not be a shareholder. A vote in accordance with the terms of a proxy shall be valid notwithstanding the previous death or incapacity of the principal or revocation of the appointment unless notice in writing of such death, incapacity or revocation shall have been given to the Corporation before a vote is taken. The presence of a shareholder at a meeting shall not operate to revoke a proxy unless and until notice of such revocation is given to the Corporation in writing or in open meeting.
Section 6. Financial Report. At the annual meeting of shareholders, or the meeting held in lieu thereof, there shall be laid before the shareholders a financial statement consisting of a balance sheet containing a summary of the assets, liabilities, stated capital, and surplus (showing separately any capital surplus arising from unrealized appreciation of assets, other capital surplus, and earned surplus) of the Corporation as of a date not more than four (4) months before such meeting (except that if such meeting is an adjourned meeting, said balance sheet may be as of a date not more than four (4) months before the date of the meeting as originally convened), and a statement of profit and loss and surplus, including a summary of profits, dividends paid, and other changes in the surplus accounts of the Corporation for the period for which the last preceding statement of profit and loss was made as required hereby and ending with the date of said balance sheet.
The financial statement shall have appended thereto a certificate signed by the President or a Vice President or the Treasurer or an Assistant Treasurer of the Corporation, or by a public accountant or firm of public accountants to the effect that the financial statement presents fairly the position of the Corporation and the results of its operations in conformity with generally accepted accounting principles applied on a basis consistent for
the period covered thereby, or such other certificate as is in accordance with sound accounting principles.
ARTICLE III
Directors
Section 1. Number of Directors and Term of Office. Unless changed in accordance with the provisions of Section 2 of this Article III, the number of directors of the Corporation shall be fixed at six (6) and shall be divided into two (2) classes of directors, each of which shall have three (3) directors. One class of three directors shall be elected at the annual meeting of shareholders at which this Section 1 is adopted for a term of office expiring at the annual meeting of shareholders to be held in 1992 and until their successors are elected and qualified. The other class of three directors shall initially be comprised of the three directors of the Corporation whose terms of office on the date this Section 1 is adopted by shareholders are scheduled to expire at the annual meeting of shareholders in 1991 and shall hold office until such annual meeting of shareholders in 1991 and until their successors are elected and qualified. At the annual meeting of shareholders to be held in 1991 and each subsequent annual meeting, directors to succeed those whose terms of office shall expire at such annual meeting shall be elected for a two-year term of office and until their successors are elected and qualified.
Section 2. Change in Number of Directors. The number of authorized directors and the number of directors in each class may be changed either by the affirmative vote of the holders of record of two-thirds of the voting power of the Corporation at a meeting of shareholders called for that purpose and for the purpose of electing directors, or by the affirmative vote of a majority of the directors in office; provided, however, that in no event shall any class contain fewer than three (3) directors nor more than four (4) directors. No reduction in the number of directors, either by the shareholders or the directors, shall of itself have the effect of shortening the term of any incumbent director.
Section 3. Qualification of Directors. Directors of the Corporation need not be shareholders of the Corporation.
Section 4. Vacancies. The remaining directors, though less than a majority of the whole authorized number of directors, may, by the vote of a majority of their number, fill any vacancy in the Board of Directors however arising, including a vacancy arising from an increase in the number of authorized directors, for the unexpired term thereof. Any person elected a fill a vacancy in the Board of Directors shall hold office until the expiration of the term of office for the class to which he is elected and until his successor is elected and qualified.
Section 5. Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election as directors of the Corporation may be made at a meeting of shareholders (i) by or at the direction of the Board of Directors or by any committee or person appointed by the
Board of Directors or (ii) by any shareholder of the Corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 5. Any nomination other than those governed
by clause (i) of the preceding sentence shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 50 days nor more than 75 days prior to
the meeting; provided, however, that in the event that less than 60 days' notice
or prior public disclosure of the date of meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such shareholder's notice to the Secretary shall set forth (a) as to each person
whom the shareholder proposes to nominate for election as a director (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
any shares of the Corporation which are beneficially owned by such person and
(iv) any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to any
then existing rule or regulation promulgated under the Securities Exchange Act
of 1934, as amended; and (b) as to the shareholder giving the notice (i) the
name and record address of such shareholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director. No person shall be eligible for
election as a director unless nominated as set forth herein.
Section 6. Removal of Directors. No director may be removed prior to the expiration of such director's term of office, except by the affirmative vote of the holders of two-thirds of the voting power of the Corporation entitled to vote in the election of directors.
Section 7. Limitation of Liability and Indemnification of Directors Officers Employees and Agents.
A. No person shall be liable to the Corporation for any loss or
damage suffered by it on account of any action taken or omitted to be taken by
him as a director or officer of the Corporation in good faith, if such person
(i) exercised or used the same degree of care and skill as a prudent man would
have exercised or used under the circumstances in the conduct of his own
affairs, or (ii) took, or omitted to take, such action in reliance upon advice
of counsel for the Corporation or upon statements made or information furnished
by officers or employees of the Corporation which he had reasonable grounds to
believe or upon a financial statement of the Corporation prepared by an officer
or employee of the Corporation in charge of its accounts or certified by a
public accountant or firm of public accountants, or (iii) considered the assets
to be of their book value or followed what he believed to be sound accounting
and business practice.
B. (1) In case any person was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation, by
reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, the Corporation shall indemnify such person, against expenses, including attorneys' fees, judgments, decrees, fines, penalties, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any matter the subject of a criminal action, suit, or proceeding, he had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any matter the subject of a criminal action, suit or proceeding, that he had reasonable cause to believe that his conduct was unlawful.
(2) In case any person was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, the Corporation shall indemnify such person, against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation, unless and only to the extent that the Court of Common Pleas, or the Court in which such action or suit was brought, shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Common Pleas or such other Court shall deem proper.
(3) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in paragraphs (1) and (2) of this Subsection 7B or in defense of any claim, issue or matter therein, the Corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith.
(4) Any indemnification under paragraphs (1) and (2) of this
Subsection 7B, unless ordered by a court, shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director, trustee, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
paragraphs (1) and (2) of this Subsection 7B. Such determination shall be made
(a) by a majority vote of a quorum consisting of directors of the
Corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Corporation or any person to be indemnified within the past five years, or (c) by the shareholders, or (d) by the Court of Common Pleas or the Court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under subparagraph (a) of this paragraph (4) or by independent legal counsel under subparagraph (b) of this paragraph (4) shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the Corporation referred to in paragraph (2) of this Subsection 7B, and if, within ten days after the receipt of such notification, such person shall petition the Court of Common Pleas or the Court in which such action or suit was brought to review the reasonableness of such determination, no action in implementing such determination shall be taken until after the final judgment of such Court has been rendered and such determination has been modified to the extent necessary to accord with such judgment; however, if, after such ten-day period, such person shall not have petitioned the Court of Common Pleas or the Court in which such action or suit was brought to review the reasonableness of such determination, the Corporation shall proceed to implement such determination.
(5) Expenses, including attorneys' fees, incurred in defending any action, suit or proceeding referred to in paragraphs (1) and (2) of this Subsection 7B, may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the directors in the specific case upon the receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Subsection 7B.
(6) The indemnification provided by this Subsection 7B shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the Articles or the Regulations of the Corporation, or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Notwithstanding any repeal of this Subsection 7B or other amendment thereof, the indemnification provided for in this Subsection 7B shall be binding upon the Corporation in accordance with the provisions thereof as to all actions, suits, or proceedings instituted or threatened which arise out of matters occurring during, or referable to, the period prior to any such repeal or amendment.
(7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the Corporation would have indemnified him against such liability under this Subsection 7B.
ARTICLE IV
Powers and Meetings of the Board of Directors
Section 1. Powers of the Board. Except as otherwise provided in the General Corporation Law of Ohio, or in the Articles of Incorporation, in respect of action required to be taken, authorized or approved by the shareholders, all the capacity of the Corporation shall be vested in and all its authority shall be exercised by the Board of Directors.
Section 2. Meetings of the Board. A regular meeting of the Board of Directors shall be held immediately following the adjournment of each shareholders' meeting at which directors are elected, and notice of such meeting need not be given.
The Board of Directors may, by by-law or resolution, provide for other meetings of the Board.
Special meetings of the Board of Directors may be held at any time upon call of the President, a Vice President, or any two members of the Board.
Meetings of the Board of Directors may be held at any place either within or without the State of Ohio. Written notice of the time and place of each special meeting of the Board of Directors shall be given by mailing the same to each director at his last known address at least three (3) days prior to the date of said meeting, or such notice may be personally delivered or telegraphed in substance to each director not less than twenty-four (24) hours before the meeting, which notice need not specify the purposes of the meeting. Such notice may be waived in writing, either before or after the holding of such meeting, by any director, which writing shall be filed with or entered upon the records of the meeting. The attendance of any director at any such meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him of notice of such meeting. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting.
Section 3. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business, provided that whenever less than a quorum is present at any time or place appointed for a meeting of the Board, a majority of those present may adjourn the meeting from time to time without notice, other than by announcement at the meeting, until a quorum shall be present. The act of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Section 4. By-Laws of the Board. The Board of Directors may adopt by-laws for the government of its actions consistent with the Articles of Incorporation and these Regulations.
ARTICLE V
Committees
Section 1. Committees. The Board of Directors by resolution adopted by a majority of the whole Board, may appoint three or more directors to constitute one or more committees of directors. The resolution establishing each such committee shall specify a designation by which it shall be known and shall fix its powers and authority. The Board of Directors may delegate to any such committee any of the authority of the Board of Directors, however conferred, other than that of filling vacancies among the directors or in any committee of the directors.
The Board of Directors may likewise appoint one or more directors as alternate members of any such committee, who may take the place of any absent member or members at any meeting of such committee.
Each such committee shall serve at the pleasure of the Board of Directors, shall act only in the intervals between meetings of the Board of Directors, and shall be subject to the control and direction of the Board of Directors. All actions by any such committee shall be subject to revision and alteration by the Board of Directors provided that no rights of third persons shall be adversely affected by any such revision or alteration.
An act or authorization of an act by any such committee within the authority delegated to it by the resolution establishing it shall be as effective for all purposes as the act or authorization of the Board of Directors.
Any such committee may act by a majority of its members at a meeting or by a writing or writings signed by all of its members.
The Board of Directors may likewise appoint other members of any committee who are not members of the Board of Directors who shall act in an advisory capacity but who shall have no vote upon any matter of business before the committee.
ARTICLE VI
Officers
Section 1. Officers. The officers of this Corporation shall be a President, one or more vice Presidents, a Secretary, a Treasurer, and such other officers, subordinate officers and assistants as the Board of Directors may from time to time determine.
Any two or more offices may be held by one person, except the offices of President and Vice President.
Section 2. Election of Officers. All officers of the Corporation shall be elected by the Board of Directors, and shall hold office until the organization meeting of the Board
of Directors following the date of the election of such directors or until their successors are elected and qualified. The Board of Directors may remove any officer at any time, with or without cause, by a majority vote. The Board of Directors may fill any vacancy in any office occurring from whatever cause.
ARTICLE VII
Duties of Officers
Section 1. President. The President shall have general supervision, administration and direction of all the Corporation's affairs, subject to the direction of the Board of Directors. He shall preside at all meetings of shareholders and directors and sign all certificates for shares, contracts, notes, deeds, mortgages, bonds, other obligations, or other papers requiring his signature, and he shall perform such other and further duties as may from time to time be required of him by the Board of Directors.
Section 2. Vice Presidents. The Vice Presidents, in the order designated by the Board of Directors, shall perform all duties of the President, in case of his absence or disability, together with such other duties as the Board of Directors may from time to time prescribe. The authority of the Vice Presidents to execute certificates for shares, contracts, deeds, notes, mortgages, bonds, other obligations and other papers in the name of the Corporation shall be coordinate with like authority of the President.
Section 3. Secretary. The Secretary shall keep minutes of all the proceedings of the shareholders and Board of Directors, and shall make proper record of the same, which shall be attested by him; sign all certificates for shares, contracts, deeds, notes, mortgages, bonds, other obligations, and other papers executed by the Corporation requiring his signature; give notice of meetings of shareholders and directors; keep such books as may be required by the Board of Directors and perform such other and further duties as may from time to time be required of him by the Board of Directors.
Section 4. Treasurer. The Treasurer shall have general supervision of all finances. He shall receive and have in charge all money, bills, notes, deeds, leases, mortgages, insurance policies and similar property belonging to the Corporation, and shall do with the same as may from time to time be required by the Board of Directors. He shall cause to be kept adequate and correct accounts of the business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital, and shares, together with such other accounts as may be required, and, on the expiration of his term of office shall turn over to his successor or to the Board of Directors all property, books, papers and money of the Corporation in his hands. He shall also perform such other duties as may be assigned to him by the Board of Directors.
Section 5. Assistant Officers. Assistant officers shall act as assistants to and under the direction of their superior officers, and shall be vested with all the powers and be required to perform any of the duties of their superior officers in their absence, and they
shall perform such other and further duties as may from time to time be required of them by the Board of Directors.
ARTICLE VIII
Certificates for Shares of Stock
Section 1. The interest of each shareholder of the Corporation shall be evidenced by a certificate or certificates for shares in such form as the Board of Directors may from time to time prescribe. The shares of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agent may reasonably require.
Section 2. The certificates for shares shall be signed by the President or a Vice President and by the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer (except that where any such certificate is countersigned by an incorporated transfer agent or registrar, the signatures of any such President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer, may be facsimile, engraved, stamped or printed), and shall be countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates shall nevertheless be effective in all respects when delivered, as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation.
Section 3. No certificate for shares shall be delivered in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of such loss, theft or destruction and upon delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors in its discretion may require.
ARTICLE IX
Seal
The seal of the Corporation shall be circular with the name of the Corporation and the word "OHIO" surrounding the word "SEAL."
ARTICLE X
Amendments
This Code of Regulations may be amended or repealed at any meeting of shareholders called for that purpose by the affirmative vote of the holders of record of shares entitling them to exercise at least two-thirds of the voting power on such proposal, or, without a meeting, by the written consent of holders of record of shares entitling them to exercise at least two-thirds of the voting power on such proposal.
ARTICLE XI
Ohio Control Share Acquisition Statute
The provisions of Section 1701.831 of the Ohio Revised Code requiring shareholder approval of control share acquisitions, as defined in Section 1701.01 (Z)(1) of such Code, shall not be applicable to the Corporation.
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT BY SHAREHOLDERS
TO AMENDED ARTICLES OF INCORPORATION
OF
KRUG INTERNATIONAL CORP.
CHARTER NUMBER 281540
James J. Mulligan, Secretary of the above named Ohio corporation organized for profit, does hereby certify that a meeting of the shareholders was duly called and held on August 20, 2001, at which meeting a quorum of the shareholders was present in person or by proxy, and that at such meeting the following resolution was adopted by the affirmative vote of the holders of shares entitling them to exercise more than two thirds of the voting power of said corporation:
RESOLVED, that Article First of the Amended Articles of Incorporation Of the Corporation be amended to read as follows:
"The name of this Corporation shall be "SunLink Health Systems, Inc."
IN WITNESS WHEREOF, the above named officer, acting for and on behalf of KRUG International Corp., has hereunto subscribed his name this 20th day of August, 2001.
/s/ James J. Mulligan ---------------------------- James J. Mulligan, Secretary |
EXHIBIT 10.1
RENT REVIEW MEMORANDUM
DATED 30th day of August 2000
THE LANDLORD ROOTMEAD LIMITED whose registered office is at:
8 Baker Street, London W1M 1DA
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THE TENANT BELDRAY LIMITED whose registered office is at:
PO Box 20, Beldray Road, Bilston, West Midlands, WV14 7NF
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THE SURETY KRUG INTERNATIONAL (UK) LIMITED whose registered office is at:
PO Box 20, Beldray Road, Bilston West Midlands, WV14 7NF
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By this Memorandum the Landlord and the Tenant and the Surety desire to record the fact that the Basic Rent and Heating Rent reserved by the Lease, brief particulars whereof appear below, have been reviewed in accordance with the provisions in that behalf therein contained and on and from 24 June 1999 (subject to further review in accordance with clause 5 of the Lease) are
The Basic Rent: L.304,219 per annum
The Heating Rent: L.15,781 per annum
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THE LEASE
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DATE PARTIES PROPERTY TERM
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8.6.1979 Barton Industrial Park Limited(1) Land and Premises 35 years
Beldray Limited(2) at Barton Industrial from
Butterfield-Harvey Limited(3) Estate, Mount Pleasant 25.3.1979
Beldray Road, Bilston,
West Midlands
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Executed as a deed by the Landlord
acting by
Director
Director
Executed as a deed by the Tenant
acting by
Director /s/ Marshall Cooper Director/Secretary /s/ Paul Jones |
Executed as a deed by the Surety
acting by
Director /s/ Alistair S. Firth Director /s/ Robert M. Thornton, Jr. |
EXHIBIT 10.2
Dated the 30th day of August 2000
(1) ROOTMEAD LIMITED
- AND -
(2) BELDRAY LIMITED
- AND -
(3) KRUG INTERNATIONAL(UK) LIMITED
Counterpart/REVERSIONARY LEASE
of
Land and premises at Barton Industrial Estate, Mount Pleasant, Beldray Road, Bilston, West Midlands
GOLDSMITHS
94 Jermyn Street
London
SW1Y 6JE
Tel No. 0171 930 3666
Fax No. 0171 930 2985
Ref: RJB
THIS LEASE is made the 30th day of August 2000
BETWEEN:
(1) ROOTMEAD LIMITED the registered office of which is at 8 Baker Street, London W1M 1DA Company Registration No. 02129535 ("the Landlord"); and
(2) BELDRAY LIMITED the registered office of which is at PO Box 20, Beldray Road, Bilston, West Midlands WV14 7NF Company Registration No. 62665 ("the Tenant"); and
(3) KRUG INTERNATIONAL (UK) LIMITED the registered office of which is at PO Box 20, Beldray Road, Bilston, West Midlands WV14 7NF Company Registration No. 516171 ("the Guarantor")
NOW THIS DEED WITNESSES as follows:
1. DEFINITIONS AND INTERPRETATION
For all purposes of this Lease the terms defined in this clause have the meanings specified.
1.1 Interpretation of this Lease
The expression "this Lease" includes (unless expressly stated to the contrary) any document supplemental to or collateral with this document or entered into in accordance with this document except the Previous Lease.
1.2 The Premises
"The Premises" means all those land and premises at Barton Industrial Estate, Mount Pleasant, Beldray Road, Bilston, West Midlands being the premises demised by the Previous Lease.
1.3 The Previous Lease
"The Previous Lease" means a lease dated 8th June 1979 and made between
(1) Barton Industrial Park Limited (2) the Tenant and (3)
Butterfield-Harvey Limited by which the Premises were demised to the
Tenant for a term of 35 years from 25 March 1979 as varied by deeds
dated;
1.3.1 8 February 1980 made between The Norwich Union Life Insurance Society
(1) the Tenant (2) and Butterfield Harvey Limited (3)
1.3.2 24 November 1986 made between The Norwich union Life Insurance Society
Limited (1) and the Tenant (2)
1.3.3 21 June 1995 made between the Landlord (1) the Tenant (2) and the
Surety (3)
1.4 The Term
The term hereby granted shall include any statutory continuation or
extension thereof.
1.5 VAT
"VAT" means value added tax or any other tax of a similar nature and
unless otherwise expressly stated all references to rents or other sums
payable by the Tenant are exclusive of VAT.
2. RECITALS
2.1 Vesting of the Premises and the reversion
The Previous Lease remains vested in by the Tenant and the reversion
immediately expectant on the expiry of the term granted by the Previous
Lease is now vested in the Landlord.
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2.2 Agreement for Reversionary Lease
The Landlord and the Tenant and the Guarantor have agreed that the
Landlord grant a reversionary lease of the Premises to the Tenant on the
terms appearing below.
3. DEMISE
The Landlord demises the Premises to the Tenant, excepting and reserving
to the Landlord the matters excepted and reserved by the Previous Lease,
to hold the Premises to the Tenant together with the rights granted by the
Previous Lease for the term of years commencing immediately following the
expiry of the Previous Lease and expiring on 24 March 2019 yielding and
paying to the Landlord in like manner as under the Previous Lease the
Basic Rent and the Heating Rent reserved and payable under the Previous
Lease immediately prior to the expiry of the Previous Lease on 24 March
2014 (but subject to the provisions in this Lease for rent review on 25
March 2014) payable under this Lease without any deduction or set-off by
equal quarterly payments in advance on the usual quarter days in every
year and proportionately for any period of less than a year, the first
payment, being a proportionate sum in respect of the period from the
expiry of the Previous Lease to the next quarter day after that date to
be paid immediately on the expiry of the Previous Lease.
4. TERMS OF THIS LEASE
This Lease is made upon the same terms and subject to the same covenants,
provisos and conditions as are contained in the Previous Lease (except as
to the amounts of the Basic Rent and the Heating Rent reserved and
defined by the Previous Lease and the term of years granted thereby and
except as modified in the Schedule to this Lease) so that this Lease is
to be construed and take effect as if those terms, covenants, provisos
and conditions were (except as above) repeated in this Lease in full with
such modifications only as are necessary to make them applicable to this
demise and the parties to this Lease except that the
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covenants given by the Landlord and the Tenant and the Guarantor are to be construed as if they had been given at the date of the Previous Lease.
5. COVENANTS
5.1 The Tenant's Covenants
The Tenant covenants with the Landlord to observe and perform all the covenants and conditions on its part contained in the Previous Lease as modified as above
5.2 The Landlord's Covenants
The Landlord covenants with the Tenant to observe and perform all the covenants and conditions on the landlord's part contained in the Previous Lease as modified above
5.3 The Guarantor Covenants
The Guarantor covenants with the Landlord to observe and perform all the covenants and conditions on the part of the surety contained in clause 6 of the Previous Lease as modified above
6. NEW/OLD LEASE
This Lease is (but the Previous Lease is not) a new tenancy for the purposes of section 1 of the Landlord and Tenant (Covenants) Act 1995
7. AVOIDANCE IF PREVIOUS LEASE DETERMINED
If the term of years granted by the Previous Lease is determined under the proviso for re-entry contained in it, then this Lease is to become absolutely void
8. NO AGREEMENT FOR LEASE
The Landlord and the Tenant and the Guarantor hereby verify that there is no agreement for lease to which this Lease gives effect.
IN WITNESS whereof the parties have executed this Lease as a deed and delivered it the day and year first before written.
SCHEDULE
Schedule of Modifications to the Previous Lease
1. Clause 2(11) of the Previous Lease shall be read as if the words "classes IV and X of the Town and Country Planning Use Classes Order 1972" were deleted and the words "Classes B2 and B8 of the Town and Country Planning (Use Classes) Order 1987" were substituted therefor.
2. Clause 2(12) of the Previous Lease shall be read as if:
2.1 The following words were added to the end of Sub Clause (e) to Clause 2(12)(b) of the Previous Lease:-
"an authorised guarantee agreement from the assigning tenant with the Landlord in a form reasonably required by the Landlord in accordance with S.16 of the Landlord and Tenant (Covenants) Act 1995 and"
2.2 The following sub-clause (f) was added after sub clause (a) to Clause 2(12)(b) and before clause 2(13) of the Previous Lease:-
"PROVIDED THAT pursuant to s.19(1A) of the Landlord and Tenant Act 1927 (as amended) the Landlord may withhold consent for an assignment if -
(a) the proposed assignee is reasonably expected to be materially less able than the then current Tenant to observe and perform the tenant's obligations under this Lease; or
(b) the financial standing of the proposed assignee is such that,
having regard to the provisions of this Lease (disregarding
the authorised guarantee agreement referred to in sub clause
(a) to Clause 2(12)(b) of this Lease) and to the effect of s.5
of the Landlord and Tenant (Covenants) Act 1995 and all other
relevant matters, the value of the Landlord's reversion to
this Lease would be materially diminished if the proposed
assignment took place with the Landlord's consent; or
(c) the value of the demised premises or the Landlord's interest in Barton Industrial Park would be materially diminished as a result of the assignment due to the nature of the business intended to be carried on in the demised premises by the proposed assignee if such business is different to a material degree from the business carried on by the Tenant; or
(d) there shall be (at the date of the application to the Landlord for consent to the assignment or at any time after that date down to the proposed date of the assignment) any material breach of any of the Tenant's covenants in this Lease; or
(e) the proposed assignee is not also with the assignment of this Lease simultaneously taking an assignment of the Lease dated 8 June 1979 and made between Barton Industrial Park Limited (1) Beldray Limited (2) and Butterfield-Harvey Limited (3) (herein referred to as "the Previous Lease") if the Previous Lease is still subsisting at that time
and any dispute as to any of foregoing shall be determined by an independent surveyor appointed (in default of joint appointment) at the request of either the Landlord or the Tenant by the President for the time being of the Royal Institution of Chartered Surveyors and such surveyor shall act as an expert and not an arbitrator
and his decision shall be final and binding on the parties and he shall have power to determine how the costs of his determination shall be borne between the parties."
3. Clause 2(33) of the Previous Lease shall be read as if the words "and
in the Previous Lease" were added after the words "this Lease" in
line 8.
4. Clause 2(34) of the Previous Lease shall be read as if the words "and
contained in the Previous Lease" were added after the words "herein
contained" in line 8.
5. Clause 3(2) of the Previous Lease shall be read as if the year "1996"
was substituted for the year "1950".
6. Clause 3 of the Previous Lease shall be read as if clause 3(3) was
deleted and as if clause 3(4) was renumbered Clause 3(3).
7. Clause 5 of the Previous Lease shall be read as if:
7.1 Clause 5(1) was deleted and the following substituted therefor:
"5(1) THE Basic Rent hereby reserved shall be reviewed on 25 March 2014
(referred to as "the review date") and shall be adjusted in an upward
direction only in accordance with the following provisions only"
7.2 In clause 5(2)
7.2.1 the word "the" was substituted for the words "each" in line 1
7.2.2 the words "but including the provisions for rent review" were inserted
after "other than the amount of rent" in line 6
7.2.3 the words "ten years" were substituted for the words "this Lease
unexpired" in line 9
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7.3 In clauses 5(5) 5(6) and 5(8) the words "of the term of the Previous
Lease" were inserted after "the immediately preceding period of five
years" wherever they appear
7.4 In clause 5(7) the word "next" was deleted from line 7.
7.5 In clause 5(8)(i) and (ii) the word "the" was substituted for the word
"each" in line 2
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Executed as a deed and
delivered by the Tenant
acting by
Director /s/ Marshall Cooper Director/Secretary /s/ Paul Jones |
Executed as a deed and
delivered by the Guarantor
acting by
Director /s/ Alistair S. Firth Director /s/ Robert M. Thornton, Jr. |
EXHIBIT 10.3
Dated the 30th day of August 2000
(1) ROOTMEAD LIMITED
-AND-
(2) BELDRAY LIMITED
-AND-
(3) KRUG INTERNATIONAL (UK) LIMITED
PRE-EMPTION AGREEMENT
in respect of
Land and premises at Barton Industrial Estate, Mount Pleasant, Beldray Road, Bilston, West Midlands
GOLDSMITHS
94 Jermyn Street
London
SW1Y 6JE
Tel No. 0171 930 3666
Fax No. 0171 930 2985
Ref: RJB
PRE-EMPTION AGREEMENT
THIS AGREEMENT is made the 30th day of August 2000 BETWEEN (1) ROOTMEAD LIMITED (Company Registration No. 2129535) whose registered office is at 8 Baker Street, London W1M 1DA ("the Vendor") and (2) BELDRAY LIMITED (Company Registration No. 62665) whose registered office is at PO Box 20 Beldray Road, Bilston, West Midlands, WV14 7NF ("the Purchaser") and (2) KRUG INTERNATIONAL (UK) LIMITED (Company Registration No. 516171) whose registered office is at PO Box 20, Beldray Road, Bilston, West Midlands, WV14 7NF ("the Guarantor").
NOW IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATIONS
In this agreement the following expressions shall unless the context otherwise requires have the following meanings respectively:
1.1 "the Property" means the property described in the
first schedule.
1.2 "the Leases" mean the leases of the Property
dated 8 June 1979 and made between
Barton Industrial Park Limited (1)
the Purchaser (2) and
Butterfield-Harvey Limited (3)
granted for a term of 35 years from
25 March 1979 and registered at HM
Land Registry under Title No.
WM166008 and the reversionary lease
of the Property made today between
the Vendor (1) the Purchaser (2)
and the Guarantor (3) granted for a
term of five years from 25 March
2014 to 24 March 2019
1.3 "the Right of Pre-emption" means the right to purchase the
Property which is exercisable by
the Purchaser in the circumstances
set out in clause 2
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1.4 "the Pre-emption Period" means the period from the date of this
agreement until 24 March 2019 or (if
earlier) until the Purchaser shall assign
all of its interest in the Leases or in
either of them or the Leases (or either of
them) shall be forfeited or surrendered or
they shall otherwise cease to exist
1.5 "the Vendor's Notice" means the notice served by the Vendor
pursuant to clause 3
1.6 "the General Conditions" means the Standard Conditions of Sale (3rd
Edition) a copy of which are annexed hereto
1.7 "Working Day" means any day from Monday to Friday
inclusive which is not Christmas Day Good
Friday or a statutory bank holiday and
"Working Days" shall be construed
accordingly.
1.10 words importing one gender shall be construed as importing any other
gender
1.11 words importing the singular shall be construed as importing the plural
and vice versa
1.12 where any part comprises more than one person the obligation and
liabilities of that party under this agreement shall be the joint and
several obligations and liabilities of those persons
1.13 the clause headings do not form part of this agreement and shall not be
taken into account in its construction or interpretation
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2. AGREEMENT
The Purchaser shall have the right to purchase the Vendor's interest the Property unencumbered except as mentioned below if the Vendor shall desire to sell or otherwise dispose of the Property within the Pre-emption Period.
3. NOTICE OF DESIRE TO SELL
The Vendor shall give written notice to the Purchaser of his desire to sell or otherwise dispose of the Property by making to the Purchaser an offer to sell the Property in the form of the agreement marked "A" annexed to this agreement and the Purchaser shall be at liberty within 21 days of the receipt of such notice to exercise the Right of Pre-emption on the terms and conditions of this agreement
4. EXERCISE OF RIGHTS OF PRE-EMPTION
4.1 The Right of Pre-emption shall be exercisable by notice in writing to the Vendor within 21 days from receipt by the Purchaser of the Vendor's Notice by the Purchaser signing an agreement in the form marked "B" annexed to this agreement and delivering the same to the Vendor.
4.2 The Vendor and the Purchaser respectively undertake to do all such other things as may be necessary to ensure that the agreement by which the Right of Pre-emption is exercised constitutes an enforceable contract for the sale and purchase of the Property in accordance with the provision of the Law of Property (Miscellaneous Provisions) Act 1989 Section 2
5. FAILURE TO EXERCISE THE RIGHTS OF PRE-EMPTION
5.1 If the Purchaser shall from whatever cause fail to exercise the Right of Pre-emption in accordance with clause 4.1 the Vendor shall be at liberty at any time thereafter to sell the Property to a third party bona fide purchaser at a price being not less than that specified in the Vendor's Notice
5.2 The Purchaser shall upon the completion of any such sale to a third party bona fide purchaser within a period of six months from the date of service of the Vendor's Notice cancel or remove the restriction registered in accordance with clause 14 below
5.3 If the Vendor does not complete a sale to a third party bona fide purchaser within the six months referred to in clause 5.2 then the Right of Pre-emption shall continue to apply and the Vendor must in particular comply with clause 3 in the event of any further proposed sale
6. COMPLETION
The date for completion of the sale pursuant to the exercise of the Right of Pre-emption shall unless otherwise agreed in writing be the first Working Day after the expiration of 4 weeks from the date of the exercise of the Right of Pre-emption and on completion the Purchaser shall pay to the Vendor any arrears of rent insurance contributions service charges or other sums of a similar nature then remaining due to the Vendor under the terms of the Leases and the tenancy documents referred to in clause 9
7. DEPOSIT
A deposit of 10% of the purchase price as stated in the Vendor's Notice shall be paid to the Vendor on the exercise of the Right of Pre-emption such deposit to be paid to the solicitors acting for the Vendor as stakeholders by means of telegraphic or other direct transfer banker's draft or a bank guaranteed cheque or a cheque drawn on a solicitor's client account
8. CAPACITY
The Vendor shall sell with full title guarantee
9. POSSESSION
The Property shall be sold subject to the Leases and to all documents ancillary or supplemental thereto and to all leases and tenancies created in respect of the Property (whether before or after today) and to all documents ancillary or supplemental thereto provided that the Vendor shall first obtain the consent of the Purchaser to any such leases and tenancies (and documents ancillary or supplemental thereto) created after today (such consent not to be unreasonably withheld or delayed) and the Purchaser shall not be entitled to raise any requisitions or objections with regard to such matters and the transfer to the Purchaser shall contain a declaration as to the merger of the Leases and all other leases and tenancies in respect of the Property in respect of which the reversion is vested to the Vendor and the term is vested in the Purchaser as at the completion of the sale pursuant to the exercise of the Right of Pre-emption.
10. TITLE
The title of the Vendor to the Property has been deduced prior to the signing of this agreement and the Purchaser shall not be entitled to raise any requisitions on or objections to it otherwise than in respect of matters arising or disclosed after the date of this agreement
11. MATTERS AFFECTING THE PROPERTY
The Property is sold subject to and with the benefit of the covenants
rights easements and other matters specified in the second schedule and
the Purchaser shall not be entitled to raise any requisitions or
objections with regard thereto and the transfer to the Purchaser shall
contain the following clauses:
"12.1 The Transferee hereby releases and discharges the Transferor and the
previous landlords under the terms of [the Leases] from all the
covenants, agreements and conditions contained or otherwise arising
under [the Leases] or any deed or document supplemental or ancillary to
them whether past present or future and
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from all liabilities damages actions proceedings costs claims demands
and expenses arising from such liabilities or otherwise in relation to
the Property
12.2 The Transferee and the Guarantor hereby jointly and severally covenant
with the Transferor to indemnify the Transferor against any liability
arising out of or in connection with the Property or in connection with
any obligation affecting the Property and to perform such obligations.
12.3 Without prejudice to the generality of clause 12.2, the Transferee and
the Guarantor hereby jointly and severally covenant with the Transferor
to observe and perform the covenants on the part of the lessee
contained in the registered lease to title number WM143807 and all
deeds or documents supplemental or ancillary to it and to indemnify the
Transferor against all liabilities damages actions proceedings costs
claims demands and expenses incurred by reason of any breach thereof.
12.4 The Transferor is not liable under any covenant implied in this
transfer by statute for any breach of the terms of the registered lease
concerning the condition of the land comprised in title number
WM143807.
12.5 For the purposes of Section 6(2)(a) of the Law of Property
(Miscellaneous Provisions) Act 1994 all matters now recorded in
registers open to public inspection are to be considered within the
actual knowledge of the Transferee".
12. INCORPORATION OF CONDITIONS OF SALE
The General Conditions shall apply to this agreement so far as they are
applicable to a sale by private treaty and are not varied or
inconsistent with the terms of this agreement and shall be amended as
follows:
12.1 The contract rate of interest is four per cent above the base rate for
the time being of National Westminster Bank PLC
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12.2 Standard Condition 1.1.1(n) is varied by adding at the end "and each
working day ends at 5.30pm"
12.3 Standard Condition 1.3.6(a) and (b) are varied by adding "unless
returned to the sender undelivered" after "posting"
12.4 Standard Condition 2.2.1 is varied by adding at the end "or by bank
transfer to a bank account stipulated by the seller's solicitor"
12.5 Standard Condition 3.1.2(c) is varied by adding "reasonably be expected
to" after "could not"
12.6 Standard Condition 3.1.2(d) is varied by replacing "those" by
"mortgages and charges protected by such entries in registers"
12.7 Standard Condition 3.1.2 is further varied by adding at the end
"(f) all matters which are, or which are capable of being,
registered as local land charges
(g) all actual or proposed charges, notices, orders, restrictions,
agreements, conditions or other matters arising under the Town
and Country Planning Acts
(h) overriding interests as defined in Land Registration Act 1925
s.70(1) or, in the case of unregistered land, those rights
which would be overriding interests if title were registered"
12.8 Standard Condition 3.1.4 is varied by adding "which he learns about"
after "requirement"
12.9 Standard Condition 4.3.2 and the last thirteen words of Standard
Condition 4.3.1 do not apply
12.10 Standard Condition 4.5.5 does not apply where title to the Property is
registered
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12.11 Standard Conditions 5.1.1, 5.1.2 and 5.1.4 do not apply
12.12 Standard Condition 5.1.3 is varied by adding at the end "save so far
as required by any lease subject to which the property is sold"
12.13 Standard Condition 5.2.2 is varied by omitting clauses (b), (e) and
(g), and by adding at the end:
"(i) is to comply with all statutory obligations relating to the
property"
12.14 Standard Condition 5.2.3 does not apply
12.15 Standard Condition 5.2.7 is varied by replacing "unaffected" by "waived
from the date the buyer takes occupancy"
12.16 Standard Conditions 6.1.2 and 6.1.3 are varied by replacing "2.00pm"
by "1.00pm" and in Standard Condition 6.2 "received" means the
receipt of cleared funds by a bank nominated by the Seller's Solicitors
12.17 Standard Condition 6.3.2 is varied by replacing "the seller exercises
his option in condition 7.3.4" by "the buyer holds the property as
tenant of the seller or the seller is entitled to compensation under
Condition 7.3"
12.18 Standard Condition 6.4(b) is varied by omitting "or allowed"
12.19 Standard Condition 6.7 is varied by omitting clauses (a) and (b)
12.20 Standard Condition 7.1.1 is varied by replacing "the negotiations
leading to it" by "any written replies by the seller's solicitors to
written inquiries before contract from the buyer's solicitors"
12.21 Standard Condition 7.3.1 is replaced by "If completion is delayed, the
buyer is to pay compensation to the seller for the period from
completion date to actual completion except for any part of that period
for which the delay is attributable to the act or default of the seller
or his mortgagee or Settled Land Act trustee"
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12.22 Standard Condition 7.3.2 is replaced by "Compensation is calculated
at the contract rate on the purchase price including any separate
price for chattels but less any deposit paid by the buyer"
12.23 Standard Condition 7.3.4 is replaced by "Where condition 7.3.1
applies, the seller is entitled to the income of the property until
actual completion as well as to compensation under that condition"
12.24 Law of Property Act 1925 s.49(2) does not apply
13. RESTRICTION ON ASSIGNMENT AND DISPOSALS BY THE VENDOR
13.1 This agreement is personal to the Purchaser and shall not be capable of
assignment nor shall the Vendor be required to convey or transfer the
Property to anyone other than the Purchaser
13.2 The Vendor shall not sell or otherwise dispose of its interest in the
Property otherwise than in accordance with clause 5.2 unless the
Vendor obtains and delivers to the Purchaser a completed deed of
covenant from the buyer or other party acquiring an interest
confirming that the buyer or other party will observe and perform the
Vendor's obligations in this agreement
14. REGISTRATION
Subject to the Vendor obtaining such consents as are necessary from its
mortgagees and to any charge certificate being put on deposit at H M
Land Registry if a restriction in respect of the Right of Pre-emption
created by this agreement shall not be registered against the titles
to the Property at H M Land Registry within 21 days of the date of this
agreement then this agreement and everything contained in it shall
cease and determine and neither of the parties to it shall have any
right of action whether for damages or otherwise against the other
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15. GUARANTOR
In consideration of the Vendor entering into this agreement at the request of the Guarantor, the Guarantor warrants that the Purchaser will observe and perform the terms of this agreement and agrees to join in the transfer to the Purchaser to give the covenants to the Vendor referred to in clause 11 above.
AS WITNESS the of the parties the day and year first above written
FIRST SCHEDULE
The Property
(describe the property)
First all that freehold property to the North West of Mount Pleasant, Bilston, Wolverhampton, West Midlands registered at H M Land Registry with Title Absolute under Title Number WM164707; and
Secondly all that leasehold property to the East of Peascroft Lane, Bilston aforesaid registered at H M Land Registry with Title Absolute under Title Number WM143807
SECOND SCHEDULE
Matters affecting the Property
(insert details)
All matters (other than financial charges) contained mentioned or referred to in H M Land Registry Title Numbers WM164707 and WM143807
ANNEX 1
Agreement A
THIS AGREEMENT is made the ___ day of _________ BETWEEN (1) (person granting
the right of pre-emption) [of (address) or whose registered office is at
(address)] ("the Vendor")
and (2) (person to whom the right of pre-emption is granted) [of (address) or whose registered office is at (address)] ("the Purchaser")
NOW IT IS AGREED as follows:
1. By an agreement ("the Agreement") dated (date) and made between (1) the Vendor and (2) the Purchaser and the Purchaser was granted a right of pre-emption ("the Right of Pre-emption") to require the Vendor to sell the property ("the Property") more particularly described in the Agreement on the terms and conditions specified in the Agreement.
2. The Vendor offers during the period specified in clause 3 of the Agreement to sell the Property at the price of (L)____ (____ pounds) and upon the terms and conditions set out in the Agreement
3. The price matches the offer made to the Vendor by [ ] of [ ] for the Property a copy of which offer is annexed hereto and the Vendor warrants that the price is the price offered by a third party bona fide purchaser
AS WITNESS etc
ANNEX 2
Agreement B
THIS AGREEMENT is made the ___ day of ________ BETWEEN (1) (person granting the right of pre-emption) [of (address) or whose registered office is at (address)] ("the Vendor") and (2) (person to whom the right of pre-emption is granted) [of (address) or whose registered office is at (address)] ("the Purchaser")
NOW IT IS AGREED as follows:
1. By an agreement ("the Agreement") dated (date) and made between (1) the Vendor and (2) the Purchaser and the Purchaser was granted a right of pre-emption ("the Right of Pre-emption") to require the Vendor to sell the property ("the Property") more
particularly described in the Agreement on the terms and conditions specified in the Agreement.
2. The Vendor has on (date of Vendor's offer) offered to sell the Property to the Purchaser in the terms set out in clause 3 of this agreement.
3. The Purchaser accepts the offer of the Vendor to sell the Property and agrees to purchase the same at the price of (L) (___ Pounds) and upon the terms and conditions set out in the Agreement which shall apply (mutatis mutandis) as if the same had been repeated in this agreement.
AS WITNESS etc.
SIGNED on behalf of the
Purchaser by: /s/ Paul Jones
-----------------------------
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SIGNED on behalf of the
Guarantor by: /s/ Alistair S. Firth
-----------------------------
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STANDARD CONDITIONS OF SALE (THIRD EDITION)
(NATIONAL CONDITIONS OF SALE 23RD EDITION,
LAW SOCIETY'S CONDITIONS OF SALE 1995)
1. GENERAL
1.1 DEFINITIONS
1.1.1 In these conditions:
(a) "accrued interest" means:
(i) if money has been placed on deposit or in a building
society share account, the interest actually earned
(ii) otherwise, the interest which might reasonably have
been earned by depositing the money at interest on
seven days' notice of withdrawal with a clearing bank
less, in either case, any proper charges for handling the
money
(b) "agreement" means the contractual document which incorporates
these conditions, with or without amendment
(c) "banker's draft" means a draft drawn by and on a clearing
bank
(d) "clearing bank" means a bank which is a member of CHAPS
Limited
(e) "completion date", unless defined in the agreement, has the
meaning given in condition 6.1.1
(f) "contract" means the bargain between the seller and the
buyer of which these conditions, with or without amendment,
form part
(g) "contract rate", unless defined in the agreement, is the Law
Society's interest rate from time to time in force
(h) "lease" includes sub-lease, tenancy and agreement for a lease
or sub-lease
(i) "notice to complete" means a notice requiring completion of
the contract in accordance with condition 6
(j) "public requirement" means any notice, order or proposal given
or made (whether before or after the date of the contract) by
a body acting on statutory authority
(k) "requisition" includes objection
(l) "solicitor" includes barrister, duly certificated notary
public, recognised licensed conveyancer and recognised
body under sections 9 or 32 of the Administration of
Justice Act 1985
(m) "transfer" includes conveyance and assignment
(n) "working day" means any day from Monday to Friday (inclusive)
which is not Christmas Day, Good Friday or a statutory
Bank Holiday
1.1.2 When used in these conditions the terms "absolute title" and
"office copies" have the special meanings given to them by the
Land Registration Act 1925.
1.2 JOINT PARTIES
there is more than one seller or more than one buyer, the
obligations which by undertake can be enforced against them
all jointly or against each individually.
1.3 NOTICES AND DOCUMENTS
1.3.1 A notice required or authorised by the contract must be
in writing.
1.3.2 Giving a notice or delivering a document to a party's solicitor has the
same effect as giving or delivering it to that party.
1.3.3 Transmission by fax is a valid means of giving a notice or delivering a
document where delivery of the original document is not essential.
1.3.4 Subject to conditions 1.3.5 to 1.3.7, a notice is given and a document
delivered when it is received.
1.3.5 If a notice or document is received after 4.00pm on a working day, or
on a day which is not a working day, it is to be treated as having been
received on the next working day.
1.3.6 Unless the actual time of receipt is proved, a notice or document sent
by the following means is to be treated as having been received before
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4.00pm on the day shown below:
(a) by first-class post: two working days after posting
(b) by second-class post: three working days after posting
(c) through a document exchange: on the first working day after the day on which it would normally be available for collection by the addressee.
1.3.7 Where a notice or document is sent through a document exchange, then
for the purposes of condition 1.3.6 the actual time of receipt is:
(a) the time when the addressee collects it from the document
exchange or, if earlier
(b) 8:00am on the first working day on which it is available for
collection at that time.
1.4 VAT
1.4.1 An obligation to pay money includes an obligation to pay any value
added tax chargeable in respect of that payment.
1.4.2 All sums made payable by the contract are exclusive of value added tax.
2. FORMATION
2.1 Date
2.1.1 If the parties intend to make a contract by exchanging duplicate
copies by post or through a document exchange, the contract is made
when the last copy is posted or deposited at the document exchange.
2.1.2 If the parties' solicitors agree to treat exchange as taking place
before duplicate copies are actually exchanged, the contract is made
as so agreed.
2.2 DEPOSIT
2.2.1 The buyer is to pay or send a deposit of 10 per cent of the purchase
price no later than the date of the contract. Except on a sale by
auction, payment is to be made by banker's draft or by a cheque drawn
on a solicitors' clearing bank account.
2.2.2 If before completion date the seller agrees to buy another property in
England and Wales for his residence, he may use all or any part of the
deposit as a deposit in that transaction to be held on terms to the
same effect as this condition and condition 2.2.3.
2.2.3 Any deposit or part of a deposit not being used in accordance with
condition 2.2.2 is to be held by the seller's solicitor as stakeholder
on terms that on completion it is paid to the seller with accrued
interest.
2.2.4 If a cheque tendered in payment of all or part of the deposit is
dishonoured when first presented, the seller may, within seven working
days of being notified that the cheque has been dishonoured, give
notice to the buyer that the contract is discharged by the buyer's
breach.
2.3 AUCTIONS
2.3.1 On a sale by auction the following conditions apply to the property
and, if it is sold in lots, to each lot.
2.3.2 The sale is subject to a reserve price.
2.3.3 The seller, or a person on his behalf, may bid up to the reserve price.
2.3.4 The auctioneer may refuse any bid.
2.3.5 If there is a dispute about a bid, the auctioneer may resolve the
dispute or restart the auction at the last undisputed bid.
3. MATTERS AFFECTING THE PROPERTY
3.1 FREEDOM FROM INCUMBRANCES
3.1.1 The seller is selling the property free from incumbrances, other than
those mentioned in condition 3.1.2.
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3.1.2 The incumbrances subject to which the property is sold are:
(a) those mentioned in the agreement
(b) those discoverable by inspection of the property before the contract
(c) those the seller does not and could not know about
(d) entries made before the date of the contract in any public register except those maintained by HM Land Registry or its Land Charges Department or by Companies House
(e) public requirements.
3.1.3 After the contract is made, the seller is to give the buyer written
details without delay of any new public requirement and of anything in
writing which he learned about concerning any incumbrances subject to
which the property is sold.
3.1.4 The buyer is to bear the cost of complying with any outstanding public
requirement and is to indemnify the seller against any liability
resulting from a public requirement.
3.2 PHYSICAL STATE
3.2.1 The buyer accepts the property in the physical state it is in at the
date of the contract unless the seller is building or converting it.
3.2.2 A leasehold property is sold subject to any subsisting breach of a
condition of tenant's obligation relating to the physical state of the
property which renders the lease liable to forfeiture.
3.2.3 A sub-lease is granted subject to any subsisting breach of a condition
or tenant's obligation relating to the physical state of the property
which renders the seller's own lease liable to forfeiture.
3.3 LEASES AFFECTING THE PROPERTY
3.3.1 The following provisions apply if the agreement states that any part
of the property is sold subject to a lease.
3.3.2 (a) The seller having provided the buyer with full details of each
lease or copies of the documents embodying the lease terms,
the buyer is treated as entering into the contract knowing
and fully accepting those terms
(b) The seller is to inform the buyer without delay if the lease
ends or if the seller learns of any application by the tenant
in connection with the lease; the seller is then to act as
the buyer reasonably directs, and the buyer is to indemnify
him against all consequent loss and expense
(c) The seller is not to agree to any proposal to change the
lease terms without the consent of the buyer and is to inform
the buyer without delay of any change which may be proposed
or agreed
(d) The buyer is to indemnify the seller against all claims
arising from the lease after actual completion; this includes
claims which are unenforceable against a buyer for want of
registration
(e) The seller takes no responsibility for what rent is lawfully
recoverable, nor for whether or how any legislation affects
the lease
(f) If the let land is not wholly within the property, the seller
may apportion the rent.
3.4 RETAINED LAND
3.4.1 The following provisions apply where after the transfer the seller
will be retaining land near the property.
3.4.2 The buyer will have no right of light or air over the retained land,
but otherwise the seller and the buyer will each have the rights over
the land of the other which they would have had if they were two
separate buyers to whom the seller has made simultaneous transfers of
the property and the retained land.
3.4.3 Either party may require that the transfer contain appropriate express
terms.
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4. TITLE AND TRANSFER 4.1 TIMETABLE 4.1.1 The following are the steps for deducing and investigating the title to |
the property to be taken within the following time limits:
STEP TIME LIMIT
---- ----------
1. The seller is to send the Immediately after making the contract
buyer evidence of title in
accordance with condition 4.2
2. The buyer may raise written Six working days after either the date
requisitions of the contract or the date of delivery
of the seller's evidence of title on
which the requisitions are raised
whichever is the later
3. The seller is to reply in writing Four working days after receiving the
to any requisitions raised requisitions
4. The buyer may make written Three working days after receiving the
observations on the seller's replies
replies
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The time limit on the buyer's right to raise requisitions applies even
where the seller supplies incomplete evidence of his title, but the
buyer may, within six working days from delivery of any further
evidence, raise further requisitions resulting from that evidence. On
the expiry of the relevant time limit the buyer loses his right to
raise requisitions or make observations.
4.1.2 The parties are to take the following steps to prepare and agree the
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transfer of the property within the following time limits:
STEP TIME LIMIT
---- ----------
A. The buyer is to send the At least twelve working days before
seller a draft transfer completion date
B. The seller is to approve or Four working days after delivery of the
revise that draft and either draft transfer
return it or retain it for use as
the actual transfer
C. If the draft is returned the At least five working days before
buyer is to send an completion date
engrossment to the seller
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4.1.3 Periods of time under conditions 4.1.1 and 4.1.2 may run concurrently.
4.1.4 If the period between the date of the contract and completion date is
less than 15 working days, the time limits in conditions 4.1.1 and
4.1.2 are to be reduced by the same proportion as that period bears to
the period of 15 working days. Fractions of a working day are to be
rounded down except that the time limit to perform any step is not to
be less than one working day.
4.2 PROOF OF TITLE
4.2.1 The evidence of registered title is office copies of the items required
to be furnished by section 110(1) of the Land Registration Act 1925 and
the copies abstracts and evidence referred to in section 110(2).
4.2.2 The evidence of unregistered title is an abstract of the title, or an
epitome of title with photocopies of the relevant documents.
4.2.3 Where the title to the property is unregistered, the seller is to
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produce to the buyer (without cost to the buyer):
(a) the original of every relevant document, or
(b) an abstract, epitome or copy with an original marking by a solicitor or examination either against the original or against an examined abstract or against an examined copy.
4.3 DEFINING THE PROPERTY
4.3.1 The seller need not:
(a) prove the exact boundaries of the property
(b) prove who owns fences, ditches, hedges or walls
(c) separately identify parts of the property with different
titles further than he may be able to do from information in
his possession.
4.3.2 The buyer may, if it is reasonable, require the seller to make or
obtain, pay for and hand over a statutory declaration about facts
relevant to the matters mentioned in condition 4.3.1. The form of the
declaration is to be agreed by the buyer, who must not unreasonably
withhold his agreement.
4.4 RENTS AND RENTCHARGES
The fact that a rent or rentcharge, whether payable or receivable by
the owner of the property, has been or will on completion be,
informally apportioned is not to be regarded as a defect in title.
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4.5 TRANSFER
4.5.1 The buyer does not prejudice his right to raise requisitions, or to
require replies to any raised, by taking any steps in relation to the
preparation or agreement of the transfer.
4.5.2 If the agreement makes no provision as to title guarantee, then
subject to condition 4.5.3 the seller is to transfer the property with
full title guarantee.
4.5.3 The transfer is to have effect as if the disposition is expressly made
subject to all matters to which the property is sold subject under the
terms of the contract.
4.5.4 If after completion the seller will remain bound by any obligation
affecting the property, but the law does not imply any covenant by the
buyer to indemnify the seller against liability for future breaches of
it:
(a) the buyer is to covenant in the transfer to indemnify the
seller against liability for any future breach of the
obligation and to perform it from then on, and
(b) if required by the seller, the buyer is to execute and
deliver to the seller on completion a duplicate transfer
prepared by the buyer.
4.5.5 The seller is to arrange at his expense that, in relation to every
document of title which the buyer does not receive on completion, the
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buyer is to have the benefit of:
(a) a written acknowledgement of his right to its production, and
(b) a written undertaking for its safe custody (except while it is held by a mortgagee or by someone in a fiduciary capacity).
5. PENDING COMPLETION
5.1 RESPONSIBILITY FOR PROPERTY
5.1.1 The seller will transfer the property in the same physical state as it
was at the date of the contract (except for fair wear and tear), which
means that the seller retains the risk until completion.
5.1.2 If at any time before completion the physical state of the property
makes it unusable for its purpose at the date of the contract:
(a) the buyer may rescind the contract
(b) the seller may rescind the contract where the property has
become unusable for that purpose as a result of damage
against which the seller could not reasonably have insured,
or which it is not legally possible for the seller to make
good.
5.1.3 The seller is under no obligation to the buyer to insure the property.
5.1.4 Section 47 of the Law of Property Act 1925 does not apply.
5.2 OCCUPATION BY BUYER
5.2.1 If the buyer is not already lawfully in the property, and the seller
agrees to let him into occupation, the buyer occupies on the following
terms.
5.2.2 The buyer is a licensee and not a tenant. The terms of the licence
are that the buyer:
(a) cannot transfer it
(b) may permit members of his household to occupy the property
(c) is to pay or indemnify the seller against all outgoings and
other expenses in respect of the property
(d) is to pay the seller a fee calculated at the contract rate on
the purchase price (less any deposit paid) for the period of
the licence
(e) is entitled to any rents and profits from any part of the
property which he does not occupy
(f) is to keep the property in as good a state of repair as it
was in when he went into occupation (except for fair wear and
tear) and is not to alter it
(g) is to insure the property in a sum which is not less than the
purchase price against all risks in respect of which
comparable premises are normally insured
(h) is to quit the property when the licence ends.
5.2.3 On the creation of the buyer's licence, condition 5.1 ceases to apply,
which means that the buyer then assumes the risk until completion.
5.2.4 The buyer is not in occupation for the purposes of this condition if
he merely exercises rights of access given solely to do work agreed by
the seller.
5.2.5 The buyer's licence ends on the earliest of: completion date,
rescission of the contract or when five working days' notice given by
one party to the other takes effect.
5.2.6 If the buyer is in occupation of the property after his licence has
come to an end and the contract is subsequently completed he is to
pay the seller compensation for his continued occupation calculated at
the same rate as the fee mentioned in condition 5.2.2(d).
5.2.7 The buyer's right to raise requisitions is unaffected.
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6. COMPLETION
6.1 DATE
6.1.1 Completion date is twenty working days after the date of the contract
but time is not of the essence of the contract unless a notice to
complete has been served.
6.1.2 If the money due on completion is received after 2:00pm, completion
is to be treated, for the purposes only of conditions 6.3 and 7.3, as
taking place on the next working day.
6.1.3 Condition 6.1.2 does not apply where the sale is with vacant
possession of the property or any part and the seller has not vacated
the property or that part by 2:00pm on the date of actual completion.
6.2 PLACE
Completion is to take place in England and Wales, either at the
seller's solicitor's office or at some other place which the seller
reasonably specifies.
6.3 APPORTIONMENTS
6.3.1 Income and outgoings of the property are to be apportioned between the
parties so far as the change of ownership on completion will affect
entitlement to receive or liability to pay them.
6.3.2 If the whole property is sold with vacant possession or the seller
exercises his option in condition 7.3.4, apportionment is to be made
with effect from the date of actual completion; otherwise, it is to be
made from completion date.
6.3.3 In apportioning any sum, it is to be assumed that the seller owns the
property until the end of the day from which apportionment is made and
that the sum accrues from day to day at the rate at which it is
payable on that day.
6.3.4 For the purpose of apportioning income and outgoings, it is to be
assumed that they accrue at an equal daily rate throughout the year.
6.3.5 When a sum to be apportioned is not known or easily ascertainable at
completion, a provisional apportionment is to be made according to the
best estimate available. As soon as the amount is known, a final
apportionment is to be made and notified to the other party. Any
resulting balance is to be paid no more than ten working days later,
and if not then paid the balance is to bear interest at the contract
rate from then until payment.
6.3.6 Compensation payable under condition 5.2.6 is not to be apportioned.
6.4 AMOUNT PAYABLE
The amount payable by the buyer on completion is the purchase price
(less any deposit already paid to the seller or his agent) adjusted to
take account of:
(a) apportionments made under condition 6.3
(b) any compensation to be paid or allowed under condition 7.3.
6.5 TITLE DEEDS
6.5.1 The seller is not to retain the documents of title after the buyer has
tendered the amount payable under condition 6.4.
6.5.2 Condition 6.5.1 does not apply to any documents of title relating to
land being retained by the seller after completion.
6.6 RENT RECEIPTS
The buyer is to assume that whoever gave any receipt for a payment of
rent or service charge which the seller produces was the person or the
agent of the person then entitled to that rent or service charge.
6.7 MEANS OF PAYMENT
The buyer is to pay the money due on completion in one or more of the
following ways:
(a) legal tender
(b) a banker's draft
(c) a direct credit to a bank account nominated by the seller's
solicitor
(d) an unconditional release of a deposit held by a stakeholder.
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6.8 NOTICE TO COMPLETE
6.8.1 At any time on or after completion date, a party who is ready able and
willing to complete may give the other a notice to complete.
6.8.2 A party is ready able and willing:
(a) if he could be, but for the default of the other party, and
(b) in the case of the seller, even though, a mortgage remains
secured on the property, if the amount to be paid on
completion enables the property to be transferred freed of
all mortgages (except those to which the sale is expressly
subject).
6.8.3 The parties are to complete the contract within ten working days of
giving a notice to complete, excluding the day on which the notice is
given. For this purpose, time is of the essence of the contract.
6.8.4 On receipt of a notice to complete:
(a) if the buyer paid no deposit, he is forthwith to pay a
deposit of 10 per cent
(b) if the buyer paid a deposit of less than 10 per cent, he is
forthwith to pay a further deposit equal to the balance of
that 10 per cent.
7. REMEDIES
7.1 ERRORS AND OMISSIONS
7.1.1 If any plan or statement in the contract, or in the negotiations
leading to it, is or was misleading or inaccurate due to an error or
omission, the remedies available are as follows.
7.1.2 When there is a material difference between the description or value
of the property as represented and as it is, the injured party is
entitled to damages.
7.1.3 An error or omission only entities the injured party to rescind the
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contract:
(a) where it results from fraud or recklessness, or
(b) where he would be obliged, to his prejudice, to transfer or accept property differing substantially (in quantity, quality or tenure) from what the error or omission had led him to expect.
7.2 RESCISSION
If either party rescinds the contract:
(a) unless the rescission is a result of the buyer's breach of contract the deposit is to be repaid to the buyer with accrued interest
(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.
7.3 LATE COMPLETION
7.3.1 If there is default by either or both of the parties in performing
their obligations under the contract and completion is delayed, the
party whose total period of default is the greater is to pay
compensation to the other party.
7.3.2 Compensation is calculated at the contract rate on the purchase price,
or (where the buyer is the paying party) the purchase price less any
deposit paid, for the period by which the paying party's default
exceeds that of the receiving party, or, if shorter, the period between
completion date and actual completion.
7.3.3 Any claim for loss resulting from delayed completion is to be reduced
by any compensation paid under this contract.
7.3.4 Where the buyer holds the property as tenant of the seller and
completion is delayed, the seller may give notice to the buyer, before
the date of actual completion, that he intends to take the net income
from the property until completion. If he does so, he cannot claim
compensation under condition 7.3.1 as well.
7.4 AFTER COMPLETION
Completion does not cancel liability to perform any outstanding
obligation under this contract.
7.5 BUYER'S FAILURE TO COMPLY WITH NOTICE TO COMPLETE
7.5.1 If the buyer fails to complete in accordance with a notice to
complete, the following terms apply.
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7.5.2 The seller may rescind the contract, and if he does so:
(a) he may
(i) forfeit and keep any deposit and accrued interest
(ii) resell the property
(iii) claim damages
(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.
7.5.3 The seller retains his other rights and remedies.
7.6 SELLER'S FAILURE TO COMPLY WITH NOTICE TO COMPLETE
7.6.1 If the seller fails to complete in accordance with a notice to
complete, the following terms apply.
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7.6.2 The buyer may rescind the contract, and if he does so:
(a) the deposit is to be repaid to the buyer with accrued interest
(b) the buyer is to return any documents he received from the
seller and is, at the seller's expense, to cancel any
registration of the contract.
7.6.3 The buyer retains his other rights and remedies.
8. LEASEHOLD PROPERTY
8.1 EXISTING LEASES
8.1.1 The following provisions apply to a sale of leasehold land.
8.1.2 The seller having provided the buyer with copies of the documents
embodying the lease terms, the buyer is treated as entering into the
contract knowing and fully accepting those terms.
8.1.3 The seller is to comply with any lease obligations requiring the tenant
to insure the property.
8.2 NEW LEASES
8.2.1 The following provisions apply to a grant of a new lease.
8.2.2 The conditions apply so that:
"seller" means the proposed landlord
"buyer" means the proposed tenant
"purchase price" means the premium to be paid on the grant of a lease.
8.2.3 The lease is to be in the form of the draft attached to the agreement.
8.2.4 If the term of the new lease will exceed 21 years, the seller is to
deduce a title which will enable the buyer to register the lease at HM
Land Registry with an absolute title.
8.2.5 The buyer is not entitled to transfer the benefit of the contract.
8.2.6 The seller is to engross the lease and a counterpart of it and is to
send the counterpart to the buyer at least five working days before
completion date.
8.2.7 The buyer is to execute the counterpart and deliver it to the seller on
completion.
8.3 LANDLORD'S CONSENT
8.3.1 The following provisions apply if a consent to assign or sub-let is
required to complete the contract.
8.3.2 (a) The seller is to apply for the consent at his expense, and to
use all reasonable efforts to obtain it
(b) The buyer is to provide all information and references
reasonably required.
8.3.3 The buyer is not entitled to transfer the benefit of the contract.
8.3.4 Unless he is in breach of his obligation under condition 8.3.2, either
party may rescind the contract by notice to the other party if three
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working days before completion date:
(a) the consent has not been given or
(b) the consent has been given subject to a condition to which the buyer reasonably objects.
In that case, neither party is to be treated as in breach of contract and condition 7.2 applies.
9. CHATTELS
9.1 The following provisions apply to any chattels which are to be sold.
9.2 Whether or not a separate price is to be paid for the chattels, the contract takes effect as a contract for sale of goods.
9.3 Ownership of the chattels passes to the buyer on actual completion.
EXHIBIT 10.4
BARTON INDUSTRIAL PARK LIMIT
to
BELDRAY LIMITED
and
BUTTERFIELD-HARVEY LIMITED
LEASE of premises situate at Mount Pleasant Bilston West Midland
with all others now or hereafter entitled to the like right(s) of the easements contained in a Deed dated 7 June 1979 and made between Don Everall P.S.V. Sales Limited of the first part National Travel (West) Limited of the second part and the Landlord of the third part (hereinafter called "the Gas Main Deed") and (iv) the benefit (in common with all others now or hereafter entitled to the like rights) of the easements contained in the Deed of even date herewith and made between the Tenant of the one part and the Landlord of the other part (hereinafter called "the Beldray Deed") EXCEPT AND RESERVING unto the Landlord and its successors in title and its respective Tenants Agents Servants and Licensees and all other persons who shall now have or may hereafter be granted by the Landlord a similar right or rights or be otherwise therein authorised or entitled the easements rights and privileges specified in Part I of the Third Schedule hereto TO HOLD the same unto the Tenant subject to (i) the easements quasi-easements covenants rights terms and conditions hereinafter contained or to which the demised premises are or may be subject including (but without prejudice to the generality of the foregoing) the reservations set out in the Schedule to a Conveyance dated sixth day of October One Thousand Nine Hundred and Seventy Eight and made between the National Coal Board of the one part and the Landlord of the other part (hereinafter called "the Coal Board Conveyance") and (ii) the easements rights and privileges excepted and reserved in the Second Schedule to the Headlease a copy of which easements rights and privileges is set out in Part II of the Third Schedule hereto and (iii) the easements rights and privileges granted by the Landlord in the Beldray Deed in so far as they affect the demised premises for the term of thirty five years from the twenty fifth day of March One Thousand Nine Hundred and Seventy Nine (hereinafter called "the said term") PAYING THEREFOR:
(a) (i) During the first five years following the date hereof the yearly rent of One Hundred and Forty Two Thousand One Hundred and Five Pounds
((L)142,105.00) (hereinafter called "the Basic Rent")
(ii) For the next five years and for each successive period of five years (or for so long as remains in the case of the last period) thereafter such rent as shall have been agreed between the Landlord and the Tenant or determined as hereinafter provided to be the current market rental value of the demised premises at that time pursuant to the provisions of Clause 5 of this Lease
(b) (i) During the first five years following the
date hereof the further or additional yearly
rent of Seven Thousand Three Hundred and
Sixty Eight Pounds ((L)7,368.00)
(hereinafter called "the Heating Rent")
(ii) For the next five years and for each successive period of five years (or for so long as remains in the case of the last period) thereafter such rent as shall have been determined pursuant to the provisions of Clause 5(8) of this Lease
(c) Throughout the said term by way of further or additional rent all such sums of money equal to the amount which the Landlord may expend in effecting or maintaining the insurance and keeping insured the demised premises for such sums as the Landlord shall from time to time consider sufficient to cover the cost of rebuilding the demised premises together with such additions and/or improvements as may at any time be made to the
to the demised premises against loss or damage by fire flood and other risks and special perils normally insured under a comprehensive policy (hereinafter called "the insured risks") including any sums by which the premium payable by the Landlord in respect of the demised premises may hereafter be increased by reason of any increase in the rate of such premium in consequence of any improvements executed upon the demised premises or in consequence of the user of the demised premises by the Tenant and also for insuring Landlord's fixtures and fittings therein against loss or damage by fire and also for insurance of Architects and Surveyors fees and three years rent of the demised premises such further and additional rent to be paid on demand.
(d) The Basic Rent and the Heating Rent in respect of each year of the said term is to be paid by equal quarterly payments in advance on the usual quarter days in every year the first of such payments or a proportionate part thereof calculated from the date hereof to the quarter day next ensuing to be made on the date hereof
2. THE Tenant hereby covenants with the Landlord as follows:
(1) To pay the said reserved rents on the days and in the manner aforesaid clear of all deductions if any of the said rents hereby reserved shall remain unpaid for more than fourteen days after the date upon which the same became due (whether formally demanded or not) the Tenant shall pay interest at the rate of two per centum per annum above the base rate of Barclays Bank Limited in force from time to time for the period from the date upon which the instalment of the rent becomes payable until the date
of actual payment of the same to the Landlord
(2) To pay all existing and future rates taxes assessments and outgoings whatsoever whether parliamentary local or otherwise now or hereafter imposed or charged upon the demised premises or any part thereof or on the Landlord or Tenant in respect thereof respectively PROVIDED ALWAYS that nothing herein contained shall impose upon the Tenant any obligation to pay or discharge any tax in respect of or arising out of or relating to the grant of this Lease or any tax payable by the Landlord in respect of rents and other payments arising under this Lease or any tax payable as a result of any dealing with any reversion immediately or mediately expectant on the term hereby created or any other tax which in the first place is assessed charged or imposed upon the Landlord and is not made the Tenant's responsibility under the terms of this Lease or is referable to the Landlord's interest in the demised premises
(3) Not to sell or dispose of any earth clay gravel or sand from the demised premises or permit the same to be removed.
(4) To keep the demised premises including the windows gutterings sewers drains walls fences gates and roads thereof and all additions thereto in good and substantial repair order and condition (damage by any of the insured risks expected) and so deliver up the same (but not the tenant or trade fixtures) at the end or sooner determination the said term
hereby created
(5) To paint with two coats at least of good quality paint in a proper and workmanlike manner in every third year and in the last year of the said term (whether determined by effluxion of time or otherwise howsoever) all the gates fences and outside wood stucco and ironwork and other outside parts of the demised premises heretofore usually painted and any additions thereto proper to be so painted and so often as may be necessary but not less often than every third year and in the last year of the said term as aforesaid in a workmanlike manner to creosote distemper colour whitewash or otherwise treat all other outside parts of the demised premises as have usually heretofore been so treated all such work as aforesaid to be done to the reasonable approval of the Landlord
(6) To paint with two coats at least of good quality paint in a workmanlike manner in every fifth year and in the last year of the said term (whether determined by effluxion of time or otherwise howsoever) all inside wood and ironwork and other inside parts of the demised premises heretofore usually painted and any additions thereto proper to be so painted and so often as may be necessary but not less often than every fifth year and in the last year of the said term as aforesaid in a workmanlike manner to distemper colour whitewash or otherwise treat such other inside parts of the demised premises as have usually heretofore been so treated (and on the occasion of each repainting to grain varnish restore and make good all ornamental work) all such work as aforesaid to be done to the reasonable approval of the Landlord
(7) To pay a reasonable proportion of the expense of repairing rebuilding cleansing and maintaining all party walls fences sewers drains pipes watercourses and other things the use of which is common to the demised premises and the occupiers of any adjoining or neighbouring premises and such proportion in the case of dispute shall be conclusively determined by the Landlord's Surveyor for the time being
(8) To permit the Landlord and its duly authorised surveyors or agents with or without workmen and others upon giving one weeks previous notice in writing twice or oftener in every year during the said term at reasonable times to enter upon the demised premises and the buildings thereon and every part thereof to examine the state and condition of the same and thereupon the Landlord may serve upon the Tenant notice in writing specifying any repairs necessary to be done and require the Tenant forthwith to execute the same and if the Tenant shall not within twenty eight days after the service of such notice proceed diligently with the execution of such repairs then to permit the Landlord to enter upon the demised premises and execute such repairs and the cost thereof shall be a debt due from the Tenant to be paid to the Landlord and be forthwith recoverable by action
(9) Not to build or permit or suffer to be built or erected any building on the demised premises or to make any additions or alterations to any
buildings on the demised premises except in accordance with plans elevations sections and specifications previously approved by the Landlord such consent not to be unreasonably withheld and to obtain any necessary planning consents and permissions and other requisite permissions from the local or other authorities before commencing such alterations
(10) Upon the receipt of any notice order direction or other thing from any competent authority affecting or likely to affect the demised premises whether the same shall be served directly on the Tenant or the original or a copy thereof be received from any underlessee or other person whatsoever the Tenant will so far as such notice order direction or other thing or the act regulations or other instrument under or by virtue of which it is issued or the provisions hereof require it so to do comply therewith at its own expense and will forthwith deliver to the Superior Landlord and the Landlord a copy of such notice order direction or other thing
(11) To use the demised premises [for the purpose of an industrial building to be used for production and despatch and including a warehouse within classes IV and X of the Town and Country Planning Use Classes Order 1972 and ancillary social club and not to use the demised premises or suffer or permit the same to be used for any other purpose whatsoever except with the previous consent of the Superior Landlord and the Landlord which consent of the Landlord shall not be unreasonably withheld so however that the Landlord's consent shall not be treated or construed as being unreasonably withheld if it is withheld on the grounds or any of the grounds following that is to say:
(i) That the trade or business to be carried on
is not quiet and inoffensive
(ii) That the trade or business to be carried on
is to be one which would be in conflict with
the principles of good estate management
(iii) That the giving of their consent would
result in a change of user constituting
development within the provisions of any
Town and Country Planning Act order plan
regulation permission consent or direction
at the time being in force or any change or
use which although not constituting
development would prevent reversion to the
present use of the demised premises]
(12) [(a) Not to assign underlet charge or otherwise part with
possession of any part of the demised premises (here
meaning a portion only of the whole thereof) or to
share occupation of the whole or any part thereof for
all or any part of the said term
(b) Not to assign underlet or part with or share
possession of the demised premises as a whole without
the previous consent in writing of the Landlord such
consent subject as hereinafter provided not to be
unreasonably withheld to an assignment or
underletting of the whole of the demised premises to
a respectable and responsible person firm or company
(who is able to meet and perform the obligations and
covenants herein contained) and provided further that
the Landlord shall be entitled to require as a
condition for the granting of any
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consent to an assignment or underletting out of this Lease
(a) direct covenants on the part of any assignee to observe the terms of this Lease and to pay the rent hereby reserved and
(b) in the case of an assignment to a limited company the personal guarantees of the Directors of such company or the guarantee of the ultimate or superior holding company of the proposed assignee if any or the guarantee of a third party of standing acceptable to assignee as to payment of rent and to performance and observance of the covenants and conditions herein contained and
(c) in the case of an assignment to an individual or company not normally resident in the United Kingdom an acceptable guarantee by a United Kingdom resident
(d) notwithstanding anything herein contained the Tenant shall not create or permit to be created any interest derived out of the term hereby granted howsoever remote or inferior at a rent less than the full market rent of the demised premises and shall not create or permit the creation of any such derivative interest as aforesaid save by instrument in writing containing such absolute prohibition as aforesaid on the part of the underlessee and those that may derive title under such underlessee
(e) PROVIDED THAT nothing contained in this Clause shall prevent the Tenant from underletting or sharing possession or occupation of part only of the demised premises with a subsidiary of the Tenant or another subsidiary of the Surety subject to the prior
written consent of the Landlord as set out in sub-clause (b) hereof
(13) Within one month of every assignment assent transfer or underlease (otherwise than by way of mortgage) of or relating to the demised premises or any part thereof to give notice thereof in writing with particulars thereof to the Solicitors for the time being of the Landlord and produce such assignment assent transfer or underlease or in the case of a devolution of the interest of the Tenant not perfected by an assent within twelve months of the happening thereof to produce to the said solicitors the Probate of the Will or the Letters of Administration under which such devolution arises and to pay to them a proper registration fee of not less than L3.00 plus value added tax at the appropriate rate for the time being in force in respect of each such assignment transfer underlease or devolution
(14) Not to do or permit or suffer to be done upon demised premises or any part thereof anything (a) which may be or become a nuisance annoyance or cause damage or inconvenience to the Superior Landlord or the Landlord or the lessees or tenants of the Landlord or the occupiers of any adjoining or neighbouring premises or (b) whereby any insurance for the time being effected on the demised premises must be rendered void or voidable or (c) whereby the rate of premium thereon may be increased unless the Tenant has provided full details in writing of the changed circumstances giving note to such increase and the Landlord has consented in writing thereto
(15) Not to exhibit on the outer wall or roofs of the
demised premises or of any building or structure thereon any sign signboard or hanging sign fascia advertisement placard or lettering except such as may previously have been approved in writing by the Landlord and in default the Landlord may enter and remove the same at the Tenant's cost PROVIDED however that the Tenant shall within three months of the date hereof erect a sign in such position and of such form colour or design as may be first approved by the Landlord displaying the name and business of the Tenant such approval not to be unreasonably withheld
(16) To ensure that every furnace employed in the working of engines by steam or other motive power and every other furnace employed in any building or erection on the demised premises is constructed so as substantially to consume or burn the smoke arising therefrom and not to use or suffer to be used negligently any such furnace so that the smoke arising therefrom is not substantially consumed or burnt and not to cause or permit any grit or noxious or offensive effluvia to be emitted from any engine furnace chimney or other apparatus on the demised premises without using the best practicable means for preventing or counteracting such emission and in all aspects to comply with the provisions of the Clean Air Act 1956 (as amended) and with the requirements of any notice of the local authority served thereunder
(17) To take such measures as may be necessary to ensure that any effluent discharged into the drains or sewers which belong to or are used for the demised premises in common with other premises will not be corrosive or in any way harmful to the said drains or sewers or cause any obstruction or deposit therein
(18) Not to discharge or allow to be discharged any solid matter from the demised premises into the drains or sewers as aforesaid not to discharge or allow to be discharged therein any fluid of a poisonous or noxious nature of a kind calculated to or that does in fact destroy sicken or injure the fish or contaminate or pollute the water of any stream or river and not to do or omit or allow to be done or omitted any act or thing whereby the waters of any stream or river may be polluted or the composition thereof so changed as to render the Landlord liable to any action or proceedings by any person whomsoever
(19) Not without the consent in writing of the Landlord to suspend any weight from the roof or roof trusses or use the roof or roof trusses of any building forming part of the demised premises for storage of goods or to place or permit or suffer to be placed any weight thereon or to permit any person or persons to enter thereon save with a view to the execution of necessary repairs and then only in such manner as to subject the roof and roof trusses to the least possible strain
(20) Not at any time during the said term to do or allow to be done or to bring or allow to be brought to the demised premises or any part thereof any act matter or thing whereby the policy or policies of insurance may be vitiated or (without advising the Landlord) lessened in value and in particular not to burn any refuse or rubbish on the demised premises except in an incinerator especially constructed for that purpose and to notify the Landlord in the event
of the Tenant intending to store inflammable material and if the insurers reasonably refuse to accept the risk incurred thereby to remove such material
(21) To pay all expenses (including Solicitors costs and surveyor's costs) incurred by the Landlord incidental to the preparation and service of a notice under Section 146 and 147 of the Law of Property Act 1925 notwithstanding forfeiture is avoided otherwise than by relief granted by the Court
(22) To permit the Superior Landlord and the Landlord and all persons authorised by them and their respective surveyors agents and workmen after reasonable prior notice in writing to the Tenant except in an emergency at all reasonable times and convenient times in the daytime to enter on the demised premises or any part thereof for the purpose of repairing or building on any adjoining premises as occasion shall require or for the purpose of making repairing maintaining cleansing lighting and keeping in order and good condition all ways roads sewers drains pipes gutters water-courses ditches culverts fences hedges or other conveniences which shall belong to or be used for the demised premises in common with other premises and also for the purpose of laying down maintaining repairing and testing drainage gas and water pipes and electric wires or cables or for other similar purposes the Landlord or such persons as aforesaid making good any damage occasioned by such entry and causing as little inconvenience as possible
(23) Not to use or suffer to be used the demised premises or any part thereof for the manufacture sale or supply of beer wine or spirits with the exception of that part of the demised premises occupied by the Beldray Social Club
(24) Not to hold or permit or suffer to be held any sale by auction on the demised premises
(25) Not without the consent in writing of the Landlord first obtained such consent not to be unreasonably withheld to erect or permit or suffer to be erected any external wireless or television mast or aerial or any mechanical or scientific apparatus of any description on or about any part of the exterior of the demised premises
(26) Not to permit any vehicles belonging to the Tenant its agents or servants to obstruct any estate road or vehicle way in the neighbourhood of the demised premises and to use its best endeavours to ensure the Licencees or Invitees of the Tenant shall not permit any vehicle to cause any such obstruction as aforesaid
(27) Not to permit any new window light opening doorway path passage drain or other physical encroachment right or easement to be made or acquired into against or upon the demised premises
(28) To permit the Landlord or its Agent at any time during the last six months prior to the expiration or sooner determination of the said term to enter upon the demised premises upon not less than forty eight hours written notice for the purpose of erecting a notice board in such a position as not to interfere with the Tenant's use of or enjoyment of the demised premises stating that the same are to let or for sale and not to remove or interfere with or obscure the same and during such period to permit all persons by order in writing of the Landlord or its Agent to view the demised premises
and all parts thereof at all reasonable hours in the daytime on not less than forty eight hours written notice without interruption
(29) To keep such part of the land forming part of the demised premises as is from time to time undeveloped and the grass gardens and any trees shrubs and hedges in proper and neat order and condition and any ditches streams culverts and watercourses properly cleaned and cleared and the banks thereof in proper repair and condition and in particular not to deposit or permit to be deposited any rubbish or refuse nor without the consent in writing of the Landlord (and then only on such parts of the said land and subject to such conditions as the Landlord may stipulate or impose) to store stack or layout any materials used for the purpose of manufacture or otherwise on any part of the said land
(30) In all respects to comply with all the provisions of the Factories Town and Country Planning and Public Health Acts and of all regulations thereunder and with any other obligations imposed by law in regard to the demised premises and the carrying on of the trade or business for the time being carried on upon the demised premises
(31) To [comply in all respects with any covenants imposed on the Landlord on the purchase by the Landlord of any disused mine shafts situated on the demised premises from the National Coal Board including (but without prejudice to the generality of the foregoing) the covenants contained in the Coal Board Conveyance and to keep the Landlord indemnified against all costs expenses claims demands or proceedings arising therefrom]
(32) To [keep the Landlord indemnified against all actions
claims demands liabilities and responsibilities whatsoever arising under the Gas Main Deed]
(33) The Tenant shall [at the expiration or sooner determination of the said term granted by this Lease on being requested so to do by written notice given by the Landlord remove or procure the removal of all the matters specified in the Fourth Schedule hereto or so much thereof as may be specified in such notice either in accordance with the covenants in this Lease or to the extent specified in such notice and make good to the satisfaction of the Landlord's Surveyor all damage caused to the demised premises by such removal]
(34) At the determination of the said term to yield up to the Landlord the demised premises together with the said warehouse unit and other buildings and erections and all fittings and Landlords fixtures therein (but not the tenant or trade fixtures and fittings) in good and substantial repair in accordance with the Tenant's covenant herein contained
3. THE Landlord hereby covenants with the Tenant in manner following that is to say:
(1) To insure and keep insured with some reputable insurance office selected by the Landlord in the joint names of the Landlord and the Tenant against destruction or damage by the insured risks for such sum as the Landlord shall from time to time consider sufficient to cover the cost of rebuilding the demised premises including three years loss of rent and all customary and proper architects and surveyors fees and whenever reasonably required to produce to the Tenant the policy or policies of such insurance and the receipts for the current premium and in case of any such destruction or damage as aforesaid happening to the demised premises (unless payment of the policy monies shall be withheld in whole or in part by reason of any act neglect or default of the Tenant) to reinstate restore place or rebuild the demised premises or the parts thereof so destroyed or damaged with all convenient speed
(2) In the event of the demised premises or any part thereof at any time during the tenancy being damaged or destroyed by any of the insured risks so as to be unfit for habitation and use then the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended and cease to be payable until the demised premises shall again be rendered fit for occupation and use or for three years whichever shall be the shorter and in case of any difference between the parties under this present proviso the same shall be referred to a single arbitrator umpire appointed by the parties or in default of agreement by the President for the time being of the Royal Institution of Chartered Surveyors under the provisions of the Arbitration Act 1950
(3) That the Landlord and its successors in title will [make up the roadway referred to in the Beldray Deed to the requirements of the Highway Authority and will indemnify the Tenant and its successors in title from and against all costs charges and claims in connection with such making up maintenance and adoption]
(4) That the Tenant paying the rents hereby reserved and performing and observing the several covenants and agreements herein contained and on the Tenant's part to be observed and performed shall and may peaceably and quietly hold and enjoy the demised premises during the said term without any interruption or disturbance from or by the Landlord or any person or persons rightfully claiming under or in trust for the Landlord
4. IT is hereby agreed between the Landlord and the Tenant as follows:
(1) That if the rents hereby reserved or any part thereof respectively shall be unpaid for twenty one days after becoming payable (whether formally demanded or not) or if any of the covenants on the Tenant's part herein contained shall not be performed or observed or if the Tenant shall be wound up whether voluntarily (save for the purpose of reconstruction or amalgamation) or compulsorily or if the Tenant for the time being not being a corporation shall have a receiving order in bankruptcy made against any or all of them or if the Tenant shall enter into any arrangement or composition for the benefit of the Tenant's creditors or shall suffer any distress or execution to be levied
upon its goods which shall remain unsatisfied for seven days then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter upon the demised premises or any part thereof in the name of the whole and thereupon this demise shall absolutely determine but without prejudice to any right of action of the Landlord in respect of any antecedent breach of the Tenant's covenants and conditions herein contained
(2) All notices consents or approvals to be given hereunder shall be in writing and shall be sufficiently given to any party if sent by registered post or the recorded delivery service addressed to that party at that party's last known address or place of business or that party's registered office in the case of a document to be served on or given to the Landlord (or where the Tenant for the time being is a Corporation) if so sent to the place of business or registered office of the Landlord's or the Tenant's respective agents duly authorised to receive the same
(3) Where two or more persons shall have been herein named as and are parties hereto under the expression "the Tenant" or "the Surety" covenants hereinbefore entered into by the Tenant or the Surety shall be deemed to have been entered into with the Landlord by both or all of the persons so named as aforesaid and their liability under such covenants shall be that of joint and several covenantors
(4) No estate or interest in the soil of any road or roads or footpath adjacent to the demised premises is or shall be deemed to be included in the demise herebefore contained
(5) [All electrical installations and other fixtures and fittings installed in the demised premises by the Tenant (except only such tenant's and trade fittings and fixtures
as may not be affixed to the structure of the premises) shall become and remain the property of the Landlord notwithstanding that such installations may be made in whole or part subsequent to the grant of this Lease]
5. (1) THE Basic Rent hereby reserved shall be reviewed on the nearest quarter day to the end of the fifth tenth fifteenth twentieth twenty fifth and thirtieth years calculated from the date hereof (each such occasion being referred to as "the review date") and shall be adjusted in an upward direction only in accordance with the following provisions only
(2) The Basic rent payable from each review date shall be the best rent at which the demised premises might reasonably be expected to be let on the open market at such review date with vacant possession subject to similar covenants and conditions (other than the amount of rent) to those contained in this Lease including the restrictions on user contained in this Lease and for the period of this Lease unexpired (hereinafter called "the current market rent") but excluding
(i) any effect on rent of the fact that the Tenant or a predecessor in title has been in possession of the demised premises
(ii) any goodwill attached to the demised premises by reason of the carrying on thereat of the business of the Tenant (whether by it or by its predecessors
in that business)
(iii) any effect on rent of any improvement carried out by the Tenant otherwise than in pursuance of an obligation imposed by this Lease
(iv) any effect on rent of the works and improvements specified in the Fourth Schedule hereto carried out prior to the date hereof at the Tenant's expense
(3) If the current market rent of the demised premises at the review date shall exceed the Basic Rent then being paid then the rent payable for the next succeeding period of five years of the said term shall be the current market rent
(4) When the current market rent shall have been ascertained as aforesaid such rent shall as from the review date be the Basic Rent reserved hereunder and all arrears of such rent shall become due and payable to the Landlord on the rent day immediately succeeding the date of such ascertainment with (by way of additional rent) interest at the rate of two per-cent per annum above the base rate of Barclays Bank Limited in force at the date of review date (hereinafter called "the specified rate") calculated from the review date on the amount of Basic Rent underpaid
(5) Until the current market rent shall have been ascertained the Tenant shall continue to pay the Basic Rent at the rate payable during the immediately preceding period of five years and such payment shall be treated as paid on account of the current market rent when ascertained
(6) Provided that in no circumstances shall the Basic Rent payable during any successive period of five years of the said rent after the first of such periods be less than the
Basic Rent payable during the immediately preceding period of five years
(7) Either party may serve on the other a notice in writing requiring a rent review (which notice shall not be served earlier than a date being six months before the review date) and upon receipt of such notice the other party shall forthwith enter into negotiations to fix the current market rent for the next rent period and if the parties fail to agree the current market rent by the review date then the matter may be referred to a single arbitrator who (failing agreement between the parties hereto) shall be nominated on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors whose decision shall be final
(8) (i) The Heating Rent shall be reviewed on each review
date and shall be adjusted in an upward direction
only in accordance with the following provisions
(ii) The Heating Rent reserved hereunder and payable from
each review date shall be either the rent payable for
the immediately preceding period of five years or
such rent increased by the same percentage by which
the Basic Rent is increased for the same period
whichever shall be greater
(iii) All arrears of such rent shall become due and payable
to the Landlord on the rent day immediately
succeeding the
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date of ascertainment of the Basic Rent with (by way of additional rent) interest at the specified rate calculated from the review date on the amount of Heating Rent underpaid
(iv) Until the date of ascertainment of the Basic Rent the Tenant shall continue to pay the Heating Rent at the rate payable during the immediately preceding period of five years and such payment shall be treated as paid on account of the Heating Rent when ascertained
(9) In respect of Clause 5 of this Lease time shall not be deemed to be of the essence
6. (1) THE Surety HEREBY COVENANTS with the Landlord that the Tenant will at all times pay the rent hereby reserved on the days and in the manner aforesaid and will observe and perform the covenants and conditions contained in these presents and on the part of the Tenant to be observed and performed and that if the Tenant shall make any default in the payment of the said rent in the manner aforesaid or in observing and performing the said covenants and conditions or any of them then and in any such case the Surety will pay and make good to the Landlord on demand all losses damages costs and expenses sustained by the Landlord through the default of the Tenant in respect of any of the before mentioned matters PROVIDED ALWAYS that notwithstanding the forbearance by the Landlord to enforce against the Tenant the payment of the said rent or the observance or performance of the Tenant's covenants and conditions or the giving of time by the Landlord to the Tenant in relation thereto the Surety shall not thereby be discharged from liability under the foregoing covenant nor shall such liability be in any way lessened or affected thereby
(2) The Surety hereby further covenants with the Landlord that if the Tenant shall go into liquidation and the liquidator shall disclaim
these presents or the Tenant shall be wound up or cease to exist (or if the Tenant for the time being shall be an individual and shall become bankrupt and the Trustee in Bankruptcy shall disclaim this Lease) and if the Landlord shall within three months after such disclaimer or other event putting an end to the effect of the presents as aforesaid so far as concerns the Tenant by notice in writing require the Surety to accept a Lease of the demised premises for a term commensurate with the residue which if there had been no disclaimer or if these presents had continued to have effect as aforesaid would have remained of the term granted by these presents at the same rent and subject to the like covenants and conditions as are reserved by and contained in these presents (with the exception of this sub-clause and the immediately preceding sub-clause) the said new Lease and the rights and liabilities thereunder to take effect as from the date of the said disclaimer or of these presents ceasing to have effect as aforesaid and in such case the Surety shall pay the costs of and accept such new Lease accordingly and will execute and deliver to the Landlord a Counterpart thereof
(3) For the avoidance of doubt the liability of the Surety hereunder shall continue during the whole of the said term
7. THE fees of the Landlord's solicitors for the preparation and completion of this Lease and a Counterpart thereof and the stamp duty on such Counterpart shall be paid by the Tenant
IN WITNESS whereof the Landlord and the Tenant have caused their respective Common Seals to be hereunto affixed the day and year first before written
THE FIRST SCHEDULE before referred to
The Demised Premises
ALL THAT piece of land situate at Mount Pleasant Bilston West Midlands which piece of land is for the purpose of identification only delineated on the plan No. 1 attached hereto and thereon edged red Together With the Factory Premises and other buildings erected thereon and the Landlord's fixtures fittings and equipment therein or thereon Provided That any part of a wall of the premises which also forms part of a building erected or in course of erection on any adjoining land shall be a party wall and shall be maintained and repaired accordingly
THE SECOND SCHEDULE before referred to
PART I
Tenant's easements rights and privileges
1. The right (in common with the Landlord and all other persons now or hereafter entitled to the like right) so far as may be necessary of ingress to and egress from the demised premises over a road or way suitable for heavy vehicles through Barton Industrial Park which is for the purpose of identification only edged green on Plan No. 2 attached hereto (hereinafter called "Barton Industrial Park") to connect with the land coloured brown on Plan No. 2 attached hereto such right of way to be the principal access to the demised premises pending completion of the roadway referred to in the Beldray Deed whereupon such right shall only be exercised when access over such roadway shall for any reason be curtailed
2. The full and free right and liberty to cross Barton Industrial Park (on foot only) in the event of a fire or other emergency (actual or believed) occurring on the demised premises
3. Full and free right and liberty for the Tenant (jointly and in common with the Landlord and any owners or occupiers for the time being of Barton Industrial Park and their respective successors
[Diagram of Plan No. 1]
[Diagram of Plan No. 2]
in title) to use the drains sewers and other services now or to be laid under and in the demised premises and Barton Industrial Park the Tenant paying a proportionate part towards the costs of maintaining and repairing the said drains sewers and other services
4. Full and free right and liberty for the purposes aforesaid and for repairing maintaining and cleansing the said drains sewers and other services to enter and break up such parts of the surface of Barton Industrial Park making good nevertheless all damage done and restoring the surface as soon as practicable
5. The right of lateral and subjacent support and protection for the demised premises by and from the adjoining parts of Barton Industrial Park and any building erected or in course of erection thereon
6. Such rights of access to and entry upon such parts of Barton Industrial Park as are necessary for the repair and maintenance of the demised premises and for the proper performance and observance of the restrictions stipulations and conditions herein contained or for the exercise of the Tenant's rights hereunder the Tenant giving to the occupiers of such adjoining parts at least forty eight hours notice before exercising such rights (except in case of emergency) and making good all damage occasioned by such exercise
Part II
A copy of the easements rights and privileges contained in the First Schedule to the Headlease
1. The right (in common with the Lessee and all other persons entitled to a like right) to pass and repass over and
across the strip of land between the demised land and Peascroft Lane aforesaid until such time as such strip of land shall form part of the highway
2. Full and free right and liberty for the Lessee (jointly and in common with the Council and their successors in title) to use the drains sewers and other services now or to be laid under and in any adjoining or neighbouring property of the Council
3. Full and free right and liberty for the purposes aforesaid and for repairing maintaining and cleansing the said drains sewers and other services to enter and break up the surface of such adjoining or neighbouring property of the Council making good nevertheless all damage done and restoring the surface as soon as practicable
Note: "the Lessee" is the Tenant; "the Council" is the Superior Landlord and "the demised land"; forms part of the demised premises
THE THIRD SCHEDULE before referred to
PART I
Landlord's Exceptions and Reservations
1. The free and uninterrupted passage and running of water soil effluent drainage steam gas electricity and telephone or other service or supply to and from Barton Industrial Park into through and along all sewers drains watercourses conduits pipes wires and cables which now are or may hereafter during the term hereby granted be in or over under or upon the demised premises or any part thereof
2. The full right and liberty (which shall extend to the Superior Landlord in respect of any adjacent or neighbouring lands and buildings of the Superior Landlord) without obtaining any consent from or making any compensation to the Tenant at any time hereafter as need or occasion shall arise to execute any works or erections or carry out any repairs or alter or rebuild any adjacent or neighbouring lands and buildings on Barton Industrial Park and to use the same in
any manner and for any purpose as the Superior Landlord or the Landlord or other the owner thereof for the time being may think fit and the Tenant shall not be or become entitled to any rights of access of light or air to the demised premises and any other easement right or privilege whatsoever which would restrict or interfere with the use of the said adjacent or neighbouring land and buildings (whether or not of the Landlord) in any manner and for any purpose as aforesaid
3. The right to lay construct and maintain gas water steam and other pipes drains electric telegraphic telephone and other wires and cables and appliances (with necessary inspection chambers) through under or upon the demised premises or any part thereof and the right for the Landlord and the owner or owners for the time being of Barton Industrial Park and their respective Agents Surveyors and workmen from time to time and at all reasonable times and with materials and tools to enter upon the demised premises to carry out the works aforesaid and also for the purpose of having access to valves cleaning repairing replacing and renewing the said pipes drains telegraphic telephone and other wires cables and appliances and also for the purpose of executing repairs or alterations to the adjacent or neighbouring lands and buildings on Barton Industrial Park the persons or person exercising such right causing as little inconvenience as possible to the Tenant and making good to the reasonable satisfaction of the Tenant all damage done by reason of the carrying out of any such works
4. The right of lateral and subjacent support and protection for Barton Industrial Park and any buildings now or hereafter to be erected thereon by and from the adjoining parts of the demised premises together with all other easements and rights now belonging to or enjoyed by all adjacent or
neighbouring land or buildings and interest wherein whether in possession or reversion is at any time during the term hereby granted vested in the Landlord and in particular but without prejudice to the generality of the foregoing the right to erect buildings on Barton Industrial Park that connect to and the structure of which is affixed to and supported by the demised premises
PART II
A copy of the exceptions and reservations contained in the Second Schedule to the Headlease
1. The free right of passage and of running of water soil gas and electricity from the adjoining and neighbouring land of the Council and the buildings now or hereafter to be erected thereon through the sewers drains pipes channels and wires in upon or under the demised land
2. The free right to enter upon the demised land for the purpose of making connections with such sewers drains pipes channels and wires or any of them for the purpose of exercising the said right of passage and of running of water soil gas and electricity
3. The free right to enter upon the demised land for the purpose of repairing renewing inspecting maintaining and laying such sewers drains channels and wires in upon or under the demised land
4. The free right to execute works and erections upon or to alter or rebuild any of the buildings erected on such adjoining and neighbouring land aforesaid in such manner as they may think fit notwithstanding that the access of light and air to the demised land and the building may thereby be interfered with PROVIDED ALWAYS that the Council's rights set out above in paragraphs 2 and 3 of this Schedule shall be exercisable (except in an emergency) on four weeks written notice to the Lessee the Council occasioning as little damage as possible which shall be made good as quickly as may be reasonably practicable
Note: "the Council" is the Superior Landlord and "the Lessee" is the Tenant "the demised land" forms part of the demised premises and "the Building" is that covenanted to be erected on the demised land by the Lessee
THE FOURTH SCHEDULE before referred to
1. The items comprised in the fitting-out Contract dated the twelfth day of December One Thousand Nine Hundred and Seventy Eight and made between Beldray Limited of the one part and William Whittingham Limited of the other part (a copy of which has for identification purposes been initialled on behalf of the parties hereto)
2. The following items have been incorporated into the said Contract at additional cost to Beldray Limited
(i) All electrical wiring and/or lighting to the Warehouse Area from the mains distribution board
(ii) Electrical lighting column to car-park area
(iii) Fire Alarm System to canteen and amenity block
(iv) Kitchen/Canteen servery wall and security screen
(v) Alterations to lighting in seconds store
(vi) Increase in wall tiling to kitchen area
(vii) Painting to service pipework in warehouse area
(viii) Supply and installation of fire extinguishers
(ix) Sundry extras to heating to canteen and amenity block comprising two additional radiators larger convector heater and increased bore in respect of main feed pipes
(x) Ventilation to paint shop
(xi) External and internal signs
(xii) Extension gas supply to kitchen fittings
(xiii) Additional stores in kitchen area
(xiv) Provision of double doors to medical room
(xv) Provision of security gate
(xvi) Transferring equipment in paint shop to the final location and re-shut and cut holes
THE COMMON SEAL of )
)
BARTON INDUSTRIAL PARK )
)
LIMITED was hereunto affixed )
)
in the presence of: )
[SEAL] /s/ Director
-------------------------
|
/s/ Authorised Signatory ------------------------- |
EXHIBIT 10.5
SUNLINK HEALTH SYSTEMS, INC.
2001 LONG TERM STOCK OPTION PLAN
Section 1. Purpose.
The purposes of the 2001 Long Term Stock Option Plan (the "Plan") are
(a) to provide incentives to officers and other key employees of the Corporation
upon whose judgment, initiative and efforts the long-term growth and success of
the Corporation is largely dependent; (b) to assist the Corporation in
attracting and retaining key employees of proven ability; and (c) to increase
the identity of interests of such key employees with those of the Corporation's
shareholders by providing such employees options to acquire Common Shares,
without par value, of the Corporation and thereby participate in the growth and
development of the Corporation.
Section 2. Definitions.
(a) "Board" means the Board of Directors of the Corporation.
(b) "Cause" means
(i) any act that (A) constitutes, on the part of the optionee, fraud, dishonesty, malfeasance of duty, or conduct inappropriate to the optionee's office, and (B) results in or is demonstrably likely to lead to, a material injury to the Corporation or any Subsidiary or affiliate thereof or results in or was intended to result in direct or indirect gain to or personal enrichment of the optionee; or
(ii) the conviction of the optionee of a felony; or
(iii) optionee's failure to perform his job duties to the satisfaction of the Board, as determined by a two-thirds majority vote.
(c) "Change-in-Control" means any change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A or Item 1 of Form 8-K promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided that, without limitation, such a Change-in-Control shall be deemed to have occurred if (i) any "person" or "group" (as such terms are defined in Sections 13(d) and 14(d)(2) of the Exchange Act), other than any entity then controlled by the Corporation, is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 40% or more of the combined voting power of the Corporation's then outstanding securities; (ii) the Corporation merges into or consolidates with another corporation (other than a subsidiary or an
affiliate of the Corporation); or (iii) a sale, lease, exchange, or other disposition of all or substantially all of the assets of the Corporation (other than to a subsidiary or an affiliate of the Corporation) shall occur. In determining the amount of shares owned by such an entity, shares owned, directly or indirectly, by the holders of options granted under this Plan or the 1995 Incentive Stock Option Plan shall be excluded.
(d) "Competitor" means any company or person in the same or a similar business to the Corporation or any Subsidiary that competes with the Corporation or any Subsidiary as determined by the Board in its sole discretion.
(e) "Corporation" means SunLink Health Systems, Inc.; when used in the Plan with reference to employment, "Corporation" shall include SunLink and any Subsidiary of the Corporation.
(f) "Fair Market Value" means (1) if the Shares are listed on the American Stock Exchange, the last sale price of a Share on the American Stock Exchange on the Pricing Date or, if there are no sales on such Pricing Date, the mean of the bid and asked prices for Shares on the American Stock Exchange at the close of business on such date; or (2) if the Shares are not listed on the American Stock Exchange, the value determined by such reasonable method as shall be approved by the Board.
(g) "Incentive Stock Option" means an option granted under the Plan which qualifies as an incentive stock option under Section 422(b) of the Internal Revenue Code of 1986, as amended.
(h) "Nonqualified Stock Option" means an option that is not intended to be an Incentive Stock Option as that term is described in Section 422(b) of the Internal Revenue Code of 1986, as amended.
(i) "Pricing Date" means the date on which an option is granted, except that the Board may provide that: (i) the Pricing Date is the date on which the optionee is hired or promoted (or similar event), if the grant of the option occurs not more than ninety (90) days after the date of such hiring, promotion or other event; and (ii) if an option is granted in tandem with, or substitution for, an outstanding stock option, the Pricing Date is the date of grant of such outstanding stock option.
(j) "Related Company" means any Subsidiary and any business venture in which the Corporation has a significant interest, as determined in the sole discretion of the Board.
(k) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act.
(l) "Share" or "Shares" means the Common Shares, without par value, of the Corporation.
(m) "Subsidiary" means any company more than 50% of the voting stock of which is owned or controlled, directly or indirectly, by the Corporation.
Section 3. Administration.
(a) Adoption. The Plan was approved by the Board effective February 28, 2001 and will become effective upon its approval by the holders of a majority of the Shares constituting a quorum and present, in person or by proxy, at a Meeting of Shareholders. The Plan will terminate on February 28, 2006, and no options may be granted under the Plan after termination.
(b) Amendment. The Plan and options granted under the Plan may be amended, modified or terminated by the Board, provided that:
(1) No action with respect to an outstanding option may be taken that would adversely affect the rights of the holder of such option without such holder's consent; and
(2) No amendment to the Plan shall become effective without approval by the holders of a majority of the Shares present, in person or by proxy, at an annual or special shareholders meeting at which a quorum is present if such amendment would:
(i) increase the number of Shares with respect to which options may be granted under the Plan; or
(ii) extend the term of the Plan; or
(iii) materially increase the benefits accruing to or modify eligibility requirements for participants in the Plan.
(c) Option Grants. Subject to the provisions of the Plan, except as provided in Section 5, the Board or the Executive Compensation Committee (or other committee of the Board), if delegated such authority by the Board, shall, in their sole discretion, determine the persons to whom and the times at which options are granted, the number of Shares subject to each option, the option price per Share, the term of each option (which term shall not exceed ten years after the date of grant), the time or times when each option shall become exercisable in whole or in part and any other terms deemed appropriate.
(d) Interpretation. The Board will have the sole discretion and authority to interpret the Plan and to decide all questions arising under the Plan.
Section 4. Option Shares.
(a) Number. The maximum number of Shares that may be issued upon exercise of options granted under the Plan is [810,000] Shares. Such Shares may be authorized and unissued Shares or Treasury Shares.
(b) Adjustment. The Board will appropriately adjust the number of Shares subject to the Plan and the number and option price of Shares subject to outstanding options in the event of any change in outstanding Shares by reasons of a share dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar corporate change.
(c) Unexercised Options. Shares subject to unexercised options which terminate will thereupon become available for the grant of additional options.
Section 5. Eligible Employees.
Options may be granted by the Board to officers and other key employees of the Corporation or any Related Company.
Section 6. Options and Option Terms.
(a) Designation of Options. Options granted under the Plan may be either Incentive Stock Options or Nonqualified Stock Options, as determined in the sole discretion of the Board. The grant of an option entitles the optionee to purchase Shares at an exercise price determined by the Board at time of grant.
(b) Option Agreement. The terms of each option will be set forth in a written stock option agreement.
(c) Terms of All Options. The following terms and provisions shall apply to all options granted under the Plan:
(1) No Incentive Stock Option may be granted under the Plan at an option price which is less than the Fair Market Value of a Share as of the Pricing Date.
(2) The Board may accelerate the exercisability of any options granted hereunder in such cases as the Board deems appropriate, including, without limitation, in the event the optionee retires with the approval of the Board.
(3) No option may be exercised under the Plan unless the optionee has been continuously employed by the Corporation from the date of grant to the date of exercise except that an option may be exercised within one year after the termination of the optionee's employment, to the extent the option was exercisable on the date of termination, if the cause of termination was death. Upon termination of employment for any other reason, the option, to the extent that the option was exercisable on the date of termination, may be exercised by optionee within 90 days of the date of termination unless such termination was (i) for Cause or (ii) voluntary on the part of the optionee and the optionee shall have accepted a position, or terminated his employment in order to accept a position, with a Competitor, in each case as determined in the sole discretion of the Board.
(4) Upon the occurrence of a Change-in-Control all options then held by an optionee shall become immediately exercisable. All other provisions of such options will remain unchanged.
(5) No option may be exercised by an optionee if such exercise is in contemplation of voluntary termination of employment by the optionee in order to accept a position with a Competitor, in each case as determined in the sole discretion of the Board.
(d) Additional Provisions Relating to Incentive Stock Options. The following additional terms and provisions shall apply to Incentive Stock Options granted under the Plan:
(1) No Incentive Stock Option shall be granted to an employee who possesses at the time of grant more than 10% of the voting power of all classes of stock of the Corporation unless the option price is at least 110% of the Fair Market Value of the Shares subject to the option on the Pricing Date and the option is not exercisable after the expiration of five years from the date of grant.
(2) No Incentive Stock Option may be exercisable in an amount exceeding the limitation of Section 422(d) of the Internal Revenue Code of 1986, as amended.
(3) To the extent that the aggregate Fair Market Value of Shares with respect to which Incentive Stock Options are exercisable for the first time by the optionee during any calendar year (under all plans of the Corporation and all Related Companies) exceed $100,000, such options shall be treated as Nonqualified Stock Options, to the extent required by Section 422 of the Internal Revenue Code of 1986, as amended.
Section 7. Procedure for Exercise and Payment.
An option granted under the plan may be exercised by the optionee giving written notice of exercise to the Chief Executive Officer (or the designee of the Chief Executive Officer) of the Corporation. The option price for the Shares purchased shall be paid in full at the time such notice is given. An option shall be deemed exercised on the date the Corporation receives written notice of exercise, together with full payment for the Shares purchased. The option price may be paid to the Corporation either in cash, by delivery to the Corporation of Shares already-owned by the optionee or by any combination of cash and such Shares. The Board may, however, at any time and in its sole discretion, adopt guidelines limiting or restricting the use of already-owned Shares to pay all or any portion of the option price. In the event already-owned Shares are used to pay all or a portion of the option price, the amount credited to payment of the option price shall be the Fair Market Value of the already-owned Shares on the date the option is exercised. The Board may permit an optionee to elect to pay the option price by (i) authorizing the Corporation to purchase or a third party to sell Shares (or a sufficient portion of the Shares) acquired upon the exercise of the option and for the Corporation to withhold or the third party to remit to the Corporation a sufficient portion of the sale proceeds to pay the entire option price and the statutory minimum tax withholding resulting from such exercise or (ii) tendering to the Corporation shares of the Common Stock of the Corporation (duly endorsed in blank or accompanied by duly endorsed stock powers in form acceptable to the Corporation) owned and
held by such optionee (such shares to be valued at Fair Market Value as of date of payment) which were acquired by such optionee otherwise than by exercise of an incentive stock option granted by the Corporation under this Plan or any other stock option plan of the Corporation. In no case may an option be exercised for a fraction of a Share.
Section 8. Non-Transferability.
Options may not be sold, pledged, assigned, hypothecated, or transferred except by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in Rule 16b-3.
Section 9. Conditions Upon Granting of Options and Issuance of Certificates.
No option shall be granted and Shares shall not be issued upon the exercise of an option unless the grant of options, the exercise of such option, and the issuance and delivery of Shares pursuant thereto shall comply with all relevant provisions of Federal and state law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of the American Stock Exchange or NASDAQ National Market or any other stock exchange upon which the Shares may then be listed.
Section 10. Notices.
Each notice relating to this Plan shall be in writing and delivered in
person or sent by certified or registered mail to the proper address. Each
notice shall be deemed to have been given on the date it is received. Each
notice to the Corporation shall be addressed as follows:SunLink Health Systems,
Inc., 900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339, Attention:
Chief Executive Officer. Each notice to the optionee or other person or persons
then entitled to exercise an option shall be addressed to the optionee or such
other person or persons at the optionee's address set forth in the option.
Anyone to whom a notice may be given under this Plan may designate a new address
by written notice to the other party to that effect.
Section 11. Pronouns.
All pronouns used herein shall be deemed to refer to the masculine, feminine, singular or plural, as the identity of the person or persons may require.
Section 12. Effect of Termination of Plan.
The termination of the Plan shall not adversely affect the rights of an optionee with respect to any option granted prior to the termination of the Plan.
EXHIBIT 10.6
SUNLINK HEALTH SYSTEMS, INC.
2001 OUTSIDE DIRECTORS'
STOCK OWNERSHIP AND STOCK OPTION PLAN
1. Purpose. The SunLink Health Systems, Inc. (formerly KRUG International Corp.) 2001 Outside Directors' Stock Ownership and Stock Option Plan (the "Plan") is intended to provide an incentive to Outside Directors (as defined below) of SunLink Health Systems, Inc., an Ohio corporation (the "Company"), to remain in the service of the Company and to increase their efforts for the success of the Company, and to encourage such Outside Directors to own shares of the Company's stock, thereby aligning their interests more closely with the interests of the Company's stockholders.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means a committee consisting of members of the Board authorized to administer the Plan.
(c) "Common Stock" means the common stock, no par value, of the Company.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
(e) "Exchange Act" means the Securities and Exchange Act of 1934, as amended.
(f) "Fair Market Value" means (i) the closing price of the Common Stock on the American Stock Exchange or the National Association of Securities Dealer Automated Quotation National Market ("NASDAQ/National Market"), as the case may be, on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on such exchange or the NASDAQ/National Market, as the case may be, the average of the last reported closing bid and asked prices on such day as officially quoted on such exchange or the NASDAQ/National Market, as the case may be, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange or the NASDAQ/National Market, as the case may be, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the NASDAQ/National Market or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is exchanged in the business of reporting such prices, as furnished by any similar firm then engaged in such business, or (v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers ("NASD") selected mutually by the Outside Director and the Company, or if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by the Outside Director and one of which shall be selected by the Company.
(g) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.
(h) "Legal Representative" means an Outside Director's legal guardian, or a deceased Outside Director's executors, legal heirs, administrators, testamentary trustees and beneficiaries or distributees, whichever is applicable at any time.
(i) "Outside Directors" means members of the Board of the Company who are not members of the management of, nor are otherwise employed by, the Company or any subsidiary of the Company.
(j) "Options" means the options to purchase shares of Common Stock granted pursuant to this Plan.
(k) "Rule 16b-3" means Rule 16b-3 of the Exchange Act, as amended from time to time.
(l) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration of the Plan.
(a) COMMITTEE. This Plan shall be self-administering; provided, however, that to the extent the Plan is not self-administering, the Plan shall be administered, construed and interpreted by the Company's existing Compensation Committee, a sub-committee thereof or another committee authorized by the Board (the "Committee"); further provided that each Committee member shall recuse himself or herself from all matters relating to the administration, construction or interpretation of this Plan in connection with any awards to such person. The terms and conditions of each individual stock option award shall be evidenced by a stock option certificate, which shall be in accordance with the provisions of the Plan.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall adopt such rules as it may deem appropriate in order to carry out the purpose of the Plan. All questions of interpretation, administration and application of the Plan shall be determined by a majority of the members of the Committee then in office, except that the Committee may authorize any one or more of its members or any officer of the Company to execute and deliver documents on behalf of the Committee. The determination of such majority shall be final and binding on all matters related to the Plan. No member of the Committee shall be liable for any act done or omitted to be done by such member or by any other member of the Committee in connection with the Plan, except for such member's own willful misconduct or as expressly provided by law. Business shall be transacted by a vote of the members of the Committee, and any decision or determination reduced to writing and signed by the members shall be as fully effective as if it had been made by a vote at a meeting duly called and held.
4. Stock Reserved for the Plan. The aggregate number of shares of Common Stock authorized for issuance under the Plan is ninety thousand (90,000), subject to adjustment pursuant to Section 8 hereof. Shares of Common Stock delivered hereunder may be either authorized but unissued shares or previously issued shares reacquired and held by the Company.
In the event that any outstanding option (or portion thereof) under the Plan for any reason expires unexercised or terminates without vesting or exercise prior to the end of the period during which options may be granted, the shares of Common Stock allocable to the unexercised portion of such option again may be subjected to an option under the Plan.
5. Required Ownership of Common Stock. Subject to any trading restrictions imposed by applicable securities laws, as of the later to occur of (i) the date on which this Plan is approved by the stockholders of the Company or (ii) the date on which an individual later elected as an Outside Director is nominated for election, each Outside Director (or future Outside Director, as the case may be) shall be required to own, and shall provide the Company with written certification of such ownership substantially in the form provided in Exhibit "A" hereto, at least one thousand (1,000) shares of Common Stock. Each Outside Director (or future Outside Director, as the case may be) shall maintain ownership of such number of shares of Common Stock until such Outside Director ceases to serve as a member of the Board.
6. Option Grants. Options granted pursuant to the Plan shall be evidenced by option certificates in such form as the Committee from time to time shall approve; such certificates and the options granted thereby, shall comply with and be subject to the following terms and conditions:
(a) NUMBER OF SHARES. Each option certificate shall state the total number of shares of the Common Stock to which it pertains.
(b) OPTION PRICE. The option price per share shall be the Fair Market Value per share of the Common Stock on the date of grant.
(c) MEDIUM AND TIME OF PAYMENT. The option price shall be payable upon the exercise of the option in an amount equal to the number of shares then being purchased times the per share option price. Payment at the election of the optionee, shall be (i) in cash; (ii) by delivery to the Company of a certificate or certificates for shares of the Common Stock duly endorsed for transfer to the Company with signature guaranteed, if requested by the Company, by a member firm of the American Stock Exchange or by a national banking association; or (iii) by a combination of (i) and (ii). In the event of any payment by delivery of shares of the Common Stock, such shares shall be valued on the basis of their respective Fair Market Values on the date of exercise. If payment is made by delivery of shares of the Common Stock, the value of such stock shall not exceed the total option price payment.
(d) TERMS OF OPTIONS. Terms of options granted under the Plan shall commence on the date of grant and shall expire on the tenth anniversary of the date of grant, subject to Section 8 hereof. No option may be granted under the Plan after March 31, 2006.
(e) VESTING. Unless otherwise provided by the Committee, each option shall vest one-third (1/3) on the date of grant, one-third (1/3) on the first year's anniversary of the date of grant and one-third (1/3) on the second year's anniversary of the date of grant; provided, however, that with respect to any options held by an optionee who does not
stand for re-election upon the end of his term of office as an Outside Director, any options held by such optionee that are otherwise vested or scheduled to vest on the first business day following the next January 1 shall vest immediately, and all remaining options held by such optionee shall terminate as provided in subsection (j) hereof. Options shall be exercisable immediately upon vesting; provided, however, that no option granted to a person who is subject to Section 16 of the Exchange Act or the rules and regulations promulgated thereunder shall be subject to exercise prior to the expiration of six months from the date of grant, and further provided, however, that all outstanding options shall also vest and be exercisable on the date of the consummation of a "change in control." For purposes of this section, a change in control will be deemed to be deemed to have occurred if any "person" or "group" of persons (as determined pursuant to Sections 14(d) and 15(d) of the Exchange Act and the rules and regulations promulgated thereunder) (i) becomes the beneficial owner, directly or indirectly, of voting securities of the Company, or securities convertible into, or exchangeable for, voting securities, representing more than 40% of the combined voting power of the Company's then outstanding securities or (ii) acquires the right or power to nominate and/or control, directly or indirectly, a majority of the members of the Board, without having first received the prior written consent of at least two-thirds of the members of the entire Board in office prior to any such person or group of persons acquiring such right or power.
At the discretion of the Committee, vesting may be accelerated.
(f) METHOD OF EXERCISE. All options granted hereunder shall be exercised by written notice directed to the Chief Executive Officer of the Company at its principal place of business, accompanied by payment made in accordance with subsection (c) above. The Company shall make delivery of such shares within a reasonable period of time; provided, however, that if any law or regulation requires the Company to take any action (including but not limited to the filing of a registration statement under the Securities Act and causing such registration statement to become effective) with respect to the shares specified in such notice before the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to take such action.
(g) WHO MAY EXERCISE; NON-TRANSFERABILITY OF STOCK OPTIONS. No option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in Rule 16b-3; and, during the lifetime of an optionee, the option shall be exercisable only by the optionee.
(h) OPTIONEE'S AGREEMENT. If, in the opinion of counsel for the Company, such action is necessary or desirable, no option shall be granted to any optionee unless at such time such optionee represents and warrants that the stock will be acquired for investment only and not for purposes of resale or distribution and makes such further representations and warranties as are deemed necessary or desirable by counsel to the Company with regard to holding and resale of the stock. If at the time of the exercise of any option, in the opinion of counsel for the Company, it is necessary or desirable, in order to comply
with any applicable laws or regulations relating to the sale of securities, that the optionee shall represent and warrant that he or she is purchasing the shares that are subject to the option for investment and not with any present intention to resell or distribute the same or make other and further representations and warranties with regard to the holding and resale of the shares, the optionee, upon the request of the Committee, will execute and deliver to the Company an agreement or affidavit to such effect. All certificates issued pursuant to the exercise of any option shall be marked with a restrictive legend, if such marking, in the opinion of counsel to the Company, is necessary or desirable.
(i) RIGHTS AS A STOCKHOLDER. An optionee shall have no rights as a stockholder with respect to shares of Common Stock covered by his or her option until the date of the issuance of the shares to him or her and only after such shares are fully paid. Unless specified in Section 6(i) hereof, no adjustment will be made for dividends or other rights for which the record date is prior to the date of such issuance.
(j) TERMINATION OF SERVICES. In the event an optionee ceases to be an Outside Director of the Company for any reason, any vested option or unexercised portion thereof granted to him or her shall terminate either (i) as determined by the Committee in its discretion or (ii) as described below in this subsection (j). Unless otherwise specified by the Committee, in the event an optionee during his or her life ceases to be an Outside Director for any reason, any vested option or unexercised portion thereof shall terminate on or shall not be exercisable after the earlier to occur of (i) the expiration date of the option, or (ii) ninety (90) days after termination of service as an Outside Director; provided, however, that with respect to any options held by an optionee who does not stand for re-election upon the end of his term of office as an Outside Director, any options held by such optionee that are otherwise vested or scheduled to vest on the first business day following the next January 1 shall vest immediately, and all remaining options held by such optionee shall terminate as otherwise provided herein. In the event of the death of the optionee while he or she is an Outside Director of the Company, any vested option or unexercised portion thereof granted to him or her may be exercised by his or her personal representatives, heirs or legatees at any time prior to the expiration of six (6) months from the date of the death of the optionee, but in no event later than the date of expiration of the option period.
(k) MISCELLANEOUS PROVISIONS. The stock option certificates authorized under the Plan shall contain such other provisions, including, without limitation, restriction upon the exercise of the option as the Committee shall deem advisable.
7. Withholding. An Outside Director shall be responsible for all federal, state or local taxes, including, without limitation, FICA and FUTA taxes, if any, (collectively "Withholding Taxes") with respect to the exercise of options. The Company shall have the right to deduct a sufficient number of shares and/or cash or to require the Outside Director or his or her Legal Representative to tender sufficient cash or shares of Common Stock to the Company to pay any Withholding Taxes required upon the exercise of options or to take such other action as may be necessary to satisfy any such Withholding Tax obligations. Shares of Common Stock withheld shall be valued at their Fair Market Value on the date the tax withholding is effective.
8. Adjustments Upon Changes in Capitalization. In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company, in any such case by reason of a recapitalization, reclassification, stock split, combination of shares or dividends payable in shares of the Common Stock, an adjustment of like kind shall automatically be made in the number and kind of shares available for grant under the Plan, subject to the right of the Committee to make such further adjustment as it shall deem necessary to effect the provisions of this Section. No fractional shares shall be issued in making the foregoing adjustments. No increase in or exchange of outstanding shares of Common Stock for fair value approved by the Board, whether or not in connection with a recapitalization or reclassification, will result in any adjustment to the number of shares issuable hereunder. All adjustments, if any, made by the Committee under this paragraph shall be conclusive and binding on the Outside Director.
Subject to any required action by the stockholders, if the Company shall be a party to any reorganization involving merger, consolidation, acquisition of the stock or acquisition of the assets of the Company, the Committee, in its discretion, may declare (a) that all shares granted hereunder shall pertain to and apply with appropriate adjustment as determined by the Committee to the securities of the resulting Corporation to which a holder of the number of shares of Common Stock would be entitled.
9. Fractional Shares. In no event shall the Company be required to issue fractional shares. Whenever under the terms of this Section a fractional share of Common Stock would otherwise be required to be issued, an amount in lieu thereof shall be paid in cash based upon the Fair Market Value of such fractional share as of the last business day of the year during which the fractional share is payable.
10. Term of Plan. The Plan shall become effective upon adoption of the Plan by the Board; provided, however, such effectiveness shall be subject to the approval of the Plan by the holders of a majority of the shares of the Company's Common Stock present and voting, assuming a quorum is present. The Plan shall terminate at midnight, Eastern Standard Time, on March 31, 2006, but the Board may terminate the Plan at any time prior to said time and date. Such termination of the Plan by the Board shall not alter or impair any of the rights or obligations under any options previously granted unless the affected Outside Director shall so consent. Upon termination of the Plan by the Board, all previously granted options shall be immediately vested, and such Outside Directors shall become immediately entitled to exercise such options relating thereto. However, after termination of the Plan, no Outside Director shall be entitled to receive any further options pursuant to this Plan.
11. Amendment, Termination. The Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment which requires stockholder approval in order for the exemption available under Rule 16b-3 to be applicable to the Plan and the Outside Directors shall be effective unless the same shall be approved by the stockholders of the Company entitled to vote thereon; and provided further, that the provisions of Section 6(a) hereof shall not be amended more than once every six months,
other than to comply with changes in the Internal Revenue Code of 1986 or ERISA, or the rules thereunder.
12. Nature of Shares Issuable Under the Plan. Shares of Common Stock issued pursuant to the Plan may but need not be registered under the Securities Act and, in the case of any unregistered shares, shall bear such restrictive legends on the certificates representing such shares as the Company shall deem appropriate. If any law or any regulation of any commission or agency of competent jurisdiction shall require the Company or the Outside Director to take any action with respect to the Common Stock acquired under the Plan, then the date upon which the Company shall issue or cause to be issued the certificate or certificates for the shares shall be postponed until full compliance has been made with all such requirements of law or regulations; provided, however, that the Company shall use its reasonable best efforts to take all necessary action to comply with such requirements of law or regulation.
13. Outside Director Representations. By participating in the Plan, an Outside Director represents and, if requested by the Company, shall, at or before the time of the issuance of the shares with respect to which a grant has been made, deliver to the Company his or her written statement satisfactory in form and content to the Company that he intends to hold the shares so acquired by him for investment and not with a view to resale or other distribution thereof to the public in violation of the Securities Act. Moreover, in the event that the Company shall determine that, in compliance with the Securities Act or other applicable statutes or regulations, it is necessary to register any of the shares with respect to which a grant has been made, or to qualify any such shares for exemption from any of the requirements of the Securities Act or any other applicable statute or regulation, no shares shall be issued to the Outside Director until the required action has been completed; provided, however, that the Company shall use its reasonable best efforts to take all action necessary to comply with such requirements of law or regulation.
14. Restriction on Transfer. Notwithstanding anything contained herein to
the contrary (but subject to the provisions of Section 5 hereof), no shares
issued pursuant to this Plan may be resold or transferred for a period of one
(1) year after their issuance to Outside Directors.
15. No Vested Rights.
(a) RETENTION AS AN OUTSIDE DIRECTOR. Nothing contained in the Plan or with respect to any grant shall interfere with or limit in any way the right of the stockholders of the Company to remove any Outside Director from the Board pursuant to the Articles of Incorporation and Regulations of the Company, nor confer upon any Outside Director any right to continue in the service of the Company as an Outside Director.
(b) NON-TRANSFERABILITY. No right or interest of any Outside Director in any grant shall be assignable or transferrable during the lifetime of the Outside Director, either voluntarily or involuntarily, or subjected to any lien directly or indirectly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of an Outside Director's death, an Outside Director's rights and interests in a grant shall be transferrable by will or the laws of dissent and distribution to
an Outside Director's Legal Representative. The Committee may require any person claiming such status to present evidence satisfactory to the Committee of such status.
16. Plan Interpretation. The Plan is intended to comply with Rule 16b-3 and shall be construed to so comply. The validity, construction, interpretation and effect of the Plan and all rights of any persons having or claiming to have any interest in the Plan shall, to the extent such questions are governed by state law, be governed by the internal laws of the State of Ohio without regard to its conflict of law rules.
17. Headings. The headings of sections and sub-sections herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of the Plan.
Exhibit "A"
OUTSIDE DIRECTOR'S CERTIFICATE
Pursuant to the requirements of Section 5 of the 2001 Outside Director's Stock Ownership and Stock Option Plan (the "Plan") of SunLink Health Systems, Inc. (the "Company"), the undersigned hereby certifies as follows:
1. As of the date hereof, the undersigned is a duly elected Outside Director (as defined in the Plan) of the Board of Directors of the Company.
2. As of the later to occur of (i) March __, 2001, (ii) the date on which the Plan shall be approved by the stockholders of the Company at the Annual Meeting of Stockholders of the Company or (iii) the date on which the undersigned was nominated for election as an Outside Director, the undersigned shall be the owner of at least one thousand (1,000) shares of the common stock of the Company, without par value.
3. Pursuant to the requirements of the Plan, the undersigned has agreed to maintain ownership of at least one thousand (1,000) shares of the Company's common stock from the date specified in paragraph (2) above until the undersigned's service as a member of the Board of Directors of the Company ceases.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this _____ day of __________, 200__.