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Master Franchise Agreement

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Sectors: Real Estate
Governing Law: Florida, View Florida State Laws
Effective Date: June 23, 1998
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AMENDED AND RESTATED


MASTER FRANCHISE AGREEMENT


BETWEEN


INTEGRATED HEALTH SERVICES FRANCHISING CO., INC.


AND


LYRIC HEALTH CARE LLC


DATED AS OF JUNE 23, 1998


TABLE OF CONTENTS


ARTICLES - ---------- ARTICLE 1. Definitions ARTICLE 2. Grant and Acceptance of Franchise ARTICLE 3. [Intentionally Omitted] ARTICLE 4. Term ARTICLE 5. Annual Continuing Fees ARTICLE 6. Proprietary Materials; Trade Names; IHS Systems ARTICLE 7. Preferred Provider Status ARTICLE 8. "800" Telephone Number ARTICLE 9. Enhancement of the IHS Systems ARTICLE 10. Other Business ARTICLE 11. [Intentionally Omitted] ARTICLE 12. Statements, Records and Fee Payments ARTICLE 13. Additional Covenants of Lyric ARTICLE 14. Franchisor Not to Compete ARTICLE 15. Negative Covenants of Lyric ARTICLE 16. Transfer and Assignment ARTICLE 17. Rights of Aggrieved Party upon Default ARTICLE 18. [Intentionally Omitted] ARTICLE 19. Indemnification and Independent Contractor ARTICLE 20. Written Approvals, Waivers and Amendment ARTICLE 21. Enforcement ARTICLE 22. Entire Agreement ARTICLE 23. Notices ARTICLE 24. Governing Law and Dispute Resolution ARTICLE 25. Severability, Construction and Other Matters ARTICLE 26. Post Term Obligations ARTICLE 27. Taxes, Permits and Indebtedness ARTICLE 28. Acknowledgments ARTICLE 29. Guaranty of Franchisee Obligations


EXHIBITS - --------- EXHIBIT 1 - Facility Franchise Agreement EXHIBIT 2 - List of Facilities EXHIBIT 3 - [Intentionally Omitted] EXHIBIT 4 - List of Individual Franchisee Names, Names of Businesses, and
Territories EXHIBIT 5 - Guidelines for Determining Territories


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AMENDED AND RESTATED
MASTER FRANCHISE AGREEMENT


THIS AMENDED AND RESTATED MASTER FRANCHISE AGREEMENT (this "Agreement"), dated as of June 23, 1998, between INTEGRATED HEALTH SERVICES FRANCHISING CO., INC. ("Franchisor"), a Delaware corporation with its principal office at 10065 Red Run Boulevard, Owings Mills, Maryland 21117, and LYRIC HEALTH CARE LLC ("Lyric"), a Delaware limited liability company, with its principal office at 8889 Pelican Bay Boulevard, Suite 500, Naples, Florida 34103.


INTRODUCTORY STATEMENT


Integrated Health Services, Inc. ("IHS") developed valuable "Trade Names" and "Proprietary Materials" (including the "IHS Systems"), all as defined below, relating to businesses which IHS operates and services which IHS provides. These have substantial value and materially enhance and facilitate IHS's business and operations. Lyric and its subsidiaries desire to obtain the benefit of the Proprietary Materials and the Trade Names, and Franchisor, on behalf of IHS, is willing to grant a franchise for such purpose, subject to the terms and conditions set forth below. Neither IHS nor Franchisor has previously franchised to others the use of such Trade Names and Proprietary Materials, except to Lyric pursuant to a Master Franchise Agreement, dated as of January 13, 1998, as amended by the First Amendment to Master Franchise Agreement, dated as of March 31, 1998 (the "Prior Franchise Agreement"), between Franchisor and Lyric.


Franchisor and Lyric now wish to amend and restate the Prior Master Franchise Agreement pursuant to the terms and conditions of this Agreement.


An affiliate of Franchisor (the "Manager") has entered into agreements (the "Management Agreements") to manage the health care facilities which the Franchisees (defined below) lease or own. The Manager will be responsible, to the extent specified in the Management Agreements, for assisting the respective Franchisees to comply with their obligations under this Agreement.


ARTICLE 1. DEFINITIONS


1.1 The following words and phrases have the following meanings in this Agreement:


"Affiliate" means any person, corporation or other entity, which, directly or indirectly, controls, is controlled by, or is under common control with, another person, corporation, or other entity.


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"Business Day" means any day other than Saturday, Sunday or any other day on which banking institutions in the State of Maryland are authorized by law or executive action to close.


"Control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of a corporation or other entity.


"EBITDA" means earnings before interest, taxes, depreciation, and amortization of Lyric on a consolidated basis as shown on Lyric's monthly financial statements regularly prepared by Lyric.


"Facility" means a facility owned or leased by Lyric or a Franchisee in which any Health Care Business is conducted.


"Facility Franchise Agreement" means the facility franchise agreement between Franchisor and a Franchisee in the form attached as Exhibit 1 hereto.


"Franchisee" means, as of any particular date, any entity designated as such pursuant to a Facility Franchise Agreement.


"GAAP" means United States generally accepted accounting principles consistently applied.


"Gross Revenues" means, for any period, all revenues and income of any kind derived directly or indirectly by the entity specified during such period (including rental or other payment from concessionaires, licensees, tenants, and other users of such entity's facilities and from the sale of products and/or the furnishing of services, including all revenues or receipts derived from or associated with the Proprietary Materials (but excluding therefrom all bequests, gifts, or similar donations), whether on a cash basis or on credit, paid or unpaid, collected or uncollected, as determined in accordance with GAAP, excluding, however:


(a) federal, state, and municipal excise, sales, and use taxes
collected directly from patients as a part of the sales prices of any goods
or services;


(b) proceeds of any life insurance policies;


(c) gains or losses arising from the sale or other disposition of
capital assets;


(d) any reversal or accrual of any contingency or tax reserve;


(e) interest earned on sinking funds, Special Security Accounts, bonds
funds, etc. originally and specifically formed as a requirement of any bond
issue (if any) utilized to finance the Facility; and


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(f) bad debt expense.


The proceeds of business interruption insurance or proceeds as a result of Medicare and Medicaid audits shall be included in Gross Revenues. However, funds required to be repaid as a result of Medicare and Medicaid audits shall be deducted from Gross Revenues.


"Health Care Business" means any business now or in the future operated by IHS, Franchisor, Lyric, or any Franchisee involving the provision of health care services of any and every kind.


"IHS Systems" means the systems, protocols, procedures, software, contracts and contract forms and documentation, manuals, guides, instructions, forms, employee benefit plans and programs, used and developed by IHS previously, now, and in the future for the treatment, servicing, and processing of patients, customers, and/or clients for the financial, administrative, human resources, procurement, management, and other operations of IHS's businesses and activities.


"Lease" means any net lease of a Facility.


"Lessor" means each lessor or lessors from time to time under a Lease.


"Lyric's Business" means and includes the business of Lyric and all Lyric Franchisees on a consolidated basis.


"Operating Agreement" means the Operating Agreement of Lyric.


"Proprietary Materials" means Trade Names; trademarks; service marks; copyrighted materials and copyrightable materials; software, manuals, protocols, procedures, systems, documentation, methods, contracts and contract forms and documents; trade dress; uniforms; and other materials for treatment, servicing, and processing of patients, customers, and/or clients and for the financial, administrative, procurement, human resources, quality control, management, and operations of the Health Care Business (including the IHS Systems).


"Territory" means each territory within which Lyric and the Franchisees may operate a Health Care Business. The Territories of the Franchisees are described in the Facility Franchise Agreements. Lyric's Territory is the aggregate of the Territories of the Franchisees (as such Territories change from time to time) as such Territories are defined in the respective Facility Franchise Agreements.


"Trade Names" means "Integrated Health Services," "IHS" and every other name or description previously, now, or in the future used in, or associated with the Health Care Business, including any and all "doing-business-as" names or trade names.


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1.2 Wherever used in this Agreement:


(a) the words "include" or "including" shall be construed as
incorporating, also, "but not limited to" or "without limitation";


(b) the word "day" means a calendar day unless otherwise specified;


(c) the word "party" means each and every person or entity whose
signature is set forth at the end of this Agreement;


(d) the word "law" (or "laws") means any law, rule, regulation, order,
statute, ordinary, resolution, regulation, order, statute, ordinance,
resolution, regulation, code, decree, judgment, injunction, mandate or
other legally binding requirement of a government entity;


(e) each reference to a Facility (or any part or component thereof)
shall be deemed to include "and/or any portion thereof";


(f) the word "notice" shall mean notice in writing (whether or not
specifically so stated);


(g) "month" means a calendar month unless otherwise specified; and


(h) the word "amended" means "amended, modified, extended, renewed,
changed, or otherwise revised"; and the word "amendment" means "amendment,
modification, extension, change, renewal, or other revision".


1.3 Certain other words and phrases are defined elsewhere in this Agreement, including the Exhibits and Schedules hereto. Words and phrases defined in any part of this Agreement shall have the same meaning in all parts of this Agreement.


ARTICLE 2. GRANT AND ACCEPTANCE OF FRANCHISE


2.1 Existing and New Facilities and Businesses. Subject to Section 2.2 and the other terms and conditions of this Agreement, Franchisor grants to Lyric and to each Franchisee the right and franchise to use and employ the Proprietary Materials in accordance with this Agreement. Franchisor shall enter into a Franchise Agreement:


(a) for each facility listed on Exhibit 2 hereto with the Franchisee
specified in such Exhibit; and


(b) with Lyric or any of its subsidiaries which develop, acquire, or
lease any additional Health Care Business, provided that such additional
business meets Franchisor's standards and requirements (which shall be
consistent with those set forth in


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the Confidential Operating Manual and otherwise required of Lyric and the
Franchisees hereunder) and provided further that such additional business
is not located (i) in the Territory of any other Franchisee (or other
franchisee of Franchisor) or (ii) in a geographic area in which Franchisor
is prohibited by law or contract from granting a franchise to operate a
Health Care Business.


2.2 Condition. The grant of each franchise pursuant to Section 2.1, and Franchisor's obligation to enter into any Franchise Agreement, shall be subject to: (a) execution and delivery of the particular Facility Franchise Agreement to Franchisor by the particular Franchisee; and (b) compliance by Franchisor and the respective Franchisee with laws, rules and regulations applicable to the creation of such Facility Franchise Agreement (and Franchisor and Lyric agree to use commercially reasonable best efforts to comply with such laws, rules and regulations).


ARTICLE 3. [INTENTIONALLY OMITTED]


ARTICLE 4. TERM


4.1 Initial Term. Unless sooner terminated pursuant to Article 16, this Agreement shall extend for an initial term (the "Initial Term") commencing on the date hereof and continuing for the same period as the Lease Term, as defined in the Lease.


4.2 Extended Terms. This Agreement shall automatically renew for two consecutive thirteen year renewal terms (collectively, the "Extended Terms"). Each Extended Term shall commence on the day succeeding the end of the Initial Term or the preceding Extended Term, as applicable. All terms, covenants, conditions, and provisions of this Agreement shall apply to each Extended Term (except that Lyric may not extend the Term beyond the expiration of the Extended Term). Notwithstanding the foregoing, Franchisor may decide not to renew in any such case by giving notice to Lyric not less than six (6) months prior to the last day of the Term or Extended Term.


4.3 Effect on Franchisees. Any extension of the Term by Lyric under this Article shall automatically extend the Term for the same period, and upon the same terms and conditions, of each Franchise Agreement between Franchisor and a Franchisee.


ARTICLE 5. ANNUAL CONTINUING FEES


5.1 Annual Continuing Fee. For each "Contract Year" (as hereinafter defined) during the Initial Term, Lyric shall pay Franchisor an annual continuing fee (the "Annual Continuing Fee") in the amount of one percent (1%) of the annual Lyric Gross Revenues (as defined below).


5.2 Definition of "Contract Year". In this Agreement, "Contract Year" means any period which begins on January 1st and ends on the earlier of the following December 31st


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or the effective date of expiration or termination of this Agreement (except that the first Contract Year may be a partial year which commences on the date hereof and ends on December 31st and the last Contract Year may end on a date earlier than December 31st).


5.3 Monthly Installments. During each Contract Year, Lyric shall make monthly installments on account of the Annual Continuing Fee for such Contract Year. The installment for each month shall be equal to 1% of the Lyric Gross Revenues for each month, and shall be paid on or before the 25th day of the following calendar month, subject to Section 5.5.


5.4 Annual Continuing Fee for Short Contract Year. If the Term includes any Contract Year of less than three hundred and sixty-five (365) days, the Annual Continuing Fee for such Contract Year shall be equal to the product of the Annual Continuing Fee for such Contract Year multiplied by a fraction, the numerator of which is the number of days this Agreement was in effect during such Contract Year and the denominator of which is 365.


5.5 Credit for Payments by Lyric Franchisees. Amounts paid directly by Franchisees to Franchisor (if any) pursuant to the Facility Franchise Agreements shall reduce dollar for dollar Lyric's obligation under Sections 5.1, 5.3 and 5.4. If and to the extent that Lyric and its Franchisees experience bad debts or poor collections exceeding the amounts reserved for such items in their respective current revenue budgets, and as a result Lyric is unable to pay all or any part of the monthly installment of the Annual Continuing Fee for a particular month, the unpaid portion of such installment shall accrue and be payable as soon as cash flow permits but in no event later than at the end of the current Contract Year. The foregoing sentence shall not apply for more than one Contract Year.


5.6 Payment Following Contract Year End. If the aggregate dollar amount of payments delivered by Lyric to Franchisor in payment of the Annual Continuing Fee for any Contract Year under Section 5.3 differs from the Annual Continuing Fee for such Contract Year, the appropriate party shall pay to the other the amount of such overpayment or underpayment within one hundred five (105) days after the end of such Contract Year.


5.7 Taxes. Lyric shall pay to Franchisor the amount of all sales taxes, use taxes, and similar taxes imposed upon or required to be collected on account of the Annual Continuing Fee and of goods or services furnished to Lyric and Lyric Franchisees by Franchisor, whether such goods or services are furnished by sale, lease or otherwise.


5.8 Lyric Gross Revenues. "Lyric Gross Revenues" means the sum of:


(a) the Gross Revenues of all Franchisees; plus


(b) the Gross Revenues of all the businesses which are the subject of
joint ventures to which Lyric and/or any Franchisee is a party (the "Joint
Venture Businesses") and the businesses which are the subject of management
agreements and other agreements and arrangements of Lyric or any Franchisee
pursuant to which Lyric or any


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Franchisee provides management, consulting or other services for so long as
any such agreements or arrangements are in effect (the "Managed
Businesses"); plus


(c) all other Gross Revenues of Lyric.


5.9 Additional Remedies for Past Due Annual Continuing Fees. In addition to all other rights and remedies under this Agreement and at law or in equity, if any Annual Continuing Fees are past due from Lyric to Franchisor (subject to Section 5.5) for more than 120 days after notice from Franchisor, Franchisor shall have the right, in addition to Franchisor's other rights and remedies under this Agreement, to require reconsideration and revision of Lyric's current annual and


capital budgets and to require Lyric to comply with the negative covenants of Lyric under Article 15 as if Franchisor had sold its interest in Lyric. The foregoing rights are cumulative. Lyric agrees that, upon the exercise of any such right by Franchisor, Lyric will cease taking any prohibited action and will take the action required by Franchisor and will otherwise cooperate with Franchisor in carrying out the purpose and intent of this Section.


5.10 Interest. Lyric shall pay Franchisor interest on any amounts past due at the lower of (i) the maximum rate permitted by law or (ii) the prime rate of Citibank, N.A. plus two percent (2%) per annum (the "Prime Rate"); but interest shall not accrue on past due amounts to the extent Lyric (or a particular Franchisee) fails to achieve EBITDA sufficient to pay such amounts (as long as Lyric or the applicable Franchisee is operating within its then-current budget).


5.11 Negotiation of Fees. Each party agrees that: (a) the Annual Continuing Fee payable under this Article 5 was established by extensive, good faith, arms-length negotiations between the parties in which each party was represented by counsel and advised by accountants familiar with the health care industry and franchising, and (b) each party is satisfied that the Annual Continuing Fee payable pursuant to this Article 5 represents the present, and (as applicable) reasonably anticipated during the Initial Term, fair market value of the franchise.


5.12 Advances by Franchisor. Lyric shall pay to Franchisor all amounts, if any, advanced by Franchisor or which Franchisor has paid (or for which Franchisor has become obligated) on behalf of Lyric or any Lyric Franchisees.


ARTICLE 6. PROPRIETARY MATERIALS; TRADE NAMES; IHS SYSTEMS


6.1 Proprietary Materials. Franchisor hereby grants Lyric the right to use the Proprietary Materials in connection with the businesses franchised by Franchisor pursuant to Article 2, the management and administration of existing Joint Venture Businesses, the existing Managed Businesses, and any Other Business pursuant to Article 10. To enhance the public image and reputation of businesses operating under the IHS Systems, to protect the goodwill associated with the Proprietary Materials, and to increase the demand for services and products provided by Franchisor and all Franchisees, the parties agree to the further provisions set forth below.


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6.2 Ownership. Franchisor represents and warrants that IHS owns the Proprietary Materials and the IHS Systems and that Franchisor is duly authorized to grant Lyric and the Franchisees the rights in the Proprietary Materials and the IHS Systems described in this Agreement on behalf of IHS. Lyric expressly acknowledges IHS' and Franchisor's rights in and to the Proprietary Materials and agrees not to represent or claim in any manner that Lyric has acquired any ownership rights in the Proprietary Materials. Lyric agrees further that any and all goodwill associated with the IHS Systems and identified by the Proprietary Materials shall inure directly and exclusively to the benefit of Franchisor and IHS.


6.3 Authorized Use. Lyric agrees that any use of the Proprietary Materials except as expressly authorized by this Agreement may constitute an infringement of Franchisor's and/or IHS' rights and that any right to use the Proprietary Materials granted under this Agreement shall not


extend beyond the termination or expiration of this Agreement. Lyric agrees that, during the term of this Agreement and thereafter, Lyric shall not, directly or indirectly, commit any act of infringement or contest or aid others in contesting the validity or registration of Franchisor's and/or IHS' right to use the Proprietary Materials or take any other action in derogation thereof.


6.4 Infringement. Lyric shall notify Franchisor promptly of any claim, demand or cause of action that Franchisor may have based upon or arising from any unauthorized attempt by any person or legal entity to use the Proprietary Materials, any colorable variation thereof, or any other mark, name or indicia in which Franchisor or IHS has or claims a proprietary interest (an "Unauthorized Third Party Use"). Lyric shall assist Franchisor, upon request and at Franchisor's expense, in taking such action (if any) as Franchisor deems appropriate to halt such Unauthorized Third Party Use, but shall take no action nor incur any expense on Franchisor's behalf without Franchisor's prior written approval. If Franchisor undertakes the defense or prosecution of any litigation relating to the Proprietary Materials, Lyric agrees to execute any and all documents and to do such acts and things as may, in the opinion of Franchisor's legal counsel, be reasonably necessary to carry out such defense or prosecution. If Franchisor does not take action to halt any Unauthorized Third Party Use, Lyric at its expense may take action as it deems appropriate to halt such Unauthorized Third Party Use.


6.5 Operation With Proprietary Materials. Lyric and the Franchisees further agree to operate and advertise only under the names or marks from time to time designated by Franchisor for use as part of the Proprietary Materials; to adopt and use the Proprietary Materials solely in the manner prescribed by Franchisor; to refrain from using the Proprietary Materials to perform any activity or to incur any obligation or indebtedness in such a manner as may, in any way, subject Franchisor or IHS to liability therefor; to observe all laws with respect to the registration of trade names and assumed or fictitious names, to include in any application therefor a statement that Lyric's use of the Proprietary Materials is limited by the terms of this Agreement; to provide Franchisor with a copy of any such application and other registration document(s); to observe such requirements with respect to trademark and service mark registrations and copyright notices as Franchisor may, from time to time, require, including, without limitation, affixing "SM", "TM" or (R) adjacent to any portions of the Proprietary Materials in any and all uses thereof
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as requested by Franchisor; and to utilize such other appropriate notice of ownership, registration and copyright as Franchisor may require.


6.6 Modification/Replacement of Proprietary Materials. Franchisor reserves the right, in its sole discretion, to designate one or more new, modified or replacement Proprietary Materials for use by Lyric and/or any Franchisee and to require the use by Lyric and/or any Franchisee of any such new, modified or replacement Proprietary Materials in addition to or in lieu of any previously designated Proprietary Materials. Any expenses or costs associated with the use by Lyric and/or any Franchisee of any such new, modified or replacement Proprietary Materials shall be the sole responsibility of Lyric and/or the respective Franchisees.


6.7 Use of IHS Systems. Franchisor hereby grants to Lyric the right and license to utilize the IHS Systems in connection with the management and administration of the businesses franchised by Franchisor pursuant to Article 2, the management and administration of existing Joint


Venture Businesses, the existing Managed Businesses and all Other Business pursuant to Article 10. Franchisor shall establish and Lyric shall maintain standards of quality, appearance and operation for Lyric's Business.


6.8 Compliance with IHS Systems. Lyric agrees in connection with Lyric's business, and each Franchisee agrees for itself, to use and comply with all treatment protocols, treatment, financial, legal and other programs and procedures, quality standards, quality assessment methods, performance improvement and monitoring programs and other matters which now or hereafter comprise the IHS Systems, and to comply with the rules, regulations, policies and standards of the IHS Systems, including all such contained in the "Confidential Operating Manual" (as hereinafter defined).


6.9 Compliance With Law. Lyric and each Franchisee agree at all times to operate its business, and to keep all premises at which it and each Franchisee operates, in compliance with all applicable federal, state and local laws, rules and regulations.


6.10 Joint Commission on Accreditation of Health Care Organizations (JCAHO). Lyric agrees to cause any applicable Franchisee to maintain throughout the term of this Agreement any accreditation by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") previously issued to the particular Franchisee (and Lyric shall cause the Franchisees to use commercially reasonable best efforts to seek and obtain such accreditation if and as necessary or appropriate). Lyric agrees also to endeavor to obtain and maintain accreditation by other organizations which may be necessary or desirable in a particular case. Lyric (or the applicable Franchisee) shall pay all costs of obtaining and maintaining any such accreditation(s).


6.11 Maintenance of Standards. Lyric and each Franchisee agree to maintain all premises from or at which its business is conducted, and all furnishings and equip
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