<PAGE>
As filed with the Securities and Exchange Commission on January 20, 1998
Registration No. 333-37451
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 4
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ElderTrust
(Exact name of registrant as specified in its governing instrument)
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
(610) 925-0808
(Address of principal executive offices)
---------------------
EDWARD B. ROMANOV, JR.
President and Chief Executive Officer
ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
(610) 925-0808
(Name and address of agent for service)
---------------------
Copies to:
J. Warren Gorrell, Jr. Michael F. Taylor
George P. Barsness BROWN & WOOD LLP
HOGAN & HARTSON L.L.P. One World Trade Center
555 Thirteenth Street, N.W.
New York, New York 10048
Washington, D.C. 20004-1109
(212) 839-5300
(202) 637-5600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
---------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / --------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / --------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 4,840,000 of common shares of beneficial interest, $.01 par value per share,
of ElderTrust, a Maryland real estate investment trust (the "Common Shares"),
together with separate Prospectus pages relating to a concurrent offering
outside the United States and Canada of an aggregate of 1,210,000 Common Shares
(the "International Offering"). The complete Prospectus for the U.S. Offering
follows immediately. After such Prospectus are the following alternate pages
for the International Offering: a front cover page; an "Underwriting" section;
and a back cover page. All other pages of the Prospectus for the U.S. Offering
are to be used for both the U.S. Offering and the International Offering.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JANUARY 20, 1998
PROSPECTUS
6,050,000 Common Shares
ElderTrust(SM)
Common Shares of Beneficial Interest
------------------
ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a real estate
investment trust ("REIT") for federal income tax purposes. Upon completion of
the Offering (the "Offering"), approximately 51.0% of the Company's total
assets will consist of properties leased to and loans made to consolidated
subsidiaries of Genesis Health Ventures, Inc. ("Genesis"), a leading provider
of healthcare and support services to the elderly. Subsidiaries of Genesis will
operate or manage substantially all of the properties initially being acquired
by the Company. Approximately $128.6 million of the net proceeds of the
Offering, including initial draws under the Company's proposed credit facility,
will be paid to Genesis and its affiliates, including Michael R. Walker, who
will continue to serve both as Chairman of the Board and Chief Executive
Officer of Genesis and as Chairman of the Board of Trustees of the Company
following completion of the Offering.
All of the common shares of beneficial interest, $.01 par value per share,
of the Company (the "Common Shares") offered hereby are being sold by the
Company and will represent approximately 86.9% of the Company's outstanding
common equity. The remaining common equity in the Company will be beneficially
owned by officers and trustees of the Company and other continuing investors.
Of the 6,050,000 Common Shares being offered hereby, 4,840,000 shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
1,210,000 shares are being offered initially outside the United States and
Canada by the International Managers. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price will
be between $19.00 and $21.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The Common Shares have been approved for listing on the New York Stock Exchange
under the symbol "ETT" subject to official notice of issuance.
<PAGE>
See "Risk Factors" beginning on page 18 for certain risk factors relevant
to an investment in the Common Shares, including:
o The dependence of the Company's revenues and ability to make distributions on
Genesis as lessee or manager of substantially all of the properties
initially being acquired by the Company;
o Conflicts of interest between the Company and Genesis and Mr. Walker,
including the lack of arm's length negotiations and independent valuations
or appraisals, and the benefits to be derived by Genesis and Mr. Walker,
resulting in the risk that the consideration to be paid for the initial
properties and other assets may exceed their fair market values and that the
lease and loan terms may not reflect market terms;
o The possibility that the Company may not be able to obtain certain lender and
other consents or waivers necessary to effect all of the formation
transactions;
o The possibility that the Company may not be able effectively to manage its
intended rapid growth, the Company's lack of operating history and
management's lack of experience in operating a REIT;
o Operating risks inherent in the highly regulated healthcare industry which
may affect lessees and tenants;
o The possibility that the Company may not be able to refinance outstanding
debt upon maturity or that indebtedness might be refinanced on less
favorable terms and the absence of a limitation on the amount of
indebtedness that the Company can incur, which could adversely affect the
Company's cash flow and ability of the Company to make cash distributions;
o General real estate investment risks, the possibility of defaults under
leases and under term and construction loans and the lack of minimum rent
provisions in certain of the facility leases;
o The Board of Trustees may change the Company's investment, financing and
other policies without shareholder approval;
o Limitations on shareholders' ability to change control of the Company,
including a prohibition on actual or constructive ownership of Common Shares
in excess of 8.6% of the Company's outstanding Common Shares; and
o Taxation of the Company as a regular corporation if it fails to qualify as a
REIT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
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Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
Per Common Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ............ $ $ $
================================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $5,325,000 payable by
the Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an additional 726,000 Common Shares, and has granted the
International Managers a 30-day option to purchase up to an additional
181,500 Common Shares, on the same terms and conditions as set forth
above, solely to cover overallotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
------------------
The Common Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York
on or about , 1998.
------------------
Merrill Lynch & Co. BT Alex. Brown Goldman, Sachs &
Co.
------------------
The date of this Prospectus is , 1998.
<PAGE>
[Insert map and table. The map is captioned "ElderTrust Owned Properties and
Term Loans:". Each state in the eastern United States from Maine through Florida
will appear in black outline, and the states in which the Company will own
properties or will make Term Loans on properties will appear in color. Each of
these states also will be marked with a pointer line and an annotation
indicating the number of properties to be owned or with respect to which the
Company will make Term Loans:
New Hampshire -- 1/0
Massachusetts -- 1/0
Connecticut -- 2(1)/0
Pennsylvania -- 13(1)/3
New Jersey -- 3(2)/0
Maryland -- 1(2)/0
Florida -- 0/2
ElderTrust Investment Summary(3)
Owned Properties Term Loans
-------------------- ------------------
Number Beds Number Beds
------ ---- ------ ----
Pennsylvania 13(1) 1,520 3(4) 201
New Jersey 3(2) 247 - -
Massachusetts 1 122 - -
New Hampshire 1 72 - -
Connecticut 2(1) - - -
Maryland 1(2) - - -
Florida - - 2(4) 200
------ ------ ------- -----
Total 21 1,961 5 401
- -------------------------
(1) Includes two medical or other office buildings.
(2) Includes one medical or other office building.
(3) Excludes Construction Loans, the Penn Mortgage and the Florida Facilities
Note.
(4) The Company has agreed to purchase these facilities. There can be no
assurance as to the timing of the purchase thereof.
ElderTrust[sm]
Certain persons participating in this Offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Common Shares. Such
transactions may include stabilizing, the purchase of Common Shares to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
<PAGE>
TABLE OF CONTENTS
Page
------
SUMMARY ................................................... 1
The Company ............................................. 1
Risk Factors ............................................. 3
Business and Growth Strategies ........................... 3
Possible Subordinated CMBS Investments .................. 4
Right of First Refusal Agreement ........................ 5
Conflicts of Interest .................................... 5
The Initial Investments ................................. 6
Term Loans, Construction Loans, Penn Mortgage and
Florida Facilities Note .............................. 8
Construction Loan Commitments ........................... 9
Structure and Formation of the Company .................. 9
Benefits to Related Parties .............................. 12
The Offering ............................................. 15
Distributions .......................................... 15
Tax Status of the Company .............................. 16
Summary Historical and Pro Forma
Financial Information ................................. 17
RISK FACTORS ............................................. 18
Dependence on Genesis for the Company's Revenues
and Ability to Make Distributions ..................... 18
No Assurance that the Company is Paying Fair Market
Value for the Initial Properties and Other Assets
Being Acquired by the Company or that Percentage
Rent and Minimum Rent Leases and Term Loans,
Construction Loans and Construction Loan
Commitments Reflect Market Terms ..................... 18
Conflicts of Interest between the Company and Genesis
and Mr. Walker in Connection with the Formation
and Operation of the Company ........................ 19
Possible Inability to Obtain Consents or Waivers
Required to Effect Formation Transactions ............ 20
No Assurance that the Company will be Able
Effectively to Manage its Intended Rapid Growth ...... 21
Lack of Operating History and Inexperience of
Management in Operating a REIT could Affect REIT
Qualification ....................................... 21
Operating Risks Inherent in the Highly Regulated
Healthcare Industry may Adversely Affect the
Operations of the Company's Lessees and Borrowers 21
The Company's Use of Debt Financing, the Absence of
a Limitation on Debt, Increases in Interest Rates and
Requirements of Tax-Exempt Bond Financing could
have Adverse Effects on the Company .................. 24
The Company's Performance and Value are subject to
Risks Associated with the Real Estate Industry ...... 25
Making Loans on Development Projects ..................... 27
The Board May Change Investment Policies Without
Shareholder Approval ................................. 27
Possible Subordinated CMBS Investments .................. 27
The Ability of Shareholders to Effect a Change in
Control of the Company is Limited ..................... 28
Failure to Qualify as a REIT would cause the Company
to be Taxed as a Corporation ........................ 29
Liability for Environmental Matters could Adversely
Affect the Company's Financial Condition ............ 30
Competition in the Marketplace could have an Adverse
Impact on the Ability of Lessees and Borrowers to
Make Lease and Loan Payments to the Company ......... 31
<PAGE>
Page
------
The Executive Officers and Trustees of the Company
will have Substantial Influence ..................... 32
The Company will be Dependent on Key Personnel
whose Continued Service is Not Guaranteed ............ 32
Purchasers of Common Shares will Experience
Immediate Dilution .................................... 32
Lack of a Prior Public Market, Changes in Market
Conditions, Changes in Earnings and Cash
Distributions, Changes in Interest Rates and
Dependence on External Sources of Capital could
Adversely Impact the Trading Price of the Common
Shares ................................................ 32
ERISA Risks ............................................. 33
THE COMPANY ................................................ 34
BUSINESS AND GROWTH STRATEGIES ........................... 35
CONFLICTS OF INTEREST .................................... 37
USE OF PROCEEDS .......................................... 38
DISTRIBUTIONS ............................................. 39
CAPITALIZATION ............................................. 42
DILUTION ................................................... 43
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION .................................... 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................. 46
Overview ................................................ 46
Nonrecurring Compensation Expense ........................ 46
Results of Operations .................................... 47
Pro Forma Statements of Operations ..................... 47
Liquidity and Capital Resources ........................ 47
Funds from Operations .................................... 48
BUSINESS AND PROPERTIES .................................... 50
General ................................................ 50
Initial Properties ....................................... 51
Lessees ................................................ 53
Initial Property Acquisition Agreements .................. 62
Term Loans, Construction Loans, Penn Mortgage and
Florida Facilities Note .............................. 64
Construction Loan Commitments and Related Purchase
Contracts ............................................. 71
Mortgage Debt .......................................... 73
Leases ................................................... 73
Credit Facility and Tax-Exempt Financing ............... 78
Possible Subordinated CMBS Investments .................. 80
Government Regulation .................................... 80
Competition ............................................. 83
Legal Proceedings ....................................... 83
Office Lease ............................................. 83
Employees ................................................ 83
MANAGEMENT ................................................ 84
Trustees, Trustee Nominees And Executive Officers ...... 84
Committees of the Board of Trustees ..................... 85
Compensation of the Board of Trustees .................. 86
Executive Compensation ................................. 86
1998 Share Option and Incentive Plan ..................... 87
Employment and Non-Competition Agreements ............... 88
Incentive Compensation ................................. 89
Limitation of Liability and Indemnification ............ 89
Indemnification Agreements .............................. 90
i
<PAGE>
Page
------
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS ............................................. 90
STRUCTURE AND FORMATION OF THE COMPANY 92
BENEFITS TO RELATED PARTIES ................................. 94
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES 99
Investment Policies ....................................... 99
Financing Policies ....................................... 100
Lending Policies .......................................... 100
Conflict of Interest Policies ........................... 100
Policies With Respect to Other Activities ............... 101
PARTNERSHIP AGREEMENT ....................................... 102
Management ................................................ 102
Sales of Assets .......................................... 102
Removal of the General Partner; Transfer of the
Company's Interests .................................... 102
Reimbursement of the Company;
Transactions with the Company and its Affiliates ...... 102
Redemption of Units ....................................... 103
Restrictions on Transfer of Units by Limited Partners . 103
Issuance of Additional Units and Preference Units ......... 103
Capital Contributions .................................... 104
Distributions; Allocations of Income and Loss ............ 104
Exculpation and Indemnification of the Company ............ 104
Amendment of the Operating Partnership Agreement ......... 104
Term ...................................................... 105
PRINCIPAL SHAREHOLDERS .................................... 106
SHARES OF BENEFICIAL INTEREST .............................. 107
General ................................................... 107
Common Shares ............................................. 107
Preferred Shares .......................................... 108
Power To Issue Additional Common Shares and
Preferred Shares ....................................... 108
Restrictions on Ownership and Transfer .................. 108
Transfer Agent and Registrar .............................. 111
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS ................................................... 112
Number of Trustees; Classification and Removal of
Board of Trustees; Other Provisions .................. 112
<PAGE>
Page
------
Changes in Control Pursuant to Maryland Law ............... 113
Amendments to the Declaration of Trust and Bylaws ......... 113
Advance Notice of Trustee Nominations and New
Business ............................................. 114
Meetings of Shareholders ................................. 114
Anti-Takeover Effect of Certain Provisions of Maryland
Law and of the Declaration of Trust and Bylaws ......... 114
Maryland Asset Requirements .............................. 114
SHARES AVAILABLE FOR FUTURE SALE ........................... 115
General ................................................... 115
Registration Rights ....................................... 115
FEDERAL INCOME TAX
CONSIDERATIONS .......................................... 116
Taxation of the Company ................................. 116
Requirements for Qualification as a REIT .................. 118
Failure of the Company to Qualify as a REIT ............... 125
Taxation of Taxable U.S. Shareholders of the Company
Generally ............................................. 125
Backup Withholding for Company Distributions ............ 127
Taxation of Tax-Exempt Shareholders of the Company . 128
Taxation of Non-U.S. Shareholders of the Company ......... 128
Tax Aspects of the Company's Ownership of Interests
in the Operating Partnership ........................... 131
Other Tax Consequences for the Company and its
Shareholders .......................................... 132
ERISA CONSIDERATIONS ....................................... 133
Employment Benefit Plans, Tax-Qualified Pension,
Profit Sharing or Stock Bonus Plans and IRAs ......... 133
Status of the Company and the Operating Partnership
under ERISA .......................................... 133
UNDERWRITING ................................................ 136
EXPERTS ................................................... 139
LEGAL MATTERS ............................................. 139
ADDITIONAL INFORMATION .................................... 139
GLOSSARY ................................................... 140
INDEX TO FINANCIAL STATEMENTS .............................. F-1
Forward-Looking Statements
Information contained in or delivered in connection with this Prospectus
contains "forward-looking statements" relating to, without limitation, future
economic performance, plans and objectives of management for future operations
and projections of revenue and other financial items, which can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The cautionary statements
set forth under the caption "Risk Factors" and elsewhere in the Prospectus
identify important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements.
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in the Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that (i) the initial
public offering price is $20.00 per share (the midpoint of the price range set
forth on the cover page of this Prospectus), (ii) the transactions described
under "Structure and Formation of the Company" are consummated, and (iii) the
Underwriters' overallotment option is not exercised. As used herein, (i)
"Company" means ElderTrust, a Maryland real estate investment trust, and one or
more of its subsidiaries (including ElderTrust Operating Limited Partnership, a
Delaware limited partnership (the "Operating Partnership") and ET Capital
Corp., a Delaware corporation), or, as the context may require, ElderTrust only
or the Operating Partnership only and (ii) "Genesis" means Genesis Health
Ventures, Inc., a Pennsylvania corporation, and its subsidiaries that will
lease or manage substantially all of the properties and other assets acquired
by the Company in its formation or, as the context may require, Genesis only or
such subsidiaries of Genesis only. See "Glossary" for the meanings of other
terms used herein. The Company will be the sole general partner of, will own a
substantial majority interest in, and will conduct all of its operations
through, the Operating Partnership and its subsidiaries.
The Company
The Company was formed on September 23, 1997 to invest in
healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a REIT for federal
income tax purposes. Upon completion of the Offering, the Company intends to
invest in 21 assisted and independent living facilities, skilled nursing
facilities and medical office and other buildings (the "Initial Properties"),
term mortgage loans (the "Term Loans") and initial draws under construction
loans (the "Construction Loans") totaling $34.8 million, an $800,000 first
mortgage note (the "Penn Mortgage") and substantially all of the economic
interest in a $7.5 million second mortgage note (the "Florida Facilities
Note"). The Initial Properties and properties securing the loans are located in
eight states in the eastern United States. The Company also has agreed to or
has the option to purchase eight of the nine assisted or independent living
facilities that secure the Term Loans and the Construction Loans, as well as
nine of the ten assisted living development and expansion projects currently in
the planning stage for which the Company will make loan commitments totaling
$55.1 million (the "Construction Loan Commitments").
The Company will lease the Initial Properties pursuant to percentage rent
leases ("Percentage Rent Leases") or minimum rent leases ("Minimum Rent
Leases") (other than the medical office and other buildings, which will be
acquired by the Company subject to the existing tenant leases). Percentage Rent
Leases will be based on a specified percentage of facility revenues with no
required minimum rent. Minimum Rent Leases will provide for base rent, plus
scheduled base rent step-ups and, in the case of certain of the Minimum Rent
Leases, additional rent based upon incremental revenues over the base year.
Both types of leases are triple net leases that require the lessees to pay all
operating expenses, taxes, insurance and other costs, and have initial terms of
10 or 12 years, subject to renewal. Tenant leases of the medical office and
other buildings provide for specified annual rent, subject to increases in rent
in certain of the leases ("Fixed Rent Leases"). The Term Loans and Construction
Loans to be made by the Company will have fixed rates of interest based on a
spread (350 or 400 basis points) over the three-year U.S. Treasury Note rate in
effect as of the closing of the Offering, except for two Term Loans and one
Construction Loan which will have fixed rates of interest of 10.5% and one
Construction Loan which will have a fixed rate of interest between 15% and 18%
depending on the loan balance. See "Risk Factors -- Dependence on Genesis for
the Company's Revenues and Ability to Make Distributions," "-- Operating Risks
Inherent in the Highly Regulated Healthcare Industry may Adversely Affect the
Operations of the Company's Lessees and Borrowers" and "Business and Properties
- -- Term Loans, Construction Loans, Penn Mortgage and Florida Facilities Note."
The Company intends to focus initially on the acquisition of equity
interests in and mortgages secured by assisted living, independent living and
skilled nursing facilities, and, to a lesser extent, medical and other office
buildings, located in the eastern United States, although the Company may make
investments in other types of healthcare facilities and in other geographical
areas. One of the Company's initial investments consists of a medical office
building condominium project. In addition to investments in real estate and
mortgages, the Company also may invest in securities or interests in persons
primarily engaged in real estate activities and other issuers, including
investments in real estate mortgage conduits. The Company's investment,
financing and other policies may be amended or revised from time to time by the
Board of Trustees without a vote of the shareholders. See "Risk Factors -- The
Board may Change Investment Policies without Shareholder Approval," "--
Possible Subordinated CMBS Investments," "Business and Growth Strategies" and
"Policies with Respect to Certain Activities."
1
<PAGE>
The Company has obtained a commitment to establish a one-year, secured
credit facility of up to $140 million from an affiliate of Deutsche Morgan
Grenfell (the "Credit Facility"), and the Company expects to enter into the
Credit Facility upon completion of the Offering. The Credit Facility will be
used to fund approximately $44.6 million of the purchase price for the Initial
Properties and other assets being acquired by the Company, the Term Loans and
the initial draws under the Construction Loans. The Credit Facility also will
be used for one or more of the following purposes: (i) to fund the remaining
draws under the Construction Loans; (ii) to fund the Construction Loan
Commitments; (iii) to facilitate possible acquisitions or future developments;
(iv) to repay indebtedness; and (v) for working capital and other general
corporate purposes. The Company intends to grow rapidly and, accordingly, may
fund the purchase of additional properties and other investments from future
equity or debt financings, including mortgage indebtedness, or by reinvestment
of proceeds from the sale of properties (subject to any required distributions
under the tax requirements applicable to REITs). The Company does not have a
policy limiting the amount of indebtedness that the Company may incur. Upon
completion of the Offering, the Company's debt to market capitalization ratio
will be approximately 36.3% (25.3% if the underwriters' overallotment option is
exercised in full) of the Company's total market capitalization. See "Risk
Factors" and "Business and Growth Strategies."
Upon completion of the Offering, approximately 51.0% of the Company's
total assets will consist of properties leased to and loans made to
consolidated subsidiaries of Genesis. In addition, 13 of the Initial Properties
or interests therein (including three skilled nursing facilities which Genesis
acquired effective January 1, 1998 and will transfer to the Company at the
closing of the Offering at the same purchase price), the Penn Mortgage and the
Florida Facilities Note will be purchased from Genesis, and Genesis or entities
in which it has an interest will be the borrower under all but two of the Term
and Construction Loans. In addition, Michael R. Walker, who will serve both as
the Company's Chairman of the Board and as Chairman of the Board and Chief
Executive Officer of Genesis, has interests in five of the Initial Properties.
(Three other executive officers of Genesis have interests in three of these
five properties.) Subsidiaries of Genesis will operate or manage substantially
all of the Initial Properties. Approximately $126.7 million of the net proceeds
from the Offering, including initial draws under the Company's proposed credit
facility, will be paid to Genesis and entities in which it has an interest, and
approximately $1.9 million will be paid to Mr. Walker, as the purchase price
for Initial Properties or interests therein and certain other assets being
acquired by the Company, as repayment of indebtedness, as repayment of certain
expenses incurred by the Company in its formation and as the purchase price of
or initial draws under Term and Construction Loans being made to or acquired
from Genesis. See "Risk Factors -- Dependence on Genesis for the Company's
Revenues and Ability to Make Distributions," "Conflicts of Interest" and
"Benefits to Related Parties."
Upon completion of the Offering, substantially all of the Company's assets
will be owned by, and its operations conducted through, the Operating
Partnership. The Operating Partnership was formed on July 30, 1997 by
ElderTrust Realty Group, Inc., a Maryland corporation owned by Mr. Walker and
Edward B. Romanov, Jr., President and Chief Executive Officer and a trustee of
the Company, as the organizational general partner. The organizational limited
partners of the Operating Partnership were Mr. Romanov, D. Lee McCreary, Jr.,
Vice President and Chief Financial Officer of the Company, and ET Partnership,
a Pennsylvania general partnership. The partners in ET Partnership consist of
Genesis, Mr. Romanov and MGI Limited Partnership, a Delaware limited
partnership whose general partner is a corporation owned by Mr. Walker and
whose limited partners consist of Mr. Walker and four other executive officers
of Genesis. Immediately prior to completion of the Offering, the Company will
be admitted as an additional general partner of the Operating Partnership and
ElderTrust Realty Group, Inc. will withdraw as the general partner of the
Operating Partnership. The Company will contribute the net proceeds of the
Offering to the Operating Partnership in exchange for units of partnership
interest in the Operating Partnership ("Units"). The Company initially will own
approximately 93.1% of the equity of the Operating Partnership. The Company
will hold a fee interest in each of the Initial Properties except for three of
the medical office buildings (including one in which the Company will own a
condominium unit), which are leasehold interests subject to long-term ground
leases. See "Structure and Formation of the Company" and "Business and
Properties -- Initial Investments."
2
<PAGE>
Risk Factors
An investment in the Common Shares involves various risks, and prospective
investors should carefully consider these and other matters discussed under
"Risk Factors" prior to making an investment in the Company. Such risks
include:
o the dependence of the Company's revenues and ability to make distributions
on Genesis, as lessee or manager of substantially all of the Initial
Properties. In addition, the Company will make Construction Loan
Commitments totaling $37.3 million to Genesis;
o conflicts of interest between the Company and Genesis and Mr. Walker,
including the lack of arm's length negotiations and independent valuations
or appraisals, and the benefits to be derived by Genesis and Mr. Walker,
resulting in the risk that the consideration to be paid by the Company for
the Initial Properties and other assets may exceed their fair market values
and that the lease and loan terms may not reflect market terms;
o the possibility that the Company may not be able to obtain certain lender
and other consents or waivers necessary to effect all of the formation
transactions;
<PAGE>
o the possibility that the Company may not be able effectively to manage its
intended rapid growth, the Company's lack of operating history and
management's lack of experience in operating a REIT;
o operating risks inherent in the highly regulated healthcare industry which
may affect the operations of the Company's lessees and tenants;
o the possibility that the Company may not be able to refinance outstanding
debt upon maturity or that indebtedness might be refinanced on less
favorable terms and the absence of a limitation on the amount of
indebtedness that the Company can incur, which could adversely affect the
Company's cash flow and ability of the Company to make cash distributions;
o general real estate investment risks, the possibility of defaults under
leases and Term and Construction Loans and the lack of minimum rent
provisions in certain of the facility leases;
o the Board of Trustees may change the Company's investment, financing and
other policies without shareholder approval;
o the possible anti-takeover effect of the Company's ability to limit, for
purposes of maintaining its REIT status, the actual or constructive
ownership of Common Shares to 8.6% of the outstanding Common Shares and
certain other provisions contained in the organizational documents of the
Company and the Operating Partnership, any of which could have the effect
of delaying or preventing a transaction or change in control of the Company
that might involve a premium price for the Common Shares or otherwise would
be in the best interests of the Company's shareholders;
o taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, the Company's liability for certain
federal, state and local income taxes in such event, and the resulting
decrease in cash available for distribution; and
o the absence of a prior public market for the Common Shares and no assurance
that a public market will develop or be sustained.
Business and Growth Strategies
The Company's principal business objective is to maximize growth in cash
available for distribution and to enhance the value of its portfolio in order
to maximize total return to shareholders. The Company's business and growth
strategies to achieve this objective are: (i) to invest in a high quality
portfolio of healthcare-related properties operated or managed by established
operators or in mortgages secured by such properties located in close proximity
to complementary healthcare services and facilities; (ii) to pursue
aggressively opportunities for portfolio growth by providing traditional and
innovative REIT financing to established operators in the healthcare industry;
(iii) to provide shareholders the opportunity for increased distributions from
annual increases in rental income and interest income and from portfolio
growth; and (iv) to provide shareholders with stock price appreciation
resulting from potential increases in the value of the Company's investments.
There can be no assurance, however, that these investment objectives will be
realized.
3
<PAGE>
The Company believes its strategy of investing in facilities that are
operated or managed by established operators, such as Genesis, and that are
located near other complementary healthcare services and facilities will result
in a marketing advantage for operators of its facilities, which may result in
higher occupancy rates and revenues. Substantially all of the initial assisted
and independent living facilities and development projects are located in close
proximity to complementary healthcare services and facilities, such as skilled
nursing facilities operated by Genesis and other healthcare providers. Genesis
intends for residents of assisted living facilities owned by the Company to
have access to long-term care at Genesis-operated skilled nursing facilities
located near the assisted living facility. In addition, complementary
healthcare providers, such as Genesis, will be available to provide ancillary
services (such as pharmacy, physical therapy, nursing and physician services)
needed from time to time by residents of the facilities leased or managed by
Genesis through the Genesis ElderCare(TM) Networks. See "Business and
Properties -- Lessees -- Genesis Initial Properties."
The Company expects to achieve growth as follows:
Internal Growth. Management believes the Company's future internal growth
will come from (i) potentially higher occupancy and associated increased rental
income under the Percentage Rent Leases and Minimum Rent Leases from facilities
not previously operated or managed by Genesis due, in part, to the ability of
facility residents to participate in a Genesis ElderCareTM Network, (ii) future
price increases to facility residents and resulting increases in rental income
payable under the Percentage Rent Leases and Minimum Rent Leases and (iii)
adjustments to rents under certain of the Fixed Rent Leases.
Growth from Draws Under Construction Loans, Construction Loan Commitments
and Facility Purchase Contracts and Options. The Company anticipates additional
growth from (i) increasing draws under the Construction Loans, which are
expected to increase from an initial $7.4 million to approximately $21.4
million in 18 months, (ii) funding of the Construction Loan Commitments, which
is expected to total approximately $46.7 million in 18 months and (iii) the
purchase and leaseback to Genesis, pursuant to purchase contracts that will be
in place as of the closing of the Offering, of the five facilities in lease-up
(the "Lease-up Assisted Living Facilities") and two of the four facilities in
development (the "Initial Assisted or Independent Living Development Projects")
upon the earlier of the maturity of the related Term Loan or Construction Loan
or at such time as the facility reaches average monthly occupancy of at least
90% for three consecutive months ("Stabilized Occupancy"). The Company has an
option to purchase one of the two remaining Initial Assisted or Independent
Living Development Projects for which Construction Loans will be made at the
closing of the Offering. In addition, the Company has agreed to purchase or has
the option to purchase nine of the ten assisted living development and
expansion projects currently in the preliminary planning phase. See "Business
and Properties."
External Growth. The Company's external growth strategy is to become a
significant source of healthcare industry capital. The Company intends to focus
initially on the acquisition of equity interests in and mortgages secured by
assisted living, independent living and skilled nursing facilities, and, to a
lesser extent, medical office and other buildings, located in the eastern
United States, although the Company may also make investments in other types of
healthcare facilities and in other geographic regions. The Company intends to
offer Units to sellers who would otherwise recognize a taxable gain upon a sale
of assets, which also may facilitate sale/leaseback transactions on a
tax-deferred basis. The Company believes that the substantial healthcare
industry experience and numerous relationships of its management and trustees
will help the Company identify, evaluate and complete additional investments.
In making future investments, the Company intends to focus on established
healthcare operators which meet the Company's standards for facility quality,
proximity to complementary healthcare services and facilities and experience of
management. In the near term, the Company anticipates that a significant
portion of new investments will involve Genesis as lessee or manager.
The Board of Trustees may change the investment policies of the Company at
any time without a vote of shareholders.
Possible Subordinated CMBS Investments
The Company and Genesis are currently discussing a possible transaction
involving the purchase by the Company in the first half of 1998 of up to $30
million in subordinated collateralized mortgage-backed securities ("CMBSs")
issued by real estate mortgage conduits ("REMICs") and secured by skilled
nursing facilities currently owned by Genesis. Any such transaction would be
subject to, among other things, the approvals of the Board of Trustees of the
Company and the Board of Directors of Genesis, availability of financing,
negotiation of the transaction documents, receipt of necessary third party
consents
4
<PAGE>
and regulatory approvals. There can be no assurance that any such transaction
will be consummated. See "Risk Factors -- Possible Subordinated CMBS
Investments," "Business and Growth Strategies," "Business and Properties --
Possible Subordinated CMBS Investments" and "Policies with Respect to Certain
Activities."
Right of First Refusal Agreement
The Company and Genesis have entered into an agreement for a period of
three years from the closing of the Offering (subject to annual renewals
thereafter), pursuant to which Genesis has granted the Company a right of first
refusal to purchase and leaseback to Genesis any assisted living, independent
living or skilled nursing facilities which Genesis determines to sell and
leaseback as part of a sale/leaseback transaction or transactions (the "Right
of First Refusal Agreement"). The right of first refusal does not apply to
sale/leaseback transactions with commercial banking institutions. The Right of
First Refusal Agreement also provides the Company with (i) a right to offer
financing to Genesis and other developers of assisted and independent living
facilities which, once developed, will be operated by Genesis and (ii) a right
to offer financing to Genesis with respect to any new off-balance sheet
financing of skilled nursing facilities currently owned by Genesis. The Company
believes that its agreement with Genesis will provide it with opportunities to
acquire, and finance the development of, additional assisted living,
independent living and skilled nursing facilities within the Genesis
ElderCare(TM) Networks. In turn, the Company has provided Genesis a right of
first refusal to lease or manage any assisted living, independent living or
skilled nursing facility financed or acquired by the Company within Genesis'
markets unless the facility will be leased or managed by the developing or
selling company or an affiliate. See "Risk Factors -- Conflicts of Interest
Between the Company and Genesis and Mr. Walker in Connection with the Formation
and Operation of the Company."
Conflicts of Interest
Conflicts of interest exist on the part of the Company and Genesis and Mr.
Walker. Such conflicts include: (i) Mr. Walker's serving simultaneously as
Chairman of the Board of the Company and Chairman of the Board and Chief
Executive Officer of Genesis; (ii) the lack of arm's length negotiations and
the absence of independent valuations or appraisals with respect to the
purchase prices of, and, as applicable, the leaseback provisions for, the
Initial Properties and other assets or interests therein being acquired by the
Company, or which the Company has contracted to purchase, from Genesis and
entities in which it has an interest and from Mr. Walker, as well as with
respect to the terms of the Term Loans, Construction Loans and Construction
Loan Commitments being made by the Company; (iii) the fact that 13 of the
Initial Properties or interests therein will be purchased from Genesis and
entities in which it has an interest (including three skilled nursing
facilities which Genesis acquired from Crozer-Keystone Health System, a
Pennsylvania nonprofit corporation ("CKHS"), effective January 1, 1998 and will
transfer to the Company at the closing of the Offering at the same purchase
price), and that Genesis or entities in which it has an interest will be the
borrower under all but two of the Term and Construction Loans; (iv) the fact
that interests in five of the Initial Properties will be acquired from Mr.
Walker (three other executive officers of Genesis have interests in three of
these five properties); and (v) the potential for future conflicts arising from
any failure by the Company to enforce the terms of the leases, Term Loans,
Construction Loans and Construction Loan Commitments and other agreements to be
entered into between the Company and Genesis and Mr. Walker and three executive
officers of Genesis transferring property interests to the Company. In
addition, Mr. Romanov, President and Chief Executive Officer and a trustee of
the Company, previously served as Senior Vice President of Genesis. He will
resign as an employee of Genesis upon completion of the Offering. Following the
Offering, the Company will be prohibited by the terms of its Bylaws from
acquiring additional properties from Genesis or the Company's trustees and
officers or affiliates thereof without the approval of a majority of the
disinterested trustees (other than pursuant to agreements entered into in
connection with the Formation Transactions). Genesis, Mr. Walker, Mr. Romanov
and certain other executive officers of Genesis will receive certain benefits
in the formation transactions. See "Benefits to Related Parties."
5
<PAGE>
The Initial Investments
The following tables set forth certain information regarding the Initial
Properties, the Term and Construction Loans, the Penn Mortgage and the Florida
Facilities Note (collectively, the "Initial Investments"). All of the Initial
Properties will be leased to or managed by Genesis except for The Woodbridge
and three of the medical office and other buildings. The Company will hold a
fee interest in each of the Initial Properties except for the land underlying
the Windsor Clinic and Training Facility, Professional Office Building I and
the DCMH Medical Office Building (in which the Company owns a condominium
unit), which are leasehold interests subject to long-term ground leases from
Genesis, an affiliate of CKHS and the Delaware County Memorial Hospital
("DCMH"), respectively. The initial lessees include various wholly owned
subsidiaries of Genesis, Crozer/Genesis ElderCare Limited Partnership
("Crozer/Genesis"), a Pennsylvania limited partnership which is owned 50% by
Genesis and 50% by CKHS, Senior LifeChoice, LLC ("SLC"), a privately held
Pennsylvania limited liability company, or a wholly owned subsidiary of SLC,
and a wholly owned subsidiary of the Age Institute of Florida, Inc., a Florida
not-for-profit corporation ("Age Institute of Florida"). Of the 21 Initial
Properties, 13 are owned by Genesis or by entities in which Genesis has
interests (including three skilled nursing facilities which Genesis acquired
from CKHS effective January 1, 1998 and will transfer to the Company at the
closing of the Offering at the same purchase price). Five of the Initial
Properties are owned by entities in which Mr. Walker has an interest, and three
other executive officers of Genesis have interests in three of these five
properties. See "Business and Properties -- Lessees" and "-- Leases."
<TABLE>
<CAPTION>
Initial Properties
Number Year Built/
Property Location of Beds(1) Occupancy(2) Renovated
- ------------------------------- ------------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods Agawam, MA 122 23.7% 1997
Willowbrook Clarks Summit, PA 65 82.3 1996
Riverview Ridge Wilkes-Barre, PA 105 90.2 1993
Highgate at Paoli Pointe Paoli, PA 82 95.7 1995
The Woodbridge Kimberton, PA 90 78.2 1996
--- ----
Subtotal/Avg. 464 69.1%(8)
=== =======
Independent Living Facility:
Pleasant View Concord, NH 72 96.4% 1926
Skilled Nursing Facilities(9):
Rittenhouse CC Philadelphia, PA 183 89.2% 1930/1993(10)
Lopatcong CC Lopatcong, NJ 153 99.0 1984/1992(12)
Phillipsburg CC Phillipsburg, NJ 94(13) 89.5 1930/1993(14)
Wayne NRC Wayne, PA 118 91.4 1920/1989(15)
Belvedere NRC Chester, PA 147(16) 93.1 1960/1983(17)
Chapel Manor NRC Philadelphia, PA 240 92.4 1973
Harston Hall NCH Flourtown, PA 196(18) 90.6 1977/1991(19)
Pennsburg Manor NRC Pennsburg, PA 120 94.7 1982
Silverlake NRC Bristol, PA 174 96.0 1969/1988(20)
------- -------
Subtotal/Avg. 1,425 92.9%
========= =======
Rentable Year Built/
Property Location Sq. Feet Occupancy Renovated
- ------------------------------- ------------------- ----------------- -------------- -----------------
Medical Office and Other Buildings:
Professional Off. Bldg. I Upland, PA 39,972 100.0% 1977
DCMH Med. Off. Bldg.(23) Drexel Hill, PA 60,706(24) 100.0 1984/1987/1997(25)
Salisbury Med. Off. Bldg. Salisbury, MD 10,961 100.0 1984
Windsor Off. Bldg. Windsor, CT 2,100 100.0 1934/1965(27)
Windsor Clinic/Trg. Fac.(29) Windsor, CT 9,662 100.0 1996
Lacey Branch Off. Bldg. Forked River, NJ 4,100 100.0 1996
----------------- --------------
Subtotal/Avg. 127,501 100.0%
================= ==============
Total Initial Properties
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Initial Properties % of
Purchase Initial Initial Rent
Property Price(3) Investments Lease Term(4) Type(5) Lessee
- ------------------------------- ------------------ ------------- -------------------- ------------ ---------------------
(in thousands) (Years)
<S> <C> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods $ 11,536 6.0% 10.0 (6) Genesis(7)
Willowbrook 5,894 3.1 10.0 Percentage Genesis(7)
Riverview Ridge 5,720 3.0 10.0 Percentage Genesis(7)
Highgate at Paoli Pointe 11,115 5.8 10.0 Minimum Genesis(7)
The Woodbridge 11,668 6.1 10.0 Minimum SLC(7)
---------- --- ------
Subtotal/Avg. $ 45,933 24.0% 10.0
---------- ---- ======
Independent Living Facility:
Pleasant View $ 3,742 2.0% 10.0 Percentage Genesis(7)
---------- ----
Skilled Nursing Facilities(9):
Rittenhouse CC $ 8,855 4.7% 10.0 Minimum Genesis(11)
Lopatcong CC 13,778 7.2 10.0 Minimum Genesis(11)
Phillipsburg CC 6,266 3.3 10.0 Minimum Genesis(11)
Wayne NRC 6,065 3.2 10.0 Minimum Genesis(11)
Belvedere NRC 10,413 5.5 12.0 Minimum Crozer/Genesis
Chapel Manor NRC 11,334 6.0 12.0 Minimum Crozer/Genesis
Harston Hall NCH 7,300 3.8 12.0 Minimum Crozer/Genesis
Pennsburg Manor NRC 10,000 5.3 12.0 Minimum Crozer/Genesis
Silverlake NRC 8,000 4.2 10.0 Minimum Age Inst. of Fl.(21)
---------- ---- ------
Subtotal/Avg. $ 82,011 43.2% 11.0
---------- ---- ======
% of
Purchase Initial Remaining Rent
Property Price(3) Investments Lease Term(22) Type(5) Lessee
- ------------------------------- ---------- ---- --------------- ------- ----------
(in thousands) (Years)
Medical Office and Other Buildings:
Professional Off. Bldg. I $ 4,000 2.1% 0.8 Fixed Physicians
DCMH Med. Off. Bldg.(23) 7,923 4.2 3.5 Fixed Physicians
Salisbury Med. Off. Bldg. 1,349 0.7 1.0(26) Fixed Genesis(26)
Windsor Off. Bldg. 325 0.2 5.0(28) Fixed Genesis
Windsor Clinic/Trg. Fac.(29) 1,493 0.8 5.0(28) Fixed Genesis
Lacey Branch Off. Bldg. 545 0.3 17.5 Fixed Ocean FSB
------------ ---- -------
Subtotal/Avg. $ 15,635 8.3% 3.0
------------ ---- =======
Total Initial Properties $ 147,321 77.5%
============ ====
</TABLE>
6
<PAGE>
- --------
(1) Based on the number of private and semi-private beds currently available.
(2) Represents the average occupancy for the month ended November 30, 1997
determined by dividing total patient days by the number of days in the
month.
(3) Does not include estimated net capitalized acquisition costs aggregating
approximately $2.3 million. Includes, for certain of the Initial
Properties, mortgage indebtedness being repaid at the closing of the
Offering and assumed mortgage indebtedness totaling $34.2 million as of
December 1, 1997. See "Use of Proceeds" and "Business and Properties --
Mortgage Debt."
(4) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering.
(5) For the eleven months ended November 30, 1997, on a pro forma basis, the
lease coverage ratios, which are a measure of the ability of a facility's
revenues to cover required lease payments (net operating income before
interest, depreciation, rent and the subordinated portion of management
fees (if any) divided by rent payments) for the assisted living facility
and four skilled nursing facilities to be leased to Genesis under Minimum
Rent Leases was 0.84x, 2.20x, 1.69x, 1.68x and 1.26x, respectively; the
lease coverage ratio for the facility to be leased to SLC under a Minimum
Rent Lease was 0.31x; the lease coverage ratios for the four facilities to
be leased to Crozer/Genesis under Minimum Rent Leases were 1.17x, 1.52x,
1.57x and 1.32x, respectively; and the lease coverage ratio for the
facility to be leased to the Age Institute of Florida under a Minimum Rent
Lease was 1.71x. Lease coverage ratios are not provided for facilities
that will be subject to Percentage Rent Leases because rental revenues for
those facilities are based on a fixed percentage of the facility's
revenues. See "Conflicts of Interest," "Risk Factors -- Operating Risks
Inherent in the Highly Regulated Healthcare Industry may Adversely Affect
the Operations of the Company's Lessees and Borrowers" and "Business and
Properties -- Leases."
(6) Initially, rent equals a fixed base rent with no revenue participation. At
the time the facility reaches average monthly occupancy of at least 90%
for three consecutive months ("Stabilized Occupancy"), the lease will
automatically convert into a Percentage Rent Lease.
(7) Genesis will guarantee the performance of its subsidiaries under the
Genesis leases for the lives of the leases. The Highgate facility
initially may be leased by SLC. If subsequently leased by a subsidiary of
SLC, SLC will guarantee the performance of its subsidiary under such lease
for the life of the lease.
(8) At November 30, 1997, Heritage Woods, Willowbrook and The Woodbridge were
in the initial lease-up phase. Excluding these facilities, the assisted
living facilities included in the Initial Properties had an average
occupancy of 92.6%.
(9) "NRC" means a nursing and rehabilitation center, "NCH" means a nursing and
convalescent home and "CC" means a care center.
(10) The facility was originally built in the 1930's with two expansions in the
1970's. A renovation of interior finishes was completed in 1993. The
Company has agreed to finance an expansion of this facility to be
undertaken by Genesis. See "Business and Properties -- Construction Loan
Commitments and Related Purchase Contracts."
<PAGE>
(11) These facilities initially will be leased by wholly owned subsidiaries of
Genesis, and Genesis will guarantee the obligations of its wholly owned
subsidiaries under these Minimum Rent Leases for the lives of the leases;
provided, however, in the event Genesis assigns one or more of the leases
to a non-wholly owned subsidiary or a third party, Genesis may not
continue to guarantee the applicable leases. Any such assignment of a
Minimum Rent Lease would require the consent of the Company which may not
be unreasonably withheld. The Company will evaluate the creditworthiness
of any assignee in determining whether to provide its consent. Genesis is
currently negotiating an arrangement with a Philadelphia-based hospital
system. If the arrangement is negotiated successfully, the hospital system
would lease-back the Wayne skilled nursing facility following its sale to
the Company and Genesis would manage the facility. In addition, Genesis
would not guarantee the lease. See "Risk Factors -- Conflicts of Interest
Between the Company and Genesis and Mr. Walker in Connection with the
Formation and Operation of the Company -- No assurance that Genesis will
continue to guarantee Minimum Rent Leases of its wholly owned
subsidiaries."
(12) This facility was originally built in 1984 with an addition of three
skilled nursing beds in 1992.
(13) Includes 34 assisted living units.
(14) This facility was originally built during the 1930's with an addition in
1988. A renovation of interior finishes was completed in 1993.
(15) This facility is estimated to have been built circa 1920. Additions were
completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building.
(16) Includes 27 assisted living units.
(17) This facility was built in 1960 and was expanded in 1983.
(18) Includes 76 assisted living units.
(19) This facility was built in 1977 and was expanded in 1991.
(20) This facility opened in 1969, was expanded in 1977 and was renovated in
1988.
(21) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
(22) For each building, represents the remaining lease term for all rentable
space in the applicable building as of December 1, 1997.
(23) The property consists of a condominium unit containing six of the eight
floors in the building which is located on the campus of DCMH.
(24) The DCMH Medical Office Building is currently undergoing expansion,
including an expansion of two of the six floors included in the
condominium unit which the Company will acquire. This expansion is
expected to be completed in the first quarter of 1998 and will increase
the rentable square feet in the Company's condominium unit to 65,740
square feet. All of the rentable space to be added to the Company's
condominium unit has been pre-leased.
(25) This building was built in 1984, and a renovation of interior finishes was
completed in 1987. This building is currently undergoing expansion.
(26) Two subsidiaries of Genesis lease approximately 83% of the rentable space
in the Salisbury Medical Office Building. The remaining approximately 17%
of the rentable space in the building is leased by Quest Diagnostics,
Inc., a corporation unaffiliated with Genesis or the Company. At the
closing of the Offering, Genesis will enter into a new lease with the
Company with respect to the space leased by Genesis in the building. Each
of these leases will have an initial term of five years, subject to
renewals. The lease with Quest Diagnostics, Inc. expired on November 30,
1997. The Company expects to enter into a new two-year lease with Quest
Diagnostics.
(27) This building was originally constructed in 1934 with an addition in 1965.
(28) At the closing of the Offering, Genesis will enter into a new lease with
the Company with respect to all of the rentable space in the Windsor
Office Building and the Windsor Clinic and Training Facility. Each of
these leases will have an initial term of five years, subject to renewals.
(29) The Windsor Clinic and Training Facility are connected to each other. The
Windsor Clinic consists of 5,490 rentable square feet, and the Windsor
Training Facility includes 4,172 rentable square feet.
7
<PAGE>
Term Loans, Construction Loans, Penn Mortgage and Florida Facilities Note
The following table sets forth certain information regarding the Term
Loans, the Construction Loans, the Penn Mortgage and the Florida Facilities
Note. The project owner/borrowers include various wholly owned subsidiaries of
Genesis, The Multicare Companies, Inc., a 44% owned subsidiary of Genesis
("Multicare"), Lake Washington, Ltd., a Florida limited partnership in which
Genesis holds a 49% interest ("Lake Washington"), SLC or wholly owned
subsidiaries of SLC, a wholly owned subsidiary of the Age Institute of Florida
and Philadelphia Suburban Development Corporation. Facilities under development
are subject to various risks and uncertainties, including zoning, construction
and related development risks. See "Risk Factors -- Making Loans on Development
Projects." There can be no assurance that any of the Initial Assisted or
Independent Living Development Facilities that secure the Construction Loans
will be completed on a timely basis or at all. The Company has agreed or has
the option to purchase eight of the nine facilities that secure the Term Loans
and the Construction Loans at the end of the loan terms or at such time as each
facility achieves Stabilized Occupancy. See "Business and Properties -- Term
Loans, Construction Loans, Penn Mortgage and Florida Facilities Note --
Purchase Contracts and Options for Term Loan and Construction Loan Properties."
There can be no assurance as to the timing of the purchase of any of the
facilities that are subject to Term Loans or Construction Loans.
<TABLE>
<CAPTION>
Loan Amount
Expected to be % of
Number of Funded at Initial Interest
Security Property Location Beds(1) Closing Investments Rate
- ------------------------------------- ------------------ ----------- ---------------- ------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities:
Harbor Place Melbourne, FL 120 $ 4,728 2.5% (3)
Mifflin Shillington, PA 67 5,164 2.7 (3)
Coquina Place Ormond Beach, FL 80 4,577 2.4 (3)
Lehigh Macungie, PA 70 6,665 3.5 10.50%
Berkshire Reading, PA 64 6,269 3.3 10.50%
--- -------- -----
Subtotal 401 $ 27,403 14.4%
=== -------- -----
Construction Loans - Initial Assisted or Independent Living Development Projects:
Oaks Wyncote, PA 52 $ 1,500 0.8% (3)
Montchanin Wilmington, DE 92 2,000 1.0 10.50%
Mallard Landing Salisbury, MD 147 900 0.4 (3)
Sanatoga Pottstown, PA 70 3,000 1.6 10.50%
--- -------- -----
Subtotal 361 $ 7,400 3.8%
=== -------- -----
Penn Mortgage(8):
Personal care facility (unoccupied) Philadelphia, PA 180 $ 800 0.4% 10.25%
-------- -----
Florida Facilities Note(9):
11 skilled nursing facilities Florida 1,219 $ 7,406 3.9% 13.00%
-------- -----
Total Loan Investments $ 43,009 22.5%
-------- -----
Total Initial Investments $190,330 100.0%
======== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Purchase
Initial Development Contract/ Project/Owner
Security Property Maturity Loan Amount(2) Status Option Borrower
- ------------------------------------- ---------- ---------------- ------------- ----------- ----------------------
(years) (in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities:
Harbor Place 2 $ 4,728 Lease-up Contract Lake Washington
Mifflin 2 5,164 Lease-up Contract Genesis (4)
Coquina Place 2 4,577 Lease-up Contract Genesis (4)
Lehigh 2 6,665 Lease-up Contract Multicare (5)
Berkshire 2 6,269 Lease-up Contract Multicare (5)
---------
Subtotal $27,403
---------
Construction Loans - Initial Assisted or Independent Living Development Projects:
Oaks 3 $ 5,380 Constr. Contract Genesis (4)
Montchanin 3 9,500 Constr. Option SLC (6)
Mallard Landing 2 6,407 (7) Zoned N/A SLC (6)
Sanatoga 3 6,511 Constr. Contract Multicare (5)
---------
Subtotal $27,798
---------
Penn Mortgage(8):
Personal care facility (unoccupied) 0.8 $ 800 N/A N/A Phil. Sub. Dev. Corp.
---------
Florida Facilities Note(9):
11 skilled nursing facilities 10 $ 7,406 N/A N/A Age Inst. of Fl.
---------
Total Loan Investments $63,407
---------
Total Initial Investments
</TABLE>
<PAGE>
- --------
(1) Based on the number of private and semi-private beds currently available or
contemplated in the case of development projects.
(2) Represents the total committed loan amount under the applicable Term Loan
or Construction Loan.
(3) The interest rates on these loans will be set at the closing of the
Offering at a fixed rate of interest equal to 400 basis points over the
then applicable three-year U.S. Treasury Note rate, except for (i) the
Construction Loan for the Oaks development project which will have a fixed
interest rate equal to 350 basis points over the then applicable
three-year U.S. Treasury Note rate and (ii) the Construction Loan for the
Mallard Landing development project which will be at a fixed rate of
interest equal to 15% for loan balances less than or equal to $4.5 million
and 18% when the loan balance exceeds $4.5 million.
(4) The project owner/borrower of these projects will be a wholly owned
subsidiary of Genesis. Genesis will guarantee the loans made to such
subsidiaries.
(5) The project owner/borrower of these projects are subsidiaries of Multicare.
Multicare will guarantee 20% of the principal amount of the loans.
(6) The project owner/borrower of these projects will be wholly owned
subsidiaries of SLC. SLC will guarantee the loans made to such
subsidiaries.
(7) The estimated cost of the fully constructed independent living condominium
facility is approximately $16.7 million, and the Company will provide a
Construction Loan of up to approximately $6.4 million to fund construction
of the first phase of this project (35 apartments and 20 cottages).
(8) See "Business and Properties -- Term Loans. Construction Loans, Penn
Mortgage and Florida Facilities Note -- Penn Mortgage" for additional
information.
(9) See "Business and Properties -- Term Loans, Construction Loans, Penn
Mortgage and Florida Facilities Note -- The Florida Facilities Note" for
additional information. The amount shown in the table represents the
Company's economic interest in the Florida Facilities Note on a pre-tax
basis.
8
<PAGE>
Construction Loan Commitments
In addition to the foregoing, the Company has entered into Construction
Loan Commitments totaling $37.3 million with Genesis and $17.8 million with SLC
to provide financing for an additional ten assisted living development and
expansion projects which are in the planning stage. The resident capacity of
these facilities is expected to total approximately 700 to 800. Eight of these
projects will be owned by subsidiaries of Genesis and two will be owned by
subsidiaries of SLC. The Company's obligation to fund the Construction Loan
Commitments for these projects is subject to a number of conditions, including
receipt by Genesis and SLC of all necessary zoning, land use, building,
occupancy, licensing and other required governmental approvals and
authorizations. The Company has contracted to purchase the projects to be owned
by Genesis and has an option to purchase one of the two projects to be owned by
subsidiaries of SLC. See "Business and Properties -- Construction Loan
Commitments and Related Purchase Contracts." There can be no assurance that any
of these development projects will be completed on a timely basis or at all.
See "Risk Factors -- Making Loans on Development Projects."
Structure and Formation of the Company
Company Structure. At the completion of the Offering, substantially all of
the Company's assets will be owned by, and its operations conducted through,
the Operating Partnership and its subsidiaries. The Company will be the sole
general partner of the Operating Partnership and will contribute the net
proceeds of the Offering to the Operating Partnership in exchange for a number
of Units equal to the number of Common Shares sold in the Offering.
Formation of the Company. The formation transactions ("Formation
Transactions") include the following transactions which will have occurred
prior to the Closing of the Offering:
o ElderTrust Realty Group, Inc. was formed by Messrs. Walker and Romanov in
June 1997 as the organizational general partner of the Operating
Partnership. The Operating Partnership was formed on July 30, 1997 by
Messrs. Romanov and McCreary and ET Partnership. The partners in ET
Partnership consist of Genesis, Mr. Romanov and MGI Limited Partnership, a
limited partnership whose general partner is a corporation owned by Mr.
Walker and whose limited partners consist of Mr. Walker and the following
four other executive officers of Genesis: (i) Richard R. Howard, President
and a director of Genesis; (ii) David C. Barr, Executive Vice President and
Chief Operating Officer of Genesis; (iii) John F. DePodesta, Senior Vice
President, Law & Public Policy of Genesis; and (iv) George V. Hager, Jr.,
Senior Vice President and Chief Financial Officer of Genesis.
o The Company was formed on September 23, 1997.
o ET Capital Corp. was formed by the Operating Partnership, which owns all of
the nonvoting stock of ET Capital Corp. (representing a 95% equity
interest), and Mr. Romanov, who owns all of the voting stock of ET Capital
Corp. (representing a 5% equity interest).
o The Operating Partnership will purchase from Genesis and certain other
persons their direct or indirect interests in certain of the 21 Initial
Properties, the Penn Mortgage and, through ET Capital Corp., substantially
all of the economic interest in the Florida Facilities Note for an
aggregate amount of cash equal to $109.5 million. Of the 21 Initial
Properties, 13 are owned by Genesis or by entities in which Genesis has
interests (including three skilled nursing facilities which Genesis
acquired from CKHS effective January 1, 1998 and will transfer to the
Company at the closing of the Offering at the same purchase price).
o Certain other persons (the "Continuing Investors") will contribute the
remaining interests in the Initial Properties to the Operating Partnership
in exchange for an aggregate of 220,000 Units. The Continuing Investors
include Messrs. Walker and Howard, individually, three other individuals
not affiliated with the Company or Genesis and Senior LifeChoice Corp.
("Senior LifeChoice"), a privately held Pennsylvania corporation whose
principal stockholders include Mr. Walker. Following completion of the
Offering, Messrs. Walker, Howard, Barr and Hager and Kent P. Dauten, a
trustee nominee, will own, in the aggregate, approximately 62.8% of the
interests in Senior LifeChoice, and six other individuals not affiliated
with the Company or Genesis will own the remaining interests in Senior
LifeChoice.
o The Operating Partnership agreed to make Term Loans and Construction Loans
(totaling $39.3 million) to Genesis and entities in which it has an
interest and to acquire the seven facilities that secure such loans at the
end of the loan term or at such time as each such facility reaches
Stabilized Occupancy.
9
<PAGE>
o The Operating Partnership agreed to purchase from Genesis one Construction
Loan (totaling $9.5 million) and to make a second Construction Loan
(totaling approximately $6.4 million) secured by two facilities owned by
subsidiaries of SLC, and entered into option agreements granting it an
option to acquire for cash one of these facilities at the end of the loan
term or at such time as such facility reaches Stabilized Occupancy.
o The Operating Partnership has made Construction Loan Commitments totaling
$55.1 million with respect to ten assisted living development and expansion
projects in the planning phase. Pursuant to these Construction Loan
Commitments, the Operating Partnership will agree to purchase for cash
eight of these projects which are owned by Genesis upon the earlier of the
maturity of the related loan or at such time following completion of
development as each such facility reaches Stabilized Occupancy. The Company
will have an option to purchase one of the two projects owned by
subsidiaries of SLC.
o Prior to the closing of the Offering, Messrs. Walker and Romanov will
purchase the interest of Genesis in ET Partnership for an aggregate
purchase price of $4.5 million. ET Partnership will be liquidated and
Messrs. Walker and Romanov and MGI Limited Partnership will receive direct
interests in the Operating Partnership in respect of their respective
interests in ET Partnership.
The following transactions will occur at or immediately prior to the closing of
the Offering:
o The Company will be admitted to the Operating Partnership as an additional
general partner, and ElderTrust Realty Group, Inc. will withdraw as a
general partner of the Operating Partnership.
o The Company will sell 6,050,000 Common Shares in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for Units.
o The Operating Partnership will consummate the acquisition of the Initial
Properties (including the repayment of approximately $7.5 million of
indebtedness secured by certain of the Initial Properties and the
assumption of approximately $34.2 million of indebtedness secured by
certain other of the Initial Properties), the funding of the Term Loans and
the initial draws under the Construction Loans, the purchase of the Penn
Mortgage and the purchase of substantially all of the economic interest in
the Florida Facilities Note. The Operating Partnership also will enter into
the Right of First Refusal Agreement with Genesis.
o The Operating Partnership will be recapitalized to reflect the ownership of
interests in the Operating Partnership by the Company, the Continuing
Investors, Messrs. Walker, Romanov and McCreary and MGI Limited
Partnership, and the Operating Partnership will issue Units to each of its
partners to represent these interests. The Units issued to Mr. Walker and
to Mr. Romanov in respect of the Genesis interest in ET Partnership
purchased by Messrs. Walker and Romanov prior to the liquidation of ET
Partnership will be exchanged for Common Shares on a one-for-one basis.
o Mr. Walker will enter into a non-competition agreement with the Company
(which will not limit in any way any activities related to Mr. Walker's
employment by or interest in Genesis), and Mr. Romanov will enter into an
employment and non-competition agreement with the Company. See "Management
-- Employment and Non-Competition Agreements."
o The Operating Partnership will acquire all of the assets and liabilities of
ElderTrust Realty Group, Inc., which will consist of a lease, a bank
account and certain contract rights and obligations, for cash in the amount
of $100,000. ElderTrust Realty Group, Inc. will then be dissolved.
o As a result of the foregoing transactions, the Company will own 6,482,600
Units, which will represent an approximate 93.1% interest in the Operating
Partnership after the Offering.
o The Company will have the right to exchange Common Shares for Units held by
Messrs. Romanov and McCreary, MGI Limited Partnership and the Continuing
Investors upon the election by such holders to redeem their Units any time
after 14 months after the closing of the Offering.
No third-party determination of the value was sought or obtained in
connection with the acquisition by the Company of the Initial Properties, the
Term Loans, the Construction Loans, the Penn Mortgage or substantially all of
the economic interest in the Florida Facilities Note or with respect to the
leases. The purchase price for each of the Initial Properties was determined
10
<PAGE>
based upon the anticipated annual cash flow for each facility less ongoing
capital expenditures and a management fee divided by an agreed upon
capitalization rate (which is a measure widely used by real estate investors to
determine the purchase price of a property and represents the inverse of the
anticipated yield on investment). Rental rates under the Minimum Rent Leases
and the interest rates on Term Loans, Construction Loans and Construction Loan
Commitments were based on an agreed upon yield. Rental rates under the
Percentage Rent Leases were determined on a comparable basis, adjusted for the
risk associated with the fact that there are no minimum rent provisions in such
leases. There can be no assurance that the aggregate value of the cash and
Units received by the participants in the Formation Transactions does not
exceed the fair market value of the properties and other assets acquired by the
Company.
Organization Chart. As a result of the Offering and the Formation
Transactions, the structure of the Company and the ownership of equity in the
Company will be as shown in the following chart:
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholders:
93.3% Public Shareholders
6.7% Other Shareholders(1)
|
Mr. Romanov |
(President and CEO -------------------- Mr. Walker
of the Company (Chairman and CEO of
and formerly Senior ----- ElderTrust ---------------------------------------- Genesis and Chairman of
Vice President of the Company)
Genesis) -------------------- |
| | |
| General partner Messrs. Romanov and McCreary, |
| interest (0.1%) MGI Limited Partnership and |
| Limited partner Continuing Investors(2) |
| interest (93.0%) | |
| | | |
| | Limited partner |
| | interest (6.9%) |
| | / |
| /\ / |
| / \ / |
Voting Stock / \ / |
(5% of equity) / \ / |
| / Elder \ / |
| // Trust \ / |
| / / Operating \ / |
| / / Limited \/ |
| Nonvoting Stock / / Partnership \ |
| (95% of equity (3)) /__________________\ |
| / | |
| / | |
| / | |
- --------------- / | |
ET Capital Corp./ | |
- --------------- | |
| | |
| | |
- ------------------ -------------------------------------- |
Initial Properties (13 to be acquired |
from Genesis and interests in five from |
Mr. Walker and three other executive |
Florida officers of Genesis), Property-Owning Genesis
Facilities Note Subsidiaries, Term Loans (all to be made and other
(to be purchased to Genesis), Construction Loans (all ----------------------------------- Lessees and
from Genesis) but two to be made to Genesis), Penn Borrowers(4)
Mortgage (to be purchased for Genesis)
and Construction Loan Commitments (all
but two to be made to Genesis)
- ------------------ --------------------------------------
</TABLE>
<PAGE>
- -----------
(1) Includes (i) 100 Common Shares issued to Mr. McCreary at the time of the
Company's formation, (ii) 225,000 Common Shares to be acquired by Messrs.
Walker and Romanov upon exchange of Units following the liquidation of ET
Partnership, which Units will be issued with respect to Genesis' interest
in ET Partnership, (iii) 200,000 Common Shares to be issued and sold to
Mr. Romanov in a private placement and (iv) Common Share awards totaling
2,500 shares each to be made upon completion of the Offering to the
Company's three trustee nominees under the Company's 1998 Share Option and
Incentive Plan. See "Benefits to Related Parties."
(2) Messrs. Romanov and McCreary and MGI Limited Partnership will be issued an
aggregate of 262,000 Units with respect to their interests in the
Operating Partnership. The partners of MGI Limited Partnership include Mr.
Walker and Messrs. Howard, Barr, DePodesta and Hager. The Continuing
Investors will receive 220,030 Units in the Formation Transactions. The
Continuing Investors include Messrs. Walker and Howard, individually, and
Senior LifeChoice and three other individuals not affiliated with the
Company or Genesis.
(3) The Operating Partnership also owns a promissory note of ET Capital Corp.
with an initial principal balance of approximately $5.6 million. As a
result of the Operating Partnership's ownership of nonvoting stock and
debt of ET Capital Corp., the Company, through the Operating Partnership,
expects to receive most of the after-tax economic benefits of ET Capital
Corp. See "Business and Properties -- Term Loans, Construction Loans, Penn
Mortgage and Florida Facilities Note -- The Florida Facilities Note."
(4) Includes (i) certain wholly owned subsidiaries of Genesis, (ii)
Crozer/Genesis (which is owned 50% by Genesis), (iii) Lake Washington
(which is owned 49% by Genesis), (iv) certain wholly owned subsidiaries of
Multicare (which is owned 44% by Genesis), (v) SLC (directly or indirectly
through a wholly owned subsidiary), (vi) certain wholly owned subsidiaries
of SLC and (vii) a wholly owned subsidiary of the Age Institute of
Florida.
11
<PAGE>
Benefits to Related Parties
Upon completion of the Offering and the Formation Transactions, Genesis
and entities in which it has an interest, Mr. Walker and three other executive
officers of Genesis who are transferring interests in certain of the Initial
Properties to the Company, Messrs. Romanov and McCreary, the Company's three
trustee nominees and one other executive officer of Genesis will receive an
aggregate amount of cash equal to approximately $134.4 million (including $4.5
million paid to Genesis by Messrs. Walker and Romanov in exchange for Genesis'
interest in ET Partnership and $94,000 contributed to ET Capital Corp. by Mr.
Romanov and paid to Genesis as part of the purchase price of the Florida
Facilities Note), Units and Common Shares with an aggregate value of
approximately $11.3 million (including 225,000 Common Shares issued to Messrs.
Walker and Romanov in exchange for 225,000 Units issued to Messrs. Walker and
Romanov in respect of Genesis' interest in ET Partnership) and certain other
benefits, as described in greater detail below. The total book value of the
Initial Properties and other assets being contributed by these persons in the
Formation Transactions was approximately $71.8 million (including three
facilities acquired by Genesis effective January 1, 1998). The Company does not
believe that the book values of the Initial Properties and other assets being
acquired from such persons (which reflect historical cost, net of accumulated
depreciation, where applicable) are equivalent to the fair market values of
such Initial Properties and other assets.
Genesis
o Genesis will receive approximately $61.2 million in cash from the Company
for 10 of the 13 Initial Properties or interests therein being transferred
by Genesis or entities in which it has an interest to the Company in the
Formation Transactions. The estimated purchase price for these facilities
and interests is approximately $61.7 million, including approximately
$480,000 of assumed indebtedness. The aggregate book value reflected on
Genesis' financial statements of the Initial Properties to be acquired from
Genesis as of September 30, 1997 was approximately $41.3 million.
o Genesis will receive approximately $20.3 million in cash from the Company
for three skilled nursing facilities which Genesis acquired from CKHS
effective January 1, 1998 for an aggregate purchase price of approximately
$31.7 million (including approximately $20.3 million in cash and the
assumption of approximately $11.4 million of indebtedness secured by two of
these facilities). The Company will acquire these facilities from Genesis
at the same purchase price and upon the same terms (including the
assumption of the indebtedness secured by two of the facilities) as Genesis
acquired them from CKHS.
o Genesis or entities in which it owns an interest will receive approximately
$31.9 million in cash from the Company as a result of the funding of the
Term Loans and the initial draws under two of the Construction Loans to be
made by the Company. The Company will be obligated to fund approximately
$7.4 million in subsequent advances under these two Construction Loans.
o The Company has agreed to purchase from Genesis or entities in which it
owns an interest for cash the five Lease-up Assisted Living Facilities and
the two Initial Assisted or Independent Living Development Projects owned
by Genesis or entities in which it owns an interest. The estimated
aggregate purchase price of these facilities is $52.2 million.
o The Company has agreed to make Construction Loan Commitments to Genesis
totaling approximately $37.3 million for eight assisted living development
and expansion projects which are owned by Genesis and which are in the
planning stage. Pursuant to these Construction Loan Commitments, the
Operating Partnership will agree to purchase for cash these projects from
Genesis upon the earlier of the maturity of the related loan or at such
time following completion of development as each such project reaches
Stabilized Occupancy. The estimated aggregate purchase price of these
facilities upon completion of development is approximately $46.2 million.
o The Company has agreed to purchase from Genesis a Construction Loan made by
Genesis to a subsidiary of SLC with respect to the Montchanin Initial
Assisted Living Development Project for a purchase price equal to the
outstanding loan balance (currently $2.0 million).
o Genesis will receive $800,000 from the Company as payment of the purchase
price for the Penn Mortgage and $7.5 million from ET Capital Corp. as
payment of the purchase price for the Florida Facilities Note. The
aggregate book value of these assets on Genesis' financial statements as of
September 30, 1997 was approximately $8.3 million.
o As a result of the assumption by the Company of debt secured by two of the
Initial Properties, Genesis will be released from guarantees of such
indebtedness totaling approximately $3.2 million.
o The Operating Partnership will enter into the Right of First Refusal
Agreement with Genesis.
12
<PAGE>
o It is estimated that Genesis will receive approximately $3.0 million in
cash from the Company as reimbursement for expenses incurred by Genesis on
behalf of the Company in connection with the Formation Transactions.
o Genesis will receive $4.5 million in cash or notes from Messrs. Walker and
Romanov for the interest owned by Genesis in ET Partnership. Mr. Walker and
Mr. Romanov will receive 225,000 Units in respect of this interest upon
recapitalization of the Operating Partnership, which Units will be
exchanged for Common Shares on a one-for-one basis substantially
simultaneously with the closing of the Offering.
Mr. Walker
o Mr. Walker will receive cash distributions totaling approximately $358,000
from certain entities in which he owns interests and which own interests in
three of the Initial Properties. Mr. Walker also will receive a direct or
indirect interest in 88,110 Units in exchange for his ownership interests
in five of the Initial Properties that are not owned by Genesis. Such
Units, together with Mr. Walker's interest in the Units to be distributed
to MGI Limited Partnership upon the recapitalization of the Operating
Partnership, will have a total value of approximately $2.5 million based on
the assumed initial public offering price of the Common Shares. In
addition, Mr. Walker will receive approximately $1.9 million in cash from
the Company as repayment of indebtedness. The aggregate book value of Mr.
Walker's ownership interests in the Initial Properties being transferred to
the Company in which he holds interests was approximately negative $251,000
as of September 30, 1997.
o Mr. Walker will receive $50,000 in cash (representing a return of his
initial investment) following the sale by ElderTrust Realty Group, Inc. of
all of its assets and liabilities to the Operating Partnership.
o The Company will grant to Mr. Walker options to purchase 150,000 Common
Shares under the Company's 1998 Share Option and Incentive Plan. These
options will vest over three years.
o Mr. Walker will enter into a non-competition agreement with the Company.
See "Management -- Employment and Non-Competition Agreements."
o Commencing 14 months after the Offering, Mr. Walker will have registration
rights with respect to the Common Shares that may be issued to him in
exchange for Units he will receive in the Formation Transactions, as well
as with respect to the Common Shares to be acquired by him upon exchange of
the Units distributed to him in respect of the interest in ET Partnership
purchased by him from Genesis.
Other Executive Officers of Genesis
o Mr. Howard will receive a cash distribution in the amount of approximately
$91,000 from an entity in which he owns an interest and which owns one of
the Initial Properties. In addition, Messrs. Howard, Barr and Hager will
receive direct or indirect interests in 24,139 Units in the aggregate in
exchange for their ownership interests in certain of the Initial Properties
that are not owned by Genesis. Such Units will have a total value of
approximately $483,000 based on the assumed initial public offering price
of the Common Shares. The aggregate book value of Messrs. Howard, Barr and
Hager's ownership interests in the Initial Properties being transferred to
the Company in which they hold interests was approximately negative $80,000
as of September 30, 1997.
o Messrs. Howard, Barr, Hager and DePodesta will have an interest in the
Units to be distributed to MGI Limited Partnership upon the
recapitalization of the Operating Partnership, which interest will consist,
in the aggregate, of 95,454 Units having a total value of approximately
$1.9 million based on the assumed initial public offering price of the
Common Shares.
o Commencing 14 months after the Offering, Messrs. Howard, Barr and Hager and
MGI Limited Partnership will have registration rights with respect to
Common Shares that may be issued to them in exchange for Units they receive
in the Formation Transactions.
Executive Officers and Trustee Nominees of the Company
o Messrs. Romanov and McCreary will receive a total of 130,750 Units upon the
recapitalization of the Operating Partnership (not including the Units
distributed to Mr. Romanov with respect to the Operating Partnership
interest acquired by Mr. Romanov from Genesis), as a portion of their
compensation packages, which Units will have a total value of approximately
$2.6 million based on the assumed initial public offering price of the
Common Shares.
13
<PAGE>
o Mr. Romanov will receive $50,000 in cash (representing a return of his
initial investment) following the sale by ElderTrust Realty Group, Inc. of
all of its assets and liabilities to the Operating Partnership.
o Mr. Dauten will receive an indirect interest in 18,924 Units in exchange
for his ownership interests in certain of the Initial Properties that are
not owned by Genesis. Such Units will have a total value of approximately
$378,000 based on the assumed initial public offering price of the Common
Shares. The aggregate book value of Mr. Dauten's ownership interests in the
Initial Properties being transferred to the Company in which he holds
interests was approximately negative $63,000 as of September 30, 1997.
o The Company will issue and sell to Mr. Romanov 200,000 Common Shares in a
private placement at a per share purchase price equal to the initial public
offering price. Mr. Romanov will pay for such shares with a 10-year
recourse promissory note, with interest only payable until maturity at an
annual rate of 7%.
o The three trustee nominees will each receive an award of 2,500 Common
Shares each under the Company's 1998 Share Option and Incentive Plan. The
Company also will grant options to purchase 7,500 Common Shares to each of
the three trustee nominees of the Company under the Company's 1998 Share
Option and Incentive Plan. The options will have an exercise price equal to
the initial public offering price and will vest over three years.
o The Company will grant to Messrs. Romanov and McCreary options to purchase
300,000 Common Shares and 25,000 Common Shares, respectively, under the
Company's 1998 Share Option and Incentive Plan. The options will have an
exercise price equal to the initial public offering price. One-half of the
options to be granted to Mr. Romanov will vest immediately and one-half
will vest over three years and the options to be granted to Mr. McCreary
will vest over five years.
o Mr. Romanov will enter into an employment and non-competition agreement
with the Company. See "Management -- Employment and Non-Competition
Agreements."
o Commencing 14 months after the Offering, Messrs. Romanov, Dauten and
McCreary will have registration rights with respect to the Common Shares
that may be issued to them in exchange for Units they receive in the
Formation Transactions, as well as, in the case of Mr. Romanov, with
respect to the Common Shares to be acquired by him upon exchange of the
Units distributed to him in respect of the interest in ET Partnership
purchased by him from Genesis.
14
<PAGE>
The Offering
All of the Common Shares offered hereby are being offered by the Company.
<TABLE>
<S> <C>
Common Shares Offered by the Company .................. 6,050,000 shares
Common Shares Outstanding After the Offering (1) ...... 6,482,600 shares
Common Shares and Units Outstanding After the
Offering (1)(2) ....................................... 6,964,630 shares and Units
Use of Proceeds ....................................... To acquire certain of the Initial Properties,
the Penn Mortgage and substantially all of
the economic interest in the Florida Facili-
ties Note, to fund Term Loans and Construc-
tion Loans, to repay mortgage indebtedness
secured by certain of the Initial Properties
and Lease-up Assisted Living Facilities and
for working capital and other general corpo-
rate purposes. See "Use of Proceeds" and
"Structure and Formation of the Company."
Proposed NYSE Symbol ................................. "ETT"
</TABLE>
- -----------
(1) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 225,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued
and sold to Mr. Romanov in a private placement and (iv) Common Share
awards totaling 2,500 shares each to be made to the Company's three
trustee nominees under the Company's 1998 Share Option and Incentive Plan
upon completion of the Offering. See "Benefits to Related Parties."
(2) Includes 262,000 Units to be issued to Messrs. Romanov and McCreary and MGI
Limited Partnership in connection with the Formation Transactions. All
Units are exchangeable on a one-for-one basis for Common Shares or, at the
option of the Company, cash, subject to certain exceptions and
limitations. Excludes 689,498 Common Shares reserved for issuance pursuant
to the Company's 1998 Share Option and Incentive Plan.
Distributions
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Shares. The
initial distribution, covering a partial quarter commencing on the date of
completion of the Offering and ending on March 31, 1998, is expected to be
$____ per share, which represents a pro rata distribution based on a full
quarterly distribution of $0.365 per share and an annual distribution of $1.46
per share (or an annual distribution rate of 7.3%). The Company does not intend
to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised. The following discussion and the information
set forth under "Distributions" should be read in conjunction with the Pro
Forma Statements of Operations and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this Prospectus.
The Company intends initially to distribute annually approximately 94.0%
of estimated Cash Available for Distribution based upon the assumed initial
public offering price of $20.00 per share. The estimate of Cash Available for
Distribution for the 12 months following the closing of the Offering is based
upon pro forma Funds from Operations for the 12 months ended September 30,
1997, adjusted for certain known events and/or contractual commitments that
either have occurred or will occur as of the date of closing of the Offering
(including giving effect to the use of the net proceeds from the Offering
described elsewhere herein as of such date) and (ii) for certain items not in
accordance with Generally Accepted Accounting Principles ("GAAP") consisting of
(A) revisions to estimated rent revenues from a GAAP basis to amounts currently
being paid or due from lessees or tenants, (B) pro forma amortization of
financing costs and (C) pro forma amortization of organization costs. No effect
was given to any changes in working capital resulting from changes in current
assets and current liabilities (which changes are not anticipated to be
material) or the amount of cash estimated to be used for (i) investing
activities (other than
15
<PAGE>
for medical office building tenant improvements and purchases of office
equipment) and (ii) financing activities (other than scheduled loan principal
payments on existing indebtedness). The estimate of Cash Available for
Distribution is being made solely for the purpose of setting the initial
distribution and is not intended to be a projection or forecast of the
Company's results of operations or its liquidity, nor is the methodology upon
which such estimate was made necessarily intended to be a basis for determining
future distributions. Future distributions by the Company will be at the
discretion of the Board of Trustees. There can be no assurance that any
distributions will be made or that the estimated level of distributions will be
maintained by the Company.
The Company anticipates that its distributions may exceed earnings and
profits for federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that up to 10% of the distributions anticipated to be
paid by the Company for the 12-month period following the completion of the
Offering will represent a return of capital for federal income tax purposes and
in such event will not be subject to federal income tax under current law to
the extent such distributions do not exceed a shareholder's basis in his Common
Shares. The nontaxable distributions will reduce the shareholder's tax basis in
the Common Shares and, therefore, the gain (or loss) recognized on the sale of
such Common Shares or upon liquidation of the Company will be increased (or
decreased) accordingly. The percentage of shareholder distributions that
represents a nontaxable return of capital may vary substantially from year to
year.
The Code generally requires that a REIT distribute annually at least 95%
of its net taxable income (excluding any net capital gain). See "Federal Income
Tax Considerations -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements." The estimated Cash Available for Distribution is
anticipated to be in excess of the annual distribution requirements applicable
to REITs under the Code. Under certain circumstances, the Company may be
required to make distributions in excess of Cash Available for Distribution in
order to meet such distribution requirements. For a discussion of the tax
treatment of distributions to holders of Common Shares, see "Federal Income Tax
Considerations."
Tax Status of the Company
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1998, and believes its
organization and proposed method of operation will enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational requirements. In addition,
in order to maintain its qualification as a REIT under the Code, the Company
generally will be required each year to distribute at least 95% of its net
taxable income. As a REIT, the Company generally will not be subject to federal
income tax on net income it distributes currently to its shareholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax at regular corporate rates. See "Risk Factors -- Failure to
Qualify as a REIT would cause the Company to be Taxed as a Corporation" and
"Federal Income Tax Considerations -- Failure of the Company to Qualify as a
REIT." Even if the Company qualifies for taxation as a REIT, the Company will
be subject to certain federal, state and local taxes on its income and
property.
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Summary Historical and Pro Forma Financial Information
The following table sets forth financial information for the Company which
is derived from the Balance Sheet and the Pro Forma Balance Sheet and
Statements of Operations included elsewhere in this Prospectus. The adjustments
for the Offering assume an initial public offering price of $20.00 per share
and that the Underwriters' overallotment option is not exercised.
Pro forma operating data are presented for the year ended December 31,
1996, and the nine months ended September 30, 1997, as if the Offering and the
acquisitions of the Initial Investments and related transactions had occurred,
and as if the respective leases had been in effect at January 1, 1996. The pro
forma balance sheet data is presented as of September 30, 1997, as if the
Offering and the acquisitions of the Initial Investments and related
transactions had occurred, and as if the respective leases had been in effect
at that date. The pro forma information incorporates certain assumptions that
are included in the notes to the Pro Forma Balance Sheet and Statements of
Operations included elsewhere in this Prospectus. The pro forma information
does not purport to represent what the actual financial position or results of
operations of the Company would have been as of or for the periods indicated
nor does it purport to represent the financial position or results of
operations for any future period.
<TABLE>
<CAPTION>
Pro Forma at Pro Forma at
or for the Nine or for the
Months Ended Year Ended
Historical(1) September 30, 1997 December 31, 1996
--------------- -------------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma operating data:
Revenues ....................................... $ -- $ 13,040 $ 14,484
Net income ....................................... -- 3,259 1,467
Earnings per share .............................. -- 0.50 0.23
Weighted average number of Common Shares
outstanding .................................... 100 6,482,600 6,482,600
Pro forma balance sheet data:
Initial Properties .............................. $ -- $ 156,721 N/A
Investment in ET Capital Corp. .................. -- 7,406 N/A
Loans receivable ................................. -- 30,629 N/A
Other assets .................................... -- 2,406 N/A
Total assets .................................... -- 203,957 N/A
Mortgages payable .............................. -- 34,239 N/A
Credit Facility ................................. -- 44,580 N/A
Minority interest in Operating Partnership ...... -- 9,641 N/A
Total shareholders' equity ..................... -- 112,109 N/A
Other data:
Funds from Operations (2) ........................ $ -- $ 6,659 $ 5,464
Weighted average number of Common Shares
and Units outstanding ........................ 100 6,964,630 6,964,630
</TABLE>
- -----------
(1) The Company was formed on September 23, 1997 and was capitalized with the
issuance of 100 Common Shares for a purchase price of $100.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines "Funds from Operations" as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures ("Funds from Operations"). The Company
believes that Funds from Operations is helpful to investors as a measure
of the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures and to fund other
cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.
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<PAGE>
RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information before making a
decision to purchase Common Shares in the Offering.
Dependence on Genesis for the Company's Revenues and Ability to Make
Distributions
Thirteen of the Initial Properties or interests therein will be purchased
from Genesis or entities in which it has an interest (including three skilled
nursing facilities which Genesis acquired from CKHS effective January 1, 1998
and will transfer to the Company at the closing of the Offering at the same
purchase price), and Genesis or entities in which it has an interest will be
the borrower on all but two of the Term and Construction Loans. Genesis will
operate or manage substantially all of the Initial Properties. In addition, the
Company will make Construction Loan Commitments totaling $37.3 million to
Genesis. The Company's revenues and ability to make expected distributions to
shareholders, therefore, will depend in significant part upon the revenues
derived from, and Genesis' successful operation of, the facilities leased to or
managed by Genesis, as well as the ability of Genesis to complete successfully
and on schedule the development projects securing Construction Loans and
Construction Loan Commitments made to Genesis.
No Assurance that the Company is Paying Fair Market Value for the Initial
Properties and other Assets Being Acquired by the Company or that Percentage
Rent and Minimum Rent Leases and Term Loans, Construction Loans and
Construction Loan Commitments Reflect Market Terms
The amount of consideration to be received by Genesis, Mr. Walker and the
three other executive officers of Genesis transferring Initial Properties or
interests therein to the Company in the Formation Transactions, as well as the
terms of the leases, Term Loans, Construction Loans and Construction Loan
Commitments to be entered into by the Company, and the purchase prices for
properties that will secure the Term Loans, Construction Loans and Construction
Loan Commitments being made by the Company, were not determined as a result of
arm's length negotiations. The amount of consideration to be paid by the
Company to acquire interests in the Initial Properties and other assets being
acquired by the Company from Genesis, Mr. Walker and the three other executive
officers of Genesis transferring interests in Initial Properties to the
Company, as well as the terms of the leases, Term Loans, Construction Loans and
Construction Loan Commitments to be entered into by the Company, and the
purchase prices for properties that will secure the Term Loans, Construction
Loans and Construction Loan Commitments being made by the Company, were
determined by Genesis, Mr. Walker and Mr. Romanov. The purchase prices of the
Initial Properties were determined primarily based on an evaluation of the
current and anticipated cash flows and operating results of the facilities. To
determine the purchase price for each of the Initial Properties, the
anticipated annual cash flow for each facility less ongoing capital
expenditures and a management fee was divided by an agreed upon capitalization
rate. Rental rates under the Minimum Rent Leases and the interest rates on Term
Loans, Construction Loans and Construction Loan Commitments were based on an
agreed upon yield. Rental rates under the Percentage Rent Leases were
determined on a comparable basis, adjusted for the risk associated with the
fact that there are no minimum rent provisions in such leases. No independent
valuations or appraisals of the Initial Properties or the other assets being
acquired by the Company were obtained by the Company. Each of Genesis and Mr.
Walker and Mr. Romanov will receive substantial economic benefits as a result
of consummation of the Formation Transactions and the Offering. See "Benefits
to Related Parties." Accordingly, there can be no assurance that the
consideration to be paid by the Company for the Initial Properties and other
assets being acquired by the Company and for properties subject to purchase
contracts and options represents the fair market value thereof or that
Percentage Rent and Minimum Rent Leases and Term Loans, Construction Loans and
Construction Loan Commitments reflect market terms.
The valuation of the Company has not been determined by a valuation of its
assets, but instead has been determined based upon a capitalization of the
Company's pro forma Funds from Operations, estimated cash available for
distribution and potential for growth and the other factors discussed under
"Underwriting." In determining the estimated initial public offering price,
certain assumptions were made concerning the estimate of revenue to be derived
from the Initial Properties and other assets being acquired by the Company. See
"Distributions." This methodology has been used because management believes
that it is appropriate to value
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<PAGE>
the Company as an ongoing business, rather than with a view to values that
could be obtained from a liquidation of the Company or of individual assets
owned by the Company. There can be no assurance that the prices paid by the
Company for the Initial Properties and other assets being acquired by the
Company will not exceed their respective fair market values, and it is possible
that the market value of the Common Shares may exceed the shareholders'
proportionate share of the aggregate fair market value of such assets.
Conflicts of Interest between the Company and Genesis and Mr. Walker in
Connection with the Formation and Operation of the Company
Conflicts of interest may result in less vigorous enforcement of the terms
by the Company of contribution, lease and other agreements with Genesis and Mr.
Walker due to conflicts of interest. Michael R. Walker, the Company's
Chairman of the Board, is Chairman of the Board and Chief Executive Officer of
Genesis and will continue to serve in such capacity following completion of the
Offering. At September 30, 1997, Mr. Walker beneficially owned approximately
2.2% of the outstanding common stock of Genesis. Because he serves as Chairman
of both Genesis and the Company, Mr. Walker will have a conflict of interest
with respect to his obligations as a trustee of the Company with respect to
enforcing (i) the terms of the contribution, loan, purchase and Right of First
Refusal agreements relating to the various properties and other assets owned by
Genesis or in which it holds interests being transferred by it to the Company
or that will be acquired by the Company from Genesis in the future and (ii) the
related leases entered into by the Company and Genesis. The failure to enforce
material terms of these agreements and leases could result in a monetary loss
to the Company, which loss could have a material adverse effect on the
Company's financial condition and results of operations. The Company's ongoing
dependence on Genesis as a lessee and/or manager of a substantial portion of
its properties may deter the Company from vigorously enforcing the terms of
such agreements and operating leases. Mr. Walker also will have a conflict of
interest with respect to enforcing the terms of the purchase agreements for the
five Initial Properties or interests therein acquired from Mr. Walker and
Messrs. Howard, Barr and Hager. Edward B. Romanov, Jr., the Company's President
and Chief Executive Officer and a member of the Company's Board of Trustees,
served as Senior Vice President, Development of Genesis from June 1990 until
August 1997. He will resign as an employee of Genesis upon completion of the
Offering. Mr. Romanov has a loan outstanding from Genesis in the amount of
$450,000, which he expects to repay within 90 days of the closing of the
Offering. In addition, Mr. Walker, Mr. Dauten, a trustee nominee, and three
executive officers of Genesis hold interests in certain properties being
transferred to the Company by third parties other than Genesis.
A prepayment or refinancing of debt or sale of properties will have
different effects on Continuing Investors than on shareholders. Certain
Continuing Investors, including Messrs. Walker and Dauten, may incur adverse
tax consequences upon the prepayment or refinancing of certain debt securing
the Initial Properties or a sale of a property which are different from the tax
consequences to the Company and persons who purchase Common Shares in the
Offering. Consequently, such Continuing Investors may have different objectives
regarding the appropriate timing of such actions. While the Company will have
the exclusive authority under the Agreement of Limited Partnership of the
Operating Partnership (the "Operating Partnership Agreement") to determine
whether, when and on what terms to prepay or refinance debt or to sell a
property, any such decision would require the approval of the Board of
Trustees. Messrs. Walker and Dauten will have substantial influence with
respect to any such decision, and such influence could be exercised in a manner
not consistent with the interests of some, or a majority, of the Company's
shareholders.
Holders of Units have different interests than shareholders and may
exercise their voting rights in the Operating Partnership in a manner that
conflicts with the interests of shareholders. After the Offering, the Company,
as the sole general partner of the Operating Partnership, will have fiduciary
obligations to the other limited partners in the Operating Partnership, the
discharge of which may conflict with the interests of the Company's
shareholders. In addition, those persons holding beneficial interests in Units
(including Messrs. Walker, Romanov, Dauten and McCreary and the three executive
officers of Genesis), as limited partners, will have the right to vote on
amendments to the Operating Partnership Agreement (most of which require
approval by a majority in interest of the limited partners, including the
Company) and such individuals may exercise their voting rights in a manner that
conflicts with the interests of the Company's shareholders.
No assurance that Genesis will continue to guarantee Minimum Rent Leases
of its wholly owned subsidiaries. The skilled nursing facilities being acquired
from Genesis initially will be leased under
19
<PAGE>
Minimum Rent Leases by wholly owned subsidiaries of Genesis, and Genesis will
guarantee the lease obligations of such wholly owned subsidiaries; provided
however, in the event Genesis assigns one or more of the leases to a non-wholly
owned subsidiary or a third party, Genesis may not continue to guarantee the
applicable leases. Under the terms of the Minimum Rent Leases, any such
assignment of a Minimum Rent Lease would require the consent of the Company
which may not be unreasonably withheld. The Company will evaluate the
creditworthiness of any assignee in determining whether to provide its consent;
however, the possibility exists that any such transferee will not be as
creditworthy as Genesis. Genesis is currently negotiating an arrangement with a
Philadelphia-based hospital system involving an assignment of the Wayne lease.
See "Business and Properties -- Lessees -- Genesis Initial Properties."
Genesis' right of first refusal to lease acquired facilities not operated
by the seller may discourage third parties from entering into transactions with
the Company or result in less favorable lease terms to the Company. The Company
and Genesis have entered into the Right to First Refusal Agreement, pursuant to
which (i) for three years following the closing of the Offering (subject to
annual renewals thereafter) the Company has (a) a right of first refusal to
purchase and leaseback to Genesis any assisted living, independent living or
skilled nursing facilities which Genesis determines to sell and leaseback as
part of a sale/leaseback transaction or transactions (other than sale/leaseback
transactions with commercial banking institutions), (b) a right to offer
financing to Genesis and other developers of assisted and independent living
facilities which, once developed, will be operated by Genesis and (c) a right
to offer financing to Genesis with respect to any new off-balance sheet
financing of skilled nursing facilities currently owned by Genesis, and (ii)
Genesis has a right of first refusal to lease or manage any assisted living,
independent living or skilled nursing facility financed or acquired by the
Company within Genesis' markets unless the facility will be leased or managed
by the developing or selling company or an affiliate thereof. While the Company
believes that the Right to First Refusal Agreement will provide the Company
with opportunities to acquire, and finance the development of, additional
assisted living, independent living and skilled nursing facilities from
Genesis, the right of first refusal of Genesis to lease or manage any assisted
living, independent living or skilled nursing facility financed or acquired by
the Company within Genesis' markets unless the facility will be leased or
managed by the developing or selling company or an affiliate thereof may impair
the Company's ability to find a suitable lessee for a facility (if other than
Genesis) in those situations where the seller of the facility did not desire to
leaseback the facility or result in the Company's entering into leases with
Genesis on less favorable terms than could be achieved if Genesis did not have
such right of first refusal. Further, there can be no assurance that Genesis
will determine to sell and leaseback to the Company any additional facilities
pursuant to the Company's right of first refusal or otherwise.
Genesis' right of first refusal on offers to purchase or lease facilities
subject to leases with Genesis may discourage third party offers. Under the
applicable lease agreements with Genesis, Genesis has a right of first refusal
on offers to purchase or lease any facility subject to a Percentage Rent Lease
or a Minimum Rent Lease between the Company and Genesis during the term of the
lease (as extended) and for one year thereafter. The existence of this right of
first refusal may discourage third parties from offering to purchase or lease
any such facility.
The Company will experience ongoing competition from and conflicts with
Genesis. The Company's facilities (whether or not operated by Genesis) may
compete with facilities owned and operated by Genesis in certain markets. As a
result, Genesis will have a conflict of interest due to its ownership of
certain competing facilities and its operation and management of a substantial
portion of the facilities owned by the Company. Because the Percentage Rent
Leases to be entered into with Genesis provide for lower operating margins for
Genesis than Minimum Rent Leases, Genesis may also have a conflict of interest
to the extent that it is involved in the placement of private pay residents
with acuity levels equally suited to an assisted living facility or a skilled
nursing facility.
Possible Inability to Obtain Consents or Waivers Required to Effect Formation
Transactions
The transfer of the Initial Properties to the Company is subject to the
closing of the Offering as well as normal and customary conditions to the
closing of real estate transactions, including the receipt of required consents
or waivers. There can be no assurance that all such consents or waivers will be
obtained prior to the closing of the Offering. Failure to obtain such consents
or waivers could delay or prevent the acquisition of one or more of the Initial
Properties. In such event, the funds intended for the purchase of such Initial
20
<PAGE>
Property or Initial Properties whose acquisition is delayed or prevented will
be invested in accordance with the Company's investment policies. The yield on
any such investments may be lower than the expected return on the Initial
Properties not acquired or whose acquisition is delayed and could affect the
Company's ability to make anticipated distributions.
No Assurance that the Company will be Able Effectively to Manage its Intended
Rapid Growth
The Company intends to grow rapidly. The Company's ability to manage its
growth effectively will require it successfully to identify, structure and
manage new investments. There can be no assurance that the Company will be able
effectively to manage its intended rapid growth.
Lack of Operating History and Inexperience of Management in Operating a REIT
could Affect REIT Qualification
The Company has been recently organized and has no operating history. The
Company will be self-administered and self-managed. The Company's Board of
Trustees and executive officers will have overall responsibility for management
of the Company. Although certain of the Company's executive officers and
trustees have extensive experience in the acquisition, development and
financing of real properties and in the operation of healthcare facilities and
publicly-owned corporations, none of the management of the Company has prior
experience in operating a business in accordance with the Code requirements for
maintaining REIT qualification. Failure to maintain REIT status would have an
adverse effect on the Company's ability to make anticipated distributions to
shareholders. There can be no assurance that the past experience of management
will be appropriate to the business of the Company. See "Management."
Operating Risks Inherent in the Highly Regulated Healthcare Industry may
Adversely Affect the Operations of the Company's Lessees and Borrowers
Any failure by lessees or borrowers to comply with applicable government
regulations in the highly regulated healthcare industry could adversely affect
their ability to make lease or loan payments to the Company. The long-term
care segment of the healthcare industry is highly regulated. Operators of
skilled nursing facilities are subject to federal, state and local laws
relating to the delivery and adequacy of medical care, distribution of
pharmaceuticals, equipment, personnel, operating policies, fire prevention,
rate-setting and compliance with building and safety codes and environmental
laws. Operators of skilled nursing facilities also are subject to periodic
inspection by governmental and other authorities to assure continued compliance
with various standards, the continued licensing of the facility under state
law, certification under the Medicare and Medicaid programs and the ability to
participate in other third party payment programs. Many states have adopted
Certificate of Need or similar laws which generally require that the
appropriate state agency approve certain acquisitions of skilled nursing
facilities and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditures being undertaken. The failure to
obtain or maintain any required regulatory approvals or licenses could prevent
an operator from offering services or adversely affect its ability to receive
reimbursement for services and could result in the denial of reimbursement,
temporary suspension of admission of new patients, suspension or
decertification from the Medicaid or Medicare program, restrictions on the
ability to acquire new facilities or expand existing facilities and, in extreme
cases, revocation of the facility's license or closure of a facility. Federal
law also imposes civil and criminal penalties for submission of false or
fraudulent claims, including nursing home bills and cost reports, to Medicare
or Medicaid. There can be no assurance that lessees of skilled nursing
facilities owned by the Company, or the Age Institute of Florida as the obligor
on the Florida Facilities Note, or the provision of services and supplies by
such lessees or the Age Institute of Florida, will meet or continue to meet the
requirements for participation in the Medicaid or Medicare programs or state
licensing authorities or that regulatory authorities will not adopt changes or
new interpretations of existing regulations that would adversely affect the
ability of lessees or borrowers to make rental or loan payments to the Company.
Both Medicare and the Pennsylvania Medicaid program (which constituted
15.8% and 66.4% of the revenues for the month ended November 30, 1997,
respectively, of the nine skilled nursing facilities included in the Initial
Properties) impose limitations on the amount of reimbursement available for
capital-related costs,
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<PAGE>
such as depreciation, interest and rental expenses, following a change of
ownership, including a sale and leaseback transaction. Under currently
applicable Medicare reimbursement policies, the amount of Medicare
reimbursement available to a skilled nursing facility for rental expenses
following a sale and leaseback transaction may not exceed the amount that would
have been reimbursed as capital costs had the provider retained legal title to
the facility. The Pennsylvania Medicaid program imposes a similar limitation,
basing reimbursement for capital-related costs for new owners (including rent
paid by lessees) on the appraised fair rental value of the facility to the
prior owner as determined by the Pennsylvania Department of Public Welfare.
Thus, if rental expenses are greater than the allowable capital cost
reimbursement a skilled nursing facility would have received had the sale and
leaseback transaction not occurred and the provider retained legal title, the
amount of Medicare reimbursement received by the provider will be limited.
Medicare will begin a three-year phase out of separate capital cost
reimbursement for skilled nursing facilities beginning July 1, 1998 under
provisions of the Balanced Budget Act of 1997, which establish a prospective
payment system for skilled nursing facilities that will factor capital-related
costs into the facility's per diem rates for resident care. There can be no
assurance that reimbursement of the costs of skilled nursing facilities
included in the Initial Properties under current or future reimbursement
methodologies will be adequate to cover the rental payments owed to the
Company.
Although not currently regulated at the federal level (except under laws
of general applicability to businesses, such as work place safety and income
tax requirements), assisted living facilities are increasingly becoming subject
to more stringent regulation and licensing by state and local health and social
service agencies and other regulatory authorities. In general, these assisted
living requirements address, among other things: personnel education, training
and records; facility services, including administration of medication,
assistance with self-administration of medication and limited nursing services;
monitoring of wellness; physical plant inspections; furnishing of resident
units; food and housekeeping services; emergency evacuation plans; and resident
rights and responsibilities, including in certain states the right to receive
certain healthcare services from providers of a resident's choice. In several
states, assisted living facilities also require a Certificate of Need before
the facility can be opened, expand or reduce its resident capacity or make
other significant capital expenditures. Certain of the Initial Properties are
licensed to provide independent living services which generally involve lower
levels of resident assistance. Like skilled nursing facilities and other
healthcare facilities, assisted living facilities are subject to periodic
inspection by government authorities. In most states, assisted living
facilities, as well as skilled nursing and other healthcare facilities, also
are subject to state or local building code, fire code and food service
licensure or certification requirements. Any failure by the Company's lessees
or borrowers to meet applicable regulatory requirements may result in the
imposition of fines, imposition of a provisional or conditional license or
suspension or revocation of a license or other sanctions or adverse
consequences, including delays in opening or expanding a facility. Any failure
by the Company's lessees or borrowers to comply with such requirements could
have a material adverse effect on the Company.
Healthcare operators also are subject to federal and state
anti-remuneration laws and regulations, such as the Medicare/Medicaid
anti-kickback law, which govern certain financial arrangements among healthcare
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients or the purchasing, leasing, ordering or
arranging for any goods, facilities, services or items for which payment can be
made under Medicare or Medicaid. A violation of the federal anti-kickback law
could result in the loss of eligibility to participate in Medicare or Medicaid,
or in civil or criminal penalties. The federal government, private insurers and
various state enforcement agencies have increased their scrutiny of providers,
business practices and claims in an effort to identify and prosecute fraudulent
and abusive practices. In addition, the federal government has issued fraud
alerts concerning nursing services, double billing, home health services and
the provision of medical supplies to nursing facilities; accordingly, these
areas may come under closer scrutiny by the government. Furthermore, some
states restrict certain business corporations from providing, or holding
themselves out as a provider of, medical care. Possible sanctions for violation
of any of these restrictions or prohibitions include loss of licensure or
eligibility to participate in reimbursement programs and civil and criminal
penalties. State laws
22
<PAGE>
vary from state to state, are often vague and have seldom been interpreted by
the courts or regulatory agencies. There can be no assurance that these federal
and state laws will ultimately be interpreted in a manner consistent with the
practices of the Company's lessees or the Age Institute of Florida.
Reliance on government and other third party reimbursement by operators of
skilled nursing facilities. Assisted living services currently are not
generally reimbursable under government reimbursement programs, such as
Medicare and Medicaid. A significant portion of the revenue derived from the
nine skilled nursing facilities included in the Initial Properties and the 11
skilled nursing facilities securing the Florida Facilities Note, however, is
attributable to government reimbursement programs such as Medicare and
Medicaid. Future budget reductions in government-financed programs could
significantly reduce reimbursement payments, and there can be no assurance that
future payment rates will be sufficient to cover the costs of providing
services to residents of such facilities. The Medicare program is highly
regulated and subject to frequent and substantial changes. In recent years,
changes in the Medicare program have resulted in reduced levels of payment for
a substantial portion of healthcare services. There can be no assurance that
reimbursement levels will not be further reduced in future periods. The
Medicaid program is a federally-mandated, state-run program providing benefits
to low income and other eligible persons and is funded through a combination of
state and federal funding. The method of reimbursement for skilled nursing care
under Medicaid varies from state to state, but is typically based on rates set
by the state. Under Medicare and many state Medicaid programs, rates for
skilled nursing facilities are based on facilities costs as reported to the
applicable federal or state agency. The facilities costs for services purchased
from an organization related by ownership or control are limited to the costs
(not charges) of the related organization. Any failure to comply with these
requirements could have a variety of adverse consequences on the operator of
the skilled nursing facility, including recoupment of amounts overpaid and
other sanctions under false claim laws. Although lease and loan payments to the
Company are not directly linked to the level of government reimbursement, to
the extent that changes in these programs have a material adverse effect on the
revenues from such facilities, such changes could have a material adverse
impact on the ability of the lessees of the skilled nursing facilities included
in the Initial Properties, and the Age Institute of Florida as the borrower
under the Florida Facilities Note, to make lease and loan payments. Healthcare
facilities also have experienced increasing pressures from private payors
attempting to control healthcare costs that in some instances have reduced
reimbursement to levels approaching that of government payors. There can be no
assurance that future actions by private third party payors, including cost
control measures adopted by managed care organizations, will not result in
further reductions in reimbursement levels, or that future reimbursements from
any payor will be sufficient to cover the costs of the facilities' operations.
Potential delays may be encountered in substituting lessees or operators
due to the fact that licenses will be held by lessees and borrowers and not by
the Company. A loss of license or Medicare/Medicaid certification by a lessee
of the Company or by the Age Institute of Florida, or a default by lessees or
borrowers under loans made by the Company, could result in the Company having
to obtain another lessee or substitute operator for the affected facility or
facilities. Because the facility licenses for the Initial Properties will be
held by lessees or borrowers and not the Company and because under the REIT tax
rules the Company would have to find a new "unrelated" lessee to operate the
properties, the Company may encounter delays in exercising its remedies under
leases and loans made by the Company or substituting a new lessee or operator
in the event of any loss of licensure or Medical/Medicaid certification by a
prior lessee or operator. No assurances can be given that the Company could
contract with a new lessee or successor operator on a timely basis or on
acceptable terms and a failure of the Company to do so could have a material
adverse effect on the Company's financial condition and results of operations.
Shortage of qualified healthcare personnel could adversely affect the
ability of lessees and borrowers to make lease or loan payments to the
Company. The healthcare industry has at times experienced a shortage of
qualified healthcare personnel. The Company's lessees and borrowers compete
with other healthcare providers and with non-healthcare providers for both
professional and non-professional employees. While the Company believes that
its lessees and borrowers have been able to retain the services of an adequate
number of qualified personnel to staff the facilities included in the Initial
Properties appropriately and maintain standards of quality care, there can be
no assurance that shortages will not in the future affect the ability of the
Company's lessees or borrowers to attract and maintain an adequate staff of
qualified healthcare personnel.
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A lack of qualified personnel at a facility could result in significant
increases in labor costs at such facility or otherwise adversely affect
operations at such facility. Any of these developments could adversely affect
the ability of lessees or borrowers to make required lease or loan payments.
Transfers of healthcare facilities will require regulatory approvals and
alternative uses of healthcare facilities are limited. Transfers of operations
of certain healthcare facilities are subject to regulatory approvals not
required for transfers of other types of commercial operations and other types
of real estate. In addition, substantially all of the Initial Properties are
special purpose facilities that may not be easily adaptable to
non-healthcare-related uses.
Proximity to hospitals and other healthcare facilities may affect the
Company's ability to renew leases and attract new tenants in the event of
relocation or closure of a hospital or other healthcare facility. Many of the
assisted living facilities, skilled nursing facilities and medical office
buildings included in the Initial Properties are in close proximity to one or
more hospitals. The relocation or closure of a hospital could make the
Company's assisted living facilities, skilled nursing facilities or medical
office buildings in such area less desirable and affect the Company's ability
to renew leases and attract new tenants. See "Business and Properties --
Government Regulation."
The Company's Use of Debt Financing, the Absence of a Limitation on Debt,
Increases in Interest Rates and Requirements of Tax-Exempt Bond Financing could
have Adverse Effects on the Company
The required repayment of debt or interest thereon could adversely affect
the Company's financial condition. The Company will be subject to risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to pay distributions at expected levels and meet
required payments of principal and interest, the risk that existing
indebtedness on the Initial Properties or subsequently acquired properties
(which in all cases will not have been fully amortized at maturity) will not be
able to be refinanced or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. Upon consummation of the
Offering, the Company expects to have $34.2 million of outstanding indebtedness
which will be secured by certain of the Initial Properties and an additional
$44.6 million outstanding under its Credit Facility. See "Business and
Properties -- Mortgage Debt." If principal payments due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, the Company expects that its cash flow will not be
sufficient in all years to pay distributions at expected levels and to repay
such maturing debt. Furthermore, if prevailing interest rates or other factors
at the time of refinancing (such as the reluctance of lenders to make
commercial real estate loans) result in higher interest rates upon refinancing,
the interest expense relating to such refinanced indebtedness would increase,
which would adversely affect the Company's cash flow and the amount of
distributions it can make to investors. If a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the property could be foreclosed by or otherwise transferred
to the mortgagee with a consequent loss of income and asset value to the
Company. Finally, the fact that a significant number of the leases that the
Company has entered into and expects to enter into in the future will not
require payment of minimum rent may adversely affect the Company's ability to
obtain additional or replacement financing in the future.
The absence of a limitation on debt could result in the Company's becoming
highly leveraged and adversely affect the Company's cash flow. Upon completion
of the Offering, the Company's debt to market capitalization ratio including
amounts expected to be drawn under the Credit Facility is expected to be
approximately 36.3% (25.3% if the Underwriters' overallotment option is
exercised in full). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." The
Company does not have a policy limiting the amount of debt that the Company may
incur. Accordingly, the Company could become more highly leveraged, resulting
in an increase in debt service that could adversely affect the Company's cash
flow and, consequently, the amount available for distribution to shareholders,
and could increase the risk of default on the Company's indebtedness.
Rising interest rates and variable rate debt could adversely affect the
Company's cash flow. Upon consummation of the Offering, the Company, through
the Operating Partnership, expects to enter into the Credit Facility. Advances
under the Credit Facility totaling $44.6 million at the Closing of the Offering
and
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further increasing as draws are made under outstanding Construction Loans and
Construction Loan Commitments are expected to bear interest at variable rates
based upon a specified spread over the one month London Interbank Offered Rate
("LIBOR"). In addition, the Company will assume debt totaling approximately
$483,000 subject to a variable interest rate. The Company, through the
Operating Partnership, may incur other variable rate indebtedness in the
future. Increases in interest rates on such indebtedness could increase the
Company's interest expense, which would adversely affect the Company's cash
flow and its ability to pay expected distributions to investors. Accordingly,
the Company may in the future engage in other transactions to further limit its
exposure to rising interest rates as appropriate and cost effective. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Any failure to comply with tax-exempt bond financing requirements and
restrictions could result in termination of tax-exempt status and/or
acceleration of the bonds. The Company's indebtedness includes approximately
$19.6 million in connection with tax-exempt bond financings (the "Series 1994
Bonds" and the "Series 1995 Bonds") relating to the Highgate and Woodbridge
assisted living facilities. The underlying Series 1994 and Series 1995 Bonds
are subject to various restrictions, conditions and requirements under the Code
and its implementing regulations. In addition, the Series 1994 and Series 1995
Bond financing documents impose certain requirements and restrictions in
connection with the operation of the facilities, including a requirement that
at all times at least 20% of the rental units in the facilities will be
occupied by tenants whose adjusted gross family income does not exceed 50% of
the median gross income for the relevant geographic area. If these requirements
and restrictions are not complied with, the tax-exempt status of the bonds
could be terminated and/or the bond obligations under the bond documents could
be accelerated. In the event of a default under the bonds used to finance the
Highgate and Woodbridge facilities, the Company's interest in the relevant
property would be subordinate to the interests of the bondholder. In connection
with the acquisition of the Highgate and Woodbridge facilities, the Company is
seeking consent from the bondholder to the transfer of the ownership interests
in these facilities and for certain waivers and certain amendments to the bond
documents. If these waivers and consents are not obtained, various
non-exclusive remedies would be available to the bondholder under the bond
documents, including (i) acceleration of all principal and interest due on the
bonds (including a 3% acceleration premium), (ii) foreclosure, (iii) the bond
trustee's taking possession of the facilities (iv) the appointment of a
receiver to take posesion of and operate the facilities and (v) the
bondholder's seeking specific performance of the terms of the bond documents.
If the bondholder were to pursue any of such remedies, such action could
materially and adversely affect the Company's ability to make cash
distributions at the level currently anticipated. In the event of an
acceleration of the bonds, the Company intends to pay off the bonds, including
the 3% acceleration premium, using a portion of the funds available under the
Credit Facility which may result in higher interest payments by the Company and
correspondingly lower amounts of cash available for distribution to
shareholders.
The Company's Performance and Value are subject to Risks Associated with the
Real Estate Industry
The Company's properties will be subject to general real estate investment
risks. The Initial Properties and subsequently acquired properties, including
properties subject to purchase contracts and options, will be subject to
various real estate-related risks. The acquisition of additional properties may
be subject to the ability of the Company to borrow amounts sufficient to pay
the purchase price therefor. There can be no assurance that the value of any
property acquired by the Company will appreciate or that the value of
properties securing the Term Loans, the Construction Loans, the Penn Mortgage
or the Florida Facilities Note will not depreciate. Additional risks of
investing in real estate include the possibilities that the real estate will
not generate income sufficient to meet operating expenses, will generate income
and capital appreciation, if any, at rates lower than those anticipated or will
yield returns lower than those available through investment in comparable real
estate or other investments. Income from properties and yields from investments
in such properties may be affected by many factors, including changes in
government regulation (such as zoning laws), general or local economic
conditions (such as fluctuations in interest rates and employment conditions),
the available local supply of and demand for improved real estate, a reduction
in rental income as the result of the inability to maintain occupancy levels,
natural disasters (such as earthquakes and floods) or similar factors. Further,
equity investments in real estate are relatively illiquid, and, therefore, the
ability of the Company to vary its portfolio in response to changed conditions
will be limited.
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The Company's financial condition could be adversely affected due to
uninsurable loss. It is the intention of the Company to secure, or to require
Genesis and other lessees, tenants and borrowers to secure, adequate
comprehensive property and liability insurance that covers the Company as well
as the lessee, tenant or borrower. Certain risks may, however, be uninsurable
or not economically insurable, and there can be no assurance that the Company
or a lessee, tenant or borrower will have adequate funds to cover all
contingencies itself. Should such an uninsurable loss occur, the Company could
lose both its invested capital, including its equity interests, and any
anticipated profits relating to such property.
Leases and loan defaults and failure to renew leases could adversely
affect the Company's financial condition and results of operations. Any lease
arrangement, such as the leases between the Company and lessees and tenants of
the Initial Properties and subsequently acquired properties, creates the
possibility that a lessee or tenant may either default on the lease or fail to
exercise an option to renew the lease, and, in such event, the Company may be
unable to lease such property to another lessee or tenant on a timely basis or
at all. Even if the Company could lease such property to another lessee or
tenant, any such replacement lease may be on less favorable terms than those of
the original lease. In such an instance, the Company would continue to be
responsible for payment of any indebtedness it had incurred with respect to
such property. Any such default or non-renewal could result in a reduction in
revenue derived from the affected lease and defaults or non-renewals under
several leases at the same time or defaults under one or more of the Term
Loans, the Construction Loans, the Construction Loan Commitments (once funded)
or the Florida Facilities Note could have a material adverse effect on the
Company's financial condition and results of operations.
Subordination of Florida Facilities Note and sale of collateral or
refinancing as principal source of repayment. The Florida Facilities Note is
non-recourse to the Age Institute of Florida and is not guaranteed by any
person or entity. Thus, in the event of a default, ET Capital Corp. will have
no recourse for satisfaction of the debt other than to look to the collateral.
Genesis holds a first priority security interest in all of the collateral
securing the Florida Facilities Note. As of the Offering, the outstanding
balance on the first-position obligation to Genesis will be in the approximate
amount of $40.0 million. In the event of a default on the $40.0 million Age
Institute of Florida senior debt held by Genesis, it is possible that if the
collateral were liquidated there would be insufficient equity after
satisfaction of the $40.0 million obligation available to repay the Florida
Facilities Note. Further, the subordination agreement between Genesis and the
Age Institute of Florida relating to the Florida Facilities Note and a $2.5
million pari passu working capital term note (together, the "Subordinated
Notes") will require the Subordinated Note holders to "standstill" in their
exercise of remedies under certain circumstances. Even if the payment
obligations on the $40.0 million debt are not in default, any default on a
Subordinated Note or any other indebtedness of the Age Institute of Florida
would cause a cross default under the senior loan documents and would allow
Genesis or other holder of the $40.0 million of senior indebtedness to enforce
the standstill provisions of the subordination agreement and to foreclose upon
the $40.0 million of senior debt. The Age Institute of Florida has limited
financial resources. The principal source of repayment of the principal amount
of the Florida Facilities Note, therefore, is likely to be from a sale of the
11 skilled nursing facilities that collateralize the $40.0 million of senior
debt and the Subordinated Notes or from a refinancing of the $40.0 million of
senior debt and the Subordinated Notes. There can be no assurance that the
Florida Facilities Note will be repaid in full or that interest payments on the
Note will be paid when due. See "Business and Properties -- Term Loans,
Construction Loans, Penn Mortgage and Florida Facilities Note -- The Florida
Facilities Note."
The revenues derived by the Company from Percentage Rent Leases will
depend to a greater extent on Genesis' ability to operate successfully the
properties subject to such leases due to the absence of minimum rent
provisions. The Percentage Rent Leases do not require any minimum rent. The
revenues to be derived by the Company under the Percentage Rent Leases,
therefore, will depend upon the ability of Genesis as lessee to operate
successfully properties subject to such leases. See "-- Dependence on Genesis
for the Company's Revenues and Ability to Make Distributions" and "-- Conflicts
of Interest Between the Company and Genesis and Mr. Walker in Connection with
the Formation and Operation of the Company -- The Company will experience
ongoing competition from and conflicts with Genesis."
Lack of industry diversification will subject the Company to the risks
associated with investments in a single industry. While the Company is
authorized to invest in various types of income-producing real
26
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estate, its current strategy is to acquire and hold, for long-term investment,
healthcare-related properties only. Consequently, the Company currently has
chosen not to include in the Initial Properties any significant non-healthcare
related real estate assets, and, therefore, will be subject to the risks
associated with investments in a single industry.
Making Loans on Development Projects
The Company has agreed to make the Term and Construction Loans totaling
approximately $55.2 million, of which approximately $34.8 million will be
funded at the closing of the Offering. In addition, the Company has made
Construction Loan Commitments totaling $55.1 million. Lending on development
projects is generally considered to involve greater risks than the purchase and
leaseback of operating properties. Risks associated with such lending
activities include that development activities may be abandoned, construction
costs of a facility may exceed original estimates possibly making the facility
uneconomical, occupancy rates and rents at a completed facility may not be
sufficient to cover loan or lease payments, permanent financing may not be
available on favorable terms and construction and lease-up may not be completed
on schedule resulting in increased debt service expense and construction costs.
In addition, construction lending activities typically will require a
substantial portion of management's time and attention. Such activities also
are subject to risks relating to the borrower's inability to obtain, or delays
in obtaining, all necessary zoning, land-use, building, occupancy and other
required governmental permits and authorizations. Further, there can be no
assurance that any of the Term Loans, Construction Loans, or the Construction
Loan Commitments (once funded) will be repaid. The Company has agreed to
purchase or has the option to purchase eight of the nine facilities that secure
the Term Loans and the Construction Loans at the end of the loan terms or at
such time as each facility reaches Stabilized Occupancy. There can be no
assurance as to the timing of the purchase of any of these facilities.
The Board May Change Investment Policies Without Shareholder Approval
The Company's Board of Trustees may change the investment, financing and
other policies of the Company without shareholder approval. Such policy changes
may have adverse consequences to the Company.
Possible Subordinated CMBS Investments
The Company is exploring providing subordinated CMBS financing in
connection with future investments by the Company in healthcare facilities,
including transactions which may involve Genesis in the future. In the
prototype transaction that the Company is considering, one or more privately
held limited partnerships (each a "Private Partnership") would be formed to
acquire or hold skilled nursing facilities or other healthcare facilities. The
Private Partnership would finance up to 90% of the purchase price or value of
the facilities by means of a mortgage loan made by a REMIC to the Private
Partnership and the remainder of the purchase price or value of the facilities
by means of an equity investment by the partners in the Private Partnership,
who may include Genesis and one or more of the Company's officers and trustees.
The Company likely would not have an equity interest in the Private
Partnership. The Company would invest in a subordinated mortgage loan interest
in the REMIC (the "Subordinated CMBS Interests"), the principal balance of
which would represent approximately 15% to 20% of the purchase price or value
of the properties and would be subordinate to the payment of principal and
interest on the senior interests in the REMIC ("Senior CMBS Interests"), which
would be held by a third party institutional lender and the principal balance
of which would represent approximately 70% to 75% of the purchase price or
value of the properties. It is expected that the loan from the REMIC to the
Private Partnership (the "REMIC Loan") would be on terms substantially similar
to the terms then available for first mortgage loans secured by skilled nursing
facilities made on a 90% loan-to-value basis. The REMIC Loan would not include
any equity participation or other similar rights on behalf of the REMIC. It is
expected that the Senior CMBS Interests would have terms substantially similar
to the terms then available for first mortgage loans secured by skilled nursing
facilities on a 70% to 75% loan-to-value basis, and the Subordinated CMBS
Interests would have terms substantially similar to the terms available for
second mortgage loans secured by skilled nursing facilities where there is 10%
equity and senior mortgage indebtedness for 70% to 75% of the value of the
property. The Private Partnership would either operate the facilities that they
acquire or net lease the facilities to Genesis, a Genesis affiliate or another
satisfactory operator for the day-to-day operation of the properties. If the
property were net leased by the Private Partnership, the Company's investment
would likely take the form of a preferred partnership interest.
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An investment by the Company in Subordinated CMBS Interests will involve
materially different potential risks and possible benefits from those
associated with a direct investment in skilled nursing facilities subject to
long-term Minimum Rent Leases. For example, the equity provided by the
investors in the Private Partnership would provide security and credit support
for any Subordinated CMBS Interests held by the Company. On the other hand, any
Subordinated CMBS Interests held by the Company would be at risk to the extent
that the net revenues of the Private Partnership would not be sufficient to
cover debt service on the Senior CMBS Interests. In this regard, under a
Minimum Rent Lease Genesis would be obligated to pay rent to the Company
regardless of the performance of a property, whereas in the case of a
Subordinated CMBS Interest, the Private Partnership (and indirectly the
Company) would have the risk associated with the operation of the facility. In
addition, the Company, as a lender, would have no ability to participate in
future appreciation or increased operating performance at a facility owned by a
Private Partnership, the full benefit of which would accrue to the investors in
the Private Partnership (which could include Genesis and one or more of the
Company's officers and trustees). There are no REMIC-related transactions
involving the Company which are probable at this time. See "Business and
Properties -- Possible Subordinated CMBS Investments."
The Ability of Shareholders to Effect a Change in Control of the Company is
Limited
Provisions in the Company's Declaration of Trust and Bylaws could prevent
changes in control. Certain provisions of the Company's Declaration of Trust
and Bylaws may have the effect of delaying, deferring or preventing a change in
control of the Company or other transaction that could provide the holders of
Common Shares with the opportunity to realize a premium over the
then-prevailing market price of such Common Shares. The Ownership Limit
(described under "-- Possible adverse consequences of ownership limit for
federal income tax purposes could inhibit changes in control") also may have
the effect of delaying, deferring or preventing a change in control of the
Company or other transaction even if such a change in control or transaction
were in the best interests of some, or a majority, of the Company's
shareholders. The Board of Trustees will consist of five members immediately
following the closing of the Offering who will be classified into three classes
with each class serving a three-year term. The staggered terms of the members
of the Board of Trustees may adversely affect the shareholders' ability to
effect a change in control of the Company, even if a change in control were in
the best interests of some, or a majority, of the Company's shareholders. See
"Management -- Trustees, Trustee Nominees and Executive Officers." The
Declaration of Trust authorizes the Board of Trustees to cause the Company to
issue up to 20,000,000 preferred shares of beneficial interest, $0.01 par value
per share ("Preferred Shares"), in series, and to establish the preferences,
rights and other terms of any series of Preferred Shares so issued. Such
Preferred Shares may be issued by the Board of Trustees without shareholder
approval, and the preferences, rights and other terms of any such Preferred
Shares may adversely affect the shareholders' ability to effect a change in
control of the Company, even if a change in control were in the best interests
of some, or a majority, of the Company's shareholders. See "Shares of
Beneficial Interest."
Certain provisions of Maryland law could inhibit changes in control.
Under provisions of the Maryland General Corporation Law, as amended ("MGCL"),
as applicable to REITs, certain "business combinations" (including certain
issuances of equity securities) between a Maryland REIT and any person who
beneficially owns ten percent or more of the voting power of the REIT's then
outstanding shares or an affiliate of the trust who, at any time within the
two-year period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting shares of
beneficial interest of the trust (an "Interested Shareholder"), or an affiliate
of the Interested Shareholder, are prohibited for five years after the most
recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be approved by the
affirmative vote of at least (i) 80% of all the votes entitled to be cast by
holders of the outstanding voting shares and (ii) two-thirds of the votes
entitled to be cast by holders of voting shares held by the Interested
Shareholder who is (or whose affiliate is) a party to the business combination
unless, among other conditions, the REIT's common shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. The Board of Trustees of the Company has not
opted out of the business combination provisions of the MGCL. Consequently, the
five-year prohibition and the super-majority vote requirements will apply to a
business combination involving the Company.
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Possible adverse consequences of ownership limit for federal income tax
purposes could inhibit changes in control. To maintain its qualification as a
REIT for federal income tax purposes, not more than 50% in value of the
outstanding shares of beneficial interest of the Company may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code, to include
certain entities). See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Organizational Requirements." In addition, for the
Company to maintain REIT status, neither Genesis nor any constructively owns
10% or more of the outstanding stock of Genesis or any other tenant entity may
own actually or constructively 10% or more, in value or voting rights, of the
outstanding shares of beneficial interest of the Company. To facilitate
maintenance of its qualification as a REIT for federal income tax purposes, the
Declaration of Trust generally will prohibit ownership, directly or by virtue
of the attribution provisions of the Code, by any single shareholder of more
than 8.6% of the issued and outstanding Common Shares and generally will
prohibit ownership, directly or by virtue of the attribution provisions of the
Code, by any single shareholder of more than 9.9% of the issued and outstanding
shares of any class or series of the Company's Preferred Shares (collectively,
the "Ownership Limit"). Mr. Romanov may own up to 15.0% of the Common Shares
(the "Excluded Holder Limit"). The Board of Trustees, in its sole discretion,
may waive the ownership limitations with respect to a holder if the Board is
satisfied, based on the advice of counsel or a ruling from the Internal Revenue
Service, that such holder's ownership will not then or in the future jeopardize
the Company's status as a REIT. In view, however, of the potential risks posed
to the Company if a shareholder who owned 10% or more of the Company also were
considered to own 10% or more of Genesis or any other tenant entity, the Board
of Trustees will have less flexibility, as a practical matter, to grant waivers
and exemptions than would be the case if a substantial portion of the Company's
properties were not leased to a single tenant. Absent any such exemption or
waiver, Common Shares acquired or held in violation of the Ownership Limit will
be transferred to a trust for the benefit of a designated charitable
beneficiary, with the person who acquired such Common Shares in violation of
the Ownership Limit not entitled to receive any distributions thereon, to vote
such Common Shares, or to receive any proceeds from the subsequent sale thereof
in excess of the lesser of the price paid therefor or the amount realized from
such sale. A transfer of Common Shares to a person who, as a result of the
transfer, violates the Ownership Limit may be void under certain circumstances.
See "Shares of Beneficial Interest -- Restrictions on Ownership and Transfer."
The Ownership Limit may have the effect of delaying, deferring or preventing a
change in control and, therefore, could adversely affect the shareholder's
ability to realize a premium over the then-prevailing market price for the
Common Shares in connection with such a transaction.
Failure to Qualify as a REIT would cause the Company to be Taxed as a
Corporation
The Company will be treated as a corporation if it fails to qualify as a
REIT. The Company intends to operate so as to qualify as a REIT under the
Code, commencing with its taxable year ending December 31, 1998. Although
management believes that the Company will be organized and will operate in such
a manner, no assurance can be given that the Company will be organized or will
be able to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and some on a quarterly basis) established under highly
technical and complex Code provisions for which there are only limited judicial
and administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Company's control.
For example, in order to qualify as a REIT, at least 95% of the Company's gross
income in any year must be derived from qualifying sources, and the Company
must pay distributions to shareholders aggregating annually at least 95% of its
REIT taxable income (excluding capital gains and certain noncash income). The
complexity of these provisions and of the applicable regulations that have been
promulgated under the Code (the "Treasury Regulations") is greater in the case
of a REIT, such as the Company, that holds its assets in partnership form. No
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect the Company's ability to operate as a
REIT.
Hogan & Hartson L.L.P., tax counsel to the Company, has rendered an
opinion to the effect that the Company is organized in conformity with the
requirements for qualification as a REIT and its proposed
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<PAGE>
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT. See "Federal Income Tax Considerations -- Taxation of
the Company." Such legal opinion, however, is based on various assumptions and
factual representations by the Company regarding the Company's business and
assets and the Company's ability to meet the various requirements for
qualification as a REIT, and no assurance can be given that actual operating
results will meet these requirements. Such legal opinion is not binding on the
Internal Revenue Service (the "IRS") or any court. Moreover, the Company's
qualification and taxation as a REIT will depend upon the Company's ability to
meet (through actual annual operating results, distribution levels and
diversity of stock ownership) the various qualification tests imposed under the
Code, the results of which will not be reviewed by tax counsel to the Company.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. This
treatment would significantly reduce the net earnings of the Company available
for investment or distribution to shareholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
shareholders would no longer be required to be made. See "Federal Income Tax
Considerations -- Failure of the Company to Qualify as a REIT."
Certain special considerations will apply due to the nature of the
Company's assets. The manner in which the Company will derive income from the
assisted and independent living facilities and skilled nursing facilities will
be governed by special considerations in satisfying the requirements for REIT
qualification. Because the Company would not qualify as a REIT if it directly
operated an assisted or independent living facility, or a skilled nursing
facility, the Company will lease such facilities to a healthcare provider, such
as Genesis, that will operate the facility. It is essential to the Company's
qualification as a REIT that these arrangements be respected as leases for
federal income tax purposes and that the lessees (including Genesis and SLC)
not be regarded as "related parties" of the Company (as determined under the
applicable Code provisions). See "Federal Income Tax Consideration --
Requirements for Qualification as a REIT -- Income Tests." In the event the
leases expire and are not renewed, the Company will have to find a new
"unrelated" lessee to lease and operate the properties in order to continue to
qualify as a REIT. In the event of a default on either a lease of, or a
mortgage secured by, an assisted or independent living facility or skilled
nursing facility, the Company, to maintain its REIT qualification, would have
to engage a new healthcare provider (which could not include Genesis or its
subsidiaries or SLC) to operate the facility after the Company takes possession
of the facility. This requirement could deter the Company from exercising its
remedies in the event of a default even though such exercise otherwise would be
in the Company's best interests. Although the Company would be permitted to
operate the facility for 90 days after taking possession of the facility
pursuant to applicable Treasury Regulation without jeopardizing its REIT
status, the fact that the facility licenses will be held by lessees or
borrowers may preclude the Company from doing so under applicable healthcare
regulatory requirements.
Other tax liabilities could adversely affect the Company's cash flows.
Even if the Company qualifies as a REIT, it will be subject to certain
federal, state and local taxes on its income and property and ET Capital Corp.
will be subject to corporate level tax. See "Federal Income Tax Considerations
- -- Other Tax Consequences for the Company and its Shareholders."
Liability for Environmental Matters could Adversely Affect the Company's
Financial Condition
Under federal, state and local laws and regulations relating to protection
of the environment ("Environmental Laws"), a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous
or toxic substances or petroleum product releases at such property and may be
held liable to a governmental entity or to third parties for property damage
and for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner or operator knew of or caused the
presence of the contaminants, and the liability under such laws has been
interpreted to be joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. In addition, the owner or
operator of a site may be subject to claims by third parties based on damages
and costs resulting from environmental contamination emanating from a site.
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<PAGE>
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). Such laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM would be disturbed
during renovation or demolition of a building. Such laws may impose fines and
penalties on building owners or operators for failure to comply with these
requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
Independent environmental consultants have conducted or updated
comprehensive environmental assessments at the Initial Properties, the Lease-up
Assisted Living Facilities and the 11 skilled nursing facilities that secure
the Florida Facilities Note. These assessments have included, at a minimum, a
visual inspection of the properties and the surrounding areas, an examination
of current and historical uses of the properties and the surrounding areas and
a review of relevant state, federal and historical documents. Where
appropriate, on a property by property basis, additional testing has been
conducted, including sampling for asbestos, for lead in drinking water, for
soil contamination where underground storage tanks are or were located or where
other past site usages create a potential for site impact, and for
contamination in groundwater.
These environmental assessments have not revealed any environmental
liabilities that the Company believes would have a material adverse effect on
the Company's business, financial condition or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
ACBM is suspected in approximately one-third of the properties based on visual
inspection and isolated sampling. Most of these buildings contain only minor
amounts of ACBM in good condition and nearly all of it is non-friable. All ACBM
is currently being properly managed and maintained and other requirements
relating to ACBM are being followed. The presence of ACBM should not present a
significant risk as long as compliance with these requirements continues. For a
few of the Initial Properties, potential offsite sources of contamination, such
as nearby underground storage tanks ("USTs"), are noted. For some of the
properties, previous uses, such as the former presence of USTs, have been
noted; in these cases, documented USTs subject to regulatory requirements were
either removed, replaced, or otherwise brought into compliance.
The Company believes that the Initial Properties, the Lease-up Assisted
Living Facilities and the 11 skilled nursing facilities that secure the Florida
Facilities Note are in compliance in all material respects with applicable
Environmental Laws. The Company believes that the issues identified in the
environmental reports will not have a material adverse effect on the Company if
it continues to comply with Environmental Laws and with the recommendations set
forth in these reports.
Ancillary to the operation of healthcare facilities are, in various
combinations, the handling, use, storage, transportation, disposal and/or
discharge of hazardous, infectious, toxic, radioactive, flammable and other
hazardous materials, wastes, pollutants or contaminants. Such activities may
result in damage to individuals, property or the environment; may interrupt
operations and/or increase their costs; may result in legal liability, damages,
injunctions or fines; may result in investigations, administrative proceedings,
penalties or other governmental agency actions; and may not be covered by
insurance. There can be no assurance that lessees or borrowers of the Company
will not encounter such risks, and such risks may have a material adverse
effect on their ability to make lease or loan payments to the Company.
Competition in the Marketplace could have an Adverse Impact on the Ability of
Lessees and Borrowers to Make Lease and Loan Payments to the Company
The Company will compete with other healthcare REITs, real estate
partnerships, healthcare providers and other investors, including but not
limited to banks and insurance companies, in the acquisition, leasing and
financing of healthcare facilities. Certain of these investors may have greater
resources than the Company. Genesis and other lessees operating properties that
the Company will own or that secure loans to be made by the Company compete on
a local and regional basis with operators of other facilities that provide
comparable services. Operators compete for residents based on quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price. In general, regulatory and other
barriers to competitive entry in the assisted living industry are not
substantial. Moreover, if the development of new assisted living facilities
outpaces demand for these facilities in certain markets, such markets may
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<PAGE>
become saturated. Such an oversupply of facilities could cause operators of
Company-owned facilities to experience decreased occupancy, depressed margins
and lower operating results, which could have a material adverse effect on
their ability to make lease or loan payments to the Company. The Company will
purchase, or make loans with an obligation to purchase, all of the assisted
living facilities owned by Genesis as of September 30, 1997 (except for a
32-bed facility as to which the Company will have an option to purchase at fair
market value in cash exercisable within one year after the facility reaches
Stabilized Occupancy).
The Executive Officers and Trustees of the Company will have Substantial
Influence
None of the trustees and executive officers of the Company are selling any
Common Shares in the Offering. Upon completion of the Offering, Messrs. Walker
and Romanov will beneficially own approximately 4.0% and 9.7%, respectively, of
the total issued and outstanding Common Shares and approximately 3.8% and 9.2%,
respectively, of the total Common Shares and Units to be outstanding upon
completion of the Offering. All trustees and executive officers as a group will
beneficially own approximately 15.6% of the total issued and outstanding Common
Shares and approximately 14.9% of the total Common Shares and Units to be
outstanding upon completion of the Offering. After 14 months following
completion of the Offering, all Units issued to the trustees and executive
officers of the Company at the closing of the Offering will be redeemable by
the holder for cash or, at the option of the Company, Common Shares on a
one-for-one basis. Accordingly, such persons will have substantial influence on
the Company, which influence might not be consistent with the interests of
other shareholders. See "Principal Shareholders."
The Company will be Dependent on Key Personnel whose Continued Service is Not
Guaranteed
The Company is dependent on the efforts of its Chairman, Mr. Walker, and
its two executive officers, Messrs. Romanov and McCreary. The loss of their
services could have an adverse effect on the operations of the Company. Mr.
Romanov will enter into an employment and non-competition agreement with the
Company. See "Management -- Employment and Non-Competition Agreements."
Purchasers of Common Shares will Experience Immediate Dilution
As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be less
than the estimated initial public offering price per Common Share in the
Offering. Accordingly, purchasers of the Common Shares offered hereby will
experience immediate dilution of $1.94 in the net tangible book value of the
Common Shares from the estimated initial public offering price. See "Dilution."
Lack of a Prior Public Market, Changes in Market Conditions, Changes in
Earnings and Cash Distributions, Changes in Interest Rates and Dependence on
External Sources of Capital could Adversely Impact the Trading Price of the
Common Shares
The absence of a prior public market for Common Shares. Prior to the
completion of the Offering, there has been no public market for the Common
Shares and there can be no assurance that an active trading market will develop
or be sustained or that Common Shares will be resold at or above the assumed
initial public offering price. The offering price of the Common Shares will be
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Shares after the completion of
the Offering. The market value of the Common Shares could be substantially
affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as governmental regulatory action and
changes in tax laws, could have a significant impact on the future market price
of the Common Shares.
Availability of shares for future sale could adversely affect Common Share
price. Sales of a substantial number of restricted Common Shares, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Shares. Subsequent to the Offering, approximately
432,600 restricted Common Shares will be issued and outstanding and 482,030
Units will be issued and outstanding. The restricted Common Shares and Common
Shares issued upon redemption of Units may be sold in the public market
pursuant to registration rights (subject to the terms and conditions thereof)
that the Company has granted or pursuant to Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"). In addition, the Company intends to
reserve 689,498 Common Shares for issuance pursuant to the Company's 1998 Share
Option and Incentive Plan, and these Common Shares will be available for sale
from time to time pursuant to exemptions from registration requirements or upon
registration. Options to purchase a
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<PAGE>
total of 497,500 Common Shares are expected to be granted to the Company's
executive officers and trustees upon the completion of the Offering. See
"Management." No prediction can be made about the effect that future sales of
Common Shares will have on the market prices of the Common Shares. See "Shares
Available for Future Sale."
Changes in market conditions could adversely affect Common Share price.
As with other publicly traded equity securities, the value of the Common
Shares will depend upon various market conditions, which may change from time
to time. Among the market conditions that may affect the value of the Common
Shares are the following: the extent to which a secondary market develops for
the Common Shares following the completion of the Offering; the extent of
institutional investor interest in the Company; the general reputation of
healthcare REITs and the attractiveness of their equity securities in
comparison to other equity securities (including securities issued by other
real estate-based companies); the Company's financial performance; the
financial performance of Genesis and other lessees of the Company's facilities;
and general stock and bond market conditions. Although the offering price of
the Common Shares will be determined by the Company in consultation with the
Underwriters, there can be no assurance that the Common Shares will not trade
below the offering price following the completion of the Offering.
Effect on common share price of changes in earnings and cash
distributions. It is generally believed that the market value of the equity
securities of a REIT is based primarily upon the market's perception of the
REIT's growth potential and its current and potential future cash
distributions, whether from operations, sales or refinancings, and is
secondarily based upon the value of the underlying assets. For that reason,
Common Shares may trade at prices that are higher or lower than the net asset
value per Common Share. To the extent the Company retains operating cash flow
for investment purposes, working capital reserves or other purposes, these
retained funds, while increasing the value of the Company's underlying assets,
may not correspondingly increase the market price of the Common Shares. The
failure of the Company to meet the market's expectation with regard to future
earnings and cash distributions likely would adversely affect the market price
of the Common Shares.
Effect on Common Share price of changes in market interest rates. One of
the factors that will influence the price of the Common Shares will be the
dividend yield on the Common Shares (as a percentage of the price of the Common
Shares) relative to market interest rates. Thus, an increase in market interest
rates may lead prospective purchasers of Common Shares to expect a higher
dividend yield, which would adversely affect the market price of the Common
Shares.
Dependence on external sources of capital could adversely affect Common
Share price. In order to qualify as a REIT under the Code, the Company
generally is required each year to distribute to its shareholders at least 95%
of its net taxable income (excluding any net capital gain). See "Federal Income
Tax Considerations -- Taxation of the Company -- Annual Distribution
Requirements." Because of these distribution requirements, it is unlikely that
the Company will be able to fund all future capital needs, including capital
needs in connection with financing of additional development projects and
acquisitions, from cash retained from operations. As a result, to fund future
capital needs, the Company likely will have to rely on third-party sources of
capital, which may or may not be available on favorable terms or at all. The
Company's access to third-party sources of capital will depend upon a number of
factors, including the market's perception of the Company's growth potential
and its current and potential future earnings and cash distributions and the
market price of the Common Shares. Moreover, additional equity offerings may
result in substantial dilution of shareholders' interests in the Company, and
additional debt financing may substantially increase the Company's leverage.
See "Policies with Respect to Certain Activities -- Financing Policies."
ERISA Risks
Depending upon the particular circumstances of an ERISA Plan (as
hereinafter defined), an investment by an ERISA Plan in the Common Shares may
not be appropriate under Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). In deciding whether to purchase Common Shares on behalf of
an ERISA Plan, a fiduciary of an ERISA Plan, in consultation with its advisors,
should carefully consider its responsibilities under ERISA, the prohibited
transaction rules of ERISA and the Code and the effect of regulations issued by
the U.S. Department of Labor defining what constitutes assets of an ERISA Plan.
See "ERISA Considerations."
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<PAGE>
THE COMPANY
The Company has been formed to invest in healthcare-related real estate
and mortgages. The Company will be self-administered and self-managed and
expects to qualify as a REIT for federal income tax purposes. Upon completion
of the Offering, the Company intends to invest in an initial portfolio of 21
Initial Properties, the Term Loans totaling $27.4 million secured by five
assisted living facilities in lease-up, initial draws under Construction Loans
totaling $7.4 million secured by four assisted living facilities in
development, the Penn Mortgage and in ET Capital Corp., which will own the
Florida Facilities Note. The Initial Properties and properties securing the
loans are located in eight states in the eastern United States. The Company
also agreed to or has the option to purchase eight of the nine assisted or
independent living facilities that secure the Term Loans and Construction
Loans, as well as nine of the ten assisted living development and expansion
projects currently in the planning stage for which the Company will make
Construction Loan Commitments totaling $55.1 million.
The Company will lease the Initial Properties pursuant to Percentage Rent
or Minimum Rent Leases (other then medical office and other buildings, which
will be acquired by the Company subject to the existing Fixed Rate Leases).
Percentage Rent Leases will be based on a specified percentage of facility
revenues with no required minimum rent. Minimum Rent Leases will provide for
base rent, plus scheduled base rent step-ups and, in the case of certain of the
Minimum Rent Leases, additional rent based on incremental revenues over the
base year. Both types of leases are triple net leases that require the lessees
to pay all operating expenses, taxes, insurance and other costs, and have
initial terms of 10 or 12 years, subject to renewal. Fixed Rent Leases provide
for specified annual rent, subject to increases in rent in certain of the Fixed
Rent Leases. The Term Loans and Construction Loans to be made by the Company
will have fixed rates of interest based on a spread (350 or 400 basis points)
over the three-year U.S. Treasury Note rate in effect as of the closing of the
Offering, except for two Term Loans and one Construction Loan which will have
fixed rates of interest of 10.5% and one Construction Loan which will have a
fixed rate of interest between 15% and 18% depending on the loan balance. See
"Risk Factors -- Dependence on Genesis for the Company's Revenues and Ability
to Make Distributions," "-- Operating Risks Interest in Highly Regulated
Healthcare Industry may Adversely Affect the Operations of the Company's
Lessees and Borrowers" and "Business and Properties -- Term Loans, Construction
Loans, Penn Mortgage and Florida Facilities Note."
Upon completion of the Offering, approximately 51.0% of the Company's
total assets will consist of properties leased to and loans made to
consolidated subsidiaries of Genesis. In addition, 13 of the Initial Properties
or interests therein (including three skilled nursing facilities which Genesis
acquired from CKHS effective January 1, 1998 and will transfer to the Company
at the closing of the Offering at the same purchase price), the Penn Mortgage
and the Florida Facilities Note will be purchased from Genesis, and Genesis or
entities in which it has an interest will be the borrower under all but two of
the Term and Construction Loans. In addition, Michael R. Walker, who will serve
both as the Company's Chairman of the Board and as Chairman of the Board and
Chief Executive Officer of Genesis has interests in five of the Initial
Properties. Subsidiaries of Genesis will operate or manage substantially all of
the Initial Properties, as well as properties that secure loans made by the
Company. Approximately $126.7 million of the net proceeds from the Offering,
including initial draws under the Credit Facility, will be paid to Genesis and
entities in which it has an interest, and approximately $1.9 million will be
paid to Mr. Walker, as the purchase price for Initial Properties or interests
therein and certain other assets being acquired by the Company, as repayment of
indebtedness, as repayment of certain expenses incurred by the Company in its
formation and as the purchase price of or initial draws under Term and
Construction Loans being made to or acquired from Genesis. See "Risk Factors --
Dependence on Genesis for the Company's Revenues and Ability to Make
Distributions," "Conflicts of Interest" and "Benefits to Related Parties."
Genesis will operate each of the facilities leased to it. In addition,
Genesis will manage the four skilled nursing facilities leased to
Crozer/Genesis and the skilled nursing facility leased to a subsidiary of the
Age Institute of Florida. Beginning upon completion of the Offering, Genesis
will receive a management fee equal to 5.4% of the net operating revenues
generated by the skilled nursing facilities leased to Crozer/Genesis. Up to 30%
of the management fee payable to Genesis with respect to each such facility
will be subordinated to lease payments due to the Company with respect to such
facility. In addition, Genesis will make available to Crozer/Genesis a line of
credit, and Crozer/Genesis will enter into Network Services Agreements with
Genesis for the four facilities. Any amounts payable to Genesis by
Crozer/Genesis under this line of credit and fees
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<PAGE>
payable to Genesis under the Network Services Agreement will not be
subordinated to the lease payment obligations of Crozer/Genesis under its
Minimum Rent Lease with the Company. Similarly, all but 3 1/2% of the 6%
management fee payable to Genesis by the Age Institute of Florida will be
subordinated to the lease payment obligations under the Minimum Rent Lease
entered into by the Age Institute of Florida subsidiary and the Company. See
"Business and Properties."
The Operating Partnership is the vehicle through which the Company will
own the Initial Properties, the Term Loans and the Construction Loans and the
Penn Mortgage. The Florida Facilities Note will be owned by ET Capital Corp.,
an entity in which the Operating Partnership will hold all of the non-voting
stock representing 95% of the economic interest in ET Capital Corp. The
ownership and management structure of the Company is intended to enable the
Company to acquire assets in transactions that may defer some or all of the
sellers' tax consequences, including those acquired in connection with the
Company's formation.
The principal executive offices of the Company and the Operating
Partnership are located at ElderTrust, 415 McFarlan Road, Suite 202, Kennett
Square, PA 19348 and its telephone number is (610) 925-0808.
BUSINESS AND GROWTH STRATEGIES
The Company's principal business objective is to maximize growth in cash
available for distribution and to enhance the value of its portfolio in order
to maximize total return to shareholders. The Company's business and growth
strategies to achieve this objective are: (i) to invest in a high quality
portfolio of healthcare-related properties operated or managed by established
operators or in mortgages secured by such properties located in close proximity
to complementary healthcare services and facilities; (ii) to pursue
aggressively opportunities for portfolio growth by providing traditional and
innovative REIT financing to established operators in the healthcare industry;
(iii) to provide shareholders the opportunity for increased distributions from
annual increases in rental income and interest income and from portfolio
growth; and (iv) to provide shareholders with stock price appreciation
resulting from potential increases in the value of the Company's investments.
There can be no assurance, however, that these investment objectives will be
realized.
The Company believes its strategy of investing in facilities that are
operated or managed by established operators, such as Genesis, and that are
located near other complementary healthcare services and faciltiies will result
in a marketing advantage for operators of its facilities, which may result in
higher occupancy rates and revenues. Substantially all of the initial assisted
and independent living facilities and development projects are located in close
proximity to complementary healthcare services and facilities, such as skilled
nursing facilities operated by Genesis and other healthcare providers. Genesis
intends for residents of assisted living facilities owned by the Company to
have access to long-term care at a Genesis owned skilled nursing facility
located near the assisted living facility. In addition, complementary
healthcare providers, such as Genesis, will be available to provide ancillary
services (such as pharmacy, physical therapy, nursing and physician services)
needed from time to time by residents of the facilities leased or managed by
Genesis through the Genesis ElderCareTM Networks. See "Business and Properties
- -- Lessees -- Genesis Initial Properties."
The Company expects to achieve growth as follows:
Internal Growth. Management believes the Company's future internal growth
will come from (i) potentially higher occupancy and associated increased rental
income from facilities not previously operated or managed by Genesis due, in
part, to the ability of facility residents to participate in the Genesis
ElderCareTM Networks; (ii) future price increases to facility residents and
resulting increases in rental income payable under the Percentage Rent Leases
and Minimum Rent Leases and (iii) adjustments to rents under certain of the
Fixed Rent Leases.
Growth from Draws Under Construction Loans, Construction Loan Commitments
and Facility Purchase Contracts and Options. The Company anticipates additional
growth from (i) increasing draws under the Construction Loans, which are
expected to increase from an initial $7.4 million to approximately $21.4
million in 18 months, (ii) funding of the Construction Loan Commitments, which
is expected to total approximately $46.7 million in 18 months and (iii) the
purchase and leaseback to Genesis, pursuant to purchase contracts that will be
in place as of the closing of the Offering, of the five Lease-up Assisted
Living Facilities and two of the four Initial Assisted or Independent Living
Development Projects upon the earlier of
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<PAGE>
the maturity of the related Term Loan or Construction Loan or at such time as
the facility reaches Stabilized Occupancy. The Company has an option to
purchase one of the two remaining Initial Assisted or Independent Living
Development Projects for which Construction Loans will be made at the closing
of the Offering. In addition, the Company has agreed to purchase or has the
option to purchase nine of the ten assisted living development and expansion
projects currently in the preliminary planning phase. See "Business and
Properties."
External Growth. The Company's external growth strategy is to become a
significant source of healthcare industry capital. The Company intends to focus
initially on the acquisition of equity interests in and mortgages secured by
assisted living, independent living and skilled nursing facilities, and, to a
lesser extent, medical office and other buildings, located in the eastern
United States, although the Company may also make investments in other types of
healthcare facilities and in other geographic regions. The Company intends to
offer Units to sellers who would otherwise recognize a taxable gain upon a sale
of assets, which also may facilitate sale/leaseback transactions on a
tax-deferred basis. The Company believes that the substantial healthcare
industry experience and numerous relationships of its management and trustees
will help the Company identify, evaluate and complete additional investments.
In making future investments, the Company intends to focus on established
healthcare operators which meet the Company's standards for facility quality,
proximity to complementary healthcare services and facilities and experience of
management. In the near term, the Company anticipates that a significant
portion of new investments will involve Genesis as lessee or manager.
The Board of Trustees may change the investment policies of the Company at
any time without a vote of shareholders.
Possible Subordinated CMBS Investments
The Company and Genesis are currently discussing a possible transaction
involving the purchase by the Company in the first half of 1998 of up to $30
million in CMBSs issued by REMICs and secured by skilled nursing facilities
currently owned by Genesis. Any such transaction would be subject to, among
other things, the approvals of the Board of Trustees of the Company and the
Board of Directors of Genesis, availability of financing, negotiation of the
transaction documents, receipt of necessary third party consents and regulatory
approvals. There can be no assurance that any such transaction will be
consummated. See "Risk Factors -- Possible Subordinated CMBS Investments,"
"Business and Properties -- Possible Subordinated CMBS Investments" and
"Policies with Respect to Certain Activities."
Right of First Refusal Agreement
The Company and Genesis have entered into the Right of First Refusal
Agreement, pursuant to which Genesis has granted the Company a right of first
refusal to purchase and leaseback to Genesis any assisted living, independent
living or skilled nursing facilities which Genesis determines to sell and
leaseback as part of a sale/leaseback transaction or transactions (other than
sale/leaseback transactions with commercial banking institutions). The Right of
First Refusal Agreement also provides the Company with (i) a right to offer
financing to Genesis and other developers of assisted and independent living
facilities which, once developed, will be operated by Genesis and (ii) a right
to offer financing to Genesis with respect to any new off-balance sheet
financing of skilled nursing facilities currently owned by Genesis. The Company
believes that its agreement with Genesis will provide it with opportunities to
acquire, and finance the development of, additional assisted living,
independent living or skilled nursing facilities within the Genesis ElderCareTM
Networks. In turn, the Company has provided Genesis a right of first refusal to
lease or manage any assisted living, independent living or skilled nursing
facility financed or acquired by the Company within Genesis' markets unless the
facility will be leased or managed by the developing or selling company or an
affiliate. See "Risk Factors -- Conflicts of Interest Between the Company and
Genesis and Mr. Walker in Connection with the Formation and Operation of the
Company."
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CONFLICTS OF INTEREST
Conflicts of interest exist on the part of the Company and Genesis and Mr.
Walker. Such conflicts include: (i) Mr. Walker's serving simultaneously as
Chairman of the Board of the Company and Chairman of the Board and Chief
Executive Officer of Genesis; (ii) the lack of arm's length negotiations and
the absence of independent valuations or appraisals with respect to the
purchase prices of, and, as applicable, the leaseback provisions for, the
Initial Properties and other assets or interests therein being acquired by the
Company, or which the Company has contracted to purchase, from Genesis and
entities in which it has an interest and from Mr. Walker, as well as with
respect to the terms of the Term Loans, Construction Loans and Construction
Loan Commitments being made by the Company; (iii) the fact that 13 of the
Initial Properties or interests therein will be purchased from Genesis and
entities in which it has an interest (including three skilled nursing
facilities which Genesis acquired from CKHS effective January 1, 1998 and will
transfer to the Company at the closing of the Offering at the same purchase
price), and that Genesis or entities in which it has an interest will be the
borrower under all but two of the Term and Construction Loans; (iv) the fact
that interests in five of the Initial Properties will be acquired from Mr.
Walker; and (v) the potential for future conflicts arising from any failure by
the Company to enforce the terms of the leases, Term Loans, Construction Loans
and Construction Loan Commitments and other agreements to be entered into
between the Company and Genesis and Mr. Walker and three executive officers of
Genesis transferring property interests to the Company. In addition, Mr.
Romanov, President and Chief Executive Officer and a trustee of the Company,
previously served as Senior Vice President of Genesis. He will resign as an
employee of Genesis upon completion of the Offering. Following the Offering,
the Company will be prohibited by the terms of its Bylaws from acquiring
additional properties from Genesis or the Company's trustees and officers or
affiliates thereof without the approval of a majority of the disinterested
trustees (other than pursuant to agreements entered into in connection with the
Formation Transactions). Genesis, Mr. Walker, Mr. Romanov and certain other
executive officers of Genesis will receive certain benefits in the Formation
Transactions. See "Benefits to Related Parties."
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<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after deducting
the estimated underwriting discount and estimated Offering expenses of
approximately $10.8 million, are estimated to be approximately $110.2 million
(approximately $127.1 million if the Underwriters' overallotment option is
exercised in full), based upon the assumed initial public offering price.
The net cash proceeds of the Offering, together with approximately $44.6
million of borrowings under the Credit Facility, will be used by the Company,
as follows: (i) approximately $102.2 million to acquire the Initial Properties
or interests therein; (ii) approximately $7.5 million to repay mortgage
indebtedness; (iii) approximately $8.2 million to acquire the Penn Mortgage and
substantially all of the economic interest in the Florida Facilities Note; (iv)
approximately $27.4 million to fund the Term Loans; (v) approximately $7.4
million to fund the initial draws under the Construction Loans; (vi)
approximately $0.2 million for costs associated with the Credit Facility and
other organizational expenses; and (vii) approximately $1.9 million for working
capital and other general corporate purposes. See "Structure and Formation of
the Company" and "Business and Properties -- Credit Facility and Tax-Exempt
Financing."
If the Underwriters' overallotment option is exercised in full, the
Company expects to use the additional proceeds (which will be approximately
$16.9 million) to reduce the amounts initially borrowed under the Credit
Facility.
Pending application of the net proceeds of the Offering, the Company will
invest such portion of the net proceeds in interest-bearing accounts and/or
short-term, interest-bearing securities which are consistent with the Company's
intention to qualify for taxation as a REIT.
The Company will acquire certain properties for cash plus the assumption
of debt to which those properties were subject. The Company intends to repay a
portion of such debt. Certain information regarding the indebtedness to be
repaid is set forth as follows:
Debt to be Repaid with a Portion of the Offering Proceeds
<TABLE>
<CAPTION>
Amount to be
Property Maturity Date Interest Rate (1) Repaid (1) (2)
- ------------------------------------------------------- ----------------- ------------------- ---------------
(in thousands)
<S> <C> <C> <C>
Silverlake NRC ....................................... July 1, 1998 7.50% $ 5,356
Windsor Off. Bldg. and Windsor Clinic/Trg. Fac. ...... May 1, 2005 10.25 1,144
Salisbury Med. Off. Bldg. ........................... July 30, 2000 10.25 718
Highgate at Paoli Pointe .............................. January 1, 2001 11.00 250
Total ............................................. $ 7,468
=======
</TABLE>
- ------------
(1) The Company estimates that the indebtedness to be repaid with a portion of
the proceeds of the Offering will have a weighted average interest rate of
approximately 8.3% and a weighted average maturity of approximately 1.9
years as of December 1, 1997. Repayment amounts assume that the
indebtedness is repaid on December 1, 1997. Exact repayment amounts may
differ due to amortization.
(2) Represents prepayment of principal only.
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DISTRIBUTIONS
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Shares. The
initial distribution, covering a partial quarter commencing on the date of
completion of the Offering and ending on March 31, 1998, is expected to be
$____ per share, which represents a pro rata distribution based on a full
quarterly distribution of $0.365 per share and an annual distribution of $1.46
per share (or an annual distribution rate of 7.3%). The Company does not intend
to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised. The following discussion and the information
set forth in the table and footnotes below should be read in conjunction with
the Pro Forma Statements of Operations and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
The Company intends initially to distribute annually approximately 94.0%
of estimated Cash Available for Distribution based upon the assumed initial
public offering price of $20.00 per share. The estimate of Cash Available for
Distribution for the 12 months following the closing of the Offering is based
upon pro forma Funds from Operations for the 12 months ended September 30,
1997, adjusted for certain known events and/or contractual commitments that
either have occurred or will occur as of the date of closing of the Offering
(including giving effect to the use of the net proceeds from the Offering
described elsewhere herein as of such date) and (ii) for certain non-GAAP items
consisting of (A) revisions to estimated rent revenues from a GAAP basis to
amounts currently being paid or due from lessees or tenants, (B) pro forma
amortization of financing costs and (C) pro forma amortization of organization
costs. No effect was given to any changes in working capital resulting from
changes in current assets and current liabilities (which changes are not
anticipated to be material) or the amount of cash estimated to be used for (i)
investing activities (other than for medical office building tenant
improvements and purchases of office equipment) and (ii) financing activities
(other than scheduled loan principal payments on existing indebtedness). The
estimate of Cash Available for Distribution is being made solely for the
purpose of setting the initial distribution and is not intended to be a
projection or forecast of the Company's results of operations or its liquidity,
nor is the methodology upon which such estimate was made necessarily intended
to be a basis for determining future distributions. Future distributions by the
Company will be at the discretion of the Board of Trustees. There can be no
assurance that any distributions will be made or that the estimated level of
distributions will be maintained by the Company.
The Company anticipates that its distributions may exceed earnings and
profits for federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that up to 10% of the distributions anticipated to be
paid by the Company for the 12-month period following the completion of the
Offering will represent a return of capital for federal income tax purposes and
in such event will not be subject to federal income tax under current law to
the extent such distributions do not exceed a shareholder's basis in his Common
Shares. The nontaxable distributions will reduce the shareholder's tax basis in
the Common Shares and, therefore, the gain (or loss) recognized on the sale of
such Common Shares or upon liquidation of the Company will be increased (or
decreased) accordingly. The percentage of shareholder distributions that
represents a nontaxable return of capital may vary substantially from year to
year.
The Code generally requires that a REIT distribute annually at least 95%
of its net taxable income (excluding any net capital gain). See "Federal Income
Tax Considerations -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements." The estimated Cash Available for Distribution is
anticipated to be in excess of the annual distribution requirements applicable
to REITs under the Code. Under certain circumstances, the Company may be
required to make distributions in excess of Cash Available for Distribution in
order to meet such distribution requirements. For a discussion of the tax
treatment of distributions to holders of Common Shares, see "Federal Income Tax
Considerations."
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company intends to maintain its initial distribution rate for the 12-month
period following the completion of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. The Company's actual
39
<PAGE>
results of operations will be affected by a number of factors, including the
revenue and interest income received from its properties and loans, interest
and dividend income from ET Capital Corp., the operating expenses of the
Company, interest expense, the ability of lessees, tenants and borrowers to
meet their financial obligations and unanticipated capital expenditures.
Variations in the net proceeds from the Offering as a result of a change in the
initial public offering price or the exercise of the Underwriters'
overallotment option may affect Cash Available for Distribution, the payout
ratio based on Cash Available for Distribution and available reserves. No
assurance can be given that the Company's estimate will prove accurate. Actual
results may vary substantially from the estimate.
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended September 30, 1997 and the adjustments to
pro forma Funds from Operations for the 12 months ended September 30, 1997 in
estimating initial Cash Available for Distribution for the 12 months following
the closing of the Offering:
<TABLE>
<CAPTION>
(in thousands, except
per share data)
----------------------
<S> <C> <C>
Pro forma net income for the year ended December 31, 1996 ........................... $ 1,467
Plus: Pro forma net income for the nine months ended September 30, 1997 ............ 3,259
Less: Pro forma net income for the nine months ended September 30, 1996 ............ (799)
--------
Pro forma operating income before minority interest for the 12 months ended
September 30, 1997 ............................................................... $ 3,927
Plus: Pro forma real estate depreciation for the 12 months ended September 30, 1997
(1) .............................................................................. 4,172
Plus: Pro forma minority interest relating to Operating Partnership Units for the 12
months ended September 30, 1997 ................................................... 272
--------
Pro forma Funds from Operations for the 12 months ended September 30, 1997 (2) . $ 8,371
Adjustments:
Net increases in rental income (3) ................................................ 742
Net increase in interest income (4) ................................................ 2,213
Interest expense adjustment (5) ................................................... 61
--------
Estimated adjusted pro forma Funds from Operations for the 12 months following the
completion of the Offering ......................................................... $ 11,387
Net effect of straight-line rents (6) ............................................. 84
Pro forma amortization of financing costs for the 12 months ended September 30,
1997 (7) ........................................................................ (234)
Non-real estate amortization (8) ................................................... 5
--------
Estimated pro forma Cash Flow from Operating Activities for the 12 months follow-
ing completion of the Offering $ 11,242
Investment Activities:
Estimated recurring tenant improvements and purchases of office equipment (9) . . (111)
Financing Activities:
Scheduled borrowings under Credit Facility for Credit Facility acquisition
costs (10) ..................................................................... 313
Scheduled loan principal payments (11) ............................................. (630)
--------
Estimated Cash Available for Distribution for the 12 months following the closing of
the Offering . ..................................................................... $ 10,814
========
Company's share of estimated Cash Available for Distribution (12) ............... $10,064
=======
Minority interest's share of estimated Cash Available for Distribution ......... $ 750
=======
Total estimated initial annual cash distributions ................................. $ 10,168
========
Estimated initial annual distribution per share (13) .............................. $ 1.46
========
Payout ratio based on estimated Cash Available for Distribution (14) ............... 94.0 %
========
</TABLE>
40
<PAGE>
- ------------
(1) Pro forma real estate depreciation for the year ended December 31, 1996 of
$3.9 million plus pro forma real estate depreciation for the nine months
ended September 30, 1997 of $3.1 million minus pro forma real estate
depreciation for the nine months ended September 30, 1996 of $2.8 million.
(2) The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in March 1995 defines Funds from Operations as net
income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of properties, plus real estate
related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. The Company believes that
Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures and to fund other cash needs.
The Company computes Funds from Operations in accordance with standards
established by NAREIT which may not be comparable to Funds from Operations
reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions.
(3) Represents the increase in rental income from Minimum Rent and Fixed Rent
Leases for the 12-month period following the closing of the Offering.
Rental income from properties under development during the pro forma
periods was not recognized until such property was placed in service. This
amount reflects the adjustment necessary to reflect minimum or fixed
rental income from all Minimum Rent and Fixed Rent Leases during the first
year in accordance with leases to be executed at or prior to the closing
of the Offering in conjunction with the acquisition of the properties.
(4) Represents the increase in interest income resulting from Term and
Construction Loans for the 12-month period following the closing of the
Offering. Interest income from loans on properties under development
during the pro forma periods was recognized based upon the development
costs incurred. This calculation was performed on a monthly basis over the
pro forma period. The adjustment is the amount necessary to reflect the
annual interest income, based upon the terms of the underlying loan
commitment agreements, on the balance of the Term and Construction Loans
to be funded at the date of the Offering at the interest rate which would
have been applied had the Offering occurred at September 30, 1997. The
interest rate on Term Loan and Construction Loans will be fixed at the
time of closing of the Offering based on a spread of 350 or 400 basis
points over the then applicable three-year U.S. Treasury Note rate, except
for the Construction Loans on the Montchanin and Mallard Landing
development projects which will have fixed rates of interest equal to
10.5% and 15%, respectively. The net increase in interest income included
in the table was calculated based on the applicable spread of 350 or 400
basis points over the three-year U.S. Treasury Note rate in effect on
September 30, 1997 for the loans whose interest rate will be fixed at the
time of closing of the Offering and 10.5% and 15% for the Construction
Loans for the Montchanin and Mallard Landing facilities, respectively. No
effect is given for additional Construction Loan draws of approximately
$16.2 million which are expected to be drawn by borrowers during the
12-month period immediately following the closing of the Offering.
Additionally, the adjustment includes the annualization of interest income
under Construction Loans for the principal amounts to be outstanding at
the closing of the Offering, as well as an adjustment of interest rates
based on the three-year U.S. Treasury Note rate as of September 30, 1997.
(5) Represents a reduction in interest expense due to amortization of the
related indebtedness over the 12-month period following the closing of the
Offering.
(6) Represents the effect of adjusting straight-line rental revenue included
in pro forma revenues from the straight-line accrual basis to amounts
currently being paid or due from tenants.
(7) Represents financing costs associated with the Credit Facility. See
"Business and Properties -- Credit Facility and Tax-Exempt Financing."
(8) Represents pro forma amortization of $25,000 of organization costs on a
straight-line basis over five years.
(9) Represents recurring medical office building tenant improvements and
office equipment purchases budgeted at $1.00 per square foot of total
square footage.
(10) Represents scheduled borrowings under the Credit Facility for Credit
Facility acquisition costs expensed in computing ProForma Cash Flow from
Operating Activities for the 12-months following completion of the
Offering.
(11) Represents scheduled loan principal payments for the 12 months following
the closing of the Offering.
(12) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distribution to shareholders of the Company
is based on its approximate 93.1% aggregate partnership interest in the
Operating Partnership.
(13) Based on a total of 6,482,600 Common Shares to be outstanding after the
Offering (6,050,000 shares to be sold in the Offering, assuming no
exercise of the Underwriters' overallotment option, and 432,600 additional
Common Shares to be issued in the Formation Transactions.)
(14) Calculated as estimated initial annual cash distributions to shareholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months following the closing of the Offering.
The payout ratio based on estimated adjusted pro forma Funds from
Operations is 89.3%.
41
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of September 30, 1997, and on a pro forma basis, as adjusted to give
effect to the Formation Transactions, the Offering and use of the net proceeds
from the Offering as set forth under "Use of Proceeds." The information set
forth in the table should be read in conjunction with the financial statements
and notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
September 30, 1997
---------------------------
Pro Forma,
Historical As Adjusted
------------ ------------
(in thousands)
<S> <C> <C>
Debt:
Mortgages payable (1) ....................................... $ -- $ 34,239
Credit Facility (1) .......................................... -- 44,580
Minority interest in Operating Partnership .................. -- 9,641
Shareholders' equity:
Preferred Shares, $.01 par value per share, 20,000,000 shares
authorized; none issued and outstanding .................. -- --
Common Shares, $.01 par value per share, 100,000,000 shares
authorized; 100 issued and outstanding; 6,482,600 issued and
outstanding, as adjusted (2) .............................. -- 65
Additional Paid-In Capital ................................. -- 114,809
---------- --------
Shareholders' Equity ....................................... -- 114,874
---------- --------
Total Capitalization .................................... $ -- $203,334
========== ========
</TABLE>
- ------------
(1) See notes 7 and 8 of the notes to the pro forma financial statements for
additional information.
(2) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 225,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued to
Mr. Romanov in a private placement and (iv) Common Share awards totaling
2,500 shares each to be made upon completion of the Offering to the
Company's three trustee nominees under the Company's 1998 Share Option and
Incentive Plan. See "Benefits to Related Parties." Does not include (i)
482,030 Common Shares that may be issued upon the exchange of Units issued
in connection with the Formation Transactions, (ii) 907,500 Common Shares
subject to the Underwriters' overallotment option or (iii) 497,500 Common
Shares subject to options to be granted under the Company's 1998 Share
Option and Incentive Plan.
42
<PAGE>
DILUTION
As of September 30, 1997, the Company had 100 Common Shares issued and
outstanding. After giving effect to the sale of the Common Shares offered
hereby (at an assumed initial public offering price of $20.00 per Common Share)
and the receipt by the Company of approximately $110.2 million in net proceeds
from the Offering (after deducting the Underwriters' discounts and commissions
and other estimated expenses of the Offering), the pro forma net tangible book
value at September 30, 1997 would have been approximately $125.8 million, or
$18.06 per Common Share. This amount represents an immediate increase in net
tangible book value of $5.73 per Common Share to the holders of restricted
Common Shares and Units to be issued in connection with the Formation
Transactions and an immediate dilution in pro forma net tangible book value of
$1.94 per Common Share to new investors. The following table illustrates this
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .............................. $20.00
Net tangible book value per share prior to the Offering (1) .................. $12.33
Increase in net tangible book value per share attributable to the Offering (2) 5.73
------
Pro forma net tangible book value after the Offering (3) ..................... 18.06
------
Dilution in net tangible book value per Common Share to purchasers in the
Offering (4) ............................................................... $ 1.94
======
</TABLE>
- ------------
(1) Tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Operating Partnership (based on
the September 30, 1997 net book value of the tangible net assets) by the
sum of the number of Common Shares (i) issued and outstanding and (ii)
issuable (including upon the exchange of all Units to be issued) to
investors in the Formation Transactions.
(2) Based upon the assumed initial public offering price of $20.00 per Common
Share and after deducting Underwriters' discounts and commissions and
estimated expenses of the Offering and the Formation Transactions.
(3) Based on total pro forma net tangible book value of $125.8 million divided
by the total number of Common Shares outstanding after the completion of
the Offering (6,482,600 Common Shares) and Common Shares issuable in
exchange for Units (482,030 Common Shares), and excluding Common Shares
that may be issuable upon exercise of share options. There is no dilution
attributable to the issuance of Common Shares in exchange for Units to be
issued to the Continuing Investors in the Formation Transactions because
such Units would be exchanged for Common Shares on a one-for-one basis.
(4) Dilution is determined by subtracting net tangible book value per Common
Share after the Offering from the assumed initial public offering price of
$20.00 per Common Share.
43
<PAGE>
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of Common Shares to be sold
by the Company in the Offering and the number of restricted Common Shares and
Units to be outstanding upon completion of the Formation Transactions, the net
tangible book value as of September 30, 1997 of the assets contributed by the
investors in the Formation Transactions and the net tangible book value of the
average contribution per share based on total contributions.
<TABLE>
<CAPTION>
Cash/
Common Shares/ Book Value of
Units Issued Contributions Book Value
---------------------- ------------------------------------- of
Average
Common Contribution
Shares/ Per Share/
Units Percent $ Percent Unit
----------- --------- ------------------ ----------------- -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Purchasers in the Offering ..................... 6,050,000 86.9% $ 121,000(1) 88.6%(1) $ 20.00
Common Shares issued in the Formation
Transactions ................................. 432,600 6.2 8,500(2) 6.3 (2) 19.65
Units issued in the Formation Transactions . 482,030 6.9 7,026 5.1 14.57
--------- ----- ------------- ----------- -------
Total ....................................... 6,964,630 100.0% $ 136,526 100.0 % $ 19.60
========= ===== ============= =========== =======
</TABLE>
- ------------
(1) Before deducting Underwriters' discounts and commissions and other
estimated expenses of the Offering.
(2) Based on the September 30, 1997 net book value of the assets, adjusted for
the Formation Transactions.
44
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth financial information for the Company which
is derived from the Balance Sheet and the Pro Forma Balance Sheet and
Statements of Operations included elsewhere in this Prospectus. The adjustments
for the Offering assume an initial public offering price of $20.00 per share
and that the Underwriters' overallotment option is not exercised.
Pro forma operating data is presented for the year ended December 31,
1996, and the nine months ended September 30, 1997, as if the Offering and the
acquisitions of the Initial Investments and related transactions had occurred,
and as if the respective leases had been in effect at January 1, 1996. The pro
forma balance sheet data is presented as of September 30, 1997, as if the
Offering and the acquisitions of the Initial Investments and related
transactions had occurred, and as if the respective leases had been in effect
at that date. The pro forma information incorporates certain assumptions that
are included in the notes to the Pro Forma Balance Sheet and Statements of
Operations included elsewhere in this Prospectus. See "Pro Forma Balance Sheet
and Statements of Operations." The pro forma information does not purport to
represent what the actual financial position or results of operations of the
Company would have been as of or for the periods indicated nor does it purport
to represent the financial position or results of operations for any future
period.
<TABLE>
<CAPTION>
Pro Forma at Pro Forma at
or for the Nine or for the
Months Ended Year Ended
Historical(1) September 30, 1997 December 31, 1996
--------------- -------------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma operating data:
Revenues ....................................... $ -- $ 13,040 $ 14,484
Net income ....................................... -- 3,259 1,467
Earnings per share .............................. -- 0.50 0.23
Common shares outstanding ........................ 100 6,482,600 6,482,600
Pro forma balance sheet data:
Initial Properties .............................. $ -- $ 156,721 N/A
Investment in ET Capital Corp. .................. -- 7,406 N/A
Loans receivable ................................. -- 30,629 N/A
Other assets .................................... -- 2,406 N/A
Total assets .................................... -- 203,957 N/A
Mortgages payable .............................. -- 34,239 N/A
Credit Facility ................................. -- 44,580 N/A
Minority interest in Operating Partnership ...... -- 9,641 N/A
Total shareholders' equity ..................... -- 112,109 N/A
Other data:
Funds from Operations (2) ........................ $ -- $ 6,659 $ 5,464
Weighted average number of Common Shares
and Units outstanding ........................ 100 6,964,630 6,964,630
</TABLE>
- ------------
(1) The Company was formed on September 23, 1997 and was capitalized with the
issuance of 100 Common Shares for a purchase price of $100.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was formed in Maryland on September 23, 1997, and intends to
make an election and to qualify under the Code as a REIT commencing with its
taxable year ending December 31, 1998.
Substantially all of the Company's revenues are expected to be derived
from: (i) rents received under Percentage, Minimum and Fixed Rent Leases of
healthcare-related real estate; (ii) interest earned from Term and Construction
Loans, the Penn Mortgage and the Florida Facilities Note; and (iii) interest
earned from the temporary investment of funds in short-term instruments. The
Percentage Rent Leases provide for rents based on a specified percentage of
facility operating revenues with no required minimum rent. The Minimum Rent
Leases provide for (i) base rent (increasing each year by 1.5%) and additional
rent based upon a specified percentage of annual revenues over revenues for the
first year of the lease, (ii) base rent, increasing each year by the lesser of
5% of the increase in facility revenues for the immediately preceding year or
one-half of the increase in the Consumer Price Index for the immediately
preceding year, or (iii) base rent, increasing each year by 2.5%. Both types of
leases are triple net leases that require the lessees to pay all operating
expenses, taxes, insurance and other costs (including a portion of capitalized
expenditures). The Fixed Rent Leases are with existing tenants in the medical
office and other buildings included in the Initial Properties and provide for
specified annual rents, subject to increase in certain of the leases. Interest
on the Term and Construction Loans will be at fixed rates of 10.5% or ranging
from 15% to 18% (depending on the loan balance, in the case of one Construction
Loan), or at rates based on the three-year U.S. Treasury Note rate plus 350 or
400 basis points. The Company has agreed to or has options to purchase the
assisted living facilities securing the Term and Construction Loans included in
the Initial Investments, and these facilities also will be leased back to the
sellers (or to Genesis in the case of the Lease-up Assisted Living Facility in
which Genesis holds a 49% interest) pursuant to Percentage Rent Leases or
Minimum Rent Leases.
The Company will incur operating and administrative expenses, including
principally compensation expense for its executive officers and other
employees, office rental and related occupancy costs. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company will engage legal, accounting, tax
and financial advisors as needed from time to time.
The Company also expects to leverage its portfolio of real estate equity
investments and will incur long and short-term indebtedness, and related
interest expense, from time to time. The Board of Trustees will consider a
number of factors when evaluating the Company's level of indebtedness and when
making decisions regarding the incurrence of indebtedness. See "Risk Factors --
The Company's Use of Debt Financing, the Absence of a Limitation on Debt,
Increases in Interest Rates and Requirements of Tax-Exempt Bond Financing Could
Have Adverse Effects on the Company."
The Company intends to declare and pay distributions to its shareholders
in amounts not less than the amounts required to maintain REIT status under the
Code and, in general, in amounts exceeding taxable income. The Company's
ability to pay distributions will depend upon its cash available for
distribution.
Nonrecurring Compensation Expense
With respect to the issuance of Units to certain officers of the Company
in connection with the formation of the Company (see "Benefits to Related
Parties"), the Company has recognized compensation expense of approximately
$2.6 million based on the estimated value of such Units, which will be reported
in the Company's statement of operations for the period from September 23, 1997
(the date of its formation) to December 31, 1997. This expense is a
nonrecurring item and, accordingly, has not been reflected in the pro forma
statements of operations.
46
<PAGE>
Results of Operations
The Company has had no operations prior to September 23, 1997 (the date of
its formation) through the date of this Prospectus. The Company's future
results of operations will depend upon the acquisition of the Initial
Investments and the terms of any subsequent investments the Company may make.
Pro Forma Statements of Operations
Year Ended December 31, 1996
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Investments and related transactions, revenues would
have been $14.5 million and net income would have been $1.5 million, or $0.23
per share, for the year ended December 31, 1996. Depreciation, amortization and
other non-cash expenses would have been $4.1 million.
Nine Months Ended September 30, 1997
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Investments and related transactions, revenues would
have been $13.0 million and net income would have been $3.3 million, or $0.50
per share, for the nine months ended September 30, 1997. Depreciation,
amortization and other non-cash expenses would have been $3.3 million.
Certain of the Initial Properties were under development or in the
lease-up phase during the year ended December 31, 1996 and/or the nine months
ended September 30, 1997. The pro forma statements of operations have been
prepared assuming the Company made Term or Construction Loans on these
properties; however, these properties are now operational and will be acquired
at the time of the Offering and leased back to the sellers under Minimum Rent
Leases or Percentage Rent Leases. In addition, the Term and Construction Loans
the Company will fund either would not have been in existence during part of
the periods or would have been funded at lower levels (due to the earlier stage
of development of the related facilities) than will be the case upon closing of
the Offering, and the Florida Facilities Note was not in existence until
September 1, 1996. For these and other reasons, the pro forma statements of
operations do not purport to present what the Company's results of operations
or cash available for distribution would actually have been if the Offering and
related transactions had occurred on January 1, 1996 or to project the
Company's results of operations for any future period.
Liquidity and Capital Resources
Management believes that the net proceeds of this Offering, together with
the Credit Facility, will be sufficient to consummate the purchase of the
Initial Properties and the other assets being acquired by the Company, to fund
the Term Loans, to fund the initial and subsequent draws under the Construction
Loans and to fund the Construction Loan Commitments. Management believes the
Company will have adequate remaining credit under the Credit Facility to meet
its liquidity needs for the twelve-month period following the Offering. See
"Business and Properties."
The Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of its Initial Properties, the
acquisition of additional properties or funding of additional loans, or, as
necessary, to meet certain distribution requirements imposed on REITs under the
Code. See "Policies with Respect to Certain Activities -- Investment Policies"
and "-- Financing Policies." The Company may raise additional capital by
issuing, in public or private transactions, equity or debt securities, but the
availability and terms of any such issuance will depend upon market and other
conditions. There can be no assurance that such additional financing or capital
will be available on terms acceptable to the Company.
Under the terms of the Percentage Rent and Minimum Rent Leases, the
lessees are responsible for all operating expenses taxes, property and casualty
insurance and other costs (including certain required capital expenditures
during the term of the applicable lease). See "Business and Properties --
Leases." As a result of these arrangements, the Company does not believe it
will be responsible for any major expenses in connection with the Initial
Properties subject to Percentage Rent Leases or Minimum Rent Leases during the
terms of the
47
<PAGE>
respective leases. The Company anticipates entering into similar leases with
respect to additional properties. After the expiration or termination of the
terms of the respective leases, or in the event a lessee is unable to meet its
obligations, the Company anticipates that any expenditures it might become
responsible for in maintaining the Initial Properties subject to Percentage
Rent Leases or Minimum Rent Leases will be funded by cash from operations and,
in the case of major expenditures, possibly by borrowings. To the extent that
unanticipated expenditures or significant borrowings are required, the
Company's cash available for distribution and liquidity may be adversely
affected.
The Company has obtained a commitment from an affiliate of a commercial
bank to obtain the Credit Facility, which would be used to pay a portion of the
purchase price for the Initial Properties, the Term Loans and the initial draws
under the Construction Loans and which would be available to fund the remaining
draws under the Construction Loans, to fund the Construction Loan Commitments,
to facilitate possible acquisitions or future developments, to repay
indebtedness and for working capital needs and other general corporate
purposes. Based on the Company's expected needs, management is seeking a
secured facility for up to $140 million on terms and conditions that are
customary in the industry for such arrangements and considered appropriate
based on the Company's anticipated capital structure and operations. Management
believes that the Company will be able to obtain the necessary Credit Facility
on acceptable terms and that the full amount of the Credit Facility will be
available upon closing of the Offering. While the terms of the facility will
not be determined until negotiations are completed, it is expected that
interest under the Credit Facility will be based on one-month LIBOR rates, plus
a margin based on the loan to value ratio in effect at any time. In addition,
it is expected that the Credit Facility will have a term of 364 days, subject
to extension options which may be granted by the lender upon 60 days' notice.
The Company intends to renew the Credit Facility or to repay the outstanding
balance at maturity from the proceeds of a refinancing or from the sale of debt
or equity securities. There can be no assurance, however, that the lenders will
renew the Credit Facility on terms favorable to the Company or that the Company
will be able to sell debt or equity securities at that time. See "Risk Factors
- -- The Company's Use of Debt Financing, the Absence of a Limitation on Debt,
Increases in Interest Rates and Requirements of Tax-Exempt Bond Financing could
have Adverse Effects on the Company" and "Business and Properties -- Credit
Facility and Tax-Exempt Financing." The Company may enter into interest rate
swaps in order to mitigate the effect of a rising interest rate environment on
the cost of the Credit Facility.
In addition to the purchase of the Initial Investments, the Company has
agreements or options to purchase eight of the nine assisted or independent
living facilities in lease-up or in development, as well as nine of the ten
assisted living development and expansion projects currently in the planning
stage for which the Company will make Construction Loan Commitments totaling
$55.1 million. The Company expects to use draws on the Credit Facility to fund
these commitments, as well as subsequent draws under the Construction Loans
which are expected to increase by approximately $14.0 million to approximately
$21.4 million in 18 months after the Offering. There can be no assurance that
the ten development and expansion projects in the planning stage will be
completed on a timely basis or at all or that the Company will be able to
purchase or make construction loans on any additional properties.
Management believes that inflation should not have a material adverse
effect on the operating expenses of the Company because such expenses are
relatively insignificant as a percentage of revenues.
Funds from Operations
The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in March 1995 defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of properties, plus real estate related
depreciation and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition
48
<PAGE>
differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
On a pro forma basis after giving effect to the Offering, pro forma Funds
from Operations for the nine months ended September 30, 1997 and for the year
ended December 31, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
-------------------- ------------------
(in thousands)
<S> <C> <C>
Pro forma net income .............................. $3,259 $1,467
Pro forma minority interest ........................ 242 109
Pro forma operating income before minority interest 3,501 1,576
Add:
Pro forma real estate depreciation ............... 3,158 3,888
------ ------
Pro forma Funds from Operations .................. $6,659 $5,464
====== ======
</TABLE>
49
<PAGE>
BUSINESS AND PROPERTIES
General
The Company has been formed to invest in a diversified portfolio of
healthcare-related real estate and mortgages. As part of the Formation
Transactions, the Company will acquire or fund the 21 Initial Properties, the
Term Loans, the Construction Loans, the Penn Mortgage and substantially all of
the economic interest in the Florida Facilities Note. The Initial Properties
(other than the medical office and other buildings, which will each be acquired
subject to existing leases) will each be leased to Genesis, SLC, Crozer/Genesis
or the Age Institute of Florida, directly or through one or more subsidiaries,
pursuant to long-term, triple net leases. The Company also has agreed or has
the option to purchase eight of the nine assisted or independent living
facilities in lease-up or development, as well as nine of the ten assisted
living development and expansion projects currently in the planning phase for
which the Company will make Construction Loan Commitments totaling $55.1
million.
50
<PAGE>
Initial Properties
The Initial Investments consist of the Initial Properties, the Term Loans
and Construction Loans, the Construction Loan Commitments, the Penn Mortgage
and substantially all of the Florida Facilities Note. The following table sets
forth certain information regarding the Initial Properties. All of the Initial
Properties will be leased to or managed by Genesis except for The Woodbridge
and three of the medical office and other buildings. The Company will hold a
fee interest in each of the Initial Properties except for the land underlying
the Windsor Clinic and Training Facility, Professional Office Building I and
the DCMH Medical Office Building (in which the Company owns a condominium
unit), which are leasehold interests subject to long-term ground leases from
Genesis, an affiliate of CKHS and DCMH, respectively. In the opinion of
management, each of the Initial Properties is adequately covered by insurance.
<TABLE>
<CAPTION>
Number Year Built/
Property Location of Beds(1) Occupancy(2) Renovated
- ------------------------------- ------------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods Agawam, MA 122 23.7% 1997
Willowbrook Clarks Summit, PA 65 82.3 1996
Riverview Ridge Wilkes-Barre, PA 105 90.2 1993
Highgate at Paoli Pointe Paoli, PA 82 95.7 1995
The Woodbridge Kimberton, PA 90 78.2 1996
--- ----
Subtotal/Avg. 464 69.1%(8)
=== =======
Independent Living Facility:
Pleasant View Concord, NH 72 96.4% 1926
Skilled Nursing Facilities(9):
Rittenhouse CC Philadelphia, PA 183 89.2% 1930/1993(10)
Lopatcong CC Lopatcong, NJ 153 99.0 1984/1992(12)
Phillipsburg CC Phillipsburg, NJ 94(13) 89.5 1930/1993(14)
Wayne NRC Wayne, PA 118 91.4 1920/1989(15)
Belvedere NRC Chester, PA 147(16) 93.1 1960/1983(17)
Chapel Manor NRC Philadelphia, PA 240 92.4 1973
Harston Hall NCH Flourtown, PA 196(18) 90.6 1977/1991(19)
Pennsburg Manor NRC Pennsburg, PA 120 94.7 1982
Silverlake NRC Bristol, PA 174 96.0 1969/1988(20)
------- -------
Subtotal/Avg. 1,425 92.9%
========= =======
Rentable Year Built/
Property Location Sq. Feet Occupancy Renovated
- ------------------------------- ------------------- ----------------- -------------- -----------------
Medical Office and Other Buildings:
Professional Off. Bldg. I Upland, PA 39,972 100.0% 1977
DCMH Med. Off. Bldg.(23) Drexel Hill, PA 60,706(24) 100.0 1984/1987/1997(25)
Salisbury Med. Off. Bldg. Salisbury, MD 10,961 100.0 1984
Windsor Off. Bldg. Windsor, CT 2,100 100.0 1934/1965(27)
Windsor Clinic/Trg. Fac.(29) Windsor, CT 9,662 100.0 1996
Lacey Branch Off. Bldg. Forked River, NJ 4,100 100.0 1996
----------------- --------------
Subtotal/Avg. 127,501 100.0%
================= ==============
Total Initial Properties
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of
Purchase Initial Initial Rent
Property Price(3) Investments Lease Term(4) Type(5) Lessee
- ------------------------------- ------------------ ------------- -------------------- ------------ ---------------------
(in thousands) (Years)
<S> <C> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods $ 11,536 6.0% 10.0 (6) Genesis(7)
Willowbrook 5,894 3.1 10.0 Percentage Genesis(7)
Riverview Ridge 5,720 3.0 10.0 Percentage Genesis(7)
Highgate at Paoli Pointe 11,115 5.8 10.0 Minimum Genesis(7)
The Woodbridge 11,668 6.1 10.0 Minimum SLC(7)
---------- ---- ------
Subtotal/Avg. $ 45,933 24.0% 10.0
---------- ----- ======
Independent Living Facility:
Pleasant View $ 3,742 2.0% 10.0 Percentage Genesis(7)
---------- ----- ------
Skilled Nursing Facilities(9):
Rittenhouse CC $ 8,855 4.7% 10.0 Minimum Genesis(11)
Lopatcong CC 13,778 7.2 10.0 Minimum Genesis(11)
Phillipsburg CC 6,266 3.3 10.0 Minimum Genesis(11)
Wayne NRC 6,065 3.2 10.0 Minimum Genesis(11)
Belvedere NRC 10,413 5.5- 12.0 Minimum Crozer/Genesis
Chapel Manor NRC 11,334 6.0 12.0 Minimum Crozer/Genesis
Harston Hall NCH 7,300 3.8 12.0 Minimum Crozer/Genesis
Pennsburg Manor NRC 10,000 5.3 12.0 Minimum Crozer/Genesis
Silverlake NRC 8,000 4.2 10.0 Minimum Age Inst. of Fl.(21)
---------- ----- ------
Subtotal/Avg. $ 82,011 43.2% 11.0
---------- ----- ------
% of
Purchase Initial Remaining Rent
Property Price(3) Investments Lease Term(22) Type(5) Lessee
- ------------------------------- ---------- ------ --------------- ------ ----------
(in thousands) (Years)
Medical Office and Other Buildings:
Professional Off. Bldg. I $ 4,000 2.1% 0.8 Fixed Physicians
DCMH Med. Off. Bldg.(23) 7,923 4.2 3.5 Fixed Physicians
Salisbury Med. Off. Bldg. 1,349 0.7 1.0(26) Fixed Genesis(26)
Windsor Off. Bldg. 325 0.2 5.0(28) Fixed Genesis
Windsor Clinic/Trg. Fac.(29) 1,493 0.8 5.0(28) Fixed Genesis
Lacey Branch Off. Bldg. 545 0.3 17.5 Fixed Ocean FSB
------------ ------ -------
Subtotal/Avg. $ 15,635 8.3% 3.0
------------ ------ =======
Total Initial Properties $ 147,321 77.5%
============ ======
</TABLE>
51
<PAGE>
- --------
(1) Based on the number of private and semi-private beds currently available.
(2) Represents the average occupancy for the month ended November 30, 1997
determined by dividing total patient days by the number of days in the
month.
(3) Does not include estimated net capitalized acquisition costs aggregating
approximately $2.3 million. Includes, for certain of the Initial
Properties, mortgage indebtedness being repaid at the closing of the
Offering and assumed mortgage indebtedness totaling $34.2 million as of
December 1, 1997. See "Use of Proceeds" and "-- Mortgage Debt."
(4) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering.
(5) For the eleven months ended November 30, 1997, on a pro forma basis, the
lease coverage ratios, which are a measure of the ability of a facility's
revenues to cover required lease payments (net operating income before
interest, depreciation, rent and the subordinated portion of management
fees (if any) divided by rent payments) for the assisted living facility
and four skilled nursing facilities to be leased to Genesis under Minimum
Rent Leases was 0.84x, 2.20x, 1.69x, 1.68x and 1.26x, respectively; the
lease coverage ratio for the facility to be leased to SLC under a Minimum
Rent Lease was 0.31x; the lease coverage ratios for the four facilities to
be leased to Crozer/Genesis under Minimum Rent Leases were 1.17x, 1.52x,
1.57x and 1.32x, respectively; and the lease coverage ratio for the
facility to be leased to the Age Institute of Florida under a Minimum Rent
Lease was 1.71x. Lease coverage ratios are not provided for facilities
that will be subject to Percentage Rent Leases because rental revenues for
those facilities are based on a fixed percentage of the facility's
revenues. See "-- Leases," "Conflicts of Interest" and "Risk Factors --
Operating Risks Inherent in the Highly Regulated Healthcare Industry may
Adversely Affect the Operations of the Company's Lessees and Borrowers."
(6) Initially, rent equals a fixed base rent with no revenue participation. At
the time the facility reaches Stabilized Occupancy, the lease will
automatically convert into a Percentage Rent Lease.
(7) Genesis will guarantee the performance of its subsidiaries under the
Genesis leases for the lives of the leases. The Highgate facility
initially may be leased by SLC. If subsequently leased by a subsidiary of
SLC, SLC will guarantee the performance of its subsidiary under such lease
for the life of the lease.
(8) At November 30, 1997, Heritage Woods, Willowbrook and The Woodbridge were
in the initial lease-up phase. Excluding these facilities, the assisted
living facilities included in the Initial Properties had an average
occupancy of 92.6%.
(9) "NRC" means a nursing and rehabilitation center, "NCH" means a nursing and
convalescent home and "CC" means a care center.
(10) The facility was originally built in the 1930's with two expansions in the
1970's. A renovation of interior finishes was completed in 1993. The
Company has agreed to finance an expansion of this facility to be
undertaken by Genesis. See "-- Construction Loan Commitments and Related
Purchase Contracts."
(11) These facilities initially will be leased by wholly owned subsidiaries of
Genesis, and Genesis will guarantee the obligations of its wholly owned
subsidiaries under these Minimum Rent Leases for the lives of the leases;
provided, however, in the event Genesis assigns one or more of the leases
to a non-wholly owned subsidiary or a third party, Genesis may not
continue to guarantee the applicable leases. Any such assignment of a
Minimum Rent Lease would require the consent of the Company which may not
be unreasonably withheld. The Company will evaluate the creditworthiness
of any assignee in determining whether to provide its consent. Genesis is
currently negotiating an arrangement with a Philadelphia-based hospital
system. If the arrangement is negotiated successfully, the hospital system
would lease-back the Wayne skilled nursing facility following its sale to
the Company and Genesis would manage the facility. In addition, Genesis
would not guarantee the lease. See "Risk Factors -- Conflicts of Interest
Between the Company and Genesis and Mr. Walker in Connection with the
Formation and Operation of the Company -- No assurance that Genesis will
continue to guarantee Minimum Rate Leases of its wholly owned
subsidiaries."
(12) This facility was originally built in 1984 with an addition of three
skilled nursing beds in 1992.
(13) Includes 34 assisted living units.
(14) This facility was originally built during the 1930's with an addition in
1988. A renovation of interior finishes was completed in 1993. (15) This
facility is estimated to have been built circa 1920. Additions were
completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building.
<PAGE>
(16) Includes 27 assisted living units.
(17) This facility was built in 1960 and was expanded in 1983.
(18) Includes 76 assisted living units.
(19) This facility was built in 1977 and was expanded in 1991.
(20) This facility opened in 1969, was expanded in 1977 and was renovated in
1988.
(21) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
(22) For each building, represents the remaining lease term for all rentable
space in the applicable building as of December 1, 1997.
(23) The property consists of a condominium unit containing six of the eight
floors in the building which is located on the campus of DCMH.
(24) The DCMH Medical Office Building is currently undergoing expansion,
including an expansion of two of the six floors included in the
condominium unit which the Company will acquire. This expansion is
expected to be completed in the first quarter of 1998 and will increase
the rentable square feet in the Company's condominium unit to 65,740
square feet. All of the rentable space to be added to the Company's
condominium unit has been pre-leased.
(25) This building was built in 1984, and a renovation of interior finishes was
completed in 1987. This building is currently undergoing expansion.
(26) Two subsidiaries of Genesis lease approximately 83% of the rentable space
in the Salisbury Medical Office Building. The remaining approximately 17%
of the rentable space in the building is leased by Quest Diagnostics,
Inc., a corporation unaffiliated with Genesis or the Company. At the
closing of the Offering, Genesis will enter into a new lease with the
Company with respect to the space leased by Genesis in the building. Each
of these leases will have an initial term of five years, subject to
renewals. The lease with Quest Diagnostics, Inc. expired on November 30,
1997. The Company expects to enter into a new two-year lease with Quest
Diagnostics.
(27) This building was originally constructed in 1934 with an addition in 1965.
(28) At the closing of the Offering, Genesis will enter into a new lease with
the Company with respect to all of the rentable space in the Windsor
Office Building and the Windsor Clinic and Training Facility. Each of
these leases will have an initial term of five years, subject to renewals.
(29) The Windsor Clinic and Training Facility are connected to each other. The
Windsor Clinic consists of 5,490 rentable square feet, and the Windsor
Training Facility includes 4,172 rentable square feet.
52
<PAGE>
Lessees
The following is a description of the lessees of the Initial Properties to
be acquired by the Company. Unless otherwise indicated, all information is
given as of September 30, 1997. Genesis is subject to the reporting
requirements of the Securities and Exchange Commission (the "SEC") and files
annual reports containing audited financial information and quarterly reports
for the first three quarters of each fiscal year containing unaudited financial
information with the SEC. The information provided with respect to Genesis is
derived, for the limited purposes of this Prospectus, from filings made with
the SEC or has been furnished to the Company by Genesis. Privately held
companies have provided the Company with the information contained herein about
each company. The Company has evaluated the creditworthiness of the lessees
based on a review of financial and other information made available to it.
While the Company believes the information has been provided in good faith and
has no reason to believe that any of such information is inaccurate in any
material respect, the Company is not able to make an independent investigation
of such information except for information relating to the transactions to be
entered into by such entities with the Company.
Genesis Initial Properties
Genesis, headquartered in Kennett Square, Pennsylvania, is a leading
provider of healthcare and support services to the elderly. Genesis has
developed the Genesis ElderCareSM delivery model of integrated healthcare
networks to provide cost-effective, outcomes-oriented services to the elderly.
Through these integrated healthcare networks, Genesis provides basic healthcare
and specialty medical services to more than 100,000 customers in five regional
markets in the eastern United States (Massachusetts/Connecticut/New Hampshire;
Eastern Pennsylvania/Delaware Valley; Southern Delaware/Eastern Shore of
Maryland; Baltimore, Maryland/Washington, D.C.; and Central Florida) in which
over 3 million people over the age of 65 reside. As of September 30, 1997, the
networks included: 155 eldercare facilities with approximately 21,600 beds; 16
primary care physician clinics; approximately 96 physicians, physician
assistants and nurse practitioners; 12 institutional pharmacies and five
medical supply distribution centers serving over 52,000 beds; 28 community
based pharmacies; certified rehabilitation agencies providing services through
over 375 contracts; and eight home healthcare agencies. Genesis ElderCareTM
services focus on the central medical and physical issues facing the more
medically demanding elderly. By integrating the talents of physicians with case
management, comprehensive discharge planning and, where necessary, home support
services, Genesis provides cost-effective care management to achieve superior
outcomes and return customers to the community. Genesis believes that its
orientation toward achieving improved customer outcomes through its eldercare
networks has resulted in increased utilization of specialty medical services,
high occupancy of available beds, enhanced quality payor mix and a broader base
of repeat customers.
The Company will purchase, or make loans with an obligation to purchase,
all of the assisted living facilities owned by Genesis as of September 30, 1997
(except for a 32-bed facility as to which the Company will have an option to
purchase at fair market value in cash exercisable within one year after the
facility reaches Stabilized Occupancy), as well as the only independent living
facility and four of the 69 skilled nursing facilities owned by Genesis as of
such date. In addition, Genesis will operate 14 of the Initial Properties.
These facilities will become part of the Genesis ElderCareTM Networks which are
comprised primarily of assisted living, independent living and skilled nursing
facilities; pharmacy, therapy, medical supplies, home health and physician
service providers; and an expanding array of community-based initiatives, all
located within its primary geographic market concentrations. As part of its
community-based initiatives, Genesis is developing and introducing a
proprietary information technology system known as Netlink, Genesis ElderCareTM
toll-free telephone lines, adult day care and resource centers and marketing
campaigns. The Genesis ElderCareTM Networks are designed to assist elderly
individuals to lead a Full LifeSM through care coordination and the delivery of
an array of healthcare services. The Company believes that the array of
services provided by the Genesis ElderCareTM Networks, along with Genesis'
marketing efforts, may result in higher occupancy rates and revenues at such
facilities.
Of the total 21 Initial Properties, two assisted living facilities and one
independent living facility are being acquired from and will be leased-back to
wholly owned subsidiaries of Genesis pursuant to Percentage
53
<PAGE>
Rent Leases, and four skilled nursing facilities are being acquired from and
leased-back to wholly owned subsidiaries of Genesis pursuant to Minimum Rent
Leases. The lease for the remaining assisted living facility being acquired
from and leased-back to a wholly owned subsidiary of Genesis will provide for
the payment of minimum rent until such facility reaches Stabilized Occupancy,
at which time the lease will convert automatically to a Percentage Rent Lease.
The Highgate facility will be acquired from Senior LifeChoice and leased to
Genesis pursuant to a Minimum Rent Lease. Genesis will guarantee the
performance of its wholly owned subsidiaries under these leases for the lives
of the leases; provided, however, in the event Genesis assigns one or more of
the leases to a non-wholly owned subsidiary or a third party, Genesis will not
continue to guarantee the applicable lease. Any such assignment would require
the consent of the Company which may not be unreasonably withheld. The Company
will evaluate the creditworthiness of any assignee in determining whether to
provide its consent. Genesis is currently negotiating an arrangement with a
Philadelphia-based hospital system. If such arrangement is negotiated
successfully, the hospital would lease-back the Wayne skilled nursing facility
following its sale to the Company and Genesis would manage the facility. In
addition, Genesis would not guarantee the lease. The obligations of Genesis
under the guarantees are not subordinated to any indebtedness of Genesis, but
the guarantees are unsecured and may be structurally subordinated to secured
indebtedness of Genesis to the extent of the assets securing such indebtedness.
In addition, the guarantees do not limit Genesis' ability to incur additional
secured indebtedness. The Company also will lease back to Crozer/Genesis four
skilled nursing facilities being acquired from CKHS (including the three
skilled nursing facilities which Genesis acquired from CKHS effective January
1, 1998 and will transfer to the Company at the closing of the Offering at the
same purchase price). These leases will not be guaranteed by Genesis. The
Company will acquire the Lacey Branch Office Building and Professional Office
Building I from Genesis. Genesis also is the principal tenant of three of the
office buildings being acquired by the Company. See " -- Leases."
54
<PAGE>
Summary Consolidated Financial Data of Genesis
The following table sets forth certain summary consolidated financial data
for Genesis at and for the periods indicated.
<TABLE>
<CAPTION>
At or For the
Year Ended September 30,
----------------------------------------------
1997 1996 1995
--------------- -------------- -------------
(in thousands, except ratio, per share and
operating data)
<S> <C> <C> <C>
Summary of Operations Data
Net revenues ......................................................... $ 1,099,823 $ 671,469 $ 486,393
Operating income before capital costs (1) .............................. 184,868 127,024 93,253
Depreciation and amortization .......................................... 41,946 25,374 18,793
Lease expense ......................................................... 28,587 18,638 13,798
Interest expense, net ................................................ 39,103 24,926 20,366
Debenture conversion expense .......................................... -- 1,245 --
Earnings before extraordinary items and cumulative effect of an
accounting change ................................................... 48,144 37,169 25,531
Net income ............................................................ $ 47,591 $ 37,169 $ 23,608
Per common share data (fully diluted):
Earnings before extraordinary items and cumulative effect of an
accounting change ................................................... $ 1.34 $ 1.29 $ 1.03
Net income ............................................................ 1.32 1.29 0.97
Weighted average shares of
common stock and equivalents .......................................... 36,306 31,130 28,452
Other Financial Data
Operating income before capital costs (1), as a percent of revenue ... 16.8 % 18.9 % 19.2 %
Earnings before income taxes, extraordinary items and cumulative
effect of an accounting change as a percent of revenue ............... 6.8 % 8.6 % 8.3 %
Long-term debt to equity ratio ....................................... 1.07 .66 1.4
Capital Expenditures ................................................... $ 61,102 $ 38,645 $ 24,719
Operating Data
Payor mix (as a percent of patient service revenue):
Private and other ................................................... 39% 39% 38%
Medicare ............................................................ 24 25 21
Medicaid ............................................................ 37 36 41
Average owned/leased health center beds .............................. 15,132 9,429 8,268
Occupancy percentage in owned / leased eldercare centers ............... 91.0 % 92.6 % 91.9 %
Average managed life care units and health center beds ............... 6,101 5,030 10,374
Balance Sheet Data
Working capital ...................................................... $ 226,930 $ 155,491 $ 132,274
Total assets ......................................................... 1,434,113 950,669 600,389
Long-term debt ......................................................... 651,667 338,933 308,052
Shareholders' equity ................................................... 608,021 514,608 221,548
</TABLE>
- ------------
(1) Capital costs include depreciation and amortization, lease expense and
interest expense.
55
<PAGE>
The consolidated financial statements of Genesis as of September 30, 1997
and 1996 and for each of the years in the three-year period ended September 30,
1997, appear in Genesis' 1997 Annual Report to Shareholders which is
incorporated by reference in its Annual Report on Form 10-K for the year ended
September 30, 1997. The Company will provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or oral request
of such person, a copy of the financial statements of Genesis referred to
above. Written requests for such copies should be directed to ElderTrust,
Attention: D. Lee McCreary, Jr., Vice President and Chief Financial Officer,
415 McFarlan Road, Suite 202, Kennett Square, PA 19348.
In June 1997, Genesis ElderCare Acquisition Corp. ("Acquisition Corp."), a
wholly owned subsidiary of Genesis ElderCare Corp. which, in turn, is owned 44%
by Genesis and owned 56% by The Cypress Group L.L.C. and TPG Partners II, L.P.,
commenced a tender offer for all of the outstanding shares of common stock of
Multicare. As of September 30, 1997, Multicare operated, among other assets,
124 skilled nursing facilities, 19 hospital-based subacute units and 11
assisted living facilities. In October 1997 following completion of the tender
offer, Acquisition Corp. was merged into Multicare and Multicare, as the
surviving entity in the merger, became a wholly owned subsidiary of Genesis
ElderCare Corp. All of the Multicare facilities are now managed by Genesis and
have become part of the Genesis ElderCareTM Networks, which added a sixth
principal geographic market (Ohio/Western Pennsylvania). The total net revenues
and net income of Genesis for the year ended September 30, 1997 adjusted on a
pro forma basis for the merger of Acquisition Corp. and Multicare, are
approximately $1.8 billion and $45.0 million, respectively.
Set forth below is information regarding the Initial Properties being
acquired from Genesis.
Genesis -- Assisted Living Facilities
Heritage Woods. Heritage Woods is a two-story, apartment style 78,226
square foot assisted living facility located on 16.7 acres of land in Agawam,
Massachusetts. The Heritage Woods facility was developed by Genesis and has an
operational configuration for 122 residents. The Heritage Woods facility is
located on the Genesis "Heritage Campus" containing four skilled nursing
facilities, each of which is owned and operated by Genesis and which include in
excess of 500 beds for skilled nursing patients. The facility also is located
within approximately 10 miles of the Chapin Center, Willimansett Centers and
Governors Center skilled nursing facilities which, along with the Heritage
Campus, form part of the Genesis ElderCareTM Network which includes the
Heritage Woods facility. The facility opened in May 1997 and is in the initial
lease-up phase. The Company will acquire the Heritage Woods facility from
Genesis for approximately $11.5 million in cash.
Willowbrook. Willowbrook is a three-story, apartment style 39,300 square
foot assisted living facility located on approximately two acres of land in
Clarks Summit, Pennsylvania. The Willowbrook facility was developed by Genesis
and has an operational configuration for 65 residents. The facility is located
on a campus with the Abington Manor skilled nursing facility which contains 120
beds and forms part of the Genesis ElderCareTM Network which includes the
Willowbrook facility. The facility opened in June 1996. The Company will
acquire the Willowbrook facility from Genesis for approximately $5.9 million in
cash.
Riverview Ridge. Riverview Ridge is a two-story, apartment style
approximately 33,000 square foot assisted living facility located on 2.2 acres
of land in Wilkes-Barre, Pennsylvania. The facility is located on a campus with
the Riverstreet Manor skilled nursing facility which contains 122 beds. The
facility also is located approximately one mile from the Dorrance Manor skilled
nursing facility which, along with Riverstreet Manor, forms part of the Genesis
ElderCareTM Network which includes the Riverview Ridge facility. The facility
is currently leased by a partnership which is owned 51% by Genesis and 49% by a
third party, which third party also owns the fee interest in the land on which
the Riverview Ridge facility is located. Prior to the closing of the Offering,
Genesis will acquire the remaining 49% interest in the partnership which holds
the leasehold interest in the land and the facility, and the Company will
purchase the entire leasehold interest from Genesis for approximately $1.0
million in cash and will purchase the fee interest from the third party for
approximately $2.0 million in cash and approximately $2.7 million in assumed
debt. The facility has an operational configuration for 105 residents and
opened in 1993.
Each of these assisted living facilities is part of a Genesis ElderCareTM
Network which provides the residents of such facilities with access to pharmacy
and rehabilitation services. Residents of the Heritage Woods facility also have
access to physician services through a Genesis ElderCareTM Network.
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Genesis -- Independent Living Facility
Pleasant View. Pleasant View is a four-story, 93,724 square foot
independent living facility located on approximately 12 acres of land in
Concord, New Hampshire. The facility is adjacent to the Pleasant View Center
skilled nursing facility which contains 180 beds. The facility also is located
approximately one mile from the Harris Hall skilled nursing facility which,
along with Pleasant View Center, forms part of the Genesis ElderCareTM Network
which includes the Pleasant View facility. Residents of the facility also have
access to pharmacy, rehabilitation and physician services through this Genesis
ElderCareTM Network. The Pleasant View facility is a converted mansion built in
1926, and the property includes a 3,284 square foot carriage house. The
facility has an operational configuration for 72 residents and was acquired by
Genesis in 1995. The Company will acquire the Pleasant View facility from
Genesis for approximately $3.7 million in cash.
Genesis -- Skilled Nursing Facilities
Rittenhouse Care Center. The Rittenhouse Care Center is a five-story, 183
bed, 88,450 square foot skilled nursing facility located on 0.4 acres of land
in Philadelphia, Pennsylvania. This facility was originally constructed during
the 1930's with two expansions in the 1970's. A renovation of interior finishes
was completed in 1993. The Company has agreed, pursuant to one of the
Construction Loan Commitments, to finance a renovation and expansion of the
Rittenhouse Care Center. Upon completion of this renovation and expansion, the
Rittenhouse facility will have 150 skilled nursing beds which will be leased to
Genesis pursuant to a Minimum Rent Lease and 45 assisted living units which
will be leased to Genesis pursuant to a Percentage Rent Lease. See "--
Construction Loan Commitments and Related Purchase Contracts." At November 30,
1997, the payor mix for this facility was approximately 6% Medicare, 92%
Medicaid and 2% private and other. This facility competes for patients with
other facilities in the Philadelphia metropolitan area including several
skilled nursing facilities operated by Genesis and not owned by the Company.
The Company will acquire the Rittenhouse Care Center from Genesis for
approximately $8.9 million in cash.
Lopatcong Care Center. Lopatcong Care Center is a two-story, 57,152 square
foot skilled nursing facility located on 2.5 acres of land in Phillipsburg, New
Jersey. This facility was built in 1984 and has 153 beds. At November 30, 1997,
the payor mix for this facility was approximately 10% Medicare, 75% Medicaid
and 15% private and other. The Lopatcong Care Center competes for patients with
several other facilities, including the Phillipsburg Care Center, as well as
with two other Genesis skilled nursing facilities in Phillipsburg, New Jersey.
The Company will acquire the Lopatcong Care Center from Genesis for
approximately $13.8 million in cash.
Phillipsburg Care Center. Phillipsburg Care Center is a three-story,
46,741 square foot skilled nursing facility located on 1.4 acres of land in
Phillipsburg, New Jersey. This facility was built in the 1930's with an
addition in 1988 and has 94 beds, including 34 beds licensed for assisted
living. A renovation of interior finishes was completed in 1993. At November
30, 1997, the payor mix for this facility was approximately 12% Medicare, 46%
Medicaid, 4% SSI and 38% private pay and other. The Phillipsburg Care Center
competes for patients with several other facilities, including the Lopatcong
Care Center and two other Genesis skilled nursing facilities located in
Phillipsburg, New Jersey. The Company will acquire the Phillipsburg Care Center
from Genesis for approximately $6.3 million in cash.
Wayne Nursing and Rehabilitation Center. Wayne Nursing and Rehabilitation
Center is a one-story, 118 bed, skilled nursing facility located in Wayne,
Pennsylvania. The facility is estimated to have been built circa 1920 with
additions completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building. At November 30, 1997, the payor mix of this
facility was approximately 7% Medicare, 63% Medicaid and 30% private pay or
other. The Wayne facility competes for patients with the Harston Hall Nursing
and Convalescent Center and several other facilities in its market area,
including at least five other skilled nursing facilities operated by Genesis
and not owned by the Company. The Company will acquire the Wayne Nursing and
Rehabilitation Center from Genesis for approximately $6.1 million in cash.
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Each of these skilled nursing facilities is part of a Genesis ElderCareTM
Network which provides the residents of such facilities with access to pharmacy
services, rehabilitation services and (except for the Lopatcong and
Phillipsburg facilities) physician services.
The Company also will acquire from Genesis at the closing of the Offering
three skilled nursing facilities (Belvedere, Chapel Manor and Pennsburg Manor)
which Genesis purchased from CKHS effective January 1, 1998. See "CKHS Initial
Properties" for additional information.
Genesis -- Medical Office and Bank Buildings
Professional Office Building I. Professional Office Building I ("POB I")
is a 39,972 square foot medical office building located on 0.7 acres of land in
Upland, Pennsylvania adjacent to the Crozer-Chester Medical Center, an acute
care hospital. POB I is 100% leased and its primary tenants consist of resident
physicians with Crozer-Chester Medical Center.
The Company will acquire the building and a leasehold interests in the
land on which POB I is located from Genesis for $4.0 million in cash. Genesis
acquired the building in June 1997 from CKHS for $4.0 million and entered into
a 40-year ground lease with Crozer-Chester Medical Center, a Pennsylvania
nonprofit organization ("CCMC") which is an affiliate of CKHS and which owns
the land on which POB I is located as well as the adjacent hospital.
Annual rent under the ground lease with CCMC is fixed at $75,000 per year,
net to CCMC. Pursuant to its terms, the ground lease will be automatically
extended for an additional 40 years, unless the Company gives at least 12
months prior written notice that it does not wish to extend the term. CCMC and
the Company also may mutually agree to extend the term of the ground lease for
an additional 40 years. If the term is not so extended and the ground lease
expires, CCMC is obligated to pay the Operating Partnership the then book value
(i.e., cost less depreciation) of all improvements then existing on the
property.
POB I will be managed by CKHS pursuant to a ten-year management agreement
between the Company and CKHS (subject to renewal). CCMC has a right of first
refusal, exercisable for 30 days, if the Company receives and pursues a
written, bona fide offer from a third party to purchase its interest in the
building and leasehold. If CCMC receives and pursues an offer to purchase the
land or any portion of the overall tract which includes not more than POB I,
POB II (which is adjacent to POB I) and/or the parking garage adjacent to POB
II, the Company has the right to elect to purchase such property within 30 days
of receipt of such offer from CCMC upon the same terms and conditions as
offered by the third party.
Lacey Branch Office Building. The Lacey branch office building is a 4,100
square foot building located on 2.0 acres of land in Forked River, New Jersey.
Ocean Federal Savings Bank, a federally chartered savings bank, is the sole
tenant of the building which was constructed in 1996. The Lacey branch office
building is subject to a mortgage held by Ocean Federal Savings Bank, which
will be assumed by the Company. The Company will acquire the Lacey branch
office building from Genesis for approximately $62,000 in cash and
approximately $483,000 in assumed debt.
Senior LifeChoice Initial Properties
Senior LifeChoice is a privately held Pennsylvania corporation whose
principal stockholders include Michael R. Walker and Gregory M. Stevens, who
served as chief financial officer of Genesis from 1989 to 1992. Because of his
stock ownership, Senior LifeChoice may be deemed an affiliate of Mr. Walker.
Messrs. Howard, Barr and Hager also hold interests in Senior LifeChoice. Senior
LifeChoice currently owns an 88% interest in the Highgate at Paoli Pointe
assisted living facility and a 97.5% interest in The Woodbridge assisted living
facility. The remaining interests in these two facilities will be acquired from
individuals not affiliated with the Company or Genesis. The Company will
acquire 100% of the interests in these two facilities for an aggregate of
approximately $1.8 million in cash paid to Senior LifeChoice and certain
individuals not affiliated with the Company or Genesis, approximately $3.3
million in Units (based on the assumed initial public offering price of the
Common Shares) to be issued to Senior LifeChoice, $250,000 in repaid
indebtedness and approximately $19.6 million in assumed debt. The Highgate
facility will be leased to Genesis pursuant to a Minimum Rent Lease, and the
Woodbridge facility will be leased-back to and operated
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by SLC, which is an affiliate of Senior LifeChoice and of which Mr. Stevens is
the managing member, pursuant to a Minimum Rent Lease. See "-- Leases." None of
Genesis' current directors or executive officers has an interest in SLC. At
November 30, 1997, SLC had total assets of approximately $20.3 million and
members' equity of approximately negative $1.3 million. For the eleven months
ended November 30, 1997, SLC had a net loss of approximately $1.3 million.
Set forth below is certain information regarding the Initial Properties
being acquired from Senior LifeChoice.
Genesis -- Assisted Living Facility
Highgate at Paoli Pointe. Highgate at Paoli Pointe is a four-story,
apartment style assisted living facility located on 2.0 acres of land in Paoli,
Pennsylvania. The facility is located adjacent to a condominium retirement
community and is located within approximately three miles of a Genesis skilled
nursing facility. The facility is recently constructed, has an operational
configuration for 82 residents and opened in 1995. Pursuant to the terms of a
regulatory agreement entered into between the partnership which currently owns
Highgate at Paoli Pointe and the Chester County Industrial Development
Authority, Genesis will be required to lease at least 20% of the residential
units in the facility to persons whose adjusted family income does not exceed
50% of the median gross income for families in the geographic region
surrounding the facility. Upon completion of the Offering, the Highgate
facility will be leased to and operated by Genesis and will become part of a
Genesis ElderCareTM Network. Residents of the facility will have access to
pharmacy, rehabilitation and physician services through this Genesis
ElderCareTM Network.
SLC -- Assisted Living Facility
The Woodbridge. The Woodbridge is a four-story, apartment style assisted
living facility located on 8.5 acres of land in Kimberton, Pennsylvania. The
facility is located adjacent to a condominium retirement community and is
located within fifteen miles of a Genesis skilled nursing facility. The
facility is recently constructed and has an operational configuration for 90
residents. The facility opened in 1996 and is in the initial lease-up phase.
Pursuant to the terms of a regulatory agreement entered into between the
partnership which owns The Woodbridge and the Chester County Industrial
Development Authority, SLC will be required to lease at least 20% of the
residential units in the facility to persons whose adjusted family income does
not exceed 50% of the median gross income for families in the geographic region
surrounding the facility.
CKHS Initial Properties
Set forth below is certain information regarding the Initial Properties
being acquired from CKHS. (Genesis purchased three of these facilities
(Belvedere, Chapel Manor and Pennsburg Manor) from CKHS effective January 1,
1998 and will transfer the facilities to the Company at the same purchase
price).
Crozer/Genesis -- Skilled Nursing Facilities
In August 1997, Genesis and CKHS formed Crozer/Genesis, which is 50% owned
by each of Genesis and CKHS. As part of the Formation Transactions, the Company
will purchase from Genesis or CKHS, as the case may be, and lease back to
Crozer/Genesis four skilled nursing facilities included in the Initial
Properties.
Belvedere Nursing and Rehabilitation Center. The Belvedere Nursing and
Rehabilitation Center is a two-story, 53,000 square foot skilled nursing
facility located on 4.4 acres of land in Chester, Pennsylvania. This facility
was built in 1960 and expanded in 1983 and has 147 beds, including 27 beds
licensed for assisted living. This facility competes for patients with other
facilities in the Philadelphia metropolitan area, including several skilled
nursing facilities operated by Genesis and not owned by the Company. At
November 30, 1997, the payor mix for this facility was approximately 1%
Medicare, 64% Medicaid and 35% private pay and other. The Company will acquire
the Belvedere Nursing and Rehabilitation Center from Genesis for approximately
$5.4 million in cash and approximately $5.9 million in assumed debt.
Chapel Manor Nursing and Rehabilitation Center. Chapel Manor Nursing and
Rehabilitation Center is a three-story, 88,000 square foot skilled nursing
facility located on 3.7 acres of land in Philadelphia, Pennsylvania. This
facility was built in 1973 and has 240 beds. This facility competes for
patients with other
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facilities in the Philadelphia metropolitan area, including several skilled
nursing facilities operated by Genesis and not owned by the Company. At
November 30, 1997, the payor mix for this facility was approximately 7%
Medicare, 86% Medicaid and 7% private pay and other. The Company will acquire
the Chapel Manor Nursing and Rehabilitation Center from Genesis for
approximately $5.0 million in cash and approximately $5.4 million in assumed
debt.
Harston Hall Nursing and Convalescent Home. Harston Hall Nursing and
Convalescent Home is a three-story, 58,600 square foot skilled nursing facility
located on 9.9 acres of land in Flourtown, Pennsylvania. This facility was
built in 1977 and expanded in 1991 and has 196 beds, including 76 beds licensed
for assisted living. The Harston Hall facility competes for patients with the
Wayne Nursing and Rehabilitation Center and several other facilities in its
market, including at least one other skilled nursing facilities operated by
Genesis and not owned by the Company. At November 30, 1997, the payor mix for
this facility was approximately 4% Medicare, 50% Medicaid, 16% SSI and 30%
private pay and other. The Company will acquire the Harston Hall Nursing and
Convalescent Home from CKHS for $7.3 million in cash.
Pennsburg Manor Nursing and Rehabilitation Center. Pennsburg Manor Nursing
and Rehabilitation Center is a three-story, 42,831 square foot skilled nursing
facility located on 6.1 acres of land in Pennsburg, Pennsylvania. This facility
was built in 1982 and has 120 beds. The Pennsburg Manor facility competes for
patients with several other facilities in its market area, including at least
six skilled nursing facilities operated by Genesis and not owned by the
Company. At November 30, 1997, the payor mix for this facility was
approximately 11% Medicare, 70% Medicaid and 19% private pay and other. The
Company will acquire the Pennsburg Manor Nursing and Rehabilitation Center from
Genesis for $10.0 million in cash.
Genesis will operate these facilities pursuant to a 12-year management
contract (with renewal if Crozer/Genesis continues to lease the facilities)
between Genesis and Crozer/Genesis. Commencing on September 1, 1997, Genesis
will receive a management fee with respect to the Chapel Manor and Harston Hall
facilities equal to 2.5% of the net revenues from such facilities. Following
completion of the Offering, Genesis will receive a fee equal to 5.4% of the net
operating revenues generated by all four of the facilities leased to
Crozer/Genesis. Commencing in the sixth year of the term, the management fee
will equal 5% of the net operating revenues generated by all four of the
facilities leased by Crozer/Genesis. Commencing on September 1, 1997 with
respect to the Chapel Manor and Harston Hall facilities and on the date of the
closing of the Offering with respect to the Belvedere and Pennsburg Manor
facilities, and continuing for a period of 24 months from such date for each
such facility, up to 30% of the management fee payable to Genesis with respect
to each such facility will be subordinated to lease payments due to the Company
with respect to such facility. In the event that certain financial covenants
for any facility are not met or satisfied at the end of the 24-month period
applicable to such facility, then up to 30% of the management fee payable with
respect to such facility shall continue to be subordinated to lease payments
due to the Company with respect to such facility, and such subordination shall
continue until such time as the financial covenants for the applicable facility
are met or satisfied. See "-- Leases -- Crozer/Genesis Minimum Rent Leases."
Any management fees deferred pursuant to the subordination provisions of the
management agreement between Crozer/Genesis and Genesis shall thereafter be
paid monthly from monies generated by the applicable facility (provided that
following such payments, the financial covenants for such facility will be met
or satisfied) until the deferred fees are paid in full.
Pursuant to an agreement between Genesis and CKHS, Genesis will make
available to Crozer/Genesis a line of credit of up to $5 million until such
time as Crozer/Genesis receives new licenses for the four facilities to be
leased by Crozer/Genesis from the Company, at which time the obligation of
Genesis to fund such line of credit will be reduced to $3 million. Any amounts
payable to Genesis by Crozer/Genesis under this line of credit will not be
subordinated to the lease payment obligations of Crozer/Genesis under its
Minimum Rent Leases with the Company and will be secured by a first lien on
accounts receivable.
Crozer/Genesis also will enter into a Network Services Agreement with
Genesis for the four facilities for a term of 12 years (with renewal if
Crozer/Genesis continues to lease the facilities). Genesis will receive a fee
equal to $50 per month (subject to adjustment for inflation) for each bed in
these facilities, provided that the total amount of such fees together with the
amount payable to Genesis under the management agreement between Crozer/Genesis
and Genesis may not exceed 6% of the total net operating revenues for the four
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facilities. Fees payable to Genesis under the Network Services Agreement will
not be subordinated to lease payments payable to the Company. Pursuant to the
Network Services Agreement, the four facilities leased to Crozer/Genesis will
become part of a Genesis ElderCareTM Network. Residents of the facilities will
have access to pharmacy, rehabilitation and physician services through this
Genesis ElderCareTM Network.
CKHS -- Medical Office Building Condominium Unit
Delaware County Memorial Office Building. The Company will acquire a
condominium unit containing six of the eight floors of a medical office
building located on the campus of DCMH. The condominium unit initially will
contain 60,740 square feet of rentable office space and will increase to 65,700
rentable square feet upon completion of the current expansion of the DCMH
medical office building in the first quarter of 1998. In addition to the
expansion project, a portion of the rentable space in the planned condominium
unit is currently undergoing renovation, and all such renovations are expected
be completed within 18 months. All of the office space in the planned
condominium unit which is currently rentable is leased, primarily to resident
physicians with DCMH, and it is expected that all additional space that becomes
available in the DCMH medical office building upon completion of the expansion
and the renovations will be fully leased to new or existing tenants as such
space becomes available. The Company will acquire the condominium unit in the
DCMH medical office building for approximately $7.9 million in cash.
The land underlying the DCMH medical office building is subject to a
long-term ground lease from DCMH. The leasehold interest in the land and the
common areas in the DCMH medical office building will be owned by a newly
formed condominium association whose members will consist of the Company and
CKHS. The condominium association will have a right of first refusal,
exercisable for 30 days, if DCMH receives and pursues an offer to purchase the
land underlying the DCMH medical office building. Pursuant to the condominium
declaration and bylaws, the Company, as the owner of approximately 70% of the
space in the condominium building, will control the DCMH medical office
building condominium association, subject to certain rights of CKHS, as the
minority member in the condominium association to approve certain major
transactions. The DCMH medical office building (including the Company's
condominium unit) will be managed by CKHS pursuant to a ten-year management
agreement with the condominium association (subject to renewals). CKHS has a
right of first refusal, exercisable for 30 days, if the Company receives and
pursues a written, bona fide offer from a third party to purchase the Company's
condominium unit. If CKHS receives and pursues an offer to purchase any part of
the DCMH medical office building not included in the Company's condominium
unit, the Company has the right to elect to purchase such property within 30
days of receipt of such offer from CKHS upon the same terms and conditions as
offered by the third party.
Other Initial Properties
The Initial Properties also include one skilled nursing facility, two
medical office buildings and a clinic being acquired from third parties other
than Genesis. Each of the medical office buildings and clinic will be acquired
by the Company subject to the existing leases. Genesis is the principal tenant
in each of these buildings. Messrs. Walker, Stevens and Howard each own a
one-sixth interest in the Salisbury Medical Office Building and Mr. Walker owns
a 50% managing partner interest in the entity which owns the Windsor Office
Building and the Windsor Clinic. Set forth below is certain information
regarding these properties.
Age Institute of Florida -- Skilled Nursing Facility
Silverlake Nursing and Rehabilitation Center. Silverlake Nursing and
Rehabilitation Center is a two-story, 174 bed skilled nursing facility located
in Bristol, Pennsylvania. This facility was built in 1969, expanded in 1977 and
renovated in 1988. The Silverlake facility competes for patients with several
other facilities in its market area, including at least five skilled nursing
facilities operated by Genesis and not owned by the Company. At November 30,
1997, the payor mix for this facility was approximately 7% Medicare, 77%
Medicaid and 16% private pay and other.
This facility is owned by a wholly-owned subsidiary of The AGE Institute,
a Pennsylvania nonprofit corporation, with which Genesis has had a
long-standing relationship. The Company will purchase the stock of The AGE
Institute subsidiary that owns the Silverlake Facility for approximately $2.6
million in cash and approximately $5.4 million in repaid indebtedness and will
lease the facility to a newly formed subsidiary of
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The Age Institute of Florida, which is also a subsidiary of The AGE Institute,
under a Minimum Rent Lease. The facility will continue to be managed by Genesis
pursuant to a long-term management contract between Genesis and the Age
Institute of Florida. All but 3 1/2% of the 6% management fee payable to
Genesis will be subordinated to the lease payment obligations under the Minimum
Rent Lease entered into by the Age Institute of Florida subsidiary and the
Company. Pursuant to the management agreement between Genesis and the Age
Institute of Florida, the Silverlake facility will continue to be part of a
Genesis ElderCareTM Network. Residents of the facility will have access to
pharmacy services and rehabilitation services (but not physician services)
through this Genesis ElderCareTM Network.
Other Initial Properties -- Medical Office Buildings
Salisbury Medical Office Building. The Salisbury Medical Office Building
is a 10,961 square foot office building located on 1.4 acres of land in
Salisbury, Maryland. Messrs. Walker, Stevens and Howard each own a one-sixth
interest in the Salisbury Medical Office Building, which was built in 1984. Mr.
Walker holds a note which is secured by the Salisbury Medical Office Building
Property in the amount of approximately $733,000. This note will be paid off by
the Operating Partnership in connection with the acquisition of the property.
The Company will acquire all of the interests in the entity which owns the
Salisbury Medical Office Building for an aggregate of approximately $209,000 in
cash paid to Mr. Stevens and one other individual not affiliated with the
Company or Genesis, approximately $417,000 in Units (based on the assumed
initial public offering price of the Common Shares) to be issued to Messrs.
Walker and Howard and two other individuals not affiliated with the Company or
Genesis and the repayment of the approximately $733,000 of debt owed to Mr.
Walker. In addition, the entity which owns the Salisbury Medical Office
Building made two loans to Mr. Romanov totaling $450,000. One of these loans
was previously repaid by Mr. Romanov and the other will be repaid by Mr.
Romanov at or prior to the closing of the Offering. See "Certain Relationships
and Related Transactions."
Windsor Office Building. The Windsor Office Building is a 2,100 square
foot office building located on 0.3 acres of land in Windsor, Connecticut which
serves as a regional headquarters office of Genesis. The office building was
built in 1934. Mr. Walker owns a 50% managing partner interest in the Windsor
Office Building. In addition, Mr. Walker is the lender under a $1.2 million
loan secured by the Windsor Office Building and Windsor Clinic properties. This
loan will be repaid by the Operating Partnership in connection with the
acquisition of these properties.
Windsor Clinic and Training Facility. The Windsor Clinic and Training
Facility are connected buildings located on a piece of land adjacent to the
Windsor Office Building. The Windsor Clinic and Training Facility include 9,662
rentable square feet and were built in 1996. Mr. Walker owns a 50% managing
partner interest in the Windsor Clinic and Training Facility. The lessees in
these buildings are two subsidiaries of Genesis. The land on which the Windsor
Clinic and Training Facility buildings are situated is leased from Genesis
pursuant to a long-term, triple net ground lease at an annual rent of $1.00,
and the Company will acquire this leasehold interest and assume the ground
lease obligations.
The Windsor Office Building and the Windor Clinic and Training Facility
will be acquired by the Company from the entity which owns such properties for
approximately $666,000 in Units (based on the assumed initial offering price of
the Common Shares) to be issued to such entity and subsequently distributed to
Mr. Walker and two other individuals not affiliated with the Company or Genesis
and the repayment of the approximately $1.2 million of debt owed to Mr. Walker.
Initial Property Acquisition Agreements
The Company will acquire each of the Initial Properties pursuant to an
acquisition agreement between the Company and the current owner of an Initial
Property or one or more acquisition agreements among the Company and the
holders of all interests in the current owner of an Initial Property (each an
"Initial Property Acquisition Agreement"). These acquisitions are subject to
all of the terms and conditions of such agreements. The following is a summary
of certain provisions of such agreements, does not purport to be complete and
is qualified in its entirety by reference to such agreements. Copies of the
forms of the Initial Property Acquisition Agreements to be entered into with
Genesis have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
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The transfer of the ownership of each Initial Property is subject to the
completion of the Offering as well as the normal and customary conditions to
the closing of real estate transactions, including the receipt of required
consents or waivers. In the case of the six Initial Properties with respect to
which the Company will assume outstanding mortgage indebtedness, the consents
of the mortgagees are also required. There can be no assurance that all such
consents or waivers will be obtained prior to the closing of the Offering. See
"Risk Factors -- Possible Inability to Obtain Consents or Waivers Required to
Effect Formation Transactions." The Operating Partnership will assume certain
debt obligations relating to specific Initial Properties and all obligations
relating to each Initial Property which arise after the transfer thereof to the
Company. The acquisition of the ownership of three of the Initial Properties is
structured as a purchase by the Operating Partnership of ownership interests in
the current owners thereof, rather than the transfer of assets by such owners.
As a result of this structure, the Operating Partnership will succeed to all
liabilities, whether known or unknown, contingent or otherwise, of the current
owners.
The Initial Property Acquisition Agreements contain representations and
warranties from each transferor of an Initial Property or an interest in an
Initial Property, as applicable, regarding matters such as title to the
applicable Initial Property and, where applicable, the interest being
transferred, the absence of liens and encumbrances thereon, title to personal
property utilized at the Initial Property, leases or other occupancy agreements
and the rents payable thereunder, environmental matters and other
representations and warranties customarily found in similar documents. In
general, these representations and warranties will survive the closing of the
Offering for a period of at least one year except for representations and
warranties relating to environmental matters which will survive the closing of
the Offering for a period of at least two years. With respect to the Property
Acquisition Agreements between the Company and Genesis or CKHS, as the case may
be, relating to the four skilled nursing facilites to be leased to
Crozer/Genesis, all representations and warranties (including representations
and warranties relating to environmental matters) will survive the closing of
the Offering for one year. With respect to those Initial Properties to be
acquired from Genesis (other than the three skilled nursing facilities which
Genesis acquired from CKHS effective January 1, 1998), Genesis will indemnify
the Company against a breach of a representation and warranty contained in the
Initial Property Acquisition Agreements relating to such Initial Properties,
provided that Genesis' indemnification obligations will be limited to 20% of
the purchase price of such properties on a property by property basis. With
respect to the Initial Property known as Salisbury Medical Office Building, the
liability of the six current holders of equity interests in this Initial
Property for a breach of a representation and warranty will be several and not
joint and will also be limited to 20% of the aggregate purchase price of such
property. With respect to the Initial Properties known as Windsor Office
Building and Windsor Clinical Training Facility, the current owner of these
properties will be liable for a breach of a representation and warranty; this
liability will be limited to 20% of the purchase price of each such property on
a property by property basis. The Company believes that the foregoing
limitations on indemnification are comparable to those in other real estate
transactions.
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Term Loans, Construction Loans, Penn Mortgage and Florida Facilities Note
The following table sets forth certain information regarding the Term
Loans, the Construction Loans, the Penn Mortgage and the Florida Facilities
Note. The project/owner borrowers include subsidiaries of Genesis, Lake
Washington, subsidiaries of Multicare, subsidiaries of SLC, a subsidiary of the
Age Institute of Florida and Philadelphia Suburban Development Corporation.
Facilities under development are subject to various risks and uncertainties,
including zoning, construction and related development risks. See "Risk Factors
- -- Making Loans on Development Projects." There can be no assurance that any of
the Initial Assisted or Independent Living Development Facilities that secure
the Construction Loans will be completed on a timely basis or at all. The
Company has agreed or has the option to purchase eight of the nine facilities
that secure the Term Loans and the Construction Loans at the end of the loan
terms or at such time as each facility achieves Stabilized Occupancy. See "--
Purchase Contracts and Options for Term Loan and Construction Loan Properties."
There can be no assurance as to the timing of the purchase of any of the
facilities that are subject to Term Loans or Construction Loans.
<TABLE>
<CAPTION>
Loan Amount
Expected to be
Number of Funded at % of Initial Interest
Security Property Location Beds(1) Closing Investments Rate
- ------------------------------------- ------------------ ----------- ---------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities:
Harbor Place Melbourne, FL 120 $ 4,728 2.5% (3)
Mifflin Shillington, PA 67 5,164 2.7 (3)
Coquina Place Ormond Beach, FL 80 4,577 2.4 (3)
Lehigh Macungie, PA 70 6,665 3.5 10.50%
Berkshire Reading, PA 64 6,269 3.3 10.50%
--- -------- -----
Subtotal 401 $ 27,403 14.4%
=== -------- -----
Construction Loans - Initial Assisted or Independent Living Development Projects:
Oaks Wyncote, PA 52 $ 1,500 0.8% (3)
Montchanin Wilmington, DE 92 2,000 1.0 10.50%
Mallard Landing Salisbury, MD 147 900 0.4 (3)
Sanatoga Pottstown, PA 70 3,000 1.6 10.50%
--- -------- -----
Subtotal 361 $ 7,400 3.8%
=== -------- -----
Penn Mortgage(7):
Personal Care Facility (Unoccupied) Philadelphia, PA 180 $ 800 0.4% 10.25%
-------- -----
Florida Facilities Note(8):
11 skilled nursing facilities Florida 1,219 $ 7,406 3.9% 13.00%
-------- -----
Total Loan Investments $ 43,009 22.5%
-------- -----
Total Initial Investments $190,330 100.0%
======== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Purchase
Initial Development Contract/ Project/Owner
Security Property Maturity Loan Amount(2) Status Option Borrower
- ------------------------------------- ---------- ---------------- ------------- ----------- ----------------------
(years) (in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities:
Harbor Place 2 $ 4,728 Lease-up Contract Lake Washington
Mifflin 2 5,164 Lease-up Contract Genesis (4)
Coquina Place 2 4,577 Lease-up Contract Genesis (4)
Lehigh 2 6,665 Lease-up Contract Multicare (5)
Berkshire 2 6,269 Lease-up Contract Multicare (5)
---------
Subtotal $ 27,403
---------
Construction Loans - Initial Assisted or Independent Living Development Projects:
Oaks 3 $ 5,380 Constr. Contract Genesis (4)
Montchanin 3 9,500 Constr. Option SLC (6)
Mallard Landing 2 6,407(7) Zoned N/A SLC (6)
Sanatoga 3 6,511 Constr. Contract Multicare (5)
----------- -----------
Subtotal $ 27,798
-----------
Penn Mortgage(7):
Personal Care Facility (Unoccupied) 0.8 $ 800 N/A N/A Phil. Sub. Dev. Corp.
Florida Facilities Note(8):
11 skilled nursing facilities 10 $ 7,406 N/A N/A Age Inst. of Fl.
-----------
Total Loan Investments $ 63,407
-----------
Total Initial Investments
</TABLE>
<PAGE>
- --------
(1) Based on the number of private and semi-private beds currently available or
contemplated in the case of development projects.
(2) Represents the total committed loan amount under the applicable Term Loan
or Construction Loan.
(3) The interest rates on these loans will be set at the closing of the
Offering at a fixed rate of interest equal to 400 basis points over the
then applicable three-year U.S. Treasury Note rate, except for (i) the
Construction Loan for the Oaks development project which will have a fixed
interest rate equal to 350 basis points over the then applicable
three-year U.S. Treasury Note rate and (ii) the Construction Loan for the
Mallard Landing development project which will be at a fixed rate of
interest equal to 15% for loan balances less than or equal to $4.5 million
and 18% when the loan balance exceeds $4.5 million.
(4) The project owner/borrower of these projects will be a wholly owned
subsidiary of Genesis. Genesis will guarantee the loans made to such
subsidiaries.
(5) The project owner/borrower of these projects are subsidiaries of Multicare.
Multicare will guarantee 20% of the principal amount of the loans.
(6) The project owner/borrower of these projects will be wholly owned
subsidiaries of SLC. SLC will guarantee the loans made to such
subsidiaries.
(7) The estimated cost of the fully constructed independent living condominium
facilty is approximately $16.7 million, and the Company will provide a
Construction Loan of up to approximately $6.4 million to fund construction
of the first phase of this project (35 apartments and 20 cottages).
(8) See "-- Penn Mortgage" for additional information.
(9) See "-- The Florida Facilities Note" for additional information. The amount
shown in the table represents the Company's economic interest in the Florida
Facilities Note on a pre-tax basis.
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Term Loans
The Company will make the Term Loans with respect to five Lease-up
Assisted Living Facilities owned by Genesis or in which Genesis has an interest
upon completion of the Offering. The five Lease-up Assisted Living Facilities
are recently completed or nearly complete development projects. The Term Loans
will be fully secured by the real estate, as improved, as well as by related
collateral. The notes relating to three of the Term Loans being made to Genesis
and to Lake Washington, in which Genesis holds a 49% interest, will bear
interest at fixed rates equal to the rate on three-year U.S. Treasury Notes in
effect at the closing of the Offering plus 400 basis points. Each Term Loan
made to Genesis and Lake Washington will be due and payable upon the maturity
of the Term Loan (which will occur two years from the date of the Term Loan,
subject to the right of Genesis, upon payment of a 0.5% fee, to extend the term
in each case for up to one additional year) or at such time as the facility
reaches Stabilized Occupancy. The Company has agreed to purchase from and
leaseback to Genesis the three properties securing these Term Loans. Genesis
will guarantee these loans.
Each of the two Term Loans made to Multicare, a 44% owned subsidiary of
Genesis, will have a fixed annual rate of interest of 10.5% and will mature two
years from the date of the loan for the facility, subject to the right of
Multicare to extend the term for up to four one-year extension periods in the
event the facility has not reached Stabilized Occupancy as of the second
anniversary of the loan (or at the end of any extension period, if applicable).
Multicare will guarantee 20% of the principal amount of these Term Loans. The
Company will have the obligation to acquire each assisted living facility from
Multicare during the term of the applicable Term Loan at such time as the
applicable facility reaches Stabilized Occupancy. See
"-- Purchase Contracts and Options for Term Loan and Construction Loan
Properties."
Set forth below is information regarding the Lease-up Assisted Living
Facilities that secure the Term Loans being made to Genesis and Lake
Washington.
Genesis - Lease-up Assisted Living Facilities
Harbor Place. Harbor Place is a two-story, apartment style 40,000 square
foot assisted living facility located on 6.0 acres of land in Melbourne,
Florida. The facility is located within approximately three miles of a 179 bed
skilled nursing facility owned and operated by Genesis. The Harbor Place
facility is 49% owned by Genesis and 51% owned by a third party who developed
the property. The facility has an operational configuration for 120 residents
and opened in December 1996.
Mifflin. Mifflin is a three-story, apartment style approximately 43,000
square foot assisted living facility located on approximately 12 acres of land
in Shillington, Pennsylvania. The facility is adjacent to an existing Genesis
skilled nursing facility containing 136 beds. The facility is currently located
on the same parcel of land as the adjacent skilled nursing facility, which
parcel will be subdivided by Genesis prior to the purchase of the Mifflin
facility by the Company. The Mifflin facility is being developed by Genesis.
The facility has an operational configuration for 67 residents and opened in
October 1997.
Coquina Place. Coquina Place is a two-story, apartment style 44,716 square
foot assisted living facility located on 6.9 acres of land in Ormond Beach,
Florida. The facility is located adjacent to a 120-bed skilled nursing facility
owned and operated by Genesis. The Coquina Place facility is being developed by
Genesis. The facility, which has an operational configuration for 80 residents,
is scheduled to open in January 1998.
Multicare - Lease-up Assisted Living Facilities
Set forth below is information regarding the assisted living facilities
owned by subsidiaries of Multicare that will secure the two Term Loans being
made to Multicare. Genesis will manage all Multicare operations, including the
two facilities which secure the Term Loans made to Multicare, pursuant to a
management agreement between Multicare and Genesis. Genesis will receive a fee
in the amount of 6% of the net operating revenues generated by all the
Multicare facilities managed by it, subject to certain subordination provisions
in favor of creditors of Multicare other than the Company. The management fee
will not be subordinated to lease payments or loan payments payable by
Multicare to the Company.
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<PAGE>
Lehigh Manor. Lehigh Manor is a two-story, apartment style 58,618 square
foot assisted living facility located on 8.5 acres of land in Macungie,
Pennsylvania. The facility will have an operational configuration for 70 units,
including 14 beds in an Alzheimer's unit. The facility is located adjacent to a
130-bed skilled nursing facility owned by Multicare. The Lehigh Manor facility
is being developed by Multicare and opened in September 1997.
Berkshire Manor. Berkshire Manor is a two-story, apartment style 54,554
square foot assisted living facility located on 9.8 acres of land in Reading,
Pennsylvania. The facility will have an operational configuration for 64 units,
including 14 beds in an Alzheimer's unit. The facility is located adjacent to a
130-bed skilled nursing facility owned by Multicare. The Berkshire Manor
facility is being developed by Multicare and opened in September 1997.
Construction Loans
The Company through the Operating Partnership will make Construction Loans
to develop three assisted living facilities and one independent living
condominium facility, one of which the Company has agreed to acquire from
Genesis, one of which the Company has agreed to acquire from Multicare and one
of which the Company has an option to purchase from SLC. Except for the
Construction Loan with respect to the Mallard Landing development project, each
Construction Loan will be in the amount of 90% of the total project costs,
based on an approved budget for each project. The remaining 10% of the budgeted
costs will be covered by an owner's equity contribution in land, cash or other
form acceptable to the Company. The Construction Loan for the Mallard Landing
independent living condominium facility will be a revolving loan. The borrower
will have an equity requirement of $250,000 and existing indebtedness totaling
approximately $840,000 will be subordinated to the Construction Loan. Each
Construction Loan will be evidenced by a Construction Mortgage Note, and will
be secured by the property, as improved, as well as by other assets of the
borrower in connection with the project, such as, but not limited to,
assignments of agreements affecting real estate as well as an assignment of the
Residential Living Agreements entered into in connection with the project.
Genesis - Initial Assisted Living Development Project
Genesis formed its own development group in 1990. The development group
currently has four project managers who provide various development services in
the areas of land acquisition, zoning, oversight of design, bidding and
construction management. The Genesis development group has developed over $170
million of construction projects, including eight assisted living facilities,
three continuing care retirement communities, the Genesis corporate
headquarters currently under construction, two regional, institutional pharmacy
buildings and certain capital improvements at Genesis' facilities. Genesis'
construction of assisted living facilities has generally focused on locations
in close proximity to Genesis' skilled nursing facilities. In developing
assisted living facilities, Genesis considers various factors, including
population, income and age demographics, the estimated level of market need,
the breadth of Genesis' existing strategic relationships in the primary market
area, target site visibility, proximity to complementary healthcare services,
availability of adequately trained personnel and probability of acquiring an
acceptable site and receiving zoning approval. The primary milestones in the
development process are (i) marketing study and financial feasibility analysis,
(ii) site acquisition, (iii) subdivision and/or zoning and site plan approval
and (iv) completion of construction and licensing approval. Following site
acquisition, subdivision and zoning approvals generally take six months to nine
months to receive, and facility construction and licensing generally take one
year. Depending on the size of a facility and market conditions a facility
should reach Stabilized Occupancy within 12 to 24 months following opening. The
timing and cost of a facility varies considerably based on a variety of
site-specific and regional cost factors.
The Company will make one Construction Loan to Genesis to fund
construction of the Initial Assisted Living Development Project owned by
Genesis. The note will bear interest at a fixed rate equal to the rate on
three-year U.S. Treasury Notes in effect as of the closing of the Offering plus
350 basis points, and will mature on the third anniversary of the Construction
Loan, subject to the right of Genesis, upon payment of a 0.5% fee, to extend
the term for up to two one-year extension periods in the event the facility has
not reached Stabilized Occupancy as of such third anniversary (or at the end of
the first one-year extension period, if applicable). Payment of all sums due
under the Construction Loan, as well as the full and timely performance of the
borrower's obligations and completion of the improvements on the property will
be guaranteed by Genesis.
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<PAGE>
Pursuant to the Construction Loan, the Company will be obligated to
acquire the Initial Assisted Living Development Project owned by Genesis upon
the earlier of the maturity of the Construction Loan (as extended if Genesis
elects to extend the maturity of the Construction Loan as described above) or
at such time as the facility reaches Stabilized Occupancy. See "-- Purchase
Contracts and Options for Term Loan and Construction Loan Properties."
Set forth below is information regarding the Initial Assisted Living
Development Project owned by Genesis.
The Oaks. The Oaks assisted living development project consists of two,
two-story, 27 foot high wings which are being added to an existing three-story
mansion located on 4.5 acres of land in Wyncote, Pennsylvania. Upon completion,
the Oaks facility will include approximately 40,400 square feet of space and
will have an operational configuration for 52 residents, including residents
with Alzheimer's disease or other forms of memory impairment. The mansion will
be used as the main entrance and will be renovated to include common living
areas and staff offices. The Oaks is located within ten miles of three skilled
nursing facilities owned and operated by Genesis. Construction of this project
commenced in August 1997 and is expected to be completed in July 1998. The
estimated cost of this project is $6.0 million, and the Company's loan
commitment is $5.4 million.
Multicare - Initial Assisted Living Development Project
The Company will make one Construction Loan to Multicare to fund
construction of an assisted living facility being developed by Multicare. The
note will bear interest at a fixed annual rate of 10.5%, and will mature on the
third anniversary of the loan, subject to the right of Multicare to extend the
term for up to four one-year extension periods in the event the facility has
not reached Stabilized Occupancy as of such third anniversary (or at the end of
any extension period, if applicable). Multicare will guarantee 20% of the
principal amount of such Construction Loan. Pursuant to this Construction Loan,
the Company will have the obligation to acquire the assisted living facility
being developed by a subsidiary of Multicare at any time prior to maturity of
the Construction Loan (as extended if the subsidiary of Multicare elects to
extend the maturity of the loan as described above) after the facility reaches
Stabilized Occupancy. See "-- Purchase Contracts and Options for Term Loan and
Construction Loan Properties."
Genesis will manage all Multicare operations, including the facility
securing this Construction Loan, pursuant to a management agreement between
Multicare and Genesis. Genesis will receive a fee in the amount of 6% of the
net operating revenues generated by all the Multicare facilities managed by
Genesis, subject to certain subordination provisions in favor of creditors of
Multicare other than the Company. The management fee will not be subordinated
to lease payments or loan payments payable by Multicare to the Company.
Set forth below is information regarding the assisted living facility
being developed by a subsidiary of Multicare.
Sanatoga Manor. Sanatoga Manor will be a two-story, apartment style 58,618
square foot assisted living facility located on 4.09 acres of land in
Pottstown, Pennsylvania. The facility will have an operational configuration
for 70 residents, including 14 beds in an Alzheimer's unit. The facility is
located adjacent to a 130-bed skilled nursing facility owned by Multicare.
Construction of this project commenced in the second quarter of 1997 and is
expected to be completed in the second quarter of 1998. The estimated cost of
this project is $7.2 million, and the Company's loan commitment is $6.5
million.
SLC - Initial Assisted and Independent Living Development Projects
To date, SLC or affiliated entities have developed and completed
construction of two assisted living development projects, both of which are
being acquired by the Company as Initial Properties.
Genesis recently made a construction loan to SLC to fund the construction
of the Montchanin Initial Assisted Living Development Project. At the closing
of the Offering, the Company will purchase such loan from Genesis, and the
Company also will make a Construction Loan to a subsidiary of SLC to fund
construction of the Mallard Landing Initial Independent Living Development
Project. The notes for the
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Construction Loans will bear interest at a fixed rate equal to 10 1/2%, in the
case of the Montchanin facility, and at a fixed rate of interest ranging from
15% to 18% (depending on the loan balance), in the case of the Mallard Landing
facility. The initial term of the Construction Loan for the Montchanin facility
is three years, subject to the right of the applicable subsidiary of SLC, upon
payment of a 0.5% fee, to extend the term for up to two one-year extension
periods in the event the facility has not reached Stabilized Occupancy at the
end of the three-year loan term (or at the end of the first one-year extension
period, if applicable). The term of the Construction Loan for the Mallard
Landing facility is two years. Payment of all sums due under the Construction
Loan with respect to the Mallard Landing Facility, as well as the full and
timely performance of the borrower's obligations and completion of the
improvements on such property, will be guaranteed by SLC.
The Company will have the option to acquire the Montchanin facility upon
the maturity of the applicable Construction Loan for the project (as extended
if the applicable subsidiary of SLC elects to extend the maturity of such
Construction Loan as described above) or at any time prior to such maturity
after the facility reaches Stabilized Occupancy. In the event the Company
exercises its option to acquire this facility during an extension period, the
Company will rebate to the applicable subsidiary of SLC a pro rata portion of
the 0.5% extension fee for such extension period. Upon acquisition of the
Montchanin facility, the Company will leaseback the facility to SLC or a
subsidiary of SLC under a Minimum Rent Lease, and SLC will manage the facility.
All management fees payable to SLC with respect to these facilities will be
subordinated to the obligations of such subsidiaries of SLC under the leases
with the Company. See "-- Leases -- SLC Minimum Rent Leases." The Company does
not have an option to acquire the Mallard Landing independent living facility.
The borrower will be required to repay the outstanding principal balance of the
loan based on the sales proceeds, net of closing costs and $7,000 per apartment
or cottage payable to the junior lienholder. Before construction begins, a
minimum of 12 cottages or 20 apartments must be presold with a non-refundable
deposit.
Certain of the funds used by SLC to pursue these Initial Assisted or
Independent Living Development Projects were provided by Genesis pursuant to
one or more loans to SLC. Sources of funds available to SLC to make payments on
or to repay these loans will be its operating income from the two Initial
Properties that it will lease from the Company and the gain after repayment of
a portion of the Genesis loan, if any, realized by SLC upon the sale to the
Company of the two Initial Assisted or Independent Living Development Projects
owned by SLC and any other assisted living development projects sold by SLC in
the future. In addition, the Minimum Rent Leases with subsidiaries of SLC will
include covenants requiring SLC to maintain a net worth equal to at least $5
million, including any Units received by SLC from its members and any
subordinated loans outstanding to SLC from Genesis for development purposes
under the subordinated loans and valuing SLC's assets at fair market value net
of taxes.
Set forth below is information regarding the Initial Assisted or
Independent Living Development Projects owned by subsidiaries of SLC.
Montchanin. This assisted living development project, located on 6.1 acres
of land in Wilmington, Delaware, consists of a three-story, apartment style
facility with an operational configuration for 92 residents, including
residents with Alzheimer's disease or other forms of memory impairment. The
facility is located adjacent to a condominium retirement community which is
under construction and is located within ten miles of a Genesis skilled nursing
facility. Construction of this project commenced in June 1997 and is expected
to be completed in the second quarter of 1998. The estimated cost of this
project is $10.5 million, and the Company's loan commitment is $9.5 million.
Mallard Landing. The Mallard Landing independent living development
project is a 147 unit condominium style independent living facility for person
age 55 and over. The facility will be located on 18 acres of land in Salisbury,
Maryland. On an adjacent 8.7 acre property, an up to 90 unit assisted living
development project will be constructed, together with a 15,000 square foot
attached community center. The Mallard Landing facilities will be located
within three miles of a Genesis skilled nursing facility containing
approximately 300 beds. The Company has committed to finance the development of
the independent living condominium facility, the assisted living facility and
the community center. Zoning approvals for these projects were obtained in July
1997. Construction of the independent living condominium facility and assisted
living facility are expected to begin in the first and second calendar quarters
of 1998, respectively. The estimated cost of the fully constructed independent
living condominium facility is approximately $16.7 million, and the Company
will provide a Construction Loan of up to approximately $6.4 million to
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fund construction of the first phase of this project (35 apartments and 20
cottages). The borrowers will have an equity requirement of $250,000. A lien
securing the existing indebtedness totaling approximately $840,000 will be
subordinated to this Construction Loan. The junior lienholder will receive
$7,000 per apartment and cottage sold. The estimated cost of the assisted
living facility and the community care center is $8.4 million, and the
Company's loan commitment is $7.6 million.
Purchase Contracts and Options for Term Loan and Construction Loan Properties
The Company has agreed to purchase and leaseback the four assisted living
facilities that will secure Term and Construction Loans made to Genesis and to
Lake Washington in which Genesis owns a 49% interest (i) upon the earlier of
the maturity of the applicable Term Loan (which maturity shall occur on the
second anniversary of the date of such Term Loan, subject to the right of
Genesis, upon payment of a 0.5% fee, to extend the term for one additional year
in the event the applicable Lease-up Assisted Living Facility has not reached
Stabilized Occupancy as of such second anniversary of the date of such Term
Loan), or at such time as the applicable Lease-up Assisted Living Facility
reaches Stabilized Occupancy, for the Lease-up Assisted Living Facilities, and
(ii) upon the earlier of the maturity of the Construction Loan for the Initial
Assisted Living Development Project (which maturity shall occur on the third
anniversary of the date of the Construction Loan for such project, subject to
the right of Genesis, upon payment of a 0.5% fee, to extend the term for up to
one-year extension periods in the event the project has not reached Stabilized
Occupancy as of such third anniversary of the date of the Construction Loan (or
at the end of the first one-year extension period, if applicable)) or at such
time as the facility reaches Stabilized Occupancy, for the Initial Assisted
Living Development Project. The cash purchase price for each Lease-up Assisted
Living Facility will be an amount which will result in an initial annual yield
of 12.0% to the Company (determined by capitalizing at such rate either (i) in
the case of a facility which has reached Stabilized Occupancy as of the date of
purchase by the Company, an assumed net operating income for such facility,
based on actual gross revenues and operating expenses for such facility during
the three months ended immediately prior to the purchase of such facility by
the Company, annualized and adjusted to reflect a long-term occupancy of 92%,
less an assumed 5% management fee, or (ii) in the case of a facility which has
not reached Stabilized Occupancy as of the date of purchase by the Company, the
actual net operating income for such facility for the three months ended
immediately prior to the purchase of such facility by the Company, annualized,
less an assumed 5% management fee). The cash purchase price for the Initial
Assisted Living Development Project to be acquired by the Company from Genesis
will be an amount which will result in an annual yield to the Company equal to
the rate on ten-year U.S. Treasury Notes as of the date of the purchase of such
Initial Assisted Living Development Project plus 525 basis points (determined
by capitalizing at such rate either (i) if the facility has reached Stabilized
Occupancy as of the date of purchase by the Company, an assumed net operating
income for the facility, based on actual gross revenues and operating expenses
for the facility for the three months ended immediately prior to the purchase
of the facility by the Company, annualized and adjusted to reflect a long-term
occupancy of 92%, less an assumed 5% management fee, or (ii) if the facility
has not reached Stabilized Occupancy as of the date of purchase by the Company,
the actual net operating income for such facility for the three months ended
immediately prior to the purchase of the facility by the Company, annualized,
less an assumed 5% management fee). The purchase agreements for each of these
facilities will be substantially similar to the purchase agreements entered
into by the Company and Genesis with respect to the assisted living facilities
being acquired from Genesis which are Initial Properties. See "-- Initial
Property Acquisition Agreements." The facility leases for each of the
facilities leased-back to Genesis will be Percentage Rent Leases. See "--
Leases -- Genesis Percentage Rent Leases."
The Company will have an obligation to purchase and leaseback the three
facilities that will secure the Term and Construction Loans being made to
Multicare, (i) for the facilities in lease-up, at or prior to the maturity of
the Term Loan for the applicable facility (which maturity shall occur on the
third anniversary of the date of the Term Loan for such facility, subject to
the right of the applicable subsidiaries of Multicare to extend the term for up
to four one-year extension periods in the event the applicable facility has not
reached Stabilized Occupancy as of such third anniversary of the date of the
Term Loan (or the end of the first one-year extension period, if applicable),
but not earlier than such time as the applicable facility reaches Stabilized
Occupancy, and (ii) for the project under development, at or prior to the
maturity of the Construction Loan for the project (which maturity shall occur
on the third anniversary of the date of the Construction Loan for such project,
subject to the right of the applicable subsidiary of Multicare to extend the
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term for up to four one-year extension periods in the event the project has not
reached Stabilized Occupancy as of such third anniversary of the date of the
Construction Loan (or the end of any extension period, if applicable), but not
earlier than such time as the facility reaches Stabilized Occupancy; provided,
however, that Multicare will not be obligated to sell any facility if the
purchase price for the facility would be less than the applicable loan amount.
The purchase agreements provide for a cash purchase price in an amount which
will result in an annual yield of 10.5% to the Company (based on actual gross
revenues and operating expenses for such facility during the three months ended
immediately prior to the purchase of such facility by the Company, annualized
and adjusted to reflect a long-term occupancy of 92%, less an assumed 5%
management fee). Other terms of the purchase agreements for each of these
facilities will be substantially similar to the purchase agreements entered
into by the Company and Genesis with respect to the assisted living facilities
being acquired from Genesis which are Initial Properties. See "-- Initial
Property Acquisition Agreements." If acquired by the Company, these facilities
would be leased to Multicare under Minimum Rent Leases. See "-- Leases --
Multicare Minimum Rent Leases."
The Company also has an option to purchase and leaseback one of the two
facilities that will secure Construction Loans made to subsidiaries of SLC on
the maturity of the applicable Construction Loan (which maturity shall occur on
the third anniversary of the date of such Construction Loan, subject to the
right of the applicable subsidiary of SLC, upon payment of a 0.5% fee, to
extend the term for up to two one-year extension periods in the event the
Initial Assisted Living Development Project has not reached Stabilized
Occupancy as of such third anniversary of the date of such Construction Loan
(or at the end of the first one-year extension period, if applicable)) or at
such time prior to maturity of the Construction Loan for the project (as
extended as described above, if applicable) as the facility reaches Stabilized
Occupancy. The option agreement provides for a cash purchase price of $13.0
million for the Montchanin facility. The option agreement for this facility
will contain customary terms and conditions. If acquired by the Company, this
facility would be leased to a subsidiary of SLC under a Minimum Rent Lease. See
"-- Leases -- SLC Minimum Rent Leases."
Penn Mortgage
Upon completion of the Offering, the Company will purchase the Penn
Mortgage, which is an $800,000 mortgage note, from Genesis. The Penn Mortgage
is a recourse obligation of Philadelphia Suburban Development Corporation, a
developer of properties in urban areas that it leases to third parties, and is
secured by a first lien on an unoccupied 180 bed personal care facility located
at 600 University Avenue, Philadelphia, Pennsylvania. The Penn Mortgage matures
on December 1, 1998. Payment of interest only, at a fixed annual rate of 10
1/4%, is due monthly until maturity. There is a 1% prepayment premium in the
event of prepayment of the note. At September 30, 1997, interest payments on
the Penn Mortgage were current and are being funded by Philadelphia Suburban
Development Corporation from available funds. Philadelphia Suburban Development
Corporation has indicated to the Company that it intends to find a suitable
tenant for the property securing the Penn Mortgage and to develop the property
to fit the needs of such tenant.
The Florida Facilities Note
Upon completion of the Offering, ET Capital Corp. will purchase the
Florida Facilities Note, which is a $7.5 million working capital term note,
from Genesis. The maker of the Florida Facilities Note is the Age Institute of
Florida. ET Capital Corp. will borrow 75% of the funds to purchase the Florida
Facilities Note from the Operating Partnership, and will execute a term note in
favor of the Operating Partnership in the original principal amount of $5.625
million. The remaining funds required to purchase the Florida Facilities Note
will be contributed to ET Capital Corp. by the Operating Partnership and Mr.
Romanov in exchange for nonvoting stock (representing 95% of the equity in ET
Capital Corp.) and voting stock (representing 5% of the equity in ET Capital
Corp.), respectively. ET Capital Corp.'s note to the Company will bear interest
at a rate of 13% per annum with interest only payable quarterly until the note
is paid in full.
The Florida Facilities Note is a non-recourse obligation of the Age
Institute of Florida, secured by a second lien on 11 Florida skilled nursing
facilities owned by the Age Institute of Florida and a second lien on accounts
receivable and other working capital assets. These lien positions will be
shared, pari passu, by Genesis with respect to a separate, $2.5 million working
capital term note made by the Age Institute of Florida and retained by Genesis
(the "Retained Note"). The Florida Facilities Note matures on November 1,
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2007. Payments of interest only, at a fixed annual rate of 13% are due
quarterly from the Age Institute of Florida until the Florida Facilities Note
is paid in full. The Florida Facilities Note contains a yield maintenance
provision in the event of prepayment. ET Capital Corp. and its assignees will
have an option to purchase the Retained Note from Genesis, at par, for one year
following the closing of the Offering.
The first lien on the 11 skilled nursing facilities is held by Genesis to
secure a $45.0 million loan made by Genesis in August 1996 to finance the Age
Institute of Florida's acquisition of 11 skilled nursing facilities (the
"Acquisition Loan"), which Genesis manages pursuant to a long-term management
contract. The Acquisition Loan matures on August 31, 2001 (subject to extension
by the Age Institute of Florida for five years). Interest only is payable until
maturity, with interest and a portion of principal payable during any extension
period. Effective as of the closing of the Offering, the principal amount of
the Acquisition Loan will be reduced from $45.0 million to $40.0 million and
the interest rate will be reduced from 10 1/4% (subject to cost-of-living
adjustment) to a fixed rate of 8 1/4%. Genesis then intends to sell the $40.0
million Acquisition Loan to a third party. After giving effect to the
foregoing, the debt service coverage ratio on the Florida Facilities Note and
the Retained Note for the eleven months ended November 30, 1997 (after debt
service on the $40.0 million Acquisition Loan and the subordination of 2 1/2%
of the 6% management fee) would have been 1.85x. After giving effect to the
full 6% management fee, the debt service coverage ratio would have been 0.84x,
or a short-fall of approximately $196,000. Genesis has agreed not to terminate
its management agreement as long as at least 3 1/2% of its 6% management fee is
being paid on a current basis. Any portion of the management fee not paid would
accrue and be payable in full at such time as the Age Institute of Florida is
current on both the Florida Facilities Note and the Retained Note. For the
month ended November 30, 1997, the payor mix for the 11 Age Institute of
Florida owned skilled nursing facilities was approximately 10.3% Medicare,
76.6% Medicaid and 13.1% private pay and other, and such facilities had a
weighted average occupancy of 91.6%. See "Risk Factors."
Construction Loan Commitments and Related Purchase Contracts
In addition to the current Term and Construction Loans, the Company has
entered into the Construction Loan Commitments totaling $37.3 million with
Genesis and $17.8 million with SLC to provide financing for an additional ten
assisted living development or expansion projects which are in the planning
phase. The estimated cost of completion of these projects is $61.2 million. Of
these ten assisted living development or expansion projects, four are located
in Pennsylvania, two are located in New Jersey, two are located in Florida, one
is located in New Hampshire and one is located in Maryland. The resident
capacity of these facilities is expected to total approximately 700 to 800. One
of the projects involves the addition of assisted living units to an existing
skilled nursing facility owned by the Company and operated by Genesis. Six of
these projects are located adjacent to existing skilled nursing facilities
owned and operated by Genesis. The remaining three projects are located within
five miles of one or more Genesis skilled nursing facilities. The Construction
Loan Commitments provide for a fixed rate of interest equal to 350 basis points
over the three-year U.S. Treasury Note rate in effect at the time the closing
of the loan occurs or at a fixed rate of interest equal to 400 basis points
over the three-year U.S. Treasury Note rate then in effect (but not less than
10%), in the case of one project.
One of the projects for which Construction Loan Commitments will be made
consists of an $8.2 million renovation and expansion of the 183 bed Rittenhouse
skilled nursing facility, which is one of the Initial Properties. Upon
completion of the planned renovation and expansion, the Rittenhouse facility
will contain 150 skilled nursing beds and 45 assisted living units. The
assisted living units will be located on the top two floors of the facility,
segregated from the skilled nursing beds. During construction, Genesis will
continue to operate the facility as a skilled nursing facility pursuant to a
Minimum Rent Lease entered into by the Company and Genesis. During the term of
the construction loan made by the Company pursuant to the Construction Loan
Commitment, the minimum rent payable by Genesis under such Minimum Rent Lease
will increase by 1.5% each year without regard to the revenues for such
facility. Upon completion of the renovation and expansion of Rittenhouse, the
Company will be obligated to purchase the improvements. The purchase price of
the improvements relating to the assisted living units will result in an
initial annual yield on the Company's investment equal to 525 basis points over
the ten-year U.S. Treasury Note rate as of the date the Company becomes
obligated to acquire such improvements. The purchase agreement for these
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improvements will be substantially similar to the purchase agreements entered
into by the Company and Genesis with respect to the assisted living facilities
being acquired from Genesis which are Initial Properties. See "-- Initial
Properties Acquisition Agreements." After the Company purchases the
improvements, it will enter into two new, separate leases with Genesis with
respect to the Rittenhouse facility. One of these leases will be a Percentage
Rent Lease with respect to the assisted living units which will provide for the
payment of percentage rent by Genesis at a rate based on the purchase price
paid by the Company for the improvements. The second lease will be a new
Minimum Rent Lease with respect to the skilled nursing beds.
In addition to Rittenhouse, seven of the projects will be new assisted
living facilities developed by Genesis and two will be new assisted living
facilities developed by SLC. Upon completion of development, the Company will
be obligated to purchase the seven facilities being developed by Genesis. The
purchase price for each of these facilities will be an amount which will result
in an annual yield on the Company's investment equal to 525 basis points over
the ten-year U.S. Treasury Note rate as of the date the Company becomes
obligated to acquire such facility (determined by capitalizing at such rate
either (i) in the case of a facility which has reached Stabilized Occupancy as
of the date of purchase by the Company, an assumed net operating income for
such facility, based on actual gross revenues for such facility during the
three months ended immediately prior to the purchase of such facility by the
Company, annualized and adjusted to reflect a long-term average occupancy level
of 92%, less an assumed 5% management fee, or (ii) in the case of a facility
which has not reached Stabilized Occupancy as of the date of purchase by the
Company, the actual net operating revenues for such facility for the three
months ended immediately prior to the purchase of such facility by the Company,
annualized less an assumed 5% management fee). The purchase agreements for each
of the facilities to be acquired from Genesis will be substantially similar to
the purchase agreements entered into by the Company and Genesis with respect to
the assisted living facilities being acquired from Genesis which are Initial
Properties. See "-- Initial Property Acquisition Agreements." Upon acquisition
of any such project from Genesis, the Company will leaseback the facility to a
subsidiary of Genesis under a Percentage Rent Lease at a percentage rate based
on the purchase price paid by the Company for the facility. See "-- Leases --
Genesis Percentage Rent Leases."
The Company also will have an option to purchase and leaseback one of the
two facilities that will secure construction loans made to subsidiaries of SLC
pursuant to the applicable Construction Loan Commitments. The purchase price
under this option is $8.8 million, and the Company may exercise its option
during the loan term at such time as the facility reaches Stabilized Occupancy.
The purchase agreement entered into by the Company and the applicable
subsidiary of SLC will be substantially similar to the purchase agreements
entered into by the Company and Senior LifeChoice with respect to the assisted
living facilities being acquired from Senior LifeChoice which are Initial
Properties. See "-- Initial Property Acquisition Agreements." If this facility
is acquired by the Company, the Company will lease it back to SLC or a
subsidiary of SLC pursuant to a Minimum Rent Lease. See "-- Leases -- SLC
Minimum Rent Lease."
The Company's obligation to fund the Construction Loan Commitments for
these projects is subject to a number of conditions, including approval of
project budgets and operating projections, approval of acceptable contracts for
Construction and receipt by Genesis or SLC of all necessary zoning, land use,
building, occupancy, licensing and other required governmental approvals and
authorizations. See "Risk Factors -- Making Loans on Development Projects."
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Mortgage Debt
The following table sets forth certain information regarding the debt
obligations that will be assumed by the Company upon completion of the
Offering.
<TABLE>
<CAPTION>
Interest Rate as Principal
of September 30, Balance as of Annual Debt Balance Due
Property 1997 (1) September 30, 1997 Service Maturity Date on Maturity
- -------------------------- ------------------ -------------------- ---------------- ------------------- ---------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
The Woodbridge (2)
Bonds Due 2005 ......... 8.00 %(F) $ 885 $ 71 September 1, 2005 $ 170
Bonds Due 2025 ......... 8.50 (F) 9,060 770 September 1, 2025 880
Belvedere NRC/
Chapel NRC (3) ......... 11.00 (F) 11,392 1,524 August 1, 2009 --
Highgate at Paoli Pointe
Series A Bonds (4) ...... 8.05 (F) 9,680 823 January 1, 2024 840
Riverview Ridge (5) ...... 9.00 (F) 2,739 248 December 31, 2002 2,540
Lacey Branch Off. Bldg.
(6) ..................... 8.25 (V)(7) 483 -- July 1, 2017 --
-------- ------- ------- -------
Total/Weighted Avg. . 9.23%(8) $34,239 $ 3,436 $ 4,430
======= ======= =======
</TABLE>
- ------------
(1) "F" denotes fixed rate and "V" denotes variable rate.
(2) The bonds may be redeemed with the bond issuer's approval upon payment of a
3%, 2% and 1% redemption premium of the balance prepaid during the years
ending August 31, 2006, 2007 and 2008, respectively, and no premium
thereafter. The bonds due 2025 are subject to sinking fund redemption
prior to maturity at a redemption price equal to certain specified
principal amounts (commencing on September 1, 1999 at $50,000 increasing
to $880,000 on September 1, 2025) plus accrued interest.
(3) The loan may be prepaid upon payment of a prepayment penalty calculated
under yield maintenance agreement based upon the rate payable on U.S.
Treasury obligations due closest to the maturity date.
(4) The Series A bonds may be redeemed with the bond issuer's approval upon
payment of a 3%, 2% and 1% redemption premium of the balance prepaid
during the years ending July, 2005, 2006 and 2007, respectively, and no
premium thereafter. The Series A Bonds are subject to sinking fund
redemption prior to maturity at a redemption price equal to certain
specified principal amounts (commencing on January 1, 2000 at $130,000
increasing to $840,000 on January 1, 2024) plus accrued interest.
(5) The note may be prepaid in full upon payment of a prepayment penalty.
During the period ending October 18, 2005, a prepayment penalty will be
assessed equal to the greater of 1% of the outstanding balance or a yield
maintenance amount based upon the U.S. Treasury securities bearing
interest at 9 3/9% due February 2006. A penalty equal to 3%, 2% and 1% of
the prepaid balance will be payable if prepayment occurs in the years
ending October 18, 2006, 2007 and 2008, respectively.
(6) The note may be prepaid upon payment of a penalty equal to 3%, 2% and 1% of
the original balance if prepayment occurs in the first through
twenty-fourth, twenty-fifth through thirty-sixth and thirty seventh
through sixtieth months, respectively, from June 7, 1996.
(7) The interest rate on the note is adjusted after each 60 month period. The
new rate is made by reference to the weekly 5-year U.S. Treasury Constant
Maturities Index. The maximum rate adjustment is 3% at any change date
with a maximum rate adjustment of 6% over the loan term.
(8) Based on the currently applicable interest rate for the variable rate loan
secured by the Lacey Branch Office Building.
<PAGE>
Leases
The leases for three of the four assisted living facilities and the one
independent living facility being acquired from and leased-back to wholly owned
subsidiaries of Genesis will be Percentage Rent Leases with no minimum rent.
The lease for the remaining assisted living facility being acquired from and
leased-back to a wholly owned subsidiary of Genesis will provide for the
payment of minimum rent until such facility reaches Stabilized Occupancy, at
which time the lease will convert automatically into a Percentage Rent Lease
with no minimum rent. The leases to be entered into with subsidiaries of
Genesis for the two Lease-up Assisted Living Facilities and the Initial
Assisted Living Development Projects that the Company has agreed to acquire
from Genesis also will be Percentage Rent Leases. The leases for the four
skilled nursing facilities being acquired from and leased-back to wholly owned
subsidiaries of Genesis will be Minimum Rent Leases, as well as the lease for
the Highgate facility which will be acquired from Senior LifeChoice and leased
to
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Genesis. The leases to be entered into with wholly owned subsidiaries of
Multicare for the two Lease-up Assisted Living Facilities and the Initial
Assisted Living Development Project that the Company has agreed to acquire from
Multicare will be Minimum Rent Leases. The leases for the remaining seven
Initial Properties (other than the medical office and other buildings) being
leased to third parties other than Genesis, as well as the remaining Initial
Assisted Living Development Project, if the Company elects to purchase such
facility, also will be Minimum Rent Leases. The medical office and other
buildings included in the Initial Properties will be acquired by the Company
subject to the existing leases with various tenants. The Company expects to
realize an initial yield (i.e., return on investment) of approximately 10.1% on
its investment in Initial Properties that are subject to Minimum Rent Leases
(based on the minimum rent provisions of such leases and, for the Genesis
Minimum Rent Leases (other than the Minimum Rent Lease with respect to the
Highgate facility), 350 basis points over the ten-year U.S. Treasury Note rate
in effect on September 30, 1997) and an initial annual yield of approximately
10.4% on its investment in Initial Properties that are subject to Fixed Rent
Leases (based on the fixed rent provisions of such leases). The minimum rents
in the Genesis Minimum Rent Leases (other than the Minimum Rent Lease with
respect to the Highgate facility) will be fixed at the closing of the Offering
based upon the ten-year U.S. Treasury Note rate in effect at that time plus 350
basis points. See "Genesis Minimum Rent Leases." The Company expects to realize
an initial annual yield of approximately 11.0% on its investment on the three
Initial Properties that are subject to Percentage Rent Leases (based on pro
forma gross facility revenues (gross revenues per bed times the average number
of occupied beds) multiplied by the percentage rent set forth in the applicable
lease for the month ended November 30, 1997, annualized). The average occupancy
of these three facilities was 88.7% at November 30, 1997. Assuming gross
revenues per bed remained constant, a 1% increase or decrease in average
occupancy for these three facilities would increase or decrease the yield on
Percentage Rent Leases by approximately 12 basis points. The foregoing
computations assume that all rents are paid in accordance with the lease terms
and do not take into account the costs associated with debt or equity
financing. There can be no assurance that such yields will be achieved or
maintained. See "Risk Factors -- Dependence on Genesis for the Company's
Revenues and Ability to Make Distributions" and "-- Operating Risks in the
Highly Regulated Healthcare Industry may Adversely Affect the Operations of the
Company's Lessees and Borrowers." The foregoing yields do not indicate yields
to shareholders.
Copies of the forms of the Percentage Rent Leases and Minimum Rent Leases
with Genesis have been filed as exhibits to the Registration Statement of which
this Prospectus forms a part. The following is a summary of certain provisions
of such agreements, does not purport to be complete and is qualified in its
entirety by reference to such agreements.
Genesis Percentage Rent Leases
The initial terms of the Percentage Rent Leases with Genesis are ten
years, and Genesis (through one or more wholly owned subsidiaries), as the
tenant under each such Percentage Rent Lease, has the option to extend the term
for up to two consecutive five-year periods, provided that Genesis must
exercise its option to extend with respect to all, but not less than all, of
the facilities which are subject to Percentage Rent Leases or Minimum Rent
Leases with the Company and which commence on the same date. No assurance can
be given that the options to extend the lease terms will be exercised by
Genesis. Genesis also will have a right of first refusal with respect to any
facility, on a facility-by-facility basis, which is subject to a Percentage
Rent Lease or a Minimum Rent Lease and for which the Company receives an offer
to purchase or lease which the Company is prepared to accept during the term of
the lease (as extended) and for one year thereafter.
The Percentage Rent Leases provide for the payment of Percentage Rent at a
rate equal to between approximately 21% and 42% of gross revenues derived from
each property (excluding any revenues derived from ancillary healthcare
services provided by Genesis or its affiliates to residents of the applicable
facility) subject to a Percentage Rent Lease. Genesis is required to use
reasonable efforts to produce maximum revenues at each facility subject to a
Percentage Rent Lease by designing and implementing a comprehensive marketing
strategy program to attain the highest occupancy level compatible with a
competitive rate structure.
Each Percentage Rent Lease is a "triple net" lease, and Genesis, directly
or indirectly, is responsible thereunder, in addition to the Percentage Rent,
for all additional charges, including every fine, penalty, interest and cost
which may be added for non-payment or late payment thereof, all taxes,
assessments, levies, fees, water and sewer rents and charges, all governmental
charges with respect to the applicable property and all utility and other
charges incurred in the operation of the applicable property. Each Percentage
Rent Lease
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requires the Genesis subsidiary to maintain adequate insurance on the
applicable leased property, naming the Company or its affiliates and any
mortgagees as additional insureds. In addition, each Percentage Rent Lease
requires the Genesis subsidiary to indemnify the Company and its affiliates
against certain liabilities in connection with the applicable leased property.
The Percentage Rent Leases with Genesis will include default provisions
customary for leases for facilities of the types to be leased by Genesis,
including defaults for the failure to pay rent or otherwise satisfy all
obligations under the applicable Percentage Rent Lease. The Percentage Rent
Leases also will include a default for any failure by the lessee to maintain an
average occupancy of 78% or greater for four consecutive quarters. Certain of
the Percentage Rent Leases and Minimum Rent Leases with Genesis will be
cross-defaulted with respect to monetary defaults.
Each Genesis subsidiary is required, at its expense, to maintain each
property leased by it in good order and repair, in accordance with standards
promulgated in each Percentage Rent Lease. In addition, during the last four
years of the term (as extended, if applicable), each Genesis subsidiary is
required to expend a minimum of $3,000 per residential unit in each assisted
living or independent living facility covered by a Percentage Rent Lease as
capital expenditures to maintain the applicable property. The Company is not
required to repair, rebuild or maintain any leased property or to pay for any
addition, modification or improvement.
The obligations of each Genesis subsidiary under the Percentage Rent
Leases and the Highgate Minimum Rent Lease are guaranteed by Genesis. The
Genesis guarantees are unsecured and may be structurally subordinated to
secured indebtedness of Genesis. The guarantees do not limit Genesis' ability
to incur additional secured indebtedness. In addition, Genesis will deposit
with the Company as a security deposit an amount equal to one-sixth of the
estimated Percentage Rent payable with respect to the first year under each
Percentage Rent Lease based on the operating budget for such year. Interest on
the security deposit will be paid quarterly to Genesis at rate equal to the
rate on 90-day U.S. Treasury Bills for the applicable period. A Percentage Rent
Lease may not be assigned by Genesis without the consent of the Company, which
the Company may withhold in its sole discretion. Genesis will operate and
self-manage each of the facilities it leases from the Company.
Genesis Minimum Rent Leases
The initial term of each of the Minimum Rent Leases with Genesis is ten
years, and Genesis (through one or more wholly owned subsidiaries), as the
tenant under each such Minimum Rent Lease, has the option to extend the term
for up to two consecutive five-year periods, provided that Genesis must
exercise its option to extend with respect to all, but not less than all, of
the facilities which are subject to Minimum Rent Leases or Percentage Rent
Leases with the Company and which commence on the same date. No assurance can
be given that the options to extend the lease terms will be exercised by
Genesis. Genesis also will have a right of first refusal with respect to any
facility, on facility-by-facility basis which is subject to a Minimum Rent
Lease or a Percentage Rent Lease and for which the Company receives an offer to
purchase or lease which the Company is prepared to accept during the term of
the lease (as extended) and for one year thereafter.
Each Minimum Rent Lease with Genesis (other than with respect to Highgate
at Paoli Pointe) provides for the payment of Minimum Rent during the first
lease year at an amount based on an annual yield for the Company equal to the
rate on ten-year U.S. Treasury Notes as of the first day of such Minimum Rent
Lease plus 350 basis points for each facility. The Minimum Rent Lease for
Highgate provides for the payment of minimum rent during the first lease year
of $1.2 million. Minimum Rent for each facility will increase each year by an
amount equal to the lesser of (i) 5% of the increase in the gross revenues for
such facility (excluding any revenues derived from ancillary healthcare
services provided by Genesis or its affiliates to residents of the applicable
facility) during the immediately preceding year or (ii) one-half of the
increase in the Consumer Price Index during the immediately preceding year. The
Minimum Rent Leases with Genesis do not provide for any Incremental Percentage
Rent (as hereinafter defined).
Each Minimum Rent Lease is a "triple net" lease, and Genesis, directly or
indirectly, is responsible thereunder, in addition to the Minimum Rent, for all
additional charges, including every fine, penalty, interest and cost which may
be added for non-payment or late payment thereof, all taxes, assessments,
levies, fees, water and sewer rents and charges, all governmental charges with
respect to the applicable property and all
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<PAGE>
utility and other charges incurred in the operation of the applicable property.
Each Minimum Rent Lease requires the Genesis subsidiary to maintain adequate
insurance on the applicable leased property, naming the Company or its
affiliates and any mortgagees as additional insureds. In addition, each Minimum
Rent Lease requires the Genesis subsidiary to indemnify the Company and its
affiliates against certain liabilities in connection with the applicable leased
property. The Minimum Rent Leases with Genesis will include default provisions
customary for leases of skilled nursing facilities, including defaults for the
failure to pay rent or otherwise satisfy all obligations under the applicable
Minimum Rent Lease. Certain of the Minimum Rent Leases and Percentage Rent
Leases with Genesis will be cross-defaulted with respect to monetary defaults.
Each Genesis subsidiary is required, at its expense, to maintain each
property leased by it in good order and repair, in accordance with standards
promulgated in each Minimum Rent Lease. In addition, during the last four years
of the term (as extended, if applicable), each Genesis subsidiary is required
to expend a minimum of $2,000 per skilled nursing bed and $3,000 per assisted
living unit in each skilled nursing facility covered by a Minimum Rent Lease as
capital expenditures to maintain the applicable property. The Company is not
required to repair, rebuild or maintain any leased property or to pay for any
addition, modification or improvement.
The obligations of each Genesis subsidiary under the Minimum Rent Leases
are guaranteed by Genesis. However, in the event Genesis assigns one or more of
its Minimum Rent Leases to a non-wholly owned subsidiary or a third party,
Genesis may not continue to guarantee the applicable lease. Any such assignment
of a Minimum Rent Lease by Genesis would require the consent of the Company
which may not be unreasonably withheld. Genesis is currently negotiating an
arrangement with a Philadelphia-based hospital system. If the arrangement is
negotiated successfully, the hospital system would lease-back the Wayne skilled
nursing facility following its sale to the Company and Genesis would manage the
facility. In such event, the Company may fund up to approximately $1.7 million
of improvements to the facilitiy. In addition, Genesis would not guarantee the
lease. The Genesis guarantees are unsecured and may be structurally
subordinated to secured indebtedness of Genesis. The guarantees do not limit
Genesis' ability to incur additional secured indebtedness. In addition, Genesis
will deposit with the Company as a security deposit an amount equal to
one-sixth of the estimated Minimum Rent payable with respect to the first year
under each Minimum Rent Lease. Interest on the security deposit will be paid
quarterly to Genesis at rate equal to the rate on 90-day U.S. Treasury Bills
for the applicable period. Genesis will operate and self-manage each of the
facilities it leases from the Company.
For the eleven months ended November 30, 1997, on a pro forma basis, the
lease coverage ratios (net operating income before interest, depreciation and
rent divided by rent payments) for the skilled nursing facilities to be leased
to Genesis under Minimum Rent Leases (Rittenhouse CC, Lopatcong CC,
Phillipsburg CC and Wayne NRC) were 2.20x, 1.69x 1.68x and 1.26x, respectively.
For such period, the lease coverage ratio for Highgate was 0.84x.
Multicare Minimum Rent Leases
The initial term of any Minimum Rent Lease with Multicare will be ten
years, and Multicare will have the option to extend the term for up to two
five-year extension periods upon 12 months notice to the Company. No assurance
can be given that Multicare will exercise the option to extend the lease terms.
Minimum Rent for the first lease year under any Minimum Rent Lease with
Multicare will be established by multiplying the purchase price for the
applicable facility times 10.5%, and Minimum Rent under each of the Minimum
Rent Leases with Multicare will increase by 2.5% annually. The Minimum Rent
Leases with Multicare will not provide for any Incremental Percentage Rent.
During each of the last four years of the term (as extended, if applicable),
the applicable subsidiary of Multicare is required to make minimum capital
expenditures equal to $3,000 per residential unit in each assisted living
facility covered by a Minimum Rent Lease. The remaining terms of the Minimum
Rent Lease with Multicare will be substantially similar to the terms of the
Minimum Rent Leases with Genesis.
SLC Minimum Rent Lease
The initial term of the Minimum Rent Lease for The Woodbridge facility
with the subsidiary of SLC that will lease the facility is ten years, and the
lessee, under such Minimum Rent Lease, has the option to extend
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the term for an additional ten-year term, provided that such lessee exercises
its option by giving notice to the Company during the eighth lease year. No
assurance can be given that the lessee will exercise its option to extend the
lease term. If SLC does not exercise its option to extend the lease term, SLC
will have a one-time right of first refusal to lease the facility for one year
following the term of the lease. In addition, SLC will have a one-time right of
first refusal to purchase the facility in the event the Company receives an
offer to purchase the property which the Company is prepared to accept during
the term of the lease. The Minimum Rent Lease for The Woodbridge facility
provides for the payment of minimum rent during the first lease year of $1.2
million, which will increase by 1.5% annually. The Minimum Rent Lease for The
Woodbridge facility also provides for the payment of incremental percentage
rent beginning in the second lease year at a rate equal to 5% of increased
gross revenues during any lease year over the gross revenues during the first
lease year for each facility ("Incremental Percentage Rent"). The Minimum Rent
Lease for The Woodbridge facility will include default provisions customary for
leases of assisted living facilities, including defaults for the failure to pay
rent or otherwise satisfy all obligations under the applicable Minimum Rent
Lease.
Under the Minimum Rent Lease for The Woodbridge, the lessee is required,
at its expense, to maintain each leased property in good order and repair, in
accordance with standards set forth in each Minimum Rent Lease. In addition, in
the event that the terms of such Minimum Rent Lease are not extended, then,
during each of the last two years of the term, the lessee will be required to
make minimum capital expenditures equal to the greater of (i) the average of
capital expenditures made during the sixth through eighth lease years and (ii)
$750 per residential unit in the facility to maintain the property or to
restore such property to the condition in which it was leased to such lessee at
the beginning of the term. The lessee, at its expense and subject to certain
approval rights of the Company, may make additions, modifications or
improvements to each property covered by the Minimum Rent Lease. Any such
addition, modification or improvement will become the property of the Company
upon expiration or termination of the Minimum Rent Lease. The Company may, in
certain circumstances, require the lessee to remove any such addition,
modification or improvement and restore the applicable property to the
condition in which it was leased to such lessee at the beginning of the term.
The Company and its affiliates are not required to repair, rebuild or maintain
any leased property or to pay for any addition, modification or improvement
proposed by any lessee.
The Minimum Rent Lease for The Woodbridge facility provides that SLC must
maintain a net worth equal to at least $5 million, including any Units
contributed to SLC by its members and the amounts under the subordinated loans
made by Genesis to SLC to fund development activities by SLC. SLC will deposit
with the Company as a security deposit an amount equal to six months of the
Minimum Rent payable with respect to the first year under each Minimum Rent
Lease. This amount may be reduced to an amount equal to three months of the
then-applicable Minimum Rent at such time as the operating income (after
deducting an assumed 6% management fee) produced by The Woodbridge facility for
four consecutive quarters exceeds 120% of the Minimum Rent payable with respect
to each quarter for the first lease year for such facility. The remaining terms
of the Minimum Rent Leases with SLC will be substantially similar to the terms
of the Minimum Rent Leases with Genesis.
For the eleven months ended November 30, 1997, on a pro forma basis, the
lease coverage ratio (net operating income before interest, depreciation and
rent divided by rent payments) for The Woodbridge facility was 0.31x.
The Company has an option to acquire the Montchanin facility for which the
Company will make a Construction Loan to SLC as of the closing of the Offering.
If the Company exercises its option to purchase this facility, the Company will
lease-back the facility to SLC or a subsidiary of SLC under a Minimum Rent
Lease. The minimum rent payable during the first year of each lease will be
fixed to yield the Company a return on its investment equal to 400 basis points
over the ten-year U.S. Treasury Note rate in effect at the time each lease is
entered into. The rent payment will increase by 1.5% per year. The Minimum Rent
Leases also will provide for the payment of Incremental Percentage Rent
beginning in the second lease year at a rate equal to 5% of incremental gross
revenues over the gross revenues during the first lease year for each facility.
Other terms of the Minimum Rent Lease for the Montchanin facility will be
substantially the same as those contained in the Minimum Rent Lease for The
Woodbridge facility.
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Crozer/Genesis Minimum Rent Leases
The initial term of the Minimum Rent Leases with Crozer/Genesis is 12
years, which term may be extended for one or more additional five-year terms by
the mutual agreement of the Company and Crozer/Genesis made at least ten months
prior to the expiration of the then-existing term. No assurance can be given
that Crozer/Genesis will agree to extend the lease term for the facilities.
The Minimum Rent Leases with Crozer/Genesis provide for the payment of
Minimum Rent during the first lease year of an aggregate of $4.2 million.
Minimum Rent will increase each year by an amount equal to the lesser of (i) 5%
of the increase in the aggregate gross revenues for the facilities during the
immediately preceding year or (ii) one-half of the increase in the Consumer
Price Index during the immediately preceding year. Crozer/Genesis will deposit
with the Company as a security deposit an amount equal to one-fourth of the
Minimum Rent payable with respect to the first year under each Minimum Rent
Lease, which security deposit will bear interest at rate equal to the rate on
90-day U.S. Treasury Bills. During the last four years of the lease term (as
extended) the lessee is required to make capital expenditures of at least
$2,000 per skilled nursing bed and $3,000 per assisted living unit to maintain
the applicable property or to restore such property to the condition in which
it was leased to the tenant at the beginning of the term. The remaining terms
of the Minimum Rent Leases with Crozer/Genesis will be substantially similar to
the terms of the Minimum Rent Leases with Genesis. Each facility leased to
Crozer/Genesis will be managed by Genesis. See "-- Lessees -- CKHS Initial
Properties -- Crozer/Genesis Skilled Nursing Facilities."
For the eleven months ended November 30, 1997, on a pro forma basis, the
lease coverage ratios (net operating income before interest, depreciation, rent
and the subordinated portion of management agreements to be entered into with
Genesis as of the closing of the Offering divided by rent payments) for the
facilities to be leased to Crozer/Genesis under the Minimum Rent Lease
(Belvedere NRC, Chapel Manor NRC, Harston Hall NCH and Pennsburg Manor NRC)
were 1.17x, 1.52x, 1.57x and 1.32x, respectively.
Age Institute of Florida Minimum Rent Lease
The initial term of the Minimum Rent Lease with the Age Institute of
Florida is ten years, and the Age Institute of Florida has the option to extend
the term for up to two consecutive five-year periods. No assurance can be given
that the options to extend the lease terms will be exercised by the Age
Institute of Florida. The Age Institute of Florida also will have a right of
first refusal with respect to the facility in the event the Company receives an
offer to purchase or lease the facility which the Company is prepared to accept
during the term of the lease (as extended) and for one year thereafter.
The Minimum Rent Lease with the Age Institute of Florida provides for the
payment of Minimum Rent during the first lease year at an amount based on
achieving an annual yield for the Company equal to the rate on ten-year U.S.
Treasury Notes as of the first day of such Minimum Rent Lease plus 400 basis
points. Minimum Rent will increase each year by an amount equal to the lesser
of (i) 5% of the increase in the gross revenues for the facility during the
immediately preceding year or (ii) one-half of the increase in the Consumer
Price Index during the immediately preceding year. The remaining terms of the
Minimum Rent Lease with the Age Institute of Florida will be substantially
similar to the terms of the Minimum Rent Leases with Genesis.
For the eleven months ended November 30, 1997, on a pro forma basis, the
lease coverage ratio (net operating income before interest, depreciation, rent
and the subordinated portion of management agreement to be entered into with
Genesis as of the closing of the Offering divided by rent payments) for the
facility to be leased to a subsidiary of the Age Institute of Florida under a
Minimum Rent Lease (Silverlake NRC) was 1.71x.
Medical Office and Other Building Leases
The Company will acquire each of the medical office and other buildings
included in the Initial Properties subject to existing leases. The existing
leases generally provide for the payment of a fixed amount as base rent during
each year, subject to increases in rent in certain of the leases. Genesis is
the principal tenant of three of the medical office and other buildings
included in the Initial Properties.
Credit Facility and Tax-Exempt Financing
The Credit Facility. The Company has obtained a commitment for a line of
credit of up to $140 million from an affiliate of Deutsche Morgan Grenfell (the
"Lender"), and the Company expects to enter into the
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Credit Facility upon completion of the Offering. The Credit Facility is
expected to be a senior secured obligation of the Company and to have a term of
364 days subject to extension options which may be granted by the Lender on 60
days' notice. The Credit Facility would be available to fund the acquisition of
certain of the Initial Properties or interests therein and additional growth
opportunities, to refinance existing indebtedness, to fund the Term Loans and
the Construction Loans and for working capital and other general corporate
purposes. At the closing of the Offering, the Company expects to draw down
approximately $44.6 million under the Credit Facility.
The Credit Facility would be secured by all of the unencumbered properties
owned or acquired by the Company, all leases and management agreements relating
to such properties and all of the loans made or acquired by the Company. The
aggregate amount of advances under the Credit Facility would be limited to 60%
(or 80% in the case of properties subject to leases guaranteed by Genesis or
Multicare) of the market values of the property providing security for such
advances.
The Credit Facility would bear interest at a floating rate at specified
spreads over the one-month LIBOR rate based on the loan to value ratio in
effect at any time. The Company would have the ability to cause properties
securing the Credit Facility to be released upon any sale or refinancing
thereof by payment of a portion of the loan amount allocated to such property
together with, in the case of property refinancings with a lender other than
the Lender, a prepayment fee of 1%. The Credit Facility would be subject to the
Company's compliance with a number of customary financial and other covenants
on an ongoing basis, including a minimum tangible net worth requirement, a
maximum leverage ratio and a ratio of earnings to interest expense. The Credit
Facility would also contain customary defaults, and would include
cross-defaults to other debt in excess of $10 million.
At the time of entering into the commitment letter, the Company paid the
Lender an origination fee in the amount of $140,000. The Company has agreed to
pay to the Lender an additional fee at the time of each borrowing under the
Credit Facility in the amount of 0.4% of the principal amount of each such
borrowing, subject to an aggregate maximum amount of $700,000.
Closing under the Credit Facility is subject to final approval and
satisfactory completion of the Offering, completion by the Lender of its due
diligence and preparation and execution of an acceptable credit agreement and
related documentation.
Tax-Exempt Financing. The Company's indebtedness includes approximately
$19.6 million of Series 1994 Bonds and Series 1995 Bonds relating to the
Highgate and Woodbridge assisted living facilities. The underlying Series 1994
and Series 1995 Bonds are subject to various restrictions, conditions, and
requirements under the Code and its implementing regulations. In addition, the
Series 1994 and Series 1995 Bond financing documents impose certain
requirements and restrictions in connection with the operation of the
facilities, including a requirement that at all times at least 20% of the
rental units in the facilities will be occupied by tenants whose adjusted gross
family income does not exceed 50% of the median gross income for the relevant
geographic area. The Series 1994 and Series 1995 Bond financing documents also
contain other occupancy and debt service coverage requirements. In connection
with the acquisition of the Highgate and Woodbridge facilities, the Company is
seeking consent from the bondholder to the transfer of the ownership interests
in these facilities and for certain waivers and certain amendments to the bond
documents, including waivers and modifications with respect to certain of these
occupancy and debt service coverage requirements. If these waivers and consents
are not obtained, various non-exclusive remedies would be available to the
bondholder under the bond documents, including (i) acceleration of all
principal and interest due on the bonds (including a 3% acceleration premium),
(ii) foreclosure, (iii) the bond trnstee's taking possesion of the facilities,
(iv) the appointment of a receiver to take possession of and operate the
facilities and (v) the bondholder's seeking specific performance of the terms
of the bond documents. If the bondholder were to pursue any of such remedies,
such action could materially and adversely affect the Company's ability to make
cash distributions at the level currently anticipated. In the event of an
acceleration of the bonds, the Company intends to pay off the bonds, including
the 3% acceleration premium, using a portion of the funds available under the
Credit Facility which may result in higher interest payments by the Company and
correspondingly lower amounts of cash available for distribution to
shareholders.
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Possible Subordinated CMBS Investments
The Company is exploring providing subordinated CMBS financing in
connection with future investments by the Company in healthcare facilities,
including transactions that may involve Genesis in the future. In the prototype
transaction that the Company is considering, one or more Private Partnerships
would be formed to acquire or hold skilled nursing facilities or other
healthcare facilities. The Private Partnership would finance up to 90% of the
purchase price or value of the facilities by means of a REMIC Loan to the
Private Partnership and the remainder of the purchase price or value of the
facilities by means of an equity investment by the partners in the Private
Partnership, who may include Genesis and one or more of the Company's officers
and trustees. The Company likely would not have an equity interest in the
Private Partnership. The Company would invest in Subordinated CMBS Interests,
the principal balance of which would represent approximately 15% to 20% of the
purchase price or value of the properties and would be subordinate to the
payment of principal and interest on the Senior CMBS Interests, which would be
held by a third party institutional lender and the principal balance of which
would represent approximately 70% to 75% of the purchase price or value of the
properties. It is expected that the REMIC Loan would be on terms substantially
similar to the terms then available for first mortgage loans secured by skilled
nursing facilities made on a 90% loan-to-value basis. The REMIC Loan would not
include any equity participation or other similar rights on behalf of the
REMIC. It is expected that the Senior CMBS Interests would have terms
substantially similar to the terms then available for first mortgage loans
secured by skilled nursing facilities on a 70% to 75% loan-to-value basis, and
the Subordinated CMBS Interests would have terms substantially similar to the
terms available for second mortgage loans secured by skilled nursing facilities
where there is 10% equity and senior mortgage indebtedness for 70% to 75% of
the value of the property. The Private Partnership would either operate the
facilities that they acquire or net lease the facilities to Genesis, a Genesis
affiliate or another satisfactory operator for the day-to-day operation of the
properties. If the property were net leased by the Private Partnership, the
Company's investment would likely take the form of a preferred partnership
interest.
An investment by the Company in Subordinated CMBS Interests would involve
materially different potential risks and possible benefits from those
associated with a direct investment in skilled nursing facilities subject to
long-term Minimum Rent Leases. See "Risk Factors -- Possible Subordinated CMBS
Investments." There are no REMIC-related transactions involving the Company
which are probable at this time.
Government Regulation
Government Regulation of Healthcare Industry. The long-term care segment
of the healthcare industry is highly regulated. Operators of skilled nursing
facilities are subject to federal, state and local laws relating to the
delivery and adequacy of medical care, distribution of pharmaceuticals,
equipment, personnel, operating policies, fire prevention, rate-setting and
compliance with building and safety codes and environmental laws. Operators of
skilled nursing facilities also are subject to periodic inspection by
governmental and other authorities to assure continued compliance with various
standards, the continued licensing of the facility under state law,
certification under the Medicare and Medicaid programs and the ability to
participate in other third party payment programs. Many states have adopted
Certificate of Need or similar laws which generally require that the
appropriate state agency approve certain acquisitions of skilled nursing
facilities and determine that a need exists for certain bed additions, new
services and capital expenditures or other changes prior to beds and/or new
services being added or capital expenditures being undertaken. The failure to
obtain or maintain any required regulatory approvals or licenses could prevent
an operator from offering services or adversely affect its ability to receive
reimbursement for services and could result in the denial of reimbursement,
temporary suspension of admission of new patients, suspension or
decertification from the Medicaid or Medicare program, restrictions on the
ability to acquire new facilities or expand existing facilities and, in extreme
cases, revocation of the facility's license or closure of a facility. Federal
law also imposes civil and criminal penalties for submission of false or
fraudulent claims, including nursing home bills and cost reports, to Medicare
or Medicaid. There can be no assurance that lessees of skilled nursing
facilities owned by the Company, or the Age Institute of Florida as the obligor
on the Florida Facilities Note, or the provision of services and supplies by
such lessees or the Age Institute of Florida, will meet or continue to meet the
requirements for participation in the Medicaid or Medicare programs or state
licensing authorities or that regulatory authorities will not adopt changes or
new interpretations of existing regulations that would adversely affect the
ability of lessees or borrowers to make rental or loan payments to the Company.
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Both Medicare and the Pennsylvania Medicaid program (which constituted
15.8% and 66.4% of the revenues for the month ended November 30, 1997,
respectively, of the nine skilled nursing facilities included in the Initial
Properties) impose limitations on the amount of reimbursement available for
capital-related costs, such as depreciation, interest and rental expenses,
following a change of ownership, including a sale and leaseback transaction.
Under currently applicable Medicare reimbursement policies, the amount of
Medicare reimbursement available to a skilled nursing facility for rental
expenses following a sale and leaseback transaction may not exceed the amount
that would have been reimbursed as capital costs had the provider retained
legal title to the facility. The Pennsylvania Medicaid program imposes a
similar limitation, basing reimbursement for capital-related costs for new
owners (including rent paid by lessees) on the appraised fair rental value of
the facility to the prior owner as determined by the Pennsylvania Department of
Public Welfare. Thus, if rental expenses are greater than the allowable capital
cost reimbursement a skilled nursing facility would have received had the sale
and leaseback transaction not occurred and the provider retained legal title,
the amount of Medicare reimbursement received by the provider will be limited.
Medicare will begin a three-year phase out of separate capital cost
reimbursement for skilled nursing facilities beginning July 1, 1998 under
provisions of the Balanced Budget Act of 1997, which establish a prospective
payment system for skilled nursing facilities that will factor capital-related
costs into the facility's per diem rates for resident care. There can be no
assurance that reimbursement of the costs of skilled nursing facilities
included in the Initial Properties under current or future reimbursement
methodologies will be adequate to cover the rental payments owed to the
Company.
Although not currently regulated at the federal level (except under laws
of general applicability to businesses, such as work place safety and income
tax requirements), assisted living facilities are increasingly becoming subject
to more stringent regulation and licensing by state and local health and social
service agencies and other regulatory authorities. In general, these assisted
living requirements address, among other things: personnel education, training
and records; facility services, including administration of medication,
assistance with self-administration of medication and limited nursing services;
monitoring of wellness; physical plant inspections; furnishing of resident
units; food and housekeeping services; emergency evacuation plans; and resident
rights and responsibilities, including in certain states the right to receive
certain healthcare services from providers of a resident's choice In several
states, assisted living facilities also require a Certificate of Need before
the facility can be opened, expand or reduce its resident capacity or make
other significant capital expenditures. Certain of the Initial Properties are
licensed to provide independent living services which generally involve lower
levels of resident assistance. Like skilled nursing facilities and other
healthcare facilities, assisted living facilities are subject to periodic
inspection by government authorities. In most states, assisted living
facilities, as well as skilled nursing and other healthcare facilities, also
are subject to state or local building code, fire code and food service
licensure or certification requirements. Any failure by the Company's lessees
or borrowers to meet applicable regulatory requirements may result in the
imposition of fines, imposition of a provisional or conditional license or
suspension or revocation of a license or other sanctions or adverse
consequences, including delays in opening or expanding a facility. Any failure
by the Company's lessees or borrowers to comply with such requirements could
have a material adverse effect on the Company.
Healthcare operators also are subject to federal and state
anti-remuneration laws and regulations, such as the Medicare/Medicaid
anti-kickback law, which govern certain financial arrangements among healthcare
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients or the purchasing, leasing, ordering or
arranging for any goods, facilities, services or items for which payment can be
made under Medicare or Medicaid. A violation of the federal anti-kickback law
could result in the loss of eligibility to participate in Medicare or Medicaid,
or in civil or criminal penalties. The federal government, private insurers and
various state enforcement agencies have increased their scrutiny of providers,
business practices and claims in an effort to identify and prosecute fraudulent
and abusive practices. In addition, the federal government has issued fraud
alerts concerning nursing services, double billing, home health services and
the provision of medical supplies to nursing facilities; accordingly, these
areas may come under closer scrutiny by the government. Furthermore, some
states restrict certain business corporations from providing, or holding
themselves out as a provider of, medical care. Possible sanctions for violation
of any of these restrictions or prohibitions include loss of
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licensure or eligibility to participate in reimbursement programs and civil and
criminal penalties. State laws vary from state to state, are often vague and
have seldom been interpreted by the courts or regulatory agencies. There can be
no assurance that these federal and state laws will ultimately be interpreted
in a manner consistent with the practices of the Company's lessees or the Age
Institute of Florida.
Reliance on Government and Other Third Party Reimbursement. Assisted
living services currently are not generally reimbursable under government
reimbursement programs, such as Medicare and Medicaid. A significant portion of
the revenue derived from the nine skilled nursing facilities included in the
Initial Properties and the 11 skilled nursing facilities securing the Florida
Facilities Note, however, is attributable to government reimbursement programs
such as Medicare and Medicaid. Future budget reductions in government-financed
programs could significantly reduce reimbursement payments, and there can be no
assurance that future payment rates will be sufficient to cover the costs of
providing services to residents of such facilities. The Medicare program is
highly regulated and subject to frequent and substantial changes. In recent
years, changes in the Medicare program have resulted in reduced levels of
payment for a substantial portion of healthcare services. There can be no
assurance that reimbursement levels will not be further reduced in future
periods. The Medicaid program is a federally-mandated, state-run program
providing benefits to low income and other eligible persons and is funded
through a combination of state and federal funding. The method of reimbursement
for skilled nursing care under Medicaid varies from state to state, but is
typically based on rates set by the state. Under Medicare and many state
Medicaid programs, rates for skilled nursing facilities are based on facilities
costs as reported to the applicable federal or state agency. The facilities
costs for services purchased from an organization related by ownership or
control are limited to the costs (not charges) of the related organization. Any
failure to comply with these requirements could have a variety of adverse
consequences on the operator of the skilled nursing facility, including
recoupment of amounts overpaid and other sanctions under false claim laws.
Although lease and loan payments to the Company are not directly linked to the
level of government reimbursement, to the extent that changes in these programs
have a material adverse effect on the revenues from such facilities, such
changes could have a material adverse impact on the ability of the lessees of
the skilled nursing facilities included in the Initial Properties, and the Age
Institute of Florida as the borrower under the Florida Facilities Note, to make
lease and loan payments. Healthcare facilities also have experienced increasing
pressures from private payors attempting to control healthcare costs that in
some instances have reduced reimbursement to levels approaching that of
government payors. There can be no assurance that future actions by private
third party payors, including cost control measures adopted by managed care
organizations, will not result in further reductions in reimbursement levels,
or that future reimbursements from any payor will be sufficient to cover the
costs of the facilities operations.
Potential Delays in Substituting Lessees or Operators. A loss of license
or Medicare/Medicaid certification by a lessee of the Company or by the Age
Institute of Florida, or a default by lessees or borrowers under loans made by
the Company, could result in the Company having to obtain another lessee or
substitute operator for the affected facility or facilities. Because the
facility licenses for the Initial Properties will be held by lessees or
borrowers and not the Company and because under the REIT tax rules the Company
would have to find a new "unrelated" lessee to operate the properties, the
Company may encounter
delays in exercising its remedies under leases and loans made by the Company or
substituting a new lessee or operator in the event of any loss of licensure or
Medical/Medicaid certification by a prior lessee or operator. No assurances can
be given that the Company could contract with a new lessee or successor
operator on a timely basis or on acceptable terms and a failure of the Company
to do so could have a material adverse effect on the Company's financial
condition and results of operations.
Limitation on Transfers and Alternative Uses of Healthcare
Facilities. Transfers of operations of certain healthcare facilities are
subject to regulatory approvals not required for transfers of other types of
commercial operations and other types of real estate. In addition,
substantially all of the Initial Properties are special purpose facilities that
may not be easily adaptable to non-healthcare-related uses.
Proximity to Hospitals or Other Healthcare Facilities. Many of the
assisted living facilities, skilled nursing facilities and medical office
buildings included in the Initial Properties are in close proximity to one or
more hospitals. The relocation or closure of a hospital could make the
Company's assisted living facilities,
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skilled nursing facilities or medical office buildings in such area less
desirable and affect the Company's ability to renew leases and attract new
tenants. See "Risk Factors -- Operating Risks Inherent in the Highly Regulated
Healthcare Industry may Adversely Affect the Operations of the Company's
Lessees and Borrowers."
Competition
The Company will compete with other healthcare REITs, real estate
partnerships, healthcare providers and other investors, including but not
limited to banks and insurance companies, in the acquisition, leasing and
financing of healthcare facilities. Certain of these investors may have greater
resources than the Company. Genesis and other lessees operating properties the
Company will own or that secure loans to be made by the Company compete on a
local and regional basis with operators of other facilities that provide
comparable services. Operators compete for residents based on quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price. In general, regulatory and other
barriers to competitive entry in the assisted living industry are not
substantial. Moreover, if the development of new assisted living facilities
outpaces demand for these facilities in certain markets, such markets may
become saturated. Such an oversupply of facilities could cause operators to
experience decreased occupancy, depressed margins and lower operating results.
The Company will purchase, or make loans with an obligation to purchase, all of
the assisted living facilities owned by Genesis as of September 30, 1997
(except for a 32-bed facility as to which the Company will have an option to
purchase at fair market value in cash exercisable within one year after the
facility achieves Stabilized Occupancy), as well as the only independent living
facility and four of the 69 skilled nursing facilities owned by Genesis as of
such date. The Company also will enter into the Right of First Refusal
Agreement with Genesis. See "Risk Factors -- Conflicts of Interest between the
Company and Genesis and Mr. Walker in connection with the Formation and
Operation of the Company."
Legal Proceedings
Neither the Company nor any of the Initial Properties is presently subject
to any material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company, or any of the Initial Properties, other than
routine actions for negligence arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the
liquidity, results of operations, or business or financial condition of the
Company.
Office Lease
The Company has entered into a lease with an unaffiliated third party with
respect to certain office space occupied by the Company as its headquarters at
415 McFarlan Road, Suite 202, Kennett Square, Pennsylvania. This lease has a
term of one year and provides for a monthly rental payment by the Company equal
to $1,662.50 per month. The Company has the option to lease additional space in
the same building (which option may only be exercised for a lease to include at
least an additional 50% of space) for a term of three years. The lease provides
that the Company's landlord is responsible for all taxes, utilities and other
charges associated with the leased property, and the lease contains certain
other provisions which are standard for leases of its type.
Employees
Upon completion of the Offering, the Company expects to have five
employees.
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MANAGEMENT
Trustees, Trustee Nominees And Executive Officers
Pursuant to an amendment to the Company's Declaration of Trust to be
adopted immediately prior to the completion of the Offering, the Board of
Trustees of the Company will be expanded effective immediately following the
completion of the Offering to include the trustee nominees named below, each of
whom has been nominated for election and has consented to serve. Upon election
of the trustee nominees, a majority of trustees will not be employees or
affiliates of the Company or Genesis. In connection with the expansion of the
Board of Trustees, and upon completion of the offering, the Board of Trustees
will be divided into three classes of trustees. The initial terms of the first,
second and third classes will expire in 1999, 2000 and 2001, respectively.
Beginning in 1999, trustees of each class will be chosen for three-year terms
upon the expiration of their current terms and each year one class of trustees
will be elected by the shareholders. The Company believes that classification
of the Board of Trustees will help to assure the continuity and stability of
the Company's business strategies and policies as determined by the Board of
Trustees. Holders of Common Shares will have no right to cumulative voting in
the election of trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Common Shares will be able to elect all of the
successors of the class of trustees whose term expires at that meeting.
Information concerning the current trustees, trustee nominees and
executive officers of the Company is set forth below.
<TABLE>
<CAPTION>
Name Age Position Term
- ------------------------------- ----- ------------------------------------------------ -----
<S> <C> <C> <C>
Michael R. Walker ............ 49 Chairman of the Board of Trustees 2001
Edward B. Romanov, Jr. ...... 47 President, Chief Executive Officer and Trustee 2000
D. Lee McCreary, Jr. ......... 40 Vice President and Chief Financial Officer
Kent P. Dauten ............... 42 Trustee Nominee 1999
Rodman W. Moorhead, III ...... 54 Trustee Nominee 2000
Timothy T. Weglicki ......... 46 Trustee Nominee 2001
</TABLE>
Michael R. Walker is the Chairman of the Board of Trustees of the Company.
Mr. Walker currently serves as the Chairman and Chief Executive Officer of
Genesis, and he has served in those capacities since he founded Genesis in
1985. In 1981, Mr. Walker co-founded Health Group Care Centers ("HGCC"). At
HGCC, he served as Chief Financial Officer and, later, as President and Chief
Operating Officer. Prior to its sale in 1985, HGCC operated nursing homes with
4,500 nursing beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice
President and Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which
owned and operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as
the nursing home division of Hospital Affiliates International. Mr. Walker
holds a Master of Business Administration from Temple University and a Bachelor
of Arts in Business Administration from Franklin and Marshall College. Mr.
Walker serves on the Board of Directors of Renal Treatment Centers, Inc. and on
the Board of Trustees of Universal Health Realty Income Trust, a real estate
investment trust focused on healthcare-related investments.
Edward B. Romanov, Jr. is the President and Chief Executive Officer and a
Trustee of the Company. Mr. Romanov served as Senior Vice President,
Development of Genesis from June 1990 until August 1997. He will resign as an
employee of Genesis upon completion of the Offering. From January 1994 until
June 1997, Mr. Romanov also had responsibility for merger and acquisition
activity by Genesis. During such period, he successfully negotiated the
acquisition of several healthcare companies by Genesis with total assets in
excess of $500 million. From June 1990 through May 1995, Mr. Romanov was a
financial consultant to Genesis, pursuant to a consulting and services
agreement between Genesis and American Community Environments Corporation of
which he was an employee. Prior to joining Genesis, Mr. Romanov was founder and
President of WesTerra Construction, WesTerra Capital Company and WesTerra
Development, through which Mr. Romanov developed and financed real estate
projects. Mr. Romanov holds both a Master of Business Administration and a
Bachelor of Science degree from Lehigh University.
D. Lee McCreary, Jr. is Vice President and Chief Financial Officer of the
Company. From September 1994 until May 1997, Mr. McCreary was Vice
President-Tax Services at Siegfried Schieffer & Seitz, a Wilmington,
Delaware-based regional accounting firm ("Siegfried"). Prior to joining
Siegfried, he was a partner at Price Waterhouse LLP, where he worked for over
14 years providing tax consulting services for
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companies in the healthcare, real estate and financial services industries. Mr.
McCreary is a certified public accountant and a member of both the American
Institute of Certified Public Accountants and the Maryland Association of
Certified Public Accountants. He holds a Bachelor of Science degree from the
University of Delaware.
Kent P. Dauten has served as President of Keystone Capital, Inc., a
venture capital firm, since March 1994. In February 1995, Mr. Dauten founded
and served as President of HIMSCORP, Inc., a medical records company, and
continues to serve as its President following its merger with Iron Mountain
Incorporated in October 1997. From January 1993 to March 1994, he was Senior
Vice President of Madison Dearborn Partners, Inc. and from September 1979 to
December 1992, he served in various investment management positions, most
recently as Senior Vice President of First Chicago Venture Capital. Mr. Dauten
currently serves as a director of Health Management Associates, Inc. of Naples,
Florida, a NYSE-listed health management firm, and Iron Mountain Incorporated,
a NASDAQ listed records management company. Mr. Dauten formerly was a director
of Genesis. Mr. Dauten holds a Master of Business Administration from the
Harvard Business School and a Bachelor of Arts in Economics from Dartmouth
College.
Rodman W. Moorhead, III has been employed since 1973 by E. M. Warburg,
Pincus & Co., LLC, a specialized financial services firm in New York, where he
currently serves as Senior Managing Director. He is a director of Coventry
Corporation, a multi-market health maintenance organization, NeXstar
Pharmaceuticals, Inc., a novel human therapy and drug delivery company,
Transkaryotic Therapies, Inc., a gene therapy company, Xomed Surgical Products,
a surgical sponge and wound care products company and several private
companies. He is a Trustee of The Taft School and a member of the Overseers'
Committee on University Resources, Harvard College. Mr. Moorhead holds a Master
of Business Administration from the Harvard Business School and a Bachelor of
Arts in Economics from Harvard University.
Timothy T. Weglicki has been with ABS Partners, L.P., and ABS Capital
Partners, a private equity fund as a general partner since December 1993. Prior
to joining ABS Partners, he was a Managing Director of Alex. Brown & Sons Inc.,
where he established and headed its Capital Markets Group and prior thereto
headed the firm's Equity Division, Corporate Finance Department, and Health
Care Investment Banking Group. He is a director of VitalCom, Inc., a wireless
patient monitoring company, and several privately held companies. Mr. Weglicki
holds an M.B.A. from the Wharton Graduate School of Business and a Bachelor of
Arts degree from The Johns Hopkins University.
The Company may add one additional outside trustee prior to completion of
the Offering.
Committees of the Board of Trustees
Audit Committee. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls. The membership of the Audit Committee will consist of only
Independent Trustees as long as they continue in office. An individual is
deemed an "Independent Trustee" if such individual is not an affiliate of the
Company and is not an employee of the Company. Upon completion of the Offering,
the members of the Audit Committee will be Messrs. Dauten, Moorhead and
Weglicki.
Executive Committee. The Executive Committee will have the authority
within certain parameters to acquire, dispose of and finance investments for
the Company (including the issuance by the Operating Partnership of additional
Units or other equity interests) and approve the execution of contracts and
agreements, including those related to the borrowing of money by the Company,
and generally exercise all other powers of the Board of Trustees except as
prohibited by law. Upon completion of the Offering, the members of the
Executive Committee will be Messrs. Walker and Romanov.
Compensation Committee. The Compensation Committee will determine
compensation for the Company's executive officers. The Compensation Committee
will review and make recommendations concerning proposals by management with
respect to compensation, bonus, employment agreements and other benefits and
policies respecting such matters for the executive officers of the Company.
Upon completion of the Offering the members of the Compensation Committee will
be Messrs. Walker, Moorhead and Weglicki.
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Share Option Committee. The Share Option Committee will administer the
ElderTrust 1998 Share Option and Incentive Plan, including the grant of options
and bonus shares thereunder. Upon completion of the Offering, the members of
the Share Option Committee will be Messrs. Moorhead and Weglicki.
The Board of Trustees will not have a nominating committee and the entire
Board of Trustees will perform the function of such a committee.
Compensation of the Board of Trustees
The Company will reimburse the trustees for travel expenses incurred in
connection with attending meetings of the Board of Trustees and committee
meetings. In lieu of trustees' fees, each of the non-employee trustees of the
Company (other than the Chairman of the Board) will receive share bonus awards
of 2,500 Common Shares upon completion of the Offering. Each of the
non-employee trustees of the Company (other than the Chairman of the Board)
also will receive ten-year share option grants for 7,500 Common Shares at a per
share option exercise price equal to the initial public offering price,
effective upon completion of the Offering. These options will vest over three
years. The Chairman of the Board will be granted a ten-year share option for
150,000 Common Shares at a per share option exercise price equal to the initial
public offering price, effective upon completion of the Offering. The options
granted to the Company's chairman will vest over three years. Vesting will
accelerate upon a "Change of Control of the Company" (as defined in the 1998
Share Option and Incentive Plan). Mr. Walker will enter into a non-competition
agreement with the Company. See "-- Employment and Non-Competition Agreements."
Executive Compensation
The following table sets forth the annual base salary levels and other
compensation expected to be paid in 1997 to the Company's Chief Executive
Officer and to the Company's other executive officer (the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
-------------- ---------------
Share Unit All Other
Name Principal Position(s) Salary($)(1) Options(#)(2) Awards(#)(3) Compensation($)
- ------------------------- ---------------------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Edward B. Romanov, Jr. President, Chief Executive $ 164,000 300,000 118,750 $ 50,200(4)
Officer and Trustee
D. Lee McCreary, Jr. ... Vice President and Chief 70,000 25,000 12,000 24,100(4)
Financial Officer
</TABLE>
- ------------
(1) Represents the portion of the executive officer's salary allocable to the
Company that was paid by Genesis in 1997. The Company will reimburse
Genesis for such amounts using a portion of the net proceeds from the
Offering.
(2) These options will be granted effective upon the closing of the Offering
under the Company's 1998 Share Option and Incentive Plan at an exercise
price equal to the initial public offering price. See "-- 1998 Share
Option and Incentive Plan."
(3) Represents Units issued to Messrs. Romanov and McCreary in the Formation
Transactions.
(4) Represents the estimated amount of distributions to be credited to the
executive officer's account in 1998 on distribution equivalent rights to
be granted to the executive officer upon completion of the Offering under
the 1998 Share Option and Incentive Plan for 37,500 Common Shares in the
case of Mr. Romanov, and for a number of Common Shares equal to three
times the executive officer's 1998 base salary divided by the initial
public offering price, in the case of Mr. McCreary. See " -- 1998 Share
Option and Incentive Plan."
<PAGE>
Option Grants in Fiscal Year 1998
<TABLE>
<CAPTION>
Potential Realizable
Value
At Assumed Annual Rates
Of
Individual Share Price Appreciation
Grants For Option Period
---------------- -------------------------
Percent Of
Shares of Total Options
Common Stock to be Granted Exercise or
Underlying Options To Employees Base Price Expiration
Name to be Granted(1) In Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- ---------------------------- -------------------- ---------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Edward B. Romanov, Jr. ... 300,000 92.3% $20.00 (3) $3,773,500 $9,562,500
D. Lee McCreary, Jr. ...... 25,000 7.7 20.00 (3) 314,500 797,000
</TABLE>
- ------------
(1) Of the 300,000 options to be granted to Mr. Romanov, options for 150,000
shares will vest immediately and options for 150,000 shares will vest over
three years. The options to be granted to Mr. McCreary will vest over five
years. Vesting will accelerate upon a "Change of Control of the Company"
(as defined in the 1998 Share Option and Incentive Plan).
(2) Based on the assumed initial public offering price. The exercise price per
share will equal the initial public offering price.
(3) The expiration date of the options is the ten year anniversary of the
closing date of the Offering.
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1998 Share Option and Incentive Plan
Prior to the completion of the Offering, the Company will adopt the
ElderTrust 1998 Share Option and Incentive Plan (the "Plan") to provide
incentives to attract and retain executive officers, trustees, employees and
other key personnel. The Plan will be administered by the Share Option
Committee of the Board of Trustees (the "Committee"). The maximum number of
shares available for issuance under the Plan will be 9.9% of the total number
of Common Shares and Units (other than Units owned by the Company) outstanding
from time to time (initially, 689,498 shares).
Share Options. The Plan permits the granting of (i) options to purchase
Common Shares intended to qualify as incentive options ("Incentive Options")
under Section 422 of the Code and (ii) options that do not so qualify
("Non-Qualified Options"). The option exercise price of each option will be
determined by the Committee but may not be less than 100% of the fair market
value of the Common Shares on the date of grant in the case of Incentive
Options, and may not be less than par value in the case of Non-Qualified
Options. Plan participants may elect, with the consent of the Committee, to
receive discounted Non-Qualified Options in lieu of cash compensation.
The term of each option will be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised
and, subject to the provisions of the Plan, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of Common Shares
already owned by the optionee or delivery of a promissory note. The exercise
price may also be delivered to the Company by a broker pursuant to irrevocable
instructions to the broker from the optionee.
At the discretion of the Committee, options granted under the Plan may
include a "re-load" feature pursuant to which an optionee exercising an option
by the delivery of shares of Common Shares would automatically be granted an
additional option (with an exercise price equal to the fair market value of the
Common Shares on the date the additional option is granted) to purchase that
number of Common Shares equal to the number delivered to exercise the original
option.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
shareholders.
Restricted Shares. The Committee may also award Common Shares to
participants, subject to such conditions and restrictions as the Committee may
determine. These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company through
a specified restricted period. If the performance goals and any other
restrictions are not attained, the participants would forfeit their restricted
Common Shares. The purchase price of restricted Common Shares will be
determined by the Committee.
Deferred Common Shares. The Committee may also award deferred Common Share
units which are ultimately payable in the form of unrestricted Common Shares.
The deferred Common Share may be subject to such conditions and restrictions as
the Committee may determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with the
Company through a specified restricted period. If the performance goals and
other restrictions are not attained, the participants will forfeit their
deferred Common Share units. During the deferral period, subject to terms and
conditions imposed by the Committee, the deferred Common Share units may be
credited with distribution equivalent rights.
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Unrestricted Common Shares. The Committee may also grant shares (at no
cost or for a purchase price determined by the Committee) which are free from
any restrictions under the Plan. Unrestricted Common Shares may be issued to
participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such participants.
Performance Share Awards. The Committee may also grant performance shares
awards to participants entitling the participants to receive Common Shares upon
the achievement of individual or Company performance goals and such other
conditions as the Committee shall determine.
Distribution Equivalent Rights. The Committee may grant distribution
equivalent rights, which entitle the recipient to receive credits for
distributions that would be paid if the recipient had held a specified number
of Common Shares. Distribution equivalent rights may be granted as a component
of another award or as a freestanding award. Distribution equivalent rights
credited under the Plan may be paid currently or be deemed to be reinvested in
additional Common Shares, and may thereafter accrue additional distribution
equivalent rights at fair market value at the time of deemed reinvestment.
Distribution equivalent rights may be settled in cash, shares or a combination
thereof, in a single installment or installments, as specified in the award.
Awards payable in cash on a deferred basis may provide for crediting and
payment of interest equivalents.
Adjustments for Share Dividends, Mergers and Similar Events. The Committee
will make appropriate adjustments in outstanding awards to reflect Common Share
dividends, splits and similar events. In the event of a merger, liquidation,
sale of the Company or similar event, the Committee, in its discretion, may
provide for substitution or adjustment of outstanding awards, or may terminate
all awards with payment of cash or in-kind consideration.
Change of Control. The Committee may provide in each award agreement that
the award becomes fully vested and non-forfeitable upon a "Change of Control of
the Company" (as defined in the Plan or as otherwise defined in the award
agreement).
Amendments and Termination. The Board of Trustees may at any time amend or
discontinue the Plan and the Committee may at any time amend or cancel
outstanding awards for the purpose of satisfying changes in law or for any
other lawful purpose. However, no such action may be taken which adversely
affects any rights under an outstanding award without the holder's consent.
Further, Plan amendments may be subject to approval by the Company's
shareholders if and to the extent required by the Code to preserve the
qualified status of Incentive Options or to preserve tax deductibility of
compensation earned under options.
Employment and Non-Competition Agreements
The Company will enter into an employment agreement with Edward B.
Romanov, Jr. as its President and Chief Executive Officer that will continue in
effect until the third anniversary of the closing of the Offering and
thereafter will be automatically renewed for successive two year terms, unless
otherwise terminated. Mr. Romanov's annual base salary will be $250,000,
subject to increase by the Board of Trustees. Mr. Romanov's employment
agreement entitles him to receive additional bonus compensation as may be
determined by the Company's Board of Trustees in its sole discretion. In
addition, Mr. Romanov will receive options to purchase 300,000 Common Shares
(the "Initial Options") and dividend equivalent rights with respect to 37,500
Common Shares. Mr. Romanov's employment agreement may be terminated by the
Company at any time for Cause (as defined in his employment agreement), upon
the vote of not less than two-thirds of the entire Board of Trustees. Mr.
Romanov may terminate his employment agreement on 30 days' notice upon the
occurrence of certain events, including an election by the Company not to renew
the term of the agreement, as described above. In the event that the Company
terminates Mr. Romanov's employment agreement without Cause, or Mr. Romanov
terminates his employment agreement as described in the preceding sentence, Mr.
Romanov is entitled to severance compensation equal to two times his then
current annual base salary and bonus, plus 60% of his dividend equivalent
account, if his employment was terminated during the first three years (100%
thereafter). The Initial Options also will vest. If Mr. Romanov becomes
disabled, he will continue to receive all of his compensation and benefits for
six months, less any amounts received under any disability insurance provided
by the Company. If the disability continues for six months and for periods
aggregating 12 months in any 24 month period, the Company may terminate Mr.
Romanov's employment. Mr. Romanov's employment agreement also contains
provisions which are
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intended to limit him from competing with the Company throughout the term of
the agreement and for a period of two years thereafter. In particular, Mr.
Romanov may not establish, engage, own, manage, operate, join or control or
participate in the establishment, ownership (other than as the owner of less
than 1% of the stock of a corporation whose shares are publicly traded),
management, operation or control of, or be a director, trustee, officer,
employee, salesman, agent or representative of, or be a consultant to, any
person or entity in any business in competition with the Company, at any
location within 100 miles of any office or facility owned, leased or operated
by Company.
Mr. Walker also will enter into a similar non-competition agreement with
the Company restricting such activities by Mr. Walker in his individual
capacity at any location within 10 miles of any office or facility owned,
leased or operated by the Company during the period that Mr. Walker serves as
Chairman or as a trustee of the Company, provided that any activity engaged in
by Mr. Walker as an officer, director or employee of, or any interest of Mr.
Walker as a shareholder in, Genesis will not in any way be limited by such
provisions. Mr. Walker's non-competition agreement also will provide that he
may retain his board position with Universal Health Realty Income Trust and
that he may develop office and similar development projects not related to the
healthcare business.
Incentive Compensation
The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries. This plan will provide for
payment of cash bonuses to participating officers after evaluating the
officer's performance and the overall performance of the Company. The Chief
Executive Officer will make recommendations to the Compensation Committee of
the Board of Trustees, which will make the final determination of the award of
bonuses. The Compensation Committee will determine such bonuses, if any, for
the Chief Executive Officer.
Limitation of Liability and Indemnification
The Maryland REIT Law permits a Maryland REIT to include in its
Declaration of Trust a provision limiting the liability of its trustees and
officers to the trust and its shareholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services, to the extent of the amount of the benefit or
profit in money, property or services actually received, or (b) a judgment or
other final adjudication adverse to the trustee or officer entered in a
proceeding based on a finding in the proceeding that the trustee's or officer's
action or failure to act was material to the cause of action adjudicated in the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty. The Declaration of Trust of the Company contains a
provision that eliminates such liability to the maximum extent permitted by
Maryland law.
The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former trustee or officer or (b) any individual who,
while a trustee of the Company and at the request of the Company, serves or has
served as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her
status as a present or former trustee or officer of the Company. The Bylaws of
the Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer who
is made party to the proceeding by reason of his or her service in that
capacity or (b) any individual who, while a trustee or officer of the Company
and at the request of the Company, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a trustee, director, officer or partner of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and who is made a party to the proceeding by reason of his or her service in
that capacity, against any claim or liability to which he or she may become
subject by reason of such status. The Declaration of Trust and Bylaws also
permit the Company to indemnify and
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advance expenses to any employee or agent of the Company. The Bylaws require
the Company to indemnify a trustee or officer (or any former trustee or
officer) who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he or she is made a party by reason of his or her
service in that capacity.
The Maryland REIT Law permits a Maryland REIT to indemnify and advance
expenses to its trustees, officers, employees and agents to the same extent as
permitted by the MGCL for directors and officers of Maryland corporations. The
MGCL permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of the
Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the Trustee or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (b) a written statement by or on
his or her behalf to repay the amount paid or reimbursed by the Company if it
shall ultimately be determined that the standard of conduct was not met.
The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and Trustees to the same extent that
indemnification is provided to officers and trustees of the Company in its
Declaration of Trust, and limits the liability of the Company and its officers
and trustees to the Operating Partnership and its respective partners to the
same extent that the liability of the officers and trustees of the Company to
the Company and its shareholders is limited under the Company's Declaration of
Trust.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to trustees, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Indemnification Agreements
The Company intends to enter into indemnification agreements with each of
its trustees and officers prior to completion of the Offering. The
indemnification agreements will require, among other things, that the Company
indemnify its trustees and officers to the fullest extent permitted by law and
advance to its trustees and executive officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Genesis currently leases the Windsor Office Building and the Windsor
Clinic and Training Facility from a partnership which is owned by, among
others, Michael R. Walker, Chairman of the Board of Directors and Chief
Executive Officer of Genesis and Chairman of the Board of Trustees of the
Company. Payments under these two leases have approximated $197,000 per year
during each of the past three fiscal years. The Company will purchase these two
buildings in the Formation Transactions.
The Windsor Office Building and Windsor Clinic and Training Facility
secure a $1.1 million mortgage held by Mr. Walker since May 1995. The interest
rate on such mortgage is 10.25%. The mortgage is payable in monthly principal
and interest installments of $11,780, with a balloon payment of the outstanding
balance due May 2005. This indebtedness will be repaid in full upon completion
of the Offering using a portion of the net proceeds from the Offering.
Genesis currently is involved in certain lease transactions with Salisbury
Medical Office Building General Partnership ("SMOBGP"). This partnership is
owned by, among others, Michael R. Walker. Genesis rents
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space in the Salisbury Medical Office Building which is used as a medical
clinic and therapy clinic pursuant to two leases with SMOBGP. Payments under
the leases have approximated $169,000 during each of the past three fiscal
years. The Company will purchase all of the outstanding general partnership
interests in SMOBGP in the Formation Transactions.
The Salisbury Medical Office Building secures a $742,000 mortgage held by
Mr. Walker since August 1995. The interest rate on such mortgage is 10.25%. The
mortgage is payable in monthly principal and interest installments of $7,362,
with a balloon payment of $674,000 due April 30, 2000. This indebtedness will
be repaid in full upon completion of the Offering using a portion of the net
proceeds from the Offering.
In June 1995, SMOBGP made two loans totaling $450,000 to Mr. Romanov. The
loans mature in May 1998 and provide for the payment of interest only until
maturity at an annual interest rate of 11 1/2%. One loan for $250,000 has been
repaid. The second loan for $200,000 will be repaid by Mr. Romanov prior to
completion of the Offering.
In October 1997, the Company agreed to issue and sell to Mr. Romanov
200,000 Common Shares at a per share price equal to the initial public offering
price. Mr. Romanov will pay for such shares with a recourse, 10-year promissory
note with interest only payable quarterly until maturity at an annual interest
rate of 7%.
The terms of the transactions to be entered into by the Company with
Genesis in connection with the Formation Transactions are described under
"Structure and Formation of the Company," "Benefits to Related Parties,"
"Business and Growth Strategies -- Right of First Refusal Agreement" and
"Business and Properties."
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STRUCTURE AND FORMATION OF THE COMPANY
Company Structure. At the completion of the Offering, substantially all of
the Company's assets will be owned by, and its operations conducted through,
the Operating Partnership and its subsidiaries. The Company will be the sole
general partner of the Operating Partnership and will contribute the net
proceeds of the Offering to the Operating Partnership in exchange for a number
of Units equal to the number of Common Shares sold in the Offering.
Formation of the Company. The Formation Transactions include the following
transactions which will have occurred prior to the Closing of the Offering:
o ElderTrust Realty Group, Inc., a Maryland corporation owned by Messrs.
Michael R. Walker, the Chairman of the Board of Trustees of the Company and
the Chairman of the Board of Directors and Chief Executive Officer of
Genesis, and Edward B. Romanov, Jr., the President and Chief Executive
Officer and a trustee of the Company, was incorporated on June 5, 1997 as
the organizational general partner of the Operating Partnership. The
Operating Partnership was formed on July 30, 1997. The organizational
limited partners of the Operating Partnership were Mr. Romanov D. Lee
McCreary, Jr., Vice President and Chief Financial Officer of the Company,
and ET Partnership, a Pennsylvania general partnership. The partners in ET
Partnership consist of Genesis, Mr. Romanov and MGI Limited Partnership, a
Delaware limited partnership whose general partner is a corporation owned
by Mr. Walker and whose limited partners consist of Mr. Walker and the
following four other executive officers of Genesis: (i) Richard R. Howard,
President and a director of Genesis; (ii) David C. Barr, Executive Vice
President and Chief Operating Officer of Genesis; (iii) John F. DePodesta,
Senior Vice President, Law & Public Policy of Genesis; and (iv) George V.
Hager, Jr., Senior Vice President and Chief Financial Officer of Genesis.
o ElderTrust filed its Declaration of Trust with the State Department of
Assessments and Taxation of Maryland on September 23, 1997.
o ET Capital Corp. was formed as a Delaware corporation. The Operating
Partnership owns all of the nonvoting stock of ET Capital Corp.
(representing a 95% equity interest) and Mr. Romanov owns all of the voting
stock of ET Capital Corp. (representing a 5% equity interest).
o The Operating Partnership will purchase from Genesis and certain other
persons their direct or indirect interests in certain of the 21 Initial
Properties, the Penn Mortgage and, through ET Capital Corp., substantially
all of the economic interest in the Florida Facilities Note for an
aggregate amount of cash equal to $109.5 million. Of the 21 Initial
Properties, 13 are owned by Genesis or by entities in which Genesis has
interests (including three skilled nursing facilities which Genesis
acquired from CKHS effective January 1, 1998 and will transfer to the
Company at the closing of the Offering at the same purchase price).
o The Continuing Investors will contribute the remaining interests in the
Initial Properties to the Operating Partnership in exchange for an
aggregate of 220,030 Units. The Continuing Investors include Messrs. Walker
and Howard, individually, three other individuals not affiliated with the
Company or Genesis and Senior LifeChoice. Following completion of the
Offering, Messrs. Walker, Howard, Barr and Hager and Kent P. Dauten, a
trustee nominee, will own, in the aggregate, approximately 62.8% of the
interests in Senior LifeChoice, and six other individuals not affiliated
with the Company or Genesis will own the remaining interests in Senior
LifeChoice.
o The Operating Partnership agreed to make Term Loans and Construction Loans
(totaling $39.3 million) to Genesis and entities in which it has an
interest and to acquire these seven facilities at the end of the loan term
or at such time as each such facility reaches Stabilized Occupancy.
o The Operating Partnership agreed to purchase from Genesis one Construction
Loan (totaling $9.5 million) and to make a second Construction Loan
(totaling approximately $6.4 million) secured by two facilities owned by
subsidiaries of SLC, and entered into option agreements granting it an
option to acquire for cash one of these facilities at the end of the loan
term or at such time as such facility reaches Stabilized Occupancy.
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o The Operating Partnership has made Construction Loan Commitments (totaling
$55.1 million) with respect to ten assisted living development and
expansion projects in the planning phase. Pursuant to these Construction
Loan Commitments, the Operating Partnership will agree to purchase for cash
eight of these projects which are owned by Genesis upon the earlier of the
maturity of the related loan or at such time following completion of
development as each such facility reaches Stabilized Occupancy. The Company
also will have an option to purchase one of the two projects owned by SLC.
o Prior to the closing of the Offering, Messrs. Walker and Romanov will
purchase the interest of Genesis in ET Partnership for an aggregate
purchase price of $4.5 million. ET Partnership will be liquidated and
Messrs. Walker and Romanov and MGI Limited Partnership will receive direct
interests in the Operating Partnership in respect of their respective
interests in ET Partnership.
The following transactions will occur at or immediately prior to the closing of
the Offering:
o The Company will be admitted to the Operating Partnership as an additional
general partner, and ElderTrust Realty Group, Inc. will withdraw as a
general partner of the Operating Partnership.
o The Company will sell 6,050,000 Common Shares in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for Units.
o The Operating Partnership will consummate the acquisition of the Initial
Properties (including the repayment of approximately $7.5 million of
indebtedness secured by certain of the Initial Properties and the
assumption of approximately $34.2 million of indebtedness secured by
certain other of the Initial Properties), the funding of the Term Loans and
the initial draws under the Construction Loans, the purchase of the Penn
Mortgage and the purchase of substantially all of the economic interest in
the Florida Facilities Note. The Operating Partnership also will enter into
the Right of First Refusal Agreement with Genesis.
o The Operating Partnership will be recapitalized to reflect the ownership of
interests in the Operating Partnership by the Company, the Continuing
Investors, Messrs. Walker, Romanov and McCreary and MGI Limited
Partnership, and the Operating Partnership will issue Units to each of its
partners to represent these interests. The Units issued to Mr. Walker and
to Mr. Romanov in respect of the Genesis interest in ET Partnership
purchased by Messrs. Walker and Romanov prior to the liquidation of ET
Partnership will be exchanged for Common Shares on a one-for-one basis.
o Mr. Walker will enter into a non-competition agreement with the Company
(which will not limit in any way any activities related to Mr. Walker's
employment by or interest in Genesis), and Mr. Romanov will enter into an
employment and non-competition agreement with the Company. See "Management
-- Employment and Non-Competition Agreements."
o The Operating Partnership will acquire all of the assets and liabilities of
ElderTrust Realty Group, Inc., which will consist of a lease, a bank
account and certain contract rights and obligations, for cash in the amount
of $100,000. ElderTrust Realty Group, Inc. will then be dissolved.
o As a result of the foregoing transactions, the Company will own 6,482,600
Units, which will represent an approximate 93.1% interest in the Operating
Partnership after the Offering.
o The Company will have the right to exchange Common Shares for Units held by
Messrs. Romanov and McCreary, MGI Limited Partnership and the Continuing
Investors upon the election by such holders to redeem their Units any time
after 14 months after the closing of the Offering.
No third-party determination of the value was sought or obtained in
connection with the acquisition by the Company of the Initial Properties, the
Term Loans, the Construction Loans, the Penn Mortgage or substantially all of
the economic interest in the Florida Facilities Note or with respect to the
leases. The purchase price for each of the Initial Properties was determined
based upon the anticipated annual cash flow for each facility less ongoing
capital expenditures and a management fee was divided by an agreed upon
capitalization rate (which a measure widely used by real estate investors to
determine the purchase price of a property and represents the inverse of the
anticipated yield on investment). Rental rates under the Minimum Rent Leases
and the interest rates on Term Loans, Construction Loans and Construction Loan
Commitments were based on an agreed upon yield. Rental rates under the
Percentage Rent Leases were determined on a comparable basis, adjusted for the
risk associated with the fact that there are no minimum rent provisions in
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such leases. There can be no assurance that the aggregate value of the cash and
Units received by the participants in the Formation Transactions does not
exceed the fair market value of the properties and other assets acquired by the
Company.
BENEFITS TO RELATED PARTIES
Upon completion of the Offering and the Formation Transactions, Genesis
and entities in which it has an interest, Mr. Walker and three other executive
officers of Genesis who are transferring interests in certain of the Initial
Properties to the Company, Messrs. Romanov and McCreary, the Company's three
trustee nominees and one other executive officer of Genesis will receive an
aggregate amount of cash equal to approximately $134.4 million (including $4.5
million paid to Genesis by Messrs. Walker and Romanov in exchange for Genesis'
interest in ET Partnership and $94,000 contributed to ET Capital Corp. by Mr.
Romanov and paid to Genesis as part of the purchase price of the Florida
Facilities Note), Units and Common Shares with an aggregate value of
approximately $11.3 million (including 225,000 Common Shares issued to Messrs.
Walker and Romanov in exchange for 225,000 Units issued to Messrs. Walker and
Romanov in respect of Genesis' interest in ET Partnership) and certain other
benefits, as described in greater detail below. The total book value of the
Initial Properties and other assets being contributed by these persons in the
Formation Transactions was approximately $71.8 million (including three
facilities acquired by Genesis effective January 1, 1998). The Company does not
believe that the book values of the Initial Properties and other assets being
acquired from such persons (which reflect historical cost, net of accumulated
depreciation, where applicable) are equivalent to the fair market values of
such Initial Properties and other assets.
Genesis
o Genesis will receive approximately $61.2 million in cash from the Company
for 10 of the 13 Initial Properties or interests therein being transferred
by Genesis or entities in which it has an interest to the Company in the
Formation Transactions. The purchase price for these facilities and
interests is approximately $61.7 million, including approximately $480,000
of assumed indebtedness. The aggregate book value reflected on Genesis'
financial statements of the Initial Properties to be acquired from Genesis
as of September 30, 1997 was approximately $41.3 million.
o Genesis will receive approximately $20.3 million in cash from the Company
for three skilled nursing facilities which Genesis acquired from CKHS
effective January 1, 1998 for an aggregate purchase price of approximately
$31.7 million (including approximately $20.3 million in cash and the
assumption of approximately $11.4 million of indebtedness secured by two of
these facilities). The Company will acquire these facilities from Genesis
at the same purchase price and upon the same terms (including the
assumption of the indebtedness secured by two of the facilities) as Genesis
acquired them from CKHS.
o Genesis or entities in which Genesis owns an interest will receive
approximately $31.9 million in cash from the Company as a result of the
funding of the Term Loans and the initial draws under two of the
Construction Loans to be made by the Company. The Company will be obligated
to fund approximately $7.4 million in subsequent advances under these two
Construction Loans.
o The Company has agreed to purchase from Genesis or entities in which it
owns an interest for cash the five Lease-up Assisted Living Facilities and
the two Initial Assisted or Independent Living Development Projects owned
by Genesis or entities in which it owns an interest. The estimated
aggregate purchase price of these facilities is $52.2 million.
o The Company has agreed to make Construction Loan Commitments to Genesis
totaling approximately $37.3 million for eight assisted living development
and expansion projects which are owned by Genesis and which are in the
planning stage. Pursuant to these Construction Loan Commitments, the
Operating Partnership will agree to purchase for cash these projects from
Genesis upon the earlier of the maturity of the related loan or at such
time following completion of development as each such project reaches
Stabilized Occupancy. The estimated aggregate purchase price of these
facilities upon completion of development is approximately $46.2 million.
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o The Company has agreed to purchase from Genesis a Construction Loan made by
Genesis to a subsidiary of SLC with respect to the Monteharin Initial
Assisted Living Development Project for a purchase price equal to the
outstanding loan balance (currently $2.0 million).
o Genesis will receive $800,000 from the Company as payment of the purchase
price for the Penn Mortgage and $7.5 million from ET Capital Corp. as
payment of the purchase price for the Florida Facilities Note. The
aggregate book value of these assets on Genesis' financial statements as of
September 30, 1997 was approximately $8.3 million.
o As a result of the assumption by the Company of debt secured by two of the
Initial Properties, Genesis will be released from guarantees of such
indebtedness totaling approximately $3.2 million.
o The Operating Partnership will enter into the Right of First Refusal
Agreement with Genesis.
o It is estimated that Genesis will receive approximately $3.0 million in
cash from the Company as reimbursement for expenses incurred by Genesis on
behalf of the Company in connection with the Formation Transactions.
o Genesis will receive $4.5 million in cash or notes from Messrs. Walker and
Romanov for the interest owned by Genesis in ET Partnership. Mr. Walker and
Mr. Romanov will receive 225,000 Units in respect of this interest upon
recapitalization of the Operating Partnership, which Units will be
exchanged for Common Shares on a one-for-one basis substantially
simultaneously with the closing of the Offering.
Mr. Walker
o Mr. Walker will receive cash distributions totaling approximately $358,000
from certain entities in which he owns interests and which own interests in
three of the Initial Properties. Mr. Walker also will receive a direct or
indirect interest in 88,110 Units in exchange for his ownership interests
in five of the Initial Properties that are not owned by Genesis. Such
Units, together with Mr. Walker's interest in the Units to be distributed
to MGI Limited Partnership upon the recapitalization of the Operating
Partnership, will have a total value of approximately $2.5 million based on
the assumed initial public offering price of the Common Shares. In
addition, Mr. Walker will receive approximately $1.9 million in cash from
the Company as repayment of indebtedness. The aggregate book value of Mr.
Walker's ownership interests in the Initial Properties being transferred to
the Company in which he holds interests was approximately negative $251,000
as of September 30, 1997.
o Mr. Walker will receive $50,000 in cash (representing a return of his
initial investment) indirectly from the Operating Partnership upon the
dissolution of Elder Trust Realty Group, Inc. following the sale by Elder
Trust Realty Group, Inc. of all of its assets and liabilities to the
Operating Partnership.
o The Company will grant to Mr. Walker options to purchase 150,000 Common
Shares under the Company's 1998 Share Option and Incentive Plan. These
options will vest over three years.
o Mr. Walker will enter into a non-competition agreement with the Company.
See "Management -- Employment and Non-Competition Agreements."
o Commencing 14 months after the Offering, Mr. Walker will have registration
rights with respect to the Common Shares that may be issued to him in
exchange for Units he will receive in the Formation Transactions, as well
as with respect to the Common Shares to be acquired by him upon exchange of
the Units distributed to him in respect of the interest in ET Partnership
purchased by him from Genesis.
Other Executive Officers of Genesis
o Mr. Howard will receive a cash distribution in the amount of approximately
$91,000 from an entity in which he owns an interest and which owns one of
the Initial Properties. In addition, Messrs. Howard, Barr and Hager will
receive direct or indirect interests in 24,139 Units in the aggregate in
exchange for their ownership interests in certain of the Initial Properties
that are not owned by Genesis. Such Units
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will have a total value of approximately $483,000 based on the assumed
initial public offering price of the Common Shares. The aggregate book
value of Messrs. Howard, Barr and Hager's ownership interests in the
Initial Properties being transferred to the Company in which they hold
interests was approximately negative $80,000 as of September 30, 1997.
o Messrs. Howard, Barr, Hager and DePodestra will have an interest in the
Units to be distributed to MGI Limited Partnership upon the
recapitalization of the Operating Partnership, which interest will consist,
in the aggregate, of 95,454 Units having a total value of approximately
$1.9 million based on the assumed initial public offering price of the
Common Shares.
o Commencing 14 months after the Offering, Messrs. Howard, Barr and Hager and
MGI Limited Partnership will have registration rights with respect to
Common Shares that may be issued to them in exchange for Units they receive
in the Formation Transactions.
Executive Officers and Trustee Nominees of the Company
o Messrs. Romanov and McCreary will receive a total of 130,750 Units upon the
recapitalization of the Operating Partnership (not including the Units
distributed to Mr. Romanov with respect to the Operating Partnership
interest acquired by Mr. Romanov from Genesis) as a portion of their
compensation packages, which Units will have a total value of approximately
$2.2 million based on the assumed initial public offering price of the
Common Shares.
o Mr. Romanov will receive $50,000 in cash (representing a return of his
initial investment) indirectly from the Operating Partnership upon the
dissolution of ElderTrust Realty Group, Inc. following the sale by
ElderTrust Realty Group, Inc. of all of its assets and liabilities to the
Operating Partnership.
o Mr. Dauten will receive an indirect interest in 18,924 Units in exchange
for his ownership interests in certain of the Initial Properties that are
not owned by Genesis. Such Units will have a total value of approximately
$378,000 based on the assumed initial public offering price of the Common
Shares. The aggregate book value of Mr. Dauten's ownership interests in the
Initial Properties being transferred to the Company in which he holds
interests was approximately negative $63,000 as of September 30, 1997.
o The Company will issue and sell to Mr. Romanov 200,000 Common Shares in a
private placement at a per share purchase price equal to the initial public
offering price. Mr. Romanov will pay for such shares with a 10-year
recourse promissory note, with interest only payable until maturity at an
annual rate of 7%.
o The three trustee nominees will each receive an award of 2,500 Common
Shares each under the Company's 1998 Share Option and Incentive Plan. The
Company also will grant options to purchase 7,500 Common Shares to each of
the three trustee nominees of the Company under the Company's 1998 Share
Option and Incentive Plan. The options will have an exercise price equal to
the initial public offering price and will vest over three years.
o The Company will grant to Messrs. Romanov and McCreary options to purchase
300,000 Common Shares and 25,000 Common Shares, respectively, under the
Company's 1998 Share Option and Incentive Plan. The options will have an
exercise price equal to the initial public offering price. One-half of the
options to be granted to Mr. Romanov will vest immediately and one-half
will vest over three years and the options to be granted to Mr. McCreary
will vest over five years.
o Mr. Romanov will enter into an employment and non-competition agreement
with the Company. See "Management -- Employment and Non-Competition
Agreements."
o Commencing 14 months after the Offering, Messrs. Romanov, Dauten and
McCreary will have registration rights with respect to the Common Shares
that may be issued to them in exchange for Units they receive in the
Formation Transactions, as well as, in the case of Mr. Romanov, with
respect to the Common Shares to be acquired by him upon exchange of the
Units distributed to him in respect of the interest in ET Partnership
purchased by him from Genesis.
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The following table summarizes the amount of cash, Common Shares, Options to
purchase Common Shares and Units to be received by certain persons and entities
as a result of the Formation Transactions:
<TABLE>
<CAPTION>
Name Cash Common Shares Options Units
- ------------------------- ------------------- --------------- --------- ----------------
<S> <C> <C> <C> <C>
Genesis(1) $131.2 million(2) -- -- --
Michael R. Walker $2.3 million(3) 112,500(4) 150,000 123,906(5)
Edward B. Romanov, Jr. $50,000(6) 312,500(7) 300,000 118,750(8)
D. Lee McCreary, Jr. -- 100(9) 25,000 12,000(10)
Kent P. Dauten -- 2,500 7,500 18,924(11)
Rodman W. Moorhead, III -- 2,500 7,500 --
Timothy T. Weglicky -- 2,500 7,500 --
Richard R. Howard $90,500(12) -- -- 44,506(13)
David C. Barr -- -- -- 34,560(14)
John F. DePodesta -- -- -- 17,898(15)
George V. Hager, Jr. -- -- -- 22,629(16)
</TABLE>
- ------------
(1) Includes certain of its wholly owned subsidiaries, Lake Washington and
Multicare.
(2) Includes: (i) approximately $81.5 million as the purchase price for the
Initial Properties or interests therein (including approximately $20.3
million as the cash portion of the purchase price paid by Genesis for the
three skilled nursing facilities it purchased from CKHS effective January
1, 1998); (ii) approximately $33.9 million as the purchase price of or
initial draws under Term and Construction Loans; (iii) $7.5 million as the
purchase price of the Florida Facilities Note; (iv) $800,000 as the
purchase price of the Penn Mortgage; (v) approximately $3.0 million as
reimbursement of certain expenses; and (vi) $4.5 million paid to Genesis
by Messrs. Walker and Romanov as the purchase price of its interest in ET
Partnership.
(3) Includes (i) approximately $1.9 million as repayment of indebtedness; (ii)
$50,000 received by Mr. Walker (representing a return of his original
investment) upon dissolution of Elder Trust Realty Group, Inc. following
the purchase of its assets and liabilities by the Company; and (iii)
approximately $358,000 in cash distributions from entities in which Mr.
Walker owns interests and which own interests in five of the Initial
Properties.
(4) Represents Common Shares to be issued to Mr. Walker in respect of one-half
of Genesis' interest in ET Partnership which Mr. Walker will purchase from
Genesis for $2.25 million prior to the closing of the Offering.
(5) Includes: (i) 21,875 Units to be issued to Mr. Walker in exchange for his
interests in three of the initial properties; (ii) 66,235 Units
representing Mr. Walker's approximate 39.9% interest in the Units to be
issued to Senior LifeChoice in exchange for its interests in two of the
Initial Properties; and (iii) 35,796 Units representing Mr. Walker's
approximate 27.3% interest in the Units to be issued to MGI Limited
Partnership in respect of its interest in ET Partnership.
(6) Represents the amount to be received by Mr. Romanov (representing a return
of his initial investment) upon dissolution of Elder Trust Realty Group,
Inc. following the purchase of its assets and liabilities by the Company.
(7) Includes (i) 112,500 Common Shares to be issued to Mr. Romanov in respect
of one-half of Genesis' interest in ET Partnership which Mr. Romanov will
purchase from Genesis for $2.25 million prior to the closing of the
Offering; and (ii) 200,000 Common Shares to be issued to Mr. Romanov in
exchange for a recourse promissory note in the amount of $4.0 million to
be given to the Company by Mr. Romanov.
(8) Includes: (i) 100,000 Units issued to Mr. Romanov in respect of his
interest in the Operating Partnership; and (ii) 18,750 Units issued to Mr.
Romanov in respect of his interest in ET Partnership. All of these Units
will be received by Mr. Romanov as compensation.
(9) Represents Common Shares issued to Mr. McCreary of the time of the
formation of the Company.
(10) Represents Units issued to Mr. McCreary in respect of his interest in the
Operating Partnership. These Units will be received by Mr. McCreary as
compensation.
(11) Represents Mr. Dauten's approximate 11.4% interest in the Units to be
issued to Senior Life Choice in exchange for its interests in two of the
Initial Properties.
(12) Mr. Howard will receive approximately $90,500 as a cash distribution from
an entity in which he owns an interest and which owns one of the Initial
Properties.
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(13) Includes: (i) 5,215 Units to be issued to Mr. Howard in exchange for his
interest in one of the Initial Properties; (ii) 9,462 Units representing
Mr. Howard's approximate 5.7% interest in the Units to be issued to Senior
LifeChoice in exchange for its interests in two of the Initial Properties;
and (iii) 29,829 Units representing Mr. Howard's approximate 22.7%
interest in the Units to be issued to MGI Limited Partnership in respect
of its interest in ET Partnership.
(14) Includes: (i) 4,731 Units representing Mr. Barr's approximate 2.9%
interest in the Units to be issued to Senior LifeChoice in exchange for
its interests in two of the Initial Properties; and (ii) 29,829 Units
representing Mr. Barr's approximate 22.7% interest in the Units to be
issued to MGI Limited Partnership in respect of its interest in ET
Partnership.
(15) Represents Mr. DePodesta's approximate 13.6% interest in the Units to be
issued to MGI Limited Partnership in respect of its interest in ET
Partnership.
(16) Includes: (i) 4,731 Units representing Mr. Hager's approximate 2.9%
interest in the Units to be issued to Senior LifeChoice in exchange for
its interest in two of the Initial Properties; and (ii) 17,898 Units
representing Mr. Hager's approximate 13.6% interest in the Units to be
issued to MGI Limited Partnership in respect of its interest in ET
Partnership.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the anticipated policies with respect to
investments, financing and certain other activities of the Operating
Partnership and the Company. Upon consummation of the Offering, these policies
will be determined by the Board of Trustees of the Company and may be amended
or revised from time to time at the discretion of the Board of Trustees without
notice to or a vote of the shareholders of the Company, or the limited partners
of the Operating Partnership, except that changes in certain policies with
respect to conflicts of interest must be consistent with legal requirements.
Investment Policies
Investments in Real Estate or Interests in Real Estate and Investments in
Mortgages. The Company currently plans to conduct all of its investment
activities through the Operating Partnership. The Company's principal business
objective is to maximize growth in cash available for distribution and to
enhance the value of its portfolio in order to maximize total return to
shareholders. The Company's business and growth strategies to achieve this
objective are: (i) to invest in a high quality portfolio of healthcare-related
properties operated or managed by established operators or mortgages secured by
such properties located in close proximity to complimentary healthcare services
and facilities; (ii) to pursue aggressively opportunities for portfolio growth
through REIT financing to established operators in the healthcare industry;
(iii) to provide shareholders the opportunity for increased distributions from
annual increases in rental income and interest income and from portfolio
growth; and (iv) to provide shareholders with stock price appreciation
resulting from potential increases in the value of the Company's investments.
There can be no assurance, however, that these investment objectives will be
realized. See "Business and Growth Strategies" and "Policies with Respect to
Certain Activities."
The Company intends to acquire a diversified portfolio of income-producing
healthcare facilities or mortgages thereon, with an initial focus on facilities
located primarily in the eastern United States. In evaluating potential
investments, the Company will consider such factors as (i) the quality and
experience of management and the creditworthiness of the operator of the
facility; (ii) the facility's historical, current and forecasted cash flow and
its adequacy to meet operational needs, capital expenditures and lease or debt
service obligations, while providing a competitive return on investment to the
Company; (iii) the construction quality, conditions and design of the facility;
(iv) the geographic areas and type of facility; (v) the tax, growth, regulatory
and reimbursement environment of the community in which the facility is
located; (vi) the occupancy and demand for similar health care facilities in
the same or nearby communities; and (vii) in the case of skilled nursing
facilities, the payor mix of private, Medicare and Medicaid patients.
In making future investments, the Company intends to focus on established,
creditworthy, healthcare operators which meet the Company's standards for
network resources and quality and experience of management. Although the
Company initially will emphasize investments in assisted living, independent
living and skilled nursing facilities, and, to a lesser extent, medical and
other office buildings, it may seek to diversify into other types of healthcare
facilities, such as retirement facilities, congregate care facilities and
continuing care retirement communities. The Company also may seek to diversify
its investments in terms of geographic location, operators and, subject to the
foregoing, facility types. Nonetheless, substantially all of the Initial
Properties will be leased to or managed by Genesis, and it is anticipated that
a significant portion of new investments also will involve Genesis as tenant or
manager. In addition, Genesis will manage the 11 skilled nursing facilities
that secure the Florida Facilities Note.
There are no limitations on the amount or percentage of the Company's
total assets that may be invested in any one property. Additionally, no limits
have been set on the concentration of investments in any one location, operator
or facility type.
The Company may participate with other entities in property ownership
through joint ventures or other types of co-ownership. Equity investments may
be subject to existing mortgage financing and other indebtedness or such
financing or indebtedness may be incurred in connection with acquiring
investments. Any such financing or indebtedness will have priority over the
Company's equity interest in such property.
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The Company does not intend to invest in the securities of others for the
purpose of exercising control. Where appropriate, and subject to REIT
qualification rules, the Operating Partnership may sell certain of its
properties.
The Company may determine to finance acquisitions through the exchange of
properties or the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy the Company's investment criteria. The Company
also has authority to repurchase or otherwise reacquire its Common Shares or
any other securities and may determine to do so in the future.
To the extent that the Company's Board of Trustees determines to obtain
additional capital, the Company may raise such capital through additional
equity offerings, debt financing or retention of cash flow (subject to
provisions of the Code concerning the taxability of undistributed income of
"real estate investment trusts") or a combinations of these methods. See
"Borrowing Policies" for further information concerning the Company's policies
regarding debt financing.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests
necessary for REIT qualification, the Company also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including CMBSs. The Company may acquire all or substantially all of the
securities or assets of other REITs or similar entities where such investments
would be consistent with the Company's investment policies. In any event, the
Company does not intend that its investments in securities will require it or
the Operating Partnership to register as an "investment company" under the
Investment Company Act of 1940, as amended.
Financing Policies
The Company does not have a policy limiting the amount of indebtedness
that the Company may incur. In addition, the Declaration of Trust and Bylaws do
not limit the amount or percentage of indebtedness that the Company may incur.
The Company has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio as a whole.
The Board of Trustees will consider a number of factors when evaluating
the Company's level of indebtedness and when making decisions regarding the
incurrence of indebtedness, including the purchase price of properties to be
acquired with debt financing, the estimated market value of its properties upon
refinancing and the ability of particular properties and the Company as a whole
to generate cash flow to cover expected debt service. See "Risk Factors -- The
Company's Use of Debt Financing, the Absence of a Limitation on Debt, Increases
in Interest Rates and Requirements of Tax-Exempt Bond Financing could have
Adverse Effects on the Company" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Lending Policies
The Company may consider offering purchase money financing in connection
with the sale of properties where the provision of such financing will increase
the value received by the Company for the property sold.
Conflict of Interest Policies
Conflicts of Interest Involving Trustees. Mr. Walker, the Chairman of the
Board of Trustees, also serves as Chairman of the Board of Directors and Chief
Executive Officer of Genesis. At September 30, 1997, Mr. Walker beneficially
owned approximately 2.2% of the outstanding common stock of Genesis. Because he
serves as Chairman of both Genesis and the Company, Mr. Walker may be subject
to certain conflicts of interest in fulfilling his responsibilities to the
Company and its shareholders. See "Risk Factors -- Conflicts of Interest
Between the Company and Genesis and Mr. Walker In Connection with the Formation
and Operation of the Company." Under Maryland law, any contract or other
transaction between a corporation and any of its directors or any other
corporation, firm or other entity in which any of its directors is a director
or has a material financial interest may be void or voidable. However, the MGCL
provides that any such contract or transaction will not be void or voidable if
(a) the contract or transaction is authorized, approved or ratified, after
disclosure of, or with knowledge of, the common directorship or interest, by
the affirmative vote of a majority of disinterested directors (even if the
disinterested directors constitute less than a quorum) or by the affirmative
vote of a majority of the votes cast by disinterested shareholders, or (b) it
is fair and reasonable to
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the corporation. While the Maryland REIT Law does not have a comparable
provision for trustees, a court may apply the principles of the MGCL to
contracts or transactions between the Company and its trustees. The Company
believes that a requirement of disinterested director approval of such
transactions, including transactions with Genesis, will help to eliminate or
minimize certain potential conflicts of interest. Therefore, pursuant to the
Company's Bylaws without the approval of a majority of the disinterested
trustees, the Company and its subsidiaries may not (i) acquire from or sell to
any trustee, officer or employee of the Company, or any entity in which a
trustee, officer or employee of the Company serves as a director or owns more
than a 1% interest, or acquire from or sell to any affiliate of any of the
foregoing, any assets or other property of the Company or its subsidiaries,
(ii) make any loan to or borrow from any of the foregoing persons, or (iii)
engage in any other material transaction with any of the foregoing persons
(other than pursuant to agreements entered into in connection with the
Formation Transactions).
Policies Applicable to All Trustees. Under Maryland law, each trustee will
be obligated to offer to the Company any opportunity (with certain limited
exceptions) which comes to him and which the Company could reasonably be
expected to have an interest in developing or acquiring. In addition, under
Maryland law, any contract or other transaction between a corporation and any
director or any other corporation, firm or other entity in which the director
is a director or has a material financial interest may be void or voidable
unless approved as described above.
Leased Office Space. Genesis is the principal tenant of three office
properties owned by the Company. The Company believes Genesis is paying fair
market rent for this space. The disinterested members of the Board of Trustees
will annually review and approve the rates charged to Genesis for such office
space.
Policies With Respect to Other Activities
The Company may, but does not presently intend to, make investments other
than as previously described. The Company will make investments only through
the Operating Partnership. The Company will have authority to offer its Common
Shares or other equity or debt securities of the Operating Partnership in
exchange for property and to repurchase or otherwise reacquire its Common
Shares or any other securities and may engage in such activities in the future.
Similarly, the Operating Partnership may offer additional Units or other equity
interests in the Operating Partnership that are exchangeable into Common Shares
or Preferred Shares, in exchange for property. The Operating Partnership also
may make loans to joint ventures in which it may participate in the future.
Neither the Company nor the Operating Partnership will engage in trading,
underwriting or the agency distribution or sale of securities of other issuers.
At all times, the Company intends to cause the Operating Partnership to make
investments in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT unless, because of circumstances or changes in the
Code (or the regulations promulgated thereunder), the Board of Trustees
determines that it is no longer in the best interests of the Company to
continue to qualify as a REIT. The Company's policies with respect to such
activities may be reviewed and modified from time to time by the Company's
trustees without notice to or the vote of its shareholders.
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PARTNERSHIP AGREEMENT
The following summary of the Operating Partnership Agreement, including
the descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Operating
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Management
The Operating Partnership was formed on July 30, 1997, as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act"). Following completion of the Offering, the Company will be
the sole general partner of the Operating Partnership and expects at all times
to own a majority interest in the Operating Partnership.
The Company, as the general partner of the Operating Partnership, will
have the exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances. Limited partners will have no right or authority to act for or
to bind the Operating Partnership. No limited partner may take part in the
conduct or control of the business or affairs of the Operating Partnership by
virtue of being a holder of Units. In particular, the limited partners
expressly acknowledge in the Operating Partnership Agreement that the Company,
as general partner, is acting on behalf of the Operating Partnership's limited
partners and the Company's shareholders collectively, and is under no
obligation to consider the tax consequences to limited partners when making
decisions for the benefit of the Operating Partnership.
Sales of Assets
Under the Operating Partnership Agreement, the Company, as general
partner, will have the exclusive authority to determine whether, when and on
what terms the assets of the Operating Partnership (including the Properties)
will be sold. A sale of all or substantially all of the assets of the Operating
Partnership (or a merger of the Operating Partnership with another entity)
generally requires an affirmative vote of the holders of a majority of the
outstanding Units (excluding Units held directly or indirectly by the Company).
Removal of the General Partner; Transfer of the Company's Interests
The Operating Partnership Agreement provides that the limited partners may
not remove the Company as general partner of the Operating Partnership with or
without cause. In addition, the Company may not transfer any of its interests
as general or limited partner in the Operating Partnership, except in
connection with a merger or sale of all or substantially all of the Company's
assets (subject to certain conditions).
Under the Operating Partnership Agreement, a sale of all or substantially
all of the assets of the Company (or a merger of the Company with another
entity) generally requires an affirmative vote of the holders of a majority of
the outstanding Units (including Units held directly or indirectly by the
Company). The Company expects at all times to own a majority of the outstanding
Units and thus to control any such vote. In addition, the Operating Partnership
Agreement does not require the consent of the limited partners to approve a
transaction in which another entity acquires control (or all of the outstanding
Common Shares) of the Company as long as all limited partners receive or have
the right to receive the same consideration for their interests as they would
have received had they exercised the Units Redemption Right (as defined below)
with respect to their Units immediately prior to such acquisition.
Reimbursement of the Company; Transactions with the Company and its Affiliates
The Company will not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners in the Operating Partnership. In addition, the Operating
Partnership will reimburse the Company for all expenses it incurs relating to
its activities as general partner, its continued existence and qualification as
a REIT and all other liabilities incurred by the Company in connection with the
pursuit of its business and affairs (including expenses incurred by the Company
in
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connection with the issuance of Common Shares or other securities of the
Company). Except as expressly permitted by the Operating Partnership Agreement,
affiliates of the Company will not engage in any transactions with the
Operating Partnership except on terms that are fair and reasonable and no less
favorable to the Operating Partnership than would be obtained from an
unaffiliated third-party.
Redemption of Units
Subject to certain limitations in the Operating Partnership Agreement,
holders of Units generally will have the right to require the redemption of
their Units at any time 14 months after the Closing of the Offering (the "Unit
Redemption Right"). Pursuant to the Partnership Agreement, at the closing of
the Offering, Messrs. Walker and Romanov will exchange the Units issued to them
in respect of the Genesis interest in ET Partnership for Common Shares on a
one-for-one basis. See "Structure and Formation of the Company" and "Benefits
to Related Parties."
Unless the Company elects to assume and perform the Operating
Partnership's obligation with respect to the Unit Redemption Right, as
described below, the limited partner will receive cash from the Operating
Partnership in an amount equal to the market value of the Units to be redeemed.
The market value of a Unit for this purpose will be equal to the average of the
closing trading price of a Common Share on the NYSE for the ten trading days
before the day on which the redemption notice was given. In lieu of the
Operating Partnership's acquiring the Units for cash, the Company will have the
right to elect to acquire the Units directly from a limited partner exercising
the Unit Redemption Right, in exchange for either cash or Common Shares, and,
upon such acquisition, the Company will become the owner of such Units. Upon
exercise of the Unit Redemption Right, the limited partner's right to receive
distributions for the Units so redeemed or exchanged will cease. At least 1,000
Units (or all remaining Units owned by the limited partner if less than 1,000
Units) must be redeemed each time the Unit Redemption Right is exercised. No
redemption or exchange can occur if delivery of Common Shares would be
prohibited either under the provisions of the Company's Declaration of Trust
designed to protect the Company's qualification as a REIT or under applicable
Federal or state securities laws as long as the Common Shares are publicly
traded. The Company will at all times reserve and keep available out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
issuance of Common Shares pursuant to the Unit Redemption Right, a sufficient
number of Common Shares as shall from time to time be sufficient for the
redemption of all outstanding Units not owned by the Company. See "Shares of
Beneficial Interest" and "Shares Available for Future Sale."
Restrictions on Transfer of Units by Limited Partners
The Operating Partnership Agreement imposes certain restrictions on the
transfer of Units. The Operating Partnership Agreement provides that for a
period of 12 months after the Closing of the Offering, no limited partner
shall, without the prior written consent of the Company (which may be withheld
in the sole discretion of the Company), sell, assign, distribute or otherwise
transfer all or any part of his, her or its interest in the Operating
Partnership except, (i) in the case of an individual, to a member of his or her
immediate family (or to a trust formed for the benefit of such individual or
members of his or her immediate family or to a partnership, limited liability
company, joint venture, corporation or other business entity comprised,
directly or indirectly, only of such individual or members of his or her
immediate family) (ii) in the case of a trust, partnership, limited liability
company, joint venture, corporation or other business entity, to its
beneficiaries, partners, owners or stockholders, as the case may be, (iii) by
gift, (iv) by operation of law, (v) to another limited partner or (vi) pursuant
to certain pledges or other collateral transfers effected by a limited partner
to secure the repayment of a loan. See "Shares of Beneficial Interest --
Restrictions on Ownership and Transfer."
Issuance of Additional Units and Preference Units
The Company is authorized at any time, without the consent of the limited
partners, to cause the Operating Partnership to issue additional Units to the
Company, to the limited partners or to other persons for such consideration and
on such terms and conditions as the Company deems appropriate. If Units are
issued to the Company, then the Company must issue a corresponding number of
Common Shares and must contribute to the Operating Partnership the proceeds, if
any, received by the Company from such issuance. In
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addition, the Operating Partnership Agreement provides that the Operating
Partnership may also issue preferred units and other partnership interests of
different classes and series (collectively, "Preference Units") having such
rights, preferences and other privileges, variations and designations as may be
determined by the Company. Any such Preference Units may have terms, provisions
and rights which are preferential to the terms, provisions and rights of the
Units. Preference Units, however, may be issued to the Company only in
connection with an offering of securities of the Company having substantially
similar rights and the contribution of the proceeds therefrom to the Operating
Partnership. No limited partner has preemptive, preferential or similar rights
with respect to capital contributions to the Operating Partnership or the
issuance or sale of any partnership interests therein.
Capital Contributions
No partner of the Operating Partnership will be required to make
additional capital contributions to the Operating Partnership, except that the
Company is generally required to contribute net proceeds of the sale of Common
Shares (and other equity interests) of the Company to the Operating
Partnership. Except for limited partners (which will not include the Company)
who enter into one or more Deficit Restoration Obligation Agreements with the
Operating Partnership), no limited or general partner will be required to pay
to the Operating Partnership any deficit or negative balance which may exist in
its account.
Distributions; Allocations of Income and Loss
The Operating Partnership Agreement generally provides for the quarterly
distribution of "Available Cash" (as defined below), as determined in the
manner provided in the Operating Partnership Agreement, to the partners of the
Operating Partnership in proportion to their percentage interests in the
Operating Partnership (which for any partner is determined by the number of
Units it owns relative to the total number of Units outstanding). "Available
Cash" is generally defined as net cash flow from operations plus any reduction
in reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments. Neither the
Company nor the limited partners are entitled to any preferential or
disproportionate distributions of Available Cash with respect to the Units.
Exculpation and Indemnification of the Company
The Operating Partnership Agreement generally provides that the Company,
as general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained, liabilities
incurred, or benefits not derived as a result of errors in judgment or for any
mistakes of fact or law or for anything which it may do or refrain from doing
in connection with the business and affairs of the Operating Partnership if the
Company or such other general partner carried out its duties in good faith. The
Company's liability in any event is limited to its interest in the Operating
Partnership. Without limiting the foregoing, the Company has no liability for
the loss of any limited partner's capital. In addition, the Company is not
responsible for any misconduct, negligent act or omission of any consultant,
contractor, or agent of the Operating Partnership or of the Company and has no
obligation other than to use good faith in the selection of all such
contractors, consultants, and agents.
The Operating Partnership Agreement also requires the Operating
Partnership to indemnify the Company, the Trustees and officers of the Company,
and such other persons as the Company may from time to time designate against
any loss or damage, including reasonable legal fees and court costs incurred by
such person by reason of anything it may do or refrain from doing for or on
behalf of the Operating Partnership or in connection with its business or
affairs unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful. Any such indemnification claims must be satisfied
solely out of the assets of the Operating Partnership.
Amendment of the Operating Partnership Agreement
Amendments to the Operating Partnership Agreement may be proposed by the
Company or by limited partners owning at least 25% of the then outstanding
Units. Generally, the Operating Partnership Agreement
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may be amended with the approval of the Company, as general partner, and
limited partners (including the Company) holding a majority of the Units.
Certain provisions regarding, among other things, the rights and duties of the
Company as general partner (e.g., restrictions on the Company's power to
conduct businesses other than owning Units) or the dissolution of the Operating
Partnership, may not be amended without the approval of a majority of the Units
not held by the Company. Certain amendments that would, among other things, (i)
convert a limited partner's interest into a general partner's interest, (ii)
modify the limited liability of a limited partner, (iii) alter the interest of
a partner in profits or losses, or the right to receive any distributions
(except as permitted under the Operating Partnership Agreement with respect to
the admission of new partners or the issuance of additional Units), or (iv)
alter the Unit Redemption Right, must be approved by the Company and each
limited partner that would be adversely affected by such amendment.
Term
The Operating Partnership will be dissolved and its affairs wound up upon
the earliest of (i) December 31, 2096, (ii) the withdrawal of the Company as
general partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances), (iii) the
sale of all or substantially all of the Operating Partnership's assets and
properties, (iv) the entry of a decree of judicial dissolution of the Operating
Partnership pursuant to the provisions of the Partnership Act, (v) the entry of
a final non-appealable judgment ruling that the general partner is bankrupt or
insolvent (except that, in either such case, in certain circumstances the
limited partners (other than the Company) may vote to continue the Operating
Partnership and substitute a new general partner in place of the Company), (vi)
prior to January 1, 2047, with the consent of holders (including the Company)
of 90% of the outstanding Units or (vii) on or after January 1, 2047, on
election by the Company, in its sole and absolute discretion.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Shares (or Common Shares for which Units are
exchangeable) by (i) each trustee (and trustee nominee) of the Company, (ii)
each executive officer of the Company, (iii) all trustees, trustee nominees and
executive officers of the Company as a group, and (iv) each person or entity
which is expected to be the beneficial owner of 5% or more of the outstanding
Common Shares immediately following completion of the Offering. Except as
indicated below, all of such Common Shares are owned directly, and the
indicated person or entity has sole voting and investment power.
<TABLE>
<CAPTION>
Number of Shares and Units Percentage of All Percent of
Beneficially Owned After the Common Shares and All Common
Name of Beneficial Owner(1) Offering Units Shares (2)
- -------------------------------------------- ------------------------------------ ------------------- -----------
<S> <C> <C> <C>
Michael R. Walker ........................ 265,625(3) 3.8% 4.0%
Edward B. Romanov, Jr. ..................... 656,250(4) 9.2 9.7
Kent P. Dauten ........................... 77,500(3)(5) 1.1 1.2
Rodman W. Moorhead, III .................. 27,500(5) * *
Timothy T. Weglicki ........................ 7,500(5) * *
D. Lee McCreary, Jr. ..................... 24,200(6) * *
All trustees, trustee nominees and executive
officers as a group (6 persons) ......... 1,058,575(3)(4)(5)(6) 14.9% 15.6%
</TABLE>
- ------------
* Less than 1%.
(1) Address: c/o ElderTrust, 415 McFarlan Road, Suite 202, Kennett Square,
Pennsylvania 19348.
(2) Assumes that all Units held by the person are presented to the Operating
Partnership for redemption and acquired by the Company for Common Shares.
The total number of Common Shares outstanding used in calculating the
percentage assumes that none of the Units held by other persons are
similarly acquired for Common Shares.
(3) Excludes the indirect interests of Messrs. Walker and Dauten as
shareholders of Senior LifeChoice in 165,850 Units that will be issued to
and will not be distributed by that entity.
(4) Includes (i) 75,000 Common Shares which Mr. Romanov has indicated he
expects to purchase in the Offering and (ii) options for 150,000 Common
Shares that will vest immediately upon completion of the Offering.
(5) Includes 75,000, 25,000 and 5,000 Common Shares, respectively, which the
named trustee nominees have indicated they expect to purchase in the
Offering.
(6) Includes 12,100 Common Shares which Mr McCreary has indicated he expects to
purchase in the Offering.
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SHARES OF BENEFICIAL INTEREST
The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and Bylaws
of the Company, copies of which are exhibits to the Registration Statement of
which this Prospectus is a part.
General
The Declaration of Trust of the Company provides that the Company may
issue 100 million Common Shares and 20 million Preferred Shares. As of
September 30, 1997, 100 Common Shares were issued and outstanding.
Under the Maryland REIT Law, a shareholder is not personally liable for
the obligations of the Company solely as a result of his status as a
shareholder. The Declaration of Trust provides that no shareholder shall be
liable for any debt or obligation of the Company by reason of being a
shareholder nor shall any shareholder be subject to any personal liability in
tort, contract or otherwise to any person in connection with the property or
affairs of the Company by reason of being a shareholder. The Company's Bylaws
further provide that the Company shall indemnify each present or former
shareholder against any claim or liability to which the shareholder may become
subject by reason of being or having been a shareholder and that the Company
shall reimburse each shareholder for all reasonable expenses incurred by him or
her in connection with any such claim or liability. However, with respect to
tort claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
Common Shares
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Declaration of Trust regarding
restrictions on transfers of shares of beneficial interest, holders of Common
Shares are entitled to receive distributions if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company. The Company currently intends to pay regular
quarterly distributions.
Subject to the provisions of the Company's Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees, and, except as provided
with respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess the exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of
a majority of the outstanding Common Shares can elect all of the trustees then
standing for election, and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.
Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company. Subject to the exchange provisions of the Company's Declaration of
Trust regarding restrictions on transfer, Common Shares have equal
distribution, liquidation and other rights.
Pursuant to the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the trust's
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declaration of trust. The Company's Declaration of Trust provides that the
Board of Trustees, with the approval of a majority of the votes entitled to be
cast at a meeting of shareholders, may amend the Declaration of Trust from time
to time to increase or decrease the aggregate number of shares or the number of
shares of any class that the Company has authority to issue. The Company's
Declaration of Trust also provides that a merger transaction or termination of
the trust must be approved, at a meeting of the shareholders called for that
purpose, by the affirmative vote of not less than sixty-six and two-thirds
percent (66 2/3%) of all the votes entitled to be cast on the matter. Under the
Maryland REIT Law, a declaration of trust may permit the trustees by a
two-thirds vote to amend the declaration of trust from time to time to qualify
as a REIT under the Code or the Maryland REIT Law without the affirmative vote
or written consent of the shareholders. The Company's Declaration of Trust
permits such action by the Board of Trustees.
Preferred Shares
The Declaration of Trust authorizes the Board of Trustees to issue 20
million Preferred Shares and to classify any unissued Preferred Shares or to
reclassify any previously classified but unissued Preferred Shares of any
series from time to time, in one or more series. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland REIT Law and the
Declaration of Trust of the Company to set, subject to the provisions of the
Declaration of Trust regarding the restriction on transfer of shares of
beneficial interest, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Thus, the Board could authorize the issuance of Preferred Shares with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be in their best interest. As
of the date hereof, no Preferred Shares are outstanding and the Company has no
present plans to issue any Preferred Shares.
Power To Issue Additional Common Shares and Preferred Shares
The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Common Shares or Preferred Shares in one or
more series will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Authorized but unissued Common Shares or Preferred Shares will be
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded.
Restrictions on Ownership and Transfer
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of beneficial interest may be owned, actually
or constructively, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year for which an election to be treated as a REIT has been made) or
during a proportionate part of a shorter taxable year. In addition, if the
Company, or an owner of 10% or more of the Company, actually or constructively
owns 10% or more of a tenant of the Company (or a tenant of any partnership in
which the Company is a partner), the rent received by the Company (either
directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. A
REIT's shares also must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate
part of a shorter taxable year (other than the first year for which an election
to be treated as a REIT has been made).
Because the Board of Trustees believes it is desirable for the Company to
qualify as a REIT, the Declaration of Trust, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit or the
Excluded Holder Limit, as applicable. In connection with the Excluded Holder
Limit of 15% of the Common Shares that applies with respect to Mr. Romanov, Mr.
Romanov has entered into an agreement with the Company for the benefit of the
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Company and certain designated charitable beneficiaries that restricts Mr.
Romanov's ownership of (i) a tenant of the Company or (ii) any entity that
would cause the Company to be deemed to own more than 10% of a tenant of the
Company and providing that if, at any time, for any reason, Mr. Romanov's
ownership of interests in a tenant of the Company resulted in the actual or
constructive ownership by the Company of 10% or more of any tenant of the
Company, than a number of shares of the Company owned by Mr. Romanov necessary
to reduce the Company's actual or constructive ownership of such tenant to less
than 10% will automatically and irrevocably be transferred to a designated
charitable beneficiary. The ownership attribution rules under the Code are
complex and may cause Common Shares owned actually or constructively by a group
of related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 8.6% of the
Common Shares (or the acquisition of an interest in an entity that owns,
actually or constructively, Common Shares) by an individual or entity, could,
nevertheless cause that individual or entity, or another individual or entity,
to own constructively in excess of 8.6% of the outstanding Common Shares and
thus subject such Common Shares to the Ownership Limit. The Board of Trustees
may grant an exemption from the Ownership Limit with respect to one or more
persons who would not be treated as "individuals" for purposes of the Code if
such person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that (i) such person is not an individual
for purposes of the Code, (ii) such ownership will not cause a person who is an
individual to be treated as owning Common Shares in excess of the Ownership
Limit, applying the applicable constructive ownership rules, and (iii) such
ownership will not otherwise jeopardize the Company's status as a REIT. As a
condition of such waiver, the Board of Trustees may, in its reasonable
discretion, require undertakings or representations from the applicant to
ensure that the conditions in clauses (i), (ii) and (iii) of the preceding
sentence are satisfied and will continue to be satisfied as long as such person
owns shares in excess of the Ownership Limit. Under certain circumstances, the
Board of Trustees may, in its sole and absolute discretion, grant an exemption
for individuals or entities to acquire any series or class of Preferred Shares
in excess of the Ownership Limit or the Excluded Holder Limit, provided that
certain conditions are met and any representations and undertakings that may be
required by the Board of Trustees are made. In either circumstance, prior to
granting any exemption, the Board of Trustees must receive a ruling from the
Internal Revenue Service or advice of counsel, in either case in form and
substance satisfactory to the Board of Trustees, as it may deem necessary or
advisable in order to determine or ensure the Company's status as a REIT.
The Board of Trustees of the Company will have the authority to increase
the Ownership Limit with respect to Common Shares from time to time, but will
not have the authority to do so to the extent that after giving effect to such
increase, five beneficial owners of Common Shares could beneficially own in the
aggregate more than 49.5% of the outstanding Common Shares.
The Declaration of Trust further prohibits (a) any person from actually or
constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person
from transferring shares of beneficial interest of the Company if such transfer
would result in shares of beneficial interest of the Company being owned by
fewer than 100 persons.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of beneficial interest of the Company that
will or may violate any of the foregoing restrictions on transferability and
ownership is required to give notice immediately to the Company and provide the
Company with such other information as the Company may request in order to
determine the effect of such transfer on the Company's status as a REIT.
If any purported transfer of shares of beneficial interest of the Company
or any other event would otherwise result in any person violating the Ownership
Limit or the other restrictions in the Declaration of the Trust, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
that exceeds the Ownership Limit (referred to as "excess shares") and the
Prohibited Transferee shall acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to any such shares in excess of the Ownership Limit (the "Prohibited
Owner") shall cease to own any right or interest) in such excess shares. Any
such excess shares described above will be transferred automatically, by
operation of law, to a trust, the
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beneficiary of which will be a qualified charitable organization selected by
the Company (the "Beneficiary"). Such automatic transfer shall be deemed to be
effective as of the close of business on the Business Day (as defined in the
Declaration of Trust) prior to the date of such violating transfer. Within 20
days of receiving notice from the Company of the transfer of shares to the
trust, the trustee of the trust (who shall be designated by the Company and be
unaffiliated with the Company and any Prohibited Transferee or Prohibited
Owner) will be required to sell such excess shares to a person or entity who
could own such shares without violating the Ownership Limit, and distribute to
the Prohibited Transferee an amount equal to the lesser of the price paid by
the Prohibited Transferee for such excess shares or the sales proceeds received
by the trust for such excess shares. In the case of any excess shares resulting
from any event other than a transfer, or from a transfer for no consideration
(such as a gift), the trustee will be required to sell such excess shares to a
qualified person or entity and distribute to the Prohibited Owner an amount
equal to the lesser of the fair market value of such excess shares as of the
date of such event or the sales proceeds received by the trust for such excess
shares. In either case, any proceeds in excess of the amount distributable to
the Prohibited Transferee or Prohibited Owner, as applicable, will be
distributed to the Beneficiary. Prior to a sale of any such excess shares by
the trust, the trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the Company with
respect to such excess shares, and also will be entitled to exercise all voting
rights with respect to such excess shares. Subject to Maryland law, effective
as of the date that such shares have been transferred to the trust, the trustee
shall have the authority (at the trustee's sole discretion and subject to
applicable law) (i) to rescind as void any vote cast by a Prohibited Transferee
prior to the discovery by the Company that such shares have been transferred to
the trust and (ii) to recast such vote in accordance with the desires of the
trustee acting for the benefit of the Beneficiary. However, if the Company has
already taken irreversible corporate action, then the trustee shall not have
the authority to rescind and recast such vote. Any dividend or other
distribution paid to the Prohibited Transferee or Prohibited Owner (prior to
the discovery by the Company that such shares had been automatically
transferred to a trust as described above) will be required to be repaid to the
trustee upon demand for distribution to the Beneficiary. If the transfer to the
trust as described above is not automatically effective (for any reason) to
prevent violation of the Ownership Limit, then the Declaration of Trust
provides that the transfer of the excess shares will be void.
In addition, shares of beneficial interest of the Company held in the
trust shall be deemed to have been offered for sale to the Company, or its
designee, at a price per share equal to the lesser of (i) the price per share
in the transaction that resulted in such transfer to the trust (or, in the case
of a devise or gift, the market value at the time of such devise or gift) and
(ii) the market value of such shares on the date of the Company, or its
designee, accepts such offer. The Company shall have the right to accept such
offer until the trustee has sold the shares of beneficial interest held in the
Trust. Upon such a sale to the Company, the interest of the Beneficiary in the
shares sold shall terminate and the trustee shall distribute the net proceeds
of the sale to the Prohibited Owner.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 5% (or such other lower percentage as provided in the
rules and regulations promulgated under the Code) of the lesser of the number
or value of the outstanding shares of beneficial interest of the Company must
give a written notice to the Company within 30 days after the end of each
taxable year. In addition, each shareholder will, upon demand, be required to
disclose to the Company in writing such information with respect to the direct,
indirect and constructive ownership of shares of beneficial interest as the
Board of Trustees deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
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These ownership limitations could have the effect of delaying, deferring
or preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Shares is ChaseMellon
Shareholder Services, L.L.C.
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CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law
and the Declaration of Trust and Bylaws of the Company, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part.
The Declaration of Trust and Bylaws of the Company contain certain
provisions that could make more difficult an acquisition or change in control
of the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trustees.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. See also "Shares of Beneficial Interest -- Restrictions on Ownership and
Transfer."
Number of Trustees; Classification and Removal of Board of Trustees; Other
Provisions
Effective immediately following the closing of the Offering, the
Declaration of Trust will provide that the Board of Trustees shall consist of
five members and may be thereafter increased or decreased in accordance with
the Bylaws of the Company, provided that the total number of Trustees may not
be fewer than three or more than nine. Pursuant to the Company's Bylaws, the
number of trustees shall be fixed by the Board of Trustees within the limits
set forth in the Declaration of Trust. Following the closing of the Offering,
the Company's Declaration of Trust also will provide for the Board of Trustees
to be divided into three classes of Trustees, with each class to consist as
nearly as possible of an equal number of Trustees. The term of office of the
first class of trustees will expire at the 1999 annual meeting of shareholders;
the term of the second class of trustees will expire at the 2000 annual meeting
of shareholders; and the term of the third class of trustees will expire at the
2001 annual meeting of shareholders. At each annual meeting of shareholders,
the class of trustees to be elected at such meeting will be elected for a
three-year term, and the trustees in the other two classes will continue in
office. Because shareholders will have no right to cumulative voting for the
election of trustees, at each annual meeting of shareholders the holders of a
majority of the Common Shares will be able to elect all of the successors to
the class of trustees whose term expires at that meeting.
The Company's Declaration of Trust also provides that, except for any
trustees who may be elected by holders of a class or series of shares of
beneficial interest other than the Common Shares, Trustees may be removed only
for cause and only by the affirmative vote of shareholders holding at least a
majority of the shares then outstanding and entitled to be cast for the
election of trustees. Vacancies on the Board of Trustees may be filled by the
concurring vote of a majority of the remaining trustees and, in the case of a
vacancy resulting from the removal of a trustee by the shareholders, by a
majority of the votes entitled to be cast for the election of trustees. Under
Maryland law, trustees may fill any vacancy only until the next annual meeting
of shareholders. A vote of shareholders holding at least two-thirds of all the
votes entitled to be cast thereon is required to amend, alter, change, repeal
or adopt any provisions inconsistent with the foregoing classified board and
trustee removal provisions. These provisions may make it more difficult and
time-consuming to change majority control of the Board of Trustees of the
Company and, thus, may reduce the vulnerability of the Company to an
unsolicited proposal for the takeover of the Company or the removal of
incumbent management.
Because the Board of Trustees will have the power to establish the
preferences and rights of additional series of shares of beneficial interest
without a shareholder vote, the Board of Trustees may afford the holders of any
series of senior shares of beneficial interest preferences, powers and rights,
voting or otherwise, senior to the rights of holders of Common Shares. The
issuance of any such senior shares of beneficial interest could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Board of Trustees, however, currently does not contemplate the issuance of any
shares of beneficial interest other than Common Shares.
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See "Management -- Limitation of Liability and Indemnification" for a
description of the limitations on liability of trustees and officers of the
Company and the provisions for indemnification of trustees and officers
provided for under applicable Maryland law and the Declaration of Trust.
Changes in Control Pursuant to Maryland Law
Maryland Business Combination Law. Under the MGCL, as applicable to real
estate investment trusts, certain "business combinations" (including certain
issuances of equity securities) between a Maryland real estate investment trust
and any Interested Shareholder or an affiliate of the Interested Shareholder
are prohibited for five years after the most recent date on which the
Interested Shareholder becomes an Interested Shareholder. Thereafter, any such
business combination must be recommended by the Board of Trustees of such Trust
and approved by the affirmative vote of at least (i) 80% of all the votes
entitled to be cast by holders of the outstanding shares of voting stock and
(ii) two-thirds of the votes entitled to be cast by holders of voting stock
held by the Interested Shareholder who is (or whose affiliate is) a party to
the business combination unless, among other conditions, the trust's common
shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously
paid by the Interested Shareholder for its common shares.
Maryland Control Share Acquisition Law. In addition, also under the MGCL,
as applicable to real estate investments trusts, "control shares" acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the trust. "Control shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third; (ii) one-third
or more but less than a majority; or (iii) a majority or more of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder
approval. A "control share acquisition" means the acquisition of control
shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees of the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the trust may
itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the trust is a party
to the transaction or (b) to acquisitions approved or exempted by the
declaration of trust or bylaws of the trust. As permitted by the MGCL, the
Bylaws provide that the control share provisions of the MGCL do not apply to
the Company. However, the Board of Trustees, through its exclusive power to
amend the Bylaws, may elect to adopt these provisions in the future.
Amendments to the Declaration of Trust and Bylaws
The Declaration of Trust, including its provisions on classification of
the Board of Trustees, restrictions on transferability of Common Shares and
removal of trustees, may be amended only by a resolution adopted
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by the Board of Trustees and approved at an annual or special meeting of the
shareholders by the affirmative vote of the holders of not less than two-thirds
of all of the votes entitled to be cast on the matter. However, amendments
relating to changes in the number of authorized shares of beneficial interest
of the Company require the approval of holders of a majority of all votes
entitled to be cast at a meeting of shareholders at which a quorum is present.
Under the Maryland REIT law, a declaration of trust may permit the trustees by
a two-thirds vote to amend the declaration from time to time to qualify as a
REIT under the Code or the Maryland REIT law without the affirmative vote or
written consent of the shareholders. The Company's Declaration of Trust permits
such action by the Board of Trustees.
The Bylaws of the Company provide that the trustees have the exclusive
right to amend the Bylaws.
Advance Notice of Trustee Nominations and New Business
The Bylaws of the Company provide that (i) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board of
Trustees and the proposal of business to be considered by shareholders may be
made only (A) pursuant to the Company's notice of the meeting, (B) by the Board
of Trustees or (C) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(ii) with respect to special meetings of the shareholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of
Trustees may be made only (A) pursuant to the Company's notice of the meeting,
(B) by the Board of Trustees or (C) provided that the Board of Trustees has
determined that trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
Meetings of Shareholders
The Company's Bylaws provide that annual meetings of shareholders shall be
held on a date and at the time set by the Board of Trustees during the month of
May each year (commencing in May 1999). Special meetings of the shareholders
may be called by (i) the Chairman of the Board of the Company, (ii) the
President or (iii) one-third of the Board of Trustees. As permitted by the
MGCL, the Bylaws of the Company provide that special meetings must be called by
the Secretary of the Company upon the written request of the holders of shares
entitled to cast not less than a majority of all votes entitled to be cast at
the meeting. Pursuant to the Declaration of Trust and Bylaws of the Company,
any action required or permitted to be taken by the shareholders must be
effected at a duly called annual or special meeting of shareholders and may not
be effected by any consent in writing by shareholders, unless such consent is
unanimous.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws
The business combination provisions of the MGCL (and the control share
acquisition provisions of the MGCL if they ever become applicable to the
Company), the provisions of the Declaration of Trust on classification of the
Board of Trustees and removal of Trustees, the provisions for amending the
Declaration of Trust and Bylaws and the advance notice provisions of the Bylaws
could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interests. The Declaration of Trust, as in effect,
provides that a merger, consolidation or sale of all or substantially all of
the assets of the Company must be approved, at a meeting called for that
purpose, by the affirmative vote of the holders of not less than two-thirds of
the then outstanding shares entitled to vote thereon.
Maryland Asset Requirements
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.
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SHARES AVAILABLE FOR FUTURE SALE
General
Upon the completion of the Offering, the Company will have outstanding
6,482,600 Common Shares (7,390,100 shares if the Underwriters' overallotment
option is exercised in full). In addition, 482,030 Common Shares are reserved
for issuance upon exchange of Units. The Common Shares issued in the Offering
will be freely tradable by persons other than "affiliates" of the Company
without restriction under the Securities Act, subject to the limitations on
ownership set forth in this Prospectus. See "Shares of Beneficial Interest."
The 200,000 Common Shares purchased by Mr. Romanov in the private placement,
the Common Share awards of 2,500 shares each to be made to the three trustee
nominees and the 225,000 Common Shares to be issued to Messrs. Walker and
Romanov in exchange for the Units received by Messrs. Walker and Romanov in
respect of the interest of Genesis in ET Partnership, which interest will be
purchased by Messrs. Walker and Romanov from Genesis prior to the liquidation
of ET Partnership and the recapitalization of the Operation Partnership from
Genesis, as well as any Common Shares acquired in redemption of Units
(collectively, the "Restricted Common Shares"), will be "restricted" securities
under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144. As described below under "-- Registration Rights," the
Company has granted certain holders registration rights with respect to their
Restricted Common Shares.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Common Shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 also are subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of Restricted
Common Shares from the Company or from any "affiliate" of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate
of the Company at any time during the 90 days immediately preceding a sale,
such person is entitled to sell such shares in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
The Company and the executive officers and trustees (including trustee
nominees) of the Company will be required, as a condition to the Underwriters'
participation in the Offering, to agree that they will not, without the consent
of the Representative (as defined below), offer, sell, contract to sell or
otherwise dispose of any Common Shares (including any Common Shares acquired
upon redemption of Units) for 12 months following the Closing. See
"Underwriting."
Prior to the Offering, there has been no public market for the Common
Shares. Trading of the Common Shares on the New York Stock Exchange is expected
to commence immediately following completion of the Offering. No prediction can
be made as to the effect, if any, that future sales or shares of the
availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Shares
(including Common Shares issued upon the exercise of options), or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Shares. See "Risk Factors -- Lack of a Prior Public
Market, Changes in Market Conditions, Changes in Earnings and Cash
Distributions, Changes in Interest Rates and Dependence on External Sources of
Capital Could Adversely Impact the Trading Price of the Common Shares" and
"Partnership Agreement -- Restrictions on Transfer of Interests by Limited
Partners."
Registration Rights
The Company will grant demand registration rights to Messrs. Walker and
Romanov with respect to Restricted Common Shares owned by them as of the
Closing of the Offering. The Company also will grant demand registration rights
to any shareholder with respect to any Restricted Common Shares acquired by
such shareholder in redemption of Units. The Company will bear all expenses
incident to these registration requirements, except for any underwriting
discounts or commissions or transfer taxes, if any, relating to the
registration of such Restricted Common Shares.
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In addition, the Company will adopt the ElderTrust 1998 Share Option and
Incentive Plan for the purpose of attracting and retaining highly qualified
trustees, executive officers and other key employees. See "Management -- 1998
Share Option and Incentive Plan" and "-- Compensation of the Board of
Trustees." The Company intends to grant options to purchase approximately
497,500 Common Shares to trustees and executive officers upon the completion of
the Offering. Promptly following the completion of the Offering, the Company
expects to file a registration statement with the SEC with respect to the
Common Shares issuable under the ElderTrust 1998 Share Option and Incentive
Plan, which shares may be resold without restriction, unless held by
affiliates.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the federal income tax considerations
anticipated to be material to a prospective shareholder in the Company in
connection with the ownership of Common Shares. The following description is
for general information only, is not exhaustive of all possible tax
considerations, and is not intended to be (and should not be construed as) tax
advice. For example, this summary does not give a detailed discussion of any
state, local or foreign tax considerations. In addition, the discussion is
intended to address only those federal income tax considerations that are
generally applicable to all shareholders in the Company. It does not discuss
all aspects of federal income taxation that might be relevant to a specific
shareholder in light of its particular investment or tax circumstances. The
description does not purport to deal with all aspects of taxation that may be
relevant to shareholders subject to special treatment under the federal income
tax laws, including, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations (except to the extent
discussed under the heading "-- Taxation of Tax-Exempt Shareholders of the
Company") or foreign corporations and persons who are not citizens or residents
of the United States (except to the extent discussed under the heading "--
Taxation of Non-U.S. Shareholders of the Company").
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code (taking into account certain changes in law that are effective for taxable
years starting after August 5, 1997), current administrative interpretations
and practices of the IRS (including its practices and policies as endorsed in
private letter rulings, which are not binding on the IRS except with respect to
a taxpayer that receives such a ruling), and court decisions, all as of the
date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and practices and court decisions
will not significantly change the current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. The Company has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Company or the Operating Partnership. Thus, no assurance can
be provided that the statements set forth herein (which do not bind the IRS or
the courts) will not be challenged by the IRS or will be sustained by a court
if so challenged.
As used in this section, the term "Company" refers solely to ElderTrust.
EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT WITH ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE OWNERSHIP
AND DISPOSITION OF COMMON SHARES OF AN ENTITY ELECTING TO BE TAXED AS A REIT IN
LIGHT OF ITS SPECIFIC TAX AND INVESTMENT SITUATIONS AND THE SPECIFIC FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS APPLICABLE TO IT.
Taxation of the Company
The Company plans to make an election to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. The Company believes that, commencing with its taxable year ending
December 31, 1998, it will be organized and will operate in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it
will continue to operate in such a manner so as to qualify or remain qualified.
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These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. The following sets forth the material aspects of
the rules that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
Hogan & Hartson L.L.P. has acted as tax counsel to the Company in
connection with the Company's election to be taxed as a REIT. In the opinion of
Hogan & Hartson L.L.P., commencing with the Company's taxable year ending
December 31, 1998, the Company will be organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion is conditioned
upon certain representations made by the Company as to factual matters relating
to the organization and operation of the Company and the Operating Partnership.
In addition, this opinion is based upon the factual representations of the
Company concerning its business and properties as set forth in this Prospectus
and will assume that the actions described in this Prospectus are completed in
a timely fashion. Moreover, such qualification and taxation as a REIT depends
upon the Company's ability to meet on an ongoing basis (through actual annual
operating results, distribution levels and diversity of share ownership) the
various qualification tests imposed under the Code discussed below, the results
of which will not be reviewed by Hogan & Hartson L.L.P. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any particular taxable year will satisfy such requirements. Further, the
anticipated income tax treatment described in this Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time. See "-- Failure of the Company to Qualify as a REIT."
As a REIT, the Company generally will not be subject to federal corporate
income taxes on its net income that is distributed currently to shareholders.
This treatment substantially eliminates the "double taxation" (at the corporate
and shareholder levels) that generally results from investment in a regular
corporation. However, the Company will be subject to federal income tax as
follows.
o The Company will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
o Under certain circumstances, the Company may be subject to the "alternative
minimum tax" on its items of tax preference.
o If the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
o If the Company has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business other than
foreclosure property or sales to which Section 1033 applies), such
income will be subject to a 100% tax.
o If the Company should fail to satisfy the 75% gross income test or the 95%
gross income test (each as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the
amount by which the Company fails the 75% or 95% test multiplied by (b)
a fraction intended to reflect the Company's profitability.
o If the Company should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year (ii) 95%
of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
o With respect to any asset (a "Built-In Gain Asset") acquired by the Company
from a corporation which is or has been a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the Built-In Gain Asset in the hands
of the Company is determined by reference to the basis of the asset in
the hands of the C corporation, if the Company recognizes gain on
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the disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which such asset was acquired by the
Company, then, to the extent of the "Built-In Gain" (i.e., the excess of
(a) the fair market value of such asset over (b) the Company's adjusted
basis in such asset, determined as of the beginning of the Recognition
Period), such gain will be subject to tax at the highest regular corporate
rate pursuant to Treasury Regulations that have not yet been promulgated.
The results described above with respect to the recognition of Built-In
Gain assume that the Company will make the election described in IRS
Notice 88-19.
Requirements for Qualification as a REIT
Organizational Requirements. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest, (iii) that would be
taxable as a domestic corporation, but for Sections 856 through 860 of the
Code, (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code, (v) the beneficial ownership of
which is held by 100 or more persons, (vi) during the last half of each taxable
year not more than 50% in value of the outstanding shares of which is owned,
actually or constructively, by five or fewer individuals (as defined in the
Code to include certain entities), (vii) that makes an election to be a REIT
(or has made such an election for a previous taxable year which has not been
terminated or revoked) and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order to
elect and maintain REIT status, (viii) that uses a calendar year for federal
income tax purposes and complies with the recordkeeping requirements of the
Code and Treasury Regulations promulgated thereunder, and (ix) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to
be taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
The Company believes that it will have issued sufficient Common Shares
with sufficient diversity of ownership in the Offering to allow it to satisfy
conditions (v) and (vi) above. In addition, the Company's Declaration of Trust
provides for restrictions regarding the transfer and ownership of Common
Shares, which restrictions are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above. Such
ownership and transfer restrictions are described in "Shares of Beneficial
Interest -- Restrictions on Ownership and Transfer." These restrictions,
however, may not ensure that the Company will, in all cases, be able to satisfy
the share ownership requirements described above. If the Company fails to
satisfy such share ownership requirements, the Company's status as a REIT will
terminate. See "-- Failure of the Company to Qualify as a REIT." Treasury
Regulations require that the Company each year demand from certain record
owners of its shares certain information in order to assist the Company in
ascertaining that the share ownership requirements described above are
satisfied. If the Company were to fail to comply with these Treasury Regulation
requirements for any year, it would be subject to a $25,000 penalty. If the
Company's failure to comply were due to intentional disregard of the
requirements, the penalty would be increased to $50,000. However, if the
Company's failure to comply were due to reasonable cause and not willful
neglect, no penalty would be imposed. If the Company complies with the
regulatory rules on ascertaining its actual owners but does not know, or would
not have known by exercising reasonable diligence, whether it failed to meet
the requirement that it not be closely held, the Company will be treated as
having met the requirement. These rules were enacted as part of the Taxpayer
Relief Act of 1997 (the "1997 Act") and are a change to the prior law, which
provided that a REIT would be disqualified if it failed to comply with these
Treasury Regulations.
Absence of C Corporation Earnings and Profits. The Company was formed in
1997, but will not be active until 1998. Because it was inactive the Company
did not satisfy the requirements for qualifications as a REIT for its short
taxable year ended December 31, 1997. The Company will therefore make its
election to be
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taxed as a REIT for its taxable year ending December 31, 1998. In order to
qualify as a REIT, the Company cannot have at the end of any taxable year any
undistributed "earnings and profits" that are attributable to a "C corporation"
taxable year. The Company believes that it does not have, and did not have, any
earnings and profits from its taxable year ended December 31, 1997.
Ownership of Partnership Interests. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share of assets. In addition, the character of the assets and gross income of
the partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income
tests and the asset tests. Thus, the Company's proportionate share of the
assets and items of income of the Operating Partnership and any subsidiaries of
the Operating Partnership that are partnerships or limited liability companies
("LLCs") will be treated as assets and items of income of the Company for
purposes of applying the requirements described herein. A summary of the rules
governing the federal income taxation of partnerships and their partners is
provided below in "-- Tax Aspects of the Company's Ownership of Interests in
the Operating Partnership." The Company will have direct control of the
Operating Partnership and intends to operate the Operating Partnership in a
manner consistent with the requirements for qualification as a REIT.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy the following two gross income requirements.
o First, at least 75% of the Company's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property," gains
on dispositions of real estate, dividends paid by another REIT and, in
certain circumstances, interest from mortgage loans secured by real
property) or from certain types of temporary investments.
o Second, at least 95% of the Company's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived
from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities, including certain
hedging instruments (or from any combination of the foregoing).
Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
the following several conditions are met.
o First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
o Second, rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an
actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a "Related Party
Tenant").
o Third, if rent attributable to personal property leased in connection with
a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property" (the
"15% Personal Property Test").
o Finally, for rents received to qualify as "rents from real property," the
REIT generally must not operate or manage the property, or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue. The REIT
may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the
occupant" of the property. Additionally, due to changes in this
requirement enacted as part of the 1997 Act for taxable years beginning
on or after January 1, 1998, a REIT may provide de minimis services
directly to the tenants of a property; provided, however, that if (i)
the REIT operates or manages a property or furnishes or renders
services to the tenants at the property other than through an
independent contractor from whom the REIT derives no revenue (not
including services "usually or customarily rendered" in connection with
the rental of real property and not otherwise considered "rendered to
the occupant") and (ii) the
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amount received for so doing (the "Impermissible Tenant Service Income")
exceeds one percent of the total amount of rent received by the REIT with
respect to the property, then no amount of rent received by the REIT with
respect to the property will qualify as "rents from real property." If the
Impermissible Tenant Service Income is one percent or less of the total
amount of rent received by the REIT with respect to the property, then
only the Impermissible Tenant Service Income will not qualify as "rents
from real property." A REIT's Impermissible Tenant Service Income may not
be less than 150% of the REIT's direct cost in generating such income. To
the extent that services (other than those customarily furnished or
rendered in connection with the rental of real property) are rendered to
the tenants of the property by the independent contractor, the cost of the
services must be borne by the independent contractor.
The Company will not (i) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a fixed percentage of receipts or sales, as described above, or
unless the Board of Trustees determines, in its discretion, that the rent
received from a particular tenant under such an arrangement is not material and
will not jeopardize the Company's status as a REIT), (ii) rent any property to
a Related Party Tenant (unless the Board of Trustees determines in its
discretion that the rent received from such Related Party Tenant is not
material and will not jeopardize the Company's status as a REIT), (iii) derive
rental income attributable to personal property (other than personal property
leased in connection with the lease of real property, the amount of which is
less than 15% of the total rent received under the lease) or (iv) perform
services considered to be rendered to the occupant of the property, other than
through an independent contractor from whom the Company derives no revenue
(except to the extent that the Impermissible Tenant Service Income would not
exceed the 1% threshold described above or the Board of Trustees otherwise
determines, in its discretion, that the nonqualifying income resulting
therefrom is not material and will not jeopardize the Company's status as a
REIT).
Pursuant to the Percentage Rent Leases, Genesis or a subsidiary of Genesis
will lease from the Operating Partnership (i) two of the Initial Properties
which are assisted living facilities and one of the Initial Properties which is
an independent living facility, (ii) the three Lease-up Assisted Living
Facilities which the Company has agreed to acquire from Genesis or from an
entity in which Genesis has a 49% interest and (iii) the Initial Assisted or
Independent Living Development Project which the Company has agreed to acquire
from Genesis. The lease for the remaining assisted living facility being
acquired from and leased-back to a subsidiary of Genesis will provide for the
payment of Minimum Rent until such facility reaches Stabilized Occupancy, at
which time the lease will convert automatically into a Percentage Rent Lease
with no minimum rent. The Percentage Rent Leases provide that Genesis, directly
or indirectly, will be obligated to pay to the Operating Partnership (i)
Percentage Rent (as defined below) and (ii) Additional Rent (as defined below)
(collectively "Rent"). "Percentage Rent" is calculated by multiplying a
specified fixed percentage by the revenue generated with respect to the leased
property (adjusted to exclude: (a) revenues from professional fees or charges
by physicians and all providers of ancillary services (including Genesis and
its affiliates), including, without limitation, physical therapy services,
whether or not such providers are employees of the tenant; (b) non-operating
revenues, such as interest income or income from the sale of assets not sold in
the ordinary course of business; (c) federal, state or local excise taxes
imposed upon, and any tax based upon or measured by, such revenues which is
added to or made a part of the amount billed to the resident, client or other
recipient of such services or goods, whether included in the billing or stated
separately; (d) contractual allowances (relating to any period during the term)
for billings not paid by or received from the appropriate governmental agencies
or third party providers; and (e) all proper patient billing credits and
adjustments (including, without limitation, allowances for uncollectable
accounts) according to generally accepted accounting principles relating to
healthcare accounting) (as adjusted, "Facility Revenues"). Percentage Rent is
required to be paid each month in advance, with adjustments to be made
quarterly and annually based on actual results.
Pursuant to the Minimum Rent Leases, a tenant will lease from the
Operating Partnership (i) two of the Initial Properties which are assisted
living facilities, (ii) all of the Initial Properties which are skilled nursing
facilities and (iii) the Lease-up Assisted Living Facilities and Initial
Assisted or Independent Living Development Projects which will be acquired from
and leased back to Multicare and one of the Initial
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Assisted or Independent Living Projects to be developed by SLC, if the related
option to purchase such facility is exercised by the Company. The Minimum Rent
Leases provide that the tenant will be obligated to pay to the Operating
Partnership "Rent" consisting of (i) Minimum Rent (as defined below), (ii)
Incremental Percentage Rent and (iii) Additional Rent. "Minimum Rent" is set at
the beginning of the term and escalates based on the Consumer Price Index, a
fixed percentage increase per year or a fixed percentage of the increase in the
gross revenues for a facility during the immediately preceding year.
Incremental Percentage Rent is calculated by multiplying a specified fixed
percentage by the increased gross revenues for a facility over a specified base
amount. Minimum Rent is to be paid each month in advance, and Incremental
Percentage Rent is required to be paid quarterly, with adjustments to be made
annually based on actual results.
For both Percentage Rent Leases and Minimum Rent Leases, "Additional Rent"
includes adjustments equal to the difference between the tenant's payment of
estimated Percentage Rent or Incremental Percentage Rent, as the case may be,
during a particular period and the actual Percentage Rent or Incremental
Percentage Rent, as applicable, payable with respect to such period and certain
other costs a tenant agrees to pay under the applicable lease.
The leases of the medical and other office buildings included in the
Initial Properties do not provide for any rent payments based on a tenant's
revenues.
In order for Rent to constitute "rents from real property," the leases
must be respected as true leases for federal income tax purposes and not
treated as service contracts, joint ventures or some other type of arrangement.
The determination of whether the leases are true leases depends on an analysis
of all the surrounding facts and circumstances. In making such a determination,
courts have considered a variety of factors, including the following: (i) the
intent of the parties; (ii) the form of the agreement; (iii) the degree of
control over the property that is retained by the property owner (e.g., whether
the lessee has substantial control over the operation of the property or
whether the lessee was required simply to use its best efforts to perform its
obligations under the agreement); and (iv) the extent to which the property
owner retains the risk of loss with respect to the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property) or the potential for economic gain (e.g., appreciation) with
respect to the property.
In addition, Code section 7701(e) provides that a contract that purports
to be a service contract (or a partnership agreement) is treated instead as a
lease of property if the contract is properly treated as such, taking into
account all relevant factors, including whether or not: (i) the service
recipient is in physical possession of the property; (ii) the service recipient
controls the property; (iii) the service recipient has a significant economic
or possessory interest in the property (e.g., if the property's use is likely
to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs
or the recipient bears the risk of damage to or loss of the property); (iv) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract; (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient;
and (vi) the total contract price does not substantially exceed the rental
value of the property for the contract period. Since the determination of
whether a service contract should be treated as a lease is inherently factual,
the presence or absence or any single factor may not be dispositive in every
case.
The Percentage Rent Leases and the Minimum Rent Leases have been
structured with the intent to qualify as true leases for federal income tax
purposes. Investors should be aware, however, that there are no controlling
Treasury Regulations, published rulings or judicial decisions involving leases
with terms substantially the same as the Percentage Rent Leases or the Minimum
Rent Leases that discuss whether such leases constitute true leases for federal
income tax purposes. Therefore, there can be no assurance that the IRS might
not assert a contrary position. If the Percentage Rent Leases or the Minimum
Rent Leases are recharacterized as service contracts or partnership agreements,
rather than true leases, part or all of the payments that the Operating
Partnership receives from the lessee would not be considered rent or would not
otherwise satisfy the various requirements for qualification as "rents from
real property." In that case, the Company likely would not be able to satisfy
either the 75% or 95% gross income test and, as a result, would lose its REIT
status. In rendering its opinion, described above, that the Company's proposed
method of operation should enable it to meet the requirement for qualification
and taxation as a REIT under the Code,
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Hogan & Hartson L.L.P. has relied upon representations made by the Company as
to, among other things, the commercial reasonableness of the Leases, and the
intent and economic expectations of the parties to the Leases and, taking into
account all surrounding facts and circumstances, the allocation of economic
risk between the parties to the Leases.
As indicated above, "rents from real property" must not be based in whole
or in part on the income or profits of any person. Each of the Percentage Rent
and the Incremental Percentage Rent should qualify as "rents from real
property" since it is based on percentages of receipts or sales which
percentages are fixed at the time the leases are entered into, provided the
leases (i) are not renegotiated during the term of the leases in a manner that
has the effect of basing Percentage Rent or Incremental Percentage Rent on
income or profits and (ii) are not in reality used as a means of basing rent on
income or profits. More generally, the Percentage Rent and the Incremental
Percentage Rent, as applicable, will not qualify as "rent from real property"
if, considering the Percentage Rent Leases or the Minimum Rent Leases and all
the surrounding circumstances, the arrangement does not conform with normal
business practice but is in reality used as a means of basing rent on income or
profits. Because each of the Percentage Rent and the Incremental Percentage
Rent, as applicable, is based on fixed percentages of the gross revenues from
the facilities that are established in the Percentage Rent Leases and the
Minimum Rent Leases, and the Company has represented that the percentages (i)
will not be renegotiated during the terms of the leases in a manner that has
the effect of basing rent on income or profits and (ii) conform with normal
business practice, the Percentage Rent and the Incremental Percentage Rent, as
applicable, should not be considered based in whole or in part on the income or
profits of any person. Furthermore, the Company has represented that, with
respect to other properties that it acquires in the future, it will not charge
rent for any property that is based in whole or in part on the income or
profits of any person (except by reason of being based on a fixed percentage of
gross revenues, as described above). Neither the Percentage Rent and the
Incremental Percentage Rent, as applicable, nor Additional Rent are based on
the income or net profits of any person, and therefore should qualify as "rents
from real property."
The Company may lease certain items of personal property in connection
with the lease of an assisted living facility, a skilled nursing facility or an
independent living facility property. The 15% Personal Property Test provides
that if a lease provides for the rental of both real and personal property and
the portion of the rent attributable to personal property is 15% or less of the
total rent due under the lease, then all rent paid pursuant to such lease
qualifies as "rent from real property." If, however, a lease provides for the
rental of both real and personal property, and the portion of the rent
attributable to personal property exceeds 15% of the total rent due under the
lease, then the portion of the rent that is attributable to personal property
does not qualify as "rent from real property." The amount of rent attributable
to personal property is that amount which bears the same ratio to total rent
for the taxable year as the average of the adjusted tax bases of the personal
property at the beginning and end of the year bears to the average of the
aggregate adjusted tax bases of both the real and personal property at the
beginning and end of such year. The Company has represented that with respect
to each lease that includes a lease of items of personal property, the amount
of rent attributable to personal property with respect to such lease,
determined as set forth above, will not exceed 15% of the total rent due under
the lease.
If any of the leased Initial Properties which are assisted living
facilities, skilled nursing facilities or independent living facilities or any
of the leased Initial Assisted or Independent Living Development Projects were
to be operated directly by the Operating Partnership or a subsidiary
partnership or LLC as a result of a default by the lessee under the applicable
lease, such property would constitute foreclosure property for three years
following its acquisition (or for up to an additional three years if an
extension is granted by the IRS), provided that (i) the Operating Partnership
or its subsidiary partnership or LLC conducts operations through an independent
contractor (which would not include Genesis and its affiliates) within 90 days
after the date the property is acquired, (ii) the Operating Partnership or its
subsidiary partnership or LLC does not undertake any construction on the
foreclosed property other than completion of improvements that were more than
10% complete before default became imminent and (iii) foreclosure was not
regarded as foreseeable at the time the Company entered into such leases. For
as long as any of these properties constitute foreclosure property, the income
from the properties would be subject to tax at the maximum corporate rates, but
it would qualify under the 75% and 95% gross income tests. However, if any of
these properties does not constitute foreclosure property at any time in the
future, income earned from the disposition or operation of such property will
not qualify under the 75% and 95% gross income tests.
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Through the Operating Partnership, which is not an "independent
contractor," the Company may provide certain services with respect to the
Initial Properties or the Lease-up Assisted Living Facilities or Initial
Assisted or Independent Living Development Projects, but the Company believes
(and has represented) that all such services would be considered "usually or
customarily rendered" in connection with the rental of space for occupancy
only, so that the provision of such services would not jeopardize the
qualification of rent from the Initial Properties or the Lease-up Assisted
Living Facilities or Initial Assisted or Independent Living Development
Projects as "rents from real property." In the case of any services that are
not "usual and customary" under the foregoing rules, the Company intends to
employ "independent contractors" to provide such services.
Except for interest on obligations secured by real property, such as the
Construction Loans, the Term Loans and the Penn Mortgage, "interest" will not
qualify under the 75% gross income test (but will qualify under the 95% gross
income test). For interest received from the Construction Loans, the Term Loans
and the Penn Mortgage to qualify for both the 75% and 95% gross income test,
they must be secured by real property and must be treated as debt for federal
income tax purposes. In this regard, the Construction Loans, the Term Loans and
the Penn Mortgage are secured by real property, the terms of each are typical
of a debt instrument and the Company believes that the fair market value of the
real property securing each of the Term Loans, the Construction Loans and the
Penn Mortgage will exceed the principal amount of the loan or mortgage at the
time the Loan is made by the Company or, if acquired by the Company from
Genesis, did exceed the principal amount of the loan or mortgage at the time it
was made. (Interest on loans, whether secured by real property or not, that is
based on the income or profits of any person will not qualify under either the
75% or the 95% gross income test. The Company, however, does not anticipate
making any loans where interest payable is based upon the income or profits of
any person.)
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet
such tests were due to reasonable cause and not due to willful neglect and (ii)
the Company attaches a schedule of the sources of its income to its federal
income tax return and any incorrect information on the schedule was not due to
fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross
income tests because non-qualifying income that the Company intentionally
incurs exceeds the limits on such income, the IRS could conclude that the
Company's failure to satisfy the tests was not due to reasonable cause. If
these relief provisions are inapplicable to a particular set of circumstances
involving the Company, the Company will not qualify as a REIT. As discussed
above under "-- Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the
ordinary course of business (including the Company's share of any such gain
realized by the Operating Partnership) will be treated as income from a
"prohibited transaction" that is subject to a 100% penalty tax. Such prohibited
transaction income may also have an adverse effect upon the Company's ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold the Initial Properties, the Lease-up
Assisted Living Facilities and the Initial Assisted or Independent Living
Development Projects for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning and operating the
Initial Properties, the Lease-up Assisted Living Facilities and Initial
Assisted or Independent Living Development Projects (and other properties) and
to make such occasional sales of the Initial Properties or the Lease-up
Assisted Living Facilities or Initial Assisted or Independent Living
Development Projects as are consistent with the Operating Partnership's
investment objectives. There can be no assurance, however, that the IRS might
not contend that one or more of such sales is subject to the 100% penalty tax.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy the following three tests relating to the nature of its
assets.
o First, at least 75% of the value of the Company's total assets must be
represented by real estate assets including (i) its allocable share of
real estate assets held by partnerships in which the Company owns
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an interest (including its allocable share of the assets held directly or
indirectly through the Operating Partnership) and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of
a stock offering or long-term (at least five years) debt offering of the
Company, cash, cash items and government securities.
o Second, not more than 25% of the Company's total assets may be represented
by securities other than those in the 75% asset class.
o Third, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities.
The Operating Partnership owns 100% of the nonvoting stock of ET Capital
Corp. and a note issued by ET Capital Corp. The Company believes that the
Company's pro rata share of the value of the securities of ET Capital Corp.
does not exceed 5% of the total value of the Company's assets. There can be no
assurance, however, that the IRS will not contend either that the value of the
securities of ET Capital Corp. held by the Company (through the Operating
Partnership) exceeds the 5% value limitation or that nonvoting stock of ET
Capital Corp. held by the Operating Partnership should be considered "voting
stock" for this purpose.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter (including, for example, as a
result of the Company increasing its interest in the Operating Partnership as a
result of the exercise of a Unit Redemption Right or an additional capital
contribution of proceeds of an offering of Common Shares by the Company), the
failure can be cured by disposition of sufficient nonqualifying assets within
30 days after the close of that quarter. The Company intends to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance. If the Company fails to
cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.
As discussed above, the assets held by the Company include the
Construction Loans, the Term Loans and the Penn Mortgage. For these loans and
the mortgage to qualify as "real estate assets" for the purpose of the asset
test, they must be secured by real property and must be treated as debt for
federal income tax purposes. As discussed above, the Construction Loans, the
Term Loans and the Penn Mortgage are secured by real property, the terms of
each are typical of a debt instrument and the Company believes that the fair
market value of the real property securing each of the Term Loans, the
Construction Loans and the Penn Mortgage will or did exceed the principal
amount of the loan or mortgage at the time it is or was made.
Annual Distribution Requirements. The Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (a) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the Company's net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income. In
addition, if the Company disposes of any Built-In Gain Asset during its
Recognition Period, the Company will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-In Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment date after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. The Company, however, may designate some or
all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a shareholder
would include its proportionate share of such amount in income, as long-term
capital gain, and would be treated as having paid its proportionate share of
the tax paid by the Company with respect to such amount. The shareholder's
basis in its shares would be increased by the amount
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the shareholder included in income and decreased by the amount of the tax the
shareholder is treated as having paid. The Company would make an appropriate
adjustment to its earnings and profits. For a more detailed description of the
tax consequences to a shareholder of such a designation, see "-- Taxation of
Taxable U.S. Shareholders of the Company Generally."
The Company intends to make timely distributions sufficient to satisfy
these annual distribution requirements. In this regard, the Operating
Partnership Agreement authorizes the Company, as managing general partner, to
take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit the Company to meet
these distribution requirements.
It is expected that the Company's REIT taxable income will be less than
its cash flow due to the allowance of depreciation and other non-cash charges
in computing REIT taxable income. Accordingly, the Company anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the distribution requirements described above. It is possible, however, that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet these distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses
in arriving at taxable income of the Company. If such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to
pay dividends in the form of taxable share dividends.
A portion of the cash to be used by the Company to fund distributions is
expected to come from ET Capital Corp. through payments of dividends on the
stock of ET Capital Corp. held by the Operating Partnership. ET Capital Corp.
pays federal and state income tax at the applicable corporate rates. To the
extent that ET Capital Corp. is required to pay federal, state or local taxes,
the cash available for distribution by the Company to its shareholders will be
reduced accordingly.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon the
amount of any deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.
Failure of the Company to Qualify as a REIT
If the Company fails to qualify for taxation as a REIT in any taxable
year, and if the relief provisions do not apply, the Company will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash available for distribution by the Company
to its shareholders. In addition, if the Company fails to qualify as a REIT,
all distributions to shareholders will be taxable as ordinary income to the
extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.
Taxation of Taxable U.S. Shareholders of the Company Generally
As used herein, the term "U.S. Shareholder" means a holder of Common
Shares who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership
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or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who would have the authority to control all substantial decisions of
the trust.
Distributions Generally. As long as the Company qualifies as a REIT,
distributions made by the Company out of its current or accumulated earnings
and profits (and not designated as capital gain dividends) will constitute
dividends taxable to its taxable U.S. Shareholders as ordinary income.
Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Shareholders
that are individuals, estates or trusts as gain from the sale or exchange of a
capital asset held for more than one year (to the extent such capital gain
dividends do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which such U.S. Shareholder has held the
Common Shares with respect to which any such distribution is made.
On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital gain
dividend as (i) a 20% rate gain distribution (which would be taxed as long-term
capital gain in the 20% group), (ii) an unrecaptured Section 1250 gain
distribution (which would be taxed as long-term capital gain in the 25% group)
or (iii) a 28% rate gain distribution (which would be taxed as long-term
capital gain in the 28% group). (If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate gain
distribution. For a discussion of the 20%, 25% and 28% tax rates applicable to
individuals, estates and trusts, see "-- 1997 Act Changes to Capital Gain
Taxation" below.) IRS Notice 97-64 also provides that the Company must
determine the maximum amounts that it may designate as 20% and 25% rate capital
gain dividends by performing the computation required by the Code as if the
Company were an individual whose ordinary income were subject to a marginal tax
rate of at least 28%. The Notice further provides that designations made by the
Company only will be effective to the extent that they comply with Revenue
Ruling 89-81, which requires that distributions made with respect to different
classes of shares be composed proportionately of dividends of a particular
type.
Distributions that are properly designated by the Company as capital gain
dividends will be taxable to taxable corporate U.S. Shareholders as long-term
capital gain (to the extent that such capital gain dividends do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which such corporate U.S. Shareholder has held the Common Shares
with respect to which any such distribution is made. The tax rate designations
described in the preceding paragraph do not apply to corporate shareholders.
Such corporate U.S. Shareholders may, however, be required to treat up to 20%
of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in its Common Shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in its Common Shares taxable as capital gains
(provided that the Common Shares have been held as a capital asset). Dividends
declared by the Company in October, November, or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company on or before January 31 of the following calendar year. U.S.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against future income
(subject to certain limitations). The Company will notify Shareholders after
the close of the Company's taxable year as to the portions of distributions
attributable to that year that constitute ordinary income, return of capital
and capital gain.
The Company may designate by written notice to its Shareholders its net
capital gain so that, with respect to any retained net capital gains, a U.S.
Shareholder would include its proportionate share of such retained net capital
gains in income as long-term capital gain and would be treated as having paid
its proportionate share of the tax paid by the Company with respect to such
retained net capital gains. The U.S.
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Shareholder's basis in its shares would be increased by its share of such
retained net capital gains and decreased by its share of such tax. With respect
to such long-term capital gain of a U.S. Shareholder that is an individual or
an estate or trust, the IRS, as described above in this section, has authority
to issue regulations that should apply to such long-term capital gain the
special tax rate applicable generally to the portion of the long-term capital
gains of an individual or an estate or trust attributable to deductions for
depreciation taken with respect to depreciable real property.
Passive Activity Loss and Investment Limitations. Distributions made by
the Company and gain arising from the sale or exchange by a U.S. Shareholder of
Common Shares will not be treated as passive activity income, and, as a result,
U.S. Shareholders generally will not be able to apply any "passive losses"
against such income or gain. Dividends from the Company (to the extent they do
not constitute a return of capital) generally will be treated as investment
income for purposes of the investment income limitation. Under recently enacted
legislation, net capital gain from the disposition of Common Shares and capital
gain dividends generally will be excluded from investment income unless the
U.S. Shareholder makes an election to the contrary.
Certain Dispositions of Shares. In general, upon any sale or other
disposition of Common Shares, a U.S. Shareholder will recognize gain or loss
for federal income tax purposes in an amount equal to the difference between
(i) the amount of cash and the fair market value of any property received on
such sale or other disposition and (ii) the holder's adjusted basis in such
Common Shares for tax purposes. Such gain or loss will be capital gain or loss
if the Common Shares have been held by the U.S. Shareholder as a capital asset,
and such gain or loss will be long-term capital gain or loss if such Common
Shares have been held for more than one year. In general, any loss recognized
by a U.S. Shareholder upon the sale or other disposition of Common Shares that
have been held for six months or less (after applying certain holding period
rules) will be treated as long-term capital loss to the extent of distributions
received by such U.S. Shareholder from the Company which were required to be
treated as long-term capital gains. For a U.S. Shareholder that is an
individual, trust or estate, the long-term capital loss will be apportioned
among the applicable long-term capital gain groups to the extent that
distributions received by such U.S. Shareholder were previously so treated.
1997 Act Changes to Capital Gain Taxation. The 1997 Act alters the
taxation of capital gain income. Under the 1997 Act, individuals, trusts and
estates that hold certain investments for more than 18 months may be taxed at a
maximum long-term capital gain rate of 20% on the sale or exchange of those
investments. Individuals, trusts and estates that hold certain assets for more
than one year but no more than 18 months may be taxed at a maximum long-term
capital gain rate of 28% on the sale or exchange of those investments. The 1997
Act also provides for a maximum rate of 25% for "unrecognized section 1250
gain" for individuals, trusts and estates, special rules for "qualified 5-year
gain" and certain other changes to prior law. The 1997 Act allows the IRS to
prescribe regulations on how the 1997 Act's new capital gain rates will apply
to sales of capital assets by "pass-through entities." To date such regulations
have not been prescribed. For a discussion of new rules under the 1997 Act that
apply to the taxation of distributions by the Company to its U.S. Shareholders
that are designated by the Company as "capital gain dividends," see "--
Distributions Generally" above. U.S. Shareholders are urged to consult with
their own tax advisors with respect to the new rules contained in the 1997 Act.
Backup Withholding for Company Distributions
The Company will report to its U.S. Shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such
holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Shareholder that does not provide the Company with
its correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to the Company. See
"-- Taxation of Non-U.S. Shareholders of the Company."
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Taxation of Tax-Exempt Shareholders of the Company
The IRS has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income ("UBTI") when received
by a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder (except certain tax-exempt shareholders described below) has not
held its Common Shares as "debt financed property" within the meaning of the
Code and such Common Shares are not otherwise used in a trade or business, the
dividend income from the Company will not be UBTI to a tax-exempt shareholder.
Similarly, income from the sale of Common Shares will not constitute UBTI
unless such tax-exempt shareholder has held such Common Shares as "debt
financed property" within the meaning of the Code or has used the Common Shares
in a trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts or qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) or (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code and (iii) holds more than 10% (by value) of the interests in
the REIT. Tax-exempt pension funds that are described in Section 401(a) of the
Code are referred to below as "qualified trusts." A REIT is a "pension-held
REIT" if (i) it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Code provides that stock owned by qualified trusts
shall be treated for purposes of the "not closely held" requirement as owned by
the beneficiaries of the trust (rather than by the trust itself) and (ii)
either (a) at least one such qualified trust holds more than 25% (by value) of
the interests in the REIT or (b) one or more such qualified trusts, each of
which owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the UBTI
earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (ii) the total gross income of the REIT. A
de minimis exception applies where the percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts.
Based on the anticipated ownership of Common Shares immediately following
the Offering, and as a result of certain limitations on transfer and ownership
of Common Shares contained in the Declaration of Trust, the Company does not
expect to be classified as a "pension-held REIT."
Taxation of Non-U.S. Shareholders of the Company
The rules governing United States federal income taxation of the ownership
and disposition of Common Shares by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Shareholders") are complex, and no attempt is made herein to provide more than
a brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States federal income taxation that may be applicable to
Non-U.S. Shareholders and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income
tax laws with regard to an investment in Common Shares, including any reporting
requirements.
Distributions by the Company. Distributions by the Company to a Non-U.S.
Shareholder that are neither attributable to gain from sales or exchanges by
the Company of United States real property interests nor designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the
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extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance
for deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Shareholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance for
deductions) at graduated rates, in the same manner as domestic shareholders are
taxed with respect to such dividends, and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Shareholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
The Company expects to withhold United States income tax at the rate of 30% on
the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form or certification
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming that
the distribution is effectively connected income.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to gain from the sale or exchange of its Common
Shares, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution
in excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate)
will nevertheless be subject to withholding at a rate of 10%. However, the
Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company and that the amount
withheld exceeded the Non-U.S. Shareholder's United States tax liability, if
any, with respect to the distribution.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) investment in the Common Shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax, as discussed above), or (ii)
the Non-U.S. Shareholder is a nonresident alien individual who is present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA")
distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus generally be taxed at the same rates applicable to
domestic shareholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Shareholder that is a
corporation, as discussed above. The Company is required to withhold 35% of any
such distribution. That amount is creditable against the Non-U.S. Shareholder's
United States federal income tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of a Non-U.S. Shareholder's Common Shares (see "--
Requirements for Qualification as a REIT -- Annual Distribution Requirements"
above) would be treated with respect to Non-U.S. Shareholders in the manner
outlined in the preceding two paragraphs for actual distributions by the
Company of capital gain dividends. Under that approach, Non-U.S.
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Shareholders would be able to offset as a credit against their United States
federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on such undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate share of such tax paid
by the Company exceeds their actual United States federal income tax
liability).
Sale of Common Shares. Gain recognized by a Non-U.S. Shareholder upon the
sale or exchange of Common Shares generally will not be subject to United
States taxation unless such shares constitute a "United States real property
interest" within the meaning of FIRPTA. The Common Shares will not constitute a
"United States real property interest" as long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Shareholders. The Company
believes that at the closing of the Offering it will be a "domestically
controlled REIT," and therefore that the sale of Common Shares will not be
subject to taxation under FIRPTA. However, because the Common Shares are
expected to become publicly traded, no assurance can be given that the Company
will continue to be a "domestically controlled REIT." Notwithstanding the
foregoing, gain from the sale or exchange of Common Shares not otherwise
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if the Non-U.S.
Shareholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States. In such case, the nonresident alien individual will be subject
to a 30% United States withholding tax on the amount of such individual's gain.
Even if the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Shareholder of Common Shares would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest" if
(i) the Common Shares are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and (ii) such Non-U.S. Shareholder owned 5% or less of the value of
the Common Shares throughout the five-year period ending on the date of the
sale or exchange. If gain on the sale or exchange of Common Shares were subject
to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States federal income tax with respect to such gain in the same manner
as a U.S. Shareholder (subject to any applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident alien individuals
and the possible application of the 30% branch profits tax in the case of
foreign corporations), and the purchaser of the Common Shares would be required
to withhold and remit to the IRS 10% of the purchase price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Shares by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Shares by a foreign office of
a broker that (a) is a United States person, (b) derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the
United States or (c) is a "controlled foreign corporation" (generally, a
foreign corporation controlled by United States shareholders) for United States
tax purposes, unless the broker has documentary evidence in its records that
the holder is a Non-U.S. Shareholder and certain other conditions are met, or
the shareholder otherwise establishes an exemption. Payment to or through a
United States office of a broker of the proceeds of a sale of Common Shares is
subject to both backup withholding and information reporting unless the
shareholder certifies under penalty of perjury that the shareholder is a
Non-U.S. Shareholder, or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The United States Treasury has recently finalized regulations regarding
the withholding and information reporting rules discussed above. In general,
these regulations do not alter the substantive withholding and
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information reporting requirements but unify certification procedures and forms
and clarify and modify reliance standards. These regulations generally are
effective for payments made after December 31, 1998, subject to certain
transition rules. Valid withholding certificates that are held on December 31,
1998, will remain valid until the earlier of December 31, 1999 or the date of
expiration of the certificate under rules currently in effect (unless otherwise
invalidated due to changes in the circumstances of the person whose name is on
such certificate). A Non-U.S. Shareholder should consult its own advisor
regarding the effect of the new Treasury Regulations.
Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership
General. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of
the REIT asset tests, the Company will include its proportionate share of
assets held through the Operating Partnership. See "-- Tax Aspects of the
Company's Ownership of Interests in the Operating Partnership."
Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would
be subject to an entity level tax on its income. In such a situation, the
character of the Company's assets and items of gross income would change and
would preclude the Company from qualifying as a REIT (see "-- Requirements for
Qualification as a REIT -- Asset Tests" and "-- Income Tests"). The same result
could occur if any subsidiary partnership or LLC of the Operating Partnership
failed to qualify for treatment as a partnership.
Prior to January 1, 1997, an organization formed as a partnership or an
LLC was treated as a partnership for federal income tax purposes rather than as
a corporation only if it had no more than two of the four corporate
characteristics that the Treasury Regulations in effect at that time used to
distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
Treasury Regulations which became effective January 1, 1997, the four factor
test has been eliminated and an entity formed as a partnership or as an LLC
will be taxed as a partnership for federal income tax purposes, unless it
specifically elects otherwise. The Treasury Regulations provide that the IRS
will not challenge the classification of an existing partnership or LLC for tax
periods prior to January 1, 1997 so long as (1) the entity had a reasonable
basis for its claimed classification, (2) the entity and all its members
recognized the federal income tax consequences of any changes in the entity's
classification within the 60 months prior to January 1, 1997 and (3) neither
the entity nor any member of the entity had been notified in writing on or
before May 8, 1996 that the classification of the entity was under examination
by the IRS.
Hogan & Hartson L.L.P., tax counsel to the Company, is of the opinion,
based upon certain factual assumptions and representations described in the
opinion, that the Operating Partnership will be treated as a partnership for
federal income tax purposes (and not as an association taxable as a
corporation).
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic
arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income
and loss provided for in the Operating Partnership Agreement is intended to
comply with the requirements of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
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Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Initial Properties and the Lease-up Assisted
Living Facilities and Initial Assisted Living Development Projects) that is
contributed to a partnership in exchange for an interest in the partnership,
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at such time (a
"Book-Tax Difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or legal
arrangements among the partners. The Operating Partnership will receive
contributions of appreciated property (including the Initial Properties and the
Lease-up Assisted Living Facilities and Initial Assisted Living Development
Projects). Consequently, the Operating Partnership Agreement requires that such
allocations be made in a manner consistent with Section 704(c) of the Code.
In general, the partners in the Operating Partnership who contributed
depreciable assets having adjusted tax bases less than their fair market values
at the time of contribution will be allocated depreciation deductions for tax
purposes which are lower than such deductions would be if determined on a pro
rata basis. In addition, in the event of the disposition of any of the
contributed assets which have such a Book-Tax Difference, all income
attributable to such Book-Tax Difference generally will be allocated to such
partners. These allocations will tend to eliminate the Book-Tax Difference over
the life of the Operating Partnership. However, the special allocation rules of
Section 704(c) of the Code do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the
hands of the Operating Partnership may cause the Company to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of such contributed assets in excess of the economic or
book income allocated to it, as a result of such sale. Such an allocation might
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "-- Requirements for Qualification as a REIT."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to
be entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the properties initially contributed to the
Operating Partnership. This method is generally the most favorable method from
the perspective of the limited partners at the time of the contribution and
will be less favorable from the perspective of the Company to the extent it
subsequently contributes cash (such as the proceeds of this Offering) to the
Operating Partnership.
Other Tax Consequences for the Company and its Shareholders
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
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ERISA CONSIDERATIONS
Employment Benefit Plans, Tax-Qualified Pension, Profit Sharing or Stock Bonus
Plans and IRAs
Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Shares is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investment, inter alia, to be (i) for the exclusive purpose of providing
benefits to the ERISA Plan's participants and their beneficiaries and defraying
reasonable expenses of administering the ERISA Plan, (ii) prudent and solely in
the interests of the participants and beneficiaries of the ERISA Plan, (iii)
diversified in order to minimize the risk of large losses, unless it is clearly
prudent not to do so, and (iv) authorized under the terms of the governing
documents of the ERISA Plan. In addition, a fiduciary of an ERISA Plan should
not cause or permit such ERISA Plan to enter into transactions prohibited under
Section 406 of ERISA or Section 4975 of the Code. In determining whether an
investment in the Common Shares is prudent for purposes of ERISA, the
appropriate fiduciary of an ERISA Plan should consider whether such investment
is reasonably designed, as part of an ERISA Plan's investment portfolio for
which the fiduciary has responsibility, to further the purposes of the ERISA
Plan, taking into consideration the risk of loss and opportunity for gain (or
other return) associated with the investment, the diversification, cash flow
and funding requirements of the ERISA Plan and the liquidity and current return
of the ERISA Plan's investment portfolio. A fiduciary should also take into
account the nature of the Company's business, the length of the Company's
operating history, the terms of the management agreements, the fact that
certain investment properties may not have been identified yet, other matters
described under "Risk Factors" and the possibility of UBTI.
The fiduciary of an ERISA Plan, or of an IRA or a qualified pension,
profit sharing or stock bonus plan, or medical savings account which is not
subject to ERISA but is subject to Section 4975 of the Code ("Other Plans"),
should ensure that the purchase of Common Shares will not constitute a
prohibited transaction under ERISA or the Code.
Status of the Company and the Operating Partnership under ERISA
The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the entity's equity interests is an ERISA Plan or Other Plan.
The fiduciary of an ERISA Plan should also consider the relevance of these
principles to ERISA's prohibition on improper delegation of control over or
responsibility for Plan assets and ERISA's imposition of co-fiduciary liability
on a fiduciary who participates in, permits (by action or inaction) the
occurrence of or fails to remedy a known breach by another fiduciary.
If the underlying assets of the Company are deemed to be assets of an
ERISA Plan ("Plan Assets"), (i) the prudence standards and other provisions of
Part 4 of Title I of ERISA and the prohibited transaction provisions of ERISA
and the Code would be applicable to any transactions involving the Company's
assets and (ii) persons who exercise any authority or control over the
Company's assets, or who provide investment advice for a fee or other
compensation to the Company, would be (for purposes of ERISA and the Code)
fiduciaries of ERISA Plans and Other Plans that acquire Common Shares. The
United States Department of Labor (the "DOL"), which has administrative
responsibility over ERISA Plans and certain Other Plans, has issued a
regulation defining plan assets for certain purposes (the "DOL Regulation").
The DOL Regulation generally provides that when an ERISA Plan acquires a
security that is an equity interest in an entity and that security is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the 1940 Act, the assets of the ERISA Plan include both the
equity interest and an undivided interest in each of the underlying assets of
the entity, unless it is established either that the entity is an "operating
company" (as defined in the DOL Regulation) or that equity participation in the
entity by "benefit plan investors" is not significant.
The DOL Regulation defines a "publicly-offered security" as a security
that is "widely held," "freely transferable" and either part of a class of
securities registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or sold pursuant to an effective registration statement
under the Securities Act
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(provided the securities are registered under the Exchange Act within 120 days,
or such later time as may be allowed by the SEC (the "registration period"),
after the end of the fiscal year of the issuer during which the offering to the
public occurred). The Common Shares are being sold in an offering registered
under the Securities Act and the Company intends to register the Common Shares
under the Exchange Act within the registration period.
The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulation further provides that
where a security is part of an offering in which the minimum investment is
$10,000 or less, certain restrictions ordinarily will not, alone or in
combination, affect a finding that such securities are "freely transferable."
The Offering will not impose a minimum investment requirement. The restrictions
on transfer enumerated in the DOL Regulation as ordinarily not affecting a
finding that the securities are "freely transferable" include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in a termination or reclassification of the Company for federal or state
tax purposes, or that would otherwise violate any state or federal law or court
order; (ii) any requirement that advance notice of a transfer or assignment be
given to the Company; (iii) any requirement that either the transferor or
transferee, or both, execute documentation setting forth representations as to
compliance with any restrictions on transfer that are among those enumerated in
the DOL Regulation as not affecting free transferability; (iv) any
administrative procedure that established an effective date, or an event (such
as completion of the Offering) prior to which a transfer or assignment will not
be effective; (v) any prohibition against transfer or assignment to an
ineligible or unsuitable investor; (vi) any limitation or restriction on
transfer or assignment that is not imposed by the issuer or a person acting for
or on behalf of the issuer; (vii) any restriction or substitution of an
assignee as a limited partner of a partnership, including a general partner
consent requirement, provided that the economic benefits of ownership of the
assignee may be transferred or assigned without regard to such restriction or
consent (other than any restriction described in the DOL Regulation); and
(viii) any requirement that not less than a minimum number of shares of such
security be transferred or assigned by any investor, provided that such
requirement does not prevent transfer of all of the then remaining shares or
units held by an investor. The Company believes that the restrictions imposed
under the Declaration of Trust on the transfer of Common Shares are of the type
of restrictions on transfer generally permitted under the DOL Regulation or are
not otherwise material and should not result in the failure of the Common
Shares to be "freely transferable" within the meaning of the DOL Regulation.
See "Shares of Beneficial Interest -- Restrictions on Ownership and Transfer."
The Company also believes that certain restrictions on transfer that derive
from the securities laws, from contractual arrangements with the Underwriters
in connection with the Offering and from certain provisions should not result
in the failure of the Common Shares to be "freely transferable." See
"Underwriting." Furthermore, the Company is not aware of any other facts or
circumstances limiting the transferability of the Common Shares that are not
included among those enumerated as not affecting their free transferability
under the DOL Regulation, and the Company does not expect to impose in the
future (or to permit any person to impose on its behalf) any other limitations
or restrictions on transfer that would not be among the enumerated permissible
limitations or restrictions.
Assuming (i) that the Common Shares are "widely held" within the meaning
of the DOL Regulation and (ii) that no facts and circumstances other than those
referred to in the preceding paragraph exist that restrict transferability of
the Common Shares, the Company believes that, under the DOL Regulation, the
Common Shares should be considered "publicly-offered securities" and,
therefore, that the underlying assets of the Company should not be deemed to be
plan assets of any ERISA Plan or Other Plan that invests in the Common Shares.
In addition, the Declaration of Trust provides that if, in the future, the
Board of Trustees authorizes the creation of any class of equity interests
other than Common Shares, and such class of equity interests will not be
"publicly-offered securities," the Board of Trustees will limit the equity
participation in such class by
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"benefit plan investors" so that their participation will not become
"significant." For these purposes, the DOL Regulation provides that equity
participation becomes "significant" once 25 percent or more of the value of the
class is held by "benefit plan investors," and the term "benefit plan
investors" means any employee benefit plan (as defined in ERISA section 3(3))
or any plan described in section 4975(e) of the Code, or any entity whose
underlying assets include benefit plan investments.
The DOL Regulation will also apply in determining whether the underlying
assets of the Operating Partnership will be deemed to be plan assets. The
partnership interests in the Operating Partnership will not be publicly offered
securities. Nevertheless, if the Common Shares constitute publicly offered
securities, the Company believes that the indirect investment in the Operating
Partnership by ERISA Plans or Other Plans through their ownership of the Common
Shares will not cause the assets of the Operating Partnership to be treated as
plan assets. Similarly, the Operating Partnership Agreement provides that no
interests in the Operating Partnership may be acquired by "benefit plan
investors" if immediately after such acquisition investment in the Operating
Partnership by "benefit plan investors" would be "significant."
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UNDERWRITING
Subject to the terms and conditions in the United States purchase
agreement (the "U.S. Purchase Agreement"), between the Company and each of the
underwriters named below (the "U.S. Underwriters"), and concurrently with the
sale of 1,210,000 Common Shares to the International Managers (as defined
below), the Company has agreed to sell to each of the U.S. Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Alex. Brown
Incorporated and Goldman, Sachs & Co. are acting as representatives (the "U.S.
Representatives"), and each of the U.S. Underwriters has severally agreed to
purchase from the Company, the respective number of Common Shares set forth
below opposite their respective names:
Number of
Underwriter Common Shares
------------ --------------
Merrill Lynch, Pierce, Fenner & Smith ......
Incorporated
BT Alex. Brown Incorporated ...............
Goldman, Sachs & Co. ........................
Total ................................. 4,840,000
=========
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with certain underwriters outside the United States and
Canada (the "International Managers" and, together with the U.S. Underwriters,
the "Underwriters") for whom Merrill Lynch International, BT Alex. Brown
International, division of Bankers Trust International PLC and Goldman Sachs
International are acting as lead managers. Subject to the terms and conditions
set forth in the International Purchase Agreement and concurrently with the
sale of 4,840,000 Common Shares to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers have severally agreed to purchase from
the Company, an aggregate of 1,210,000 Common Shares. The initial public
offering price per share and the total underwriting discount per share are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers have agreed, respectively, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the Common
Shares being sold pursuant to such Purchase Agreement if any of such Common
Shares are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers (as the case may be)
may be increased. The sale of Common Shares pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement are conditioned upon each
other.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the Common Shares to the public at the
public offering price per share set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $------
per share. The U.S. Underwriters may allow, and such dealers may re-allow, a
discount not in excess of $------ per share on sales to certain other dealers.
After the date of this Prospectus, the initial public offering price,
concession and discount may be changed.
The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and the International
Managers are permitted to sell Common Shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than
the selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are United States persons or
Canadian persons or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S. Underwriters and any
dealer to whom they sell Common Shares will not offer to sell or sell Common
Shares to persons who are non-United States and non-Canadian persons or to
persons they believe intend to resell to non-United States and non-Canadian
persons, except in each case for transactions pursuant to such agreement.
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The Company has granted to the U.S. Underwriters an option, exercisable
for 30 days after the date of this Prospectus, to purchase up to 726,000
additional Common Shares to cover overallotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this Prospectus. If the U.S. Underwriters exercise this option, each U.S.
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of Common
Shares to be purchased by it shown in the foregoing table bears to such Common
Shares initially offered hereby. The Company also has granted an option to the
International Managers, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to 181,500 additional Common Shares to cover
overallotments, if any, on terms similar to those granted to the U.S.
Underwriters.
Until the distribution of the Common Shares is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Shares. As an exception to these rules, the
U.S. Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Shares.
If the Underwriters create a short position in the Common Shares in
connection with the Offering, i.e., if they sell more Common Shares than are
set forth on the cover page of this Prospectus, the U.S. Representatives and
the International Managers, respectively, may reduce that short position by
purchasing Common Shares in the open market. The U.S. Representatives and the
International Managers, respectively, may also elect to reduce any short
position by exercising all or part of the overallotment option described above.
The U.S. Representatives and the International Managers, respectively, may
also impose a penalty bid on certain Underwriters and selling group members.
This means that if the U.S. Representatives or the International Managers
purchase Common Shares in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Shares, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Shares. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives or the International Managers will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
In the Purchase Agreements, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification of the Underwriters for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provision, the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
At the request of the Company, the U.S. Underwriters have reserved up to
10% of the shares offered hereby for sale at the initial public offering price
to trustees, officers and employees of the Company, its and their business
affiliates and related parties who have expressed an interest in purchasing
shares. Such purchases will be made under the same terms and conditions as will
be initially offered by the U.S. Underwriters to others in the Offering. The
number of shares available to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares that are not so
purchased by such persons at the completion of the Offering will be offered by
the U.S. Underwriters to the general public on the same terms as the other
shares offered by this Prospectus.
The Company, its trustees and executive officers, the Operating
Partnership and the Continuing Investors have agreed, subject to certain
exceptions, not to sell, offer or contract to sell, grant any option for the
sale of,
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or otherwise dispose of any Common Shares or Units or any securities
convertible into or exchangeable for Common Shares or Units for a period of 12
months from the date of the Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Company has granted
certain registration rights to Messrs. Walker, Romanov and McCreary and the
Continuing Investors pursuant to which such persons may require the Company to
file a registration statement with the SEC with respect to Common Shares owned
by them as of the closing of the Offering, in the case of Messrs. Walker and
Romanov, or received by them in exchange for their Units, in either case,
beginning 14 months after the date of the Prospectus.
The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.
Prior to the Offerings, there has been no public market for the Common
Shares of the Company. The initial public offering price will be determined
through negotiations between the Company and the U.S. Representatives. Among
the factors to be considered in such negotiations, in addition to prevailing
market conditions, will be dividend yields and financial characteristics of
publicly traded REITs that the Company and the U.S. Representatives believe to
be comparable to the Company, the expected results of operations of the Company
(which will be based on the results of operations of the Initial Investments),
estimates of the future business potential and earnings prospects of the
Company as a whole and the current state of the real estate market in the
Company's primary markets and the economy as a whole.
The Common Shares have been approved for listing on the New York Stock
Exchange under the symbol "ETT," subject to official notice of issuance. In
order to meet one of the requirements for listing the Common Shares on the New
York Stock Exchange, the Underwriters will undertake to sell lots of 100 or
more Common Shares to a minimum of 2,000 beneficial holders.
The Company will pay to Merrill Lynch, Pierce, Fenner & Smith Incorporated
an advisory fee equal to 0.5% of the gross proceeds received from the sale of
Common Shares to public investors in the Offering for financial advisory
services rendered in connection with the Company's formation as a REIT.
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EXPERTS
The balance sheet of ElderTrust as of September 30, 1997 has been included
herein and in the Registration Statement in reliance on the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Common Shares will be passed upon for the Company by
Hogan & Hartson L.L.P., Washington, DC. In addition, the description of federal
income tax considerations under the heading "Federal Income Tax Considerations"
is based upon the opinion of Hogan & Hartson L.L.P. Certain legal matters will
be passed upon for the Underwriters by Brown & Wood LLP, New York, New York. In
addition to providing services to the Company, Hogan & Hartson L.L.P. also
provides legal services to Genesis, including in connection with certain of the
Formation Transactions.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-11
(of which this Prospectus is a part) under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. Statements
contained in this Prospectus as to the content of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
such reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Shares offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, which may
be obtained from the SEC at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the SEC. The SEC
maintains a website at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the SEC. In addition, the Company
intends to file an application to list the Common Shares on the NYSE and, if
the Common Shares are listed on the NYSE, similar information concerning the
Company can be inspected and copies at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by independent
certified public auditors.
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GLOSSARY
The following are definitions of certain terms used in this Prospectus.
Unless the context otherwise requires, the following terms shall have the
meanings set forth below for purposes of this Prospectus.
"ACBM" means asbestos-containing building materials.
"Acquisition Corp." means Genesis ElderCare Acquisition Corp., a wholly
owned subsidiary of Genesis ElderCare Corp. which, in turn, is owned 44% by
Genesis and owned 56% by The Cypress Group, L.L.C. and TPG Partners II, L.P.
"Acquisition Loan" means the $45.0 million loan made by Genesis in August
1996 to finance the Age Institute of Florida's acquisition of 11 skilled
nursing facilities.
"Additional Rent" means, for both Percentage Rent Leases and Minimum Rent
Leases, adjustments equal to the difference between the tenant's payment of
estimated Percentage Rent or Incremental Percentage Rent, as the case may be,
during a particular period and the actual Percentage Rent or Incremental
Percentage Rent, as applicable, payable with respect to such period and certain
other costs a tenant agrees to pay under the applicable lease.
"Age Institute of Florida" means the Age Institute of Florida, Inc., a
Florida not-for-profit corporation.
"Available Cash" means, generally, net cash flow from operations plus any
reduction in reserves and minus interest and principal payments on debt,
capital expenditures, any additions to reserves and other adjustments.
"Beneficiary" means the qualified charitable organization selected by the
Company as the beneficiary of the trust which will automatically receive any
shares purportedly transferred to a Prohibited Transferee in violation of the
Ownership Limit or other restrictions in the Declaration of Trust.
"Book-Tax Difference" means the difference between the fair market value
of contributed property at the time of contribution and the adjusted tax basis
of such property at such time.
"Built-In Gain Asset" means any asset acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax).
"Bylaws" means the Amended and Restated Bylaws of the Company, as amended
from time to time.
"CCMC" means Crozer Chester Medical Center, a Pennsylvania nonprofit
organization.
"Change of Control of the Company," for purposes of the Plan, means such
term as defined in the Plan or as otherwise defined in the applicable award
agreement. As defined in the Plan, a "Change of Control of the Company" means
the occurrence of any one of the following events: (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then outstanding securities;
(ii) during any two (2) year period, individuals who at the beginning of such
period constitute the Board of Trustees, including for this purpose any new
trustee whose election resulted from a vacancy on the Board of Trustees caused
by the mandatory retirement, death, or disability of a trustee and was approved
by a vote of at least two-thirds ( 2/3rds) of the trustees then still in office
who were trustees at the beginning of the period, cease for any reason to
constitute a majority thereof; (iii) notwithstanding clauses (i) or (v), the
Company consummates a merger or consolidation of the Company with or into
another corporation, the result of which is that the shareholders of the
Company at the time of the execution of the agreement to merge or consolidate
own less than eighty percent (80%) of the total equity of the entity surviving
or resulting from the merger or consolidation or of a entity owning, directly
or indirectly, one hundred percent (100%) of the total equity of such surviving
or resulting entity; (iv) the sale in one or a series of transactions of all or
substantially all of the assets of the Company; (v) any person, has commenced a
tender or exchange offer, or entered into an agreement or received an option to
acquire beneficial ownership of fifty percent (50%) or more of the total number
of voting shares of the Company unless the Board of Trustees has made a
determination that such action does not constitute and will not constitute a
change in the persons in control of the Company; or (vi)
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there is a change of control in the Company of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act other than in circumstances specifically
covered by clauses (i)-(v) above.
"CKHS" means Crozer-Keystone Health System, a Pennsylvania nonprofit
corporation.
"CMBS" means a collateralized mortgage-backed security.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Share Option Committee of the Board of Trustees of
the Company.
"Common Shares" means the common shares of beneficial interest, $.01 par
value per share, of the Company.
"Company" means ElderTrust, a Maryland real estate investment trust, and
one or more of its subsidiaries (including the Operating Partnership and ET
Capital Corp.), or, as the context may require, ElderTrust only or the
Operating Partnership only.
"Construction Loan Commitments" means financing commitments made by the
Company for ten assisted living development and expansion projects which are in
the planning stage.
"Construction Loans" means construction loans made by the Company to
provide funding for the development and construction of the Initial Assisted
Living Development Projects.
"Continuing Investors" means certain persons contributing interests in the
Initial Properties to the Operating Partnership in exchange for Units. The
Continuing Investors include Messrs. Walker and Howard, individually, and
Senior LifeChoice and three other individuals not affiliated with the Company
or Genesis. Following completion of the Offering and the Formation
Transactions, Messrs. Walker, Dauten, Howard, Barr and Hager will own, in the
aggregate, approximately 62.8% of the interests in Senior LifeChoice Corp., and
six other individuals not affiliated with the Company or Genesis will own the
remaining interests in Senior LifeChoice.
"Credit Facility" means the Company's proposed secured credit facility in
the amount of up to $140 million.
"Crozer/Genesis" means Crozer/Genesis ElderCare Limited Partnership, a
Pennsylvania limited partnership.
"DCMH" means the Delaware County Memorial Hospital.
"Declaration of Trust" means the Amended and Restated Declaration of Trust
of the Company, as amended from time to time, and as filed with the State
Department of Assessments and Taxation of Maryland.
"DOL" means the United States Department of Labor.
"DOL Regulation" means a regulation, issued by the DOL, defining plan
assets for certain purposes under ERISA.
"Environmental Laws" means the federal, state and local laws and
regulations relating to protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means an employee benefit plan subject to ERISA.
"ET Partnership" means ET Partnership, a Pennsylvania partnership and
(along with Messrs. Romanov and McCreary) one of the organizational limited
partners of the Operating Partnership. The partners in ET Partnership are
Genesis, Mr. Romanov and MGI Limited Partnership.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Holder Limit" means the 15.0% limit on the amount of Common
Shares which may be owned by Mr. Romanov.
141
<PAGE>
"Facility Revenues" means revenue generated with respect to the applicable
leased property (adjusted to exclude: (a) revenues from professional fees or
charges by physicians and all providers of ancillary services (including
Genesis and its affiliates), including, without limitation, physical therapy
services, whether or not such providers are employees of the tenant; (b)
non-operating revenues, such as interest income or income from the sale of
assets not sold in the ordinary course of business; (c) federal, state or local
excise taxes imposed upon, and any tax based upon or measured by, such revenues
which is added to or made a part of the amount billed to the resident, client
or other recipient of such services or goods, whether included in the billing
or stated separately; (d) contractual allowances (relating to any period during
the Term) for billings not paid by or received from the appropriate
governmental agencies or third party providers; and (e) all proper patient
billing credits and adjustments (including, without limitation, allowances for
uncollectable accounts) according to generally accepted accounting principles
relating to healthcare accounting).
"15% Personal Property Test" means the test under the Code to determine
whether rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease.
"FIRPTA" means the Foreign Investment in Real Property Tax Act.
"Fixed Rent Leases" means the tenant leases for the medical office and
other buildings which provide for specified annual rent, subject to increases
in rent in certain of the leases.
"Florida Facilities Note" means the $7.5 million note of the Age Institute
of Florida to be purchased by ET Capital Corp. from Genesis and in which the
Operating Partnership will have substantially all of the economic interest.
"Formation Transactions" means all of the transactions described under
"Structure and Formation of the Company -- Formation Transactions."
"Funds from Operations" means net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. Funds from Operations does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make cash distributions.
"GAAP" means Generally Accepted Accounting Principles.
"Genesis" means Genesis Health Ventures, Inc., a Pennsylvania corporation,
and its subsidiaries that will lease or manage a substantial portion of the
properties and other assets acquired by the Company in its formation or, as the
context may require, Genesis only or such subsidiaries of Genesis only.
Impermissible Tenant Service Income" means the amounts received by a REIT
for operating or managing a property or furnishing or rendering services to a
tenant at a property other than through an independent contractor from whom the
REIT derives no revenue (not including services "usually or customarily
rendered" in connection with the rental of real property and not otherwise
considered "rendered to the occupant").
"Incentive Options" means options to purchase Common Shares which are
granted under the Plan and which are intended to qualify as incentive options
under Section 422 of the Code.
142
<PAGE>
"Incremental Percentage Rent" means, with respect to certain of the
Minimum Rent Leases, incremental percentage rent equal to a specified
percentage of increased gross revenues during any lease year over the gross
revenues during the first lease year for a facility.
"Independent Trustee" means an individual serving as a trustee who is not
an affiliate of the Company and is not an employee of the Company.
"Initial Assisted or Independent Living Development Projects" means
assisted or independent living facilities in development subject to
Construction Loans.
"Initial Investments" means the Company's investments in the Initial
Properties, the Term and Construction Loans, the Penn Mortgage and the Florida
Facilities Note.
"Initial Properties" means the 21 assisted and independent living
facilities, skilled nursing facilities and medical office and other buildings
being acquired by the Company in the Formation Transactions.
"Initial Property Acquisition Agreement" means each of the acquisition
agreements between the Company and the current owner of an Initial Property and
the acquisition agreements among the Company and the holders of all interests
in the current owner of an Initial Property.
"Interested Shareholder" means any person who beneficially owns ten
percent or more of the voting power of the Company's then outstanding shares or
an affiliate of the Company who, at any time within the two-year period prior
to the date in question, was the beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of beneficial interest of
the Company.
"International Purchase Agreement" means the purchase agreement among the
Company and the International Managers.
"International Managers" means the underwriters outside the United States
and Canada named in this Prospectus for whom Merrill Lynch International, BT
Alex. Brown International, division of Bankers Trust International PLC and
Goldman Sachs International are acting as lead managers.
<PAGE>
"Intersyndicate Agreement" means the agreement between the U.S.
Underwriters and the International Managers providing for the coordination of
their activities.
"IRS" means the Internal Revenue Service.
"Lake Washington" means Lake Washington, Ltd., a Florida limited
partnership in which Genesis owns a 49% interest.
"Lease-up Assisted Living Facilities" means assisted living facilities in
lease-up subject to Term Loans.
"Lender" means the lender under the Credit Facility which will be an
affiliate of Deutsche Morgan Grenfell.
"LIBOR" means the London Interbank Offered Rate.
"MGCL" means the Maryland General Corporation Law.
"MGI Limited Partnership" mean MGI Limited Partnership, a Delaware limited
partnership and a partner in ET Partnership. Mr. Walker owns all of the
interests in the corporate general partner of MGI Limited Partnership, and all
of the limited partner interests in MGI Limited Partnership are owned by Mr.
Walker and the following additional four executive officers of Genesis: (i)
Richard R. Howard, President and a director of Genesis; (ii) David C. Barr,
Executive Vice President and Chief Operating Officer of Genesis; (iii) John F.
DePodesta, Senior Vice President, Law & Public Policy of Genesis; and (iv)
George V. Hager, Jr., Senior Vice President and Chief Financial Officer of
Genesis.
"Minimum Rent" means the rent which is set at the beginning of the term of
a Minimum Rent Lease and escalates based on the Consumer Price Index, a fixed
percentage increase per year or a fixed percentage of the increase in the gross
revenues for a facility during the immediately preceding year.
143
<PAGE>
"Minimum Rent Leases" means the long-term, triple net leases for certain
of the Initial Properties which are skilled nursing or assisted living
facilities and which will provide for base rent, plus scheduled base rent
step-ups and, in the case of certain of the Minimum Rent Leases, additional
rent based upon incremental revenues over the base year.
"Multicare" means The Multicare Companies, Inc., a 44% owned subsidiary of
Genesis, and its subsidiaries.
"Named Executive Officers" means the Company's Chief Executive Officer and
the Company's other executive officer.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"1997 Act" means the Taxpayer Relief Act of 1997.
"Non-Qualified Options" means options to purchase Common Shares which are
granted under the Plan and which are not intended to qualify as incentive
options under Section 422 of the Code.
"Non-U.S. Shareholders" means persons that are, for United States federal
income taxation purposes, nonresident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts.
"Offering" means the offering of Common Shares of the Company pursuant to
and as described in this Prospectus.
"Operating Partnership" means ElderTrust Operating Limited Partnership, a
Delaware limited partnership.
"Operating Partnership Agreement" means the Agreement of Limited
Partnership of the Operating Partnership, as amended from time to time.
"Other Plans" means an IRA or a qualified pension, profit sharing or stock
bonus plan, or medical savings account which is not subject to ERISA but is
subject to Section 4975 of the Code.
<PAGE>
"Ownership Limit" means the restrictions in the Declaration of Trust which
generally will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any single shareholder of more than 8.6% of the
issued and outstanding Common Shares and generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
shareholder of more than 9.9% of the issued and outstanding shares of any class
or series of the Company's Preferred Shares.
"Partnership Act" means the Delaware Revised Uniform Limited Partnership
Act.
"Penn Mortgage" means the $800,000 mortgage note made by Philadelphia
Development Corporation and secured by a first lien on an unoccupied 180 bed
personal care facility to be purchased by the Company from Genesis.
"Percentage Rent" means the rent calculated by multiplying a specified
fixed percentage by the Facility Revenues.
"Percentage Rent Leases" means the long-term, triple net leases for
certain of the Initial Properties which are assisted living or independent
living facilities and which will be based on a specified percentage of facility
revenues with no required minimum rent.
"Plan" means the ElderTrust 1998 Share Option and Incentive Plan.
"Plan Assets" means assets of an ERISA Plan.
"POB I" means Professional Office Building I.
"Preference Units" means preferred units and other partnership interests
of different classes and series having such rights, preferences and other
privileges, variations and designations as may be determined by the Company and
which may be issued by the Operating Partnership under the Operating
Partnership Agreement.
144
<PAGE>
"Preferred Shares" means the preferred shares of beneficial interest,
$0.01 par value per share, of the Company.
"Private Partnership" means a privately held partnership formed to acquire
skilled nursing facilities or other healthcare facilities and which would
finance up to 90% of the purchase price of the facilities by years of a REMIC
Loan and would finance the remainder of the purchase price of the facilities by
means of an equity investment by the partners in the Private Partnership, who
may include Genesis and one or more of the Company's officers and trustees.
"Prohibited Owner" means a person or entity holding record title to any
shares in excess of the Ownership Limit.
"Prohibited Transferee" means a transferee of a purported transfer of
shares of beneficial interest of the Company which would result in any person
violating the Ownership Limit or the other restrictions in the Declaration of
the Trust.
"Prospectus" means this prospectus, as the same may be amended.
"Purchase Agreement" means the purchase agreement between the Company and
the Underwriters.
"Recognition Period" means the ten-year period beginning on the date on
which the Company acquires a Built-In Gain Asset.
"REIT" means a real estate investment trust as defined under Sections 856
through 860 of the Code and applicable Treasury regulations.
"Related Party Tenant" means a tenant of the Company which also is an
actual or constructive owner of 10% or more of the Company, or of which the
Company actually or constructively owns 10% or more.
"REMIC" means a real estate mortgage conduit.
"REMIC Loan" means a mortgage loan from a REMIC to a Private Partnership.
"Rent" means, with respect to a Percentage Rent Lease, (i) Percentage Rent
and (ii) Additional Rent, and, with respect to a Minimum Rent Lease, (i)
Minimum Rent, (ii) Incremental Percentage Rent and (iii) Additional Rent.
"Restricted Common Shares" means Common Shares which are "restricted"
securities under the meaning of Rule 144 or any Common Shares acquired in
redemption of Units.
"Retained Note" means the $2.5 million working capital term note made by
the Age Institute of Florida and retained by Genesis.
"Right of First Refusal Agreement" means the agreement between the Company
and Genesis pursuant to which, among other things, for a period of three years
from the closing of the Offering (subject to annual renewals thereafter),
Genesis has granted the Company a right of first refusal to purchase and
leaseback to Genesis any assisted or independent living facility which Genesis
determines to sell and leaseback.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior CMBS Interests" means senior interests in a REMIC.
"Senior LifeChoice" means Senior LifeChoice Corp., a privately held
Pennsylvania corporation whose principal stockholders include Mr. Walker.
Following completion of the Offering and the Formation Transactions, Messrs.
Walker, Dauten, Howard, Barr and Hager will own, in the aggregate,
approximately 62.8% of the interests in Senior LifeChoice, and six other
individuals not affiliated with the Company or Genesis will own the remaining
interests in Senior LifeChoice.
145
<PAGE>
"Series 1994 Bonds" and "Series 1995 Bonds" mean, together, the tax-exempt
bond financings relating to the Highgate and Woodbridge assisted living
facilities.
"SLC" means Senior LifeChoice, LLC, a privately held Pennsylvania limited
liability company.
"SMOBGP" means Salisbury Medical Office Building General Partnership, a
Pennsylvania general partnership.
"Stabilized Occupancy" means average monthly occupancy for a facility of
at least 90% for three consecutive months.
"Subordinated CMBS Interests" means a subordinated interest in a REMIC.
"Subordinated Notes" means the Florida Facilities Note and the Retained
Note.
"Term Loans" means term mortgage loans made by the Company with respect to
the Lease-up Assisted Living Facilities.
"Treasury Regulations" means the applicable regulations that have been
promulgated under the Code.
"U.S. Shareholder" means a holder of Common Shares who (for United States
federal income tax purposes) (i) is a citizen or resident of the United States,
(ii) is a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof or
(iii) is an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
"UBTI" means unrelated business taxable income.
"Underwriters" means the U.S. Underwriters and the International Managers.
"Unit" means a unit of partnership interest in the Operating Partnership.
"U.S. or United States" means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.
"U.S. Purchase Agreement" means the purchase agreement among the Company
and the U.S. Underwriters.
"Unit Redemption Right" means the right of holders of Units to require the
redemption of their Units at any time more than 14 months after the closing of
the Offering.
"U.S. Representatives" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BT Alex. Brown Incorporated and Goldman, Sachs & Co.
"USTs" means underground storage tanks.
"U.S. Underwriters" means the underwriters for the United States and
Canada named in this Prospectus for whom the U.S. Representatives are acting as
representatives.
146
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
ELDERTRUST
Independent Auditors' Report ....................................... F-2
Balance Sheet as of September 30, 1997 .............................. F-3
Notes to Balance Sheet ............................................. F-4
Pro Forma Balance Sheet and Statements of Operations ............... F-6
Notes to Pro Forma Balance Sheet and Statements of Operations ...... F-10
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
ElderTrust:
We have audited the accompanying balance sheet of ElderTrust as of September
30, 1997. This balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this balance sheet based upon
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ElderTrust as of September 30,
1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Washington, DC
January 2, 1998
F-2
<PAGE>
ELDERTRUST
Balance Sheet
September 30, 1997
<TABLE>
<S> <C>
Assets
Cash ............................................................ $ 100
-----
Shareholder's equity
Preferred shares of beneficial interest, $.01 par value:
20,000,000 shares authorized; none issued or outstanding ...... $ --
Common shares of beneficial interest, $.01 par value:
100,000,000 shares authorized; 100 issued and outstanding ...... 1
Additional paid-in-capital ....................................... 99
-----
Total shareholder's equity ....................................... $ 100
=====
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
ELDERTRUST
Notes to Balance Sheet
September 30, 1997
(1) Organization
ElderTrust was formed in the State of Maryland on September 23, 1997 and
issued a total of 100 shares to the Company's chief financial officer for a
total consideration of $100. The Company is in the process of an initial public
offering pursuant to which it plans to issue approximately 6,050,000 additional
shares (the "Offering"). The Company intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with the
proposed offering of shares to the public.
The Company has had no operations. Upon consummation of the Offering, the
Company intends to begin operations by 1) purchasing a diversified portfolio of
healthcare properties, consisting primarily of assisted living and skilled
nursing facilities which will be leased back to the current owners or other
third parties, 2) making construction loans collateralized by healthcare
properties under construction and making term loans collateralized by
healthcare properties on which construction has been recently completed, but
which are still in transition to occupancy levels required under
purchase/leaseback agreements, 3) acquiring a first mortgage loan secured by an
unoccupied personal care facility and 4) acquiring a 95% equity interest in an
entity which will acquire a second mortgage loan.
(2) Federal Income Taxes
At the earliest possible date, the Company intends to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Accordingly, upon such qualification it will not be subject to federal income
taxes on amounts distributed to shareholders provided it distributes at least
95 percent of its taxable income and meets certain other conditions. The
Company may, however, be subject to state or local taxation in various
jurisdictions.
(3) Planned Transactions
The Company intends to contribute the proceeds of the Offering to an
operating partnership in exchange for the sole general partner interest and a
majority limited partner interest. The operating partnership will use the
contributions from the Company and borrowings under a proposed credit facility
to purchase 21 healthcare properties for an aggregate cost of $156.7 million
and to fund construction and term loans on nine healthcare properties with an
aggregate balance of $34.8 million. In addition, the Company will make a $5.6
million loan to ET Capital Corp. ("ET Capital") and will invest an additional
$1.8 million to acquire a 95%, nonvoting equity interest in ET Capital. ET
Capital will use the proceeds from the loan and the contributed capital from
the Company and the Company's chief executive officer to purchase a $7.5
million working capital term note from Genesis Health Ventures, Inc.
("Genesis"), which is secured by a second lien on 11 skilled nursing facilities
and related accounts receivable and other working capital assets. The Company
also will acquire a $800,000 first mortgage note from Genesis. Thirteen of the
properties to be purchased with an aggregate cost of $93.4 million are owned by
Genesis and will be leased back to affiliates of Genesis or to third parties
under long-term operating leases. A construction loan of approximately $2.0
million will be purchased from Genesis. Affiliates of Genesis will be the
borrowers on seven of the nine construction and term loans, and Genesis manages
the properties securing the working capital term note. The Chairman and chief
executive officer of Genesis is chairman of the board of trustees of the
Company.
The operating partnership has agreements to purchase the properties and to
purchase or make the construction, term and first and second mortgage loans,
subject to certain terms and conditions, including, among other things,
successful completion of the Offering and obtaining a credit facility. The
Company has obtained a commitnment from an affiliate of a commercial bank for a
secured credit facility which would be used to pay a portion of the purchase
price of the properties and to fund the construction and term loans and which
would be available for working capital needs and other general corporate
purposes. Management believes that the Company will be able to obtain
sufficient credit on acceptable terms.
F-4
<PAGE>
(3) Planned Transactions -- (Continued)
The Company has agreed to reimburse actual costs incurred on its behalf by
Genesis upon consummation of the Offering. These costs relate to organizing the
Company, negotiating property acquisitions, performing due diligence related to
the properties, performing corporate work in contemplation of the Offering and
preparing the registration statement. This amount is estimated to be
approximately $3.0 million and will be payable upon the closing of the Offering
from the proceeds of the Offering.
The Company and Genesis plan to enter into an agreement for a period of
three years from the closing of the Offering (subject to annual renewal),
pursuant to which Genesis will grant the Company a right of first refusal to
purchase and leaseback to Genesis any assisted living, independent living or
skilled nursing facility which Genesis determines to sell and leaseback (other
than sale/leaseback transactions with commercial banking institutions). The
agreement also would provide the Company with (i) a right to offer financing to
Genesis and other developers of assisted and independent living facilities
which, once developed, will be operated by Genesis and (ii) a right to offer
financing to Genesis with respect to any new off-balance sheet financing of
skilled nursing facilities currently owned by Genesis. The Company intends to
provide Genesis with a right of first refusal to lease or manage any assisted
living, independent living or skilled nursing facility financed or acquired by
the Company within Genesis' markets unless the facility will be leased or
managed by the developing or selling company or an affiliate thereof.
(4) Employee Benefit Plans and Related Matters
Prior to completion of the Offering, the Company's board of trustees
intends to adopt a share option and incentive plan. The Company intends to
reserve 9.9% of the total number of common shares and operating partnership
units outstanding from time to time for issuance under the share option and
incentive plan. As of the effective date of the Offering, the Company intends
to grant options to purchase 497,500 shares. Of these options, 150,000 will
vest immediately, and the remainder will vest over three to five years. The
Company intends to adopt the intrinsic value approach to accounting for
share-based compensation.
The Company's president and chief executive officer and its chief
financial officer were issued limited partnership interests in the operating
partnership in consideration for services rendered in connection with the
formation of the Company. It is anticipated that the operating partnership will
issue 130,750 limited partnership units in respect of these interests at the
time of the Offering. The operating partnership will recognize compensation
expense equal to the estimated fair market value of the units awarded which
will be reported in the Company's statement of operations upon completion of
the Offering. These units are redeemable beginning fourteen months after
completion of the Offering for either cash or, at the option of the Company,
common shares on a one-for-one basis.
The Company will enter into an employment agreement with its president and
chief executive officer upon consummation of the Offering. The agreement will
have an initial term of three years, subject to automatic renewal for
subsequent two year terms, and will cover matters including compensation,
disability and termination. The agreement will also contain provisions which
are intended to limit the president from competing with the Company throughout
the term of the agreement and for a period of two years thereafter.
The Company will also enter into a non-competition agreement with the
chairman of the board of trustees. The agreement will be in effect during the
period that he serves as chairman.
F-5
<PAGE>
ElderTrust
Pro Forma Balance Sheet and Statements of Operations
(Unaudited)
The unaudited pro forma balance sheet is based on the balance sheet of the
Company included elsewhere in the Prospectus has been prepared as if the
Company were formed on September 30, 1997 and gives effect to the Offering,
investment in the Operating Partnership and acquisition or funding of the
Initial Investments as if they had occurred on September 30, 1997. The
unaudited pro forma statements of operations for the year ended December 31,
1996 and nine months ended September 30, 1997 give effect to the Offering, the
Initial Investments and the leases relating thereto as if they had been in
effect on January 1, 1996 and January 1, 1997, respectively. The pro forma
adjustments are based upon available information and certain estimates and
assumptions that management of the Company believes are reasonable. Rental
income is recognized only for leases to be executed at or prior to the closing
of the Offering and does not include amounts for periods in which the
facilities were under construction. The unaudited pro forma balance sheet and
statements of operations do not purport to present what the Company's financial
position or results of operations and cash available for distribution would
actually have been if the Offering and related transactions had occurred on
September 30, 1997, January 1, 1996 or January 1, 1997, as the case may be, or
to project the Company's financial position or results of operations for any
future period.
The unaudited pro forma balance sheet and statements of operations should
be read in conjunction with the balance sheet of the Company and related notes
thereto, and other financial information pertaining to the Company, including
such information contained under the sections captioned "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Prospectus. Capitalized terms used
herein and not defined herein have the respective meanings given them in the
Prospectus.
F-6
<PAGE>
ELDERTRUST
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
EXISTING
RENTAL
ELDERTRUST PROPERTIES
(HISTORICAL) (HISTORICAL)
-------------- --------------
<S> <C> <C>
ASSETS
Initial Properties .............................. $ -- $ 14,371
Investment in ET Capital Corp. .................. -- --
Loans receivable ................................. -- --
Note receivable ................................. -- --
Cash and cash equivalents ........................ -- 2,463
Other assets .................................... -- 1,027
Total assets .................................... $ -- $ 17,861
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable .............................. $ -- 7,721
Credit facility ................................. --
Accounts payable and accrued expenses ............ -- 944
Minority interest .............................. -- --
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $.01 par
value:
20,000,000 shares authorized; none issued
Common shares of beneficial interest, $.01 par
value:
100,000,000 shares authorized; 100 issued
and outstanding (historical); 6,482,600 issued
and outstanding (pro forma) ..................... -- --
Additional paid-in-capital ..................... -- --
Note receivable-officer ........................ -- --
Owners' equity ................................. 9,196
Retained deficit ................................. -- --
--------- --------
Total liabilities and shareholders' equity ...... $ -- $ 17,861
========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ELDERTRUST,
FOR THE ADJUSTED
OFFERING AND FOR THE OFFERING
THE INITIAL AND THE
INVESTMENTS INITIAL INVESTMENTS
---------------------- --------------------
<S> <C> <C>
ASSETS
Initial Properties .............................. $ 142,350 (2) $156,721
Investment in ET Capital Corp. .................. 7,406 (4) 7,406
Loans receivable ................................. 30,629 (3) 30,629
Note receivable ................................. 800 (3) 800
Cash and cash equivalents ........................ 110,224 (1) 5,995
(66,376)(2)
3,388 (2)
(2,463)(2)
(30,629)(3)
(800)(3)
(7,406)(4)
(2,406)(5)
Other assets .................................... (1,027)(2) 2,406
2,406 (5)
----------
Total assets .................................... $ 186,096 $203,957
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable .............................. (7,230)(2) 34,239
33,748 (2)
Credit facility ................................. 44,580 (2) 44,580
Accounts payable and accrued expenses ............ (944)(2)
3,388 (2) 3,388
Minority interest .............................. 2,615 (10) 9,641
7,026 (2)
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $.01 par
value:
20,000,000 shares authorized; none issued
Common shares of beneficial interest, $.01 par
value:
100,000,000 shares authorized; 100 issued
and outstanding (historical); 6,482,600 issued
and outstanding (pro forma) ..................... 61 (1) 65
2 (2)
2 (6)
Additional paid-in-capital ..................... 110,163 (1) 118,809
4,498 (2)
3,998 (6)
150(10)
Note receivable-officer ........................ (4,000)(6) (4,000)
Owners' equity ................................. (9,196)(2) --
Retained deficit ................................. (2,765) (10) (2,765)
------------- --------
Total liabilities and shareholders' equity ...... $ 186,096 $203,957
============= ========
</TABLE>
See notes to unaudited pro forma balance sheet and statements of operations.
F-7
<PAGE>
ELDERTRUST
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
EXISTING
RENTAL
ELDERTRUST PROPERTIES
(HISTORICAL) (HISTORICAL)
-------------- --------------
<S> <C> <C>
Revenues:
Rental revenues .................................... $ -- $ 2.266
Interest income .................................... -- 72
Total revenues .................................... -- 2,338
-------
Expenses:
Property operating expenses ........................ -- 831
Administrative expenses ........................... -- --
Interest .......................................... -- 497
Depreciation ....................................... -- 398
Total expenses .................................... -- 1,726
-------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ -- 612
Equity in earnings of ET Capital Corp. ............ -- --
-------
Net operating income before minority interest ...... -- 612
Minority interest ................................. -- --
-------
Net income .......................................... $ -- $ 612
=======
Earnings per share ................................. $ --
Weighted average number of common shares of
beneficial interest outstanding .................. 100
====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ELDERTRUST,
FOR THE ADJUSTED
OFFERING AND FOR THE OFFERING
THE INITIAL AND THE
INVESTMENTS INITIAL INVESTMENTS
---------------------- --------------------
<S> <C> <C>
Revenues:
Rental revenues .................................... $ 9,150 (2) $ 11,040
(376)(2)
Interest income .................................... 1,793 (3) 2,000
(72)(2)
207 (6)
-----------
Total revenues .................................... 10,702 13,040
----------- -----------
Expenses:
Property operating expenses ........................ (160)(2) 671
Administrative expenses ........................... 1,647 (9) 1,647
Interest .......................................... (497)(2) 4,531
2,167 (7)
2,364 (8)
Depreciation ....................................... (82)(2) 3,349
3,033 (2)(5)
-----------
Total expenses .................................... 8,472 10,198
----------- -----------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ 2,230 2,842
Equity in earnings of ET Capital Corp. ............ 659 (4) 659
----------- -----------
Net operating income before minority interest ...... 2,889 3,501
Minority interest ................................. 242 242
----------- -----------
Net income .......................................... $ 2,647 $ 3,259
=========== ===========
Earnings per share ................................. $ 0.50
===========
Weighted average number of common shares of
beneficial interest outstanding .................. 6,482,500 6,482,600
=========== ===========
</TABLE>
See notes to unaudited pro forma balance sheet and statements of operations.
F-8
<PAGE>
ELDERTRUST
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(Unaudited)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
EXISTING
RENTAL
ELDERTRUST PROPERTIES
(HISTORICAL) (HISTORICAL)
-------------- --------------
<S> <C> <C>
Revenues:
Rental revenues .................................... $ -- $ 2,955
Interest income .................................... -- 58
Total revenues .................................... -- 3,013
-------
Expenses:
Property operating expenses ........................ -- 1,203
Administrative expenses ........................... -- --
Interest .......................................... -- 692
Depreciation and amortization ..................... -- 544
Total expenses .................................... -- 2,439
-------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ -- 574
Equity in earnings of ET Capital Corp. ............ -- --
-------
Net operating income before minority interest ...... -- 574
Minority interest ................................. -- --
-------
Net income .......................................... $ -- $ 574
=======
Earnings per share ................................. $ --
Weighted average number of common shares of
beneficial interest outstanding .................. 100
====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ELDERTRUST
FOR THE ADJUSTED
OFFERING AND FOR THE OFFERING
THE INITIAL AND THE
INVESTMENTS INITIAL INVESTMENTS
---------------------- --------------------
<S> <C> <C>
Revenues:
Rental revenues .................................... $ 10,922 (2) $ 13,377
(500) (2)
Interest income .................................... 831 (3) 1,107
(58)(2)
276 (6)
----------
Total revenues .................................... 11,471 14,484
---------- -----------
Expenses:
Property operating expenses ........................ (217)(2) 986
Administrative expenses ........................... 2,200 (9) 2,200
Interest .......................................... (692)(2) 5,895
140 (5)
2,486 (7)
3,269 (8)
Depreciation and amortization ..................... (103)(2) 4,121
3,680 (2)(5)
----------
Total expenses .................................... 10,763 13,202
---------- -----------
Net operating income before equity in earnings of
ET Capital Corp. and minority interest ............ 708 1,282
Equity in earnings of ET Capital Corp. ............ 294 (4) 294
---------- -----------
Net operating income before minority interest ...... 1,002 1,576
Minority interest ................................. 109 109
---------- -----------
Net income .......................................... $ 893 $ 1,467
========== ===========
Earnings per share ................................. $ 0.23
===========
Weighted average number of common shares of
beneficial interest outstanding .................. 6,482,500 6,482,600
========== ===========
</TABLE>
See notes to unaudited pro forma balance sheet and statements of operations.
F-9
<PAGE>
ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)
(Dollars in thousands)
(A) Background and Basis of Presentation
ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in a diversified portfolio of healthcare-related real estate and
mortgages. The Company will be self-administered and self-managed and expects
to qualify as a REIT for federal income tax purposes. Upon completion of the
Offering, the Company intends to make Initial Investments consisting of a
portfolio of 21 assisted and independent living facilities, skilled nursing
facilities and medical office and other buildings in operation (the "Initial
Properties"), term mortgage and construction loans secured by nine assisted
living facilities in lease-up or development, an $800,000 first mortgage (the
"Penn Mortgage") and a 95% equity investment in ET Capital Corp. ("ET
Capital"), a company which will acquire a $7.5 million note secured by a second
lien on 11 skilled nursing facilities and related patient receivables (the
"Florida Facilities Note").
The assisted, independent living and skilled nursing facilities included
in the Initial Properties will be leased back to the sellers or loaned to third
parties (including, in certain cases, joint ventures between the sellers and
others) under long-term operating leases which will be Percentage Rent Leases
or Minimum Rent Leases. Rental revenues under the Percentage Rent Leases will
be based on a specified percentage of facility operating revenues. Rental
revenues under the Minimum Rent Leases will be based on (i) base rent
(increasing each year by 1.5%) and additional rent based upon a specified
percentage of annual revenues over revenues for the first year of the lease,
(ii) base rent, increasing each year by the lesser of 5% of the increase in
facility revenues for the immediately preceding year or one-half of the
increase in the Consumer Price Index for the immediately preceding year or
(iii) in the case of the assisted living facilities secured by the Multicare
Loans, base rent, increasing each year by 2.5%. Both types of leases are triple
net leases that require the lessees to pay all operating expenses, taxes and
insurance. The medical office and other buildings included in the Initial
Properties (the "Existing Rental Properties") are subject to existing tenant
leases that provide for specified annual rents, subject to increases in certain
leases. The Company has agreed to or has options to purchase the nine assisted
living facilities securing the term and construction loans included in the
Initial Investments, subject to certain terms and conditions, and these
facilities also will be leased back to the sellers pursuant to Percentage Rent
Leases or Minimum Rent Leases.
The accompanying unaudited pro forma balance sheet is provided to
illustrate the effects of the Offering, the acquisition or funding of the
Initial Investments and related transactions on the Company. It reflects how
the balance sheet might have appeared if the Company had been formed and the
Initial Investments had been acquired or funded on September 30, 1997. The
accompanying pro forma statements of operations for the year ended December 31,
1996, and the nine months ended September 30, 1997, give effect to the
Offering, the Initial Investments and related transactions and the various
tenant leases as if they had been in effect on January 1, 1996 and January 1,
1997, respectively. The pro forma statements of operations include historical
revenues and expenses of the Existing Rental Properties, adjustments to record
the estimated rental revenues under the Percentage Rent Leases and Minimum Rent
Leases, the Company's equity in the estimated earnings of ET Capital, estimated
interest income under the term mortgage and construction loans and estimated
expenses and adjustments to give effect to matters directly attributable to the
Offering and related transactions. The pro forma adjustments are explained in
detail in Note B. As more fully discussed therein, certain of the Initial
Properties (Willowbrook, Heritage Woods and Lacey Bank) were under development
or in the lease-up phase during the pro forma periods. The pro forma statements
of operations have been prepared assuming that the Company made construction or
term loans on these properties; however, these properties are now operating and
will be acquired at the time of the Offering and leased back to the respective
lessees. In addition, the term and construction loans the Company will fund
either were not in existence during part of the pro forma periods or would have
been funded at lower levels (due to the earlier stage of development of the
related facilities) than will be the case upon closing of the Offering, and the
Florida Facilities Note was not in existence until September 1, 1996. For these
and other reasons, the unaudited pro forma balance sheet
F-10
<PAGE>
ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)
(Dollars in thousands) -- (Continued)
(A) Background and Basis of Presentation -- (Continued)
and statements of operations do not purport to present what the Company's
financial position or results of operations would actually have been if the
Offering and related transactions had occurred on September 30, 1997, January
1, 1996 or January 1, 1997, as the case may be, or to project the Company's
financial position or results of operations for any future period. The Company
has not included the Operating Partnership as a separate column in the pro
forma financial statements on the basis of the Company's belief that the
Company's acquisition of the Operating Partnership upon completion of the
Offering is not material to an understanding of the pro forma financial
statements.
(B) Pro Forma Adjustments
The accompanying unaudited pro forma balance sheet as of September 30,
1997, and unaudited pro forma statements of operations for the year ended
December 31, 1996, and the nine months ended September 30, 1997, reflect
various adjustments which are required to give effect to the Offering, the
Initial Investments and related transactions and to record estimated rental
revenues from Percentage Rent Leases, Minimum Rent Leases and the Existing
Rental Properties, equity in the estimated net earnings of ET Capital,
estimated interest on loans receivable and estimated expenses. Explanations of
the adjustments are as follows:
(1) Record issuance of 6,050,000 shares of common shares of beneficial
interest at an assumed price of $20 per share. The estimated transaction
expenses of the offering, including the underwriting discount and estimated
offering expenses totaling $10,776 have been reflected as an offset to
additional paid-in capital. The Units issued to management upon formation have
been reflected as an increase to minority interest. The resulting cash proceeds
of the Offering total $110,224.
(2) Record the acquisition of the Initial Properties, eliminate assets and
liabilities of the Existing Rental Properties which will not be acquired or
assumed by the Company and record related depreciation and rental revenues.
The aggregate cost of the Initial Properties is $156,721, consisting of
$66,376 paid from proceeds of the Offering, $44,580 paid from borrowings on the
Credit Facility, $34,239 in debt assumed and $11,526 paid by issuance of
576,280 limited partnership units in the Operating Partnership. Concurrent with
the offering, 225,000 units totalling $4,500 will be converted into Common
Shares. The remaining minority interest of 351,280 units totalling $7,026
represents a 5.0% minority interest in the Company. The aggregate cost of the
Initial Properties is allocated as follows:
<TABLE>
<S> <C>
Buildings ................................................... $133,213
Land improvements ............................................. 7,836
Land ......................................................... 15,672
--------
Less historical book value of existing rental properties ...... 14,371
--------
$142,350
========
</TABLE>
Buildings and land improvements are depreciated using the straight-line
method over the estimated useful lives of the assets, generally 15 to 35 years.
Rental revenues from the Initial Properties (excluding the Existing Rental
Properties) are estimated based on terms of the applicable Percentage Rent
Leases and Minimum Rent Leases for properties which were open and operating
during the periods. The lease commencement dates are based on the date each
property commenced operations. The pro forma rental revenues for the Initial
Properties are summarized as follows:
F-11
<PAGE>
ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)
(Dollars in thousands) -- (Continued)
(B) Pro Forma Adjustments -- (Continued)
Rental Income
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997
Assumed Lease ---------------------------------
Commencement Fixed Minimum Percentage
Date(1) Rent Rent Rent
Property Sources --------------- -------- --------- ------------
<S> <C> <C> <C> <C>
(2) Genesis - Owned & Operated
Pleasant View .............................. 1/96 $291
Lopatcong ................................. 1/96 $ 952
Phillipsburg .............................. 1/96 433
Wayne .................................... 1/96 419
(2) Crozer/Genesis Acquired/Operated
CKHS SNFs ................................. 1/96 3,168
(3) Genesis - Acquired/Operated
POB1 ....................................... 1/96 $ 659
Lacey .................................... 2/97 40
Heritage Woods ........................... 6/97 378
Rittenhouse .............................. 1/96 612
(2) Senior LifeChoice - Owned/Operated
Highgate ................................. 1/96 873
(4) Senior LifeChoice - Acquired/Operated
The Woodbridge ........................... 7/96 927
(2) Age Institute - Genesis Managed
Silver Lake .............................. 1/96 568
(2) Crozer - Multiple Tenant
DCMH ....................................... 1/96 961
(2) Susquehanna Holdings - Genesis Managed
Riverview Ridge ........................... 1/96 505
(2) GHV Associates - Genesis Occupied
Windsor .................................... 1/96 145
(2) SMOBGP - Genesis Occupied
SMOB ....................................... 1/96 109
- ----------------------------------------------- ---- ------
Total rental revenues per pro forma statements
of operations .............................. $1,914 $ 8,330 $796
====== ======= ====
Total $11,040
=======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------
Fixed Minimum Percentage
Rent Rent Rent
Property Sources -------- --------- -----------
<S> <C> <C> <C>
(2) Genesis - Owned & Operated
Pleasant View .............................. $ 369
Lopatcong ................................. $ 1,251
Phillipsburg .............................. 569
Wayne .................................... 551
(2) Crozer/Genesis Acquired/Operated
CKHS SNFs ................................. 4,164
(3) Genesis - Acquired/Operated
POB1 ....................................... $ 787
Lacey ....................................
Heritage Woods ...........................
Rittenhouse .............................. 804
(2) Senior LifeChoice - Owned/Operated
Highgate ................................. 1,152
(4) Senior LifeChoice - Acquired/Operated
The Woodbridge ........................... 606
(2) Age Institute - Genesis Managed
Silver Lake .............................. 746
(2) Crozer - Multiple Tenant
DCMH ....................................... 1,401
(2) Susquehanna Holdings - Genesis Managed
Riverview Ridge ........................... 650
(2) GHV Associates - Genesis Occupied
Windsor .................................... 192
(2) SMOBGP - Genesis Occupied
SMOB ....................................... 135
- ----------------------------------------------- ------
Total rental revenues per pro forma statements
of operations .............................. $2,515 $ 9,843 $1,019
====== ======= ======
$13,377
=======
</TABLE>
<PAGE>
(1) No rental revenues have been included in the table for periods prior to the
date the properties commenced operations.
(2) These properties have owned and operated since the beginning of the pro
forma periods by the same entity.
(3) These properties were either placed in service or acquired by a new
operator during the pro forma periods.
(a) POB1 was acquired by Genesis on June 30, 1997 from CKHS.
(b) Lacey was placed in service during February 1997.
(c) Heritage Woods was placed in service in June 1997 as a minimum rent
property until it reaches stabilization.
(d) Rittenhouse was purchased by Genesis from Geriatric and Medical
Companies, Inc. during the pro forma periods.
* Property will be operated comparably by acquirer as by seller.
(4) The Woodridge was placed into service in July 1996.
F-12
<PAGE>
ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)
(Dollars in thousands) -- (Continued)
(B) Pro Forma Adjustments -- (Continued)
(3) Record loans receivable and related interest income and note
receivable. Loans receivable consist of the following:
Construction loans .................. $ 3,226
Term loans ........................... 27,403
-------
$30,629
=======
Note receivable ..................... $ 800
=======
Interest income on construction and term loans is based on the three year
United States Treasury Bill rate plus a spread ranging from 3.5% to 4.0% or a
fixed rate of 10.5%. The following is a summary of the estimated income on
construction and term loans based on the estimated loan commencement dates
indicated (representing the commencement date of construction of the related
facility if after January 1996 in the case of construction loans, and the
commencement date of operations of the related facility for the term loans) and
estimated draws required to fund development costs incurred during the nine
months ended September 30, 1997 and the year ended December 31, 1996:
<TABLE>
<CAPTION>
Pro Forma
Period Ended
Commencement -----------------------------------------
Date September 30, 1997 December 31, 1996
-------------- -------------------- ------------------
Construction Loans
- -------------------------
<S> <C> <C> <C>
Harbor Place ......... 1/96 $ 67 $201
Mifflin ............ 10/96 98 3
Coquina Center ...... 10/96 171 19
Heritage Woods ...... 1/96 184 102
Lehigh ............... 3/96 310 42
Sanatoga ............ 3/96 73 13
Berkshire ............ 3/96 280 39
Oaks ............... 7/97 3 --
Montchanin ......... 6/97 42 --
Term Loans
- --------------------------
Willowbrook ......... 1/96 309 412
Harbor Place ......... 3/97 256 --
------ ----
$1,793 $831
====== ====
</TABLE>
As indicated above, a number of the Initial Properties were under
development or in the lease-up phase during the nine months ended September 30,
1997 and/or the year ended December 31, 1996, and accordingly, the construction
and term loans either were not in existence or were funded at lower levels (due
to the earlier stages of development of the related facilities) than will be
the case upon closing of the Offering, and the Florida Facilities Note
described in note 4 was not in existence until September 1, 1996. As a result,
and because of the assumed level of net offering proceeds, the Company's cash
balances average $26,460 during the nine months ended September 30, 1997 and
$52,699 during the year ended December 31, 1996, and are substantially higher
during such periods than they are anticipated to be in future periods. The
Company has not assumed that it will earn income from the investment of these
balances during the pro forma periods.
(4) Record investment in ET Capital and related estimated earnings. ET
Capital will acquire from Genesis the Florida Facilities Note. The Company will
make a loan of $5,625 to ET Capital which will bear interest at 13% and will
invest $1,781 to acquire a 95% nonvoting equity interest in ET Capital. The
Company will account for its investment using the equity method. The Company's
equity in the earnings of
F-13
<PAGE>
ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Operations
(Unaudited)
(Dollars in thousands) -- (Continued)
(B) Pro Forma Adjustments -- (Continued)
ET Capital in the pro forma statements of operations includes interest on the
loan of $545 during the nine months ended September 30, 1997 and $244 during
the year ended December 31, 1996, and the Company's 95% share of estimated net
earnings of ET Capital, which are summarized as follows:
<TABLE>
<CAPTION>
Period Ended
-----------------------------------------
September 30, 1997 December 31, 1996
-------------------- ------------------
<S> <C> <C>
Interest income on Florida Facilities Note ...... $ 732 $ 325
Interest expense on loan from the Company ...... (545) (244)
Income taxes .................................... (66) (28)
------ ------
Net income ....................................... $ 121 $ 53
====== ======
</TABLE>
Interest income on the Florida Facilities Note and interest expense on the
loan from the Company are recorded only from September 1, 1996, the date the
Florida Facilities Note was acquired by Genesis.
(5) Record other assets and related amortization. Other assets consist of
the following:
Financing Fee ........................ $ 140
Reserve Funds ........................ 2,209
Organization costs .................. 25
Other assets ........................ 32
------
$2,406
======
Deferred costs are amortized using the straight-line method over the
period benefited by the expenditures. The financing fee is amortized to
interest expense using the straight-line method over the anticipated term of
the credit facility (364 days). Organization costs are amortized over five
years.
<PAGE>
(6) Record note receivable from sale of 200,000 common shares of
beneficial interest to the Company's president and chief executive officer (at
an assumed price of $20 per share) and related interest income. The note will
bear interest at 7% and require quarterly payments of interest only until
maturity ten years from the date of issuance.
(7) Record interest expense on debt assumed by the Company. The debt
assumed matures at various dates to 2021 and provides for interest at stated
rates ranging from 8% to 11%. The aggregate contract value of the debt was
$32,942 at September 30, 1997; the recorded amount of $34,239 is the present
value of future amounts payable in accordance with the loan terms discounted at
a weighted average market rate of 8.5%.
(8) Record interest expense on borrowings under the Credit Facility. As
described in 2 above, it is assumed that the Credit Facility will be used to
fund $44,580 of the cost of the Initial Properties. These borrowings are
assumed to bear interest at a variable rate based on a specified spread over
LIBOR (7.33% based on the specified spread over the average one-month LIBOR
rate for the year ended December 31, 1996 and 7.09% based on the specified
spread over the average one-month LIBOR rate for the nine months ended
September 30, 1997). A 1/8% fluctuation in the assumed interest rate would
change interest expense by $58.0 and $43.0 for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
(9) Administrative expenses of $2,200 for the year ended December 31, 1996
and $1,647 for the nine months ended September 30, 1997 consist of compensation
and related benefits, professional fees, travel, rent and other administrative
costs.
(10) The Operating Partnership will issue 130,750 limited partnership
units in Operating Partnership (representing a minority interest of 1.9% in the
Company) to officers of the Company at an assumed value of $20 per unit. The
units will be issued in consideration for services relating to the formation of
the Company, and, accordingly, the Company will recognize compensation expense
equal to the fair value of the units ($2,615,000). In addition, the Company
will issue 7,500 common shares to trustees under the Company's 1998 Share
Option and Incentive Plan. These expenses are nonrecurring items and,
accordingly, have not been included in the pro forma statements of operations.
F-14
<PAGE>
ElderTrust(SM)
A Healthcare Real Estate
Investment Trust
ElderTrust(SM)
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Prospectus in
connection with the offering made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Shares in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
--------------------------
SUMMARY TABLE OF CONTENTS
Page
---------
Summary .......................................... 1
Risk Factors .................................... 18
The Company ....................................... 34
Business and Growth Strategies .................. 35
Conflicts of Interest ........................... 37
Use of Proceeds ................................. 38
Distributions .................................... 39
Capitalization .................................... 42
Dilution .......................................... 43
Selected Historical and Pro Forma Financial
Information .................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 46
Business and Properties ........................... 50
Management ....................................... 84
Certain Relationships and Related Transactions 90
Structure and Formation of the Company ............ 92
Benefits to Related Parties ..................... 94
Policies with Respect to Certain Activities ...... 99
Partnership Agreement ........................... 102
Principal Shareholders ........................... 106
Shares of Beneficial Interest ..................... 107
Certain Provisions of Maryland Law and the
Company's Declaration of Trust and Bylaws 112
Shares Available for Future Sale .................. 115
Federal Income Tax Considerations ............... 116
ERISA Considerations .............................. 133
Underwriting .................................... 136
Experts .......................................... 139
Legal Matters .................................... 139
Additional Information ........................... 139
Glossary .......................................... 140
Index to Financial Statements ..................... F-1
--------------------
Until , 1998 (25 days after the commencement of this Offering), all
dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
6,050,000 Common Shares
ElderTrust(SM)
Common Shares
of Beneficial Interest
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
BT Alex. Brown
Goldman, Sachs & Co.
, 1998
================================================================================
<PAGE>
INTERNATIONAL TRANCHE PAGE
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JANUARY 20, 1998
PROSPECTUS
6,050,000 Common Shares
ElderTrustSM
Common Shares of Beneficial Interest
-------------------
ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a real estate
investment trust ("REIT") for federal income tax purposes. Upon completion of
the Offering (the "Offering"), approximately 51.0% of the Company's total
assets will consist of properties leased to and loans made to consolidated
subsidiaries of Genesis Health Ventures, Inc. ("Genesis"), a leading provider
of healthcare and support services to the elderly. Subsidiaries of Genesis will
operate or manage substantially all of the properties initially being acquired
by the Company. Approximately $128.6 million of the net proceeds of the
Offering, including initial draws under the Company's proposed credit facility,
will be paid to Genesis and its affiliates, including Michael R. Walker, who
will continue to serve both as Chairman of the Board and Chief Executive
Officer of Genesis and as Chairman of the Board of Trustees of the Company
following completion of the Offering. All of the common shares of
beneficial interest, $.01 par value per share, of the Company (the "Common
Shares") offered hereby are being sold by the Company and will represent
approximately 86.9% of the Company's outstanding common equity. The remaining
common equity in the Company will be beneficially owned by officers and
trustees of the Company and other continuing investors. Of the 6,050,000 Common
Shares being offered hereby, 4,840,000 shares are being offered initially in
the United States and Canada by the U.S. Underwriters and 1,210,000 shares are
being offered initially outside the United States and Canada by the
International Managers. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price will
be between $19.00 and $21.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The Common Shares have been approved for listing on the New York Stock Exchange
under the symbol "ETT," subject to official notice of issuance.
See "Risk Factors" beginning on page 18 for certain risk factors relevant
to an investment in the Common Shares, including:
o The dependence of the Company's revenues and ability to make distributions on
Genesis as lessee or manager of substantially all of the properties
initially being acquired by the Company;
o Conflicts of interest between the Company and Genesis and Mr. Walker,
including the lack of arm's length negotiations and independent valuations
or appraisals, and the benefits to be derived by Genesis and Mr. Walker,
resulting in the risk that the consideration to be paid for the initial
properties and other assets may exceed their fair market values and that the
lease and loan terms may not reflect market terms;
<PAGE>
o The possibility that the Company may not be able to obtain certain lender and
other consents or waivers necessary to effect all of the formation
transactions;
o The possibility that the Company may not be able effectively to manage its
intended rapid growth; the Company's lack of operating history and
management's lack of experience in operating a REIT;
o Operating risks inherent in the highly regulated healthcare industry which
may affect lessees and tenants;
o The possibility that the Company may not be able to refinance outstanding
debt upon maturity or that indebtedness might be refinanced on less
favorable terms and the absence of a limitation on the amount of
indebtedness that the Company can incur, which could adversely affect the
Company's cash flow and ability of the Company to make cash distributions;
o General real estate investment risks, the possibility of defaults under
leases and under term and construction loans and the lack of minimum rent
provisions in certain of the facility leases;
o The Board of Trustees may change the Company's investment, financing and
other policies without shareholder approval; o Limitations on shareholders'
ability to change control of the Company, including a prohibition on actual
or constructive ownership of Common Shares in excess of 8.6% of the
Company's outstanding Common Shares; and
o Taxation of the Company as a regular corporation if it fails to qualify as a
REIT.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Common Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ............ $ $ $
================================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $5,325,000 payable by
the Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an additional 726,000 Common Shares, and has granted the
International Managers a 30-day option to purchase up to an additional
181,500 Common Shares, on the same terms and conditions as set forth
above, solely to cover overallotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-------------------
The Common Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York
on or about , 1998.
-------------------
Merrill Lynch International BT Alex. Brown International
Goldman Sachs International
-------------------
The date of this Prospectus is , 1998.
<PAGE>
INTERNATIONAL TRANCHE PAGE
UNDERWRITING
Subject to the terms and conditions in the international purchase
agreement (the "International Purchase Agreement"), between the Company and
each of the underwriters named below (the "International Managers"), and
concurrently with the sale of 4,840,000 Common Shares to the U.S. Underwriters
(as defined below), the Company has agreed to sell to each of the International
Managers, for whom Merrill Lynch International, BT Alex. Brown International,
division of Bankers Trust International PLC and Goldman Sachs International are
acting as lead managers (the "Lead Managers"), and each of the International
Managers has severally agreed to purchase from the Company, the respective
number of Common Shares set forth below opposite their respective names:
Number of
Underwriter Common Shares
--------------- --------------
Merrill Lynch International ............
---------
BT Alex. Brown International, division of
Bankers Trust International PLC ......
Goldman Sachs International ............
Total .............................. 1,210,000
=========
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain underwriters in the United States and
Canada (the "U.S. Underwriters" and, together with the International
Underwriters, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BT Alex. Brown Incorporated and Goldman, Sachs & Co. are
acting as representatives. Subject to the terms and conditions set forth in the
U.S. Purchase Agreement and concurrently with the sale of 1,210,000 Common
Shares to the International Managers pursuant to the International Purchase
Agreement, the Company has agreed to sell to the U.S. Underwriters, and the
U.S. Underwriters have severally agreed to purchase from the Company, an
aggregate of 4,840,000 Common Shares. The initial public offering price per
share and the total underwriting discount per share are identical under the
U.S. Purchase Agreement and the International Purchase Agreement.
In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers have agreed, respectively, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the Common
Shares being sold pursuant to such Purchase Agreement if any of such Common
Shares are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers (as the case may be)
may be increased. The sale of Common Shares pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement are conditioned upon each
other.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the Common Shares to the public at the public
offering price per share set forth on the cover page of this Prospectus, and to
certain banks, brokers and dealers (the "Selling Group") at such price less a
concession not in excess of $______ per share. The International Managers may
allow, and such dealers may re-allow with the consent of Merrill Lynch
International, a discount not in excess of $______ per share on sales to
certain other International Managers and members of the Selling Group. After
the date of this Prospectus, the initial public offering price, concession and
discount may be changed.
The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and the International
Managers are permitted to sell Common Shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than
the selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are United States persons or
Canadian persons or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S. Underwriters and any
dealer to whom they sell Common Shares will not offer to sell or sell Common
Shares to persons who are non-United States and non-Canadian persons or to
persons they believe intend to resell to non-United States and non-Canadian
persons, except in each case for transactions pursuant to such agreement.
136
<PAGE>
INTERNATIONAL TRANCHE PAGE
The Company has granted to the International Managers an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to
181,500 additional Common Shares to cover overallotments, if any, at the
initial public offering price, less the underwriting discount set forth on the
cover page of this Prospectus. If the International Managers exercise this
option, each International Manager will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof which
the number of Common Shares to be purchased by it shown in the foregoing table
bears to such International Managers' initial amount reflected in the foregoing
table. The Company also has granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 726,000 additional Common Shares to cover overallotments, if
any, on terms similar to those granted to the International Managers.
Each of the Company and the International Managers has represented and
agreed that (a) it has not offered or sold, and prior to the date six months
after the date of this Prospectus will not offer or sell any Common Shares to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purpose of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995,
(b) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the Common Shares in, from or otherwise involving the United Kingdom and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue or sale of the
Common Shares to a person who is of a kind described in Article II(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom the document may otherwise lawfully be issued or passed
on.
Until the distribution of the Common Shares is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Shares. As an exception to these rules, the
U.S. Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Shares.
If the Underwriters create a short position in the Common Shares in
connection with the Offering, i.e., if they sell more Common Shares than are
set forth on the cover page of this Prospectus, the U.S. Representatives and
the International Managers, respectively, may reduce that short position by
purchasing Common Shares in the open market. The U.S. Representatives and the
International Managers, respectively, may also elect to reduce any short
position by exercising all or part of the overallotment option described above.
The U.S. Representatives and the International Managers, respectively, may
also impose a penalty bid on certain Underwriters and selling group members.
This means that if the U.S. Representatives or the International Managers
purchase Common Shares in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Shares, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Shares. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives or the International Managers will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
In the Purchase Agreements, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification of the Underwriters for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provision, the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
137
<PAGE>
INTERNATIONAL TRANCHE PAGE
At the request of the Company, the U.S. Underwriters have reserved up to
10% of the shares offered hereby for sale at the initial public offering price
to trustees, officers and employees of the Company, its and their business
affiliates and related parties who have expressed an interest in purchasing
shares. Such purchases will be made under the same terms and conditions as will
be initially offered by the U.S. Underwriters to others in the Offering. The
number of shares available to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares that are not so
purchased by such persons at the completion of the Offering will be offered by
the U.S. Underwriters to the general public on the same terms as the other
shares offered by this Prospectus.
The Company, its trustees and executive officers, the Operating
Partnership and the Continuing Investors have agreed, subject to certain
exceptions, not to sell, offer or contract to sell, grant any option for the
sale of, or otherwise dispose of any Common Shares or Units or any securities
convertible into or exchangeable for Common Shares or Units for a period of 12
months from the date of the Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Company has granted
certain registration rights to Messrs. Walker, Romanov and McCreary and the
Continuing Investors pursuant to which such persons may require the Company to
file a registration statement with the SEC with respect to Common Shares owned
by them as of the closing of the Offering, in the case of Messrs. Walker and
Romanov, or received by them in exchange for their Units, in either case,
beginning 14 months after the date of the Prospectus.
The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.
Prior to the Offerings, there has been no public market for the Common
Shares of the Company. The initial public offering price will be determined
through negotiations between the Company and the U.S. Representatives. Among
the factors to be considered in such negotiations, in addition to prevailing
market conditions, will be dividend yields and financial characteristics of
publicly traded REITs that the Company and the U.S. Representatives believe to
be comparable to the Company, the expected results of operations of the Company
(which will be based on the results of operations of the Initial Investments),
estimates of the future business potential and earnings prospects of the
Company as a whole and the current state of the real estate market in the
Company's primary markets and the economy as a whole.
The Common Shares have been approved for listing on the New York Stock
Exchange under the symbol "ETT," subject to official notice of issuance. In
order to meet one of the requirements for listing the Common Shares on the New
York Stock Exchange, the Underwriters will undertake to sell lots of 100 or
more Common Shares to a minimum of 2,000 beneficial holders.
The Company will pay to Merrill Lynch, Pierce, Fenner & Smith Incorporated
an advisory fee equal to 0.5% of the gross proceeds received from the sale of
Common Shares to public investors in the Offering for financial advisory
services rendered in connection with the Company's formation as a REIT.
138
<PAGE>
INTERNATIONAL TRANCHE PAGE
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Shares in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
-------------------------
SUMMARY TABLE OF CONTENTS
Page
-----------
Summary ............................................. 1
Risk Factors ....................................... 18
The Company ....................................... 34
Business and Growth Strategies ..................... 35
Conflicts of Interest .............................. 37
Use of Proceeds .................................... 38
Distributions ....................................... 39
Capitalization .................................... 42
Dilution .......................................... 43
Selected Historical and Pro Forma Financial
Information .................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................... 46
Business and Properties ........................... 50
Management .......................................... 84
Certain Relationships and Related Transactions . 90
Structure and Formation of the Company ............ 92
Benefits to Related Parties ........................ 94
Policies with Respect to Certain Activities . 99
Partnership Agreement .............................. 102
Principal Shareholders .............................. 106
Shares of Beneficial Interest ..................... 107
Certain Provisions of Maryland Law and the
Company's Declaration of Trust and
Bylaws .......................................... 112
Shares Available for Future Sale .................. 115
Federal Income Tax Considerations .................. 116
ERISA Considerations .............................. 133
Underwriting ....................................... 136
Experts ............................................. 139
Legal Matters ....................................... 139
Additional Information .............................. 139
Glossary .......................................... 140
Index to Financial Statements ..................... F-1
------------------
Until , 1998 (25 days after the commencement of this Offering), all dealers
effecting transactions in the Common Shares, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
6,050,000 Common Shares
ElderTrust(SM)
Common Shares
of Beneficial Interest
----------------------
PROSPECTUS
----------------------
Merrill Lynch International
BT Alex. Brown International
Goldman Sachs International
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.
Registration Fee .................................... $ 47,394
NASD Fee .......................................... 16,140
New York Stock Exchange Listing Fee ............... 97,040
Printing and Engraving Expenses ..................... 500,000
Legal Fees and Expenses ........................... 1,775,000
Accounting Fees and Expenses ........................ 374,000
Blue Sky Fees and Expenses ........................ 5,000
Environmental and Engineering Expenses ............ 397,000
Merrill Lynch Advisory Fee ........................ 605,000
Credit Facility Fee ................................. 140,000
Land Title Insurance .............................. 305,000
Indemnification Insurance Costs (see Item 34) ...... 100,000
Miscellaneous ....................................... 963,426
----------
TOTAL .......................................... $5,325,000
==========
- ------------
*To be completed by amendment.
Item 32. Sales to Special Parties
See Item 33.
Item 33. Recent Sales of Unregistered Securities
1. On September 23, 1997, the Company was capitalized with the issuance to
Mr. McCreary of 100 Common Shares for an aggregate purchase price of $100. The
issuance of such Common Shares was effected in reliance on an exemption from
registration under Section 4(2) of the Securities Act. See "Structure and
Formation of the Company."
2. On July 30, 1997, the Operating Partnership was capitalized with the
issuance of a general partnership interest to ElderTrust Realty Group, Inc. in
exchange for a capital contribution in the amount of $200 and with the issuance
of a limited partnership interest to ET Partnership in exchange for a capital
contribution in the amount of $200,000. The issuance of such limited
partnership interests in the Operating Partnership was effected in reliance on
an exemption from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder. See "Structure and Formation of the
Company."
3. On September 10, 1997, the Operating Partnership issued additional
limited partnership interests to Messrs. Romanov and McCreary in exchange for
capital contributions in the aggregate amount of $200. The issuance of such
limited partnership interests in the Operating Partnership was effected in
reliance on an exemption from registration under Section 4(2) of the Securities
Act, and Regulation D promulgated thereunder. See "Structure and Formation of
the Company."
4. Immediately prior to the closing of the Offering, ET Partnership will
be dissolved and the Operating Partnership will be recapitalized and will issue
Units to (i) Messrs. Romanov and McCreary and the former partners in ET
Partnership (including Messrs. Walker and Romanov in respect of the Genesis
interest in ET Partnership which will be purchased by Messrs. Walker and
Romanov immediately prior to the dissolution of ET Partnership) in respect of
the limited partnership interests in the Operating Partnership previously
issued to such partners and (ii) the Continuing Investors in exchange for the
interests of the Continuing Investors in certain of the Initial Properties.
Messrs. Romanov and McCreary will receive a total of 112,000 Units in respect
of the limited partnership interests in the Operating Partnership issued to
them on September 10, 1997. The number of Units to be issued to the former
partners in ET Partnership (including Messrs. Walker and Romanov in respect of
the Genesis interest in ET Partnership which will be purchased by Messrs.
Walker and Romanov immediately prior to the dissolution of ET Partnership) in
respect of the limited partnership interest
II-1
<PAGE>
in the Operating Partnership previously issued to ET Partnership will be
determined based upon the initial public offering price per Common Share in the
Offering. Immediately following completion of the Offering, the Units issued to
Messrs. Walker and Romanov in respect of the Genesis interest in ET Partnership
will be exchanged for Common Shares on a one-for-one basis pursuant to the Unit
Redemption Right as provided in the Operating Partnership Agreement. The number
of Units to be issued to the Continuing Investors in the Formation transactions
will be determined at the time the final preliminary prospectus relating to the
Offering (the "Final Preliminary Prospectus") is circulated to prospective
investors and will be a number of Units having an aggregate value equal to
$4,400,600, based on a per Unit value equal to the midpoint of the price range
per Common Share set forth in the Final Preliminary Prospectus. The issuance of
such Units and Common Shares to Messrs. Romanov and McCreary, the former
partners in ET Partnership (including Messrs. Walker and Romanov in respect of
the Genesis interest in ET Partnership which will be purchased by Messrs.
Walker and Romanov immediately prior to the dissolution of ET Partnership) and
the Continuing Investors will be effected in reliance on an exemption from
registration under Section 4(2) of the Securities Act, and Regulation D
promulgated thereunder. See "Structure and Formation of the Company."
Item 34. Indemnification of Trustees and Officers
The Company's officers and trustees are and will be indemnified under
Maryland and Delaware law, the Declaration of Trust and Bylaws of the Company
and the Partnership Agreement of the Operating Partnership against certain
liabilities. The Declaration of Trust of the Company requires it to indemnify
its directors and officers to the fullest extent permitted from time to time
under Maryland law.
The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former trustee or officer or (b) any individual who,
while a trustee of the Company and at the request of the Company, serves or has
served as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her
status as a present or former trustee or officer of the Company. The Bylaws of
the Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer who
is made party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a trustee or officer of the Company and at the
request of the Company, serves or has served another real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a trustee, director, officer or partner of such real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity, against any claim or
liability to which he may become subject by reason of such status. The
Declaration of Trust and Bylaws also permit the Company to indemnify and
advance expenses to any person who served as a predecessor of the Company in
any of the capacities described above and to any employee or agent of the
Company or a predecessor of the Company. The Bylaws require the Company to
indemnify a trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In accordance with
the MGCL, the Bylaws of the Company require it, as a condition to
II-2
<PAGE>
advancing expenses, to obtain (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the Bylaws and
(b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met.
The Company intends to enter into indemnification agreements with each of
its trustees and officers prior to completion of the Offering. The
indemnification agreements will require, among other things, that the Company
indemnify its trustees and officers to the fullest extent permitted by law and
advance to its trustees and executive officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted.
Item 35. Treatment of Proceeds from Common Shares Being Registered
Not Applicable.
Item 36. Financial Statements and Exhibits
(a) Financial Statements, all of which are included in the Prospectus:
ELDERTRUST
Independent Auditors' Report
Balance Sheet as of September 30, 1997
Notes to Balance Sheet
Pro Forma Balance Sheet and Statements of Operations
Notes to Pro Forma Balance Sheet and Statements of Operations
(b) Exhibits
<TABLE>
<S> <C>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
3.1 Form of Amended and Restated Declaration of Trust of the Company
3.2 Form of Amended and Restated Bylaws of the Company
5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being registered
8.1 * Opinion of Hogan & Hartson L.L.P. regarding tax matters
10.1 Form of Second Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 Form of Registration Rights Agreement between the Company and the persons named therein
10.3 1998 Share Option and Incentive Plan
10.4 Subscription Agreement between the Company and Edward B. Romanov, Jr. dated as of October
8, 1997
10.5 * Form of Employment Agreement between the Company and Edward B. Romanov, Jr.
10.6 Form of Non-Competition Agreement between the Company and Michael R. Walker
10.7 Form of Indemnification Agreement between the Company and each of its officers and trustees
10.8 Form of Asset Transfer Agreement between the Operating Partnership and Genesis (Heritage
Woods, Willowbrook, Riverview Ridge, Pleasant View, Rittenhouse, Lopatcong, Phillipsburg,
Wayne, POB 1, Lacey Bank Building, Belvedere, Chapel Manor and Pennsburg Manor)
10.9 Plan of Asset Transfer and Contribution Agreement between the Operating Partnership and Senior
LifeChoice dated as of September 25, 1997
10.10 Form of Asset Transfer Agreement between the Operating Partnership and certain limited partners
in Senior LifeChoice of Paoli, L.P. and Senior LifeChoice of Kimberton, L.P. who are selling
partnership interests for cash
10.11 Plan of Asset Transfer and Contribution Agreement among the Operating Partnership, GHV
Associates and the partners in GHV Associates dated as of September 25, 1997
10.12 Plan of Asset Transfer and Contribution Agreement among the Operating Partnership and certain
partners in SMOBGP dated as of September 25, 1997
10.13 Form of Asset Transfer Agreement between the Operating Partnership and certain parties in
SMOBGP who are selling partnership interests for cash
10.14.1 Form of Term Loan Agreement (Mifflin and Coquina Center (Genesis))
10.14.2 Form of Secured Note (Mifflin and Coquina Center (Genesis))
10.14.3 Form of Mortgage and Security Agreement (Mifflin and Coquina Center (Genesis))
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.14.4 Form of Assignment of Rents and Leases (Mifflin and Coquina Center (Genesis))
10.14.5 Form of Collateral Assignment of Agreements Affecting Real Estate (Mifflin and Coquina Center
(Genesis))
10.14.6 Form of Guaranty and Suretyship Agreement (Mifflin and Coquina Center (Genesis))
10.15.1 Form of Construction Loan Agreement (Oaks (Genesis))
10.15.2 Form of Secured Note (Oaks (Genesis))
10.15.3 Form of Mortgage and Security Agreement (Oaks (Genesis))
10.15.4 Form of Assignment of Rents and Leases (Oaks (Genesis))
10.15.5 Form of Collateral Assignment of Agreements Affecting Real Estate (Oaks (Genesis))
10.15.6 Form of Guaranty and Suretyship Agreement (Oaks (Genesis))
10.16 Form of Assignment and Assumption Agreement between the Operating Partnership and Genesis
(Montchanin Construction Loan)
10.17 Form of Construction Loan Commitment between the Operating Partnership and Genesis
10.18 Form of Assignment and Assumption Agreement between the Operating Partnership and Genesis
(Penn Mortgage)
10.19.1 Form of Assignment and Assumption Agreement between ET Capital Corp. and Genesis (Florida
Facilities Note)
10.19.2 Form of Amendment of Working Capital Loan and Security Agreement among ET Capital Corp.,
Genesis and the Age Institute of Florida
10.19.3 Form of Intercreditor Agreement among ET Capital Corp., Genesis and the Age Institute of
Florida
10.20* Form of Right of First Refusal Agreement between the Operating Partnership and Genesis
10.21 Form of Option Agreement to purchase Holton Point facility between the Operating Partnership
and Genesis
10.22 Form of Minimum Rent Lease between the Operating Partnership and Genesis (Heritage Woods,
Highgate at Paoli Pointe, Rittenhouse, Lopatcong, Phillipsburg and Wayne)
10.23 Form of Percentage Rent Lease between the Operating Partnership and Genesis (Willowbrook,
Riverview Ridge and Pleasant View)
10.24 Form of Fixed Rent Lease between the Operating Partnership and Genesis (Salisbury Medical
Office Building, Windsor Office Building and Windsor Clinic and Training Facility)
10.25 Commitment Letter for Credit Facility
21.1 List of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)
23.3 * Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 8.1)
23.4 Consent of Kent P. Dauten
23.5 Consent of Rodman W. Moorhead, III
23.6 Consent of Timothy T. Weglicki
24.1 + Power of Attorney
27.1 + Financial Data Schedule
</TABLE>
- ------------
*To be filed by amendment.
+Previously filed.
Item 37. Undertakings
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of 1933,
as amended (the "Act"), the information omitted from the form of Prospectus
filed as part of the Registration Statement in reliance upon rule 430A and
contained in the form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
(3) The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in Kennett
Square, Pennsylvania on this 15th day of January, 1998.
ELDERTRUST
By: /s/ Edward B. Romanov, Jr.
-----------------------------------
Edward B. Romanov, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated as of the
15th day of January, 1998.
<TABLE>
<CAPTION>
Signature Title
- --------------------------------------------------------------------- -------------------------------------------
<S> <C>
/s/ Edward B. Romanov, Jr. President, Chief Executive Officer and
-------------------------------------- Trustee (principal executive officer)
Edward B. Romanov, Jr.
/s/ D. Lee McCreary, Jr. Chief Financial Officer (principal
-------------------------------------- financial officer and principal accounting
D. Lee McCreary, Jr. officer)
/s/ Michael R. Walker
- -------------------------------------- Chairman of the Board of Trustees
Michael R. Walker
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Page No.
- -------- -------
<S> <C> <C>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
3.1 Form of Amended and Restated Declaration of Trust of the Company
3.2 Form of Amended and Restated Bylaws of the Company
5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being
registered
8.1* Opinion of Hogan & Hartson L.L.P. regarding tax matters
10.1 Form of Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 Form of Registration Rights Agreement between the Company and the persons
named therein
10.3 1998 Share Option and Incentive Plan
10.4 Subscription Agreement between the Company and Edward B. Romanov, Jr.
dated as of October 8, 1997
10.5* Form of Employment Agreement between the Company and Edward B.
Romanov, Jr.
10.6 Form of Non-Competition Agreement between the Company and Michael R.
Walker
10.7 Form of Indemnification Agreement between the Company and each of its
officers and trustees
10.8 Form of Asset Transfer Agreement between the Operating Partnership and
Genesis (Heritage Woods, Willowbrook, Riverview Ridge, Pleasant View,
Rittenhouse, Lopatcong, Phillipsburg, Wayne, POB 1, Lacey Bank Building,
Belvedere, Chapel Manor and Pennsburg Manor)
10.9 Plan of Asset Transfer and Contribution Agreement between the Operating
Partnership and Senior LifeChoice dated as of September 25, 1997
10.10 Form of Asset Transfer Agreement between the Operating Partnership and certain
limited partners in Senior LifeChoice of Paoli, L.P. and Senior LifeChoice of
Kimberton, L.P. who are selling partnership interests for cash
10.11 Plan of Asset Transfer and Contribution Agreement among the Operating
Partnership, GHV Associates and the partners in GHV Associates dated as of
September 25, 1997
10.12 Plan of Asset Transfer and Contribution Agreement among the Operating
Partnership and certain partners in SMOBGP dated as of September 25, 1997
10.13 Form of Asset Transfer Agreement between the Operating Partnership and certain
parties in SMOBGP who are selling partnership interests for cash
10.14.1 Form of Term Loan Agreement (Mifflin and Coquina Center (Genesis))
10.14.2 Form of Secured Note (Mifflin and Coquina Center (Genesis))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.14.3 Form of Mortgage and Security Agreement (Mifflin and Coquina Center
(Genesis))
10.14.4 Form of Assignment of Rents and Leases (Mifflin and Coquina Center (Genesis))
10.14.5 Form of Collateral Assignment of Agreements Affecting Real Estate (Mifflin and
Coquina Center (Genesis))
10.14.6 Form of Guaranty and Suretyship Agreement (Mifflin and Coquina Center
(Genesis))
10.15.1 Form of Construction Loan Agreement (Oaks (Genesis))
10.15.2 Form of Secured Note (Oaks (Genesis))
10.15.3 Form of Mortgage and Security Agreement (Oaks (Genesis))
10.15.4 Form of Assignment of Rents and Leases (Oaks (Genesis))
10.15.5 Form of Collateral Assignment of Agreements Affecting Real Estate (Oaks
(Genesis))
10.15.6 Form of Guaranty and Suretyship Agreement (Oaks (Genesis))
10.16 Form of Assignment and Assumption Agreement between the Operating
Partnership and Genesis (Montchanin Construction Loan)
10.17 Form of Construction Loan Commitment between the Operating Partnership and
Genesis
10.18 Form of Assignment and Assumption Agreement between the Operating
Partnership and Genesis (Penn Mortgage)
10.19.1 Form of Assignment and Assumption Agreement between ET Capital Corp. and
Genesis (Florida Facilities Note)
10.19.2 Form of Amendment of Working Capital Loan and Security Agreement among
ET Capital Corp., Genesis and the Age Institute of Florida
10.19.3 Form of Intercreditor Agreement among ET Capital Corp., Genesis and the Age
Institute of Florida
10.20* Form of Right of First Refusal Agreement between the Operating Partnership and
Genesis
10.21 Form of Option Agreement to purchase Holton Point facility between the
Operating Partnership and Genesis
10.22 Form of Minimum Rent Lease between the Operating Partnership and Genesis
(Heritage Woods, Highgate at Paoli Pointe, Rittenhouse, Lopatcong, Phillipsburg
and Wayne)
10.23 Form of Percentage Rent Lease between the Operating Partnership and Genesis
(Willowbrook, Riverview Ridge and Pleasant View)
10.24 Form of Fixed Rent Lease between the Operating Partnership and Genesis
(Salisbury Medical Office Building, Windsor Office Building and Windsor Clinic
and Training Facility)
10.25 Commitment Letter for Credit Facility
21.1 List of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.2 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)
23.3* Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 8.1)
23.4 Consent of Kent P. Dauten
23.5 Consent of Rodman W. Moorhead, III
23.6 Consent of Timothy T. Weglicki
24.1+ Power of Attorney
27.1+ Financial Data Schedule
</TABLE>
- ------------
*To be filed by amendment.
+Previously filed.
<PAGE>
Draft of January 14, 1998
ELDERTRUST
(a Maryland real estate investment trust)
4,840,000 Common Shares of Beneficial Interest
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BT ALEX. BROWN INCORPORATED
GOLDMAN, SACHS & CO.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
ElderTrust, a Maryland real estate investment trust (the "Company") and
ElderTrust Operating Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), each confirms its agreement with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), BT Alex.
Brown Incorporated ("BT Alex. Brown") and Goldman, Sachs & Co. ("Goldman Sachs")
and each of the other U.S. Underwriters named in Schedule A hereto
(collectively, the "U.S. Underwriters", which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for whom
Merrill Lynch, BT Alex. Brown and Goldman Sachs are acting as representatives
(in such capacity, the "U.S. Representatives"), with respect to the issue and
sale by the Company and the purchase by the U.S. Underwriters, acting severally
and not jointly, of the respective numbers of common shares of beneficial
interest, par value $.01 per share, of the Company ("Common Shares") set forth
in said Schedule A, and with respect to the grant by the Company to the U.S.
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 726,000 additional Common
Shares to cover over-allotments, if any. The aforesaid 4,840,000 Common Shares
(the "Initial U.S. Securities") to be purchased by the U.S. Underwriters and all
or any part of the 726,000 Common Shares subject to the option described in
Section 2(b) hereof (the "U.S. Option Securities") are hereinafter called,
collectively, the "U.S. Securities".
<PAGE>
It is understood that the Company and the Operating Partnership are
concurrently entering into an agreement dated the date hereof (the
"International Purchase Agreement") providing for the offering by the Company of
an aggregate of 1,210,000 Common Shares (the "Initial International Securities")
through arrangements with certain underwriters outside the United States and
Canada (the "International Managers") for which Merrill Lynch International, BT
Alex. Brown International, a division of Bankers Trust International PLC and
Goldman Sachs International are acting as lead managers (the "Lead Managers")
and the grant by the Company to the International Managers, acting severally and
not jointly, of an option to purchase all or any part of the International
Managers' pro rata portion of up to 181,500 additional Common Shares solely to
cover overallotments, if any (the "International Option Securities" and,
together with the U.S. Option Securities, the "Option Securities"). The Initial
International Securities and the International Option Securities are hereinafter
called the "International Securities". It is understood that the Company is not
obligated to sell and the U.S. Underwriters are not obligated to purchase, any
Initial U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Operating Partnership each understands that the
U.S. Underwriters propose to make a public offering of the U.S. Securities as
soon as the U.S. Representatives deem advisable after this Agreement has been
executed and delivered.
The Company and the U.S. Underwriters agree that up to 484,000 shares
of the Initial U.S. Securities to be purchased by the U.S. Underwriters and that
up to 121,000 shares of the Initial International Securities to be purchased by
the International Managers (collectively, the "Reserved Securities") shall be
reserved for sale by the Underwriters to certain eligible employees and persons
having business relationships with the Company, as part of the distribution of
the Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Securities are not orally confirmed for
purchase by such eligible employees and persons having business relationships
with the Company by the end of the first business day after the date of this
Agreement, such Reserved Securities may be offered to the public as part of the
public offering contemplated hereby.
2
<PAGE>
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-11 (No. 333-37451) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting". The information included in
any such prospectus or in any such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of U.S. Prospectus and Form of International
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated _____, 1998 and preliminary
International Prospectus dated ____, 1998, respectively, each together with the
applicable Term Sheet and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
At or prior to Closing Time (as hereinafter defined), the Company will
complete a series of transactions (the "Formation Transactions") described in
the Prospectuses under the caption "Structure and Formation of the Company --
Formation of the Company."
3
<PAGE>
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the Operating
Partnership. The Company and the Operating Partnership each severally represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b), hereof and agrees with each U.S. Underwriter,
as follows:
(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-11 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
the Prospectuses, any preliminary prospectuses and any supplements
thereto or prospectus wrapper prepared in connection therewith, at
their respective times of issuance and at the Closing Time, complied
and will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses and such
preliminary prospectuses, as amended or supplemented, if applicable,
are distributed in connection with the offer and sale of Reserved
Securities. Neither of the Prospectuses nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectuses or any amendments or supplements thereto were issued and
at the Closing Time (and, if any U.S. Option Securities are purchased,
at the Date of Delivery), included or will include an untrue statement
of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434
is used, the Company will comply with the requirements of Rule 434 and
the Prospectuses shall not be "materially different", as such term is
used in Rule 434, from the prospectuses included in the Registration
Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or the U.S. Prospectus made
in reliance upon and in conformity with information furnished to the
Company in writing by any U.S. Underwriter through the U.S.
Representatives expressly for use in the Registration Statement or the
U.S. Prospectus.
4
<PAGE>
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the financial statements included in the Registration Statement are
independent public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iii) Financial Statements. The historical balance sheet of
the Company included in the Registration Statement and the
Prospectuses, together with the related notes, presents fairly in
accordance with generally accepted accounting principles ("GAAP") the
financial position of the Company at the date indicated. The selected
historical financial data and the summary financial information
included in the Prospectuses present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited balance sheet included in the Registration Statement. The
unaudited pro forma balance sheet and statements of operations and the
related notes thereto included in the Registration Statement and the
Prospectuses present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma balance sheets and statements of operations and
have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
5
<PAGE>
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company, the Operating Partnership, its Subsidiaries
(as defined below) and the Initial Investments (as defined in the
Registration Statement), considered as one enterprise, whether or not
arising in the ordinary course of business (a "Material Adverse
Effect"), (B) no material casualty loss or material condemnation or
other material adverse event with respect to any of the Initial
Properties has occurred, (C) there have been no transactions entered
into by the Company, the Operating Partnership or any of its
Subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company, the Operating
Partnership and its Subsidiaries considered as one enterprise except in
connection with the Formation Transactions, and (D) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock or by the Operating
Partnership with respect to its partnership interests. As used in this
Agreement, the term "Subsidiary" as it relates to the Operating
Partnership includes ET Capital Corp. as well as any corporation,
limited or general partnership, joint venture or other entity through
which the Operating Partnership, upon completion of the Formation
Transactions, will own an interest, either directly or indirectly, in
an Initial Property.
(v) Good Standing of the Company. The Company has been duly
formed and is validly existing as a real estate investment trust in
good standing under the laws of the State of Maryland and has full
trust power and trust authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses
and to enter into and perform its obligations under this Agreement and
the International Purchase Agreement and the Transaction Documents (as
hereinafter defined) to which it is a party; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Operating Partnership and its
Subsidiaries. The Agreement of Limited Partnership of the Operating
Partnership (the "Partnership Agreement") has been duly and validly
authorized, executed and delivered by the parties thereto and is a
valid and binding agreement, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights
generally and by general principles of equity. The Operating
Partnership and each of its Subsidiaries has been duly formed and is
validly existing as a limited partnership or corporation, as the case
may be, in good standing under the laws of its state of organization
with partnership or corporate power and authority, as the case may be,
to own, lease and operate its properties, to conduct the business in
which it is engaged or proposes to engage as described in the
Prospectuses and to enter into and perform its obligations under this
Agreement and the International Purchase Agreement, if applicable, and
all other Transaction Documents to which it is a party. The Operating
Partnership and each of its Subsidiaries is duly qualified or
6
<PAGE>
registered as a foreign partnership or corporation, as the case may be,
and is in good standing in each jurisdiction in which such
qualification or registration is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure to so qualify or register or to be in good standing
would not result in a Material Adverse Effect. All of the issued and
outstanding capital stock or partnership interests, as the case may be,
of each such Subsidiary which are described in the Prospectuses as
being owned by the Company or the Operating Partnership (directly or
through subsidiaries) upon completion of the Formation Transactions,
will have been duly authorized and, upon completion of the Formation
Transactions, will be validly issued, fully paid and (in the case of
corporations) non-assessable and owned by the Company or the Operating
Partnership (directly or through subsidiaries) as so described, free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity (except as described in the Prospectus).
None of the outstanding shares of capital stock of any Subsidiary was
issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary. As of the date hereof, ElderTrust
Realty Group, Inc. is the sole general partner of the Operating
Partnership and, immediately after the Closing Time referred to in
Section 2(c) hereof, the Company will be the sole general partner of
the Operating Partnership and will be the holder of _________ units of
partnership interest in the Operating Partnership ("Units"), or
approximately __% of the outstanding Units, if the over-allotment
option is not exercised at Closing Time. To the extent any portion of
the over-allotment option is exercised at Closing Time, the relevant
numbers of Units and percentages set forth in this paragraph will be
deemed adjusted accordingly. Additionally, to the extent any portion of
the over-allotment option is exercised subsequent to Closing Time, the
Company will contribute the proceeds from the sale of the Option
Securities to the Operating Partnership in exchange for an equivalent
number of Units. Upon completion of the Formation Transactions, the
Operating Partnership will have no subsidiaries other than the entities
through which it will own interests in the Initial Properties or the
Initial Investments.
(vii) Capitalization. The authorized, issued and outstanding
shares of beneficial interest of the Company are as set forth in the
Prospectuses in the column entitled "Historical" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses, pursuant to the
Formation Transactions, pursuant to the redemption or exchange of Units
or pursuant to the exercise of convertible securities or options
referred to in the Prospectuses). The issued and outstanding shares of
beneficial interest of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of beneficial interest of the Company were issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
7
<PAGE>
(viii) Authorization of Agreement. This Agreement and the
International Purchase Agreement have been duly authorized, executed
and delivered by the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for
issuance and sale to the U.S. Underwriters pursuant to this Agreement
and the International Managers pursuant to the International Purchase
Agreement, respectively, and, when issued and delivered by the Company
pursuant to this Agreement and the International Purchase Agreement,
respectively, against payment of the consideration set forth herein and
the International Purchase Agreement, respectively, will be validly
issued, fully paid and non-assessable; the Common Shares conform to all
statements relating thereto contained in the Prospectuses and such
description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance
of the Securities is not subject to the preemptive or other similar
rights of any securityholder of the Company.
(x) Authorization and Description of Units. The Units to be
issued in connection with the Formation Transactions, including,
without limitation, the Units to be issued to the Company, have been
duly authorized for issuance by the Operating Partnership to the
holders or prospective holders thereof, and at Closing Time will be
validly issued and fully paid. Immediately after Closing Time and not
including any Units issued in exchange for proceeds received by the
Company in connection with the sale of the Option Securities, ______
Units will be issued and outstanding. The Units have been and will be
offered and sold at or prior to Closing Time in compliance with all
applicable laws (including, without limitation, federal and state
securities laws) and the issuance and sale of such Units in the
Formation Transactions will be exempt from the registration
requirements of the 1933 Act pursuant to Section 4(2) thereof. The
terms of the Units conform to all statements and descriptions related
thereto contained in the Prospectuses.
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(xi) Absence of Defaults and Conflicts. Upon completion of the
Formation Transactions, none of the Company, the Operating Partnership
or any of its Subsidiaries will be in violation of its declaration of
trust, charter, by-laws, partnership agreement, certificate of limited
partnership or other governing document, as the case may be, or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company, the Operating Partnership or any of
its Subsidiaries is a party or by which it or any of them may be bound,
or to which any of the Initial Properties or any other property or
assets of the Company, the Operating Partnership or any Subsidiary is
subject (collectively, the "Agreements and Instruments") except for
such defaults that would not result in a Material Adverse Effect; and
the execution, delivery and performance of this Agreement and the
International Purchase Agreement and the consummation of the
transactions contemplated in this Agreement, the International Purchase
Agreement and in the Registration Statement (including the issuance and
sale of the Securities, the consummation of the Formation Transactions,
and the use of the proceeds from the sale of the Securities as
described in the Prospectuses under the caption "Use of Proceeds") and
compliance by each of the Company and the Operating Partnership with
its obligations under this Agreement and the International Purchase
Agreement have been duly authorized by all necessary corporate or
partnership action, as the case may be, and do not and will not,
whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any of the Initial Properties
or any other property or assets of the Company, the Operating
Partnership or any Subsidiary pursuant to, the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the declaration of trust, charter, by-laws, partnership agreement,
certificate of limited partnership or other governing document, as the
case may be, of the Company, the Operating Partnership or any
Subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company, the
Operating Partnership or any subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company, the Operating
Partnership or any Subsidiary.
(xii) Transaction Documents. Each of the documents relating to
the Formation Transactions (the "Transaction Documents") to which the
Company, the Operating Partnership or any of its Subsidiaries or any
person or entity contributing interests in an Initial Property or
Subsidiary to the Company or the Operating Partnership in the Formation
Transactions (each such person or entity, an "Original Owner") has been
duly authorized, executed and delivered by such party and constitutes
the binding agreement of such party, enforceable against such party in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of
equity.
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(xiii) REIT Qualification. Commencing with the Company's
taxable year ending December 31, 1998, the Company will be organized in
conformity with the requirements for qualification as a real estate
investment trust under the Internal Revenue Code of 1986, as amended
(the "Code"), and its proposed method of operation will enable it to
meet the requirements for taxation as a real estate investment trust
under the Code.
(xiv) Absence of Labor Dispute. No labor dispute with the
employees of the Company, the Operating Partnership or any Subsidiary
exists or, to the knowledge of the Company or the Operating
Partnership, is imminent, which, may reasonably be expected to result
in a Material Adverse Effect.
(xv) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company or the Operating Partnership, threatened,
against or affecting the Company, the Operating Partnership or any
Subsidiary or any of the Initial Properties, which is required to be
disclosed in the Registration Statement (other than as disclosed
therein), or which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated in
this Agreement and the International Purchase Agreement or the
performance by the Company of its obligations hereunder or thereunder
or the consummation of the Formation Transactions; the aggregate of all
pending legal or governmental proceedings to which the Company, the
Operating Partnership or any Subsidiary is a party or of which any of
their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected
to result in a Material Adverse Effect.
(xvi) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described and filed as required.
(xvii) Possession of Intellectual Property. The Company, the
Operating Partnership and its Subsidiaries own or possess, or can
acquire on reasonable terms, adequate trademarks, service marks and
trade names necessary to conduct their business as described in the
Registration Statement, and none of the Company, the Operating
Partnership or its Subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
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(xviii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by either the
Company or the Operating Partnership of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities under
this Agreement and the International Purchase Agreement or the
consummation of the transactions contemplated by this Agreement and the
International Purchase Agreement, except (i) such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities or blue sky laws and (ii) such as have
been obtained under the laws and regulations of jurisdictions outside
the United States in which the Reserved Securities are offered.
(xix) Possession of Licenses and Permits. Upon completion of
the formation Transactions, each of the Company, the Operating
Partnership and its Subsidiaries possess such permits, licenses,
approvals, consents and other authorizations, if any (collectively,
"Governmental Licenses") issued by the appropriate federal, state,
local or foreign regulatory agencies or bodies necessary to conduct the
business to be conducted by it, except where the failure to possess any
such Governmental License would not have a Material Adverse Effect; the
Company, the Operating Partnership and its Subsidiaries will be in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses will be valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor the Operating
Partnership nor any of its Subsidiaries will have received any notice
of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
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(xx) Title to, Description of and Compliance of Properties.
(a) Upon completion of the Formation Transactions, the Operating
Partnership or a Subsidiary thereof will hold good and marketable title
to all items of real property described in the Prospectuses as being
owned by such entity, in each case free and clear of all liens,
encumbrances, claims, security interests and defects, other than those
referred to in the Prospectuses or which are not material in amount;
(b) all liens, charges, encumbrances, claims, or restrictions on or
affecting the Properties or other assets of the Company, the Operating
Partnership or any Subsidiary thereof which are required to be
disclosed in the Prospectuses are disclosed therein; (c) none of the
Company, the Operating Partnership or any of its Subsidiaries, or, to
the best of the knowledge of the Company and the Operating Partnership,
any lessee under a lease relating to any of the Initial Properties, is
in default under any of the leases relating to the Initial Properties
and neither the Company nor the Operating Partnership knows of any
event which, but for the passage of time or the giving of notice, or
both, would constitute a default under any of such leases, except such
defaults that would not result in a Material Adverse Effect; (d) each
of the Initial Properties is in compliance with all applicable codes
and zoning laws and regulations, except for such failures to comply
which would not individually or in the aggregate result in a Material
Adverse Effect; and (e) neither the Company nor the Operating
Partnership has knowledge of any pending or threatened condemnation,
zoning change, or other proceeding or action that will in any manner
affect adversely the size of, use of, improvements on, construction on,
or access to the Initial Properties, except such proceedings or actions
that would not result in a Material Adverse Effect.
(xxi) Mortgages on Initial Properties. Except as otherwise
described in the Prospectuses, immediately following the application of
the proceeds of the Offering in the manner set forth in the
Prospectuses, the mortgages and deeds of trust encumbering the Initial
Properties and assets described in the Prospectuses will not be
convertible into an equity ownership interest and neither the Company,
the Operating Partnership, any of its Subsidiaries, any Original Owner
nor any person related to or affiliated with the Company, the Operating
Partnership, any of its Subsidiaries, or any Original Owner will hold a
participating interest therein and said mortgages and deeds of trust
will not be cross-defaulted or cross-collateralized with any property
not owned by the Company, the Operating Partnership or any of its
Subsidiaries.
(xxii) Title Insurance. Except as otherwise described in the
Prospectuses, upon completion of the Formation Transactions, the
Operating Partnership or a subsidiary thereof will have title insurance
on all properties and assets described in the Prospectuses as owned by
the Operating Partnership or a Subsidiary thereof, as the case may be,
in an amount at least equal to the greater of (a) the cost of
acquisition of such property or assets and (b) the cost of construction
of the improvements located on such properties.
(xxiii) Investment Company Act. Neither the Company, the
Operating Partnership nor any of its subsidiaries is, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
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(xxiv) Environmental Laws. Except as disclosed in the Phase I
environmental reports and associated materials previously delivered to
the U.S. Underwriters or their counsel, each of the Company and the
Operating Partnership has no knowledge of (a) the unlawful presence of
any substance, material or waste which is regulated by any federal,
state or local governmental or quasi-governmental authority, including,
without limitation, (i) any substance, material or waste defined, used
or listed as a "hazardous waste", "extremely hazardous waste",
"restricted hazardous waste", "hazardous substance", "hazardous
material", "toxic substance" or other similar terms as defined or used
in any Environmental Law (as defined below) (collectively, "Hazardous
Materials"), (ii) any petroleum products, asbestos, polychlorinated
biphenyls, lead-based paint, flammable explosives or radioactive
materials, and (iii) any additional substances or material which are
now hazardous or toxic substances under any Environmental Law relating
to the Properties or of (b) any spill, release, discharge or disposal
of Hazardous Material that have occurred or are presently occurring at,
from or onto any of the Properties or any other property in which the
Operating Partnership or any of its Subsidiaries will have an ownership
interest upon completion of the Formation Transactions or any
properties near or adjacent to the Properties, which presence or
occurrence would result in a Material Adverse Effect. In connection
with the construction on or operation and use of the Initial Properties
or any other property in which the Operating Partnership or any of its
Subsidiaries will have an ownership interest upon completion of the
Formation Transactions, the Company and the Operating Partnership
represent that, except as disclosed in the Phase I environmental
reports and associated materials previously delivered to the U.S.
Underwriters or their counsel, as of the date of this Agreement, (a)
each of the Company and the Operating Partnership has no knowledge of
any material failure to comply with any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of Hazardous Materials or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental Laws")
that would result in a Material Adverse Effect; (b) the Company, the
Operating Partnership and its Subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements;
(c) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company, the Operating
Partnership or any of its Subsidiaries; and (d) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company, the Operating Partnership or any of its Subsidiaries
relating to Hazardous Materials or any Environmental Laws.
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(xxv) Registration Rights. Except as set forth in the
Prospectuses under "Shares Available for Future Sale -- Registration
Rights," there are no persons with registration rights or other similar
rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxvi) Option Properties. At Closing Time, the agreements
pursuant to which the Operating Partnership will have the option and/or
right of first refusal to purchase certain properties (or interests
therein) listed on Schedule D annexed hereto that are not being
acquired by the Operating Partnership pursuant to the Formation
Transactions, will have been duly and validly authorized, executed and
delivered by the parties thereto and will be valid and binding
agreements, enforceable in accordance with their terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization and
other similar laws affecting creditors' rights generally and to general
equitable principles.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Global Coordinator, the
U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each U.S. Underwriter, severally and not
jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule B, the
number of Initial U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
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(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the U.S. Underwriters,
severally and not jointly, to purchase up to an additional 726,000 shares of
Common Shares at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Company setting forth the number of U.S. Option Securities as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery for the U.S. Option Securities (a "Date of Delivery")
shall be determined by the Global Coordinator, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the U.S. Option Securities, each of the U.S. Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of U.S. Option Securities then being purchased which the number of
Initial U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter bears to the total number of Initial U.S. Securities, subject in
each case to such adjustments as the Global Coordinator in its discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Hogan &
Hartson L.L.P., 555 13th Street, N.W., Washington, D.C., or at such other place
as shall be agreed upon by the Global Coordinator and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Global Coordinator and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities
are purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Each of the U.S. Representatives, individually
and not as representatives of the U.S. Underwriters, may (but shall not be
obligated to) make payment of the purchase price for the Initial U.S. Securities
or the U.S. Option Securities, if any, to be purchased by any U.S. Underwriter
whose funds have not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such U.S.
Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
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SECTION 3. Covenants of the Company and the Operating Partnership. Each
of the Company and the Operating Partnership covenants with each U.S.
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectuses included in the Registration Statement at the time it
became effective or to the Prospectuses, will furnish the Global
Coordinator with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will
not file or use any such document to which the Global Coordinator or
counsel for the U.S. Underwriters shall reasonably object.
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(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the U.S. Representatives and counsel for
the U.S. Underwriters, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates
of experts, and will also deliver to the U.S. Representatives, without
charge, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for each of the
U.S. Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each U.S. Underwriter, without charge, as many copies of each
preliminary prospectus as such U.S. Underwriter reasonably requested,
and the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will furnish to each U.S.
Underwriter, without charge, during the period when the U.S. Prospectus
is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the
U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter
may reasonably request. The U.S. Prospectus and any amendments or
supplements thereto furnished to the U.S. Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the International Purchase Agreement
and in the Prospectuses. If at any time when a prospectus is required
by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result
of which it is necessary, in the opinion of counsel for the U.S.
Underwriters or for the Company, to amend the Registration Statement or
amend or supplement any Prospectus in order that the Prospectuses will
not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the
reasonable opinion of such counsel, at any such time to amend the
Registration Statement or amend or supplement any Prospectus in order
to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the U.S. Underwriters
such number of copies of such amendment or supplement as the U.S.
Underwriters may reasonably request.
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(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect
the listing of the Common Shares (including the Securities) on the New
York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 12
months from the date of the Prospectuses, neither the Company nor the
Operating Partnership will, without the prior written consent of the
Global Coordinator, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any Common Shares or any
Units or any securities convertible into or exercisable or exchangeable
for Common Shares or Units or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of
ownership of the Common Shares or Units, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Shares or Units or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Securities
to be sold hereunder or under the International Purchase Agreement, (B)
any Common Shares issued or options to purchase Common Shares granted
pursuant to existing employee benefit plans of the Company referred to
in the Prospectuses, (C) any Common Shares issued pursuant to any
non-employee director stock plan or dividend reinvestment plan or (D)
any Common Shares issued as part of the Formation Transactions as
described in the Prospectuses.
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(k) Reporting Requirements. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that
it will ensure that the Reserved Securities will be restricted as
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of this
Agreement. The Underwriters will notify the Company as to which persons
will need to be so restricted. At the request of the Underwriters, the
Company will direct the transfer agent to place a stop transfer
restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the
Reserved Securities, the Company agrees to reimburse the Underwriters
for any reasonable expenses (including, without limitation, legal
expenses) they incur in connection with such release.
(m) Compliance with Rule 463. The Company will comply with the
requirements of Rule 463 of the 1933 Act Regulations.
(n) REIT Qualification. The Company will use its best efforts
to meet the requirements to qualify, commencing with the tax year
ending December 31, 1998, as a "real estate investment trust" under the
Code.
SECTION 4. Covenants of the U.S. Underwriters. The U.S. Underwriters
each severally covenants with the Company that at no time shall either (x) such
U.S. Underwriter or (y) any Person who would Constructively Own Shares owned by
such U.S. Underwriter Constructively Own, concurrently, 10% or more of the
outstanding securities of any class or series of (i) the Company and any tenant
or lessee of the Company (which, as of the Effective Date, includes, but is not
limited to, Genesis Health Ventures, Inc., Crozer-Genesis ElderCare Limited
Partnership, Senior Life Choice, LLC and the Age Institute of Florida or
subsidiaries of any of the above), and (ii) the Company and any Person that
would be considered to Constructively Own or Beneficially Own 10% or more of any
tenant or lessee of the Company (which, as of the Effective Date, includes, but
is not limited to, Genesis Health Ventures, Inc.). As used in this Section 4,
the terms "Person", "Beneficially Own," "Constructively Own" and "Effective
Date" shall have the meanings ascribed to such terms in the Company's Amended
and Restated Declaration of Trust.
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SECTION 5. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters and the
transfer of the Securities between the U.S. Underwriters and the International
Managers, (iv) the fees and disbursements of the Company's counsel, accountants
and other advisors, (v) the qualification of the Securities under securities
laws in accordance with the provisions of Section 3(f) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the Underwriters
in connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (x) the
fees and expenses incurred in connection with the listing of the Securities on
the New York Stock Exchange and (xi) all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, in
connection with matters related to the Reserved Securities which are designated
by the Company for sale to eligible employees and others having a business
relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 6 or Section
10(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 6. Conditions of U.S. Underwriters' Obligations. The
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company and the Operating
Partnership contained in Section 1 hereof or in certificates of any officer of
the Company, the Operating Partnership or any subsidiary delivered pursuant to
the provisions hereof, to the performance by the Company and the Operating
Partnership of their covenants and other obligations hereunder, and to the
following further conditions:
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(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the U.S. Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for the Company and the Operating
Partnership. At Closing Time, the U.S. Representatives shall have
received the favorable opinion, dated as of Closing Time, of Hogan &
Hartson L.L.P., counsel for the Company and the Operating Partnership,
in form and substance satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letters
for each of the other U.S. Underwriters, to the effect set forth in
Exhibit A and Exhibit B hereto, respectively, and to such further
effect as counsel to the U.S. Underwriters may reasonably request.
(c) Opinion of Counsel for U.S. Underwriters. At Closing Time,
the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Brown & Wood LLP, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters with respect to the matters set
forth in clauses (i), (vii), (viii) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or
by-laws of the Company), (x) through (xii), inclusive, (xiv), (xvi)
(solely as to the information in the Prospectus under "Shares of
Beneficial Interest--Common Shares") and the penultimate paragraph of
Exhibit A hereto. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of
the State of New York and the federal law of the United States, upon
the opinions of counsel satisfactory to the U.S. Representatives. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company, the Operating Partnership and
its subsidiaries and certificates of public officials.
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(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectuses, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, the Operating
Partnership, its Subsidiaries and the Initial Investments considered as
one enterprise, whether or not arising in the ordinary course of
business, and the U.S. Representatives shall have received a
certificate of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company and of
the general partner of the Operating Partnership, dated as of Closing
Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof
are true and correct in all material respects with the same force and
effect as though expressly made at and as of Closing Time, (iii) the
Company and the Operating Partnership have in all material respects
complied with all agreements and satisfied all conditions on their part
to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the U.S. Representatives shall have received from
KPMG Peat Marwick LLP a letter dated such date, in form and substance
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other U.S.
Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the
Prospectuses.
(f) Bring-down Comfort Letter. At Closing Time, the U.S.
Representatives shall have received from KPMG Peat Marwick LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
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(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
U.S. Representatives shall have received an agreement substantially in
the form of Exhibit C hereto signed by the persons listed on Schedule C
hereto.
(j) Purchase of Initial International Securities.
Contemporaneously with the purchase by the U.S. Underwriters of the
Initial U.S. Securities under this Agreement, the International
Managers shall have purchased the Initial International Securities
under the International Purchase Agreement.
(k) Conditions to Purchase of U.S. Option Securities. In the
event that the U.S. Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of the Company and the
Operating Partnership contained herein and the statements in any
certificates furnished by the Company, the Operating Partnership or any
subsidiary hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the U.S.
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company and of the general partner of the Operating
Partnership confirming that the certificates delivered at the
Closing Time pursuant to Section 6(d) hereof remain true and
correct as of such Date of Delivery.
(ii) Opinion of Counsel for the Company and the Operating
Partnership. The favorable opinion of Hogan & Hartson L.L.P.,
counsel for the Company and the Operating Partnership, in form
and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the
U.S. Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinions
required by Section 6(b) hereof.
(iii) Opinion of Counsel for U.S. Underwriters. The favorable
opinion of Brown & Wood LLP, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the
U.S. Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion
required by Section 6(c) hereof.
(iv) Bring-down Comfort Letter. A letter from KPMG Peat
Marwick LLP, in form and substance satisfactory to the U.S.
Representatives and dated such Date of Delivery, substantially
in the same form and substance as the letter furnished to the
U.S. Representatives pursuant to Section 6(f) hereof, except
that the "specified date" in the letter furnished pursuant to
this paragraph shall be a date not more than five days prior
to such Date of Delivery.
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(l) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the U.S. Underwriters shall have been furnished with such documents
and opinions as they may require for the purpose of enabling them to pass upon
the issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(m) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of U.S. Option
Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant Option
Securities, may be terminated by the U.S. Representatives by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 7, 8 and
9 shall survive any such termination and remain in full force and effect.
SECTION 7. Indemnification.
(a) Indemnification of U.S. Underwriters. The Company and the Operating
Partnership jointly and severally hereby agree to indemnify and hold harmless
each U.S. Underwriter and each person, if any, who controls any U.S. Underwriter
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or prospectus wrapper material distributed in Canada or in connection
with the reservation and sale of the Reserved Securities to eligible
employees and others having a business relationship with the Company or
the omission or alleged omission therefrom of a material fact necessary
to make the statements therein, when considered in conjunction with the
Prospectuses or preliminary prospectuses, not misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
7(a)(ii)(A) hereof; provided that (subject to Section 7(d) below) any
such settlement is effected with the written consent of the Company;
and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 7(a)(ii)(A) hereof, to
the extent that any such expense is not paid under (i), (ii) or (iii)
above;
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provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of (A) any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto) or
(B) the fact that such U.S. Underwriter sold Securities to a person as to whom
it shall be established that there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the U.S. Prospectus or of the U.S.
Prospectus as then amended or supplemented in any case where such delivery is
required by the 1933 Act if the Company has previously furnished copies thereof
in sufficient quantity to such U.S. Underwriter and the loss, claim, damage or
liability of such U.S. Underwriter results from an untrue statement or omission
of a material fact contained in any preliminary prospectus or U.S. Prospectus
(or any amendment or supplement thereto), which was corrected in the U.S.
Prospectus or in the U.S. Prospectus as then amended or supplemented and
delivery would have cured the defect giving rise to such loss, claim, damage or
liability.
(b) Indemnification of Company, the Operating Partnership, Trustees,
Trustee Nominees and Officers. Each U.S. Underwriter severally agrees to
indemnify and hold harmless the Company, its trustees, trustee nominees named in
the Registration Statement, each of its officers who signed the Registration
Statement, the Operating Partnership, and each person, if any, who controls the
Company or the Operating Partnership within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary U.S. prospectus or
the U.S. Prospectus (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto). The Company and
the Operating Partnership acknowledge that the statements set forth in the last
paragraph of the cover page and in paragraphs 4,5,8,9 and 15 under the caption
"Underwriting" in the Prospectuses constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the Registration
Statement relating to the Securities as originally filed or in any amendment
thereof, a related preliminary prospectus or the Prospectuses or in any
amendment thereof or supplement thereto, as the case may be.
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(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party.
Notwithstanding the foregoing, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action, except the
indemnifying party shall be liable for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
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(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company and the Operating
Partnership agree, promptly upon a request in writing to indemnify and hold
harmless the Underwriters from and against any and all losses, liabilities,
claims, damages and expenses incurred by them as a result of the failure of
eligible employees and persons having business relationships with the Company to
pay for and accept delivery of Reserved Securities which, by the end of the
first business day following the date of this Agreement, were subject to a
properly confirmed agreement to purchase.
SECTION 8. Contribution. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Operating Partnership on the one hand and the U.S. Underwriters on the other
hand from the offering of the Securities pursuant to this Agreement or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Operating Partnership on the one hand and of the U.S. Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 7(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company and the Operating
Partnership on the one hand and the U.S. Underwriters on the other hand in
connection with the offering of the U.S. Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the U.S. Securities pursuant to this Agreement
(before deducting expenses) received by the Company and the Operating
Partnership and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company and the Operating Partnership on the
one hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Operating Partnership
or by the U.S. Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission
or any violation of the nature referred to in Section 7(a)(ii)(A) hereof.
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The Company and the Operating Partnership and the U.S. Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the U.S. Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 8 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each trustee of the Company, each trustee nominee of the
Company named in the Registration Statement, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company or the Operating Partnership within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company and the Operating Partnership, respectively. The
U.S. Underwriters' respective obligations to contribute pursuant to this Section
8 are several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint. For purposes
of this Section 8, the Company, the Operating Partnership and its subsidiaries
shall be deemed one party jointly and severally liable for any obligations
hereunder.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company and the Operating
Partnership or any of its subsidiaries submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any U.S. Underwriter or controlling person, or by or on behalf
of the Company or the Operating Partnership, and shall survive delivery of the
Securities to the U.S. Underwriters.
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SECTION 10. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company, the Operating
Partnership, its Subsidiaries and the Initial Investments considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the International financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or International
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the U.S. Representatives, impracticable
to market the Securities or to enforce contracts for the sale of the Securities,
or (iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7, 8 and 9 shall survive such termination and remain in full force and
effect.
SECTION 11. Default by One or More of the U.S. Underwriters. If one or
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of U.S. Securities to be purchased on such date, each of
the non-defaulting U.S. Underwriters shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
29
<PAGE>
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the U.S. Underwriters to purchase and of the
Company to sell the Option Securities to be purchased and sold on such
Date of Delivery shall terminate without liability on the part of any
non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
U.S. Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section 10.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Mr. Michael F.
Profenius, Managing Director; and notices to the Company or the Operating
Partnership shall be directed to the Company at 415 McFarlan Road, Suite 202,
Kennett Square, Pennsylvania 19348, attention of Edward B. Romanov, Jr.,
President and Chief Executive Officer.
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and the Operating Partnership and their respective
successors and the controlling persons and officers, trustee and trustee
nominees referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the U.S. Underwriters and the Company and the Operating
Partnership and their respective successors, and said controlling persons and
officers, trustee and trustee nominees and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any U.S. Underwriter shall be deemed to be a
successor by reason merely of such purchase.
30
<PAGE>
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
ElderTrust
By_________________________________
Name:______________________________
Title:_____________________________
ElderTrust Operating Limited Partnership
By: ElderTrust
(its general partner)
By_________________________________
Name:______________________________
Title:_____________________________
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BT ALEX. BROWN INCORPORATED
GOLDMAN, SACHS & CO.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By____________________________________________
Authorized Signatory
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A hereto.
31
<PAGE>
SCHEDULE A
Name of U.S. Underwriter Number of
Initial U.S
Securities
--------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................
BT Alex. Brown Incorporated ...........................
Goldman, Sachs & Co.. .................................
-----------
Total.................................................. 4,840,000
=========
Sch A-1
<PAGE>
SCHEDULE B
ELDERTRUST
4,840,000 Common Shares of Beneficial Interest
(Par Value $.01 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in Section 2, shall be $o.
2. The purchase price per share for the U.S. Securities to be
paid by the several U.S. Underwriters shall be $o, being an amount
equal to the initial public offering price set forth above less $o per
share; provided that the purchase price per share for any U.S. Option
Securities purchased upon the exercise of the over-allotment option
described in Section 2(b) shall be reduced by an amount per share equal
to any dividends or distributions declared by the Company and payable
on the Initial U.S. Securities but not payable on the U.S. Option
Securities.
Sch B-1
<PAGE>
SCHEDULE C
Michael R. Walker
Edward B. Romavov, Jr.
D. Lee McCreary, Jr.
Sch C-1
<PAGE>
SCHEDULE D
[List of Option Properties]
Sch D-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)1
(i) The Company was formed, and is validly existing and in
good standing as of the date of the certificate specified in such
opinion, under Title 8 of the Maryland Corporations and Associations
Code Ann.
(ii) The Operating Partnership is a limited partnership formed
and validly existing existing and in good standing as of the date of
the certificate specified in such opinion, under the laws of the State
of Delaware.
(iii) Each subsidiary was incorporated or formed, as the case
may be, and is validly existing and in good standing as of the date of
the certificate specified in such opinion, under the laws of the
jurisdiction of its incorporation or formation.2
(iv) Each of the Company, the Operating Partnership and its
Subsidiaries has trust, corporate or partnership power, as the case may
be, and trust, corporate or partnership authority, as the case may be,
under its declaration of trust, charter or partnership agreement, as
the case may be, and under the laws of the jurisdiction of its
formation or incorporation to own, lease and operate its current
properties and to conduct its business as described in the Prospectuses
and, in the case of each of the Company and the Operating Partnership,
to enter into and perform its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement.
(v) The Company, the Operating Partnership and its
Subsidiaries are authorized to transact business as foreign
corporations or are registered as foreign limited partnerships, as the
case my be, under the laws of the States, and as of the respective
dates of the certificates, specified in such opinion.
(vi) The authorized, issued and outstanding Common Shares of
the Company, as of September 30, 1997, was set forth under the caption
"Capitalization" in the Prospectuses. All Common Shares of the Company
shown as issued and outstanding under said caption are duly authorized
and, assuming the receipt of consideration therefor as provided in
resolutions of the Company's Board of Trustees authorizing issuance
thereof, are validly issued, fully paid and non-assessable. None of the
outstanding Common Shares of the Company was issued in violation of any
statutory preemptive right under Title 8 of the Maryland Corporations
and Associations Code Ann. or, to our knowledge, any contractual right
of any securityholder of the Company to subscribe for any of the Common
Shares.
- ----------------
1 As used herein, the term "Subsidiaries" shall mean only those
Subsidiaries formed by the Operating Partnership.
2 Opinions with respect to "good standing" of limited partnerships
will be provided only if the applicable certificates refer to
their "good standing."
A-1
<PAGE>
(vii) When issued in accordance with the provisions of the U.S.
Purchase Agreement and the International Purchase Agreement, the
Securities will be validly issued, fully paid and non-assessable and no
holder of the Securities will be subject to personal liability under
Title 8 of the Maryland Corporations and Associations Code Ann. by
reason of being such holder.
(viii) No holder of outstanding Common Shares of the Company
has any statutory preemptive right under Title 8 of the Maryland
Corporations and Associations Code Ann. or, to our knowledge, any
contractual right to subscribe for any of the Securities.
(ix) The Units to be issued in connection with the Formation
Transactions, including, without limitation, the Units to be issued to
the Company, have been duly authorized for issuance by the Operating
Partnership to the holders or prospective holders thereof, and at
Closing Time, assuming the receipt of the consideration therefor as
provided in resolutions authorizing the issuance thereof, will be
validly issued and fully paid. Immediately after Closing Time and not
including any Units issued in exchange for proceeds received by the
Company in connection with the sale of the Option Securities, ______
Units will be issued and outstanding. The issuance and sale of such
Units in the Formation Transactions is not required to be registered
under the 1933 Act. The Units conform in all material respects to the
description thereof contained under the caption "Partnership Agreement"
in the Prospectuses.
(x) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by or on
behalf of each of the Company and the Operating Partnership.
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectuses pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule
424(b); and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are threatened by
the Commission.
(xii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectuses and each amendment or
supplement to the Registration Statement and the Prospectuses as of
their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the
1933 Act Regulations.
A-2
<PAGE>
(xiii) The form of certificate used to evidence the Common
Shares complies in all material respects with any applicable
requirements of Title 8 of the Maryland Corporations and Associations
Code Ann. and the Amended and Restated Declaration of Trust and Bylaws
of the Company and the rules and regulations of the New York Stock
Exchange, Inc.
(xiv) The information in the Prospectuses under the captions
"Shares of Beneficial Interest," "Certain Provisions of Maryland Law
and the Company's Declaration of Trust and Bylaws" and "Shares
Available for Future Sale," to the extent that it constitutes matters
of law, summaries of certain provisions of the Company's Amended and
Restated Declaration of Trust and Bylaws or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xv) The execution, delivery and performance as of the date
hereof by the Company and the Operating Partnership of the U.S.
Purchase Agreement and the International Purchase Agreement do not (i)
violate Title 8 of the Maryland Corporations and Associations Code
Ann., the Delaware Revised Uniform Limited Partnership Act, as amended,
the Amended and Restated Declaration of Trust or Bylaws of the Company
or the Limited Partnership Agreement of the Operating Partnership, (ii)
to our knowledge, violate any applicable law, rule, regulation, order,
judgment or decree of any Maryland or Delaware governmental agency or
court or (iii) breach or constitute a default under any agreement or
contract filed as an exhibit to the Registration Statement.
(xvi) No approval or consent of, or registration or filing
with, any Maryland or Delaware governmental agency is required to be
obtained or made by the Company or the Operating Partnership in
connection with the execution, delivery and performance as of the date
hereof by the Company and the Operating Partnership of the U.S.
Purchase Agreement and the International Purchase Agreement.
(xvii) The Limited Partnership Agreement of the Operating
Partnership has been duly executed and delivered on behalf of
ElderTrust Realty Group, Inc., as general partner of the Operating
Partnership, and constitutes a valid and binding obligation of the
Operating Partnership, enforceable in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights (including, without
limitation, the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) and as
may be limited by the exercise of judicial discretion and the
application of principles of equity including, without limitation,
requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether such agreement is considered in a
proceeding in equity or at law).
A-3
<PAGE>
(xviii) The Registration Rights Agreement has been duly
executed and delivered on behalf of the Company and constitutes a valid
and binding obligation of the Company, enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
(including, without limitation, the effect of statutory and other law
regarding fraudulent conveyances, fraudulent transfers and preferential
transfers) and as may be limited by the exercise of judicial discretion
and the application of principles of equity including, without
limitation, requirements of good faith, fair dealing, conscionability
and materiality (regardless of whether such agreement is considered in
a proceeding in equity or at law).
(xix) To our knowledge, except as set forth under the caption
"Shares Available for Future Sale--Registration Rights" in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xx) The Company is not an "investment company," as such
term is defined in the 1940 Act.
The opinion expressed in paragraphs (xvii) and (xviii) above shall be
understood to mean only that if there is a default in performance of an
obligation, (i) if a failure to pay or other damage can be shown and (ii) if the
defaulting party can be brought into a court which will hear the case and apply
the governing law, then, subject to the availability of defenses, and to the
exceptions set forth in Paragraphs (xvii) and (xviii) above, the court will
provide a money damage (or perhaps injunctive or specific performance) remedy.
During the course of the preparation of the Registration Statement, we
participated in conferences with officers and other representatives of the
Company, with representatives of the independent public accountants of the
Company and with you and your representatives. While we have not undertaken to
determine independently, and we do not assume any responsibility for, the
accuracy, completeness, or fairness of the statements in the Registration
Statement or the Prospectuses, we may state on the basis of these conferences
and our activities as counsel to the Company in connection with the Registration
Statement that no facts have come to our attention which cause us to believe
that (i) the Registration Statement, at the time it became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectuses, as of the date hereof, contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, (ii) there are any legal or governmental
proceedings pending or threatened against the Company that are required to be
disclosed in the Registration Statement or the Prospectuses, other than those
disclosed therein, or (iii) there are any contracts or documents of a character
required to be described in the Registration Statement or the Prospectuses or to
be filed as exhibits to the Registration Statement that are not described or
referred to therein or so filed; provided that in making the foregoing
statements (which shall not constitute an opinion), we are not expressing any
views as to the financial statements and supporting schedules and other
financial data included in or omitted from the Registration Statement or the
Prospectuses.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company, the Operating Partnership,
the Subsidiaries and public officials. Such opinion shall not state that it is
to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-4
<PAGE>
Exhibit B
FORM OF TAX OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The information in the Prospectuses under "Federal Income Tax
Consequences", to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is correct in all material respects.
(ii) Commencing with the Company's taxable year ending December 31,
1998, and assuming that the actions contemplated in the Prospectuses are
completed in a timely fashion, the Company is organized in conformity with the
requirements for qualification and taxation as a real estate investment trust
under the Code, and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a real estate investment trust
under the Code.
B-1
<PAGE>
[Form of lock-up from directors and trustees pursuant to Section 5(i)]
Exhibit C
____________ , 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BT ALEX. BROWN INCORPORATED
GOLDMAN, SACHS & CO.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by ElderTrust
---------------------------------------
Dear Sirs:
The undersigned, an officer and/or trustee of ElderTrust, a Maryland
real estate investment trust (the "Company"), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), BT
Alex. Brown Incorporated and Goldman, Sachs & Co. propose to enter into a U.S.
Purchase Agreement (the "U.S. Purchase Agreement") with the Company and
ElderTrust Operating Limited Partnership, a Delaware limited partnership (the
"Operating Partnership") providing for the public offering of the Company's
common shares of beneficial interest, par value $.01 per share (the "Common
Shares"). In recognition of the benefit that such an offering will confer upon
the undersigned as an officer and/or trustee of the Company, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
U.S. Purchase Agreement that, during a period of 12 months from the date of the
U.S. Purchase Agreement, the undersigned will not, without the prior written
consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any Common Shares or any units of partnership
interest in the Operating Partnership ("Units") or any securities convertible
into or exchangeable or exercisable for Common Shares or Units, whether now
owned or hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, or file any
registration statement under the Securities Act of 1933, as amended, with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Shares or Units,
whether any such swap or transaction is to be settled by delivery of Common
Shares or Units or other securities, in cash or otherwise.
Very truly yours,
Signature:___________________________
Print Name:__________________________
C-1
<PAGE>
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations
(i) in our opinion, the audited financial statements and the
related financial statement schedule included in the Registration
Statement and the Prospectuses comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the latest available unaudited interim financial statements
of the Company, a reading of the minute books of the Company, inquiries
of certain officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to our attention that caused us
to believe that:
(A) at a specified date not more than five days prior
to the date of this Agreement, there was any change in
the shares of beneficial interest of the Company or any
decrease in the net assets of the Company or any increase
in the debt of the Company, in each case as compared with
amounts shown in the latest balance sheet included in the
Registration Statement, except in each case for changes,
decreases or increases that the Registration Statement
discloses have occurred or may occur; or
(B) for the period from _________, 1997 to a
specified date not more than five days prior to the date
of this Agreement, there was any decrease in revenues or
net income of the Company, in each case as compared with
the comparable period in the preceding year, except in
each case for any decreases that the Registration
Statement discloses have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above
and a reading of the Selected Financial Information included in the
Registration Statement (the "Selected Financial Information"), nothing
came to our attention that caused us to believe that the Selected
Financial Information do not comply as to form in all material respects
with the disclosure requirements of Item 301 of Regulation S-K of the
1933 Act or that the amounts included in the Selected Financial
Information are not in agreement with the corresponding amounts in the
audited financial statements for the respective periods;
Annex A-1
<PAGE>
(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein, nothing came to our attention that caused us to
believe that this information does not comply as to form in all
material respects with the disclosure requirements of Items 302, 402
and 503(d), respectively, of Regulation S-K;
(v) based upon the procedures set forth in clause (ii) above
and a reading of the Selected Financial Information, nothing came to
our attention that caused us to believe that the unaudited operating
data, balance sheet data and other data set forth in the Selected
Financial Information do not agree with the amounts set forth in the
unaudited financial statements for those periods or that such unaudited
amounts were not determined on a basis substantially consistent with
that of the corresponding amounts in the audited financial statements;
(vi) we are unable to and do not express any opinion on the
pro forma financial information (the "Pro Forma Information") included
in the Registration Statement or on the pro forma adjustments applied
to the historical amounts included in the Pro Forma Information;
however, for purposes of this letter we have:
(A) read the Pro Forma Information;
(B) performed [an audit] [a review in
accordance with SAS 71] of the financial statements
to which the pro forma adjustments were applied;
(C) made inquiries of certain officials of
the Company who have responsibility for financial and
accounting matters about the basis for their
determination of the pro forma adjustments and
whether the Pro Forma Information complies as to form
in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation
S-X; and
(D) proved the arithmetic accuracy of the
application of the pro forma adjustments to the
historical amounts in the Pro Forma Information; and
on the basis of such procedures and such other inquiries and
procedures as specified herein, nothing came to our
attention that caused us to believe that the Pro Forma
Information included in the Registration Statement does
not comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X
or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of
those statements; and
(vii) in addition to the procedures referred to in clause (ii)
above, we have performed other procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which
are specified herein, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting and
financial records of the Company.
Annex A-2
<PAGE>
ELDERTRUST
(a Maryland real estate investment trust)
1,210,000 Common Shares of Beneficial Interest
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
*, 1998
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
as Lead Managers of the several
International Managers
c/o Merrill Lynch International
Ropemaker Place
Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
ElderTrust, a Maryland real estate investment trust (the "Company") and
ElderTrust Operating Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), each confirms its agreement with Merrill Lynch
International ("Merrill Lynch"), BT Alex. Brown International (ABT Alex. Brown@)
and Goldman Sachs International (AGoldman Sachs@) and each of the other
international underwriters named in Schedule A hereto (collectively, the
"International Managers", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch, BT Alex. Brown and Goldman Sachs are acting as representatives (in such
capacity, the "Lead Managers"), with respect to the issue and sale by the
Company and the purchase by the International Managers, acting severally and not
jointly, of the respective numbers of common shares of beneficial interest, par
value $.01 per share, of the Company ("Common Shares") set forth in said
Schedule A, and with respect to the grant by the Company to the International
Managers, acting severally and not jointly, of the option described in Section
2(b) hereof to purchase all or any part of 181,500 additional Common Shares to
<PAGE>
cover over-allotments, if any. The aforesaid 1,210,000 Common Shares (the
"Initial U.S. Securities") to be purchased by the International Managers and all
or any part of the 181,500 Common Shares subject to the option described in
Section 2(b) hereof (the "International Option Securities") are hereinafter
called, collectively, the "International Securities".
It is understood that the Company and the Operating Partnership are
concurrently entering into an agreement dated the date hereof (the "U.S.
Purchase Agreement") providing for the offering by the Company of an aggregate
of 4,840,000 Common Shares (the "Initial U.S. Securities") through arrangements
with certain underwriters inside the United States and Canada (the "U.S.
Underwriters") for which Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BT Alex. Brown Incorporated and Goldman, Sachs & Co., are
acting as representatives (the "U.S. Representatives") and the grant by the
Company to the International Managers, acting severally and not jointly, of an
option to purchase all or any part of the International Managers' pro rata
portion of up to 726,000 additional Common Shares solely to cover
overallotments, if any (the "International Option Securities" and, together with
the U.S. Option Securities, the "Option Securities"). The Initial U.S.
Securities and the U.S. Option Securities are hereinafter called the
"International Securities". It is understood that the Company is not obligated
to sell and the International Managers are not obligated to purchase, any
Initial International Securities unless all of the Initial U.S. Securities are
contemporaneously purchased by the U.S. Underwriters.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Operating Partnership each understands that the
International Managers propose to make a public offering of the International
Securities as soon as the Lead Managers deem advisable after this Agreement has
been executed and delivered.
The Company and the International Managers agree that up to 121,000
shares of the Initial International Securities to be purchased by the
International Managers and that up to 484,000 shares of the Initial U.S.
Securities to be purchased by the U.S. Underwriters (collectively, the "Reserved
Securities") shall be reserved for sale by the Underwriters to certain eligible
employees and persons having business relationships with the Company, as part of
the distribution of the Securities by the Underwriters, subject to the terms of
this Agreement, the applicable rules, regulations and interpretations of the
National Association of Securities Dealers, Inc. and all other applicable laws,
rules and regulations. To the extent that such Reserved Securities are not
orally confirmed for purchase by such eligible employees and persons having
business relationships with the Company by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to the
public as part of the public offering contemplated hereby.
3
<PAGE>
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-11 (No. 333-37451) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting". The information included in
any such prospectus or in any such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of U.S. Prospectus and Form of International
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated _____, 1998 and preliminary
International Prospectus dated ____, 1998, respectively, each together with the
applicable Term Sheet and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
At or prior to Closing Time (as hereinafter defined), the Company will
complete a series of transactions (the "Formation Transactions") described in
the Prospectuses under the caption "Structure and Formation of the Company C
Formation of the Company."
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1. SECTION REPRESENTATIONS AND WARRANTIES.
(a) Representations and Warranties by the Company and the Operating
Partnership. The Company and the Operating Partnership each severally represents
and warrants to each Lead Manager as of each Date of Delivery (if any) referred
to in Section 2(b), hereof and agrees with each Lead Manager, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company
meets the requirements for the use of Form S-11 under the 1933 Act.
Each of the Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
the Prospectuses, any preliminary prospectuses and any supplements
thereto or prospectus wrapper prepared in connection therewith, at
their respective times of issuance and at the Closing Time, complied
and will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses and such
preliminary prospectuses, as amended or supplemented, if applicable,
are distributed in connection with the offer and sale of Reserved
Securities. Neither of the Prospectuses nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectuses or any amendments or supplements thereto were issued and
at the Closing Time (and, if any International Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of
Rule 434 and the Prospectuses shall not be "materially different", as
such term is used in Rule 434, from the prospectuses included in the
Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the
International Prospectus made in reliance upon and in conformity with
information furnished to the Company in writing by any International
Manager through the Lead Managers expressly for use in the Registration
Statement or the International Prospectus.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
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amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements included in the Registration Statement are
independent public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iii) FINANCIAL STATEMENTS. The historical balance sheet of
the Company included in the Registration Statement and the
Prospectuses, together with the related notes, presents fairly in
accordance with generally accepted accounting principles ("GAAP") the
financial position of the Company at the date indicated. The selected
historical financial data and the summary financial information
included in the Prospectuses present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited balance sheet included in the Registration Statement. The
unaudited pro forma balance sheet and statements of operations and the
related notes thereto included in the Registration Statement and the
Prospectuses present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma balance sheets and statements of operations
expenses and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company, the Operating Partnership, its Subsidiaries
(as defined below) and the Initial Investments (as defined in the
Registration Statement), considered as one enterprise, whether or not
arising in the ordinary course of business (a "Material Adverse
Effect"), (B) no material casualty loss or material condemnation or
other material adverse event with respect to any of the Initial
Properties has occurred, (C) there have been no transactions entered
into by the Company, the Operating Partnership or any of its
Subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company, the Operating
Partnership and its Subsidiaries considered as one enterprise except in
connection with the Formation Transactions, and (D) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock or by the Operating
Partnership with respect to its partnership interests. As used in this
Agreement, the term "Subsidiary" as it relates to the Operating
Partnership includes ET Capital Corp. as well as any corporation,
limited or general partnership, joint venture or other entity through
which the Operating Partnership, upon completion of the Formation
Transactions, will own an interest, either directly or indirectly, in
an Initial Property.
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(v) GOOD STANDING OF THE COMPANY. The Company has been duly
formed and is validly existing as a real estate investment trust in
good standing under the laws of the State of Maryland and has full
trust power and trust authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses
and to enter into and perform its obligations under this Agreement and
the U.S. Purchase Agreement and the Transaction Documents (as
hereinafter defined) to which it is a party; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vi) GOOD STANDING OF OPERATING PARTNERSHIP AND ITS
SUBSIDIARIES. The Agreement of Limited Partnership of the Operating
Partnership (the "Partnership Agreement") has been duly and validly
authorized, executed and delivered by the parties thereto and is a
valid and binding agreement, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights
generally and by general principles of equity. The Operating
Partnership and each of its Subsidiaries has been duly formed and is
validly existing as a limited partnership or corporation, as the case
may be, in good standing under the laws of its state of organization
with partnership or corporate power and authority, as the case may be,
to own, lease and operate its properties, to conduct the business in
which it is engaged or proposes to engage as described in the
Prospectuses and to enter into and perform its obligations under this
Agreement and the U.S. Purchase Agreement, if applicable, and all other
Transaction Documents to which it is a party. The Operating Partnership
and each of its Subsidiaries is duly qualified or registered as a
foreign partnership or corporation, as the case may be, and is in good
standing in each jurisdiction in which such qualification or
registration is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure to so
qualify or register or to be in good standing would not result in a
Material Adverse Effect. All of the issued and outstanding capital
stock or partnership interests, as the case may be, of each such
Subsidiary which are described in the Prospectuses as being owned by
the Company or the Operating Partnership (directly or through
subsidiaries) upon completion of the Formation Transactions, will have
been duly authorized and, upon completion of the Formation
Transactions, will be validly issued, fully paid and (in the case of
corporations) non-assessable and owned by the Company or the Operating
Partnership (directly or through subsidiaries) as so described, free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity (except as described in the Prospectus).
None of the outstanding shares of capital stock of any Subsidiary was
issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary. As of the date hereof, ElderTrust
Realty Group, Inc. is the sole general partner of the Operating
Partnership and, immediately after the Closing Time referred to in
Section 2(c) hereof, the Company will be the sole general partner of
the Operating Partnership and will be the holder of _________ units of
partnership interest in the Operating Partnership ("Units"), or
approximately __% of the outstanding Units, if the over-allotment
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option is not exercised at Closing Time. To the extent any portion of
the over-allotment option is exercised at Closing Time, the relevant
numbers of Units and percentages set forth in this paragraph will be
deemed adjusted accordingly. Additionally, to the extent any portion of
the over-allotment option is exercised subsequent to Closing Time, the
Company will contribute the proceeds from the sale of the Option
Securities to the Operating Partnership in exchange for an equivalent
number of Units. Upon completion of the Formation Transactions, the
Operating Partnership will have no subsidiaries other than the entities
through which it will own interests in the Initial Properties or the
Initial Investments.
(vii) CAPITALIZATION. The authorized, issued and outstanding
shares of beneficial interest of the Company are as set forth in the
Prospectuses in the column entitled "Historical" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses, pursuant to the
Formation Transactions, pursuant to the redemption or exchange of Units
or pursuant to the exercise of convertible securities or options
referred to in the Prospectuses). The issued and outstanding shares of
beneficial interest of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of beneficial interest of the Company were issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) AUTHORIZATION OF AGREEMENT. This Agreement and the U.S.
Purchase Agreement have been duly authorized, executed and delivered by
the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The
Securities to be purchased by the International Managers and the U.S.
Underwriters from the Company have been duly authorized for issuance
and sale to the International Managers pursuant to this Agreement and
the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
respectively, and, when issued and delivered by the Company pursuant to
this Agreement and the U.S. Purchase Agreement, respectively, against
payment of the consideration set forth herein and the U.S. Purchase
Agreement, respectively, will be validly issued, fully paid and
non-assessable; the Common Shares conform to all statements relating
thereto contained in the Prospectuses and such description conforms to
the rights set forth in the instruments defining the same; no holder of
the Securities will be subject to personal liability by reason of being
such a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the
Company.
(x) AUTHORIZATION AND DESCRIPTION OF UNITS. The Units to be
issued in connection with the Formation Transactions, including,
without limitation, the Units to be issued to the Company, have been
duly authorized for issuance by the Operating Partnership to the
holders or prospective holders thereof, and at Closing Time will be
validly issued and fully paid. Immediately after Closing Time and not
including any Units issued in exchange for proceeds received by the
Company in connection with the sale of the Option Securities, ______
Units will be issued and outstanding. The Units have been and will be
offered and sold at or prior to Closing Time in compliance with all
applicable laws (including, without limitation, federal and state
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securities laws) and the issuance and sale of such Units in the
Formation Transactions will be exempt from the registration
requirements of the 1933 Act pursuant to Section 4(2) thereof. The
terms of the Units conform to all statements and descriptions related
thereto contained in the Prospectuses.
(xi) ABSENCE OF DEFAULTS AND CONFLICTS. Upon completion of the
Formation Transactions, none of the Company, the Operating Partnership
or any of its Subsidiaries will be in violation of its declaration of
trust, charter, by-laws, partnership agreement, certificate of limited
partnership or other governing document, as the case may be, or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company, the Operating Partnership or any of
its Subsidiaries is a party or by which it or any of them may be bound,
or to which any of the Initial Properties or any other property or
assets of the Company, the Operating Partnership or any Subsidiary is
subject (collectively, the "Agreements and Instruments") except for
such defaults that would not result in a Material Adverse Effect; and
the execution, delivery and performance of this Agreement and the U.S.
Purchase Agreement and the consummation of the transactions
contemplated in this Agreement, the U.S. Purchase Agreement and in the
Registration Statement (including the issuance and sale of the
Securities, the consummation of the Formation Transactions, and the use
of the proceeds from the sale of the Securities as described in the
Prospectuses under the caption "Use of Proceeds") and compliance by
each of the Company and the Operating Partnership with its obligations
under this Agreement and the U.S. Purchase Agreement have been duly
authorized by all necessary corporate or partnership action, as the
case may be, and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the Initial Properties or any other
property or assets of the Company, the Operating Partnership or any
Subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the declaration of trust,
charter, by-laws, partnership agreement, certificate of limited
partnership or other governing document, as the case may be, of the
Company, the Operating Partnership or any Subsidiary or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company, the Operating Partnership or any
subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or
any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company, the Operating Partnership or any
Subsidiary.
(xii) TRANSACTION DOCUMENTS. Each of the documents relating to
the Formation Transactions (the "Transaction Documents") to which the
Company, the Operating Partnership or any of its Subsidiaries or any
person or entity contributing interests in an Initial Property or
Subsidiary to the Company or the Operating Partnership in the Formation
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Transactions (each such person or entity, an "Original Owner") has been
duly authorized, executed and delivered by such party and constitutes
the binding agreement of such party, enforceable against such party in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of
equity.
(xiii) REIT QUALIFICATION. Commencing with the Company's
taxable year ending December 31, 1998, the Company will be organized in
conformity with the requirements for qualification as a real estate
investment trust under the Internal Revenue Code of 1986, as amended
(the "Code"), and its proposed method of operation will enable it to
meet the requirements for taxation as a real estate investment trust
under the Code.
(xiv) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company, the Operating Partnership or any Subsidiary
exists or, to the knowledge of the Company or the Operating
Partnership, is imminent, which, may reasonably be expected to result
in a Material Adverse Effect.
(xv) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company or the Operating Partnership, threatened,
against or affecting the Company, the Operating Partnership or any
Subsidiary or any of the Initial Properties, which is required to be
disclosed in the Registration Statement (other than as disclosed
therein), or which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated in
this Agreement and the U.S. Purchase Agreement or the performance by
the Company of its obligations hereunder or thereunder or the
consummation of the Formation Transactions; the aggregate of all
pending legal or governmental proceedings to which the Company, the
Operating Partnership or any Subsidiary is a party or of which any of
their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected
to result in a Material Adverse Effect.
(xvi) ACCURACY OF EXHIBITS. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described and filed as required.
(xvii) POSSESSION OF INTELLECTUAL PROPERTY. The Company, the
Operating Partnership and its Subsidiaries own or possess, or can
acquire on reasonable terms, adequate trademarks, service marks and
trade names necessary to conduct their business as described in the
Registration Statement, and none of the Company, the Operating
Partnership or its Subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
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(xviii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by either the
Company or the Operating Partnership of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities under
this Agreement and the U.S. Purchase Agreement or the consummation of
the transactions contemplated by this Agreement and the U.S. Purchase
Agreement, except (i) such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations or state
securities or blue sky laws and (ii) such as have been obtained under
the laws and regulations of jurisdictions outside the United States in
which the Reserved Securities are offered.
(xix) POSSESSION OF LICENSES AND PERMITS. Upon completion of
the formation Transactions, each of the Company, the Operating
Partnership and its Subsidiaries possess such permits, licenses,
approvals, consents and other authorizations, if any (collectively,
"Governmental Licenses") issued by the appropriate federal, state,
local or foreign regulatory agencies or bodies necessary to conduct the
business to be conducted by it, except where the failure to possess any
such Governmental License would not have a Material Adverse Effect; the
Company, the Operating Partnership and its Subsidiaries will be in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses will be valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor the Operating
Partnership nor any of its Subsidiaries will have received any notice
of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xx) TITLE TO, DESCRIPTION OF AND COMPLIANCE OF PROPERTIES.
(a) Upon completion of the Formation Transactions, the Operating
Partnership or a Subsidiary thereof will hold good and marketable title
to all items of real property described in the Prospectuses as being
owned by such entity, in each case free and clear of all liens,
encumbrances, claims, security interests and defects, other than those
referred to in the Prospectuses or which are not material in amount;
(b) all liens, charges, encumbrances, claims, or restrictions on or
affecting the Properties or other assets of the Company, the Operating
Partnership or any Subsidiary thereof which are required to be
disclosed in the Prospectuses are disclosed therein; (c) none of the
Company, the Operating Partnership or any of its Subsidiaries, or, to
the best of the knowledge of the Company and the Operating Partnership,
any lessee under a lease relating to any of the Initial Properties, is
in default under any of the leases relating to the Initial Properties
and neither the Company nor the Operating Partnership knows of any
event which, but for the passage of time or the giving of notice, or
both, would constitute a default under any of such leases, except such
defaults that would not result in a Material Adverse Effect; (d) each
of the Initial Properties is in compliance with all applicable codes
and zoning laws and regulations, except for such failures to comply
which would not individually or in the aggregate result in a Material
Adverse Effect; and (e) neither the Company nor the Operating
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Partnership has knowledge of any pending or threatened condemnation,
zoning change, or other proceeding or action that will in any manner
affect adversely the size of, use of, improvements on, construction on,
or access to the Initial Properties, except such proceedings or actions
that would not result in a Material Adverse Effect.
(xxi) MORTGAGES ON INITIAL PROPERTIES. Except as otherwise
described in the Prospectuses, immediately following the application of
the proceeds of the Offering in the manner set forth in the
Prospectuses, the mortgages and deeds of trust encumbering the Initial
Properties and assets described in the Prospectuses will not be
convertible into an equity ownership interest and neither the Company,
the Operating Partnership, any of its Subsidiaries, any Original Owner
nor any person related to or affiliated with the Company, the Operating
Partnership, any of its Subsidiaries, or any Original Owner will hold a
participating interest therein and said mortgages and deeds of trust
will not be cross-defaulted or cross-collateralized with any property
not owned by the Company, the Operating Partnership or any of its
Subsidiaries.
(xxii) TITLE INSURANCE. Except as otherwise described in the
Prospectuses, upon completion of the Formation Transactions, the
Operating Partnership or a subsidiary thereof will have title insurance
on all properties and assets described in the Prospectuses as owned by
the Operating Partnership or a Subsidiary thereof, as the case may be,
in an amount at least equal to the greater of (a) the cost of
acquisition of such property or assets and (b) the cost of construction
of the improvements located on such properties.
(xxiii) INVESTMENT COMPANY ACT. Neither the Company, the
Operating Partnership nor any of its subsidiaries is, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
(xxiv) ENVIRONMENTAL LAWS. Except as disclosed in the Phase I
environmental reports and associated materials previously delivered to
the International Managers or their counsel, each of the Company and
the Operating Partnership has no knowledge of (a) the unlawful presence
of any substance, material or waste which is regulated by any federal,
state or local governmental or quasi-governmental authority, including,
without limitation, (i) any substance, material or waste defined, used
or listed as a "hazardous waste", "extremely hazardous waste",
"restricted hazardous waste", "hazardous substance", "hazardous
material", "toxic substance" or other similar terms as defined or used
in any Environmental Law (as defined below) (collectively, "Hazardous
Materials"), (ii) any petroleum products, asbestos, polychlorinated
biphenyls, lead-based paint, flammable explosives or radioactive
materials, and (iii) any additional substances or material which are
now hazardous or toxic substances under any Environmental Law relating
to the Properties or of (b) any spill, release, discharge or disposal
of Hazardous Material that have occurred or are presently occurring at,
from or onto any of the Properties or any other property in which the
Operating Partnership or any of its Subsidiaries will have an ownership
interest upon completion of the Formation Transactions or any
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properties near or adjacent to the Properties, which presence or
occurrence would result in a Material Adverse Effect. In connection
with the construction on or operation and use of the Initial Properties
or any other property in which the Operating Partnership or any of its
Subsidiaries will have an ownership interest upon completion of the
Formation Transactions, the Company and the Operating Partnership
represent that, except as disclosed in the Phase I environmental
reports and associated materials previously delivered to the
International Managers or their counsel, as of the date of this
Agreement, (a) each of the Company and the Operating Partnership has no
knowledge of any material failure to comply with any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of Hazardous Materials or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws") that would result in a Material Adverse Effect;
(b) the Company, the Operating Partnership and its Subsidiaries have
all permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements;
(c) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company, the Operating
Partnership or any of its Subsidiaries; and (d) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company, the Operating Partnership or any of its Subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xxv) REGISTRATION RIGHTS. Except as set forth in the
Prospectuses under "Shares Available for Future Sale C Registration
Rights," there are no persons with registration rights or other similar
rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
<PAGE>
(xxvi) OPTION PROPERTIES. At Closing Time, the agreements
pursuant to which the Operating Partnership will have the option and/or
right of first refusal to purchase certain properties (or interests
therein) listed on Schedule D annexed hereto that are not being
acquired by the Operating Partnership pursuant to the Formation
Transactions, will have been duly and validly authorized, executed and
delivered by the parties thereto and will be valid and binding
agreements, enforceable in accordance with their terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization and
other similar laws affecting creditors' rights generally and to general
equitable principles.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Global Coordinator, the
Lead Managers or to counsel for the International Managers shall be deemed a
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representation and warranty by the Company to each International Manager as to
the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INTERNATIONAL MANAGERS; CLOSING.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each International Manager, severally and
not jointly, and each International Manager, severally and not jointly, agrees
to purchase from the Company, at the price per share set forth in Schedule B,
the number of Initial International Securities set forth in Schedule A opposite
the name of such International Manager Underwriter, plus any additional number
of Initial International Securities which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the International Managers,
severally and not jointly, to purchase up to an additional 181,500 shares of
Common Shares at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Company setting forth the number of
International Option Securities as to which the several International Managers
are then exercising the option and the time and date of payment and delivery for
such International Option Securities. Any such time and date of delivery for the
International Option Securities (a "Date of Delivery") shall be determined by
the Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the International Option Securities, each of the International Managers, acting
severally and not jointly, will purchase that proportion of the total number of
International Option Securities then being purchased which the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Managers bears to the total number of Initial International
Securities, subject in each case to such adjustments as the Global Coordinator
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Hogan &
Hartson L.L.P., 555 13th Street, N.W., Washington, D.C., or at such other place
as shall be agreed upon by the Global Coordinator and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Global Coordinator and the Company (such time and date of payment and delivery
being herein called "Closing Time").
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In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Lead Managers for the respective accounts of the International Managers of
certificates for the International Securities to be purchased by them. It is
understood that each International Managers has authorized the Lead Managers,
for its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial International Securities and the International
Option Securities, if any, which it has agreed to purchase. Each of the Lead
Managers, individually and not as representatives of the International Managers,
may (but shall not be obligated to) make payment of the purchase price for the
Initial International Securities or the International Option Securities, if any,
to be purchased by any International Manager whose funds have not been received
by the Closing Time or the relevant Date of Delivery, as the case may be, but
such payment shall not relieve such International Manager from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY AND THE OPERATING PARTNERSHIP. Each
of the Company and the Operating Partnership covenants with each International
Manager as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
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prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectuses included in the Registration Statement at the time it
became effective or to the Prospectuses, will furnish the Global
Coordinator with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will
not file or use any such document to which the Global Coordinator or
counsel for the International Managers shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Lead Managers and counsel for the
International Managers, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates
of experts, and will also deliver to the Lead Managers, without charge,
a conformed copy of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) for each of the
International Managers. The copies of the Registration Statement and
each amendment thereto furnished to the International Managers will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each International Managers, without charge, as many copies of each
preliminary prospectus as such International Managers, reasonably
requested, and the Company hereby consents to the use of such copies
for purposes permitted by the 1933 Act. The Company will furnish to
each International Managers, without charge, during the period when the
International Prospectus is required to be delivered under the 1933 Act
or the Securities Exchange Act of 1934 (the "1934 Act"), such number of
copies of the International Prospectus (as amended or supplemented) as
such International Managers may reasonably request. The International
Prospectus and any amendments or supplements thereto furnished to the
International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the International Purchase Agreement
and in the Prospectuses. If at any time when a prospectus is required
by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result
of which it is necessary, in the opinion of counsel for the
International Managers or for the Company, to amend the Registration
Statement or amend or supplement any Prospectus in order that the
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<PAGE>
Prospectuses will not include any untrue statements of a material fact
or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, or if it shall be
necessary, in the reasonable opinion of such counsel, at any such time
to amend the Registration Statement or amend or supplement any
Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the International
Managers such number of copies of such amendment or supplement as the
International Managers may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect
the listing of the Common Shares (including the Securities) on the New
York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 12
months from the date of the Prospectuses, neither the Company nor the
Operating Partnership will, without the prior written consent of the
Global Coordinator, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any Common Shares or any
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Units or any securities convertible into or exercisable or exchangeable
for Common Shares or Units or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of
ownership of the Common Shares or Units, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Shares or Units or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Securities
to be sold hereunder or under the U.S. Purchase Agreement, (B) any
Common Shares issued or options to purchase Common Shares granted
pursuant to existing employee benefit plans of the Company referred to
in the Prospectuses, (C) any Common Shares issued pursuant to any
non-employee director stock plan or dividend reinvestment plan or (D)
any Common Shares issued as part of the Formation Transactions as
described in the Prospectuses.
(k) Reporting Requirements. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that
it will ensure that the Reserved Securities will be restricted as
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of this
Agreement. The Underwriters will notify the Company as to which persons
will need to be so restricted. At the request of the Underwriters, the
Company will direct the transfer agent to place a stop transfer
restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the
Reserved Securities, the Company agrees to reimburse the Underwriters
for any reasonable expenses (including, without limitation, legal
expenses) they incur in connection with such release.
(m) Compliance with Rule 463. The Company will comply with the
requirements of Rule 463 of the 1933 Act Regulations.
(n) REIT Qualification. The Company will use its best efforts
to meet the requirements to qualify, commencing with the tax year
ending December 31, 1998, as a "real estate investment trust" under the
Code.
SECTION 4. COVENANTS OF THE INTERNATIONAL MANAGERS. The International
Managers each severally covenants with the Company that at no time shall either
(x) such International Managers or (y) any Person who would Constructively Own
Shares owned by such International Managers Constructively Own, concurrently,
10% or more of the outstanding securities of any class or series of (i) the
Company and any tenant or lessee of the Company (which, as of the Effective
Date, includes, but is not limited to, Genesis Health Ventures, Inc.,
Crozer-Genesis ElderCare Limited Partnership, Senior Life Choice, LLC and the
Age Institute of Florida or subsidiaries of any of the above), and (ii) the
Company and any Person that would be considered to Constructively Own or
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Beneficially Own 10% or more of any tenant or lessee of the Company (which, as
of the Effective Date, includes, but is not limited to, Genesis Health Ventures,
Inc.). As used in this Section 4, the terms "Person", "Beneficially Own,"
"Constructively Own" and "Effective Date" shall have the meanings ascribed to
such terms in the Company's Amended and Restated Declaration of Trust.
SECTION 5. PAYMENT OF EXPENSES. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters and the
transfer of the Securities between the International Managers and the
International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the terms of the sale of the
Securities, (x) the fees and expenses incurred in connection with the listing of
the Securities on the New York Stock Exchange and (xi) all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to eligible employees and others
having a business relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
Lead Managers in accordance with the provisions of Section 6 or Section 10(a)(i)
hereof, the Company shall reimburse the International Managers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the International Managers.
SECTION 6. CONDITIONS OF INTERNATIONAL MANAGERS' OBLIGATIONS. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company and the Operating
Partnership contained in Section 1 hereof or in certificates of any officer of
the Company, the Operating Partnership or any subsidiary delivered pursuant to
the provisions hereof, to the performance by the Company and the Operating
Partnership of their covenants and other obligations hereunder, and to the
following further conditions:
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(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the International Managers. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for the Company and the Operating
Partnership. At Closing Time, the Lead Managers shall have received the
favorable opinion, dated as of Closing Time, of Hogan & Hartson L.L.P.,
counsel for the Company and the Operating Partnership, in form and
substance satisfactory to counsel for the International Managers,
together with signed or reproduced copies of such letters for each of
the other International Managers, to the effect set forth in Exhibit A
and Exhibit B hereto, respectively, and to such further effect as
counsel to the International Managers may reasonably request.
(c) Opinion of Counsel for International Managers. At Closing
Time, the Lead Managers shall have received the favorable opinion,
dated as of Closing Time, of Brown & Wood LLP, counsel for the
International Managers, together with signed or reproduced copies of
such letter for each of the other International Managers with respect
to the matters set forth in clauses (i), (vii), (viii) (solely as to
preemptive or other similar rights arising by operation of law or under
the charter or by-laws of the Company), (x) through (xii), inclusive,
(xiv), (xvi) (solely as to the information in the Prospectus under
"Shares of Beneficial Interest--Common Shares") and the penultimate
paragraph of Exhibit A hereto. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York and the federal law of the United
States, upon the opinions of counsel satisfactory to the Lead Managers.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company, the Operating Partnership and
its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectuses, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, the Operating
Partnership, its Subsidiaries and the Initial Investments considered as
one enterprise, whether or not arising in the ordinary course of
business, and the U.S. Representatives shall have received a
certificate of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company and of
the general partner of the Operating Partnership, dated as of Closing
Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof
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are true and correct in all material respects with the same force and
effect as though expressly made at and as of Closing Time, (iii) the
Company and the Operating Partnership have in all material respects
complied with all agreements and satisfied all conditions on their part
to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Lead Managers shall have received from KPMG Peat
Marwick LLP a letter dated such date, in form and substance
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other International
Managers containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect
to the financial statements and certain financial information contained
in the Registration Statement and the Prospectuses.
(f) Bring-down Comfort Letter. At Closing Time, the Lead
Managers shall have received from KPMG Peat Marwick LLP a letter, dated
as of Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (e) of this
Section, except that the specified date referred to shall be a date not
more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Lead Managers shall have received an agreement substantially in the
form of Exhibit C hereto signed by the persons listed on Schedule C
hereto.
(j) Purchase of Initial U.S. Securities. Contemporaneously
with the purchase by the International Managers of the Initial
International Securities under this Agreement, the U.S. Underwriters
shall have purchased the Initial U.S. Securities under the U.S.
Purchase Agreement.
(k) Conditions to Purchase of International Option Securities.
In the event that the International Managers exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of
the Company and the Operating Partnership contained herein and the
statements in any certificates furnished by the Company, the Operating
Partnership or any subsidiary hereunder shall be true and correct as of
each Date of Delivery and, at the relevant Date of Delivery, the Lead
Managers shall have received:
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(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company and of the general partner of the Operating
Partnership confirming that the certificates delivered at the
Closing Time pursuant to Section 6(d) hereof remain true and
correct as of such Date of Delivery.
(ii) OPINION OF COUNSEL FOR THE COMPANY AND THE OPERATING
PARTNERSHIP. The favorable opinion of Hogan & Hartson L.L.P.,
counsel for the Company and the Operating Partnership, in form
and substance satisfactory to counsel for the International
Managers, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinions
required by Section 6(b) hereof.
(iii) OPINION OF COUNSEL FOR INTERNATIONAL MANAGERS. The
favorable opinion of Brown & Wood llp, counsel for the
International Managers, dated such Date of Delivery, relating
to the International Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the
opinion required by Section 6(c) hereof.
(iv) BRING-DOWN COMFORT LETTER. A letter from KPMG Peat
Marwick LLP, in form and substance satisfactory to the Lead
Managers and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the Lead
Managers pursuant to Section 6(f) hereof, except that the
"specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(l) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the International Managers shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the Lead
Managers and counsel for the International Managers.
(m) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of International
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several International Managers to purchase the relevant
Option Securities, may be terminated by the U.S. Representatives by notice to
the Company at any time at or prior to Closing Time or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that Sections 1, 7, 8
and 9 shall survive any such termination and remain in full force and effect.
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SECTION 7. INDEMNIFICATION.
(a) Indemnification of International Managers. The Company and the
Operating Partnership jointly and severally hereby agree to indemnify and hold
harmless each International Managers and each person, if any, who controls any
International Managers within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or prospectus wrapper material distributed in any foreign jurisdiction
or in connection with the reservation and sale of the Reserved
Securities to eligible employees and others having a business
relationship with the Company or the omission or alleged omission
therefrom of a material fact necessary to make the statements therein,
when considered in conjunction with the Prospectuses or preliminary
prospectuses, not misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
7(a)(ii)(A) hereof; provided that (subject to Section 7(d) below) any
such settlement is effected with the written consent of the Company;
and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 7(a)(ii)(A) hereof, to
the extent that any such expense is not paid under (i), (ii) or (iii)
above;
22
<PAGE>
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of (A) any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager through the Lead Manager expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto) or (B) the fact that such International Managers sold Securities to a
person as to whom it shall be established that there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the International
Prospectus or of the International Prospectus as then amended or supplemented in
any case where such delivery is required by the 1933 Act if the Company has
previously furnished copies thereof in sufficient quantity to such International
Managers and the loss, claim, damage or liability of such International Managers
results from an untrue statement or omission of a material fact contained in any
preliminary prospectus or International Prospectus (or any amendment or
supplement thereto), which was corrected in the International Prospectus or in
the International Prospectus as then amended or supplemented and delivery would
have cured the defect giving rise to such loss, claim, damage or liability.
(b) Indemnification of Company, the Operating Partnership, Trustees,
Trustee Nominees and Officers. Each International Manager severally agrees to
indemnify and hold harmless the Company, its trustees, trustee nominees named in
the Registration Statement, each of its officers who signed the Registration
Statement, the Operating Partnership, and each person, if any, who controls the
Company or the Operating Partnership within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary International
Prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such International Manager through the Lead Manager expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto). The Company and the Operating Partnership acknowledge that
the statements set forth in the last paragraph of the cover page and in
paragraphs 4, 5, 8, 9 and 15 under the caption "Underwriting" in the
prospectuses constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for use in the Registration Statement
relating to the Securities as originally filed or in any amendment thereof, a
related preliminary prospectus or the Prospectuses or in any amendment thereof
or supplement thereto, as the case may be.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
23
<PAGE>
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party.
Notwithstanding the foregoing, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action, except the
indemnifying party shall be liable for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company and the Operating
Partnership agree, promptly upon a request in writing to indemnify and hold
harmless the Underwriters from and against any and all losses, liabilities,
claims, damages and expenses incurred by them as a result of the failure of
eligible employees and persons having business relationships with the Company to
24
<PAGE>
pay for and accept delivery of Reserved Securities which, by the end of the
first business day following the date of this Agreement, were subject to a
properly confirmed agreement to purchase.
SECTION 8. CONTRIBUTION. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Operating Partnership on the one hand and the International Managers on the
other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Operating Partnership on the one hand and of the International
Managers on the other hand in connection with the statements or omissions, or in
connection with any violation of the nature referred to in Section 7(a)(ii)(A)
hereof, which resulted in such losses, liabilities, claims, damages or expenses,
as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Operating
Partnership on the one hand and the International Managers on the other hand in
connection with the offering of the U.S. Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses) received by the Company and the Operating
Partnership and the total underwriting discount received by the International
Managers, in each case as set forth on the cover of the International
Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the International
Securities as set forth on such cover.
The relative fault of the Company and the Operating Partnership on the
one hand and the International Managers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Operating Partnership
or by the International Managers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission or any violation of the nature referred to in Section 7(a)(ii)(A)
hereof.
The Company and the Operating Partnership and the International
Managers agree that it would not be just and equitable if contribution pursuant
to this Section 8 were determined by pro rata allocation (even if the
International Managers were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 8 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
25
<PAGE>
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the U.S. Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such International Manager has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls a
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each trustee of the Company, each trustee nominee of
the Company named in the Registration Statement, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company or the Operating Partnership within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company and the Operating Partnership, respectively. The
International Managers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint. For purposes of this Section 8, the Company, the Operating
Partnership and its subsidiaries shall be deemed one party jointly and severally
liable for any obligations hereunder.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company and the Operating
Partnership or any of its subsidiaries submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any International Manager or controlling person, or by or on
behalf of the Company or the Operating Partnership, and shall survive delivery
of the Securities to the International Manager.
SECTION 10. TERMINATION OF AGREEMENT.
(a) Termination; General. The Lead Managers may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the International
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company, the Operating Partnership, its Subsidiaries and the Initial Investments
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the International financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
International political, financial or economic conditions, in each case the
26
<PAGE>
effect of which is such as to make it, in the judgment of the Lead Managers,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the New York Stock
Exchange, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7, 8 and 9 shall survive such termination and remain in full force and
effect.
SECTION 11. DEFAULT BY ONE OR MORE OF THE INTERNATIONAL MANAGERS. If
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of International Securities to be purchased on such date,
each of the non-defaulting International Managers shall be obligated,
severally and not jointly, to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting
International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of International Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after
the Closing Time, the obligation of the International Managers to
purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting International Managers.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers or
the Company shall have the right to postpone Closing Time or the relevant Date
27
<PAGE>
of Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "International
Manager" includes any person substituted for a International Manager under this
Section 10.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at North Tower,
World Financial Center, New York, New York 10281-1201, attention of Mr. Michael
F. Profenius, Managing Director; and notices to the Company or the Operating
Partnership shall be directed to the Company at 415 McFarlan Road, Suite 202,
Kennett Square, Pennsylvania 19348, attention of Edward B. Romanov, Jr.,
President and Chief Executive Officer.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the International Managers and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the International Managers and the Company and the Operating Partnership
and their respective successors and the controlling persons and officers,
trustee and trustee nominees referred to in Sections 7 and 8 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the International Managers and the Company and the
Operating Partnership and their respective successors, and said controlling
persons and officers, trustee and trustee nominees and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any International Managers shall be deemed to be a
successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
28
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the International Managers and the Company in accordance with its terms.
Very truly yours,
ElderTrust
By __________________________________
Name:
Title:
ElderTrust Operating Limited Partnership
By: ElderTrust
(its general partner)
By __________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
By: MERRILL LYNCH INTERNATIONAL
By ______________________________________
Authorized Signatory
For themselves and as Lead Managers of the other International Managers named in
Schedule A hereto.
29
<PAGE>
SCHEDULE A
NAME OF INTERNATIONAL MANAGER Number of
Initial U.S
SECURITIES
Merrill Lynch International.....................................
BT Alex. Brown International....................................
Goldman Sachs International ....................................
---------
Total........................................................... 1,210,000
=========
Sch A - 1
<PAGE>
SCHEDULE B
ELDERTRUST
1,210,000 Common Shares of Beneficial Interest
(Par Value $.01 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in Section 2, shall be $*
2. The purchase price per share for the International
Securities to be paid by the several International Managers shall be
$* being an amount equal to the initial public offering price set
forth above less $*per share; provided that the purchase price per
share for any International Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall
be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial
International Securities but not payable on the International Option
Securities.
Sch B - 1
<PAGE>
SCHEDULE C
Michael R. Walker
Edward B. Romavov, Jr.
D. Lee McCreary, Jr.
Sch C - 1
<PAGE>
SCHEDULE D
[List of Option Properties]
Sch D - 1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)1
(i) The Company was formed, and is validly existing and in good
standing as of the date of the certificate specified in such opinion, under
Title 8 of the Maryland Corporations and Associations Code Ann.
(ii) The Operating Partnership is a limited partnership formed and
validly existing existing and in good standing as of the date of the certificate
specified in such opinion, under the laws of the State of Delaware.
(iii) Each subsidiary was incorporated or formed, as the case may be,
and is validly existing and in good standing as of the date of the certificate
specified in such opinion, under the laws of the jurisdiction of its
incorporation or formation.2
(iv) Each of the Company, the Operating Partnership and its
Subsidiaries has trust, corporate or partnership power, as the case may be, and
trust, corporate or partnership authority, as the case may be, under its
declaration of trust, charter or partnership agreement, as the case may be, and
under the laws of the jurisdiction of its formation or incorporation to own,
lease and operate its current properties and to conduct its business as
described in the Prospectuses and, in the case of each of the Company and the
Operating Partnership, to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(v) The Company, the Operating Partnership and its Subsidiaries are
authorized to transact business as foreign corporations or are registered as
foreign limited partnerships, as the case my be, under the laws of the States,
and as of the respective dates of the certificates, specified in such opinion.
(vi) The authorized, issued and outstanding Common Shares of the
Company, as of September 30, 1997, was set forth under the caption
"Capitalization" in the Prospectuses. All Common Shares of the Company shown as
issued and outstanding under said caption are duly authorized and, assuming the
receipt of consideration therefor as provided in resolutions of the Company's
Board of Trustees authorizing issuance thereof, are validly issued, fully paid
and non-assessable. None of the outstanding Common Shares of the Company was
issued in violation of any statutory preemptive right under Title 8 of the
- --------
1 As used herein, the term "Subsidiaries" shall mean only those Subsidiaries
formed by the Operating Partnership.
2 Opinions with respect to "good standing" of limited partnerships will be
provided only if the applicable certificates refer to their "good
standing."
A-1
<PAGE>
Maryland Corporations and Associations Code Ann. or, to our knowledge, any
contractual right of any securityholder of the Company to subscribe for any of
the Common Shares.
(vii) When issued in accordance with the provisions of the U.S.
Purchase Agreement and the International Purchase Agreement, the Securities will
be validly issued, fully paid and non-assessable and no holder of the Securities
will be subject to personal liability under Title 8 of the Maryland Corporations
and Associations Code Ann. by reason of being such holder.
(viii) No holder of outstanding Common Shares of the Company has any
statutory preemptive right under Title 8 of the Maryland Corporations and
Associations Code Ann. or, to our knowledge, any contractual right to subscribe
for any of the Securities.
(ix) The Units to be issued in connection with the Formation
Transactions, including, without limitation, the Units to be issued to the
Company, have been duly authorized for issuance by the Operating Partnership to
the holders or prospective holders thereof, and at Closing Time, assuming the
receipt of the consideration therefor as provided in resolutions authorizing the
issuance thereof, will be validly issued and fully paid. Immediately after
Closing Time and not including any Units issued in exchange for proceeds
received by the Company in connection with the sale of the Option Securities,
______ Units will be issued and outstanding. The issuance and sale of such Units
in the Formation Transactions is not required to be registered under the 1933
Act. The Units conform in all material respects to the description thereof
contained under the caption "Partnership Agreement" in the Prospectuses.
(x) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by or on behalf of
each of the Company and the Operating Partnership.
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and, to our knowledge, no stop
order suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are threatened by the
Commission.
(xii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectuses and each amendment or supplement to the
Registration Statement and the Prospectuses as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no opinion)
complied as to form in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations.
(xiii) The form of certificate used to evidence the Common Shares
complies in all material respects with any applicable requirements of Title 8 of
the Maryland Corporations and Associations Code Ann. and the Amended and
Restated Declaration of Trust and Bylaws of the Company and the rules and
regulations of the New York Stock Exchange, Inc.
A-2
<PAGE>
(xiv) The information in the Prospectuses under the captions "Shares of
Beneficial Interest," "Certain Provisions of Maryland Law and the Company's
Declaration of Trust and Bylaws" and "Shares Available for Future Sale," to the
extent that it constitutes matters of law, summaries of certain provisions of
the Company's Amended and Restated Declaration of Trust and Bylaws or legal
conclusions, has been reviewed by us and is correct in all material respects.
(xv) The execution, delivery and performance as of the date hereof by
the Company and the Operating Partnership of the U.S. Purchase Agreement and the
International Purchase Agreement do not (i) violate Title 8 of the Maryland
Corporations and Associations Code Ann., the Delaware Revised Uniform Limited
Partnership Act, as amended, the Amended and Restated Declaration of Trust or
Bylaws of the Company or the Limited Partnership Agreement of the Operating
Partnership, (ii) to our knowledge, violate any applicable law, rule,
regulation, order, judgment or decree of any Maryland or Delaware governmental
agency or court or (iii) breach or constitute a default under any agreement or
contract filed as an exhibit to the Registration Statement.
(xvi) No approval or consent of, or registration or filing with, any
Maryland or Delaware governmental agency is required to be obtained or made by
the Company or the Operating Partnership in connection with the execution,
delivery and performance as of the date hereof by the Company and the Operating
Partnership of the U.S. Purchase Agreement and the International Purchase
Agreement.
(xvii) The Limited Partnership Agreement of the Operating Partnership
has been duly executed and delivered on behalf of ElderTrust Realty Group, Inc.,
as general partner of the Operating Partnership, and constitutes a valid and
binding obligation of the Operating Partnership, enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights (including, without
limitation, the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) and as may be
limited by the exercise of judicial discretion and the application of principles
of equity including, without limitation, requirements of good faith, fair
dealing, conscionability and materiality (regardless of whether such agreement
is considered in a proceeding in equity or at law).
(xviii) The Registration Rights Agreement has been duly executed and
delivered on behalf of the Company and constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights (including, without limitation, the effect of
statutory and other law regarding fraudulent conveyances, fraudulent transfers
and preferential transfers) and as may be limited by the exercise of judicial
discretion and the application of principles of equity including, without
limitation, requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether such agreement is considered in a proceeding
in equity or at law).
(xix) To our knowledge, except as set forth under the caption "Shares
Available for Future SaleCRegistration Rights" in the Prospectuses, there are no
persons with registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by the
Company under the 1933 Act.
A-3
<PAGE>
(xx0 The Company is not an "investment company," as such term is
defined in the 1940 Act.
The opinion expressed in paragraphs (xvii) and (xviii) above shall be
understood to mean only that if there is a default in performance of an
obligation, (i) if a failure to pay or other damage can be shown and (ii) if the
defaulting party can be brought into a court which will hear the case and apply
the governing law, then, subject to the availability of defenses, and to the
exceptions set forth in Paragraphs (xvii) and (xviii) above, the court will
provide a money damage (or perhaps injunctive or specific performance) remedy.
During the course of the preparation of the Registration Statement, we
participated in conferences with officers and other representatives of the
Company, with representatives of the independent public accountants of the
Company and with you and your representatives. While we have not undertaken to
determine independently, and we do not assume any responsibility for, the
accuracy, completeness, or fairness of the statements in the Registration
Statement or the Prospectuses, we may state on the basis of these conferences
and our activities as counsel to the Company in connection with the Registration
Statement that no facts have come to our attention which cause us to believe
that (i) the Registration Statement, at the time it became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectuses, as of the date hereof, contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, (ii) there are any legal or governmental
proceedings pending or threatened against the Company that are required to be
disclosed in the Registration Statement or the Prospectuses, other than those
disclosed therein, or (iii) there are any contracts or documents of a character
required to be described in the Registration Statement or the Prospectuses or to
be filed as exhibits to the Registration Statement that are not described or
referred to therein or so filed; PROVIDED THAT in making the foregoing
statements (which shall not constitute an opinion), we are not expressing any
views as to the financial statements and supporting schedules and other
financial data included in or omitted from the Registration Statement or the
Prospectuses.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company, the Operating Partnership,
the Subsidiaries and public officials. Such opinion shall not state that it is
to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-4
<PAGE>
Exhibit B
FORM OF TAX OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The information in the Prospectuses under "Federal Income Tax
Consequences", to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is correct in all material respects.
(ii) Commencing with the Company's taxable year ending December 31,
1998, and assuming that the actions contemplated in the Prospectuses are
completed in a timely fashion, the Company is organized in conformity with the
requirements for qualification and taxation as a real estate investment trust
under the Code, and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a real estate investment trust
under the Code.
B-1
<PAGE>
[Form of lock-up from directors and trustees pursuant to Section 5(i)]
Exhibit C
*, 1998
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
as Lead Managers of the several
International Managers to be named in the
within-mentioned International Purchase Agreement
c/o Merrill Lynch International
Ropemaker Place
Ropemaker Street
London EC26 9LY
England
Re: PROPOSED PUBLIC OFFERING BY ELDERTRUST
--------------------------------------
Dear Sirs:
The undersigned, an officer and/or trustee of ElderTrust, a Maryland
real estate investment trust (the "Company"), understands that Merrill Lynch
International ("Merrill Lynch"), BT Alex. Brown International and Goldman Sachs
International propose to enter into a an International Purchase Agreement (the
"International Purchase Agreement") with the Company and ElderTrust Operating
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership") providing for the public offering of the Company's common shares
of beneficial interest, par value $.01 per share (the "Common Shares"). In
recognition of the benefit that such an offering will confer upon the
undersigned as an officer and/or trustee of the Company, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
International Purchase Agreement that, during a period of 12 months from the
date of the International Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Common Shares or any units
of partnership interest in the Operating Partnership ("Units") or any securities
convertible into or exchangeable or exercisable for Common Shares or Units,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Shares or Units,
whether any such swap or transaction is to be settled by delivery of Common
Shares or Units or other securities, in cash or otherwise.
Very truly yours,
Signature:
Print Name:
<PAGE>
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations
(i) in our opinion, the audited financial statements and the
related financial statement schedule included in the Registration
Statement and the Prospectuses comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the latest available unaudited interim financial statements
of the Company, a reading of the minute books of the Company, inquiries
of certain officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to our attention that caused us
to believe that:
(A) at a specified date not more than five days prior
to the date of this Agreement, there was any change in
the shares of beneficial interest of the Company or any
decrease in the net assets of the Company or any increase
in the debt of the Company, in each case as compared with
amounts shown in the latest balance sheet included in the
Registration Statement, except in each case for changes,
decreases or increases that the Registration Statement
discloses have occurred or may occur; or
(B) for the period from _________, 1997 to a
specified date not more than five days prior to the date
of this Agreement, there was any decrease in revenues or
net income of the Company, in each case as compared with
the comparable period in the preceding year, except in
each case for any decreases that the Registration
Statement discloses have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above
and a reading of the Selected Financial Information included in the
Registration Statement (the "Selected Financial Information"), nothing
came to our attention that caused us to believe that the Selected
Financial Information do not comply as to form in all material respects
with the disclosure requirements of Item 301 of Regulation S-K of the
1933 Act or that the amounts included in the Selected Financial
Information are not in agreement with the corresponding amounts in the
audited financial statements for the respective periods;
(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein, nothing came to our attention that caused us to
Annex A-1
<PAGE>
believe that this information does not comply as to form in all
material respects with the disclosure requirements of Items 302, 402
and 503(d), respectively, of Regulation S-K;
(v) based upon the procedures set forth in clause (ii) above
and a reading of the Selected Financial Information, nothing came to
our attention that caused us to believe that the unaudited operating
data, balance sheet data and other data set forth in the Selected
Financial Information do not agree with the amounts set forth in the
unaudited financial statements for those periods or that such unaudited
amounts were not determined on a basis substantially consistent with
that of the corresponding amounts in the audited financial statements;
(vi) we are unable to and do not express any opinion on the
pro forma financial information (the "Pro Forma Information") included
in the Registration Statement or on the pro forma adjustments applied
to the historical amounts included in the Pro Forma Information;
however, for purposes of this letter we have:
(A) read the Pro Forma Information;
(B) performed [an audit] [a review in
accordance with SAS 71] of the financial statements
to which the pro forma adjustments were applied;
(C) made inquiries of certain officials of
the Company who have responsibility for financial and
accounting matters about the basis for their
determination of the pro forma adjustments and
whether the Pro Forma Information complies as to form
in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation
S-X; and
(D) proved the arithmetic accuracy of the
application of the pro forma adjustments to the
historical amounts in the Pro Forma Information; and
on the basis of such procedures and such other inquiries
and procedures as specified herein, nothing came to our
attention that caused us to believe that the Pro Forma
Information included in the Registration Statement does
not comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X
or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of
those statements; and
(vii) in addition to the procedures referred to in clause (ii)
above, we have performed other procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which
are specified herein, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting and
financial records of the Company.
Annex A-2
<PAGE>
ELDERTRUST
FORM OF ARTICLES OF AMENDMENT AND RESTATEMENT OF
DECLARATION OF TRUST
FIRST: ElderTrust, a Maryland real estate investment trust
(the "Trust") under Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland ("Title 8"), desires to amend and restate its
Declaration of Trust as currently in effect (as so amended and restated, and as
the same may be amended hereafter, the "Declaration of Trust").
SECOND: The following provisions are all the provisions of
this Declaration of Trust currently in effect and as hereinafter amended:
ARTICLE I
FORMATION
The Trust is a real estate investment trust within the meaning
of Title 8. The Trust shall not be deemed to be a general partnership, limited
partnership, joint venture, joint stock company or, except as provided in
Section 13.4 hereof, a corporation (but nothing herein shall preclude the Trust
from being treated for tax purposes as an association under the Internal Revenue
Code of 1986, as amended (the "Code")).
ARTICLE II
NAME
The name of the Trust is: ElderTrust.
So far as may be practicable, the business of the Trust shall
be conducted and transacted under that name, which name (and the word "Trust"
wherever used in this Declaration of Trust, except where the context otherwise
requires) shall refer to the Trustees (as hereinafter defined) collectively but
not individually or personally and shall not refer to the Shareholders (as
hereinafter defined) or to any officers, employees or agents of the Trust or of
such Trustees.
Under circumstances in which the Board of Trustees of the
Trust (the "Board of Trustees" or "Board") determines that the use of the name
of the Trust is not practicable, the Trust may use any other designation or name
for the Trust.
<PAGE>
ARTICLE III
PURPOSES AND POWERS
Section 3.1 Purposes. The purposes for which the Trust is
formed are to invest in and to acquire, hold, finance, manage, administer,
control and dispose of property, including, without limitation or obligation,
engaging in business as a real estate investment trust under the Code.
Section 3.2 Powers. The Trust shall have all of the powers
granted to real estate investment trusts pursuant to Title 8 or any successor
statute and shall have all other and further powers set forth in this
Declaration of Trust which are not inconsistent with law and are appropriate to
promote and attain the purposes set forth in this Declaration of Trust.
Section 3.3 Investment Policy. The fundamental investment
policy of the Trust is to make investments in such a manner as to comply with
the provisions of the Code applicable to real estate investment trusts and with
the requirements of Title 8, with respect to the composition of the Trust's
investments and the derivation of its income. Subject to Section 5.2(u) hereof,
the Trustees will use their best efforts to carry out this fundamental
investment policy and to conduct the affairs of the Trust in such a manner as to
continue to qualify the Trust for the tax treatment provided for real estate
investment trusts in the Code; provided, however, no Trustee, officer, employee
or agent of the Trust shall be liable for any act or omission resulting in the
loss of tax benefits under the Code, except to the extent provided in Section
9.2 hereof. The Trustees may change from time to time by resolution or in the
bylaws of the Trust (the "Bylaws"), such investment policies as they determine
to be in the best interests of the Trust, including prohibitions or restrictions
upon certain types of investments.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of
Maryland is The Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a Maryland corporation. The Trust may
have such offices or places of business within or outside the State of Maryland
as the Board of Trustees may from time to time determine.
<PAGE>
ARTICLE V
BOARD OF TRUSTEES
Section 5.1 Powers. Subject to any express limitations
contained in this Declaration of Trust or in the Bylaws, (a) the business and
affairs of the Trust shall be managed under the direction of the Board of
Trustees and (b) the Board shall have full, exclusive and absolute power,
control and authority over any and all property of the Trust. The Board may take
any action as in its sole judgment and discretion is necessary or appropriate to
conduct the business and affairs of the Trust. This Declaration of Trust shall
be construed with a presumption in favor of the grant of power and authority to
the Board. Any construction of this Declaration of Trust or determination made
in good faith by the Board concerning its powers and authority hereunder shall
be conclusive. The enumeration and definition of particular powers of the
Trustees included in this Declaration of Trust or in the Bylaws shall in no way
be limited or restricted by reference to or inference from the terms of this or
any other provision of this Declaration of Trust or the Bylaws or construed or
deemed by inference or otherwise in any manner to exclude or limit the powers
conferred upon the Board or the Trustees under the general laws of the State of
Maryland as now or hereafter in force or any other applicable laws.
Section 5.2 Specific Powers and Authority. Subject only to the
express limitations herein, and in addition to all other powers and authority
conferred by this Declaration of Trust or by law, the Trustees, without any
vote, action or consent by the Shareholders, shall have and may exercise, at any
time or times, in the name of the Trust or on its behalf the following powers
and authorities:
(a) Investments. Subject to Section 9.4 hereof, to invest in,
purchase or otherwise acquire and to hold real, personal or mixed, tangible or
intangible, property of any kind wherever located, or rights or interests
therein or in connection therewith, all without regard to whether such property,
interests or rights are authorized by law for the investment of funds held by
trustees or other fiduciaries, or whether obligations the Trust acquires have a
term greater or lesser than the term of office of the Trustees or the possible
termination of the Trust, for such consideration as the Trustees may deem proper
(including cash, property of any kind or securities of the Trust); provided,
however, that the Trustees shall take such actions as they deem necessary and
desirable to comply with any requirements of Title 8 relating to the types of
assets held by the Trust.
(b) Sale, Disposition and Use of Property. Subject to Sections
3.3 and 9.4 and Article XI hereof: (i) to sell, rent, lease, hire, exchange,
release, partition, assign, mortgage, grant security interests in, encumber,
negotiate, dedicate, grant easements in and options with respect to, convey,
transfer (including transfers to entities wholly or partially owned by the Trust
or the Trustees) or otherwise dispose of any or all of the property of the Trust
by deeds (including deeds in lieu of foreclosure with or without consideration),
trust deeds, assignments, bills of sale, transfers, leases, mortgages, financing
statements, security agreements and other instruments for any of such purposes
executed and delivered for and on behalf of the Trust or the Trustees by one or
more of the Trustees or by a duly authorized officer, employee, agent or nominee
of the Trust, on such terms as they deem appropriate; (ii) to give consents and
make contracts relating to the property of the Trust and its use or other
property or matters; (iii) to develop, improve, manage, use, alter or otherwise
deal with the property of the Trust; and (iv) to rent, lease or hire from others
property of any kind; provided, however, that the Trust may not use or apply
land for any purposes not permitted by applicable law.
2
<PAGE>
(c) Financings. To borrow or in any other manner raise money
for the purposes and on the terms they determine, and to evidence the same by
issuance of securities of the Trust, which may have such provisions as the
Trustees determine; to reacquire such securities of the Trust; to enter into
other contracts or obligations on behalf of the Trust; to guarantee, indemnify
or act as surety with respect to payment or performance of obligations of any
person; to mortgage, pledge, assign, grant security interests in or otherwise
encumber the property of the Trust to secure any such securities of the Trust,
contracts or obligations (including guarantees, indemnifications and
suretyships); and to renew, modify, release, compromise, extend, consolidate or
cancel, in whole or in part, any obligation to or of the Trust or participate in
any reorganization of obligors to the Trust.
(d) Loans. Subject to the provisions of Section 9.4 hereof, to
lend money or other property of the Trust on such terms, for such purposes and
to such persons as they may determine.
(e) Issuance of Securities. Subject to the provisions of
Article VI hereof: (i) to create and authorize and direct the issuance (on
either a pro rata or a non-pro rata basis) by the Trust, in Shares (as
hereinafter defined), units or amounts of one or more types, series or classes,
of securities of the Trust, which may have such voting rights, dividend or
interest rates, preferences, subordinations, conversion or redemption prices or
rights, maturity dates, distribution, exchange, or liquidation rights or other
rights as the Trustees may determine, without vote of or other action by the
Shareholders, to such persons for such consideration, at such time or times and
in such manner and on such terms as the Trustees determine; (ii) to list or to
designate for listing or quotation any of the securities of the Trust on any
national securities exchange or automated inter-dealer quotation system; and
(iii) to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer
any securities of the Trust.
3
<PAGE>
(f) Expenses and Taxes. To pay any charges, expenses or
liabilities necessary or desirable, in the sole discretion of the Trustees, for
carrying out the purposes of this Declaration of Trust and conducting the
business of the Trust, including compensation or fees to Trustees, officers,
employees and agents of the Trust, and to persons contracting with the Trust,
and any taxes, levies, charges and assessments of any kind imposed upon or
chargeable against the Trust, the property of the Trust or the Trustees in
connection therewith; and to prepare and file any tax returns, reports or other
documents and take any other appropriate action relating to the payment of any
such charges, expenses or liabilities.
(g) Collection and Enforcement. To collect, sue for and
receive money or other property due to the Trust; to consent to extensions of
the time for payment, or to the renewal, of any securities or obligations; to
engage or to intervene in, prosecute, defend, compound, enforce, compromise,
release, abandon or adjust any actions, suits, proceedings, disputes, claims,
demands, security interests or things relating to the Trust, the property of the
Trust or the Trust's affairs; to exercise any rights and enter into any
agreements and take any other action necessary or desirable in connection with
the foregoing.
(h) Deposits. To deposit funds or securities constituting part
of the property of the Trust in banks, trust companies, savings and loan
associations, financial institutions and other depositories, whether or not such
deposits will draw interest, subject to withdrawal on such terms and in such
manner as the Trustees determine.
(i) Allocation; Accounts. To determine whether moneys, profits
or other assets of the Trust shall be charged or credited to, or allocated
between, income and capital, including whether or not to amortize any premium or
discount and to determine in what manner any expenses or disbursements are to be
borne as between income and capital (regardless of how such items would normally
or otherwise be charged to or allocated between income and capital without such
determination); to treat any dividend or other distribution on any investment
as, or apportion it between, income and capital; in their discretion to provide
reserves for depreciation, amortization, obsolescence or other purposes in
respect of any property of the Trust in such amounts and by such methods as they
determine; to determine what constitutes net earnings, profits or surplus; to
determine the method or form in which the accounts and records of the Trust
shall be maintained; and to allocate to the Shareholders' equity account less
than all of the consideration paid for Shares and to allocate the balance to
paid-in capital or capital surplus.
(j) Valuation of Property. To determine the value of all or
any part of the property of the Trust and of any services, securities, property
or other consideration to be furnished to or acquired by the Trust, and to
revalue all or any part of the property of the Trust, all in accordance with
such appraisals or other information as are reasonable, in their sole judgment.
4
<PAGE>
(k) Ownership and Voting Powers. To exercise all of the
rights, powers, options and privileges pertaining to the ownership of any
mortgages, securities, real estate and other property of the Trust to the same
extent that an individual owner might, including, without limitation, to vote or
give any consent, request or notice or waive any notice, either in person or by
proxy or power of attorney, which proxies and powers of attorney may be for any
general or special meetings or action, and may include the exercise of
discretionary powers.
(l) Officers; Delegation of Powers. To elect, appoint or
employ such officers for the Trust and such committees of the Board of Trustees
with such powers and duties as the Trustees may determine or the Bylaws provide;
to engage, employ or contract with and pay compensation to any person
(including, subject to Section 9.4 hereof, any Trustee and any person who is an
affiliate of any Trustee) as agent, representative, advisor, member of an
advisory board, employee or independent contractor (including advisers,
consultants, transfer agents, registrars, underwriters, accountants,
attorneys-at-law, real estate agents, property and other managers, appraisers,
brokers, architects, engineers, construction managers, general contractors or
otherwise) in one or more capacities, to perform such services on such terms as
the Trustees may determine; and to delegate to one or more Trustees, officers or
other persons engaged or employed as aforesaid, or to committees of Trustees,
the performance of acts or other things (including granting of consents), the
making of decisions and the execution of such deeds, contracts or other
instruments, in the name of the Trust or the Trustees, or as their attorneys or
otherwise, as the Trustees may determine.
(m) Associations. Subject to Section 9.4 hereof, to cause the
Trust to enter into joint ventures, general or limited partnerships,
participation or agency arrangements or any other lawful combinations,
relationships or associations of any kind.
(n) Reorganization; Merger, Consolidation or Sale of Trust
Property. Subject to Article XI hereof: (i) to cause to be organized or assist
in organizing any person under the laws of any jurisdiction to acquire all or
any part of the property of the Trust, carry on any business in which the Trust
shall have an interest or otherwise exercise the powers the Trustees deem
necessary, useful or desirable to carry on the business of the Trust or to carry
out the provisions of this Declaration of Trust; (ii) to merge or consolidate
the Trust with any person; (iii) to sell, rent, lease, hire, convey, negotiate,
assign, exchange or transfer all or any part of the property of the Trust to or
with any person in exchange for securities of such person or otherwise; and (iv)
to lend money to, subscribe for and purchase the securities of, and enter into
any contracts with, any person in which the Trust holds, or is about to acquire,
securities or any other interests.
5
<PAGE>
(o) Insurance. To purchase and pay for out of property of the
Trust insurance policies insuring the Trust and the property of the Trust
against any and all risks, and insuring the Shareholders, Trustees, officers,
employees and agents of the Trust individually against all claims and
liabilities of every nature arising by reason of holding or having held any such
status, office or position or by reason of any action alleged to have been taken
or omitted (including those alleged to constitute misconduct, gross negligence,
reckless disregard of duty or bad faith) by any such person in such capacity,
whether or not the Trust would have the power to indemnify such person against
such claim or liability.
(p) Executive Compensation, Pension and Other Plans. To adopt
and implement executive compensation, pension, profit sharing, share option,
share bonus, share purchase, share appreciation rights, restricted share,
savings, thrift, retirement, incentive or benefit plans, trusts or provisions,
applicable to any or all Trustees, officers, employees or agents of the Trust,
or to other persons who have benefited the Trust, all on such terms and for such
purposes as the Trustees may determine.
(q) Distributions. To declare and pay dividends or other
distributions to Shareholders, subject to the provisions of Section 6.5 hereof.
(r) Indemnification. In addition to the indemnification
provided for in Section 9.3 hereof, to indemnify any person, including any
independent contractor, with whom the Trust has dealings.
(s) Charitable Contributions. To make donations for the public
welfare or for community, charitable, religious, educational, scientific, civic
or similar purposes, regardless of any direct benefit to the Trust.
(t) Discontinue Operations; Bankruptcy. To discontinue the
operations of the Trust (subject to Section 12.2 hereof); to petition or apply
for relief under any provision of federal or state bankruptcy, insolvency or
reorganization laws or similar laws for the relief of debtors; to permit any
property of the Trust to be foreclosed upon without raising any legal or
equitable defenses that may be available to the Trust or the Trustees or
otherwise defending or responding to such foreclosure; to confess judgment
against the Trust; or to take such other action with respect to indebtedness or
other obligations of the Trustees, in such capacity, the property of the Trust
or the Trust as the Trustees in their discretion may determine.
(u) Termination of Status. To terminate the status of the
Trust as a real estate investment trust under the Code; provided, however, that
the Board of Trustees shall take no action to terminate the Trust's status as a
real estate investment trust under the Code until such time as (i) the Board of
Trustees adopts a resolution recommending that the Trust terminate its status as
a real estate investment trust under the Code, (ii) the Board of Trustees
presents the resolution at an annual or special meeting of the Shareholders and
(iii) such resolution is approved by the holders of a majority of the issued and
outstanding Common Shares (as hereinafter defined).
(v) Fiscal Year. Subject to the Code, to adopt, and from time
to time change, a fiscal year for the Trust.
(w) Seal. To adopt and use a seal, but the use of a seal shall
not be required for the execution of instruments or obligations of the Trust.
(x) Bylaws. To adopt, implement and from time to time alter,
amend or repeal Bylaws relating to the business and organization of the Trust
which are not inconsistent with the provisions of this Declaration of Trust.
(y) Accounts and Books. To determine from time to time whether
and to what extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Trust, or any of them, shall be open
to the inspection of Shareholders.
(z) Voting Trust. To participate in, and accept securities
issued under or subject to, any voting trust.
(aa) Proxies. To solicit proxies of the Shareholders at the
expense of the Trust.
(bb) Ownership Limits. To determine that it is no longer in
the best interests of the Trust to attempt to, or continue to, qualify as a real
estate investment trust under the Code or that compliance with any restriction
or limitations on ownership and transfers of Shares set forth in Article VII
hereof is no longer required for the Trust to qualify as a real estate
investment trust under the Code.
(cc) Further Powers. To do all other acts and things and
execute and deliver all instruments incident to the foregoing powers, and to
exercise all powers which they deem necessary, useful or desirable to carry on
the business of the Trust or to carry out the provisions of this Declaration of
Trust, even if such powers are not specifically provided hereby.
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Section 5.3 Determination of Best Interest of Trust. In
determining what is in the best interest of the Trust, a Trustee shall consider
the interests of the Shareholders of the Trust and, in his sole and absolute
discretion, may consider (a) the interests of the Trust's employees, suppliers,
creditors and customers, (b) the economy of the nation, (c) community and
societal interests and (d) the long-term as well as short-term interests of the
Trust and its Shareholders, including the possibility that these interests may
be best served by the continued independence of the Trust.
Section 5.4 Number and Classification. The number of Trustees
(the "Trustees") shall initially be two (2), which number (i) shall
automatically be increased to five (5) effective immediately following the
closing of the Trust's initial public offering and (ii) may be thereafter
increased or decreased from time to time in accordance with the Bylaws of the
Trust; provided, however, that, effective immediately following the closing of
the Trust's initial public offering, the total number of Trustees shall not be
fewer than three (3) and not more than nine (9). Notwithstanding the foregoing,
if for any reason any or all of the Trustees cease to be Trustees, such event
shall not terminate the Trust or affect this Declaration of Trust or the powers
of any remaining Trustees. The names and addresses of the initial two (2)
Trustees are:
Name Address
Michael R. Walker c/o Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Edward B. Romanov, Jr. c/o ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, Pennsylvania 19348
Effective immediately following the closing of the Trust's
initial public offering, the number of Trustees shall automatically be increased
to five (5), whereupon the Trustees, including the initial Trustees, shall be
divided into three classes as nearly equal in number as possible and initially
consisting of one, two and two members, respectively, with the term of office of
one class expiring each year. One class of Trustees, consisting initially of one
member, shall hold office initially for a term expiring at the annual meeting of
Shareholders in 1999; another class, consisting initially of two members, shall
hold office initially for a term expiring at the annual meeting of Shareholders
in 2000; and the third class, consisting initially of two members, shall hold
office initially for a term expiring at the annual meeting of Shareholders in
2001. The Board of Trustees, by resolution, shall designate the Trustees who
will serve in each class.
The Trustees may fill any vacancy, whether resulting from an
increase in the number of Trustees or otherwise, on the Board of Trustees.
Beginning with the annual meeting of Shareholders in 1999 and at each succeeding
annual meeting of Shareholders, the successor or successors to the class of
Trustees whose term expires at such meeting shall be elected to hold office for
a term expiring at the third succeeding annual meeting of Shareholders. Trustees
shall hold office until their successors are duly elected and qualify. Election
of Trustees by Shareholders shall require the vote and be in accordance with the
procedures set forth in the Bylaws.
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It shall not be necessary to list in this Declaration of Trust
the names and addresses of any Trustees hereafter elected.
Section 5.5 Resignation, Removal or Death. Any Trustee may
resign by written notice to the Board, effective upon execution and delivery to
the Trust of such written notice or upon any future date specified in the
notice. Subject to the rights of holders of one or more classes or series of
Preferred Shares, as hereinafter defined, to elect one or more Trustees, a
Trustee may be removed at any time, only with cause, at a meeting of the
Shareholders, by the affirmative vote of the holders of a majority of the Shares
then outstanding and entitled to vote for the election of Trustees. Upon the
resignation or removal of any Trustee, or his otherwise ceasing to be a Trustee,
he shall automatically cease to have any right, title or interest in and to the
property of the Trust and shall execute and deliver such documents as the
remaining Trustees require for the conveyance of any property of the Trust held
in his name, and shall account to the remaining Trustees as they require for all
property which he holds as Trustee. Upon the incapacity or death of any Trustee,
his legal representative shall perform the acts described in the foregoing
sentence.
Section 5.6 Title to Property of the Trust. Legal title to all
property of the Trust shall be vested in the Trustees, but they may cause legal
title to any property of the Trust to be held by or in the name of any Trustee,
or the Trust, or any other person as nominee. The right, title and interest of
the Trustees in and to the property of the Trust shall automatically vest in
successor and additional Trustees upon their qualification and acceptance of
election or appointment as Trustees, and they shall thereupon have all the
rights and obligations of Trustees, whether or not conveyancing documents have
been executed and delivered pursuant to Section 5.5 hereof or otherwise. Written
evidence of the qualification and acceptance of election or appointment of
successor and additional Trustees may be filed with the records of the Trust and
in such other offices, agencies or places as the Trustees may deem necessary or
desirable.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 Authorized Shares. The Trust shall have the
authority to issue a total of 120 million shares of beneficial interest
("Shares"), of which 100 million shall be common shares of beneficial interest,
$.01 par value per share ("Common Shares"), and 20 million shall be preferred
shares of beneficial interest, $.01 par value per share ("Preferred Shares").
The Board of Trustees, with the approval of the holders of record of outstanding
Shares (the "Shareholders") by a majority of the votes entitled to be cast at a
meeting of Shareholders duly called and at which a quorum is present, may amend
this Declaration of Trust from time to time to increase or decrease the
aggregate number of Shares or the number of Shares of any class that the Trust
has authority to issue.
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Section 6.2 Common Shares. Subject to the provisions of
Article VII, each Common Share shall entitle the holder thereof to one vote on
each matter upon which holders of Common Shares are entitled to vote, and all
Common Shares shall have equal dividend, distribution, liquidation and other
rights, and shall have no preference, cumulative, preemptive, appraisal,
conversion or exchange rights.
Section 6.3 Preferred Shares. The Board of Trustees may
classify any unissued Preferred Shares, and may reclassify any previously
classified but unissued Preferred Shares of any series from time to time, in one
or more series of Preferred Shares. Prior to issuance of classified or
reclassified Preferred Shares of any series, the Board of Trustees by resolution
shall (a) designate that series to distinguish it from all other series of
Preferred Shares; (b) specify the number of Preferred Shares to be included in
the series; (c) set, subject to the provisions of Article VII and subject to the
express terms of any series of Preferred Shares outstanding at the time, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each series; and (d) cause the Trust to file
Articles Supplementary with the State Department of Assessments and Taxation of
Maryland (the "SDAT"). Any of the terms of any series of Preferred Shares set
pursuant to clause (c) of this Section 6.3 may be made dependent upon facts
ascertainable outside this Declaration of Trust (including, without limitation,
the occurrence of any event or a determination or action by the Trust or any
other person or body) and may vary among holders thereof, provided that the
manner in which such facts or variations shall operate upon the terms of such
series of Shares is clearly and expressly set forth in the Articles
Supplementary filed with the SDAT.
Section 6.4 Authorization by Board of Share Issuance. The
Board of Trustees may authorize the issuance from time to time of Shares of any
class or series, whether now or hereafter authorized, or securities or rights
convertible into Shares of any class or series, whether now or hereafter
authorized, for such consideration (whether in cash, property, past or future
services, obligation for future payment or otherwise) as the Board of Trustees
may deem advisable (or without consideration in the case of a Share split or
Share dividend), subject to such restrictions or limitations, if any, as may be
set forth in this Declaration of Trust or the Bylaws.
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Section 6.5 Dividends and Distributions. The Board of Trustees
may from time to time authorize, declare and pay to Shareholders such dividends
or distributions, in cash, property or other assets of the Trust or in
securities of the Trust or from any other source as the Board of Trustees in its
discretion shall determine. The Board of Trustees shall endeavor to declare and
pay such dividends and distributions as shall be necessary for the Trust to
qualify as a real estate investment trust under the Code; provided, however,
that Shareholders shall have no right to any dividend or distribution unless and
until authorized and declared by the Board. The exercise of the powers and
rights of the Board of Trustees pursuant to this Section 6.5 shall be subject to
the provisions of any class or series of Shares at the time outstanding. The
receipt by any person in whose name any Shares are registered on the records of
the Trust or by his duly authorized agent shall be a sufficient discharge for
all dividends or distributions payable or deliverable in respect of such Shares
and from all liability to see to the application thereof. Unless the status of
the Trust as a real estate investment trust under the Code has been terminated
pursuant to Section 5.2(u) hereof, no determination shall be made by the Board
of Trustees nor shall any transaction be entered into by the Trust which would
cause any Shares or other beneficial interest in the Trust not to constitute
"transferable shares" or "transferable certificates of beneficial interest"
under Section 856(a)(2) of the Code or which would cause any distribution to
constitute a preferential dividend as described in Section 562(c) of the Code.
Section 6.6 General Nature of Shares. All Shares shall be
personal property entitling the Shareholders only to those rights provided in
this Declaration of Trust. The Shareholders shall have no interest in the
property of the Trust and shall have no right to compel any partition, division,
dividend or distribution of the Trust or of the property of the Trust. The death
of a Shareholder shall not terminate the Trust or give his legal representative
any rights against other Shareholders, the Trustees or the property of the
Trust, except the right, exercised in accordance with applicable provisions of
the Bylaws, to receive a new certificate for Shares in exchange for the
certificate held by the deceased Shareholder. The Trust is entitled to treat as
Shareholders only those persons in whose names Shares are registered as holders
of Shares on the beneficial interest ledger of the Trust.
Section 6.7 Fractional Shares. The Trust may, without the
consent or approval of any Shareholders, issue fractional Shares, eliminate a
fraction of a Share by rounding up or down to a full Share, arrange for the
disposition of a fraction of a Share by the person entitled to it, or pay cash
for the fair value of a fraction of a Share.
Section 6.8 Declaration and Bylaws. All Shareholders are
subject to the provisions of this Declaration of Trust and the Bylaws.
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ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII,
the following terms shall have the following meanings:
Beneficial Ownership. The term "Beneficial Ownership" shall
mean ownership of Shares by a Person, whether the interest in Shares is held
directly or indirectly (including by a nominee), and shall include interests
that would be treated as owned through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial
Owner," "Beneficially Own," "Beneficially Owns," "Beneficially Owning" and
"Beneficially Owned" shall have the correlative meanings.
Benefit Plan Investor. The term "Benefit Plan Investor" shall
have the meaning provided in 29 C.F.R. ss. 2510.3-101(f)(2), or any successor
regulation thereto.
Business Day. The term "Business Day" shall mean any day,
other than a Saturday or Sunday, that is neither a legal holiday nor a day on
which banking institutions in New York, New York are authorized or required by
law, regulation or executive order to close.
Charitable Beneficiary. The term "Charitable Beneficiary"
shall mean one or more beneficiaries of the Charitable Trust as determined
pursuant to Section 7.3.7, provided that each such organization must be
described in Sections 501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii)
thereof) and 170(c)(2) of the Code.
Charitable Trust. The term "Charitable Trust" shall mean any
trust provided for in Section 7.2.1(b)(i) and Section 7.3.1.
Charitable Trustee. The term "Charitable Trustee" shall mean
the Person unaffiliated with the Trust and a Prohibited Owner, that is appointed
by the Trust to serve as trustee of the Charitable Trust.
Closing Price. The "Closing Price" on any date shall mean the
last sale price for such Shares, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
for such Shares, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if such Shares are not listed or admitted to trading on
the NYSE, as reported on the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which such Shares are listed or admitted to trading or, if such Shares are
not listed or admitted to trading on any national securities exchange, the last
quoted price, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the NASDAQ Stock Market
or, if such system is no longer in use, the principal other automated
inter-dealer quotation system that may then be in use or, if such Shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in such Shares
selected by the Board of Trustees or, in the event that no trading price is
available for such Shares, the fair market value of Shares, as determined in
good faith by the Board of Trustees.
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Constructive Ownership. The term "Constructive Ownership"
shall mean ownership of Shares by a Person, whether the interest in Shares is
held directly or indirectly (including by a nominee), and shall include
interests that would be treated as owned through the application of Section
318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Own," "Constructively Owns,"
"Constructively Owning" and "Constructively Owned" shall have the correlative
meanings.
Effective Date. The term "Effective Date" shall mean the date
of the closing of the initial public offering of Common Shares.
ERISA Investor. The term "ERISA Investor" shall mean any
holder of Shares that is (i) an employee benefit plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) a
plan as defined in Section 4975(e) of the Code (any such employee benefit plan
or plan described in clause (i) or this clause (ii) being referred to herein as
a "Plan"), (iii) a trust which was established pursuant to a Plan, or a nominee
for such trust or Plan, or (iv) an entity whose underlying assets include assets
of a Plan by reason of such Plan's investment in such entity.
Excepted Holder. The term "Excepted Holder" shall mean a
Shareholder of the Trust for whom an Excepted Holder Limit is created by the
Board of Trustees pursuant to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall
mean, provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Trustees pursuant to Section 7.2.7, and
subject to adjustment pursuant to Section 7.2.8, the percentage limit
established by the Board of Trustees pursuant to Section 7.2.7.
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Excluded Holder. The term "Excluded Holder" shall mean Edward
B. Romanov, Jr. and any other Person who is or would be either a Beneficial
Owner or a Constructive Owner of either Common Shares or Preferred Shares as a
result of the Beneficial Ownership or Constructive Ownership of either Common
Shares or Preferred Shares by Edward B. Romanov, Jr. or whose ownership would
cause Edward B. Romanov, Jr. to be a Beneficial Owner or Constructive Owner of
such Shares.
Excluded Holder Limit. The term "Excluded Holder Limit" shall
mean (i) with respect to the Common Shares, 15.0% (in value or number of Shares,
whichever is more restrictive) of the outstanding Common Shares of the Trust;
and (ii) with respect to any class or series of Preferred Shares, 9.9% (in value
or number of Shares, whichever is more restrictive) of the outstanding Shares of
such class or series of Preferred Shares of the Trust.
Initial Date. The term "Initial Date" shall mean September 23,
1997.
Initial Shareholder. The term Initial Shareholder shall mean
D. Lee McCreary, Jr.
Market Price. The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding Shares, the Closing Price for
such Shares on such date.
NYSE. The term "NYSE" shall mean the New York Stock Exchange,
Inc.
Ownership Limit. The term "Ownership Limit" shall mean (i)
with respect to the Common Shares, 8.6% (in value or number of Shares, whichever
is more restrictive) of the outstanding Common Shares of the Trust; and (ii)
with respect to any class or series of Preferred Shares, 9.9% (in value or
number of Shares, whichever is more restrictive) of the outstanding Shares of
such class or series of Preferred Shares of the Trust.
Person. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust qualified under
Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock company or other entity and also includes a
group as that term is used for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
Prohibited Owner. The term "Prohibited Owner" shall mean, with
respect to any purported Transfer, any Person who, but for the provisions of
Section 7.2.1, would Beneficially Own or Constructively Own Shares, and if
appropriate in the context, shall also mean any Person who would have been the
record owner of Shares that the Prohibited Owner would have so owned.
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Publicly Offered Securities. The term "Publicly Offered
Securities" shall have the meaning
provided in 29 C.F.R. ss. 2510.3-101(b)(2), or any successor regulation thereto.
REIT. The term "REIT" shall mean a real estate investment
trust within the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction
Termination Date" shall mean the first day after the Initial Date on which the
Board of Trustees determines that it is no longer in the best interests of the
Trust to attempt to, or continue to, qualify as a REIT or that compliance with
the restrictions and limitations on Beneficial Ownership, Constructive Ownership
and Transfers of Shares set forth herein is no longer required in order for the
Trust to qualify as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as any other
event that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such events,
of Shares or the right to vote or receive dividends on Shares, including (a) a
change in the capital structure of the Trust, (b) a change in the relationship
between two or more Persons which causes a change in ownership of Shares by
application of Section 544 of the Code, as modified by Section 856(h), (c) the
granting or exercise of any option or warrant (or any disposition of any option
or warrant), pledge, security interest, or similar right to acquire Shares, (d)
any disposition of any securities or rights convertible into or exchangeable for
Shares or any interest in Shares or any exercise of any such conversion or
exchange right and (e) Transfers of interests in other entities that result in
changes in Beneficial Ownership or Constructive Ownership of Shares; in each
case, whether voluntary or involuntary, whether owned of record, Constructively
Owned or Beneficially Owned and whether by operation of law or otherwise. (For
purposes of this Article VII, the right of a limited partner in ElderTrust
Operating Limited Partnership, a Delaware limited partnership, to require the
partnership to redeem such limited partner's units of partnership interest
pursuant to Section 8.6 of the Agreement of Limited Partnership of ElderTrust
Operating Limited Partnership shall not be considered to be an option or similar
right to acquire Shares of the Trust.) The terms "Transferring" and
"Transferred" shall have the correlative meanings.
Section 7.2 Restrictions on Ownership and Transfer of Shares.
Section 7.2.1 Ownership Limitations. From the Initial
Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an
Excepted Holder, an Excluded Holder or the Initial Shareholder, shall
Beneficially Own or Constructively Own Shares in excess of the Ownership Limit,
(2) no Excepted Holder shall Beneficially Own or Constructively Own Shares in
excess of the Excepted Holder Limit for such Excepted Holder, (3) no Excluded
Holder shall Beneficially Own or Constructively Own Shares in excess of the
Excluded Holder Limit and (4) the Initial Shareholder shall not Beneficially Own
or Constructively Own shares in excess of the Ownership Limit on any date after
the Effective Date.
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(ii) No Person shall Beneficially
Own or Constructively Own Shares to the extent that (1) such Beneficial
Ownership of Shares would result in the Trust being "closely held" within the
meaning of Section 856(h) of the Code (without regard to whether the ownership
interest is held during the last half of a taxable year) or (2) such Beneficial
Ownership or Constructive Ownership of Shares would result in the Trust
otherwise failing to qualify as a REIT (including, but not limited to, ownership
that would result in the Trust actually owning or Constructively Owning an
interest in a tenant that is described in Section 856(d)(2)(B) of the Code if
the income derived by the Trust from such tenant would cause the Trust to fail
to satisfy any of the gross income requirements of Section 856(c) of the Code).
(iii) No Person shall Transfer any Shares
if, as a result of the Transfer, the Shares would be Beneficially Owned by less
than 100 Persons (determined without reference to the rules of attribution under
Section 544 of the Code). Notwithstanding any other provisions contained herein
(but subject to Section 7.5), any Transfer of Shares (whether or not such
Transfer is the result of a transaction entered into through the facilities of
the NYSE or any other national securities exchange or automated inter-dealer
quotation system) that, if effective, would result in Shares being Beneficially
Owned by less than 100 Persons (determined under the principles of Section
856(a)(5) of the Code) shall be void ab initio, and the intended transferee
shall acquire no rights in such Shares. (b) Transfer in Trust. If any Transfer
of Shares (whether or not such Transfer is the result of a transaction entered
into through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system) occurs which, if effective,
would result in any Person Beneficially Owning or Constructively Owning Shares
in violation of Section 7.2.1(a)(i) or (ii), then:
(i) that number of Shares the
Beneficial Ownership or Constructive Ownership of which otherwise would cause
such Person to violate Section 7.2.1(a)(i) or (ii) (rounded to the nearest whole
share) shall be automatically transferred to a Charitable Trust for the benefit
of a Charitable Beneficiary, as described in Section 7.3, effective as of the
close of business on the Business Day prior to the date of such Transfer, and
such Person shall acquire no rights in such Shares; or
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(ii) subject to Section 7.5, if the
transfer to the Charitable Trust described in clause (i) of this sentence would
not be effective for any reason to prevent the violation of Section 7.2.1(a)(i)
or (ii), then the Transfer of that number of Shares that otherwise would cause
any Person to violate Section 7.2.1(a)(i) or (ii) shall be void ab initio, and
the intended transferee shall acquire no rights in such Shares.
Section 7.2.2 Remedies for Breach. Subject to Section
7.5, if the Board of Trustees or any duly authorized committee thereof shall at
any time determine in good faith that a Transfer or other event has taken place
that results in a violation of Section 7.2.1 or that a Person intends to acquire
or has attempted to acquire Beneficial Ownership or Constructive Ownership of
any Shares in violation of Section 7.2.1 (whether or not such violation is
intended), the Board of Trustees or a committee thereof shall take such action
as it deems advisable to refuse to give effect to or to prevent such Transfer or
other event, including, without limitation, causing the Trust to redeem Shares,
refusing to give effect to such Transfer on the books of the Trust or
instituting proceedings to enjoin such Transfer or other event; provided,
however, that any Transfer or attempted Transfer or other event in violation of
Section 7.2.1 shall automatically result in the transfer to the Charitable Trust
described above, and, where applicable, such Transfer (or other event) shall be
void ab initio as provided above irrespective of any action (or non-action) by
the Board of Trustees or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any
Person who acquires or attempts or intends to acquire Beneficial Ownership or
Constructive Ownership of Shares that will or may violate Section 7.2.1(a), or
any Person who would have owned Shares that resulted in a transfer to the
Charitable Trust pursuant to the provisions of Section 7.2.1(b), shall
immediately give written notice to the Trust of such event, or in the case of
such a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Trust such other information as the Trust may
request in order to determine the effect, if any, of such acquisition or
ownership on the Trust's status as a REIT.
Section 7.2.4 Owners Required To Provide Information.
From the Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent
(or such lower percentage as required by the Code or the regulations promulgated
thereunder) of the outstanding Shares, within 30 days after the end of each
taxable year, shall give written notice to the Trust stating the name and
address of such owner, the number of Shares Beneficially Owned and a description
of the manner in which such Shares are held; provided that a Shareholder of
record who holds outstanding Shares as nominee for another Person, which other
Person is required to include in gross income the dividends received on such
Shares (an "Actual Owner"), shall give written notice to the Trust stating the
name and address of such Actual Owner and the number of Shares of such Actual
Owner with respect to which the Shareholder of record is nominee. Each owner
shall provide to the Trust such additional information as the Trust may request
in order to determine the effect, if any, of such Beneficial Ownership on the
Trust's status as a REIT and to ensure compliance with the Ownership Limit.
(b) each Person who is a Beneficial Owner or
Constructive Owner of Shares and each Person (including the Shareholders of
record) who is holding Shares for a Beneficial Owner or Constructive Owner shall
provide to the Trust such information as the Trust may request, in good faith,
in order to determine the Trust's status as a REIT and to comply with
requirements of any taxing authority or governmental authority or to determine
such compliance.
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Section 7.2.5 Remedies Not Limited. Subject to
Section 5.2(u) and Section 7.5, nothing contained in this Section 7.2 shall
limit the authority of the Board of Trustees to take such other action as it
deems necessary or advisable to protect the Trust and the interests of its
Shareholders in preserving the Trust's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity
in the application of any of the provisions of this Section 7.2, Section 7.3 or
any definition contained in Section 7.1, the Board of Trustees shall have the
power to determine the application of the provisions of this Section 7.2 or
Section 7.3 with respect to any situation based on the facts known to it. If
this Section 7.2 or Section 7.3 requires an action by the Board of Trustees and
this Declaration of Trust fails to provide specific guidance with respect to
such action, the Board of Trustees shall have the power to determine the action
to be taken so long as such action is not contrary to the provisions of this
Section 7.2 or Sections 7.1 or 7.3.
Section 7.2.7 Exceptions.
(a) The Board, in its sole and absolute
discretion, may grant to any Person who makes a request therefor an exception to
the Ownership Limit or the Excluded Holder Limit with respect to the ownership
of any series or class of Preferred Shares, subject to the following conditions
and limitations: (A) the Board shall have determined that (x) assuming such
Person would Beneficially Own or Constructively Own the maximum amount of Common
Shares and Preferred Shares permitted as a result of the exception to be granted
and (y) assuming that all other Persons who would be treated as "individuals"
for purposes of Section 542(a)(2) of the Code (determined taking into account
Section 856(h)(3)(A) of the Code) would Beneficially Own or Constructively Own
the maximum amount of Common Shares and Preferred Shares permitted under this
Article VII (taking into account any exception, waiver, or exemption granted
under this Section 7.2.7 to (or with respect to) such Persons), the Trust would
not be "closely held" within the meaning of Section 856(h) of the Code (assuming
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that the ownership of Shares is determined during the second half of a taxable
year) and would not otherwise fail to qualify as a REIT; and (B) such Person
provides to the Board such representations and undertakings, if any, as the
Board may, in its sole and absolute discretion, determine to be necessary in
order for it to make the determination that the conditions set forth in clause
(A) above of this Section 7.2.7(a) have been or will continue to be satisfied
(including, without limitation, an agreement as to a reduced Ownership Limit,
Excepted Holder Limit or Excluded Holder Limit for such Person with respect to
the Beneficial Ownership or Constructive Ownership of one or more other classes
of Shares not subject to the exception), and such Person agrees that any
violation of such representations and undertakings or any attempted violation
thereof will result in the application of the remedies set forth in Section 7.2
with respect to Shares held in excess of the Ownership Limit, the Excepted
Holder Limit or the Excluded Holder Limit (as may be applicable) with respect to
such Person (determined without regard to the exception granted such Person
under this subparagraph (a)). If a member of the Board requests that the Board
grant an exception pursuant to this subparagraph (a) with respect to such member
or with respect to any other Person if such Board member would be considered to
be the Beneficial Owner or Constructive Owner of Shares owned by such Person,
such member of the Board shall not participate in the decision of the Board as
to whether to grant any such exception.
(b) In addition to exceptions permitted
under subparagraph (a) above, the Board in its sole and absolute discretion, may
grant to any Person who makes a request therefor an exception from the Ownership
Limit if: (i) such Person submits to the Board information satisfactory to the
Board, in its reasonable discretion, demonstrating that such Person is not an
individual for purposes of Section 542(a)(2) of the Code (determined taking into
account Section 856(h)(3)(A) of the Code); (ii) such Person submits to the Board
information satisfactory to the Board, in its reasonable discretion,
demonstrating that no Person who is an individual for purposes of Section
542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of
the Code) would be considered to Beneficially Own Shares in excess of the
Ownership Limit by reason of the Excepted Holder's ownership of Shares in excess
of the Ownership Limit pursuant to the exception granted under this subparagraph
(b); (iii) such Person submits to the Board information satisfactory to the
Board, in its reasonable discretion, demonstrating that clause (2) of
subparagraph (a)(ii) of Section 7.2.1 will not be violated by reason of the
Excepted Holder's ownership of Shares in excess of the Ownership Limit pursuant
to the exception granted under this subparagraph (b); and (iv) such Person
provides to the Board such representations and undertakings, if any, as the
Board may, in its reasonable discretion, require to ensure that the conditions
in clauses (i), (ii) and (iii) hereof are satisfied and will continue to be
satisfied throughout the period during which such Person owns Shares in excess
of the Ownership Limit pursuant to any exception thereto granted under this
subparagraph (b), and such Person agrees that any violation of such
representations and undertakings or any attempted violation thereof will result
in the application of the remedies set forth in Section 7.2 with respect to
Shares held in excess of the Ownership Limit with respect to such Person
(determined without regard to the exception granted such Person under this
subparagraph (b)).
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(c) Prior to granting any exception or
exemption pursuant to subparagraph (a) or (b), the Board must receive a ruling
from the Internal Revenue Service or advice of counsel, in either case in form
and substance satisfactory to the Board, in its sole and absolute discretion, as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
(d) Subject to Section 7.2.1(a)(ii), an
underwriter that participates in a public offering or a private placement of
Shares (or securities convertible into or exchangeable for Shares) may
Beneficially Own or Constructively Own Shares (or securities convertible into or
exchangeable for Shares) in excess of the Ownership Limit, but only to the
extent necessary to facilitate such public offering or private placement; and,
provided, that the ownership of Shares by such underwriter would not result in
the Trust being "closely held" within the meaning of Section 856(h) of the Code,
or otherwise result in the Trust's failing to qualify as a REIT. In this regard,
at no time may either (x) an underwriter or (y) any Person who would
Constructively Own Shares owned by an underwriter Constructively Own,
concurrently, 10% or more of the outstanding securities of any class or series
of (i) the Trust and any tenant or lessee of the Trust (which, as of the
Effective Date, includes, but is not limited to, Genesis Health Ventures, Inc.,
Crozer-Genesis ElderCare Limited Partnership, Senior LifeChoice, LLC and the Age
Institute of Florida or subsidiaries of any of the above), and (ii) the Trust
and any Person that would be considered to Constructively Own or Beneficially
Own 10% or more of any tenant or lessee of the Trust (which, as of the Effective
Date, includes, but is not limited to, Genesis Health Ventures, Inc.).
(e) The Board of Trustees may only reduce
the Excepted Holder Limit for an Excepted Holder: (1) with the written consent
of such Excepted Holder at any time; or (2) pursuant to the terms and conditions
of the agreements and undertakings entered into with such Excepted Holder in
connection with the establishment of the Excepted Holder Limit for that Excepted
Holder. No Excepted Holder Limit shall be reduced to a percentage that is less
than the Ownership Limit.
Section 7.2.8 Increase in Ownership Limit. The Board
of Trustees may from time to time increase the Ownership Limit, subject to the
limitations provided in this Section 7.2.8.
(a) The Ownership Limit may not be increased
if, after giving effect to such increase, five Persons who are considered
individuals pursuant to Section 542 of the Code, as modified by Section
856(h)(3) of the Code (taking into account all of the Excepted Holders and
Excluded Holders), could Beneficially Own, in the aggregate, more than 49.5% of
the value of the outstanding Shares.
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(b) Prior to the modification of the
Ownership Limit pursuant to this Section 7.2.8, the Board may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT if the modification in the Ownership Limit were to be made.
Section 7.2.9 Legend. Each certificate for Shares
shall bear substantially the following legend:
The Shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the purpose of the Trust's maintenance of its
status as a real estate investment trust (a "REIT") under the
Internal Revenue Code of 1986, as amended (the "Code").
Subject to certain further restrictions and except as
expressly provided in the Trust's Declaration of Trust, (i) no
Person may Beneficially Own or Constructively Own Common
Shares of the Trust in excess of 8.6 percent (in value or
number of Shares) of the outstanding Common Shares of the
Trust unless such Person is an Excepted Holder or Excluded
Holder (in which case the Excepted Holder Limit or Excluded
Holder Limit, as applicable, shall apply); (ii) with respect
to any class or series of Preferred Shares, no Person may
Beneficially Own or Constructively Own more than 9.9 percent
(in value or number of Shares) of the outstanding Shares of
such class or series of Preferred Shares of the Trust, unless
such Person is an Excepted Holder (in which case the Excepted
Holder Limit shall be applicable); (iii) no Person may
Beneficially Own or Constructively Own Shares that would
result in the Trust being "closely held" under Section 856(h)
of the Code or otherwise cause the Trust to fail to qualify as
a REIT; and (iv) no Person may Transfer Shares if such
Transfer would result in Shares of the Trust being owned by
fewer than 100 Persons. Any Person who Beneficially Owns or
Constructively Owns or attempts to Beneficially Own or
Constructively Own Shares which cause or will cause a Person
to Beneficially Own or Constructively Own Shares in excess or
in violation of the above limitations must immediately notify
the Trust. If any of the restrictions on transfer or ownership
are violated, the Shares represented hereby will be
automatically transferred to a Charitable Trustee of a
Charitable Trust for the benefit of one or more Charitable
Beneficiaries. In addition, upon the occurrence of certain
events, attempted Transfers in violation of the restrictions
described above may be void ab initio. A Person who attempts
to Beneficially Own or Constructively Own Shares in violation
of the ownership limitations described above shall have no
claim, cause of action, or any recourse whatsoever against a
transferor of such Shares. Unless otherwise defined herein,
all capitalized terms in this legend have the meanings defined
in the Trust's Declaration of Trust, as the same may be
amended from time to time, a copy of which, including the
restrictions on transfer and ownership, will be furnished to
each holder of Shares of the Trust on request and without
charge.
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Instead of the foregoing legend, the certificate may
state that the Trust will furnish a full statement about certain restrictions on
transferability to a Shareholder on request and without charge.
Section 7.3 Transfer of Shares in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported
Transfer or other event described in Section 7.2.1(b) that would result in a
transfer of Shares to a Charitable Trust, such Shares shall be deemed to have
been transferred to the Charitable Trustee as trustee of a Charitable Trust for
the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to
the Charitable Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or other event that
results in the transfer to the Charitable Trust pursuant to Section 7.2.1(b).
The Charitable Trustee shall be appointed by the Trust and shall be a Person
unaffiliated with the Trust and any Prohibited Owner. Each Charitable
Beneficiary shall be designated by the Trust as provided in Section 7.3.7.
Section 7.3.2 Status of Shares Held by the Charitable
Trustee. Shares held by the Charitable Trustee shall be issued and outstanding
Shares of the Company. The Prohibited Owner shall have no rights in the Shares
held by the Charitable Trustee. The Prohibited Owner shall not benefit
economically from ownership of any Shares held in trust by the Charitable
Trustee, shall have no rights to dividends or other distributions and shall not
possess any rights to vote or other rights attributable to the Shares held in
the Charitable Trust. The Prohibited Owner shall have no claim, cause of action,
or any other recourse whatsoever against the purported transferor of such
Shares.
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Section 7.3.3 Dividend and Voting Rights. The
Charitable Trustee shall have all voting rights and rights to dividends or other
distributions with respect to Shares held in the Charitable Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by the Trust that
Shares have been transferred to the Charitable Trustee shall be paid by the
recipient thereof with respect to such Shares to the Charitable Trustee upon
demand and any dividend or other distribution authorized but unpaid shall be
paid when due to the Charitable Trustee. Any dividends or distributions so paid
over to the Charitable Trustee shall be held in trust for the Charitable
Beneficiary. The Prohibited Owner shall have no voting rights with respect to
Shares held in the Charitable Trust and, subject to Maryland law, effective as
of the date that Shares have been transferred to the Charitable Trustee, the
Charitable Trustee shall have the authority (at the Charitable Trustee's sole
discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to
the discovery by the Trust that Shares have been transferred to the Charitable
Trustee and (ii) to recast such vote in accordance with the desires of the
Charitable Trustee acting for the benefit of the Charitable Beneficiary;
provided, however, that if the Trust has already taken irreversible action, then
the Charitable Trustee shall not have the power to rescind and recast such vote.
Notwithstanding the provisions of this Article VII, until the Trust has received
notification that Shares have been transferred into a Charitable Trust, the
Trust shall be entitled to rely on its share transfer and other Shareholder
records for purposes of preparing lists of Shareholders entitled to vote at
meetings, determining the validity and authority of proxies and otherwise
conducting votes of Shareholders.
Section 7.3.4 Rights Upon Liquidation. Upon any
voluntary or involuntary liquidation, dissolution or winding up of or any
distribution of the assets of the Trust, the Charitable Trustee shall be
entitled to receive, ratably with each other holder of Shares of the class or
series of Shares that is held in the Charitable Trust, that portion of the
assets of the Trust available for distribution to the holders of such class or
series (determined based upon the ratio that the number of Shares or such class
or series of Shares held by the Charitable Trustee bears to the total number of
Shares of such class or series of Shares then outstanding). The Charitable
Trustee shall distribute any such assets received in respect of the Shares held
in the Charitable Trust in any liquidation, dissolution or winding up of, or
distribution of the assets of the Trust, in accordance with Section 7.3.5.
Section 7.3.5 Sale of Shares by Charitable Trustee.
Within 20 days of receiving notice from the Trust that Shares have been
transferred to the Charitable Trust, the Charitable Trustee of the Charitable
Trust shall sell the Shares held in the Charitable Trust to a person, designated
by the Charitable Trustee, whose ownership of the Shares will not violate the
ownership limitations set forth in Section 7.2.1(a). Upon such sale, the
interest of the Charitable Beneficiary in the Shares sold shall terminate and
the Charitable Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as provided in this Section
7.3.5. The Prohibited Owner shall receive the lesser of (1) the price paid by
the Prohibited Owner for the Shares or, if the Prohibited Owner did not give
value for the Shares in connection with the event causing the Shares to be held
in the Charitable Trust (e.g., in the case of a gift, devise or other such
transaction), the Market Price of the Shares on the day of the event causing the
Shares to be held in the Charitable Trust and (2) the price per share received
by the Charitable Trustee from the sale or other disposition of the Shares held
in the Charitable Trust. Any net sales proceeds in excess of the amount payable
to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary.
If, prior to the discovery by the Trust that Shares have been transferred to the
Charitable Trustee, such Shares are sold by a Prohibited Owner, then (i) such
Shares shall be deemed to have been sold on behalf of the Charitable Trust and
(ii) to the extent that the Prohibited Owner received an amount for such Shares
that exceeds the amount that such Prohibited Owner was entitled to receive
pursuant to this Section 7.3.5, such excess shall be paid to the Charitable
Trustee upon demand.
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Section 7.3.6 Purchase Right in Shares Transferred to
the Charitable Trustee. Shares transferred to the Charitable Trustee shall be
deemed to have been offered for sale to the Trust, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Charitable Trust (or, in the case of a devise
or gift, the Market Price at the time of such devise or gift) and (ii) the
Market Price on the date the Trust, or its designee, accepts such offer. The
Trust shall have the right to accept such offer until the Charitable Trustee has
sold the Shares held in the Charitable Trust pursuant to Section 7.3.5. Upon
such a sale to the Trust, the interest of the Charitable Beneficiary in the
Shares sold shall terminate and the Charitable Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner.
Section 7.3.7 Designation of Charitable
Beneficiaries. By written notice to the Charitable Trustee, the Trust shall
designate one or more nonprofit organizations to be the Charitable Beneficiary
of the interest in the Charitable Trust such that (i) Shares held in the
Charitable Trust would not violate the restrictions set forth in Section
7.2.1(a) in the hands of such Charitable Beneficiary and (ii) each such
organization must be described in Sections 501(c)(3), 170(b)(1)(A) or 170(c)(2)
of the Code.
Section 7.4. Restrictions on Ownership and Transfer
of Shares by Benefit Plans.
Section 7.4.1 Ownership Limitations. Notwithstanding
any other provisions herein, if and to the extent that any Shares do not
constitute Publicly Offered Securities, then Benefit Plan Investors may not, on
any date, hold, individually or in the aggregate, 25 percent or more of the
value of such class of Shares. For purposes of determining whether Benefit Plan
Investors hold, individually or in the aggregate, 25 percent or more of the
value of such class of Shares, the value of Shares of such class held by any
Trustee or officer of the Trust, or any other Person who has discretionary
authority or control with respect to the assets of the Trust, or any Person who
provides investment advice for a fee to the Trust in connection with its assets,
shall be disregarded.
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Section 7.4.2 Remedies for Violations by Benefit Plan
Investors. If the Board of Trustees or any duly authorized committee thereof
shall at any time determine in good faith that (i) a Transfer or other event has
taken place that results in a violation of Section 7.4.1 or will otherwise
result in the underlying assets and property of the Trust becoming assets of any
ERISA Investor or (ii) that a Person intends to acquire or has attempted to
acquire or hold Shares in a manner that will result in a violation of Section
7.4.1 or will otherwise result in the underlying assets and property of the
Trust becoming assets of any ERISA Investor, the Board of Trustees or a
committee thereof shall take such action as it deems advisable to mitigate,
prevent or cure the consequences that might result to the Trust from such
Transfer or other event, including without limitation, refusing to give effect
to or preventing such Transfer or event through redemption of such Shares or
refusal to give effect to the Transfer or event on the books of the Trust, or
instituting proceedings to enjoin such Transfer or other event.
Section 7.4.3 Information on Benefit Plan Status. Any
Person who acquires or attempts or intends to acquire or hold Shares shall
provide to the Trust such information as the Trust may request in order to
determine whether such acquisition or holding has or will result in a violation
of Section 7.4.1 or otherwise result in the underlying assets and property of
the Trust becoming assets of any ERISA Investor, including the name and address
of any Person for whom a nominee holds Shares and whether the underlying assets
of such Person include assets of any Benefit Plan Investor.
Section 7.5 NYSE Transactions. Nothing in this Article VII
shall preclude the settlement of any transaction entered into through the
facilities of the NYSE or any other national securities exchange or automated
inter-dealer quotation system; provided, that the fact that the settlement of
any transaction takes place shall not negate the effect of any other provision
of this Article VII and any transferee in such a transaction shall be subject to
all of the provisions and limitations set forth in this Article VII.
Section 7.6 Enforcement. The Trust is authorized specifically
to seek equitable relief, including injunctive relief, to enforce the provisions
of this Article VII.
Section 7.7 Non-Waiver. No delay or failure on the part of the
Trust or the Board of Trustees in exercising any right hereunder shall operate
as a waiver of any right of the Trust or the Board of Trustees, as the case may
be, except to the extent specifically waived in writing.
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ARTICLE VIII
SHAREHOLDERS
Section 8.1 Meetings. There shall be an annual meeting of the
Shareholders, to be held on proper notice at such time (after the delivery of
the annual report as provided in the Bylaws) and convenient location as shall be
determined by or in the manner prescribed in the Bylaws, for the election of the
Trustees, if required, and for the transaction of any other business within the
powers of the Trust. Except as otherwise provided in this Declaration of Trust,
special meetings of Shareholders may be called in the manner provided in the
Bylaws. If there are no Trustees, the officers of the Trust shall promptly call
a special meeting of the Shareholders entitled to vote for the election of
successor Trustees. Any meeting may be adjourned and reconvened as the Trustees
determine or as provided in the Bylaws.
Section 8.2 Voting Rights. Subject to the provisions of any
class or series of Shares then outstanding, the Shareholders shall be entitled
to vote only on the following matters: (a) election of Trustees as provided in
Section 5.4 and the removal of Trustees as provided in Section 5.5; (b)
amendment of this Declaration of Trust as provided in Article X; (c) termination
of the Trust as provided in Section 12.2; (d) reorganization, merger or
consolidation of the Trust, or the sale or disposition of substantially all of
the property of the Trust, as provided in Article XI; (e) such other matters
with respect to which the Board of Trustees has adopted a resolution declaring
that a proposed action is advisable and directing that the matter be submitted
to the Shareholders for approval or ratification (including, without limitation,
a resolution recommending the termination of the Trust's status as a real estate
investment trust under the Code pursuant to Section 5.2(u) hereof); and (f) such
other matters as may be properly brought before a meeting by a Shareholder
pursuant to the Bylaws. Except with respect to the foregoing matters, no action
taken by the Shareholders at any meeting shall in any way bind the Board of
Trustees.
Section 8.3 Preemptive and Appraisal Rights. Except as may be
provided by the Board of Trustees in setting the terms of classified or
reclassified Preferred Shares pursuant to Section 6.3, no holder of Shares
shall, as such holder, (a) have any preemptive right to purchase or subscribe
for any additional Shares of the Trust or any other security of the Trust which
it may issue or sell or (b) except as expressly required by Title 8, have any
right to require the Trust to pay him the fair value of his Shares in an
appraisal or similar proceeding.
Section 8.4 Extraordinary Actions. Except as otherwise
specifically provided in this Declaration of Trust (including without
limitation, in those provisions relating to election and removal of Trustees and
changes in the number of authorized Shares), notwithstanding any provision of
law permitting or requiring any action to be taken or authorized by the
affirmative vote of the holders of a greater number of votes, any such action
shall be effective and valid if taken or authorized by the affirmative vote of
not less than sixty-six and two-thirds percent (66 2/3%) of all the votes
entitled to be cast on the matter.
Section 8.5 Action By Shareholders without a Meeting. Subject
to Title 8 and any other applicable provisions of law, the Bylaws may provide
that any action required or permitted to be taken at a meeting of the
Shareholders may be taken without a meeting by the written consent of all
Shareholders entitled to vote on such matter; provided, that all Shareholders
entitled to notice of any such meeting but not entitled to vote on such matter
shall have made a written waiver of any right to dissent to such action taken
without a meeting.
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ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION AND TRANSACTIONS WITH THE TRUST
Section 9.1 Limitation of Shareholders' Liability. No
Shareholder shall be liable for any debt, claim, demand, judgment or obligation
of any kind of, against or with respect to the Trust by reason of his being a
Shareholder, nor shall any Shareholders be subject to any personal liability
whatsoever, in tort, contract or otherwise, to any person in connection with the
property or the affairs of the Trust by reason of his being a Shareholder.
Section 9.2 Limitation of Trustee and Officer Liability. To
the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of trustees and officers of a real estate investment
trust, no Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholders for money damages. Neither the amendment nor repeal of this Section
9.2, nor the adoption or amendment of any other provision of this Declaration of
Trust inconsistent with this Section 9.2, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption. In
the absence of any Maryland statute limiting the liability of trustees and
officers of a Maryland real estate investment trust for money damages in a suit
by or on behalf of the Trust or by any Shareholders, no Trustee or officer of
the Trust shall be liable to the Trust or to any Shareholders for money damages
except to the extent that (a) the Trustee or officer actually received an
improper benefit or profit in money, property or services, for the amount of the
benefit or profit in money, property or services actually received, or (b) a
judgment or other final adjudication adverse to the Trustee or officer is
entered in a proceeding based on a finding in the proceeding that the Trustee's
or officer's action or failure to act was material to the cause of action
adjudicated in the proceeding and was committed in bad faith or was the result
of active and deliberate dishonesty.
Section 9.3 Indemnification. The Trust shall have the power,
to the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former Shareholder, Trustee or officer of the Trust or (b) any
individual who, while a Trustee of the Trust and at the request of the Trust,
serves or has served as a director, officer, partner, trustee, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former Shareholder, Trustee or officer of the Trust. The Trust
shall have the power, with the approval of its Board of Trustees, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Trust in any of the capacities described in (a) or (b) above
and to any employee or agent of the Trust or a predecessor of the Trust.
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Section 9.4 Transactions Between the Trust and its Trustees,
Officers, Employees and Agents. Subject to any express restrictions in this
Declaration of Trust or adopted by the Trustees in the Bylaws or by resolution,
the Trust may enter into any contract or transaction of any kind with any
person, including any Trustee, officer, employee or agent of the Trust or any
person affiliated with a Trustee, officer, employee or agent of the Trust,
whether or not any of them has a financial interest in such transaction.
Section 9.5 Express Exculpatory Clauses in Instruments. The
Board of Trustees shall cause to be inserted in every written agreement,
undertaking or obligation made or issued on behalf of the Trust, an appropriate
provision to the effect that neither the Shareholders nor the Trustees,
officers, employees or agents of the Trust shall be liable under any written
instrument creating an obligation of the Trust, and all persons shall look
solely to the property of the Trust for the payment of any claim under or for
the performance of that instrument. The omission of the foregoing exculpatory
language from any instrument shall not affect the validity or enforceability of
such instrument and shall not render any Shareholder, Trustee, officer, employee
or agent liable thereunder to any third party nor shall the Trustees or any
officer, employee or agent of the Trust be liable to anyone for such omission.
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ARTICLE X
AMENDMENTS
Section 10.1 General. The Trust reserves the right from time
to time to make any amendment to this Declaration of Trust, now or hereafter
authorized by law, including any amendment altering the terms or contract
rights, as expressly set forth in this Declaration of Trust, of any Shares. All
rights and powers conferred by this Declaration of Trust on Shareholders,
Trustees and officers are granted subject to this reservation. Articles of
Amendment to this Declaration of Trust (a) shall be signed and acknowledged by
at least a majority of the Trustees, or an officer duly authorized by at least a
majority of the Trustees, (b) shall be filed for record as provided in Section
13.5 and (c) shall become effective as of the later of the time the SDAT accepts
the Articles of Amendment for record or the time established in the Articles of
Amendment, not to exceed 30 days after the Articles of Amendment are accepted
for record. All references to this Declaration of Trust shall include all
amendments thereto.
Section 10.2 By Trustees. The Trustees may amend this
Declaration of Trust from time to time, in the manner provided by Title 8,
without any action by the Shareholders, to qualify as a real estate investment
trust under the Code or under Title 8.
Section 10.3 By Shareholders. Except as otherwise provided in
this Declaration of Trust, any amendment to this Declaration of Trust shall be
valid only if proposed in a resolution adopted by the Board of Trustees, which
resolution shall set forth the proposed amendment and declare that it is
advisable, and approved at an annual or special meeting of Shareholders by the
affirmative vote of not less than two-thirds of all the votes entitled to be
cast on the matter.
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ARTICLE XI
REORGANIZATION; MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Section 11.1 Reorganization. Subject to the provisions of any
class or series of Shares at the time outstanding, the Trustees shall have the
power (i) to cause the organization of a corporation, association, trust or
other organization to take over the property of the Trust and carry on the
affairs of the Trust, or (ii) merge the Trust into, or sell, convey and transfer
the property of the Trust to, any such corporation, association, trust or
organization in exchange for securities thereof or beneficial interests therein,
and the assumption by the transferee of the liabilities of the Trust, and upon
the occurrence of (i) or (ii) above terminate the Trust and deliver such
securities or beneficial interests ratably among the Shareholders according to
the respective rights of the class or series of Shares held by them; provided,
however, that any such action shall have been approved, at a meeting of the
Shareholders called for that purpose, by the affirmative vote of the holders of
not less than two-thirds of the Shares then outstanding and entitled to vote
thereon.
Section 11.2 Merger, Consolidation or Sale of Property of the
Trust. Subject to the provisions of any class or series of Shares at the time
outstanding, the Trustees shall have the power to (a) merge into another entity,
(b) consolidate the Trust with one or more other entities into a new entity or
(c) sell, lease, exchange or otherwise transfer or dispose of all or
substantially all of the property of the Trust. Any such action must be approved
by the Board of Trustees and, after notice to all Shareholders entitled to vote
on the matter, by the affirmative vote of not less than two-thirds of all the
votes entitled to be cast on the matter.
ARTICLE XII
DURATION AND TERMINATION OF TRUST
Section 12.1 Duration. The Trust shall continue perpetually
unless terminated pursuant to Section 12.2 or pursuant to any applicable
provision of Title 8.
Section 12.2 Termination.
(a) Subject to the provisions of any class or series
of Shares at the time outstanding, the Trust may be terminated at any meeting of
Shareholders, by the affirmative vote of two-thirds of all the votes entitled to
be cast on the matter. Upon the termination of the Trust:
(i) The Trust shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up
the affairs of the Trust and
all of the powers of the Trustees under this Declaration of Trust shall
continue, including the powers to fulfill or discharge the Trust's contracts,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining property of the Trust to one or more
persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
its liabilities and do all other acts appropriate to liquidate its business.
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(iii) After paying or adequately providing
for the payment of all
liabilities, and upon receipt of such releases, indemnities and agreements as
they deem necessary for their protection, the Trustees may distribute the
remaining property of the Trust among the Shareholders so that after payment in
full or the setting apart for payment of such preferential amounts, if any, to
which the holders of any Shares at the time outstanding shall be entitled, the
remaining property of the Trust shall, subject to any participating or similar
rights of Shares at the time outstanding, be distributed ratably among the
holders of Common Shares at the time outstanding.
(b) After termination of the Trust, the liquidation
of its business and the distribution to the Shareholders as herein provided, a
majority of the Trustees shall execute and file with the Trust's records a
document certifying that the Trust has been duly terminated, and the Trustees
shall be discharged from all liabilities and duties hereunder, and the rights
and interests of all Shareholders shall cease.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Governing Law. This Declaration of Trust is
executed by the undersigned Trustees and delivered in the State of Maryland with
reference to the laws thereof, and the rights of all parties and the validity,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of the State of Maryland without regard to
conflicts of laws provisions thereof.
Section 13.2 Reliance by Third Parties. Any certificate shall
be final and conclusive as to any person dealing with the Trust if executed by
the Secretary or an Assistant Secretary of the Trust or a Trustee, and if
certifying to: (a) the number or identity of Trustees, officers of the Trust or
Shareholders; (b) the due authorization of the execution of any document; (c)
the action or vote taken, and the existence of a quorum, at a meeting of the
Board of Trustees or Shareholders; (d) a copy of this Declaration of Trust or of
the Bylaws as a true and complete copy as then in force; (e) an amendment to
this Declaration of Trust; (f) the termination of the Trust; or (g) the
existence of any fact or relating to the affairs of the Trust. No purchaser,
lender, transfer agent or other person shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trust on
its behalf or by any officer, employee or agent of the Trust.
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Section 13.3 Severability.
(a) The provisions of this Declaration of Trust are
severable, and if the Board of Trustees shall determine, with the advice of
counsel, that any one or more of such provisions (the "Conflicting Provisions")
are in conflict with the Code, Title 8 or other applicable federal or state
laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed
never to have constituted a part of this Declaration of Trust, even without any
amendment of this Declaration of Trust pursuant to Article X and without
affecting or impairing any of the remaining provisions of this Declaration of
Trust or rendering invalid or improper any action taken or omitted prior to such
determination. No Trustee shall be liable for making or failing to make such a
determination.
(b) If any provision of this Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such holding shall
apply only to the extent of any such invalidity or unenforceability and shall
not in any manner affect, impair or render invalid or unenforceable such
provision in any other jurisdiction or any other provision of this Declaration
of Trust in any jurisdiction.
Section 13.4 Construction. In this Declaration of Trust,
unless the context otherwise requires, words used in the singular or in the
plural include both the plural and singular and words denoting any gender
include all genders. The title and headings of different parts are inserted for
convenience and shall not affect the meaning, construction or effect of this
Declaration of Trust. In defining or interpreting the powers and duties of the
Trust and its Trustees and officers, reference may be made by the Trustees or
officers, to the extent appropriate and not inconsistent with the Code or Title
8, to Titles 1 through 3 of the Corporations and Associations Article of the
Annotated Code of Maryland.
Section 13.5 Recordation. This Declaration of Trust and any
Articles of Amendment hereto shall be filed for record with the SDAT and may
also be filed or recorded in such other places as the Trustees deem appropriate,
but failure to file for record this Declaration of Trust or any Articles of
Amendment hereto in any office other than in the State of Maryland shall not
affect or impair the validity or effectiveness of this Declaration of Trust or
any amendment hereto. A restated Declaration of Trust shall, upon filing, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration of Trust and the various
Articles of Amendments thereto.
31
<PAGE>
THIRD: The amendment to and restatement of the Declaration of
Trust of the Trust as hereinabove set forth has been duly approved and advised
by the Board of Trustees by majority vote thereof and approved by the sole
shareholder of the Trust as required by law.
FOURTH: The current address of the principal office of the
Trust is 415 McFarlan Road, Suite 202, Kennett Square, Pennsylvania 19348.
FIFTH: The name and address of the Trust's current resident
agent is as set forth in Article IV of the foregoing amendment and restatement
of the Declaration of Trust of the Trust.
SIXTH: The number of trustees of the Trust and the names of
those currently in office are as set forth in Article V of the foregoing
amendment and restatement of the Declaration of Trust of the Trust.
IN WITNESS WHEREOF, these Articles of Amendment and
Restatement of Declaration of Trust have been signed on this ______ day of
____________, 1998 by all of the Trustees of the Trust, each of whom
acknowledges, that this document is his free act and deed, and that to the best
of his knowledge, information, and belief, the matters and facts set forth
herein are true in all material respects and that the statement is made under
the penalties for perjury.
- -----------------------------------
Michael R. Walker
- -----------------------------------
Edward B. Romanov, Jr.
32
<PAGE>
ELDERTRUST
FORM OF AMENDED AND RESTATED BYLAWS
ElderTrust, a real estate investment trust organized under the
laws of the State of Maryland (the "Trust") having The Corporation Trust
Incorporated as its resident agent located at 32 South Street, Baltimore,
Maryland 21202, hereby adopts the following as the Amended and Restated Bylaws
(as the same may be amended from time to time, the "Bylaws") of the Trust:
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office ElderTrust
(the "Trust") shall be located at such place or places as the Trustees may
designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional
offices at such places as the Trustees may from time to time determine or the
business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held
at the principal office of the Trust or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. The Trust shall hold its first
annual meeting of shareholders in January 1998. Thereafter, an annual meeting of
the shareholders for the election of Trustees and the transaction of any
business within the powers of the Trust shall be held during the month of May of
each year, after the delivery of the annual report referred to in Section 12 of
this Article II, at a convenient location and on proper notice, on a date and at
the time set by the Trustees, beginning with the year 1999. Failure to hold an
annual meeting does not invalidate the Trust's existence or affect any otherwise
valid acts of the Trust.
Section 3. SPECIAL MEETINGS. The Chairman of the Board or the
President or one-third of the Trustees may call special meetings of the
shareholders. Special meetings of shareholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to cast not
less than a majority of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. Within ten (10) days of the receipt of such a request,
the Secretary shall inform such shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting (including all proxy materials that
may be required in connection therewith) and, upon payment by such shareholders
to the Trust of such costs, the Secretary shall, within thirty (30) days of such
payment, or such longer period as may be necessitated by compliance with any
applicable statutory or regulatory requirements, give notice to each shareholder
entitled to notice of the meeting.
<PAGE>
Unless requested by shareholders entitled to cast a majority
of all the votes entitled to be cast at such meeting, a special meeting need not
be called to consider any matter which is substantially the same as a matter
voted on at any meeting of the shareholders held during the preceding twelve
months.
Section 4. NOTICE. Not less than ten nor more than 90 days
before each meeting of shareholders, the Secretary shall give to each
shareholder entitled to vote at such meeting and to each shareholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail or by presenting it to such shareholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the shareholder at his post office address as it
appears on the records of the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of the shareholders,
the Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the Chief Executive Officer, if
there be one, the President, the Vice Presidents in their order of rank and
seniority, or a Chairman chosen by the shareholders entitled to cast a majority
of the votes which all shareholders present in person or by proxy are entitled
to cast, shall act as Chairman, and the Secretary, or, in his absence, an
Assistant Secretary, or in the absence of both the Secretary and Assistant
Secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of shareholders, the
presence in person or by proxy of shareholders entitled to cast a majority of
all the votes entitled to be cast at such meeting shall constitute a quorum; but
this section shall not affect any requirement under any statute or the
declaration of trust ("Declaration of Trust") for the vote necessary for the
adoption of any measure. If, however, such quorum shall not be present at any
meeting of the shareholders, the shareholders entitled to vote at such meeting,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time to a date not more than 120 days after the original record date
without notice other than announcement at the meeting. At such adjourned meeting
at which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally notified.
<PAGE>
Section 8. VOTING. Subject to the rights of the holders of any
series of Preferred Shares (as defined in the Declaration of Trust) to elect
additional Trustees under specified circumstances, a plurality of all the votes
cast at a meeting of shareholders duly called and at which a quorum is present
shall be sufficient to elect a Trustee. Each share may be voted for as many
individuals as there are Trustees to be elected and for whose election the share
is entitled to be voted. A majority of the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
approve any other matter which may properly come before the meeting, unless more
than a majority of the votes cast is required herein or by statute or by the
Declaration of Trust. Unless otherwise provided in the Declaration of Trust,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote at a meeting of shareholders.
Section 9. PROXIES. A shareholder may cast the votes entitled
to be cast by the shares owned of record by him either in person or by proxy
executed in writing by the shareholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the Trust before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the
Trust registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
<PAGE>
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person other
than the shareholder. The resolution shall set forth the class of shareholders
who may make the certification, the purpose for which the certification may be
made, the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the share
transfer books, the time after the record date or closing of the share transfer
books within which the certification must be received by the Trust; and any
other provisions with respect to the procedure which the Trustees consider
necessary or desirable. On receipt of such certification, the person specified
in the certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the
Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations
and Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
beneficial interest of the Trust. This section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares and,
upon such repeal, may, to the extent provided by any successor bylaw, apply to
any prior or subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of shareholders, the
chairman of the meeting may appoint one or more persons as inspectors for such
meeting. Such inspectors shall ascertain and report the number of shares
represented at the meeting based upon their determination of the validity and
effect of proxies, count all votes, report the results and perform such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
him or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. REPORTS TO SHAREHOLDERS. The Trustees shall submit
to the shareholders at or before the annual meeting of shareholders a report of
the business and operations of the Trust during the prior fiscal year,
containing a balance sheet and a statement of income and surplus of the Trust,
accompanied by the certification of an independent certified public accountant,
and such further information as the Trustees may determine is required pursuant
to any law or regulation to which the Trust is subject. Within the earlier of 20
days after the annual meeting of shareholders or 120 days after the end of the
fiscal year of the Trust, the Trustees shall place the annual report on file at
the principal office of the Trust and with any governmental agencies as may be
required by law and as the Trustees may deem appropriate.
<PAGE>
Section 13. NOMINATIONS AND PROPOSALS BY SHAREHOLDERS.
(a) Annual Meetings of Shareholders. (1) Nominations of
persons for election to the Board of Trustees and the proposal of business to be
considered by the shareholders may be made at an annual meeting of shareholders
(i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of
the Trustees or (iii) by any shareholder of the Trust who was a shareholder of
record both at the time of giving of notice provided for in this Section 13 (a)
and at the time of the annual meeting, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in this Section 13(a).
(2) For nominations or other business to be properly
brought before an annual meeting
by a shareholder pursuant to clause (iii) of paragraph (a) (1) of this Section
13, the shareholder must have given timely notice thereof in writing to the
Secretary of the Trust and such other business must otherwise be a proper matter
for action by shareholders. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Trust not
later than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date or if the Trust has not previously held an annual meeting,
notice by the shareholder to be timely must be so delivered not earlier than the
close of business on the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made by the Trust. In no event shall the public
announcement of a postponement or adjournment of an annual meeting to a later
date or time commence a new time period for the giving of a shareholder's notice
as described above. Such shareholder's notice shall set forth as to each person
whom the shareholder proposes to nominate for election or reelection as a
Trustee all information relating to such person that is required to be disclosed
in solicitations of proxies for election of Trustees in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Trustee if elected); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder, as they appear on the Trust's books, and of
such beneficial owner and (y) the number of each class of shares of the Trust
which are owned beneficially and of record by such shareholder and such
beneficial owner.
<PAGE>
(3) Notwithstanding anything in the second sentence
of paragraph (a) (2) of this Section 13 to the contrary, in the event that the
number of Trustees to be elected to the Board of Trustees is increased and there
is no public announcement by the Trust naming all of the nominees for Trustee or
specifying the size of the increased Board of Trustees at least 70 days prior to
the first anniversary of the preceding year's annual meeting, a shareholder's
notice required by this Section 13(a) shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Trust not later than the close of business on the tenth day following the day on
which such public announcement is first made by the Trust.
(b) Special Meetings of Shareholders. Only such business shall
be conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Trust's notice of meeting. Nominations of
persons for election to the Board of Trustees may be made at a special meeting
of shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting (ii) by or at the direction of the Board of Trustees or (iii)
provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record both at the time of giving of notice provided for in this
Section 13(b) and at the time of the special meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 13 (b). In addition to the foregoing requirements, for nominations or
other business to be properly brought before a special meeting by a shareholder,
such shareholder's notice containing the information required by paragraph (a)
(2) of this Section 13 must be delivered to the Secretary at the principal
executive offices of the Trust not earlier than the close of business on the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting. In no event shall the public announcement of a postponement or
adjournment of a special meeting to a later date or time commence a new time
period for the giving of a shareholder's notice as described above.
<PAGE>
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 13 shall be eligible to
serve as Trustees and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 13. The chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 13 and, if any
proposed nomination or business is not in compliance with this Section 13, to
declare that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 13, "public
announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or
comparable news service or in a document publicly filed by the Trust with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 13, a shareholder shall
also comply with all applicable requirements of state law and of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 13. Nothing in this Section 13 shall be deemed to affect
any rights of shareholders to request inclusion of proposals in, nor any of the
rights of the Trust to omit a proposal from, the Trust's proxy statement
pursuant to Rule 14a-8 under the Exchange Act.
Section 14. INFORMAL ACTION BY SHAREHOLDERS. Subject to the
rights of the holders of any series of Preferred Shares to elect additional
Trustees under specified circumstances and notwithstanding the provisions of
Section 13 of this Article II, any action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting if a consent in writing,
setting forth such action, is signed by all shareholders entitled to vote on
such matter; provided, that all shareholders entitled to notice of any such
meeting but not entitled to vote on such matter shall have made a written waiver
of any right to dissent to such action taken without a meeting.
Section 15. VOTING BY BALLOT. Voting on any question or in any
election at a meeting of shareholders may be viva voce unless the presiding
officer shall order or any shareholder present of such meeting in person or by
proxy shall demand that voting be by ballot.
<PAGE>
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING
OVER. The business and affairs of the Trust shall be managed under the direction
of its Board of Trustees. A Trustee shall be an individual at least 21 years of
age who is not under legal disability. In case of failure to elect Trustees at
an annual meeting of the shareholders, the Trustees holding over shall continue
to direct the management of the business and affairs of the Trust until their
successors are elected and qualify.
Section 2. NUMBER. At any regular meeting or at any special
meeting called for that purpose, a majority of the entire Board of Trustees may
establish, increase or decrease the number of Trustees, subject to any
limitations on the number of Trustees set forth in the Declaration of Trust.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of
the Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Trustees
may be called by or at the request of the Chairman of the Board, the Chief
Executive Officer or the President or by a majority of the Trustees then in
office. The person or persons authorized to call special meetings of the
Trustees may fix any place, either within or without the State of Maryland, as
the place for holding any special meeting of the Trustees called by them.
Section 5. NOTICE. Notice of any special meeting shall be
given by written notice delivered personally, telegraphed, facsimile-transmitted
or mailed to each Trustee at his business or residence address. Personally
delivered or telegraphed notices shall be given at least two days prior to the
meeting. Notice by mail shall be given at least five days prior to the meeting.
Telephone or facsimile-transmission notice shall be given at least 24 hours
prior to the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If given by telegram, such notice shall be deemed to be given when the
telegram is delivered to the telegraph company. Telephone notice shall be deemed
given when the Trustee is personally given such notice in a telephone call to
which he is a party. Facsimile-transmission notice shall be deemed given upon
completion of the transmission of the message to the number given to the Trust
by the Trustee and receipt of a completed answer-back indicating receipt.
Neither the business to be transacted at, nor the purpose of, any annual,
regular or special meeting of the Trustees need be stated in the notice, unless
specifically required by statute or these Bylaws.
<PAGE>
Section 6. QUORUM. A majority of the Trustees shall constitute
a quorum for convening any meeting of the Trustees, provided that, if less than
a majority of such Trustees are present at said meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Declaration of Trust or
these Bylaws, the vote of a majority of a particular group of Trustees is
required for action, a quorum must also include a majority of such group.
The Trustees present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Trustees to leave less than a quorum.
Section 7. VOTING. The action of the majority of the Trustees
present at a meeting at which a quorum is present when such meeting is convened
shall be the action of the Trustees, unless the concurrence of a greater
proportion is required for such action by applicable statute, the Declaration of
Trust or these Bylaws.
Section 8. TELEPHONE MEETINGS. Trustees may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 9. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 10. VACANCIES. If for any reason any or all of the
Trustees cease to be Trustees, such event shall not terminate the Trust or
affect these Bylaws or the powers of the remaining Trustees hereunder (even if
fewer than two Trustees remain). Any vacancy (including a vacancy created by an
increase in the number of Trustees) shall be filled, at any regular meeting or
at any special meeting called for that purpose, by a majority of the Trustees.
Any individual so elected as Trustee shall hold office until the next annual
meeting of Shareholders and until his successor is elected and qualifies.
Section 11. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The
Trustees may from time to time appoint a Chairman of the Board and a Vice
Chairman of the Board. The Chairman of the Board shall preside over the meetings
of the Trustees and of the shareholders at which he shall be present and shall
in general oversee all of the business and affairs of the Trust. In the absence
of the Chairman of the Board, the Vice Chairman of the Board shall preside at
such meetings at which he shall be present. The Chairman and the Vice Chairman
of the Board may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Trustees or by these Bylaws to an officer or some other agent of the Trust or
shall be required by law to be otherwise executed. The Chairman of the Board and
the Vice Chairman of the Board shall perform such other duties as may be
assigned to him or them by the Trustees.
<PAGE>
Section 12. COMPENSATION.
Trustees shall not receive any stated salary for their
services as Trustees but, by resolution of the Trustees, may receive fixed sums
per year or per meeting or per visit to real property owned or to be acquired by
the Trust and for any service or activity they perform or engage in as Trustees.
Such fixed sums may be paid either in cash or in shares of the Trust. Trustees
may be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Trustees or of any committee thereof; and for their
expenses, if any, in connection with each property visit and any other service
or activity performed or engaged in as Trustees; but nothing herein contained
shall be construed to preclude any Trustees from serving the Trust in any other
capacity and receiving compensation therefor.
Section 13. REMOVAL OF TRUSTEES. The shareholders may, at any
time, remove any Trustee in the manner provided in the Declaration of Trust.
Subject to the rights of the holders of any series of Preferred Shares to elect
additional Trustees resulting from the removal of one or more Trustees or under
other specified circumstances, the shareholders may elect a successor to fill a
vacancy on the Board of Trustees which results from the removal of a Trustee.
Section 14. LOSS OF DEPOSITS. No Trustee shall be liable for
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 15. SURETY BONDS. Unless required by law, no Trustee
shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 16. RELIANCE. Each Trustee, officer, employee and
agent of the Trust shall, in the performance of his duties with respect to the
Trust, be fully justified and protected with regard to any act or failure to act
in reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel or upon reports made to the Trust by any of
its officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
<PAGE>
Section 17. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of
the Maryland General Corporation Law (the "MGCL") shall be available for and
apply to any contract or other transaction between the Trust and any of its
Trustees or between the Trust and any other trust, corporation, firm or other
entity in which any of its Trustees is a trustee or director or has a material
financial interest.
Section 18. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES
AND AGENTS. The Trustees shall have no responsibility to devote their full time
to the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust (other than a full-time officer, employee or agent of the Trust), in his
personal capacity or in a capacity as an affiliate, employee, or agent of any
other person, or otherwise, may have business interests and engage in business
activities similar or in addition to those of or relating to the Trust.)
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATION. The Trustees may
appoint from among its members an Executive Committee, an Audit Committee and a
Compensation Committee, each composed of at least two Trustees, and other
committees, each composed of one or more Trustees, to serve at the pleasure of
the Trustees; provided, that the member ship of the Compensation Committee shall
consist of a majority of Independent Trustees and the membership of the Audit
Committee shall consist only of Independent Trustees so long as they continue in
office. An individual shall be deemed to be an "Independent Trustee" hereunder
if such individual is not an affiliate of the Trust and is not an employee of
the Trust.
Section 2. POWERS. The Trustees may delegate to committees
appointed under Section 1 of this Article IV any of the powers of the Trustees,
except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be
given in the same manner as notice for special meetings of the Board of
Trustees. One-third, but not less than two (except for one-member committees),
of the members of any committee shall be present in person at any meeting of
such committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board of Trustees may designate a chairman of any committee, and
such chairman or any two members of any committee (except for one-member
committees) may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of such absent or disqualified
members.
<PAGE>
Each committee shall keep minutes of its proceedings and shall
report the same to the Board of Trustees at the next succeeding meeting, and any
action by the committee shall be subject to revision and alteration by the Board
of Trustees, provided that no rights of third persons shall be affected by any
such revision or alteration.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required
or permitted to be taken at any meeting of a committee of the Trustees may be
taken without a meeting, if a consent in writing to such action is signed by
each member of the committee and such written consent is filed with the minutes
of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the
Board of Trustees shall have the power at any time to change the membership of
any committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member or to dissolve any such committee.
Section 7. EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Trust by its Trustees and officers as contemplated by the
Declaration of Trust and these Bylaws, any two or more available members of the
then incumbent Executive Committee shall constitute a quorum of that Committee
for the full conduct and management of the affairs and business of the Trust in
accordance with the provisions of this Article IV. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available Trustees shall elect an Executive Committee
composed of any two members of the Board of Trustees, whether or not they be
officers of the Trust, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Trust in
accordance with the foregoing provisions of this Section 7. This Section 7 shall
be subject to implementation by resolution of the Board of Trustees passed from
time to time for that purpose, and any provisions of the Bylaws (other than this
Section 7) and any resolutions which are contrary to the provisions of this
Section 7 or to the provisions of any such implementing resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section 7 that it shall be to the advantage of the Trust to resume
the conduct and management of its affairs and business under all the other
provisions of these Bylaws.
<PAGE>
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust shall
include a President, a Secretary and a Treasurer and may include a Chief
Executive Officer, a Chief Operating Officer, a Chief Financial Officer, a Chief
Legal Counsel, one or more Vice Presidents, one or more Assistant Secretaries
and one or more Assistant Treasurers. In addition, the Trustees may from time to
time appoint such other officers with such powers and duties as they shall deem
necessary or desirable. The officers of the Trust shall be elected annually by
the Trustees at the first meeting of the Trustees held after each annual meeting
of shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Each
officer shall hold office until his successor is elected and qualifies or until
his death, resignation or removal in the manner hereinafter provided. Any two or
more offices except President and Vice President may be held by the same person.
In their discretion, the Trustees may leave unfilled any office except that of
President and Secretary. Election of an officer or agent shall not of itself
create contract rights between the Trust and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of
the Trust may be removed at any time by the Trustees if in their judgment the
best interests of the Trust would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Trust may resign at any time by giving written notice of his
resignation to the Trustees, the Chairman of the Board, the President or the
Secretary. Any resignation shall take effect at any time subsequent to the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract rights,
if any, of the Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by
the Trustees for the balance of the term.
<PAGE>
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate
a Chief Executive Officer from among the elected officers. The Chief Executive
Officer shall have responsibility for implementation of the policies of the
Trust, as determined by the Trustees, and for the administration of the business
affairs of the Trust. In the absence of both the Chairman and Vice Chairman of
the board, the Chief Executive Officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
Section 5. PRESIDENT. In the absence of the Chairman, the Vice
Chairman of the Board and the Chief Executive Officer, the President shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. In the absence of a designation of a Chief Executive Officer
by the Trustees, the President shall be the Chief Executive Officer and shall be
ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. The President may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Trustees or by these Bylaws to some other officer
or agent of the Trust or shall be required by law to be otherwise executed; and
in general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the Chief Executive Officer or the Trustees
from time to time.
Section 6. CHIEF OPERATING OFFICER. The Trustees may designate
a Chief Operating Officer from among the elected officers. Said officer will
have the responsibilities and duties as set forth by the Chief Executive
Officer, the President or the Trustees.
Section 7. VICE PRESIDENTS. In the absence of the President or
in the event of a vacancy in such office, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall perform the duties of the President
and when so acting shall have all the powers of and be subject to all the
restrictions upon the President; and shall perform such other duties as from
time to time may be assigned to him or her by the Chief Executive Officer, the
President or the Trustees. The Trustees may designate one or more Vice
Presidents as Executive Vice President, Senior Vice President or as Vice
President for particular areas of responsibility.
Section 8. TREASURER. The Treasurer shall have the custody of
the funds and securities of the Trust and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Trust and shall deposit
all moneys and other valuable effects in the name and to the credit of the Trust
in such depositories as may be designated by the Trustees.
The Treasurer shall disburse the funds of the Trust as may be
ordered by the Trustees, taking proper vouchers for such disbursements, and
shall render to the Chief Executive Officer, the President and the Trustees, at
the regular meetings of the Trustees or whenever they may require it, an account
of all his or her transactions as Treasurer and of the financial condition of
the Trust.
<PAGE>
If required by the Trustees, the Treasurer shall give the
Trust a bond in such sum and with such surety or sureties as shall be
satisfactory to the Trustees for the faithful performance of the duties of his
or her office and for the restoration to the Trust, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
moneys and other property of whatever kind in his or her possession or under his
or her control belonging to the Trust.
Section 9. CHIEF FINANCIAL OFFICER. The Trustees may designate
a Chief Financial Officer from among the elected officers. Said officer will
have the responsibilities and duties as set forth by the Chief Executive
Officer, the President or the Trustees.
Section 10. CHIEF LEGAL COUNSEL. The Trustees may designate a
Chief Legal Counsel from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Chief Executive Officer, the
President or the Trustees.
Section 11. SECRETARY. The Secretary shall (a) keep the
minutes of the proceedings of the shareholders, the Trustees and committees of
the Trustees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the trust records and of the seal of the
Trust; (d) keep a register of the post office address of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) have general charge
of the share transfer books of the Trust; and (f) in general perform such other
duties as from time to time may be assigned to him by the Chief Executive
Officer, the President or the Trustees.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties as shall be assigned to them by the Secretary or Treasurer,
respectively, or by the Chief Executive Officer, the President or the Trustees.
The Assistant Treasurers shall, if required by the Trustees, give bonds for the
faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Trustees.
Section 13. SALARIES. The salaries and other compensation of
the officers shall be fixed from time to time by the Trustees and no officer
shall be prevented from receiving such salary or other compensation by reason of
the fact that he or she is also a Trustee.
<PAGE>
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Trust and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Trustees or by an authorized person
shall be valid and binding upon the Trustees and upon the Trust when authorized
or ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Trust shall be signed by such officer or agent of the Trust
in such manner as shall from time to time be determined by the Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise
employed shall be deposited from time to time to the credit of the Trust in such
banks, trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to
a certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interest held by him in the Trust. Each
certificate shall be signed by the Chief Executive Officer, the President or a
Vice President and countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any,
of the Trust. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Trust shall, from time to time,
issue several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the Trust,
shall have a statement of such restriction, limitation, preference or redemption
provision, or a summary thereof, plainly stated on the certificate. In lieu of
such statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
<PAGE>
Section 2. TRANSFERS. Certificates shall be treated as
negotiable and title thereto and to the shares they represent shall be
transferred by delivery thereof to the same extent as those of a Maryland stock
corporation. Upon surrender to the Trust or the transfer agent of the Trust of a
share certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Trust shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
The Trust shall be entitled to treat the holder of record of
any share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of
beneficial interest of the Trust will be subject in all respects to the
Declaration of Trust and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by
the Trustees may direct a new certificate to be issued in place of any
certificate previously issued by the Trust alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the Trustees may, in his
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall require or to
give bond, with sufficient surety, to the Trust to indemnify it against any loss
or claim which may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
The Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of shareholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of shareholders of record is to be held or taken.
In lieu of fixing a record date, the Trustees may provide that
the share transfer books shall be closed for a stated period but not longer than
20 days. If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
<PAGE>
If no record date is fixed and the share transfer books are
not closed for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
shareholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the Trustees, declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. SHARE LEDGER. The Trust shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees
may issue fractional shares or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
FISCAL YEAR
The Trustees shall have the power, from time to time, to fix
the fiscal year of the Trust by a duly adopted resolution.
<PAGE>
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions
upon the shares of beneficial interest of the Trust may be authorized and
declared by the Trustees, subject to the provisions of law and the Declaration
of Trust. Dividends and other distributions may be paid in cash, property or
shares of the Trust, subject to the provisions of law and the Declaration of
Trust.
Section 2. CONTINGENCIES. Before payment of any dividends or
other distributions, there may be set aside out of any funds of the Trust
available for dividends or other distributions such sum or sums as the Trustees
may from time to time, in their absolute discretion, think proper as a reserve
fund for contingencies, for equalizing dividends or other distributions, for
repairing or maintaining any property of the Trust or for such other purpose as
the Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE X
PROHIBITED INVESTMENTS AND ACTIVITIES;
INVESTMENT POLICIES
Notwithstanding anything to the contrary in the Declaration of
Trust, the Trust shall not enter into any transaction referred to in (i), (ii)
or (iii) below which it does not believe is in the best interests of the Trust,
and will not, without the approval of a majority of the disinterested Trustees
(other than in connection with the initial public offering of shares by the
Trust or pursuant to agreements entered into in connection with such offering),
(i) acquire from or sell to any Trustee, officer or employee of the Trust, any
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in which a Trustee, officer or employee of the Trust owns more than a
one percent interest or any affiliate of any of the foregoing, any of the assets
or other property of the Trust, (ii) make any loan to or borrow from any of the
foregoing persons or (iii) engage in any other transaction with any of the
foregoing persons. Each such transaction will be in all respects on such terms
as are, at the time of the transaction and under the circumstances then
prevailing, fair and reasonable to the Trust. Subject to the foregoing and the
provisions of the Declaration of Trust, the Board of Trustees may from time to
time adopt, amend, revise or terminate any policy or policies with respect to
investments by the Trust as it shall deem appropriate in its sole discretion.
<PAGE>
ARTICLE XI
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a
seal by the Trust. The seal shall have inscribed thereon the name of the Trust
and the year of its formation. The Trustees may authorize one or more duplicate
seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Trust.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from
time to time, the Trust shall indemnify (a) any Trustee, officer or shareholder
or any former Trustee, officer or shareholder (including among the foregoing,
for all purposes of this Article XII and without limitation, any individual who,
while a Trustee, officer or shareholder and at the express request of the Trust,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
shareholder, partner or trustee of such corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) who has been successful, on
the merits or otherwise, in the defense of a proceeding to which he was made a
party by reason of service in such capacity, against reasonable expenses
incurred by him in connection with the proceeding, (b) any Trustee or officer or
any former Trustee or officer against any claim or liability to which he may
become subject by reason of such status unless it is established that (i) his
act or omission was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful and (c) each shareholder or
former shareholder against any claim or liability to which he may become subject
by reason of such status. In addition, the Trust shall, without requiring a
preliminary determination of the ultimate entitlement to indemnification, pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by a Trustee, officer or shareholder or former Trustee, officer or
shareholder made a party to a proceeding by reason such status, provided that,
in the case of a Trustee or officer, the Trust shall have received (i) a written
affirmation by the Trustee or officer of his good faith belief that he has met
the applicable standard of conduct necessary for indemnification by the Trust as
authorized by these Bylaws and (ii) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Trust if it shall ultimately be
determined that the applicable standard of conduct was not met. The Trust may,
with the approval of its Trustees, provide such indemnification or payment or
reimbursement of expenses to any Trustee, officer or shareholder or any former
Trustee, officer or shareholder who served a predecessor of the Trust and to any
employee or agent of the Trust or a predecessor of the Trust. Neither the
amendment nor repeal of this Article, nor the adoption or amendment of any other
provision of the Declaration of Trust or these Bylaws inconsistent with this
Article, shall apply to or affect in any respect the applicability of this
Article with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
<PAGE>
Any indemnification or payment or reimbursement of the
expenses permitted by these Bylaws shall be furnished in accordance with the
procedures provided for indemnification or payment or reimbursement of expenses,
as the case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses, as
the case may be, to the fullest extent permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
<PAGE>
ARTICLE XIV
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.
ARTICLE XV
MISCELLANEOUS
All references to the Declaration of Trust shall include any
amendments thereto. In these Bylaws, unless the context otherwise requires,
words used in the singular or in the plural include both the plural and singular
and words denoting any gender include all genders.
* * * *
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF HOGAN & HARTSON L.L.P.]
January 20, 1998
Board of Trustees
ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
Gentlemen:
We are acting as counsel to ElderTrust, a Maryland real estate
investment trust (the "Company"), in connection with its registration statement
on Form S-11, as amended (the "Registration Statement") filed with the
Securities and Exchange Commission relating to the proposed public offering of
up to 6,957,500 of the Company's common shares of beneficial interest, par value
$.01 per share, all of which shares (the "Shares") are to be sold by the
Company. This opinion letter is furnished to you at your request to enable you
to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. ss.
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies
of the following documents:
1. An executed copy of the Registration Statement.
2. The Declaration of Trust of the Company, as certified
by the Secretary of the State of the State of
Maryland on September 23, 1997 and by the Secretary
of the Company on the date hereof as then being
complete, accurate and in effect.
3. The Amended and Restated Bylaws of the Company, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in
effect.
4. The proposed form of U.S. Purchase Agreement among
the Company and the several Underwriters to be named
therein, for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BT Alex. Brown Incorporated and
Goldman, Sachs & Co. will act as representatives,
filed as Exhibit 1.1 to the Registration Statement
(the "U.S.
Purchase Agreement").
5. The proposed form of International Purchase Agreement
among the Company and the several Underwriters to be
named therein, for whom Merrill Lynch International,
BT Alex. Brown International, division of Bankers
Trust International PLC and Goldman Sachs
International will act as lead managers, filed as
Exhibit 1.2 to the Registration Statement (the
"International Purchase Agreement," and together with
the U.S. Purchase Agreement, the "Purchase
Agreements").
6. Resolutions of the Board of Directors of the Company
adopted by unanimous consent on October 8, 1997, as
certified by the Secretary of the Company on the date
hereof as then being complete, accurate and in
effect, relating to the issuance and sale of the
Shares and arrangements in connection therewith.
<PAGE>
In our examination of the aforesaid documents, we have assumed
the genuineness of all signatures, the legal capacity of natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on
applicable provisions of Maryland law. We express no opinion herein as to any
other laws, statutes, regulations or ordinances or as to compliance with the
securities (or "blue sky") laws or the real estate syndication laws of Maryland.
Based upon, subject to and limited by the foregoing, we are of
the opinion that following (i) final action of the Board of Trustees of the
Company adopting resolutions approving the price of the Shares, (ii) execution
and delivery by the Company of the Purchase Agreements, (iii) effectiveness of
the Registration Statement, (iv) issuance of the Shares pursuant to the terms of
the Purchase Agreements and (v) receipt by the Company of the consideration for
the Shares specified in the resolutions of the Board of Trustees referred to
above, the Shares will be validly issued, fully paid and non-assessable.
This opinion letter has been prepared for your use in
connection with the filing of the Registration Statement on the date of this
opinion letter and speaks as of the date hereof. We assume no obligation to
advise you of any changes in the foregoing subsequent to the delivery of this
opinion letter.
We hereby consent to the filing of this opinion letter as
Exhibit 5.1 to the Registration Statement and to the reference to this firm
under the caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
-----------------------------
HOGAN & HARTSON L.L.P.
<PAGE>
-----------------------------------------
FORM OF SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ELDERTRUST OPERATING LIMITED PARTNERSHIP
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I DEFINED TERMS..............................................................................1
ARTICLE II ORGANIZATIONAL MATTERS....................................................................14
Section 2.1 Organization.......................................................................14
Section 2.2 Name...............................................................................15
Section 2.3 Registered Office and Agent; Principal Office......................................15
Section 2.4 Term...............................................................................15
ARTICLE III PURPOSE..................................................................................15
Section 3.1 Purpose and Business...............................................................15
Section 3.2 Powers.............................................................................16
ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS..............................16
Section 4.1 Capital Contributions of the Partners; Restatement of Capital
Accounts on the Effective Date.....................................................16
Section 4.2 Issuances of Partnership Interests.................................................17
Section 4.3 No Preemptive Rights...............................................................19
Section 4.4 Other Contribution Provisions......................................................19
Section 4.5 No Interest on Capital.............................................................19
ARTICLE V DISTRIBUTIONS..............................................................................19
Section 5.1 Requirement and Characterization of Distributions..................................19
Section 5.2 Amounts Withheld...................................................................22
Section 5.3 Distributions Upon Liquidation.....................................................22
Section 5.4 Revisions to Reflect Issuance of Partnership Interests.............................23
ARTICLE VI ALLOCATIONS...............................................................................23
Section 6.1 Allocations For Capital Account Purposes...........................................23
Section 6.2 Revisions to Allocations to Reflect Issuance of Partnership
Interests............................................24
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS....................................................24
Section 7.1 Management.........................................................................24
Section 7.2 Certificate of Limited Partnership.................................................29
Section 7.3 Title to Partnership Assets........................................................29
Section 7.4 Reimbursement of the General Partner...............................................30
Section 7.5 Outside Activities of the General Partner; Relationship of Shares to
Partnership Units; Funding Debt....................................................31
Section 7.6 Transactions with Affiliates.......................................................33
Section 7.7 Indemnification....................................................................34
Section 7.8 Liability of the General Partner...................................................36
Section 7.9 Other Matters Concerning the General Partner.......................................36
Section 7.10 Reliance by Third Parties.........................................................37
Section 7.11 Restrictions on General Partner's Authority......................................38
Section 7.12 Loans by Third Parties...........................................................38
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS..............................................38
Section 8.1 Limitation of Liability............................................................38
Section 8.2 Management of Business.............................................................38
Section 8.3 Outside Activities of Limited Partners.............................................39
Section 8.4 Return of Capital..................................................................39
Section 8.5 Rights of Limited Partners Relating to the Partnership.............................39
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 8.6 Redemption Right...................................................................41
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS....................................................43
Section 9.1 Records and Accounting.............................................................43
Section 9.2 Fiscal Year........................................................................44
Section 9.3 Reports............................................................................44
ARTICLE X TAX MATTERS................................................................................44
Section 10.1 Preparation of Tax Returns........................................................44
Section 10.2 Tax Elections.....................................................................45
Section 10.3 Tax Matters Partner...............................................................45
Section 10.4 Organizational Expenses...........................................................46
Section 10.5 Withholding.......................................................................46
ARTICLE XI TRANSFERS AND WITHDRAWALS.................................................................47
Section 11.1 Transfer..........................................................................47
Section 11.2 Transfers of Partnership Interests of General Partner.............................48
Section 11.3 Limited Partners' Rights to Transfer..............................................48
Section 11.4 Substituted Limited Partners......................................................50
Section 11.5 Assignees.........................................................................51
Section 11.6 General Provisions................................................................51
ARTICLE XII ADMISSION OF PARTNERS....................................................................53
Section 12.1 Admission of a Successor General Partner..........................................53
Section 12.2 Admission of Additional Limited Partners..........................................53
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership.....................54
ARTICLE XIII DISSOLUTION AND LIQUIDATION.............................................................54
Section 13.1 Dissolution.......................................................................54
Section 13.2 Winding Up........................................................................55
Section 13.3 Compliance with Timing Requirements of Regulations................................56
Section 13.4 Deemed Distribution and Recontribution............................................57
Section 13.5 Rights of Limited Partners........................................................57
Section 13.6 Notice of Dissolution.............................................................57
Section 13.7 Cancellation of Certificate of Limited Partnership................................58
Section 13.8 Reasonable Time for Winding Up....................................................58
Section 13.9 Waiver of Partition...............................................................58
Section 13.10 Liability of Liquidator..........................................................58
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.............................................58
Section 14.1 Amendments........................................................................58
Section 14.2 Meetings of the Partners..........................................................60
ARTICLE XV GENERAL PROVISIONS........................................................................61
Section 15.1 Addresses and Notice..............................................................61
Section 15.2 Titles and Captions...............................................................61
Section 15.3 Pronouns and Plurals..............................................................61
Section 15.4 Further Action....................................................................61
Section 15.5 Binding Effect....................................................................61
Section 15.6 Creditors.........................................................................62
Section 15.7 Waiver............................................................................62
Section 15.8 Counterparts......................................................................62
Section 15.9 Applicable Law....................................................................62
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Section 15.10 Invalidity of Provisions.........................................................62
Section 15.11 Power of Attorney................................................................62
Section 15.12 Entire Agreement.................................................................64
Section 15.13 No Rights as Shareholders........................................................64
Section 15.14 Limitation to Preserve REIT Status...............................................64
</TABLE>
iii
<PAGE>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
SPECIAL ALLOCATION RULES
EXHIBIT D
NOTICE OF REDEMPTION
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
EXHIBIT F
FORM OF PARTNERSHIP UNIT CERTIFICATE
EXHIBIT G
DEFICIT RESTORATION OBLIGATIONS
iv
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ELDERTRUST OPERATING LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of , 1998, is entered into by and among ElderTrust, a Maryland real
estate investment trust, as the General Partner of the Partnership, and Thomas
W. Balderston, Gregory H. Doyle, Richard R. Howard, D. Lee McCreary, Jr., MGI
Limited Partnership, a Delaware limited partnership, Edward B. Romanov, Jr.,
Senior LifeChoice Corporation, a Pennsylvania corporation, Michael R. Walker and
Joseph A. Williamson, as Limited Partners, together with any other Persons who
become Partners in the Partnership as provided herein.
WHEREAS, the Partnership was formed on July 30, 1997, and, on July 30,
1997 the Partnership, adopted an Agreement of Limited Partnership;
WHEREAS, on September 10, 1997, the Partnership adopted a First Amended
and Restated Agreement of Limited Partnership in the form of the Prior
Agreement;
WHEREAS, the General Partner has been admitted to the Partnership as an
additional general partner pursuant to the terms of the Prior Agreement;
WHEREAS, ElderTrust Realty Group, a Maryland corporation and the
initial general partner of the Partnership, has withdrawn from the Partnership
effective as of the Effective Date; and
WHEREAS, the Partners desire to continue the business of the
Partnership pursuant to this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby amend
and restate the Prior Agreement in its entirety and agree to continue the
Partnership as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act, as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
<PAGE>
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account
maintained for each Partner as of the end of each Partnership Year (i) increased
by any amounts which such Partner is obligated to restore pursuant to any
provision of this Agreement or is deemed to be obligated to restore pursuant to
the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of
which has been adjusted pursuant to Exhibit B.
"Adjustment Date" has the meaning set forth in Section 4.2.B.
"Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreed Value" means (i) in the case of any Contributed
Property contributed to the Partnership as of the Effective Date, the amount set
forth on Exhibit E as the Agreed Value of such Property; (ii) in the case of any
other Contributed Property, the 704(c) Value of such property as of the time of
its contribution to the Partnership, reduced by any liabilities either assumed
by the Partnership upon such contribution or to which such property is subject
when contributed; and (iii) in the case of any property distributed to a Partner
by the Partnership, the Partnership's Carrying Value of such property at the
time such property is distributed, reduced by any indebtedness either assumed by
such Partner upon such distribution or to which such property is subject at the
time of distribution as determined under Section 752 of the Code and the
regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it
may be amended, supplemented or restated from time to time.
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<PAGE>
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5.
"Available Cash" means, with respect to any period for which
such calculation is being made:
(a) all cash revenues and funds received by the Partnership
from whatever source (excluding the proceeds of any Capital Contribution) plus
the amount of any reduction (including, without limitation, a reduction
resulting because the General Partner determines such amounts are no longer
necessary) in reserves of the Partnership, which reserves are referred to in
clause (b)(iv) below;
(b) less the sum of the following (except to the extent made
with the proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments
made during such period by the Partnership,
(ii) all cash expenditures (including capital
expenditures) made by the Partnership during such period,
(iii) investments in any entity (including loans made
thereto) to the extent that such investments are permitted under this Agreement
and are not otherwise described in clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves
established during such period which the General Partner determines is necessary
or appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not
include any cash received or reductions in reserves, or take into account any
disbursements made or reserves established, after commencement of the
dissolution and liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Philadelphia, Pennsylvania are authorized
or required by law to close.
-3-
<PAGE>
"Capital Account" means the Capital Account maintained for a
Partner pursuant to Exhibit B. The initial Capital Account balance for each
Partner who is a Partner on the Effective Date shall be the amount set forth
opposite such Partner's name on Exhibit A hereto.
"Capital Contribution" means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant to
Section 4.1 or 4.2.
"Carrying Value" means (i) with respect to a Contributed
Property or Adjusted Property, the 704(c) Value of such property reduced (but
not below zero) by all Depreciation with respect to such Contributed Property or
Adjusted Property, as the case may be, charged to the Partners' Capital Accounts
and (ii) with respect to any other Partnership property, the adjusted basis of
such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Exhibit B, and to reflect changes, additions (including
capital improvements thereto) or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Cash Amount" means an amount of cash equal to the Value on
the Valuation Date of the Shares Amount.
"Certificate" means the Certificate of Limited Partnership
relating to the Partnership filed in the office of the Delaware Secretary of
State, as amended from time to time in accordance with the terms hereof and the
Act.
"Class A" has the meaning set forth in Section 5.1.C.
"Class A Share" has the meaning set forth in Section 5.1.C.
"Class A Unit" means any Partnership Unit that is not
specifically designated by the General Partner as being of another specified
class of Partnership Units.
"Class B" has the meaning set forth in Section 5.1.C.
"Class B Share" has the meaning set forth in Section 5.1.C.
"Class B Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consent" means the consent or approval of a proposed action
by a Partner given in accordance with Section 14.2.
-4-
<PAGE>
"Consent of the Outside Limited Partners" means the Consent of
Limited Partners (excluding for this purpose any Limited Partnership Interests
held by the General Partner, any Person of which the General Partner owns or
controls more than fifty percent (50%) of the voting interests and any Person
directly or indirectly owning or controlling more than fifty percent (50%) of
the outstanding voting interests of the General Partner) holding Percentage
Interests that are greater than fifty percent (50%) of the aggregate Percentage
Interest of all Limited Partners who are not excluded for the purposes hereof.
"Contributed Property" means each property or other asset
contributed to the Partnership, in such form as may be permitted by the Act, but
excluding cash contributed or deemed contributed to the Partnership. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B, such
property shall no longer constitute a Contributed Property for purposes of
Exhibit B, but shall be deemed an Adjusted Property for such purposes.
"Conversion Factor" means 1.0; provided that, if the General
Partner Entity (i) declares or pays a dividend on its outstanding Shares in
Shares or makes a distribution to all holders of its outstanding Shares in
Shares, (ii) subdivides its outstanding Shares or (iii) combines its outstanding
Shares into a smaller number of Shares, the Conversion Factor shall be adjusted
by multiplying the Conversion Factor by a fraction, the numerator of which shall
be the number of Shares issued and outstanding on the record date for such
dividend, distribution, subdivision or combination (assuming for such purposes
that such dividend, distribution, subdivision or combination has occurred as of
such time) and the denominator of which shall be the actual number of Shares
(determined without the above assumption) issued and outstanding on the record
date for such dividend, distribution, subdivision or combination; and provided
further that if an entity shall cease to be the General Partner Entity (the
"Predecessor Entity") and another entity shall become the General Partner Entity
(the "Successor Entity"), the Conversion Factor shall be adjusted by multiplying
the Conversion Factor by a fraction, the numerator of which is the Value of one
Share of the Predecessor Entity, determined as of the date when the Successor
Entity becomes the General Partner Entity, and the denominator of which is the
Value of one Share of the Successor Entity, determined as of that same date.
(For purposes of the second provision in the preceding sentence, if any
shareholders of the Predecessor Entity will receive consideration in connection
with the transaction in which the Successor Entity becomes the General Partner
Entity, the numerator in the fraction described above for determining the
adjustment to the Conversion Factor (that is, the Value of one Share of the
Predecessor Entity) shall be the sum of the greatest amount of cash and the fair
market value (as determined in good faith by the General Partner) of any
securities and other consideration that the holder of one Share in the
Predecessor Entity could have received in such transaction (determined without
regard to any provisions governing fractional shares).) Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
the event retroactive to the record date, if any, for the event giving rise
thereto, it being intended that (x) adjustments to the Conversion Factor are to
be made to avoid unintended dilution or anti-dilution as a result of
transactions in which Shares are issued, redeemed or exchanged without a
corresponding issuance, redemption or exchange of Partnership Units and (y) if a
Specified Redemption Date shall fall between the record date and the effective
date of any event of the type described above, that the Conversion Factor
applicable to such redemption shall be adjusted to take into account such event.
-5-
<PAGE>
"Convertible Funding Debt" has the meaning set forth in
Section 7.5.F.
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Person, (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof, and (iv)
obligations of such Person incurred in connection with entering into a lease
which, in accordance with generally accepted accounting principles, should be
capitalized.
"Declaration of Trust" means the Declaration of Trust of the
General Partner filed in the State of Maryland on September 23, 1997, as amended
or restated from time to time.
"Deemed Partnership Interest Value" means, as of any date with
respect to any class of Partnership Interests, the Deemed Value of the
Partnership Interest of such class multiplied by the applicable Partner's
Percentage Interest of such class.
"Deemed Value of the Partnership Interest" means, as of any
date with respect to any class of Partnership Interests, (a) if the common
shares of beneficial interest (or other comparable equity interests) of the
General Partner Entity are Publicly Traded (i) the total number of shares of
beneficial interest (or other comparable equity interest) of the General Partner
Entity corresponding to such class of Partnership Interest (as provided for in
Section 4.2.B) issued and outstanding as of the close of business on such date
(excluding any treasury shares) multiplied by the Value of a share of such
beneficial interest (or other comparable equity interest) on such date divided
by (ii) the Percentage Interest of the General Partner in such class of
Partnership Interests on such date, and (b) otherwise, the aggregate Value of
such class of Partnership Interests determined as set forth in the fourth and
fifth sentences of the definition of Value.
"Deficit Restoration Agreement" means an agreement made by a
Partner and accepted by the Partnership whereby such Partner agrees to
contribute an amount of cash set forth in such Deficit Restoration Agreement to
the Partnership in the event of the liquidation of the Partnership pursuant to
Article XIII.
"Depreciation" means, for each fiscal year, an amount equal to
the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
-6-
<PAGE>
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Distribution Period" has the meaning set forth in Section
5.1.C.
"Effective Date" means the date of the closing of the initial
public offering of the General Partner pursuant to the Purchase Agreement.
"ElderTrust Realty Group" means ElderTrust Realty Group, Inc.,
a Maryland corporation and the initial general partner of the Partnership.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Plan Investor" means (i) a Plan, (ii) a trust which was
established pursuant to a Plan, or a nominee for such trust or Plan, or (iii) an
entity whose underlying assets include assets of a Plan by reason of such Plan's
investment in such entity.
"ET Partnership" means ET Partnership, a Pennsylvania general
partnership.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Funding Debt" means the incurrence of any Debt by or on
behalf of the General Partner Entity for the purpose of providing funds to the
Partnership.
"General Partner" means ElderTrust, a Maryland real estate
investment trust, or any of its successors as a general partner of the
Partnership.
"General Partner Entity" means the General Partner; provided,
however, that if (i) the common shares of beneficial interest (or other
comparable equity interests) of the General Partner are at any time not Publicly
Traded and (ii) the common shares of beneficial interest (or other comparable
equity interests) of an entity that owns, directly or indirectly, fifty percent
(50%) or more of the common shares of beneficial interest (or other comparable
equity interests) of the General Partner are Publicly Traded, the term "General
Partner Entity" shall refer to such entity whose common shares of beneficial
interest (or other comparable equity securities) are Publicly Traded. If both
requirements set forth in clauses (i) and (ii) above are not satisfied, then the
term "General Partner Entity" shall mean the General Partner.
"General Partner Payment" has the meaning set forth in Section
15.14 hereof.
"General Partnership Interest" means a Partnership Interest
held by the General Partner that is a general partnership interest. A General
Partnership Interest may be expressed as a number of Partnership Units.
-7-
<PAGE>
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person,
such natural Person's spouse, parents, descendants, nephews, nieces, brothers,
and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating such Partner incompetent to manage his or
her Person or estate, (ii) as to any corporation which is a Partner, the filing
of a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership or limited liability
company which is a Partner, the dissolution and commencement of winding up of
the partnership or limited liability company, (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership, (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee) or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within one hundred twenty (120) days
after the commencement thereof, (g) the appointment without the Partner's
consent or acquiescence of a trustee, receiver of liquidator has not been
vacated or stayed within ninety (90) days of such appointment or (h) an
appointment referred to in clause (g) is not vacated within ninety (90) days
after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of its status as (A) the General Partner, (B) a Limited Partner, or
(C) a trustee, director or officer of the Partnership, or the General Partner
and (ii) such other Persons (including Affiliates of the General Partner, a
Limited Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"Limited Partner" means any Person named as a Limited Partner
in Exhibit A, as such Exhibit may be amended from time to time, or any
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner in the Partnership representing a fractional part of the
-8-
<PAGE>
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.A.
"MGI" means MGI Limited Partnership, a Delaware limited
partnership.
"Net Income" means, for any taxable period, the excess, if
any, of the Partnership's items of income and gain for such taxable period over
the Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Income is subjected to the special allocation
rules in Exhibit C, Net Income or the resulting Net Loss, whichever the case may
be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any,
of the Partnership's items of loss and deduction for such taxable period over
the Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in Exhibit C, Net Loss or the resulting Net Income, whichever the case may
be, shall be recomputed without regard to such item.
"New Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase shares of beneficial interest (or other comparable equity interest) of
the General Partner, excluding grants under any Share Option Plan, or (ii) any
Debt issued by the General Partner that provides any of the rights described in
clause (i).
"Nonrecourse Built-in Gain" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable gain
that would be allocated to the Partners pursuant to Section 2.B of Exhibit C if
such properties were disposed of in a taxable transaction in full satisfaction
of such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means a Notice of Redemption
substantially in the form of Exhibit D.
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<PAGE>
"Partner" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act upon the terms and conditions set forth in this Agreement, or any successor
to such limited partnership.
"Partnership Interest" means a Limited Partnership Interest or
the General Partnership Interest and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner either (i) for the distribution of Available Cash pursuant
to Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its shareholders
of some or all of its portion of such distribution, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2,
and includes Class A Units, Class B Units and any other classes or series of
Partnership Units established after the date hereof. The number of Partnership
Units outstanding and the Percentage Interests in the Partnership represented by
such Partnership Units are set forth in Exhibit A, as such Exhibit may be
amended from time to time. The ownership of Partnership Units shall be evidenced
by a certificate in a form approved by the General Partner.
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<PAGE>
"Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Percentage Interest" means, as to a Partner holding a class
of Partnership Interests, its interest in such class, determined by dividing the
Partnership Units of such class owned by such Partner by the total number of
Partnership Units of such class then outstanding as specified in Exhibit A, as
such exhibit may be amended from time to time, multiplied by the aggregate
Percentage Interest allocable to such class of Partnership Interests. If the
Partnership shall at any time have outstanding more than one class of
Partnership Interests, the Percentage Interest attributable to each class of
Partnership Interests shall be determined as set forth in Section 4.2.B.
"Person" means a natural person, partnership (whether general
or limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"Plan" means (i) an employee benefit plan subject to Title I
of ERISA or (ii) a plan as defined in Section 4975(e) of the Code.
"Predecessor Entity" has the meaning set forth in the
definition of "Conversion Factor" herein.
"Prior Agreement" means the First Amended and Restated
Agreement of Limited Partnership of the Partnership dated as of September 10,
1997, which Prior Agreement is amended and restated in its entirety by this
Agreement as of the Effective Date.
"Publicly Traded" means listed or admitted to trading on the
New York Stock Exchange, the American Stock Exchange or another national
securities exchange or designated for quotation on The Nasdaq Stock Market, Inc.
National Market, or any successor to any of the foregoing.
"Purchase Agreement" means that certain purchase agreement
among the General Partner and Merrill Lynch & Co., Alex. Brown & Sons
Incorporated and Goldman Sachs & Co., as representatives of the several
underwriters, in connection with the initial public offering of Shares by the
General Partner
"Qualified REIT Subsidiary" means any Subsidiary of the
General Partner that is a "qualified REIT subsidiary" within the meaning of
Section 856(i) of the Code.
"Recapture Income" means any gain recognized by the
Partnership (computed without regard to any adjustment required by Section 734
or Section 743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Redeeming Partner" has the meaning set forth in Section
8.6.A.
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"Redemption Amount" means either the Cash Amount or the Shares
Amount, as determined by the General Partner, in its sole and absolute
discretion; provided that if the Shares are not Publicly Traded at the time a
Redeeming Partner exercises its Redemption Right, the Redemption Amount shall be
paid only in the form of the Cash Amount unless the Redeeming Partner, in its
sole and absolute discretion, consents to payment of the Redemption Amount in
the form of the Shares Amount. A Redeeming Partner shall have no right, without
the General Partner's consent, in its sole and absolute discretion, to receive
the Redemption Amount in the form of the Shares Amount.
"Redemption Right" has the meaning set forth in Section 8.6.A.
"Regulation" or "Regulations" means the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856
of the Code.
"REIT Requirements" has the meaning set forth in Section
5.1.A.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate
Book-Tax Disparities.
"Safe Harbor" has the meaning set forth in Section 11.6.F.
"Securities Act" means the Securities Act of 1933, as amended.
"704(c) Value" of any Contributed Property means the fair
market value of such property at the time of contribution as determined by the
General Partner using such reasonable method of valuation as it may adopt;
provided, however, subject to Exhibit B, the General Partner shall, in its sole
and absolute discretion, use such method as it deems reasonable and appropriate
to allocate the aggregate of the 704(c) Value of Contributed Properties in a
single or integrated transaction among each separate property on a basis
proportional to its fair market values. The 704(c) Values of the Contributed
Properties contributed to the Partnership as of the Effective Date are set forth
on Exhibit E.
"Share" means a share of beneficial interest (or other
comparable equity interest) of the General Partner Entity. Shares may be issued
in one or more classes or series in accordance with the terms of the Declaration
of Trust (or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). If there is more than
one class or series of Shares, the term "Shares" shall, as the context requires,
be deemed to refer to the class or series of Shares that correspond to the class
or series of Partnership Interests for which the reference to Shares is made.
When used with reference to Class A Units, the term "Shares" refers to common
shares of beneficial interest (or other comparable equity interest) of the
General Partner Entity.
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"Shares Amount" means a number of Shares equal to the product
of the number of Partnership Units offered for redemption by a Redeeming Partner
times the Conversion Factor; provided that, if the General Partner Entity issues
to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling such holders to subscribe for or purchase
Shares or any other securities or property (collectively, the "rights"), then
the Shares Amount shall also include such rights that a holder of that number of
Shares would be entitled to receive.
"Share Option Plan" means any equity incentive plan of the
General Partner, the Partnership and/or any Affiliate of the Partnership.
"Specified Redemption Date" means the tenth Business Day after
receipt by the General Partner of a Notice of Redemption; provided that, if the
Shares are not Publicly Traded, the Specified Redemption Date means the
thirtieth Business Day after receipt by the General Partner of a Notice of
Redemption.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, trust, partnership or joint venture, or
other entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4.
"Successor Entity" has the meaning set forth in the definition
of "Conversion Factor" herein.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership for
cash or a related series of transactions that, taken together, result in the
sale or other disposition of all or substantially all of the assets of the
Partnership for cash.
"Termination Transaction" has the meaning set forth in
Section 11.2.B.
"Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
fair market value of such property (as determined under Exhibit B) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to Exhibit B) as of such date.
"Unrealized Loss" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
Carrying Value of such property (prior to any adjustment to be made pursuant to
Exhibit B) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B) as of such date.
"Valuation Date" means the date of receipt by the General
Partner of a Notice of Redemption or, if such date is not a Business Day, the
first Business Day thereafter.
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"Value" means, with respect to any outstanding Shares of the
General Partner Entity that are Publicly Traded, the average of the daily market
price for the ten consecutive trading days immediately preceding the date with
respect to which value must be determined. The market price for each such
trading day shall be the closing price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices on
such day. If the outstanding Shares of the General Partner Entity are Publicly
Traded and the Shares Amount includes rights that a holder of Shares would be
entitled to receive, then the Value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. If the
Shares of the General Partner Entity are not Publicly Traded, the Value of the
Shares Amount per Partnership Unit offered for redemption (which will be the
Cash Amount per Partnership Unit offered for redemption payable pursuant to
Section 8.6.A) means the amount that a holder of one Partnership Unit would
receive if each of the assets of the Partnership were to be sold for its fair
market value on the Specified Redemption Date, the Partnership were to pay all
of its outstanding liabilities, and the remaining proceeds were to be
distributed to the Partners in accordance with the terms of this Agreement. Such
Value shall be determined by the General Partner, acting in good faith and based
upon a commercially reasonable estimate of the amount that would be realized by
the Partnership if each asset of the Partnership (and each asset of each
partnership, limited liability company, trust, joint venture or other entity in
which the Partnership owns a direct or indirect interest) were sold to an
unrelated purchaser in an arms' length transaction where neither the purchaser
nor the seller were under economic compulsion to enter into the transaction
(without regard to any discount in value as a result of the Partnership's
minority interest in any property or any illiquidity of the Partnership's
interest in any property). In connection with determining the Deemed Value of
the Partnership Interest for purposes of determining the number of additional
Partnership Units issuable upon a Capital Contribution funded by an underwritten
public offering or an arm's length private placement of shares of beneficial
interest (or other comparable equity interest) of the General Partner, the Value
of such shares shall be the public offering or arm's length private placement
price per share of such class of beneficial interest (or other comparable equity
interest) sold.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to
the provisions of the Act and upon the terms and conditions set forth in the
Prior Agreement. The Partners hereby agree to continue the business of the
Partnership upon the terms and conditions set forth in this Agreement. Except as
expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
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Section 2.2 Name
The name of the Partnership is ElderTrust Operating Limited
Partnership. The Partnership's business may be conducted under any other name or
names deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be 415 McFarlan Road, Suite 202, Kennett Square, PA 19348,
or such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Term
The term of the Partnership commenced on July 30, 1997 and
shall continue until December 31, 2096, unless it is dissolved sooner pursuant
to the provisions of Article XIII or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner Entity at all times to be classified as a REIT, unless the
General Partner Entity ceases to qualify or is not qualified as a REIT for any
reason or reasons not related to the business conducted by the Partnership, (ii)
to enter into any corporation, partnership, joint venture, trust, limited
liability company or other similar arrangement to engage in any of the foregoing
or the ownership of interests in any entity engaged, directly or indirectly, in
any of the foregoing and (iii) to do anything necessary or incidental to the
foregoing. In connection with the foregoing, the Partners acknowledge that the
status of the General Partner Entity as a REIT inures to the benefit of all the
Partners and not solely to the General Partner Entity or its Affiliates.
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Section 3.2 Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner Entity to continue to qualify as a REIT, (ii) could subject the General
Partner Entity to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner or its securities, unless
such action (or inaction) shall have been specifically consented to by the
General Partner in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
Section 4.1 Capital Contributions of the Partners; Restatement of Capital
Accounts on the Effective Date
ElderTrust Realty Group, Edward B. Romanov, Jr., D. Lee
McCreary, Jr. and ET Partnership previously made Capital Contributions to the
Partnership. Pursuant to the Act and the Prior Agreement, the General Partner
has been admitted to the Partnership as an additional limited partner without
having made a capital contribution. On the Effective Date, ElderTrust Realty
Group shall withdraw from the Partnership. Also on the Effective Date, ET
Partnership shall be liquidated and Michael R. Walker, Edward B. Romanov, Jr.
and MGI shall acquire the limited partnership interests previously held by ET
Partnership. On the Effective Date, the General Partner and the Limited Partners
other than MGI, Edward B. Romanov, Jr. and D. Lee McCreary, Jr. shall make the
Capital Contributions described in the section captioned "Formation
Transactions" in the final prospectus of the General Partner in connection with
the initial public offering of the Shares. On the Effective Date, the
Partnership shall be recapitalized so that the Partners shall own Partnership
Units in the amounts set forth in Exhibit A and shall have a Percentage Interest
in the Partnership as set forth in Exhibit A, which Percentage Interest shall be
adjusted in Exhibit A from time to time by the General Partner to the extent
necessary to reflect accurately redemptions, Capital Contributions, the issuance
of additional Partnership Units or similar events having an effect on a
Partner's Percentage Interest. To the extent the Partnership acquires any
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property by the merger of any other Person into the Partnership, Persons who
receive Partnership Interests in exchange for their interests in the Person
merging into the Partnership shall become Partners and shall be deemed to have
made Capital Contributions as provided in the applicable merger agreement and as
set forth in Exhibit A. A number of Partnership Units held by the General
Partner equal to one-tenth of one percent (0.1%) of all outstanding Partnership
Units (as of the Effective Date) shall be deemed to be the General Partner
Partnership Units and shall be the General Partnership Interest of such General
Partner. All other Partnership Units held by the General Partners shall be
deemed to be Limited Partnership Interests and shall be held by the General
Partner in its capacity as a Limited Partner in the Partnership. Except as
provided in Sections 7.5 and 10.5 hereof, the Partners shall have no obligation
to make any additional Capital Contributions or provide any additional funding
to the Partnership (whether in the form of loans, repayments of loans or
otherwise). Except for those Partners listed on Exhibit G who have entered into
one or more Deficit Restoration Obligation Agreements and have agreed thereby to
contribute an amount of cash up to the amount listed next to each such Partner's
name on Exhibit G in the event of the liquidation of the Partnership pursuant to
Article XIII, no Partner shall have any obligation to restore any deficit that
may exist in its Capital Account, either upon a liquidation of the Partnership
or otherwise.
Section 4.2 Issuances of Partnership Interests
A. General. The General Partner is hereby authorized to cause
the Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that, no such
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a) the Partnership Interests are issued in connection
with the grant, award or issuance of Shares or other equity interests in the
General Partner having designations, preferences and other rights such that the
economic interests attributable to such Shares or other equity interests are
substantially similar to the designations, preferences and other rights (except
voting rights) of the Partnership Interests issued to the General Partner in
accordance with this Section 4.2.A or (b) the additional Partnership Interests
are issued to all Partners holding Partnership Interests in the same class in
proportion to their respective Percentage Interests in such class. If the
Partnership issues Partnership Interests pursuant to this Section 4.2.A, the
General Partner shall make such revisions to this Agreement (including but not
limited to the revisions described in Section 5.4, Section 6.2 and Section 8.6)
as it deems necessary to reflect the issuance of such Partnership Interests.
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B. Percentage Interest Adjustments in the Case of Capital
Contributions for Partnership Units. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units and if the Partnership shall
have outstanding more than one class of Partnership Interests, the Percentage
Interest related thereto shall be equal to a fraction, the numerator of which is
equal to the amount of cash, if any, plus the Agreed Value of Contributed
Property, if any, contributed with respect to such additional Partnership Units
and the denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests for all outstanding classes (computed as of the Business
Day immediately preceding the date on which the additional Capital Contributions
are made (an "Adjustment Date")) plus (ii) the aggregate amount of additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Units. The Percentage Interest of each
other Partner holding Partnership Interests not making a full pro rata Capital
Contribution shall be adjusted to a fraction the numerator of which is equal to
the sum of (i) the Deemed Partnership Interest Value of such Limited Partner
(computed as of the Business Day immediately preceding the Adjustment Date) plus
(ii) the amount of additional Capital Contributions (such amount being equal to
the amount of cash, if any, plus the Agreed Value of Contributed Property, if
any, so contributed), if any, made by such Partner to the Partnership in respect
of such Partnership Interest as of such Adjustment Date and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of all outstanding classes (computed as of the Business Day immediately
preceding such Adjustment Date) plus (ii) the aggregate amount of the additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Interests. For purposes of calculating a
Partner's Percentage Interest pursuant to this Section 4.2.B, cash Capital
Contributions by a General Partner will be deemed to equal the cash contributed
by such General Partner plus (a) in the case of cash contributions funded by an
offering of any equity interests in or other securities of the General Partner,
the offering costs attributable to the cash contributed to the Partnership, and
(b) in the case of Partnership Units issued pursuant to Section 7.5.E, an amount
equal to the difference between the Value of the Shares sold pursuant to any
Share Option Plan and the net proceeds of such sale.
C. Classes of Partnership Units. From and after the Effective
Date, subject to Section 4.2.A above, the Partnership shall have two classes of
Partnership Units entitled "Class A Units" and "Class B Units." Either Class A
Units or Class B Units, at the election of the General Partner, in its sole and
absolute discretion, may be issued to newly admitted Partners in exchange for
the contribution by such Partners of cash, real estate partnership interests,
stock, notes or other assets or consideration; provided, that all Partnership
Units issued to Partners on the Effective Date shall be Class A Units; and,
provided further, that any Partnership Unit that is not specifically designated
by the General Partner as being of a particular class shall be deemed to be a
Class A Unit. Each Class B Unit shall be converted automatically into a Class A
Unit on the day immediately following the Partnership Record Date for the
Distribution Period (as defined in Section 5.1.C) in which such Class B Unit was
issued, without the requirement for any action by either the Partnership or the
Partner holding the Class B Unit.
D. Certain Restrictions on Issuances of Partnership Units or
Other Partnership Interests. Notwithstanding the foregoing, in no event may the
General Partner cause the Partnership to issue to Partners (including the
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General Partner and its affiliates) or other Persons any Partnership Units or
other Partnership Interests (i) if such issuance would cause the Partnership
Interests of "benefit plan investors" to become "significant," as those terms
are used in 29 C.F.R. ss. 2510.3-101(f), or any successor regulation thereto, or
would cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or, with respect to any plan defined in Section 4975(e) of the Code, a
"disqualified person" (as defined in Section 4975(e) of the Code), or (ii) if
such issuance would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any ERISA Plan
Investor pursuant to 29 C.F.R. ss. 2510.3-101, or any successor regulation
thereto.
Section 4.3 No Preemptive Rights
Except to the extent expressly granted by the Partnership
pursuant to another agreement, no Person shall have any preemptive, preferential
or other similar right with respect to (i) additional Capital Contributions or
loans to the Partnership or (ii) issuance or sale of any Partnership Units or
other Partnership Interests.
Section 4.4 Other Contribution Provisions
If any Partner is admitted to the Partnership and is given a
Capital Account in exchange for services rendered to the Partnership, such
transaction shall be treated by the Partnership and the affected Partner as if
the Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.
Section 4.5 No Interest on Capital
No Partner shall be entitled to interest on its Capital
Contributions or its Capital Account.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
A. General. The General Partner shall distribute at least
quarterly an amount equal to one hundred percent (100%) of Available Cash
generated by the Partnership during such quarter or shorter period to the
Partners who are Partners on the Partnership Record Date with respect to such
quarter or shorter period as provided in Sections 5.1.B, 5.1.C and 5.1.D.
Notwithstanding anything to the contrary contained herein, in no event may a
Partner receive a distribution of Available Cash with respect to a Partnership
Unit for a quarter or shorter period if such Partner is entitled to receive a
distribution with respect to a Share for which such Partnership Unit has been
redeemed or exchanged. Unless otherwise expressly provided for herein or in an
agreement at the time a new class of Partnership Interests is created in
accordance with Article IV hereof, no Partnership Interest shall be entitled to
a distribution in preference to any other Partnership Interest. The General
Partner shall make such reasonable efforts, as determined by it in its sole and
absolute discretion and consistent with the qualification of the General Partner
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Entity as a REIT, to distribute Available Cash (a) to Limited Partners so as to
preclude any such distribution or portion thereof from being treated as part of
a sale of property of the Partnership by a Limited Partner under Section 707 of
the Code or the Regulations thereunder; provided that, the General Partners and
the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of any distribution to a Limited Partner being so
treated, and (b) to the General Partner in an amount sufficient to enable the
General Partner Entity to pay shareholder dividends that will (1) satisfy the
requirements for qualification as a REIT under the Code and the Regulations (the
"REIT Requirements") of, and (2) avoid any federal income or excise tax
liability for, the General Partner Entity.
B. Method. (i) Each holder of Partnership Interests that is
entitled to any preference in distribution shall be entitled to a distribution
in accordance with the rights of any such class of Partnership Interests (and,
within such class, pro rata in proportion to the respective Percentage Interests
on such Partnership Record Date); and
(ii) To the extent there is Available Cash remaining after the
payment of any preference in distribution in accordance with the foregoing
clause (i), with respect to Partnership Interests that are not entitled to any
preference in distribution, pro rata to each such class in accordance with the
terms of such class (and, within each such class, pro rata in proportion to the
respective Percentage Interests on such Partnership Record Date).
C. Distributions When Class B Units Are Outstanding. If for
any quarter or shorter period with respect to which a distribution is to be made
(a "Distribution Period") Class B Units are outstanding on the Partnership
Record Date for such Distribution Period, the General Partner shall allocate the
Available Cash with respect to such Distribution Period available for
distribution with respect to the Class A Units and Class B Units collectively
between the Partners who are holders of Class A Units ("Class A") and the
Partners who are holders of Class B Units ("Class B") as follows:
(1) Class A shall receive that
portion of the Available Cash (the "Class A Share")
determined by multiplying the amount of Available
Cash by the following fraction:
A x Y
--------------------------
(A x Y)+(B x X)
(2) Class B shall receive that
portion of the Available Cash (the "Class B Share")
determined by multiplying the amount of Available
Cash by the following fraction:
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B x X
--------------------------
(A x Y)+(B x X)
(3) For purposes of the foregoing
formulas, (i) "A" equals the number of Class A Units
outstanding on the Partnership Record Date for such
Distribution Period; (ii) "B" equals the number of
Class B Units outstanding on the Partnership Record
Date for such Distribution Period; (iii) "Y" equals
the number of days in the Distribution Period; and
(iv) "X" equals the number of days in the
Distribution Period for which the Class B Units were
issued and outstanding.
The Class A Share shall be distributed among Partners holding
Class A Units on the Partnership Record Date for the Distribution Period in
accordance with the number of Class A Units held by each Partner on such
Partnership Record Date; provided that, in no event may a Partner receive a
distribution of Available Cash with respect to a Class A Unit if a Partner is
entitled to receive a distribution out of such Available Cash with respect to a
Share for which such Class A Unit has been redeemed or exchanged. The Class B
Shares shall be distributed among the Partners holding Class B Units on the
Partnership Record Date for the Distribution Period in accordance with the
number of Class B Units held by each Partner on such Partnership Record Date. In
no event shall any Class B Units be entitled to receive any distribution of
Available Cash for any Distribution Period ending prior to the date on which
such Class B Units are issued.
D. Distributions When Class B Units Have Been Issued on
Different Dates. If Class B Units which have been issued on different dates are
outstanding on the Partnership Record Date for any Distribution Period, then the
Class B Units issued on each particular date shall be treated as a separate
series of Partnership Units for purposes of making the allocation of Available
Cash for such Distribution Period among the holders of Partnership Units (and
the formula for making such allocation, and the definitions of variables used
therein, shall be modified accordingly). Thus, for example, if two series of
Class B Units are outstanding on the Partnership Record Date for any
Distribution Period, the allocation formula for each series, "Series B1" and
"Series B2" would be as follows:
(1) Series B1 shall receive that
portion of the Available Cash determined by
multiplying the amount of Available Cash by the
following fraction:
B1 x X1
----------------------------------
(A x Y)+(B1 x X1)+(B2 x X2)
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(2) Series B2 shall receive that
portion of the Available Cash determined by
multiplying the amount of Available Cash by the
following fraction:
B2 x X2
----------------------------------
(A x Y)+(B1 x X1)+(B2 x X2)
(3) For purposes of the foregoing
formulas the definitions set forth in Section 5.1.C.3
remain the same except that (i) "B1" equals the
number of Partnership Units in Series B1 outstanding
on the Partnership Record Date for such Distribution
Period; (ii) "B2" equals the number of Partnership
Units in Series B2 outstanding on the Partnership
Record Date for such Distribution Period; (iii) "X1"
equals the number of days in the Distribution Period
for which the Partnership Units in Series B1 were
issued and outstanding; and (iv) "X2" equals the
number of days in the Distribution Period for which
the Partnership Units in Series B2 were issued and
outstanding.
E. Minimum Distributions if Shares Not Publicly Traded. In
addition (and without regard to the amount of Available Cash), if the Shares of
the General Partner Entity are not Publicly Traded, the General Partner shall
make cash distributions with respect to the Class A Units at least annually for
each taxable year of the Partnership beginning prior to the fifteenth (15th)
anniversary of the Effective Date in an aggregate amount with respect to each
such taxable year at least equal to 95% of the Partnership's taxable income for
such year allocable to the Class A Units, with such distributions to be made not
later than 60 days after the end of such year.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of
any state or local tax law and Section 10.5 with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction shall be
distributed to the Partners in accordance with Section 13.2.
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Section 5.4 Revisions to Reflect Issuance of Partnership Interests
If the Partnership issues Partnership Interests to the General
Partner or any Additional Limited Partner pursuant to Article IV hereof, the
General Partner shall make such revisions to this Article V and Exhibit A as it
deems necessary to reflect the issuance of such additional Partnership Interests
without the requirements for any other consents or approvals.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's items
of income, gain, loss and deduction (computed in accordance with Exhibit B)
shall be allocated among the Partners in each taxable year (or portion thereof)
as provided herein below.
A. Net Income. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to
the General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1.A, (ii) second, to the holders of any Partnership Interests that are
entitled to any preference in distribution in accordance with the rights of any
such class of Partnership Interests until each such Partnership Interest has
been allocated, on a cumulative basis pursuant to this clause (ii), Net Income
equal to the amount of distributions received which are attributable to the
preference of such class of Partnership Interests (and, within such class, pro
rata in proportion to the respective Percentage Interests as of the last day of
the period for which such allocation is being made) and (iii) third, with
respect to Partnership Interests that are not entitled to any preference in the
allocation of Net Income, pro rata to each such class in accordance with the
terms of such class (and, within such class, pro rata in proportion to the
respective Percentage Interests as of the last day of the period for which such
allocation is being made).
B. Net Losses. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Losses shall be allocated (i) first, to
the holders of any Partnership Interests that are entitled to any preference in
distribution in accordance with the rights of any such class of Partnership
Interests to the extent that any prior allocations of Net Income to such class
of Partnership Interests pursuant to Section 6.1.A(ii) exceed, on a cumulative
basis, distributions with respect to such Partnership Interests pursuant to
clause (i) of Section 5.1.B (and, within such class, pro rata in proportion to
the respective Percentage Interests as of the last day of the period for which
such allocation is being made) and (ii) second, with respect to classes of
Partnership Interests that are not entitled to any preference in distribution,
pro rata to each such class in accordance with the terms of such class (and,
within such class, pro rata in proportion to the respective Percentage Interests
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as of the last day of the period for which such allocation is being made);
provided that Net Losses shall not be allocated to any Partner (including the
General Partner) pursuant to this Section 6.1.B to the extent that such
allocation would cause such Partner (including the General Partner) to have an
Adjusted Capital Account Deficit (or increase any existing Adjusted Capital
Account Deficit) at the end of such taxable year (or portion thereof). All Net
Losses in excess of the limitations set forth in this Section 6.1.B shall be
allocated to the General Partner.
C. Allocation of Nonrecourse Debt. For purposes of Regulation
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. Recapture Income. Any gain allocated to the Partners upon
the sale or other taxable disposition of any Partnership asset shall, to the
extent possible after taking into account other required allocations of gain
pursuant to Exhibit C, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
Section 6.2 Revisions to Allocations to Reflect Issuance of
Partnership Interests
If the Partnership issues Partnership Interests to the General
Partner or any Additional Limited Partner pursuant to Article IV hereof, the
General Partner shall make such revisions to this Article VI and Exhibit A as it
deems necessary to reflect the terms of the issuance of such Partnership
Interests, including making preferential allocations to classes of Partnership
Interests that are entitled thereto. Such revisions shall not require the
consent or approval of any other Partner.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Section 7.11, shall have full power and authority to do all things
deemed necessary or desirable by it to conduct the business of the Partnership,
to exercise all powers set forth in Section 3.2 and to effectuate the purposes
set forth in Section 3.1, including, without limitation:
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(1) the making of any expenditures, the lending
or borrowing of money (including, without
limitation, making prepayments on loans and
borrowing money to permit the Partnership to
make distributions to its Partners in such
amounts as are required under Section 5.1.E
or will permit the General Partner Entity
(so long as the General Partner Entity
qualifies as REIT) to avoid the payment of
any federal income tax (including, for this
purpose, any excise tax pursuant to Section
4981 of the Code) and to make distributions
to its shareholders sufficient to permit the
General Partner Entity to maintain REIT
status), the assumption or guarantee of, or
other contracting for, indebtedness and
other liabilities, the issuance of evidences
of indebtedness (including the securing of
same by mortgage, deed of trust or other
lien or encumbrance on the Partnership's
assets) and the incurring of any obligations
the General Partner Entity deems necessary
for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other
filings, or rendering of periodic or other
reports to governmental or other agencies
having jurisdiction over the business or
assets of the Partnership;
(3) the acquisition, disposition, mortgage,
pledge, encumbrance, hypothecation or
exchange of any or all of the assets of the
Partnership (including the exercise or grant
of any conversion, option, privilege or
subscription right or other right available
in connection with any assets at any time
held by the Partnership) or the merger or
other combination of the Partnership with or
into another entity on such terms as the
General Partner deems proper;
(4) the use of the assets of the Partnership
(including, without limitation, cash on
hand) for any purpose consistent with the
terms of this Agreement and on any terms it
sees fit, including, without limitation, the
financing of the conduct of the operations
of the General Partner, the Partnership or
any of the Partnership's Subsidiaries, the
lending of funds to other Persons
(including, without limitation, the
Partnership's Subsidiaries) and the
repayment of obligations of the Partnership
and its Subsidiaries and any other Person in
which the Partnership has an equity
investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing,
landscaping, repair, alteration, demolition
or improvement of any real property or
improvements owned by the Partnership or any
Subsidiary of the Partnership or any Person
in which the Partnership has made a direct
or indirect equity investment;
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(6) the negotiation, execution, and performance
of any contracts, conveyances or other
instruments that the General Partner
considers useful or necessary to the conduct
of the Partnership's operations or the
implementation of the General Partner's
powers under this Agreement, including
contracting with contractors, developers,
consultants, accountants, legal counsel,
other professional advisors and other agents
and the payment of their expenses and
compensation out of the Partnership's
assets;
(7) the mortgage, pledge, encumbrance or
hypothecation of any assets of the
Partnership, and the use of the assets of
the Partnership (including, without
limitation, cash on hand) for any purpose
consistent with the terms of this Agreement
and on any terms it sees fit, including,
without limitation, the financing of the
conduct or the operations of the General
Partner or the Partnership, the lending of
funds to other Persons (including, without
limitation, any Subsidiaries of the
Partnership) and the repayment of
obligations of the Partnership, any of its
Subsidiaries and any other Person in which
it has an equity investment;
(8) the distribution of Partnership cash or
other Partnership assets in accordance with
this Agreement;
(9) the holding, managing, investing and
reinvesting of cash and other assets of the
Partnership;
(10) the collection and receipt of revenues and
income of the Partnership;
(11) the selection, designation of powers,
authority and duties and the dismal of
employees of the Partnership (including,
without limitation, employees having titles
such as "president," "vice president,"
"secretary" and "treasurer") and agents,
outside attorneys, accountants, consultants
and contractors of the Partnership and the
determination of their compensation and
other terms of employment or hiring;
(12) the maintenance of such insurance for the
benefit of the Partnership and the Partners
as it deems necessary or appropriate;
(13) the formation of, or acquisition of an
interest (including non-voting interests in
entities controlled by Affiliates of the
Partnership or third parties) in, and the
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contribution of property to, any further
limited or general partnerships, joint
ventures, limited liability companies or
other relationships that it deems desirable
(including, without limitation, the
acquisition of interests in, and the
contributions of funds or property to, or
making of loans to, its Subsidiaries and any
other Person in which it has an equity
investment from time to time, or the
incurrence of indebtedness on behalf of such
Persons or the guarantee of the obligations
of such Persons); provided that, as long as
the General Partner has determined to
continue to qualify as a REIT, the
Partnership may not engage in any such
formation, acquisition or contribution that
would cause the General Partner to fail to
qualify as a REIT;
(14) the control of any matters affecting the
rights and obligations of the Partnership,
including the settlement, compromise,
submission to arbitration or any other form
of dispute resolution or abandonment of any
claim, cause of action, liability, debt or
damages due or owing to or from the
Partnership, the commencement or defense of
suits, legal proceedings, administrative
proceedings, arbitrations or other forms of
dispute resolution, the representation of
the Partnership in all suits or legal
proceedings, administrative proceedings,
arbitrations or other forms of dispute
resolution, the incurring of legal expense
and the indemnification of any Person
against liabilities and contingencies to the
extent permitted by law;
(15) the determination of the fair market value
of any Partnership property distributed in
kind, using such reasonable method of
valuation as the General Partner may adopt;
(16) the exercise, directly or indirectly,
through any attorney-in-fact acting under a
general or limited power of attorney, of any
right, including the right to vote,
appurtenant to any assets or investment held
by the Partnership;
(17) the exercise of any of the powers of the
General Partner enumerated in this Agreement
on behalf of or in connection with any
Subsidiary of the Partnership or any other
Person in which the Partnership has a direct
or indirect interest, individually or
jointly with any such Subsidiary or other
Person;
(18) the exercise of any of the powers of the
General Partner enumerated in this Agreement
on behalf of any Person in which the
Partnership does not have any interest
pursuant to contractual or other
arrangements with such Person;
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(19) the making, executing and delivering of any
and all deeds, leases, notes, deeds to
secure debt, mortgages, deeds of trust,
security agreements, conveyances, contracts,
guarantees, warranties, indemnities,
waivers, releases or other legal instruments
or agreements in writing necessary or
appropriate in the judgment of the General
Partner for the accomplishment of any of the
powers of the General Partner enumerated in
this Agreement;
(20) the distribution of cash to acquire
Partnership Units held by a Limited Partner
in connection with a Limited Partner's
exercise of its Redemption Right under
Section 8.6;
(21) the amendment and restatement of Exhibit A
to reflect accurately at all times the
Capital Contributions and Percentage
Interests of the Partners as the same are
adjusted from time to time to the extent
necessary to reflect redemptions, Capital
Contributions, the issuance of Partnership
Units, the admission of any Additional
Limited Partner or any Substituted Limited
Partner or otherwise, which amendment and
restatement, notwithstanding anything in
this Agreement to the contrary, shall not be
deemed an amendment of this Agreement, as
long as the matter or event being reflected
in Exhibit A otherwise is authorized by this
Agreement; and
(22) the acceptance on behalf of the Partnership
of any Deficit Restoration Obligation
Agreement made by any Partner, and the
amendment and restatement of Exhibit G to
reflect accurately at all times the names of
the Partners who have made one or more
Deficit Restoration Agreements which have
been accepted by the Partnership and the
aggregate amounts obligated by such Partners
pursuant to such Deficit Restoration
Agreements, which amendment and restatement,
notwithstanding anything in this Agreement
to the contrary, shall not be deemed an
amendment of this Agreement.
B. No Approval by Limited Partners. Except as provided in
Section 7.11, each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the full extent permitted
under the Act or other applicable law. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
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C. Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership and (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.
D. Working Capital and Other Reserves. At all times from and
after the date hereof, the General Partner may cause the Partnership to
establish and maintain working capital reserves in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
from time to time, including upon liquidation of the Partnership under Article
XIII.
E. No Obligation to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken (or not
taken) by any of them. The General Partner and the Partnership shall not have
liability to a Limited Partner for monetary damages or otherwise for losses
sustained, liabilities incurred or benefits not derived by such Limited Partner
in connection with such decisions, provided that the General Partner has acted
in good faith and pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The General Partner has previously filed the Certificate with
the Secretary of State of Delaware. To the extent that such action is determined
by the General Partner to be reasonable and necessary or appropriate, the
General Partner shall file amendments to and restatements of the Certificate and
do all the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4), the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate
or any amendment thereto to any Limited Partner. The General Partner shall use
all reasonable efforts to cause to be filed such other certificates or documents
as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, the District of Columbia or other jurisdiction
in which the Partnership may elect to do business or own property.
Section 7.3 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed
and whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partners, individually or collectively, shall
have any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner or one or more nominees, as the General Partner
may determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrant that any Partnership assets for which legal title is
held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by that entity for the use and benefit of the
Partnership in accordance with the provisions of this Agreement. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
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Section 7.4 Reimbursement of the General Partner
A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as general partner
of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership
shall be responsible for and shall pay all expenses relating to the
Partnership's organization, the ownership of its assets and its operations. The
General Partner shall be reimbursed on a monthly basis, or such other basis as
the General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the operations of the General Partner and to the management and administration
of any Subsidiaries of the General Partner or the Partnership or Affiliates of
the Partnership, such as auditing expenses and filing fees); provided that, the
amount of any such reimbursement shall be reduced by (i) any interest earned by
the General Partner with respect to bank accounts or other instruments or
accounts held by it on behalf of the Partnership as permitted in Section 7.5.A
(which interest is considered to belong to the Partnership and shall be paid
over to the Partnership to the extent not applied to reimburse the General
Partner for expenses hereunder); and (ii) any amount derived by the General
Partner from any investments permitted in Section 7.5.A. The General Partner
shall determine in good faith the amount of expenses incurred by it related to
the ownership and operation of, or for the benefit of, the Partnership. If
certain expenses are incurred for the benefit of the Partnership and other
entities (including the General Partner), such expenses will be allocated to the
Partnership and such other entities in such a manner as the General Partner in
its sole and absolute discretion deems fair and reasonable. Such reimbursements
shall be in addition to any reimbursement to the General Partner pursuant to
Section 10.3.C and as a result of indemnification pursuant to Section 7.7. All
payments and reimbursements hereunder shall be characterized for federal income
tax purposes as expenses of the Partnership incurred on its behalf, and not as
expenses of the General Partner.
C. Partnership Interest Issuance Expenses. The General Partner
shall also be reimbursed for all expenses it incurs relating to any issuance of
Partnership Interests, Shares, Debt of the Partnership or the General Partner or
rights, options, warrants or convertible or exchangeable securities pursuant to
Article IV (including, without limitation, all costs, expenses, damages and
other payments resulting from or arising in connection with litigation related
to any of the foregoing), all of which expenses are considered by the Partners
to constitute expenses of, and for the benefit of, the Partnership.
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D. Purchases of Shares by the General Partner. If the General
Partner exercises its rights under the Declaration of Trust to purchase Shares
or otherwise elects to purchase from its shareholders Shares in connection with
a share repurchase or similar program or for the purpose of delivering such
Shares to satisfy an obligation under any dividend reinvestment or equity
purchase program adopted by the General Partner, any employee equity purchase
plan adopted by the General Partner or any similar obligation or arrangement
undertaken by the General Partner in the future, the purchase price paid by the
General Partner for those Shares and any other expenses incurred by the General
Partner in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursable to the General Partner, subject to the
conditions that: (i) if those Shares subsequently are to be sold by the General
Partner, the General Partner shall pay to the Partnership any proceeds received
by the General Partner for those Shares (provided that a transfer of Shares for
Partnership Units pursuant to Section 8.6 would not be considered a sale for
such purposes); and (ii) if such Shares are not retransferred by the General
Partner within thirty (30) days after the purchase thereof, the General Partner
shall cause the Partnership to cancel a number of Partnership Units (rounded to
the nearest whole Partnership Unit) held by the General Partner equal to the
product attained by multiplying the number of those Shares by a fraction, the
numerator of which is one and the denominator of which is the Conversion Factor.
E. Reimbursement not a Distribution. If and to the extent any
reimbursement made pursuant to this Section 7.4 is determined for federal income
tax purposes not to constitute a payment of expenses of the Partnership, the
amount so determined shall constitute a guaranteed payment with respect to
capital within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners and shall not be
treated as a distribution for purposes of computing the Partners' Capital
Accounts.
Section 7.5 Outside Activities of the General Partner; Relationship
of Shares to Partnership Units; Funding Debt
A. General. Without the Consent of the Outside Limited
Partners, the General Partner shall not, directly or indirectly, enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests as a General Partner or Limited Partner
and the management of the business of the Partnership and such activities as are
incidental thereto. Without the Consent of the Outside Limited Partners, the
assets of the General Partner shall be limited to Partnership Interests and
permitted debt obligations of the Partnership (as contemplated by Section
7.5.F), so that Shares and Partnership Units are completely fungible except as
otherwise specifically provided herein; provided, that the General Partner shall
be permitted to hold such bank accounts or similar instruments or accounts in
its name as it deems necessary to carry out its responsibilities and purposes as
contemplated under this Agreement and its organizational documents (provided
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that accounts held on behalf of the Partnership to permit the General Partner to
carry out its responsibilities under this Agreement shall be considered to
belong to the Partnership and the interest earned thereon shall, subject to
Section 7.4.B, be applied for the benefit of the Partnership); and, provided
further, that the General Partner shall be permitted to acquire, directly or
through a Qualified REIT Subsidiary or limited liability company, up to a one
percent (1%) interest in any partnership or limited liability company at least
ninety-nine percent (99%) of the equity of which is owned, directly or
indirectly, by the Partnership. The General Partner and any of its Affiliates
may acquire Limited Partnership Interests and shall be entitled to exercise all
rights of a Limited Partner relating to such Limited Partnership Interests.
B. Repurchase of Shares. If the General Partner exercises its
rights under the Declaration of Trust to purchase Shares or otherwise elects to
purchase from its shareholders Shares in connection with a share repurchase or
similar program or for the purpose of delivering such shares to satisfy an
obligation under any dividend reinvestment or share purchase program adopted by
the General Partner, any employee share purchase plan adopted by the General
Partner or any similar obligation or arrangement undertaken by the General
Partner in the future, then the General Partner shall cause the Partnership to
purchase from the General Partner that number of Partnership Units of the
appropriate class equal to the product obtained by multiplying the number of
Shares purchased by the General Partner times a fraction, the numerator of which
is one and the denominator of which is the Conversion Factor, on the same terms
and for the same aggregate price that the General Partner purchased such Shares.
C. Forfeiture of Shares. If the Partnership or the General
Partner acquires Shares as a result of the forfeiture of such Shares under a
restricted or similar share plan, then the General Partner shall cause the
Partnership to cancel that number of Partnership Units equal to the number of
Shares so acquired, and, if the Partnership acquired such Shares, it shall
transfer such Shares to the General Partner for cancellation.
D. Issuances of Shares. After the Effective Date, the General
Partner shall not grant, award, or issue any additional Shares (other than
Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend or
distribution (including any share split) of Shares to all of its shareholders),
other equity securities of the General Partner, New Securities or Convertible
Funding Debt unless (i) the General Partner shall cause, pursuant to Section
4.2.A hereof, the Partnership to issue to the General Partner Partnership
Interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership having designations, preferences and other rights, all such
that the economic interests are substantially the same as those of such
additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be, and (ii) the General Partner transfers to the
Partnership, as an additional Capital Contribution, the proceeds from the grant,
award, or issuance of such additional Shares, other equity securities, New
Securities or Convertible Funding Debt, as the case may be, or from the exercise
of rights contained in such additional Shares, other equity securities, New
Securities or Convertible Funding Debt, as the case may be. Without limiting the
foregoing, the General Partner is expressly authorized to issue additional
Shares, other equity securities, New Securities or Convertible Funding Debt, as
the case may be, for less than fair market value, and the General Partner is
expressly authorized, pursuant to Section 4.2.A hereof, to cause the Partnership
to issue to the General Partner corresponding Partnership Interests, as long as
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(a) the General Partner concludes in good faith that such issuance is in the
interests of the General Partner and the Partnership (for example, and not by
way of limitation, the issuance of Shares and corresponding Partnership Units
pursuant to a share purchase plan providing for purchases of Shares, either by
employees or shareholders, at a discount from fair market value or pursuant to
employee share options that have an exercise price that is less than the fair
market value of the Shares, either at the time of issuance or at the time of
exercise) and (b) the General Partner transfers all proceeds from any such
issuance or exercise to the Partnership as an additional Capital Contribution.
E. Share Option Plan. If at any time or from time to time, the
General Partner sells Shares pursuant to any Share Option Plan, the General
Partner shall transfer the net proceeds of the sale of such Shares to the
Partnership as an additional Capital Contribution in exchange for an amount of
additional Partnership Units equal to the number of Shares so sold divided by
the Conversion Factor.
F. Funding Debt. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities ("Convertible Funding Debt"),
subject to the condition that the General Partner lend to the Partnership the
net proceeds of such Funding Debt; provided, that Convertible Funding Debt shall
be issued pursuant to Section 7.5.D above; and, provided further, that the
General Partner shall not be obligated to lend the net proceeds of any Funding
Debt to the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into any Funding Debt, the loan to the Partnership shall be on comparable terms
and conditions, including interest rate, repayment schedule and costs and
expenses, as are applicable with respect to or incurred in connection with such
Funding Debt.
Section 7.6 Transactions with Affiliates
A. Transactions with Certain Affiliates. Except as expressly
permitted by this Agreement, the Partnership shall not, directly or indirectly,
sell, transfer or convey any property to, or purchase any property from, or
borrow funds from, or lend funds to, any Partner or any Affiliate of the
Partnership or the General Partner that is not also a Subsidiary of the
Partnership, except pursuant to transactions that are on terms that are fair and
reasonable and no less favorable to the Partnership than would be obtained from
an unaffiliated third party.
B. Conflict Avoidance. The General Partner is expressly
authorized to enter into, in the name and on behalf of the Partnership, a right
of first opportunity arrangement and other conflict avoidance agreements with
various Affiliates of the Partnership and the General Partner on such terms as
the General Partner, in its sole and absolute discretion, believes is advisable.
C. Benefit Plans Sponsored by the Partnership. The General
Partner, in its sole and absolute discretion and without the approval of the
Limited Partners, may propose and adopt on behalf of the Partnership employee
benefit plans funded by the Partnership for the benefit of employees of the
General Partner, the Partnership, Subsidiaries of the Partnership or any
Affiliate of any of them.
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Section 7.7 Indemnification
A. General. The Partnership shall indemnify each Indemnitee to
the fullest extent provided by the Act from and against any and all losses,
claims, damages, liabilities, joint or several, expenses (including, without
limitation, attorneys fees and other legal fees and expenses), judgments, fines,
settlements and other amounts arising from or in connection with any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, incurred by the Indemnitee and relating to the Partnership or
the General Partner or the operation of, or the ownership of property by, any of
them as set forth in this Agreement in which any such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established by a final determination of a court of competent jurisdiction that:
(i) the act or omission of the Indemnitee was material to the matter giving rise
to the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) the Indemnitee actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the Indemnitee had reasonable cause to believe that the
act or omission was unlawful. Without limitation, the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guarantee,
contractual obligation for any indebtedness or other obligation or otherwise,
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct set forth in this Section 7.7.A.
The termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and any insurance
proceeds from the liability policy covering the General Partner and any
Indemnitee, and neither the General Partner nor any Limited Partner shall have
any obligation to contribute to the capital of the Partnership or otherwise
provide funds to enable the Partnership to fund its obligations under this
Section 7.7.
B. Advancement of Expenses. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
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C. No Limitation of Rights. The indemnification provided by
this Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain
insurance on behalf of the Indemnitees and such other Persons as the General
Partner shall determine against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7,
(i) excise taxes assessed on an Indemnitee, or for which the Indemnitee is
otherwise found liable, in connection with an ERISA Plan Investor pursuant to
applicable law shall constitute fines within the meaning of this Section 7.7 and
(ii) actions taken or omitted by the Indemnitee in connection with an ERISA Plan
Investor in the performance of its duties shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. No Personal Liability for Limited Partners. In no event may
an Indemnitee subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their employees, officers, directors, trustees,
heirs, successors, assigns and administrators and shall not be deemed to create
any rights for the benefit of any other Persons. Any amendment, modification or
repeal of this Section 7.7, or any provision hereof, shall be prospective only
and shall not in any way affect the limitation on the Partnership's liability to
any Indemnitee under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or related
to matters occurring, in whole or in part, prior to such amendment, modification
or repeal, regardless of when such claims may arise or be asserted.
I. Indemnification Payments Not Distributions. If and to the
extent any payments to the General Partner pursuant to this Section 7.7
constitute gross income to the General Partner (as opposed to the repayment of
advances made on behalf of the Partnership), such amounts shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code, shall be
treated consistently therewith by the Partnership and all Partners, and shall
not be treated as distributions for purposes of computing the Partners' Capital
Accounts.
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J. Exception to Indemnification. Notwithstanding anything to
the contrary in this Agreement, the General Partner shall not be entitled to
indemnification hereunder for any loss, claim, damage, liability or expense for
which the General Partner is obligated to indemnify the Partnership under any
other agreement between the General Partner and the Partnership.
Section 7.8 Liability of the General Partner
A. General. Notwithstanding anything to the contrary set forth
in this Agreement, the General Partner shall not be liable for monetary damages
to the Partnership, any Partners or any Assignees for losses sustained,
liabilities incurred or benefits not derived as a result of errors in judgment
or mistakes of fact or law or of any act or omission unless the General Partner
acted in bad faith and the act or omission was material to the matter giving
rise to the loss, liability or benefit not derived.
B. No Obligation to Consider Separate Interests of Limited
Partners or Shareholders. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, that the General Partner
is under no obligation to consider the separate interests of the Limited
Partners (including, without limitation, the tax consequences to Limited
Partners or Assignees) in deciding whether to cause the Partnership to take (or
decline to take) any actions, and that the General Partner shall not be liable
for monetary damages for losses sustained, liabilities incurred or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
C. Actions of Agents. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A, the General Partner may exercise any
of the powers granted to it by this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its agents. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by the General Partner in good faith.
D. Effect of Amendment. Notwithstanding any other provision
contained herein, any amendment, modification or repeal of this Section 7.8 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. Reliance on Documents. The General Partner may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.
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B. Reliance on Advisors. The General Partner may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisers selected by it, and any act taken or
omitted to be taken in reliance upon the opinion of such Persons as to matters
which the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
C. Action Through Agents. The General Partner shall have the
right, in respect of any of its powers or obligations hereunder, to act through
any of its duly authorized officers and a duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation of the
General Partner Entity. Notwithstanding any other provisions of this Agreement
or the Act, any action of the General Partner on behalf of the Partnership or
any decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity to continue to qualify as a REIT or (ii) to allow the General
Partner Entity to avoid incurring any liability for taxes under Section 857 or
4981 of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.
Section 7.10 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement,
any Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority, without consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership, to enter into any contracts on behalf of the
Partnership and to take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
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Section 7.11 Restrictions on General Partner's Authority
A. Consent Required. The General Partner may not take any
action in contravention of an express prohibition or limitation of this
Agreement without the written Consent of (i) all Partners adversely affected or
(ii) such lower percentage of the Limited Partnership Interests as may be
specifically provided for under a provision of this Agreement or the Act.
B. Sale of All Assets of the Partnership. Except as provided
in Article XIII, the General Partner may not, directly or indirectly, cause the
Partnership to sell, exchange, transfer or otherwise dispose of all or
substantially all of the Partnership's assets in a single transaction or a
series of related transactions (including by way of merger (including a
triangular merger), consolidation or other combination with any other Persons)
(i) if such merger, sale or other transaction is in connection with a
Termination Transaction permitted under Section 11.2.B hereof, without the
Consent of the Partners holding at least a majority of the then outstanding
Partnership Units (including any Partnership Units held by the General Partner),
or (ii) otherwise, without the Consent of the Outside Limited Partners.
Section 7.12 Loans by Third Parties
The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person that is not the General Partner upon such terms as the General Partner
determines appropriate; provided that, the Partnership shall not incur any Debt
that is recourse to the General Partner, except to the extent otherwise agreed
to by such General Partner in its sole discretion.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement, including Section 10.5
and Section 13.3, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner, the Partnership or any of their
Affiliates, in their capacity as such) shall take part in the operation,
management or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name or have the power to
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sign documents for or otherwise bind the Partnership. The transaction of any
such business by the General Partner, any of its Affiliates or any officer,
director, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to Section 7.5 hereof, and subject to any agreements
entered into pursuant to Section 7.6.C hereof and to any other agreements
entered into by a Limited Partner or its Affiliates with the Partnership or a
Subsidiary, any Limited Partner (other than the General Partner) and any
officer, director, employee, agent, trustee, Affiliate or shareholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities in direct or indirect competition
with the Partnership. Neither the Partnership nor any Partners shall have any
rights by virtue of this Agreement in any business ventures of any Limited
Partner or Assignee. None of the Limited Partners nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein), and such Person (other
than the General Partner) shall have no obligation pursuant to this Agreement to
offer any interest in any such business ventures to the Partnership, any Limited
Partner or any such other Person, even if such opportunity is of a character
which, if presented to the Partnership, any Limited Partner or such other
Person, could be taken by such Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in
Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of
its Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. No
Limited Partner or Assignee shall have priority over any other Limited Partner
or Assignee either as to the return of Capital Contributions (except as
permitted by Section 4.2.A) or, except to the extent provided by Exhibit C or as
permitted by Sections 4.2.A, 5.1.B(i), 6.1.A(ii) and 6.1.B(i), or otherwise
expressly provided in this Agreement, as to profits, losses, distributions or
credits.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. General. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.5.D, each Limited
Partner shall have the right, for a purpose reasonably related to such Limited
Partner's interest as a limited partner in the Partnership, upon written demand
with a statement of the purpose of such demand and at such Limited Partner's own
expense:
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(1) to obtain a copy of the most recent annual
and quarterly reports filed with the
Securities and Exchange Commission by the
General Partner Entity pursuant to the
Exchange Act;
(2) to obtain a copy of the Partnership's
federal, state and local income tax returns
for each Partnership Year;
(3) to obtain a current list of the name and
last known business, residence or mailing
address of each Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto,
together with executed copies of all powers
of attorney pursuant to which this
Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information
regarding the amount of cash and a
description and statement of any other
property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on
which each became a Partner.
B. Notice of Conversion Factor. The Partnership shall notify
each Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.
C. Notice of Extraordinary Transaction of the General Partner
Entity. The General Partner Entity shall not make any extraordinary
distributions of cash or property to its shareholders or effect a merger
(including, without limitation, a triangular merger), a sale of all or
substantially all of its assets or any other similar extraordinary transaction
without notifying the Limited Partners of its intention to make such
distribution or effect such merger, sale or other extraordinary transaction at
least twenty (20) Business Days prior to the record date to determine
shareholders eligible to receive such distribution or to vote upon the approval
of such merger, sale or other extraordinary transaction (or, if no such record
date is applicable, at least twenty (20) business days before consummation of
such merger, sale or other extraordinary transaction). This provision for such
notice shall not be deemed (i) to permit any transaction that otherwise is
prohibited by this Agreement or requires a Consent of the Partners or (ii) to
require a Consent of the Limited Partners to a transaction that does not
otherwise require Consent under this Agreement. Each Limited Partner agrees, as
a condition to the receipt of the notice pursuant hereto, to keep confidential
the information set forth therein until such time as the General Partner Entity
has made public disclosure thereof and to use such information during such
period of confidentiality solely for purposes of determining whether to exercise
the Redemption Right; provided, however, that a Limited Partner may disclose
such information to its attorney, accountant and/or financial advisor for
purposes of obtaining advice with respect to such exercise so long as such
attorney, accountant and/or financial advisor agrees to receive and hold such
information subject to this confidentiality requirement.
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D. Confidentiality. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
Section 8.6 Redemption Right
A. General. (i) Subject to Section 8.6.C, at any time on or
after fourteen months following the closing of the initial public offering of
Shares by the General Partner, the holder of a Partnership Unit (if other than
the General Partner or the General Partner Entity or any Subsidiary of either
the General Partner or the General Partner Entity) shall have the right (the
"Redemption Right") to require the Partnership to redeem such Partnership Unit,
with such redemption to occur on the Specified Redemption Date and at a
redemption price equal to and in the form of the Cash Amount to be paid by the
Partnership. Any such Redemption Right shall be exercised pursuant to a Notice
of Redemption delivered to the Partnership (with a copy to the General Partner)
by the Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"). A Limited Partner may exercise the Redemption Right from time to
time, without limitation as to frequency, with respect to part or all of the
Units that it owns, as selected by the Limited Partner, provided that a Limited
Partner may not exercise the Redemption Right for less than one thousand (1,000)
Partnership Units unless such Redeeming Partner then holds less than one
thousand (1,000) Partnership Units, in which event the Redeeming Partner must
exercise the Redemption Right for all of the Partnership Units held by such
Redeeming Partner, and provided further that, with respect to a Limited Partner
which is an entity, such a Limited Partner may exercise the Redemption Right for
less than one thousand (1,000) Partnership Units without regard to whether or
not such Limited Partner is exercising the Redemption Right for all of the
Partnership Units held by such Limited Partner as long as such Limited Partner
is exercising the Redemption Right on behalf of one or more of its equity owners
in respect of one hundred percent (100%) of such equity owners' interests in
such Limited Partner.
(ii) The Redeeming Partner shall have no right with
respect to any Partnership Units so redeemed to receive any distributions paid
after the Specified Redemption Date with respect to such Partnership Units.
(iii) The Assignee of any Limited Partner may
exercise the rights of such Limited Partner pursuant to this Section 8.6, and
such Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Limited
Partner's Assignee. In connection with any exercise of such rights by such
Assignee on behalf of such Limited Partner, the Cash Amount shall be paid by the
Partnership directly to such Assignee and not to such Limited Partner.
(iv) If the General Partner provides notice to the
Limited Partners, pursuant to Section 8.5.C hereof, the Redemption Right shall
be exercisable, without regard to whether the Partnership Units have been
outstanding for any specified period, during the period commencing on the date
on which the General Partner provides such notice and ending on the record date
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to determine shareholders eligible to receive such distribution or to vote upon
the approval of such merger, sale or other extraordinary transaction (or, if no
such record date is applicable, at least twenty (20) business days before the
consummation of such merger, sale or other extraordinary transaction). If this
subparagraph (iv) applies, the Specified Redemption Date is the date on which
the Partnership and the General Partner receive notice of exercise of the
Redemption Right, rather than ten (10) Business Days after receipt of the notice
of redemption.
(v) Notwithstanding anything contained herein to the
contrary, the Partners hereby agree that immediately following the
recapitalization of the Partnership as provided in Section 4.1 hereof, Edward B.
Romanov, Jr. and Michael R. Walker shall be permitted to redeem certain
Partnership Units which they will own as of the Effective Time for Shares on a
one-for-one basis, as provided in the section captioned "Formation Transactions"
in the final prospectus of the General Partner in connection with the initial
public offering of the Shares.
B. General Partner Assumption of Right. (i) If a Limited
Partner has delivered a Notice of Redemption, the General Partner may, in its
sole and absolute discretion (subject to the limitations on ownership and
transfer of Shares set forth in the Declaration of Trust), elect to assume
directly and satisfy a Redemption Right by paying to the Redeeming Partner
either the Cash Amount or the Shares Amount, as the General Partner determines
in its sole and absolute discretion (provided that payment of the Redemption
Amount in the form of Shares shall be in Shares registered for resale under
Section 12 of the Exchange Act and listed for trading on the exchange or
national market on which the Shares are Publicly Traded, and provided further
that, if the Shares are not Publicly Traded at the time a Redeeming Partner
exercises its Redemption Right, the Redemption Amount shall be paid only in the
form of the Cash Amount unless the Redeeming Partner, in its sole and absolute
discretion, consents to payment of the Redemption Amount in the form of the
Shares Amount), on the Specified Redemption Date, whereupon the General Partner
shall acquire the Partnership Units offered for redemption by the Redeeming
Partner and shall be treated for all purposes of this Agreement as the owner of
such Partnership Units. Unless the General Partner, in its sole and absolute
discretion, shall exercise its right to assume directly and satisfy the
Redemption Right, the General Partner shall not have any obligation to the
Redeeming Partner or to the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. If the General Partner shall exercise its
right to satisfy the Redemption Right in the manner described in the first
sentence of this Section 8.6.B and shall fully perform its obligations in
connection therewith, the Partnership shall have no right or obligation to pay
any amount to the Redeeming Partner with respect to such Redeeming Partner's
exercise of the Redemption Right, and each of the Redeeming Partner, the
Partnership and the General Partner shall, for federal income tax purposes,
treat the transaction between the General Partner and the Redeeming Partner as a
sale of the Redeeming Partner's Partnership Units to the General Partner.
Nothing contained in this Section 8.6.B shall imply any right of the General
Partner to require any Limited Partner to exercise the Redemption Right afforded
to such Limited Partner pursuant to Section 8.6.A.
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(ii) If the General Partner determines to pay the
Redeeming Partner the Redemption Amount in the form of Shares, the total number
of Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's Partnership Units shall be the applicable Shares Amount. If this
amount is not a whole number of Shares, the Redeeming Partner shall be paid (i)
that number of Shares which equals the nearest whole number less than such
amount plus (ii) an amount of cash which the General Partner determines, in its
reasonable discretion, to represent the fair value of the remaining fractional
Share which would otherwise be payable to the Redeeming Partner.
(iii) Each Redeeming Partner agrees to execute such
documents as the General Partner may reasonably require in connection with the
issuance of Shares upon exercise of the Redemption Right.
C. Exceptions to Exercise of Redemption Right. Notwithstanding
the provisions of Sections 8.6.A and 8.6.B, a Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 8.6.A if (but only as long as)
the delivery of Shares to such Partner on the Specified Redemption Date (i)
would be prohibited under the Declaration of Trust or (ii) would be prohibited
under applicable federal or state securities laws or regulations (in each case
regardless of whether the General Partner would in fact assume and satisfy the
Redemption Right).
D. No Liens on Partnership Units Delivered for Redemption.
Each Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for redemption shall be delivered to the Partnership
or the General Partner, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the General
Partner nor the Partnership shall be under any obligation to acquire Partnership
Units which are or may be subject to any liens. Each Limited Partner further
agrees that, if any state or local property transfer tax is payable as a result
of the transfer of its Partnership Units to the Partnership or the General
Partner, such Limited Partner shall assume and pay such transfer tax.
E. Additional Partnership Interests. If the Partnership issues
Partnership Interests to any Additional Limited Partner pursuant to Article IV,
the General Partner shall make such revisions to this Section 8.6 as it
determines are necessary to reflect the issuance of such Partnership Interests
(including setting forth any restrictions on the exercise of the Redemption
Right with respect to such Partnership Interests).
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including, without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3. Any records
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maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. Annual Reports. As soon as practicable, but in no event
later than the date on which the General Partner Entity mails its annual report
to its shareholders, the General Partner Entity shall cause to be mailed to each
Limited Partner an annual report, as of the close of the most recently ended
Partnership Year, containing financial statements of the Partnership, or of the
General Partner Entity if such statements are prepared solely on a consolidated
basis with the Partnership, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. Quarterly Reports. If and to the extent that the General
Partner Entity mails quarterly reports to its shareholders, as soon as
practicable, but in no event later than the date on such reports are mailed, the
General Partner Entity shall cause to be mailed to each Limited Partner a report
containing unaudited financial statements, as of the last day of such calendar
quarter, of the Partnership, or of the General Partner Entity if such statements
are prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes.
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Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code (including, without limitation, the
election under Section 754 of the Code). The General Partner shall have the
right to seek to revoke any such election upon the General Partner's
determination in its sole and absolute discretion that such revocation is in the
best interests of the Partners.
Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6223(c)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, tax payer identification
number and profit interest of each of the Limited Partners and any Assignees;
provided, however, that such information is provided to the Partnership by the
Limited Partners.
B. Powers. The tax matters partner is authorized, but
not required:
(1) to enter into any settlement with the IRS
with respect to any administrative or
judicial proceedings for the adjustment of
Partnership items required to be taken into
account by a Partner for income tax purposes
(such administrative proceedings being
referred to as a "tax audit" and such
judicial proceedings being referred to as
"judicial review"), and in the settlement
agreement the tax matters partner may
expressly state that such agreement shall
bind all Partners, except that such
settlement agreement shall not bind any
Partner (i) who (within the time prescribed
pursuant to the Code and Regulations) files
a statement with the IRS providing that the
tax matters partner shall not have the
authority to enter into a settlement
agreement on behalf of such Partner or (ii)
who is a "notice partner" (as defined in
Section 6231(a)(8) of the Code) or a member
of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) if a notice of a final administrative
adjustment at the Partnership level of any
item required to be taken into account by a
Partner for tax purposes (a "final
adjustment") is mailed to the tax matters
partner, to seek judicial review of such
final adjustment, including the filing of a
petition for readjustment with the Tax Court
or the filing of a complaint for refund with
the United States Claims Court or the
District Court of the United States for the
district in which the Partnership's
principal place of business is located;
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(3) to intervene in any action brought by any
other Partner for judicial review of a final
adjustment;
(4) to file a request for an administrative
adjustment with the IRS at any time and, if
any part of such request is not allowed by
the IRS, to file an appropriate pleading
(petition or complaint) for judicial review
with respect to such request;
(5) to enter into an agreement with the IRS to
extend the period for assessing any tax
which is attributable to any item required
to be taken into account by a Partner for
tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the
Partners of the Partnership in connection
with any tax audit or judicial review
proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 shall be fully applicable to the tax
matters partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
and/or law firm to assist the tax matters partner in discharging its duties
hereunder, so long as the compensation paid by the Partnership for such services
is reasonable.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any,
incurred by it in organizing the Partnership ratably over a sixty (60) month
period as provided in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Section 1441, 1442, 1445 or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
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Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. If a Limited Partner fails to pay any
amounts owed to the Partnership pursuant to this Section 10.5 when due, the
General Partner may, in its sole and absolute discretion, elect to make the
payment to the Partnership on behalf of such defaulting Limited Partner, and in
such event shall be deemed to have loaned such amount to such defaulting Limited
Partner and shall succeed to all rights and remedies of the Partnership as
against such defaulting Limited Partner (including, without limitation, the
right to receive distributions). Any amounts payable by a Limited Partner
hereunder shall bear interest at the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
The Wall Street Journal, plus four (4) percentage points (but not higher than
the maximum lawful rate under the laws of the Commonwealth of Pennsylvania) from
the date such amount is due (i.e., fifteen (15) days after demand) until such
amount is paid in full. Each Limited Partner shall take such actions as the
Partnership or the General Partner shall request to perfect or enforce the
security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. Definition. The term "transfer," when used in this Article
XI with respect to a Partnership Interest or a Partnership Unit, shall be deemed
to refer to a transaction by which a General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner or acquisition of Partnership Units from a Limited Partner by the
General Partner pursuant to Section 8.6 or otherwise. No part of the interest of
a Limited Partner shall be subject to the claims of any creditor, any spouse for
alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.
B. General. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article XI shall be null and void.
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Section 11.2 Transfers of Partnership Interests of General Partner
A. The General Partner may not transfer any of its Partnership
Interest (including both its General Partnership Interest and its Limited
Partnership Interest) except in connection with a transaction described in
Section 11.2.B or as otherwise expressly permitted under this Agreement, nor
shall the General Partner withdraw as General Partner except in connection with
a transaction described in Section 11.2.B.
B. The General Partner shall not engage in any merger
(including a triangular merger), consolidation or other combination with or into
another person, sale of all or substantially all of its assets or any
reclassification, recapitalization or change of outstanding Shares (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination as described in the definition of "Conversion
Factor") ("Termination Transaction"), unless the Termination Transaction has
been approved by the Consent of the Partners holding at least a majority of the
then outstanding Partnership Units (including any Partnership Units held by the
General Partner) and in connection with which all Limited Partners either will
receive, or will have the right to elect to receive, for each Partnership Unit
an amount of cash, securities, or other property equal to the product of the
Conversion Factor multiplied by the greatest amount of cash, securities or other
property paid to a holder of Shares corresponding to such Partnership Unit in
consideration of one such Share at any time during the period from and after the
date on which the Termination Transaction is consummated; provided that, if, in
connection with the Termination Transaction, a purchase, tender or exchange
offer shall have been made to and accepted by the holders of more than fifty
percent (50%) of the outstanding Shares, each holder of Partnership Units shall
receive, or shall have the right to elect to receive without any right of
Consent set forth above in this subsection B, the greatest amount of cash,
securities, or other property which such holder would have received had it
exercised the Redemption Right and received Shares in exchange for its
Partnership Units immediately prior to the expiration of such purchase, tender
or exchange offer and had thereupon accepted such purchase, tender or exchange
offer.
Section 11.3 Limited Partners' Rights to Transfer
A. General. Except to the extent expressly permitted in
Sections 11.3 B, 11.3.C and 11.3.D or in connection with the exercise of a
Redemption Right pursuant to Section 8.6, a Limited Partner may not transfer all
or any portion of its Partnership Interest, or any of such Limited Partner's
rights as a Limited Partner, without the prior written consent of the General
Partner. Any transfer otherwise permitted under Sections 11.3B, 11.3C or 11.3D
shall be subject to the conditions set forth in Section 11.3E, 11.3 F and 11.3G,
and all permitted transfers shall be subject to Section 11.4.
B. Incapacitated Limited Partners. If a Limited Partner is
subject to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Limited Partner's estate shall have
all the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate and
such power as the Incapacitated Limited Partner possessed to transfer all or any
part of its interest in the Partnership. The Incapacity of a Limited Partner, in
and of itself, shall not dissolve or terminate the Partnership.
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C. Permitted Transfers. A Limited Partner may transfer, with
or without the consent of the General Partner, all or a portion of its
Partnership Interest (i) in the case of a Limited Partner who is an individual,
to a member of his Immediate Family, any trust formed for the benefit of himself
and/or members of his Immediate Family, or any partnership, limited liability
company, joint venture, corporation or other business entity comprised only of
himself and/or members of his Immediate Family and entities the ownership
interests in which are owned by or for the benefit of himself and/or members of
his Immediate Family, (ii) in the case of a Limited Partner which is a trust, to
the beneficiaries of such trust, (iii) in the case of a Limited Partner which is
a partnership, limited liability company, joint venture, corporation or other
business entity to which Partnership Units were transferred pursuant to (i)
above, to its partners, owners, or stockholders, as the case may be, who are
members of the Immediate Family of or are actually the Person(s) who transferred
Partnership Units to it pursuant to (i) above, (iv) in the case of a Limited
Partner which acquired Partnership Units as of the Effective Date and which is a
partnership, limited liability company, joint venture, corporation or other
business entity, to its partners, owners, or stockholders, as the case may be,
or the Persons owning the beneficial interests in any of its partners, owners or
stockholders which are entities, (v) pursuant to a gift or other transfer
without consideration, (vi) pursuant to applicable laws of descent or
distribution, (vii) to another Limited Partner, and (vii) pursuant to a grant of
security interest or other encumbrance affected in a bona fide transaction or as
a result of the exercise of remedies related thereto, subject to the provisions
of Section 11.3G hereof. A trust or other entity will be considered formed "for
the benefit" of a Partner's Immediate Family even though some other Person has a
remainder interest under or with respect to such trust or other entity.
D. Transfers After One Year From Closing of Initial Public
Offering. A Limited Partner may transfer, with or without the consent of the
General Partner, all or a portion of his Partnership Units at any time after the
date that is twelve (12) months after the closing of the initial public offering
of Shares by the General Partner.
E. No Transfers Violating Securities Laws. The General Partner
may prohibit any transfer of Partnership Units by a Limited Partner unless it
receives a written opinion of legal counsel (which opinion and counsel shall be
reasonably satisfactory to the Partnership) to such Limited Partner that such
transfer would not require filing of a registration statement under the
Securities Act or would not otherwise violate any federal, or state securities
laws or regulations applicable to the Partnership or the Partnership Unit or, at
the option of the Partnership, an opinion of legal counsel to the Partnership to
the same effect.
F. No Transfers Affecting Tax Status of Partnership. No
transfer of Partnership Units by a Limited Partner (including a redemption or
exchange pursuant to Section 8.6) may be made to any Person if (i) in the
opinion of legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation for federal income tax
purposes or would result in a termination of the Partnership for federal income
tax purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners other than the General Partner or
the General Partner Entity or any Subsidiary of either the General Partner or
the General Partner Entity or pursuant to a transaction expressly permitted
under Section 7.11.B or Section 11.2), (ii) in the opinion of legal counsel for
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the Partnership, it would adversely affect the ability of the General Partner
Entity to continue to qualify as a REIT or would subject the General Partner
Entity to any additional taxes under Section 857 or Section 4981 of the Code or
(iii) such transfer is effectuated through an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code.
G. No Transfers to Holders of Nonrecourse Liabilities. No
pledge or transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability without the consent of the General Partner,
in its sole and absolute discretion; provided that, as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Redemption
Amount any Partnership Units in which a security interest is held simultaneously
with the time at which such lender would be deemed to be a partner in the
Partnership for purposes of allocating liabilities to such lender under Section
752 of the Code.
Section 11.4 Substituted Limited Partners
A. Consent of General Partner. No Limited Partner shall have
the right to substitute a transferee as a Limited Partner in its place. The
General Partner shall, however, have the right to consent to the admission of a
transferee of the interest of a Limited Partner pursuant to this Section 11.4 as
a Substituted Limited Partner, which consent may be, given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner.
B. Rights of Substituted Limited Partner. A transferee who has
been admitted as a Substituted Limited Partner in accordance with this Article
XI shall have all the rights and powers and be subject to all the restrictions
and liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions of this Agreement (including, without limitation, the
provisions of Section 15.11) and such other documents or instruments as may be
required to effect the admission.
C. Amendment of Exhibit A. Upon the admission of a Substituted
Limited Partner, the General Partner shall amend Exhibit A to reflect the name,
address, Capital Account, number of Partnership Units, and Percentage Interest
of such Substituted Limited Partner and to eliminate or adjust, if necessary,
the name, address, Capital Account and Percentage Interest and interest of the
predecessor of such Substituted Limited Partner.
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Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
as a Substituted Limited Partner, as described in Section 11.4, such transferee
shall be considered an Assignee for purposes of this Agreement. An Assignee
shall be entitled to all the rights of an assignee of a limited partnership
interest under the Act, including the right to receive distributions from the
Partnership and the share of Net Income, Net Losses, gain, loss and Recapture
Income attributable to the Partnership Units assigned to such transferee, and
shall have the rights granted to the Limited Partners under Section 8.6, but
shall not be deemed to be a holder of Partnership Units for any other purpose
under this Agreement, and shall not be entitled to vote such Partnership Units
in any matter presented to the Limited Partners for a vote (such Partnership
Units being deemed to have been voted on such matter in the same proportion as
all other Partnership Units held by Limited Partners are voted). If any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article XI to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units.
Section 11.6 General Provisions
A. Withdrawal of Limited Partner. No Limited Partner may
withdraw from the Partnership other than as a result of a permitted transfer of
all of such Limited Partner's Partnership Units in accordance with this Article
XI or pursuant to redemption of all of its Partnership Units under Section 8.6.
B. Termination of Status as Limited Partner. Any Limited
Partner who shall transfer all of its Partnership Units in a transfer permitted
pursuant to this Article XI or pursuant to redemption of all of its Partnership
Units under Section 8.6 shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this Article XI
may only be made upon three business days prior notice, unless the General
Partner otherwise agrees.
D. Allocations. If any Partnership Interest is transferred
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article XI or redeemed or transferred pursuant to Section
8.6, Net Income, Net Losses, each item thereof and all other items attributable
to such interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the books method (unless the General
Partner, in its sole and absolute discretion, elects to adopt a daily, weekly,
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or a monthly proration period, in which event Net Income, Net Losses, each item
thereof and all other items attributable to such interest for such fiscal year
shall be prorated based upon the applicable method selected by the General
Partner). Solely for purposes of making such allocations, each of such items for
the calendar month in which the transfer or redemption occurs shall be allocated
to the Person who is a Partner as of midnight on the last day of said month. All
distributions of Available Cash attributable to any Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment or redemption shall be made to the transferor Partner or
the Redeeming Partner, as the case may be, and, in the case of a transfer or
assignment other than a redemption, all distributions of Available Cash
thereafter attributable to such Partnership Unit shall be made to the transferee
Partner.
E. Additional Restrictions. In addition to any other
restrictions on transfer herein contained, including without limitation the
provisions of this Article XI, in no event may any transfer or assignment of a
Partnership Interest by any Partner (including pursuant to Section 8.6) be made
without the express consent of the General Partner, in its sole and absolute
discretion, (i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such transfer would cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the redemption or
exchange for Shares of all Partnership Units held by all Limited Partners or
pursuant to a transaction expressly permitted under Section 7.11.B or Section
11.2); (v) if in the opinion of counsel to the Partnership, such transfer would
cause the Partnership to cease to be classified as a partnership for federal
income tax purposes (except as a result of the redemption or exchange for Shares
of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 7.11.B or Section 11.2); (vi) if
such transfer would cause the Partnership Interests of "benefit plan investors"
to become "significant," as those terms are used in 29 C.F.R. ss. 2510.3-101(f),
or any successor regulation thereto, or would cause the Partnership to become,
with respect to any employee benefit plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or, with respect to
any plan defined in Section 4975(e) of the Code, a "disqualified person" (as
defined in Section 4975(e) of the Code); (vii) if such transfer would, in the
opinion of counsel to the Partnership, cause any portion of the assets of the
Partnership to constitute assets of any ERISA Plan Investor pursuant to 29
C.F.R. ss. 2510.3-101, or any successor regulation thereto; (viii) if such
transfer requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (ix) if such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or such transfer causes the Partnership to become a "publicly traded
partnership," as such term is defined in Section 469(k)(2) or Section 7704(b) of
the Code (provided that this clause (ix) shall not be the basis for limiting or
restricting in any manner the exercise of the Redemption Right under Section 8.6
unless, and only to the extent that, outside tax counsel provides to the General
Partner an opinion to the effect that, in the absence of such limitation or
restriction, there is a significant risk that the Partnership will be treated as
a "publicly traded partnership" and, by reason thereof, taxable as a
corporation); (x) if such transfer subjects the Partnership or the activities of
the Partnership to regulation under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or ERISA, each as amended; (xi) such transfer
could adversely affect the ability of the General Partner Entity to remain
qualified as a REIT; or (xii) if in the opinion of legal counsel for the
transferring Partner (which opinion and counsel shall be reasonably satisfactory
to the Partnership) or legal counsel for the Partnership, such transfer would
adversely affect the ability of the General Partner Entity to continue to
qualify as a REIT or subject the General Partner Entity to any additional taxes
under Section 857 or Section 4981 of the Code.
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F. Avoidance of "Publicly Traded Partnership" Status. The
General Partner shall monitor the transfers of interests in the Partnership to
determine (i) if such interests are being traded on an "established securities
market" or a "secondary market (or the substantial equivalent thereof)" within
the meaning of Section 7704 of the Code and (ii) whether additional transfers of
interests would result in the Partnership being unable to qualify for at least
one of the "safe harbors" set forth in Regulations Section 1.7704-1 (or such
other guidance subsequently published by the IRS setting forth safe harbors
under which interests will not be treated as "readily tradable on a secondary
market (or the substantial equivalent thereof)" within the meaning of Section
7704 of the Code) (the "Safe Harbors"). The General Partner shall take all steps
reasonably necessary or appropriate to prevent any trading of interests or any
recognition by the Partnership of transfers made on such markets and, except as
otherwise provided herein, to insure that at least one of the Safe Harbors is
met; provided, however, that the foregoing shall not authorize the General
Partner to limit or restrict in any manner the right of any holder of a
Partnership Unit to exercise the Redemption Right in accordance with the terms
of Section 8.6 unless, and only to the extent that, outside tax counsel provides
to the General Partner an opinion to the effect that, in the absence of such
limitation or restriction, there is a significant risk that the Partnership will
be treated as a "publicly traded partnership" and, by reason thereof, taxable as
a corporation.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of a Successor General Partner
A successor to all of the General Partner's General
Partnership Interest pursuant to Section 11.2 who is proposed to be admitted as
a successor General Partner shall be admitted to the Partnership as the General
Partner, effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to such successor General Partner executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.
Section 12.2 Admission of Additional Limited Partners
A. General. No Person shall be admitted as an Additional
Limited Partner without the consent of the General Partner, which consent shall
be given or withheld in the General Partner's sole and absolute discretion. A
Person who makes a Capital Contribution to the Partnership in accordance with
this Agreement, including without limitation, under Section 4.1.C, or who
exercises an option to receive Partnership Units shall be admitted to the
Partnership as an Additional Limited Partner only with the consent of the
General Partner and only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
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attorney granted in Section 15.11 and (ii) such other documents or instruments
as may be required in the discretion of the General Partner to effect such
Person's admission as an Additional Limited Partner. The admission of any Person
as an Additional Limited Partner shall become effective on the date upon which
the name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
B. Allocations to Additional Limited Partners. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the Partnership Year in accordance with Section 706(d) of the Code, using
the interim closing of the books method (unless the General Partner, in its sole
and absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such admission shall be
made solely to Partners and Assignees other than the Additional Limited Partner,
and all distributions of Available Cash thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events") :
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(i) the expiration of its term as provided in Section
2.4 hereof;
(ii) an event of withdrawal of the General Partner,
as defined in the Act (other than an event of bankruptcy), unless, within ninety
(90) days after the withdrawal a "majority in interest" (as defined below) of
the remaining Partners Consent in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
substitute General Partner;
(iii) through December 31, 2046, an election to
dissolve the Partnership made by the
General Partner with the consent of Limited Partners who hold ninety percent
(90%) of the outstanding Units held by Limited Partners (including Units held by
the General Partner);
(iv) an election to dissolve the Partnership made by
the General Partner, in its sole and absolute discretion after December 31,
2046;
(v) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(vi) the sale of all or substantially all of the
assets and properties of the Partnership for cash or for marketable securities;
or
(vii) a final and non-appealable judgment is entered
by a court of competent jurisdiction ruling that the General Partner is bankrupt
or insolvent, or a final and non-appealable order for relief is entered by a
court with appropriate jurisdiction against the General Partner, in each case
under any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to or at the time of the entry of such order or judgment a
"majority in interest" (as defined below) of the remaining Partners Consent in
writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.
As used herein, a "majority in interest" shall refer to
Partners (excluding the General Partner) who hold more than fifty percent (50%)
of the outstanding Percentage Interests not held by the General Partner.
Section 13.2 Winding Up
A. General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, if there is no
remaining General Partner, any Person elected by a majority in interest of the
Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partners, include equity or other securities of the General Partners or any
other entity) shall be applied and distributed in the following order:
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(1) First, to the payment and discharge of
all of the Partnership's debts and
liabilities to creditors other than the
Partners;
(2) Second, to the payment and discharge of all
of the Partnership's debts and liabilities
to the General Partners;
(3) Third, to the payment and discharge of all
of the Partnership's debts and liabilities
to the Limited Partners; and
(4) The balance, if any, to the Partners in
accordance with their Capital Accounts,
after giving effect to all contributions,
distributions, and allocations for all
periods.
The General Partner shall not receive any additional
compensation for any services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A which require liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations
Subject to Section 13.4, if the Partnership is "liquidated"
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions
shall be made under this Article XIII to the General Partner and Limited
Partners who have positive Capital Accounts in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(2). Except for those Partners listed on Exhibit G
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who have entered into one or more Deficit Restoration Obligation Agreements and
have agreed thereby to contribute an amount of cash up to the amount listed next
to each such Partner's name on Exhibit 4.6 in the event of the liquidation of
the Partnership pursuant to this Article XIII, if any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article XIII may be:
(A) distributed to a trust established for the benefit of the General Partner
and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld amounts shall be distributed to the
General Partner and Limited Partners as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article XIII, if
the Partnership is deemed liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged and the Partnership's affairs shall not be wound up. Instead,
for federal income tax purposes and for purposes of maintaining Capital Accounts
pursuant to Exhibit B, the Partnership shall be deemed to have distributed its
assets in kind to the General Partner and Limited Partners, who shall be deemed
to have assumed and taken such assets subject to all Partnership liabilities,
all in accordance with their respective Capital Accounts. Immediately
thereafter, the General Partner and Limited Partners shall be deemed to have
recontributed the Partnership assets in kind to the Partnership, which shall be
deemed to have assumed and taken such assets subject to all such liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Partnership. Except as otherwise expressly
provided in this Agreement, no Limited Partner shall have priority over any
other Limited Partner as to the return of its Capital Contributions,
distributions, or allocations.
Section 13.6 Notice of Dissolution
If a Liquidating Event occurs or an event occurs that would,
but for provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners and to all other parties with whom the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
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Section 13.7 Cancellation of Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.
Section 13.8 Reasonable Time for Winding Up
A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2, to minimize any losses otherwise attendant upon such
winding-up, and the provisions of this Agreement shall remain in effect among
the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
Section 13.10 Liability of Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.7.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. General. Amendments to this Agreement may be proposed by a
General Partner or by any Limited Partners holding twenty-five percent (25%) or
more of the Partnership Interests. Following such proposal (except an amendment
pursuant to Section 14.1.B), the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
vote of the Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written vote, the General Partner may require a response
within a reasonable specified time, but not less than fifteen (15) days, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Partners holding
a majority of the Percentage Interests of the Limited Partners (including
Limited Partnership Interests held by the General Partner).
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B. Amendments Not Requiring Limited Partner Approval.
Notwithstanding Section 14.1.A or 14.1.C, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General
Partner or surrender any right or power
granted to the General Partner or any
Affiliate of the General Partner for the
benefit of the Limited Partners;
(2) to reflect the admission, substitution,
termination, or withdrawal of Partners in
accordance with this Agreement (which may be
effected through the replacement of Exhibit
A with an amended Exhibit A);
(3) to set forth the designations, rights,
powers, duties, and preferences of the
holders of any additional Partnership
Interests issued pursuant to Article IV;
(4) to reflect a change that does not adversely
affect the Limited Partners in any material
respect, or to cure any ambiguity, correct
or supplement any provision in this
Agreement not inconsistent with law or with
other provisions of this Agreement, or make
other changes with respect to matters
arising under this Agreement that will not
be inconsistent with law or with the
provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or
guidelines contained in any order,
directive, opinion, ruling or regulation of
a federal, state or local agency or
contained in federal, state or local law.
The General Partner shall notify the Limited Partners when any
action under this Section 14.1.B is taken in the next regular communication to
the Limited Partners.
C. Amendments Requiring Limited Partner Approval (Excluding
General Partners). Notwithstanding Section 14.1.A, without the Consent of the
Outside Limited Partners, the General Partner shall not amend Section 4.2.A,
Section 5.1.E, Section 7.1.A (second sentence only), Section 7.5, Section 7.6,
Section 7.8, Section 7.11.B, Section 11.2, Section 13.1 (other than Section
13.1(iii) which can be amended only with a Consent of 90% of the Partnership
Units (including Partnership Units held by the General Partner), this Section
14.1.C or Section 14.2.
D. Other Amendments Requiring Certain Limited Partner
Approval. Notwithstanding anything in this Section 14.1 to the contrary, this
Agreement shall not be amended with respect to any Partner adversely affected
without the Consent of such Partner adversely affected if such amendment would
(i) convert a Limited Partner's interest in the Partnership into a general
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partner's interest, (ii) modify the limited liability of a Limited Partner,
(iii) amend Section 7.11.A, (iv) amend Article V or Article VI (except as
permitted pursuant to Sections 4.2, 5.1.E, 5.4, 6.2 and 14.1(B)(3)), (v) amend
Section 8.6 or any defined terms set forth in Article I that relate to the
Redemption Right (except as permitted in Section 8.6.E), or (vi) amend this
Section 14.1.D. This Section 14.1.D does not require unanimous consent of all
Partners adversely affected unless the amendment is to be effective against all
Partners adversely affected.
E. Amendment and Restatement of Exhibit A or Exhibit G Not An
Amendment. Notwithstanding anything in this Article XIV or elsewhere in this
Agreement to the contrary, any amendment and restatement of Exhibit A or Exhibit
G hereto by the General Partner to reflect events or changes otherwise
authorized or permitted by this Agreement, whether pursuant to Section 7.1.A(21)
or Section 7.1A(22) hereof or otherwise, shall not be deemed an amendment of
this Agreement and may be done at any time and from time to time, as necessary
by the General Partner without the Consent of the Limited Partners.
Section 14.2 Meetings of the Partners
A. General. Meetings of the Partners may be called by the
General Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding twenty-five percent (25%) or more of
the Partnership Interests. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A. Except as otherwise
expressly provided in this Agreement, the Consent of holders of a majority of
the Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Actions Without a Meeting. Any action required or permitted
to be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or
Persons to act for him by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
its attorney-in-fact. No proxy shall be valid after the expiration of eleven
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(11) months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Limited Partner executing it,
such revocation to be effective upon the Partnership's receipt of written notice
thereof.
D. Conduct of Meeting. Each meeting of Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deem appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address set forth in Exhibit A or such other
address as the Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles"
"Sections" and "Exhibits" are to Articles, Sections and Exhibits of this
Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
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Section 15.6 Creditors
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11 Power of Attorney
A. General. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver,
file and record in the appropriate public
offices (a) all certificates, documents and
other instruments (including, without
limitation, this Agreement and the
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Certificate and all amendments or
restatements thereof) that the General
Partner or any Liquidator deems appropriate
or necessary to form, qualify or continue
the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners
have limited liability) in the State of
Delaware and in all other jurisdictions in
which the Partnership may conduct business
or own property, (b) all instruments that
the General Partner or any Liquidator deem
appropriate or necessary to reflect any
amendment, change, modification or
restatement of this Agreement in accordance
with its terms, (c) all conveyances and
other instruments or documents that the
General Partner or any Liquidator deems
appropriate or necessary to reflect the
dissolution and liquidation of the
Partnership pursuant to the terms of this
Agreement, including, without limitation, a
certificate of cancellation, (d) all
instruments relating to the admission,
withdrawal, removal or substitution of any
Partner pursuant to, or other events
described in, Article XI, XII or XIII hereof
or the Capital Contribution of any Partner
and (e) all certificates, documents and
other instruments relating to the
determination of the rights, preferences and
privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all
ballots, consents, approvals, waivers,
certificates and other instruments
appropriate or necessary, in the sole and
absolute discretion of the General Partner
or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent,
approval, agreement or other action which is
made or given by the Partners hereunder or
is consistent with the terms of this
Agreement or appropriate or necessary, in
the sole discretion of the General Partner
or any Liquidator, to effectuate the terms
or intent of this Agreement.
Nothing contained in this Section 15.11 shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article XIV hereof or as may be otherwise expressly provided
for in this Agreement.
B. Irrevocable Nature. The foregoing power of attorney is
hereby declared to be irrevocable and a power coupled with an interest, in
recognition of the fact that each of the Partners will be relying upon the power
of the General Partner or any Liquidator to act as contemplated by this
Agreement in any filing or other action by it on behalf of the Partnership, and
it shall survive and not be affected by the subsequent Incapacity of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Units and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the General Partner or any Liquidator, acting in good
faith pursuant to such power of attorney; and each such Limited Partner or
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Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner or any Liquidator, taken
in good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.
Section 15.12 Entire Agreement
This Agreement contains the entire understanding and agreement
among the Partners with respect to the subject matter hereof and supersedes any
prior written oral understandings or agreements among them with respect thereto.
Section 15.13 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as
conferring upon the holders of the Partnership Units any rights whatsoever as
partners or shareholders of the General Partner Entity, including, without
limitation, any right to receive dividends or other distributions made to
shareholders of the General Partner Entity or to vote or to consent or receive
notice as shareholders in respect to any meeting of shareholders for the
election of trustees of the General Partner Entity or any other matter.
Section 15.14 Limitation to Preserve REIT Status
To the extent that any amount paid or credited to the General
Partner or any of its officers, directors, trustees, employees or agents
pursuant to Section 7.4 or Section 7.7 would constitute gross income to the
General Partner for purposes of Section 856(c)(2) or 856(c)(3) of the Code (a
"General Partner Payment") then, notwithstanding any other provision of this
Agreement, the amount of such General Partner Payment for any fiscal year shall
not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a)
4.20% of the General Partner's total gross income (but not including the amount
of any General Partner Payments) for the fiscal year which is described in
subsections (A) though (H) of Section 856(c)(2) of the Code over (b) the amount
of gross income (within the meaning of Section 856(c)(2) of the Code) derived by
the General Partner from sources other than those described in subsections (A)
through (H) of Section 856(c)(2) of the Code (but not including the amount of
any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25%
of the General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) through (I) of Section 856(c)(3) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(3) of the Code) derived by the
General Partner from sources other than those described in subsections (A)
through (I) of Section 856(c)(3) of the Code (but not including the amount of
any General Partner Payments);
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provided, however, that General Partner Payments in excess of
the amounts set forth in subparagraphs (i) and (ii) above may be made if the
General Partner, as a condition precedent, obtains an opinion of tax counsel
that the receipt of such excess amounts would not adversely affect the General
Partner's ability to qualify as a REIT. To the extent General Partner Payments
may not be made in a year due to the foregoing limitations, such General Partner
Payments shall carry over and be treated as arising in the following year,
provided, however, that such amounts shall not carry over for more than five
years, and if not paid within such five year period, shall expire; provided
further, that (i) as General Partner Payments are made, such payments shall be
applied first to carry over amounts outstanding, if any, and (ii) with respect
to carry over amounts for more than one Partnership Year, such payments shall be
applied to the earliest Partnership Year first.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
ELDERTRUST
By ____________________________
Name: Edward B. Romanov, Jr.
Title: President and Chief Executive
Officer
LIMITED PARTNERS:
____________________________________
Edward B. Romanov, Jr.,
as Attorney-in-Fact for the Limited
Partners
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EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Class A Class B Agreed Initial Percentage
Name and Address of Partner Partnership Partnership Capital Account Interest
- --------------------------- ----------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
LIMITED PARTNERS:
100.00%
=========== ============ ================ ===========
TOTAL
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section l.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the
Agreement and Exhibit C thereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C thereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) (1) of the Code shall be included in taxable income or loss),
with the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of
income, gain, loss and deduction shall be made
without regard to any election under Section 754 of
the Code which may be made by the Partnership,
provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of
the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital
Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the
limitations prescribed in Regulations Section
l.704-1(b)(2)(iv) (m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact
that items described in Sections 705(a)(l)(B) or
705(a)(2)(B) of the Code are not includable in gross
income or are neither currently deductible nor
capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be
determined as if the adjusted basis of such property
as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to
such property as of such date.
B-1
<PAGE>
(4) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in
computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the
amount of any such adjustment shall be taken into
account as gain or loss from the disposition of such
asset.
(6) Any items specially allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor; provided, however, that, if the transfer causes a termination of the
Partnership under Section 708(b)(l)(B) of the Code, the Partnership's properties
shall be deemed, solely for federal income tax purposes, to have been
distributed in liquidation of the Partnership to the holders of the Partnership
units (including the transferee) and recontributed by such Persons in
reconstitution of the Partnership. In such event, the Carrying Values of the
Partnership properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 1.D(2) hereof. The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the principles
of this Exhibit B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section
1.D(2), the Carrying Values of all Partnership assets
shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as of the times of the
adjustments provided in Section 1.D(2) hereof, as if
such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property
and allocated pursuant to Section 6.1 of the
Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to the distribution by the Partnership to a Partner
of more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g), provided however that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
B-2
<PAGE>
(3) In accordance with Regulations Section 1.704-
l(b)(2)(iv)(e), the Carrying Value of Partnership
assets distributed in kind shall be adjusted upward
or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership
property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article XIII of the Agreement, shall be determined
and allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the
assets of the Partnership in such manner as it
determines in its sole and absolute discretion to
arrive at a fair market value for individual
properties.
E. The provisions of the Agreement (including this Exhibit B and the
other Exhibits to the Agreement) relating to the maintenance of Capital Accounts
are intended to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
l.704-l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section l.704-1(b).
2. No Interest
No interest shall be paid by the Partnership on Capital Contributions
or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of its Capital
Contribution or Capital Account or to receive any distribution from the
Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
B-3
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
Notwithstanding any other provision of the Agreement or this
Exhibit C, the following special allocations shall be made in the following
order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of
Section 6.1 of the Agreement or any other provisions of this Exhibit C, if there
is a net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit C (except Section 1.A hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Year, each Partner who has a share of the Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (5), shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and Limited Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i) (4). This
Section 1.B is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of this Section 1.B, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such
Partnership Year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704-
l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under
Sections 1.A and 1.B hereof with respect to such Partnership Year, such Partner
has an Adjusted Capital Account Deficit, items of Partnership income and gain
<PAGE>
(consisting of a pro rata portion of each item of Partnership income, including
gross income and gain for the Partnership Year) shall be specifically allocated
to such Partner in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit created by
such adjustments, allocations or distributions as quickly as possible. This
Section 1.C is intended to constitute a "qualified income offset" under
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
D. Gross Income Allocation. In the event that any Partner has
an Adjusted Capital Account Deficit at the end of any Partnership Year (after
taking into account allocations to be made under the preceding paragraphs hereof
with respect to such Partnership Year), each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit.
E. Nonrecourse Deductions. Nonrecourse Deductions for any
Partnership Year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Partnership Year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section
1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section 1 of this Exhibit C.
C-2
<PAGE>
B. In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of income,
gain, loss, and deduction shall be allocated for federal income tax purposes
among the Partners as follows:
(1) (a) In the case of a Contributed Property,
such items attributable thereto shall be
allocated among the Partners consistent with
the principles of Section 704(c) of the Code
to take into account the variation between
the 704(c) Value of such property and its
adjusted basis at the time of contribution
(taking into account Section 2.C of this
Exhibit C); and
(b) any item of Residual Gain or Residual
Loss attributable to a Contributed Property
shall be allocated among the Partners in the
same manner as its correlative item of
"book" gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(2) (a) In the case of an Adjusted Property,
such items shall
(i) first, be allocated among the
Partners in a manner consistent with the
principles of Section 704(c) of the Code to
take into account the Unrealized Gain or
Unrealized Loss attributable to such
property and the allocations thereof
pursuant to Exhibit B;
(ii) second, in the event such
property was originally a Contributed
Property, be allocated among the Partners in
a manner consistent with Section 2.B(1) of
this Exhibit C; and
(b) any item of Residual Gain or Residual
Loss attributable to an Adjusted Property
shall be allocated among the Partners in the
same manner its correlative item of "book"
gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(3) all other items of income, gain, loss and
deduction shall be allocated among the Partners the
same manner as their correlative item of "book" gain
or loss is allocated pursuant to Section 6.1 of the
Agreement and Section 1 of this Exhibit C.
C. To the extent Regulations promulgated pursuant to Section
704(c) of the Code permit a Partnership to utilize alternative methods to
eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall, subject to the following, have the
authority to elect the method to be used by the Partnership and such election
shall be binding on all Partners. With respect to the Contributed Property
transferred to the Partnership as of the Effective Date, the Partnership shall
elect to use the "traditional method" set forth in Treasury Regulation ss.
1.704-3(b).
C-3
<PAGE>
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems _________
Partnership Units in ElderTrust Operating Limited Partnership in accordance with
the terms of the Agreement of Limited Partnership of ElderTrust Operating
Limited Partnership, as amended, and the Redemption Right referred to therein,
(ii) surrenders such Partnership Units and all right, title and interest therein
and (iii) directs that the Cash Amount or Shares Amount (as determined by the
General Partner) deliverable upon exercise of the Redemption Right be delivered
to the address specified below, and if Shares are to be delivered, such Shares
be registered or placed in the name(s) and at the address(es) specified below.
The undersigned hereby represents, warrants, and certifies that the undersigned
(a) has marketable and unencumbered title to such Partnership Units, free and
clear of the rights of or interests of any other person or entity, (b) has the
full right, power and authority to redeem and surrender such Partnership Units
as provided herein and (c) has obtained the consent or approval of all persons
or entities, if any, having the right to consult or approve such redemption and
surrender.
Dated:__________ Name of Limited Partner:__________________
_______________________________
(Signature of Limited Partner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
_______________________________
If Shares are to be issued, issue to:
Name:
Please insert social security or identifying number:
<PAGE>
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
- ------------------- ------------ ------------
<PAGE>
EXHIBIT F
FORM OF UNIT CERTIFICATE
<PAGE>
EXHIBIT G
DEFICIT RESTORATION OBLIGATIONS
The following Partners have made one or more Deficit Restoration
Obligation Agreements which have been accepted by the Partnership whereby each
such Partner has agreed to contribute the aggregate amount of cash set forth
next to such Partner's name below in the event of the liquidation of the
Partnership:
Partner Aggregate Deficit Restoration Obligation
------- ----------------------------------------
<PAGE>
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of ________________, 1998 by and between ElderTrust, a
Maryland real estate investment trust (the "Company"), and the holders of Units
listed on Schedule A hereto (each, individually, a "Holder," and, collectively,
the "Holders").
WHEREAS, on the date hereof, the Holders are receiving Class A
units of limited partnership interest ("Units") in the ElderTrust Operating,
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership");
WHEREAS, in connection therewith, the Company has agreed to
grant to the Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
Section 1. Registration Rights
If a Holder receives common shares of beneficial interest
("Common Shares") of the Company upon redemption of Units (the "Redemption
Shares") pursuant to the terms of the First Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Operating Partnership
Agreement"), then unless such Redemption Shares are issued to such Holder
pursuant to an Issuer Registration Statement as provided in Section 2 below,
Holder shall be entitled to offer for sale pursuant to a Registration Statement
(as defined in Section 3 hereof) the Redemption Shares at any time after the
date which is 14 months following the date of the closing of the Company's
initial public offering of Common Shares (the "Effective Date"), subject to the
terms and conditions set forth in Section 3 hereof (the "Registration Rights").
Section 2. Issuer Registration Statement
Anything contained herein to the contrary notwithstanding, in
the event that Redemption Shares are issued by the Company to a Holder pursuant
to an effective registration statement (an "Issuer Registration Statement")
filed with the Securities and Exchange Commission (the "SEC"), the Company shall
be deemed to have satisfied all of its registration obligations under this
Agreement.
<PAGE>
Section 3. Demand Registration Rights
3.1(a) Registration Procedure. Unless such Redemption Shares
are issued pursuant to an Issuer Registration Statement as provided in Section 2
hereof, then subject to Sections 3.1(c) and 3.2 hereof, if any Holder desires to
exercise its Registration Rights with respect to any Redemption Shares issued to
such Holder, the Holder shall deliver to the Company a written notice (a
"Registration Notice") informing the Company of such exercise and specifying the
number of shares to be offered by such Holder (such shares to be offered being
referred to herein as the "Registrable Securities"). Such notice may be given at
any time on or after the later of (i) the Effective Date or (ii) the date a
notice of redemption is delivered by the Holder to the Operating Partnership
pursuant to the Operating Partnership Agreement, but must be given at least
fifteen (15) business days prior to the consummation of any sale of Registrable
Securities. Upon receipt of the Registration Notice, the Company, if it has not
already caused the Registrable Securities to be included as part of an existing
shelf registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the SEC (in which event the
Company shall be deemed to have satisfied its registration obligation under this
Section 3), will cause to be filed with the SEC as soon as reasonably
practicable after receiving such Registration Notice a new registration
statement and related prospectus (a "New Registration Statement") that complies
as to form in all material respects with applicable SEC rules providing for the
sale by the Holder of the Registrable Securities, and agrees (subject to Section
3.2 hereof) to use its best efforts to cause such New Registration Statement to
be declared effective by the SEC as soon as practicable. (As used herein,
"Registration Statement" and "Prospectus" refer to the Shelf Registration
Statement and related prospectus (including any preliminary prospectus) or the
New Registration Statement and related prospectus (including any preliminary
prospectus), whichever is utilized by the Company to satisfy each Holder's
Registration Rights pursuant to this Section 3, including in each case any
documents incorporated therein by reference.) Each Holder agrees to provide in a
timely manner information regarding the proposed distribution by such Holder of
the Registrable Securities and such other information reasonably requested by
the Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company agrees (subject to Section 3.2 hereof) to
use its best efforts to keep the Registration Statement effective (including the
preparation and filing of any amendments and supplements thereto necessary for
that purpose) until the earlier of (i) the date on which the applicable Holder
or Holders consummate the sale of all of the Registrable Securities registered
under the Registration Statement or (ii) the date on which all of the
Registrable Securities are eligible for sale pursuant to Rule 144(k) (or any
successor provision) or in a single transaction pursuant to Rule 144(e) (or any
successor provision) under the Securities Act of 1933, as amended (the
"Securities Act"). The Company agrees to provide to each Holder a reasonable
number of copies of the final Prospectus and any amendments or supplements
thereto relating to Registrable Securities held by such Holder. Notwithstanding
the foregoing, the Company may at any time, in its sole discretion and prior to
receiving any Redemption Notice from any Holder, include all of the Redemption
Shares or any portion thereof in any Shelf Registration Statement. In connection
with any Registration Statement utilized by the Company to satisfy any Holder's
Registration Rights pursuant to this Section 3, each Holder agrees that it will
respond within three (3) Business Days to any request by the Company to provide
or verify information regarding such Holder or such Holder's Registrable
Securities as may be required to be included in such Registration Statement
pursuant to the rules and regulations of the SEC.
3.1(b) Offers and Sales. All offers and sales by a Holder
pursuant to a Registration Statement referred to in this Section 3 shall be
completed within the period during which such Registration Statement is required
to remain effective pursuant to Section 3.1(a), and upon expiration of such
period no Holder will offer or sell any Registrable Securities pursuant to such
Registration Statement. If directed by the Company, a Holder will return all
undistributed copies of any Prospectus in its possession upon the expiration of
such period.
2
<PAGE>
3.1(c) Limitations on Registration Rights. Each exercise of
the Registration Right shall be effected with respect to a minimum of the lesser
of (i) Ten Thousand (10,000) Common Shares or (ii) the total number of
Redemption Shares held by the exercising Holder at such time plus the number of
Redemption Shares that may be issued to such Holder upon redemption of Units by
such Holder; provided, however, that, with respect to a Holder which is an
entity, such a Holder may exercise the Registration Right for less than Ten
Thousand (10,000) Common Shares without regard to whether or not such Holder is
exercising the Registration Right for all of the Redemption Shares held by such
Holder as long as such Holder is exercising the Registration Right on behalf of
one or more of its direct equity owners (e.g., shareholders, partners or
members) or beneficiaries in respect of one hundred percent (100%) of such
equity owners' interest in such Holder. The right of any Holder to deliver a
Registration Notice commences upon the later of (i) the Effective Date or (ii)
the date such Holder is permitted to redeem Units pursuant to the Operating
Partnership Agreement. The right of a Holder to deliver a Registration Notice
shall expire on the date on which all of the Redemption Shares held by such
Holder or issuable upon redemption of Units held by such Holder are eligible for
sale pursuant to Rule 144(k) (or any successor provision) or in a single
transaction pursuant to Rule 144(e) (or any successor provision) under the
Securities Act. The Registration Rights granted pursuant to this Section 3.1 may
not be exercised in connection with any underwritten public offering by the
Company or by any Holder without the prior written consent of the Company.
3.2 Suspension of Offering. Upon any notice by the Company,
either before or after a Holder has delivered a Registration Notice, that a
negotiation or consummation of a transaction by the Company or its subsidiaries
is pending or an event has occurred, which negotiation, consummation or event
would require additional disclosure by the Company in the Registration Statement
of material information which the Company has a bona fide business purpose for
keeping confidential and the nondisclosure of which in the Registration
Statement might cause the Registration Statement to fail to comply with
applicable disclosure requirements (a "Materiality Notice"), such Holder agrees
that it will immediately discontinue offers and sales of the Registrable
Securities under the Registration Statement until Holder receives copies of a
supplemented or amended Prospectus that corrects the misstatement(s) or
omission(s) referred to above and receives notice that any post-effective
amendment has become effective; provided, that the Company may delay, suspend or
withdraw the Registration Statement for such reason for no more than sixty (60)
days after delivery of the Materiality Notice at any one time. If so directed by
the Company, such Holder will deliver to the Company all copies of the
Prospectus covering the Registrable Securities current at the time of receipt of
any Materiality Notice.
3.3 Qualification. The Company agrees to use its best efforts
to register or qualify the Registrable Securities by the time the applicable
Registration Statement is declared effective by the SEC under all applicable
state securities or "blue sky" laws of such jurisdictions as the applicable
Holder shall reasonably request in writing, to keep each such registration or
qualification effective during the period such Registration Statement is
required to be kept effective or during the period offers or sales are being
made by such Holder after delivery of a Registration Notice to the Company,
whichever is shorter, and to do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in each such jurisdiction of the Registrable Securities owned by
such Holder; provided, however, that the Company shall not be required to (x)
qualify generally to do business in any jurisdiction or to register as a broker
or dealer in such jurisdiction where it would not otherwise be required to
qualify but for this Section 3.3, (y) subject itself to taxation in any such
jurisdiction or (z) submit to the general service of process in any such
jurisdiction.
3
<PAGE>
3.4 Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder and each person, if any, who controls
any Holder within the meaning of Section 15 of the Securities Act or Section 20
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of or
based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the
Securities Act, including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading
or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto),
including all documents incorporated therein by reference,
or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent
of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or
of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of
counsel), reasonably incurred in investigating, preparing
or defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced
or threatened, in each case whether or not a party, or any
claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 3.4 does
not apply to any Holder with respect to any loss, liability, claim, damage or
expense to the extent arising out of (A) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto), or (B) such Holder's failure to
deliver an amended or supplemental Prospectus if such loss, liability, claim,
damage or expense would not have arisen had such delivery occurred.
4
<PAGE>
3.5 Indemnification by Each Holder. Each Holder (and each
permitted assignee of a Holder, on a several basis) agrees to indemnify and hold
harmless the Company, and each of its trustees and officers (including each
trustee and officer of the Company who signed a Registration Statement), and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of or
based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement (or
any amendment thereto) pursuant to which the Registrable
Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the
statements therein not misleading or arising out of or based
upon any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or
supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is
effected with the written consent of such Holder; and
(iii) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of
counsel), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or omission,
or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph
(i) or (ii) above;
5
<PAGE>
provided, however, that the indemnity provided pursuant to this Section 3.5
shall only apply with respect to any loss, liability, claim, damage or expense
to the extent arising out of (A) any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use in
the Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) or (B) such Holder's failure to deliver an
amended or supplemental Prospectus if such loss, liability, claim, damage or
expense would not have arisen had such delivery occurred. Notwithstanding the
provisions of this Section 3.5, a Holder and any permitted assignee shall not be
required to indemnify the Company, its officers, trustees or control persons
with respect to any amount in excess of the amount of the total proceeds to such
Holder or such permitted assignee, as the case may be, from sales of the
Registrable Securities of such Holder under the Registration Statement, and no
Holder shall be liable under this Section 3.5 for any statements or omissions of
any other Holder.
3.6 Conduct of Indemnification Proceedings. The indemnified
party hereunder shall give reasonably prompt notice to the indemnifying party of
any action, suit, proceeding or investigation or written threat thereof (a
"Proceeding") commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 3.4 or 3.5 above, unless and to the extent it did not otherwise learn
of such Proceeding and the lack of notice by the indemnified party results in
the forfeiture by the indemnifying party of substantial rights and defenses, and
(ii) shall not, in any event, relieve the indemnifying party from any
obligations to the indemnified party other than the indemnification obligation
provided under Section 3.4 or 3.5 above. If the indemnifying party so elects
within a reasonable time after receipt of such notice, the indemnifying party
may assume the defense of such Proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
however, that the indemnifying party will not settle any such Proceeding without
the written consent of the indemnified party unless, as a condition to such
settlement, the indemnifying party secures the unconditional release of the
indemnified party; and provided further, that if the indemnified party
reasonably determines that a conflict of interest exists where it is advisable
for the indemnified party to be represented by separate counsel or that, upon
advice of counsel, there may be legal defenses available to it which are
different from or in addition to those available to the indemnifying party, then
the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such Proceeding as a result of the second proviso to the preceding sentence,
the indemnifying party's counsel shall be entitled to conduct the indemnifying
party's defense and counsel for the indemnified party shall be entitled to
conduct the defense of the indemnified party, it being understood that both such
counsel will cooperate with each other to conduct the defense of such Proceeding
as efficiently as possible. If the indemnifying party is not so entitled to
assume the defense of such Proceeding or does not assume such defense, after
having received the notice referred to in the first sentence of this paragraph,
the indemnifying party will pay the reasonable fees and expenses of counsel for
the indemnified party. In such event, however, the indemnifying party will not
be liable for any settlement effected without the written consent of the
indemnifying party. If an indemnifying party is entitled to assume, and assumes,
the defense of such Proceeding in accordance with this paragraph, the
indemnifying party shall not be liable for any fees and expenses of counsel for
the indemnified party incurred thereafter in connection with such Proceeding.
6
<PAGE>
3.7 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Sections 3.4 and 3.5 above is for any reason held to be unenforceable by the
indemnified party although applicable in accordance with its terms, the Company
and the relevant Holder shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative fault of
but also the relative benefits to the Company on the one hand and such Holder on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits to the indemnifying party and
indemnified party shall be determined by reference to, among other things, the
total proceeds received by the indemnifying party and indemnified party in
connection with the offering to which such losses, claims, damages, liabilities
or expenses relate. The relative fault of the indemnifying party and indemnified
party shall be determined by reference to, among other things, whether the
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, the indemnifying party or the
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 3.7 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 3.7, a Holder shall
not be required to contribute any amount in excess of the amount of the total
proceeds to such Holder from sales of the Registrable Securities of such Holder
under the Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 3.7, each person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such Holder, and each trustee of the Company, each officer of the Company who
signed a Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
7
<PAGE>
Section 4. Expenses
The Company shall pay all expenses incident to the performance
by it of its registration obligations under Sections 2 and 3, including (i) all
stock exchange, SEC and state securities registration, listing and filing fees,
(ii) all expenses incurred in connection with the preparation, printing and
distributing of the Registration Statement and Prospectus and (iii) fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company. Each Holder shall be responsible for the payment of
(i) any brokerage and sales commissions, (ii) fees and disbursements of such
Holder's counsel, accountants and other advisors and (iii) any transfer taxes
relating to the sale or disposition of the Registrable Securities by such Holder
pursuant to Section 3 or otherwise.
Section 5. Rule 144 Compliance
The Company covenants that it will use its best efforts to
file in a timely manner the reports required to be filed by the Company under
the Securities Act and the Exchange Act so as to enable each Holder to sell
Registrable Securities pursuant to Rule 144 under the Securities Act. In
connection with any sale, transfer or other disposition by a Holder of any
Registrable Securities pursuant to Rule 144 under the Securities Act, the
Company shall cooperate with the Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any Securities Act legend, and to enable certificates for such
Registrable Securities to be for such number of shares and registered in such
names as such Holder may reasonably request at least ten (10) business days
prior to any sale of Registrable Securities hereunder.
Section 6. Miscellaneous
6.1 Integration; Amendment. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters set forth
herein and supersedes and renders of no force and effect all prior oral or
written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly provided
in this Agreement, no amendment, modification or discharge of this Agreement
shall be valid or binding unless set forth in writing and duly executed by the
Company and each Holder against whom such amendment, modification or discharge
is sought to be enforced.
6.2 Waivers. No waiver by a party hereto shall be effective
unless made in a written instrument duly executed by the party against whom such
waiver is sought to be enforced, and only to the extent set forth in such
instrument. Neither the waiver by any of the parties hereto of a breach or a
default under any of the provisions of this Agreement, nor the failure of any of
the parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder shall thereafter be
construed as a waiver of any subsequent breach or default of a similar nature,
or as a waiver of any such provisions, rights or privileges hereunder.
8
<PAGE>
6.3 Assignment; Successors and Assigns. This Agreement and the
rights granted hereunder may not be assigned by any Holder without the written
consent of the Company; provided, however, that any Holder may assign its rights
and obligations hereunder, in whole or in part, following at least ten (10) days
prior written notice to the Company, (i) to such Holder's direct equity owners
(e.g., shareholders, partners or members) or beneficiaries in connection a
distribution of such Holder's Units to its direct equity owners or beneficiaries
and (ii) to a permitted transferee in connection with a transfer of the Units in
accordance with the terms of the Operating Partnership Agreement, if, in the
case of either (i) or (ii) above, such persons agree in writing to be bound by
all of the provisions hereof.
6.4 Burden and Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and, subject to
Section 6.3 above, assigns.
6.5 Notices. All notices called for under this Agreement shall
be in writing and shall be given by hand delivery, registered first class mail,
telecopier or any courier guaranteeing overnight delivery, and shall be
addressed (return receipt requested), postage prepaid, (i) if to the Company, at
its address appearing on the signature page hereto, or (ii) if to a Holder, to
the addresses set forth opposite its name in Schedule A hereto, or to any other
address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 6.5 for the service of notices. All such notices shall be deemed
to have been given: at the time delivered by hand, if personally delivered;
three (3) business days after being deposited in the mail, if mailed; when
receipt is acknowledged, if telecopied; or at the time delivered, if delivered
by a courier guaranteeing overnight delivery.
6.6 Specific Performance. The parties hereto acknowledge that
the obligations undertaken by them hereunder are unique and that there would be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.
6.7 Governing Law. This Agreement, the rights and obligations
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of Maryland,
but not including the choice of law rules thereof.
6.8 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
9
<PAGE>
6.9 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or entity may require.
6.10 Execution in Counterparts. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signature of or on behalf of each party appears on
each counterpart, but it shall be sufficient that the signature of or on behalf
of each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
6.11 Severability. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the limit
of validity prescribed by law, then the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause or provision contained
in this Agreement operates or would operate to invalidate this Agreement, in
whole or in part, then such clause or provision only shall be held ineffective,
as though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: ElderTrust
415 McFarlan Road
Suite 202
Kennett Square, PA 19348
. By: _____________________________________
Name: _____________________________________
Title: _____________________________________
HOLDERS:
. By: _____________________________________
Name: _____________________________________
Title: Attorney-in-Fact
11
<PAGE>
SCHEDULE A
----------
HOLDERS
Thomas W. Balderston
David C. Barr
Gregory H. Doyle
Richard R. Howard
D. Lee McCreary, Jr.
MGI Limited Partnership
Edward B. Romanov, Jr.
Senior LifeChoice Corporation
Gregory M. Stevens
Michael R. Walker
Joseph A. Williamson
<PAGE>
ELDERTRUST
1998 SHARE OPTION AND INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS..................... 1
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS............................ 3
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; RECAPITALIZATIONS;
MERGERS; SUBSTITUTE AWARDS................................... 4
SECTION 4. ELIGIBILITY.................................................. 6
SECTION 5. SHARE OPTIONS................................................ 7
SECTION 6. RESTRICTED SHARE AWARDS...................................... 10
SECTION 7. DEFERRED SHARE AWARDS........................................ 11
SECTION 8. UNRESTRICTED SHARE AWARDS.................................... 12
SECTION 9. PERFORMANCE SHARE AWARDS..................................... 12
SECTION 10. DISTRIBUTION EQUIVALENT RIGHTS.............................. 13
SECTION 11. TAX WITHHOLDING............................................. 14
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC. ........................... 14
SECTION 13. AMENDMENTS AND TERMINATION.................................. 14
SECTION 14. STATUS OF PLAN.............................................. 15
SECTION 15. CHANGE OF CONTROL PROVISIONS................................ 15
SECTION 16. GENERAL PROVISIONS.......................................... 15
SECTION 17. EFFECTIVE DATE OF PLAN...................................... 17
SECTION 18. GOVERNING LAW............................................... 17
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<PAGE>
ELDERTRUST
1998 SHARE OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the ElderTrust 1998 Share Option and
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Non-Employee Trustees and other key persons of
ElderTrust (the "Company"), and the employees and other key persons of
ElderTrust Operating Limited Partnership (the "Operating Partnership") and the
Company's other Subsidiaries, upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Administrator" means either the Board or the Committee, to
the extent the Committee has been delegated authority pursuant to Section 2.
"Award" or "Awards," except where referring to a particular
category of grant under the Plan, shall include Incentive Share Options,
Non-Qualified Share Options, Restricted Share Awards, Deferred Share Awards,
Unrestricted Share Awards, Performance Share Awards and Distribution Equivalent
Rights.
"Board" means the Board of Trustees of the Company as
constituted from time to time.
"Change of Control" is defined in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor Code, and related rules, regulations and
interpretations.
"Committee" means the Committee of the Board referred to in
Section 2(b).
"Company" means ElderTrust, a Maryland real estate investment
trust, and any successor thereto.
"Deferred Share Award" means Awards granted pursuant to
Section 7.
<PAGE>
"Distribution Equivalent Right" means Awards granted pursuant
to Section 10.
"Effective Date" means the date on which the Plan is initially
approved by Shareholders as set forth in Section 17.
"Fair Market Value" on any given date means the last reported
sale price at which Shares are traded on such date or, if no Shares are traded
on such date, the next preceding date on which Shares were traded, as reflected
on the principal stock exchange or, if applicable, any other national stock
exchange on which the Shares are traded or admitted to trading. Notwithstanding
the foregoing, the Fair Market Value on the first day of the Company's initial
public offering of Shares shall be the initial public offering price as set
forth in the final prospectus for the Company's initial public offering.
"Incentive Share Option" means any Share Option that qualifies
as and is designated in writing in the related Option agreement as constituting
an "incentive stock option" as defined in Section 422 of the Code.
"Non-Employee Trustee" means a member of the Board who is not
also an employee of the Company or any Subsidiary.
"Non-Qualified Share Option" means any Share Option that is
not an Incentive Share Option.
"Operating Partnership" means ElderTrust Operating Limited
Partnership, a Delaware limited partnership, and any successor thereto.
"Option" or "Share Option" means any option to purchase Shares
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to
Section 9.
"Restricted Share Award" means Awards granted pursuant to
Section 6.
"Shares" means the common shares of beneficial interest, par
value $.01 per share, of the Company, subject to adjustments pursuant to
Section 3.
"Subsidiary" means any corporation or other entity (other than
the Company) in any unbroken chain of corporations or other entities beginning
with the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns Shares or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of Shares or other interests in one of the other
corporations or entities in the chain.
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<PAGE>
"Unrestricted Share Award" means any Award granted pursuant to
Section 8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) The Plan shall be administered by the Board, which shall
have the full power and authority to take all actions and to make all
determinations required or provided for under the Plan or any Award granted or
agreement entered into hereunder and all such other actions and determinations
not inconsistent with the specific terms and provisions of the Plan deemed by
the Board to be necessary or appropriate to the administration of the Plan or
any Award granted or agreement entered into hereunder.
(b) The Board from time to time may appoint a Committee
consisting of two or more members of the Board who, in the sole discretion of
the Board, may be the same trustees who serve on the Compensation Committee, or
may appoint the Compensation Committee to serve as the Committee. The Board, in
its sole discretion, may provide that the role of the Committee shall be limited
to making recommendations to the Board concerning any determinations to be made
and actions to be taken by the Board pursuant to or with respect to the Plan, or
the Board may delegate to the Committee such powers and authorities related to
the administration of the Plan, as set forth in Section 2(a) above, as the Board
shall determine, consistent with the By-Laws of the Company and applicable law.
In the event that the Plan or any Award granted or agreement entered into
hereunder provides for any action to be taken by or determination to be made by
the Board, such action may be taken by or such determination may be made by the
Committee if the power and authority to do so has been delegated to the
Committee by the Board as provided for in this Section 2.
(c) Powers of Administrator. The Administrator shall have the
power and authority to grant Awards consistent with the terms of the Plan,
including the power and authority:
(i) to select the individuals to whom Awards may
from time to time be granted;
(ii) to determine the time or times of grant, and the
extent, if any, of Incentive Share Options, Non-Qualified
Share Options, Restricted Share Awards, Deferred Share Awards,
Unrestricted Share Awards, Performance Share Awards and
Distribution Equivalent Rights, or any combination of the
foregoing, granted to any one or more participants;
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<PAGE>
(iii) to determine the number of Shares to be covered
by any Award;
(iv) to determine and modify from time to time the
terms and conditions, including restrictions, not inconsistent
with the terms of the Plan, of any Award, which terms and
conditions may differ among individual Awards and
participants, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or
vesting of all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii),
to extend at any time the post-termination period in which
Share Options may be exercised;
(vii) to determine at any time whether, to what
extent, and under what circumstances Shares and other amounts
payable with respect to an Award shall be deferred either
automatically or at the election of the participant and
whether and to what extent the Company shall pay or credit
amounts constituting deemed interest (at rates determined by
the Administrator) or distributions or deemed distributions on
such deferrals; and
(viii) at any time to adopt, alter and repeal such
rules, guidelines and practices for administration of the Plan
and for its own acts and proceedings as it shall deem
advisable; to interpret the terms and provisions of the Plan
and any Award (including related written instruments); to make
all determinations it deems advisable for the administration
of the Plan; to decide all disputes arising in connection with
the Plan; and to otherwise supervise the administration of the
Plan.
All decisions and interpretations of the Administrator shall
be made in the Administrator's sole and absolute discretion and shall be final
and binding on all persons, including the Company and Plan participants.
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<PAGE>
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; RECAPITALIZATIONS; MERGERS;
SUBSTITUTE AWARDS
(a) Shares Issuable. The maximum number of Shares reserved and
available for issuance under the Plan shall be such aggregate number of Shares
as does not exceed the sum of (i) ____*_____ Shares; plus (ii) as of January 1,
1999, 9.9 percent of any net increase since the Company's initial public
offering in the total number of Shares actually outstanding (assuming all units
of partnership interests in the Operating Partnership that are subject to
redemption rights are converted into Shares); plus (iii) as of each January 1
thereafter, 9.9 percent of any net increase since the preceding January 1 in the
total number of Shares actually outstanding (assuming all units of partnership
interests in the Operating Partnership that are subject to redemption rights are
converted into Shares). Notwithstanding the foregoing, the maximum number of
Shares for which Incentive Share Options may be granted under the Plan shall not
exceed _____*_____ Shares, reduced by the aggregate number of Shares subject to
outstanding Awards granted under the Plan. For purposes of this limitation, if
any portion of an Award is forfeited, canceled, reacquired by the Company,
satisfied without the issuance of Shares or otherwise terminated, the Shares
underlying such portion of the Award shall be added back to the Shares available
for issuance under the Plan. Subject to such overall limitation, Shares may be
issued up to such maximum number pursuant to any type or types of Award;
provided, however, that on and after the date the Company is first subject to
the provisions of Section 162(m) of the Code with respect to grants made or
compensation earned under the Plan, Shares Options with respect to no more than
500,000 Shares may be granted to any one individual participant during any one
calendar year period. The Shares available for issuance under the Plan may be
authorized but unissued Shares or Shares reacquired by the Company.
(b) Recapitalizations. If, through, or as a result of any
merger, consolidation, sale of all or substantially all of the assets of the
Company, reorganization, recapitalization, reclassification, share dividend,
share split, reverse share split or other similar transaction, the outstanding
Shares are increased or decreased or are exchanged for a different number or
kind of shares or other securities of the Company, or additional shares or new
or different shares or other securities of the Company or other non-cash assets
are distributed with respect to such Shares or other securities, the
Administrator may make an appropriate or proportionate adjustment in (i) the
maximum number of Shares reserved for issuance under the Plan, (ii) the number
of Share Options that can be granted to any one individual participant, (iii)
the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, (iv) the maximum number of Shares for which
Incentive Share Options may be granted under the Plan, and (v) the price for
each share subject to any then outstanding Share Options under the Plan, without
changing the aggregate exercise price (i.e., the exercise price multiplied by
the number of Share Options) as to which such Share Options remain exercisable.
The adjustment by the Administrator shall be final, binding and conclusive. No
fractional Shares shall be issued under the Plan resulting from any such
adjustment, but the Administrator in its discretion may make a cash payment in
lieu of fractional shares.
______________________
* A number of Shares equal to 9.9 percent of the total number of Shares
outstanding upon completion of the Company's initial public offering (assuming
all units of partnership interests that are subject to redemption rights are
converted into Shares).
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<PAGE>
(c) Mergers. In contemplation of and subject to the
consummation of a consolidation or merger or sale of all or substantially all of
the assets of the Company in which outstanding Shares are exchanged for
securities, cash or other property of an unrelated corporation or business
entity or in the event of a liquidation of the Company (in each case, a
"Transaction"), the Board, or the board of directors of any entity assuming the
obligations of the Company, may, in its discretion, take any one or more of the
following actions, as to outstanding Awards: (i) provide that such Awards shall
be assumed or equivalent awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), and/or (ii) upon written
notice to the participants, provide that all Awards will terminate immediately
prior to the consummation of the Transaction. In the event that, pursuant to
clause (ii) above, Awards will terminate immediately prior to the consummation
of the Transaction, all vested Awards, other than Share Options, shall be fully
settled in cash or in kind at such appropriate consideration as determined by
the Administrator in its sole discretion after taking into account the
consideration payable per Share pursuant to the business combination (the
"Merger Price") and all Share Options shall be fully settled, in cash or in
kind, in an amount equal to the difference between (A) the Merger Price times
the number of Shares subject to such outstanding Share Options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding Share Options; provided,
however, that each participant shall be permitted, within a specified period
determined by the Administrator prior to the consummation of the Transaction, to
exercise all outstanding Share Options, including those that are not then
exercisable, subject to the consummation of the Transaction.
(d) Substitute Awards. The Administrator may grant Awards
under the Plan in substitution for Shares and Share based awards held by
employees of another corporation who become employees of the Company or a
Subsidiary as the result of a merger or consolidation of the employing
corporation with the Company or a Subsidiary or the acquisition by the Company
or a Subsidiary of property or Shares of the employing corporation. The
Administrator may direct that the substitute awards be granted on such terms and
conditions as the Administrator considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time
officers and other employees, Non-Employee Trustees and key persons of the
Company, the Operating Partnership and the Company's other Subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Company, the Operating Partnership and the Company's other Subsidiaries as are
selected from time to time by the Administrator in its sole discretion.
-6-
<PAGE>
SECTION 5. SHARE OPTIONS
Any Share Option granted under the Plan shall be in such form
as the Administrator may from time to time approve.
Share Options granted under the Plan may be either Incentive
Share Options or Non-Qualified Share Options. Incentive Share Options may be
granted only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Share Option, it shall be
deemed a Non-Qualified Share Option.
No Incentive Share Option shall be granted under the Plan
after ______**______.
(a) Share Options Granted to Employees and Key Persons and
Non-Employee Trustees. The Administrator in its discretion may grant Share
Options to eligible employees and key persons of the Company or any Subsidiary
and to Non-Employee Trustees. Share Options granted pursuant to this Section
5(a) shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Administrator shall deem desirable. If the Administrator so
determines, Share Options may be granted in lieu of cash compensation at the
participant's election, subject to such terms and conditions as the
Administrator may establish, as well as in addition to other compensation.
(i) Exercise Price. The exercise price per share for
the Shares covered by a Share Option granted pursuant to this
Section 5(a) shall be determined by the Administrator at the
time of grant but shall not be less than 100 percent of the
Fair Market Value on the date of grant in the case of
Incentive Share Options, or par value in the case of
Non-Qualified Share Options. If an employee owns or is deemed
to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10 percent of the combined voting power
of all classes of Shares of the Company or any parent or
subsidiary corporation and an Incentive Share Option is
granted to such employee, the exercise price of such Incentive
Share Option shall be not less than 110 percent of the Fair
Market Value on the grant date.
(ii) Option Term. The term of each Share Option shall
be fixed by the Administrator, but no Incentive Share Option
shall be exercisable more than ten years after the date the
Share Option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of
the Code) more than 10 percent of the combined voting power of
all classes of Shares of the Company or any parent or
subsidiary corporation and an Incentive Share Option is
granted to such employee, the term of such Share Option shall
be no more than five years from the date of grant.
___________________
** Ten years from the date of adoption of the Plan by the Board.
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<PAGE>
(iii) Exercisability; Rights of a Shareholder. Share
Options shall become exercisable at such time or times,
whether or not in installments, as shall be determined by the
Administrator at or after the grant date; provided, however,
that Share Options granted in lieu of compensation shall be
exercisable in full as of the grant date unless the
Administrator otherwise provides in the Option Award
agreement. The Administrator may at any time accelerate the
exercisability of all or any portion of any Share Option. A
participant shall have the rights of a Shareholder only as to
Shares acquired upon the exercise of a Share Option and not as
to unexercised Share Options.
(iv) Method of Exercise. Share Options may be
exercised in whole or in part, by giving written notice of
exercise to the Company, specifying the number of shares to be
purchased. Payment of the purchase price may be made by one or
more of the following methods to the extent provided in the
Option Award agreement:
(A) In cash, by certified or bank check or
other instrument acceptable to the Administrator;
(B) In the form of Shares that are not then
subject to restrictions under any Company plan and
that have been beneficially owned by the participant
for at least six months, if permitted by the
Administrator in its discretion. Such surrendered
Shares shall be valued at Fair Market Value on the
exercise date;
(C) By the participant delivering to the
Company a properly executed exercise notice together
with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price;
provided that in the event the participant chooses to
pay the purchase price as so provided, the
participant and the broker shall comply with such
procedures and enter into such agreements of
indemnity and other agreements as the Administrator
shall prescribe as a condition of such payment
procedure; or
(D) By the participant delivering to the
Company a promissory note if the Administrator has
expressly authorized the loan of funds to the
participant for the purpose of enabling or assisting
the participant to effect the exercise of his Share
Option; provided that at least so much of the
exercise price as represents the par value of the
Shares shall be paid other than with a promissory
note.
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<PAGE>
Payment instruments will be received subject to collection.
The delivery of certificates representing the Shares to be
purchased pursuant to the exercise of a Share Option will be
contingent upon receipt from the participant (or a purchaser
acting in his stead in accordance with the provisions of the
Share Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements
contained in the Share Option or applicable provisions of
laws.
(v) Annual Limit on Incentive Share Options. To the
extent required for "incentive stock option" treatment under
Section 422 of the Code, the aggregate Fair Market Value
(determined as of the time of grant) of the Shares with
respect to which Incentive Share Options granted under this
Plan and any other plan of the Company or its parent and
subsidiary corporations become exercisable for the first time
by a participant during any calendar year shall not exceed
$100,000. To the extent that any Share Option exceeds this
limit, it shall constitute a Non-Qualified Share Option.
(b) Reload Options. At the discretion of the Administrator and
subject to such restrictions, terms and conditions as the Administrator may
establish, Options granted under the Plan may include a "reload" feature
pursuant to which a participant exercising a Share Option by the delivery of a
number of Shares in accordance with Section 5(a)(iv)(B) hereof would
automatically be granted an additional Share Option (with an exercise price
equal to the Fair Market Value of the Shares on the date the additional Share
Option is granted and with such other terms as the Administrator may provide) to
purchase that number of Shares equal to the number delivered to exercise the
original Share Option with an Option term equal to the remainder of the original
Option term unless the Administrator otherwise determines in the Option Award
agreement for the original grant.
(c) Non-transferability of Share Options. No Share Option
shall be transferable by the participant otherwise than by will or by the laws
of descent and distribution and all Share Options shall be exercisable, during
the participant's lifetime, only by the participant. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide in the Award
agreement regarding a given Share Option that the participant may transfer,
without consideration for the transfer, his Non-Qualified Share Options to
members of his family, to trusts for the benefit of such family members, or to
partnerships in which such family members are the only partners, provided that
the transferee agrees in writing with the Company to be bound by all of the
terms and conditions of this Plan and the applicable Option Award agreement.
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(d) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement, or, subject to Section 13 below, in
writing after the Award agreement is issued, a participant's rights in all Share
Options shall automatically terminate upon the participant's termination of
employment (or cessation of business relationship) with the Company and its
Subsidiaries for any reason.
SECTION 6. RESTRICTED SHARE AWARDS
(a) Nature of Restricted Share Awards. A Restricted Share
Award is an Award entitling the recipient to acquire, at par value or such other
higher purchase price determined by the Administrator, Shares subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Shares"). Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives. Such performance goals and objectives shall be
established in writing by the Administrator prior to the ninetieth day of the
year in which the grant is made and while the outcome is substantially
uncertain. Performance goals and objectives shall be based on Share price,
market share, sales, earnings per Share, return on equity, costs, or any
combination of these factors. Performance goals and objectives may include
positive results, maintaining the status quo or limiting economic losses. The
grant of a Restricted Share Award is contingent on the participant executing the
Restricted Share Award agreement. The terms and conditions of each such
agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and participants.
(b) Rights as a Shareholder. Upon execution of the Restricted
Share Award agreement and paying any applicable purchase price, a participant
shall have the rights of a Shareholder with respect to the voting of the
Restricted Share, subject to such terms and conditions as may be contained in
the Restricted Share Award agreement. Unless the Administrator shall otherwise
determine, certificates evidencing the Restricted Shares shall remain in the
possession of the Company until such Restricted Shares are vested as provided in
Section 6(d) below, and the participant shall be required, as a condition of the
grant, to deliver to the Company a Share power endorsed in blank.
(c) Restrictions. Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Share Award agreement. If a
participant's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Shares that have not vested at the time of termination at
their original purchase price, from the participant or the participant's legal
representative.
(d) Vesting of Restricted Shares. The Administrator at the
time of grant shall specify the date or dates and/or the attainment of
pre-established performance goals, objectives and other conditions on which the
non-transferability of the Restricted Shares and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Shares and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 13 below, in writing after the Award agreement is issued, a
participant's rights in any shares of Restricted Shares that have not vested
shall automatically terminate upon the participant's termination of employment
(or other business relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 6(c) above.
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(e) Waiver, Deferral and Reinvestment of Distributions. The
Restricted Share Award agreement may require or permit the immediate payment,
waiver, deferral or reinvestment (in the form of additional Restricted Shares)
of distributions paid on the Restricted Shares.
SECTION 7. DEFERRED SHARE AWARDS
(a) Nature of Deferred Share Awards. A Deferred Share Award is
an Award of phantom Share units to a participant, subject to restrictions and
conditions as the Administrator may determine at the time of grant. Conditions
may be based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and objectives. The grant of a
Deferred Share Award is contingent on the participant executing the Deferred
Share Award agreement. The terms and conditions of each such agreement shall be
determined by the Administrator, and such terms and conditions may differ among
individual Awards and participants. At the end of the deferral period, the
Deferred Share Award, to the extent vested, shall be paid to the participant in
the form of Shares.
(b) Election to Receive Deferred Share Awards in Lieu of
Compensation. The Administrator may, in its sole discretion, permit a
participant to elect to receive a portion of the cash compensation or Restricted
Share Award otherwise due to such participant in the form of a Deferred Share
Award. Any such election shall be made in writing and shall be delivered to the
Company no later than the date specified by the Administrator and in accordance
with rules and procedures established by the Administrator. The Administrator
shall have the sole right to determine whether and under what circumstances to
permit such elections and to impose such limitations and other terms and
conditions thereon as the Administrator deems appropriate.
(c) Rights as a Shareholder. During the deferral period, a
participant shall have no rights as a Shareholder; provided, however, that the
participant may be credited with Distribution Equivalent Rights with respect to
the phantom Share units underlying his Deferred Share Award, subject to such
terms and conditions as the Administrator may determine.
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(d) Restrictions. A Deferred Share Award may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of during the
deferral period.
(e) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 13 below, in
writing after the Award agreement is issued, a participant's right in all
Deferred Share Awards that have not vested shall automatically terminate upon
the participant's termination of employment (or cessation of business
relationship) with the Company and its Subsidiaries for any reason.
SECTION 8. UNRESTRICTED SHARE AWARDS
Grant or Sale of Unrestricted Shares. The Administrator may,
in its sole discretion, grant (or sell at par value or such other higher
purchase price determined by the Administrator) an Unrestricted Share Award to
any participant pursuant to which such participant may receive Shares free of
any restrictions ("Unrestricted Shares") under the Plan. Unrestricted Share
Awards may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration, or in lieu of any cash
compensation due to such participant.
SECTION 9. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share
Award is an Award entitling the recipient to acquire Shares upon the attainment
of specified performance goals. The Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan. The Administrator in its sole discretion shall determine whether
and to whom Performance Share Awards shall be made, the performance goals
applicable under each such Award, the periods during which performance is to be
measured, and all other limitations and conditions applicable to the awarded
Performance Shares; provided, however, that the Administrator may rely on the
performance goals and other standards applicable to other performance unit plans
of the Company in setting the standards for Performance Share Awards under the
Plan.
(b) Rights as a Shareholder. A participant receiving a
Performance Share Award shall have the rights of a Shareholder only as to shares
actually received by the participant under the Plan and not with respect to
shares subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a Share certificate evidencing the
acquisition of Shares under a Performance Share Award only upon satisfaction of
all conditions specified in the written instrument evidencing the Performance
Share Award (or in a performance plan adopted by the Administrator).
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<PAGE>
(c) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 13 below, in
writing after the Award agreement is issued, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc. At any time prior to the
participant's termination of employment (or other business relationship) by the
Company and its Subsidiaries, the Administrator may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the goals,
restrictions or conditions imposed under any Performance Share Award.
SECTION 10. DISTRIBUTION EQUIVALENT RIGHTS
(a) Distribution Equivalent Rights. A Distribution Equivalent
Right is an Award entitling the recipient to receive credits based on cash
distributions that would have been paid on the Shares specified in the
Distribution Equivalent Right (or other award to which it relates) if such
shares had been issued to and held by the recipient. A Distribution Equivalent
Right may be granted hereunder to any participant as a component of another
Award or as a freestanding award. The terms and conditions of Distribution
Equivalent Rights shall be specified in the grant. Distribution equivalents
credited to the holder of a Distribution Equivalent Right may be paid currently
or may be deemed to be reinvested in additional Shares, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment. Distribution Equivalent Rights may be settled
in cash or Shares or a combination thereof, in a single installment or
installments, all determined in the sole discretion of the Administrator. A
Distribution Equivalent Right granted as a component of another Award may
provide that such Distribution Equivalent Right shall be settled upon exercise,
settlement, or payment of, or lapse of restrictions on, such other award, and
that such Distribution Equivalent Right shall expire or be forfeited or annulled
under the same conditions as such other award. A Distribution Equivalent Right
granted as a component of another Award may also contain terms and conditions
different from such other award.
(b) Interest Equivalents. Any Award under this Plan that is
settled in whole or in part in cash on a deferred basis may provide in the grant
for interest equivalents to be credited with respect to such cash payment.
Interest equivalents may be compounded and shall be paid upon such terms and
conditions as may be specified by the grant.
(c) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 13 below, in
writing after the Award agreement is issued, a participant's rights in all
Distribution Equivalent Rights or interest equivalents shall automatically
terminate upon the participant's termination of employment (or cessation of
business relationship) with the Company and its Subsidiaries for any reason.
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<PAGE>
SECTION 11. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later
than the date as of which the value of an Award or of any Shares or other
amounts received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such income. The Company and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant. The Company's obligation to deliver
Share certificates to any participant is subject to and conditioned on tax
obligations being satisfied by the participant.
(b) Payment in Shares. Subject to approval by the
Administrator, a participant may elect to have such tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
Shares to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company Shares
owned by the participant with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be
deemed a termination of employment:
(a) a transfer to the employment of the Company from a
Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to
another; or
(b) an approved leave of absence for military service or
sickness, or for any other purpose approved by the Company, if the employee's
right to reemployment is guaranteed either by a statute or by contract or under
the written policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and
the Administrator may, at any time, amend or cancel any outstanding Award for
the purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's written consent. The Administrator may provide substitute Awards at
the same or reduced exercise or purchase price or with no exercise or purchase
price in a manner not inconsistent with the terms of the Plan, but such price,
if any, must satisfy the requirements which would apply to the substitute or
amended Award if it were then initially granted under this Plan, but no such
action shall adversely affect rights under any outstanding Award without the
holder's written consent. Nothing in this Section 13 shall limit the Board's
authority to take any action permitted pursuant to Section 3(c).
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<PAGE>
SECTION 14. STATUS OF PLAN
Unless the Administrator shall otherwise expressly determine
in writing, with respect to the portion of any Award which has not been
exercised and any payments in cash, Shares or other consideration not received
by a participant, a participant shall have no rights greater than those of a
general creditor of the Company. In its sole discretion, the Administrator may
authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Shares or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS
(a) Upon the occurrence of a Change of Control as defined in
this Section 15 or as otherwise defined in the Award agreement, each Award shall
be subject to such terms, if any, with respect to a Change of Control as have
been provided by the Administrator either in the Award agreement or, subject to
Section 13 above, in writing after the Award agreement is issued.
(b) "Change of Control" shall mean the occurrence of any one
of the following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act), becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; (ii) during any two (2) year period,
individuals who at the beginning of such period constitute the Board of
Trustees, including for this purpose any new trustee whose election resulted
from a vacancy on the Board of Trustees caused by the mandatory retirement,
death, or disability of a trustee and was approved by a vote of at least
two-thirds (2/3rds) of the trustees then still in office who were trustees at
the beginning of the period, cease for any reason to constitute a majority
thereof; (iii) notwithstanding clauses (i) or (v) of this Section 15(b), the
Company consummates a merger or consolidation of the Company with or into
another corporation or trust, the result of which is that the shareholders of
the Company at the time of the execution of the agreement to merge or
consolidate own less than eighty percent (80%) of the total equity of the entity
surviving or resulting from the merger or consolidation or of a entity owning,
directly or indirectly, one hundred percent (100%) of the total equity of such
surviving or resulting entity; (iv) the sale in one or a series of transactions
of all or substantially all of the assets of the Company; (v) any person, has
commenced a tender or exchange offer, or entered into an agreement or received
an option to acquire beneficial ownership of fifty percent (50%) or more of the
total number of voting shares of the Company unless the Board of Trustees has
made a determination that such action does not constitute and will not
constitute a change in the persons in control of the Company; or (vi) there is a
change of control in the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Act other than in circumstances specifically covered by clauses (i) -
(v) above.
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SECTION 16. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Administrator may require each person acquiring Shares pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No Shares shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Shares and Awards
as it deems appropriate.
(b) Delivery of Share Certificates. Share certificates to be
delivered to participants under this Plan shall be deemed delivered for all
purposes when the Company or a Share transfer agent of the Company shall have
mailed such certificates in the United States mail, addressed to the
participant, at the participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights.
Nothing contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, including trusts, and such arrangements
may be either generally applicable or applicable only in specific cases. The
adoption of this Plan and the grant of Awards shall not confer upon any employee
any right to continued employment with the Company or any Subsidiary and shall
not interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees at any time.
(d) Trading Policy Restrictions. Option exercises and other
Awards under the Plan shall be subject to such Company
insider-trading-policy-related restrictions, terms and conditions as may be
established by the Administrator, or in accordance with policies set by the
Administrator, from time to time.
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SECTION 17. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders
of a majority of the votes cast at a meeting of Shareholders at which a quorum
is present or by a unanimous written consent of Shareholders. Subject to such
approval by the Shareholders and to the requirement that no Share may be issued
hereunder prior to such approval, Share Options and other Awards may be granted
hereunder on and after adoption of this Plan by the Board.
SECTION 18. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be
governed by, and construed in accordance with, the laws of the State of
Maryland, applied without regard to conflict of law principles.
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<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of October 8, 1997 (the
"Agreement"), is entered into by and between ElderTrust, a real estate
investment trust organized under the laws of the State of Maryland (the
"Company"), and Edward B. Romanov, Jr., President and Chief Executive Officer of
the Company (the "Subscriber").
The Subscriber desiring to subscribe for and acquire common shares of
beneficial interest, $ 01 par value per share, of the Company (the "Common
Shares"), and the Company, desiring to issue such Common Shares to the
Subscriber, agree as follows:
1. Subscription for and Issuance of Shares. For the consideration
stated in this Section 1, the Subscriber subscribes for and agrees
to acquire, and the Company accepts such subscription and agrees to
issue to the Subscriber, Two Hundred Thousand (200,000) Common
Shares (the "Shares") at the public offering price per share in the
Company's initial public offering (the "Initial Public Offering
Price") for a total subscription price equal to the number of
Shares multiplied by the Initial Public Offering Price (the
"Subscription Price"). Payment of the Subscription Price shall be
made by Subscriber's delivery to the Company at the closing of the
Company's initial public offering (the "Closing"), of a note in the
form attached hereto as Exhibit A (the "Note"). The Company shall
acknowledge receipt from the Subscriber of the Subscription Price,
tendered by delivery of the Note to the Company and, at such time,
the Subscriber shall acknowledge receipt of the certificate or
certificates evidencing the Shares issuable to the Subscriber,
registered in the name of the Subscriber.
2. Representations and Warranties of the Company. The Company hereby
represents and warrant to the Subscriber as follows:
(a) Organization. The Company is a real estate investment trust
duly organized, validly existing and in good standing under the
laws of the State of Maryland, with full power to own its
properties and to carry on its business as proposed to be
conducted and to enter into and perform this Agreement.
(b) Authorization. All action necessary to authorize the Company to
enter into this Agreement and to perform the covenants and
agreements hereunder has been duly and validly taken. Neither
the execution of this Agreement nor the performance by the
Company of its covenants and agreements hereunder violates or
will violate any provisions of the Declaration of Trust, as
amended, or By-Laws of the Company or of any agreement,
document or instrument to which it is a party or by which it is
bound.
<PAGE>
3. Subscriber's Representations, Warranties, Acknowledgments and
Covenants. The Subscriber acknowledges, represents and warrants to
the Company as follows:
(a) Investor Qualifications,
The Subscriber is an "accredited investor" (as defined in Rule
501 of the Regulation D promulgated under the Securities Act of
1933, as amended (the "1933 Act")), and (x) has been given an
opportunity to ask, and to the extent the Subscriber has
considered necessary, has asked questions of, and has received
answers from, representatives of the Company concerning the
terms of this investment and the affairs of the Company, and
(y) has been given or afforded access to all documents,
records, books and additional information which the Subscriber
has requested regarding such matters. In making this
investment, the Subscriber is not relying on any oral
information furnished by or oral representation made by the
Company or by any one acting on behalf of the Company.
(b) Subscriber's Awareness.
(i) The Subscriber understands that the offering and sale of
the Shares has not been registered under the 1933 Act or
under applicable state securities law in reliance upon
exemptions therefrom. The Subscriber understands that the
Shares must be held indefinitely unless the sale thereof
is subsequently registered under the 1933 Act and under
applicable state securities laws, or an exemption or
exemptions from such registration is available, and that
neither the Company nor any other person is required to
register the Shares under the 1933 Act (except as
provided in Section 4 below);
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<PAGE>
(ii) The Shares are being purchased by the Subscriber solely
for the Subscriber's own account for investment, and not
with a view to, or for resale in connection with, any
distribution. The Subscriber acknowledges that, with the
exception of the Company, no other person has a direct or
indirect beneficial interest in such Shares, and that no
other person has furnished, directly or indirectly, any
part of the Subscription Price. The Subscriber does not
intend to dispose of all or any part of such Shares and
understands that such Shares are being offered and sold
pursuant to a specific exemption under the provisions of
the 1933 Act which exemption depends, among other things,
upon the investment intent of the Subscriber;
(iii) The Subscriber understands that no federal or state
agency has passed upon the Shares or made any finding or
determination as to the merits of this investment; and
(iv) The Subscriber further understands that the Shares shall
be subject to (i) a lock-up agreement to be entered into
by Subscriber and the representatives of the several
underwriters in connection with the Company's planned
initial public offering; and (ii) the Company's
Declaration of Trust.
(c) Authorization and Binding Obligation.
(i) The Subscriber has duly taken any and all action
necessary to authorize such Subscriber's execution and
performance of this Agreement in accordance with its
terms;
(ii) This Agreement constitutes the valid and binding
obligation of the Subscriber, enforceable in accordance
with its terms; and
(iii) Neither the execution nor the performance of this
Agreement violates or will violate the terms of any
agreement, document or instrument to which the Subscriber
is a party or by which the Subscriber may be bound.
4. Registration Rights. The Company hereby grants to Subscriber the
same registration rights granted to holders of Registrable Securities as are set
forth in Section 3 of the Registration Rights Agreement to be entered into by
the Company with holders of limited partnership interests in the ElderTrust
Limited Operating Partnership at the Closing. Upon Subscriber's acquisition of
the Shares, Subscriber shall be deemed to have agreed to the same obligations as
holders of Registrable Securities, and shall be entitled to the same benefits as
holders of Registrable Securities, as are set forth in the Registration
Agreement, as if Subscriber was a party to the Registration Agreement and
Subscribers' Shares were Registrable Securities thereunder.
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<PAGE>
5. Notices. Any notices or other communications shall be in writing and
shall be deemed given if sent by certified or registered mail, return receipt
requested, postage prepaid as follows:
(a) if to the Company, to its then principal office;
(b) if to the Subscriber, to the Subscriber's then last known
principal residence address; or
(c) to such other persons or at such other addresses as shall be
furnished by either party by like notice to the other, and such
notice or communication shall be deemed to have been given or
made as of the date so delivered or mailed.
6. Binding Agreement. This Agreement shall bind and inure to the
benefit of the respective parties hereto, their successors and assigns.
7. Heading. The headings and descriptive titles contained in this
Agreement are for convenience of reference only, and do not modify, limit or in
any way define the interpretation or construction of the provisions of this
Agreement.
8. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and the Subscriber and supersedes all prior
agreements or understandings relating to the subject matter hereof.
9. Governing Law. This Agreement is made in the State of Maryland and
shall be governed by, and construed in accordance with, the internal laws of
said State without reference to any principles of conflicts of laws.
10. Amendments. This Agreement may not be altered or amended except by
a writing executed by any party against whom such alteration or amendment is
sought to be enforced.
11. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which together
shall constitute one and the same instrument
12. Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal, invalid or unenforceable, all of the
other provisions of this Agreement shall be given effect separately from such
provision or provisions and shall not be affected by any such determination.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
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<PAGE>
ELDERTRUST
By: /s/ D. Lee McCreary, Jr.
------------------------------
Name: D. Lee McCreary, Jr.
-----------------------
Title: Chief Financial Officer
-----------------------
SUBSCRIBER:
/s/ Edward B. Romanov, Jr.
-----------------------------
Edward B. Romanov, Jr.
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<PAGE>
Exhibit A
PROMISSORY NOTE
October __, 1997
$__________
Kennett Square, Pennsylvania
FOR VALUE RECEIVED, the undersigned, Edward B. Romanov, Jr. ("Maker"),
promises to pay to the order of ElderTrust ("ElderTrust"), a Maryland real
estate investment trust ("Holder," which term shall include ElderTrust and any
subsequent holder or assignee of this Note), with an office at 415 McFarlan
Road, Suite 202, Kennett Square, PA 19348, the principal sum of _____________
Dollars ($_____________) with interest on the unpaid principal balance from time
to time outstanding, at the rate set forth below, with payment of principal and
interest to be made in lawful money of the United States, in immediately
available funds, as follows:
1. Payment Terms.
(a) Interest shall be computed on the basis of a three hundred
sixty-five (365) day year, and for the actual number of days outstanding,
at a rate per annum equal to seven percent (7.0%). Interest shall be
payable quarterly in arrears, commencing on January 1, 1998, and continuing
thereafter upon either: (a) the fifth (5th) business day after the
scheduled quarterly dividend payment on ElderTrust common stock is made by
ElderTrust, or if , for any quarter, no such dividend is paid, then (b) on
the first day of each annualized quarterly period subsequent to the quarter
ending January 1, 1998 (specifically, each April 1, July 1, October 1, and
January 1) until the Maturity Date (as such term is hereinafter defined).
The total unpaid principal balance and all accrued and unpaid interest
shall be due and payable on the Maturity Date. All payment of principal or
interest shall be made to the Holder of this Note not later than 1:00 p.m.
on the date and at the place of payment designated by the Holder hereof as
aforesaid (or at such other place as the Holder hereof may from time to
time designate), and any payment received on such date but after such hour
shall be deemed to have been paid to and received by the holder hereof on
the next succeeding business day. If the date on which any payment is
required to be made pursuant to this Note is not a business day, then such
payment shall be due and payable on the next succeeding day which is not a
Saturday, Sunday or legal holiday in the Commonwealth of Pennsylvania.
(b) As used in the Note, the term "Maturity Date" shall mean the date
which is the first to occur of (i) _________ ___, 2007, which is 10 years
from the closing of ElderTrust's initial public offering; or (ii) the date
on which the Maker is no longer employed, for any reason whatsoever other
than death or the Onset of Disability (hereinafter defined), by ElderTrust
or an affiliate thereof. For purposes of this subparagraph, "Onset of
Disability" shall mean the first day on which Employee shall be unable to
attend to the regular affairs of ElderTrust on a full time basis by reason
of physical or mental incapacity, sickness or infirmity, which continues
for more than six (6) months or for periods aggregating more than nine (9)
months during any twenty-four (24) month period.
(c) All payments hereof shall be made without reduction, and shall not
be subject to any claim or offset of any kind or nature whatsoever.
<PAGE>
1. Permitted Prepayments.
Provided Maker is not in default under this Note or under any other
document relating to or executed in connection with this Note (collectively, the
"Documents"), the principal amount of this Note or any other amounts owed under
this Note at any time, and from time to time, may be prepaid in whole or in
part, together with interest accrued thereon to the date of such prepayment,
without premium, upon not less than ten (10) days' prior written notice to the
Holder at the place of payment designated above.
2. Events of Default.
At the option of Holder, the principal amount of this Note shall be
accelerated, and shall become immediately due and payable, without notice or
demand, upon the occurrence at any time of any of the following ("Events of
Default"):
(a) failure to pay when due, as set forth herein, any principal
or interest payments; or
(b) the commencement of any case action or proceeding whether
voluntary or involuntary (which, in the case of an involuntary
proceeding, is not dismissed within sixty (60) days from the date it
is filed), under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute, or
any assignment for the benefit of creditors; or
(c) the occurrence of any other default or breach by Maker of any
other term or condition of this Note which remains uncured for more
than ten (10) days; or
(d) the occurrence of any other default or Event of Default under
any other Document executed in connection herewith which is not cured
within any cure period that may be provided for under any such Loan
Document.
(e) any representation or warranty made by Maker herein or in any
Document executed in connection herewith which shall have been
incorrect in any material respect when made.
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<PAGE>
For purposes of subparagraphs (c), (d) and (e) hereof, provided Maker
has shown evidence satisfactory to Holder in its sole discretion of Maker's good
faith efforts to cure any default or Event of Default set forth in such
subparagraph, then Holder agrees to forbear from exercising its rights hereunder
until the earlier of an additional ninety (90) days or such time as Holder is no
longer satisfied with Maker's good faith efforts to cure any such default or
Event of Default.
3. Remedies.
(a) If any payment, including each quarterly interest payment, required
by this Note, is not made when due, such unpaid amount shall, itself, accrue
interest. Additionally, upon any Event of Default under this Note, including any
such payment default, the interest rate provided for herein shall immediately,
without notice, increase to two percent (2%) over the interest rate set forth in
paragraph (a) on page one hereof (the `"Default Interest Rate").
(b) Upon the occurrence of an Event of Default, Holder may exercise any
remedy provided hereunder, or at law, and subject to the provisions of paragraph
2.
(c) Maker promises to pay all costs of collection, including without
limitation, attorneys' fees, and all expenses in connection with the protection
or realization on the collateral securing this Note, whether or not suit is
brought hereon. Such costs and expenses shall include, without limitation, all
fees, costs, attorneys' fees and expenses incurred by the Holder hereof in
connection with any suit to enforce any Document, any insolvency, bankruptcy,
reorganization, arrangement or other similar proceedings involving Maker, which
in any way affects the rights of the Holder to exercise its rights and remedies
under this Note.
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<PAGE>
4. Miscellaneous.
(a) Maker hereby expressly waives presentment, demand, protest, notices
of protest, dishonor and non-payment of this Note and all notices of every kind.
To the extent permitted by applicable law, the defense of the statute of
limitations hereby is waived by Maker.
(b) No single or partial exercise of any power hereunder or under any
Document executed in connection herewith shall preclude other or further
exercise thereof or the exercise of any other right or power in connection with
the enforcement of this Note. No delay or omission on the part of the Holder
hereof in exercising any right hereunder shall operate as a waiver of such right
or of any other right under this Note.
(c) This Note shall be governed by and construed under the laws of, the
Commonwealth of Pennsylvania. Maker hereby submits to personal jurisdiction in
said State for the enforcement of Maker's obligations hereunder, and waives any
and all rights to object to jurisdiction within such State in connection with
litigation to enforce rights under this Note or any other Document executed in
connection herewith. In the event such litigation is commenced, Maker agrees
that service of process may be made and personal jurisdiction over Maker
obtained, by service of a copy of the summons, complaint and other pleadings
required to commence such litigation upon Maker at his place of business or
last-known place of residence. Maker may designate a substitute agent, or change
the address to which said copies shall be sent, by notice to Holder at the place
designated for payment hereof by Holder.
MAKER:
-------------------------------------
Edward B. Romanov, Jr.
4
<PAGE>
FORM OF NON-COMPETITION AGREEMENT
AGREEMENT made this ___ day of _________________, 1998, between
ElderTrust, a Maryland real estate investment trust (the "Company"), and Michael
R. Walker, Chairman of the Board of Trustees of the Company ("Walker").
WHEREAS, the Company and Walker are interested in entering into
this Agreement governing, non-competition;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements of the parties contained herein and other good and
valuable consideration the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
Section 1. Non-competition. During the period during which
Walker serves as a trustee of the Company, Walker shall not, except with the
Company's express prior written consent, directly or indirectly, in any
capacity, for the benefit of any Person:
(1) communicate with or solicit any Person
who is or during such period becomes a customer, supplier,
employee, salesman, agent or representative of Company, in any
manner which interferes or might interfere with such Person's
relationship with the Company, or, in an effort to obtain such
Person as a customer, supplier, employee, salesman, agent or
representative of any business in competition with the Company
within 10 miles of any office or facility owned, leased or
operated by the Company;
(2) Establish, engage, own, manage, operate,
join or control or participate in the establishment, ownership
(other than as the owner of less than 1% of the stock of a
corporation whose shares are publicly traded), management,
operation or control of, or be a director, trustee, officer,
employee, salesman, agent or representative of, or be a
consultant to, any Person in any business in competition with
the Company, at any location within 10 miles of any office or
facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to
believe inimical or contrary to the best interests of the
Company;
<PAGE>
provided, however, that any activity engaged in by Walker as an officer,
director or employee of, or any interest of Walker as a stockholder in, Genesis
Health Ventures, Inc. shall not be limited in any way by this Agreement; and
provided further that, notwithstanding the foregoing provisions, Walker shall be
entitled to retain his position on the Board of Trustees of Universal Health
Realty Income Trust and to develop office and similar development projects not
related to the healthcare business.
For purposes of this Agreement, the term "Person" means a
natural person, corporation, limited liability company, partnership, trust,
estate, joint venture, sole proprietorship, government (and any branch or
subdivision thereof), governmental agency, association, cooperative or other
entity.
Section 2. Enforcement. Walker acknowledges that any breach by
him of any of the covenants and agreements of this Agreement ("Covenants") will
result in irreparable injury to the Company for which money damages could not
adequately compensate the Company, and therefore, in the event of any such
breach, the Company shall be entitled, in addition to all other rights and
remedies which the Company may have at law or in equity, to have an injunction
issued by any competent court enjoining and restraining Walker and/or all other
Persons involved therein from continuing such breach. The existence of any claim
or cause of action which Walker or any such other Person may have against the
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants. If the Company is obliged to resort to litigation to enforce any of
the Covenants which has a fixed term, then such term shall be extended for a
period of time equal to the period during which a material breach of such
Covenant was occurring, beginning on the date of a final court order (without
further right of appeal) holding that such a material breach occurred or, if
later, the last day of the original fixed term of such Covenant.
Section 3. Consideration. Walker expressly acknowledges that
the Covenants are a material part of the consideration bargained for by the
Company.
Section 4. Scope. If any portion of any Covenant or its
application is construed to be invalid, illegal, or unenforceable, then the
other portions and their application shall not be affected thereby and shall be
enforceable without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to reduce
or limit such scope, duration, area or other factor, and such Covenant shall
then be enforceable in its reduced or limited form.
Section 5. Assignment. The rights and obligations of the
Company under this Agreement shall be binding upon its successors and assigns
and may be assigned by the Company to the successors in interest of the Company.
The rights
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<PAGE>
and obligations of Walker under this Agreement shall be binding upon his heirs,
legatees, personal representatives, executors or administrators.
Section 6. Notice. For purposes of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when hand delivered, sent by overnight
courier, or mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex,
addressed as follows:
if to the Company:
ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, Pennsylvania 19348
Attention: President
Telecopy No.: (610) 444-0815; and
if to Walker: at the address specified under Walker's
signature below; or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
Section 7. Headings. Section headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
Section 8. Severability. If any part of any provision of this
Agreement shall be invalid or unenforceable under applicable law, such part
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such provision or the
remaining provisions of this Agreement.
Section 9. Governing Law. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania (without reference to the choice of law rules
thereof).
Section 10. Amendment; Modification; Waiver. No amendment,
modification or waiver of the terms of this Agreement shall be valid unless made
in writing and duly executed by Walker and the Company. No delay or failure at
any time on the part of the Company in exercising any right, power or privilege
under this Agreement, or in enforcing any provision of this Agreement, shall
impair any such right, power, or privilege, or be construed as a waiver of any
default or as any acquiescence therein, or shall affect the right of the Company
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<PAGE>
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
Section 11. Gender and Number. Throughout this Agreement, the
masculine and neuter genders shall be deemed to include all genders, and the
singular, the plural and vice versa, except where such construction would be
unreasonable.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement on , 1998 to be ________ effective as of ________ __, 1998.
ELDERTRUST
By:__________________________________________
Edward B. Romanov, Jr.
President and Chief Executive Officer
_____________________________________________
Michael R. Walker
c/o Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Telecopy Number: (610) 444-3365
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<PAGE>
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated effective as of
__________, 1998, is made by and between ElderTrust, a Maryland real estate
investment trust (the "Company"), and ____________ (the "Indemnitee").
RECITALS
A. The Company is a real estate investment trust organized
under Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland;
B. The Declaration of Trust of the Company (the "Declaration
of Trust") provides that the Company has the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate itself to
indemnify the trustees, officers and employees of the Company;
C. The bylaws of the Company (the "Bylaws") provide that each
trustee and officer of the Company shall be indemnified by the Company to the
maximum extent permitted by Maryland law in effect from time to time; and
D. Indemnitee has been elected as ___________ of the Company
and the Company desires to fulfill its obligations to indemnify the trustees and
officers to the maximum extent permitted by the Declaration of Trust and Bylaws.
NOW, THEREFORE, the parties hereto are entering into this
Indemnification Agreement (the "Agreement") as of the date hereof to evidence
the obligation of the Company to indemnify the Indemnitee.
Section 1. Definitions. In this Agreement the following words
have the meanings indicated:
(1) "Company" includes any domestic or foreign predecessor
entity of the Company in a merger, consolidation or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
(2) "Trustee" means any person who is or was a trustee of the
Company and any person who, while a trustee of the Company, is or was serving at
the request of the Company as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan.
(3) "Expenses" include attorneys' fees.
<PAGE>
(4) "Official Capacity" means the following:
(i) When used with respect to a Trustee, the office of
trustee in the Company;
(ii) When used with respect to a person other than a
Trustee as contemplated in Section 9, the elective or appointive office in the
Company held by the officer; and
(iii) "Official Capacity" does not include service for any
other foreign or domestic corporation or any partnership, joint venture, trust,
other enterprise or employee benefit plan.
(5) "Party" includes a person who was, is or is threatened to
be made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative.
Section 2. Indemnification of Trustees.
(1) Provided the determination required under Section 5 has
been made, the Company shall indemnify any Trustee made a Party to any
Proceeding by reason of service in that Trustee's Official Capacity unless it is
established that:
(i) The act or omission of the Trustee was material to
the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate
dishonesty; or
(ii) The Trustee actually received an improper personal
benefit in money, property or services; or
(iii) In the case of any criminal proceeding, the
Trustee had reasonable cause to believe that the act or omission was unlawful.
(2) (i) Indemnification shall be against judgments,
penalties, fines, settlements and reasonable Expenses actually incurred by the
Trustee in connection with the Proceeding.
(ii) However, if the Proceeding was one by or in the
right of the Company, indemnification shall be made only against reasonable
Expenses and may not be made in respect of any liability to the Company.
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<PAGE>
(3) (i) The termination of any Proceeding by judgment, order
or settlement does not create a presumption that the Trustee did not meet the
requisite standard of conduct set forth in this Section 2.
(ii) The termination of any Proceeding by conviction, or
a plea of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the Trustee
did not meet the requisite standard of conduct set forth in this Section 2.
Section 3. No indemnification of Trustee for liability for
improper personal benefit. A Trustee shall not be indemnified under Section 2 in
respect of any proceeding charging improper personal benefit to the Trustee,
whether or not involving action in the Trustee's Official Capacity, in which the
Trustee was adjudged to be liable on the basis that personal benefit was
improperly received.
Section 4. Required indemnification against Expenses incurred
in successful defense.
(1) A Trustee who has been successful, on the merits or
otherwise, in the defense of any Proceeding shall be indemnified against
reasonable Expenses incurred by the Trustee in connection with the Proceeding.
(2) Nothing in this Agreement shall limit the power of a court
of appropriate jurisdiction to order indemnification of a Trustee to the maximum
extent permitted by Maryland law in effect from time to time, including the
right to recover the Expenses of securing such reimbursement.
Section 5. Determination that indemnification was proper.
(1) Indemnification for a specific Proceeding under Section 2
shall not be made by the Company unless such indemnification is authorized for
the specific Proceeding after a determination has been made that indemnification
of the Trustee is permissible in the circumstances because the Trustee has met
the standard of conduct set forth in Section 2.
(2) Such determination shall be made:
(i) By the Board of Trustees of the Company (the
"Board") by a majority vote of a quorum consisting of Trustees not, at the time,
Parties to the Proceeding, or, if such a quorum cannot be obtained, then by a
majority vote of a committee of the Board consisting solely of two or more
Trustees not, at the time, Parties to such Proceeding and who were fully
designated to act in the matter by a majority vote of the full Board in which
the designated Trustees who are Parties may participate;
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<PAGE>
(ii) By special legal counsel selected by the Board or a
committee of the Board by vote as set forth in subparagraph (i) of this
paragraph, or, if the requisite quorum of the full Board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
Board in which Trustees who are Parties may participate; or
(iii) By the shareholders.
(3) Authorization of indemnification and determination as to
reasonableness of Expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by the special legal counsel,
authorization of indemnification and determination as to the reasonableness of
Expenses shall be made in the manner specified in subparagraph (ii) of paragraph
(2) of this Section 5 for selection of such counsel.
(4) Shares held by Trustees who are parties to the Proceeding
shall not be voted on the subject matter under this Section 5.
Section 6. Payment of Expenses in advance of final disposition
of action.
(1) Reasonable Expenses incurred by a Trustee who is a Party
to a Proceeding shall be paid or reimbursed by the Company in advance of the
final disposition of the Proceeding, upon receipt by the Company of:
(i) A written affirmation by the Trustee of the
Trustee's good faith belief that the standard of conduct necessary for
indemnification by the Company as authorized in this Agreement has been met; and
(ii) A written undertaking by or on behalf of the Trustee
to repay the amount if it shall ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph
(1) of this Section 6 shall be an unlimited general obligation of the Trustee
but need not be secured and may be accepted without reference to financial
ability to make the repayment.
Section 7. Reimbursement of Trustee's Expenses incurred while
appearing as witness. The Company shall pay or reimburse Expenses incurred by a
Trustee in connection with an appearance as a witness in a Proceeding at a time
when the Trustee has not been made a named defendant or respondent in the
Proceeding.
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<PAGE>
Section 8. Trustee's service to employee benefit plan. For
purposes of this Agreement:
(1) The Company shall be deemed to have requested a Trustee to
serve an employee benefit plan where the performance of the Trustee's duties to
the Company also imposes duties on, or otherwise involves services by, the
Trustee to the plan or participants or beneficiaries of the plan;
(2) Excise taxes assessed on a Trustee with respect to an
employee benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the Trustee with respect to an
employee benefit plan in the performance of the Trustee's duties for a purpose
reasonably believed by the Trustee to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interest of the Company.
Section 9. Indemnification of officers.
(1) The Company shall indemnify and advance Expenses to an
officer of the Company to the same extent that it shall indemnify Trustees under
this Agreement.
Section 10. Non-Exclusivity. The indemnification and
advancement of Expenses provided or authorized by this Agreement may not be
deemed exclusive of any other rights by indemnification or otherwise, to which a
Trustee may be entitled under the Declaration of Trust, the Bylaws, a resolution
of shareholders or Trustees, an agreement or otherwise, both as to action in an
Official Capacity and as to action in another capacity while holding office.
Section 11. Insurance. The Company may purchase an maintain
insurance on behalf of any person who is or was a Trustee, officer, employee or
agent of the Company, or who, while a Trustee, officer, employee, or agent of
the Company, is or was serving at the request of the Company as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the Company would have the power to indemnify against liability under the
provision of this Agreement or under Maryland law as in effect from time to
time.
Section 12. Governing Law. This Agreement shall be governed by
an construed in accordance with the laws of the State of Maryland applicable to
agreements to be made and to be performed entirely within such State.
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<PAGE>
Section 13. Captions. The captions assigned to provisions of
this Agreement are for convenience only and shall be disregarded in construing
this Agreement.
Section 14. Number and Gender. Use of the singular in this
Agreement includes the plural, use of the plural includes the singular, and use
of one gender includes both genders, as the context may require.
Section 15. Cross References and Exhibits. Any reference in
this Agreement to a "Section," "paragraph" or "subparagraph" shall be construed
as referring, respectively, to a Section of this Agreement, to a paragraph of
the Section of this Agreement in which the reference appears or to a
subparagraph of the paragraph of this Agreement in which the reference appears.
Section 16. Successors. This Agreement shall be binding upon
and inure to the benefit of the successors of the Company, and shall inure to
the benefit of the heirs, personal representatives and estate of the Indemnitee.
Section 17. Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity of any other
provision, and all other provisions shall remain in full force and effect.
Section 18. Entire Agreement. This Agreement, the Declaration
of Trusts and the Bylaws contain the entire agreement between the parties as to
the rights granted and the obligations assumed in this instrument. The Agreement
may be amended only by a subsequent written instrument signed by both parties.
Section 19. Non-Assignability. This Agreement may not be
assigned by either party hereto, and any purported assignment of this Agreement
shall be null and void.
Section 20. Waiver. Any forbearance by a party to this
Agreement in exercising any right or remedy under this Agreement or otherwise
afforded by applicable law shall not be a waiver of or preclude the exercise of
that or any other right or remedy.
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<PAGE>
The parties hereto have entered into this Agreement effective
as of the date first above written.
COMPANY: INDEMNITEE:
ELDERTRUST
a Maryland real estate investment trust ____________________________________
____________________________________
(Print Name)
By:______________________________________
Name:____________________________________
Title:___________________________________
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<PAGE>
[FORM OF ASSET TRANSFER AGREEMENT/GENESIS PROPERTIES]
ASSET TRANSFER AGREEMENT
THIS ASSET TRANSFER AGREEMENT (this "Agreement") is made and
entered into as of ____________, 1997, (the "Effective Date") by and between
ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership or its
permitted assignees or contributees ("Transferee"), and
________________________________ ("Transferor").
WHEREAS, Transferor owns and operates an assisted living
facility known as ___________________ (the "Facility") which Facility consists
of certain real property, the improvements thereon and certain other real and
personal property associated therewith, all as more particularly described
below; and
WHEREAS, Transferor agrees to transfer to Transferee and
Transferee agrees to acquire from Transferor the Facility, including said real
and personal property, on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants set forth herein, Transferee and Transferor hereby
agree as follows:
ARTICLE I
THE ASSET TRANSFER
Subject to the terms and conditions set forth herein,
Transferor agrees to transfer to Transferee, and Transferee agrees to acquire
from Transferor, all of that property located in [city and state] and known as
[name of property]. The sale of said property shall be effected through the
transfer of certain of the assets and liabilities of Transferor to Transferee
pursuant to the provisions of this Article I and other applicable provisions of
this Agreement (the "Transaction").
1.1 Assets to be Acquired. On the Closing Date (as hereinafter
defined), in accordance with the terms and conditions set forth herein,
Transferor shall transfer to Transferee, and Transferee shall acquire from
Transferor, the following assets:
(i) all of that certain parcel of land described in Exhibit A
hereto (the "Real Property"), the buildings situated thereon and all of
the other improvements, easements, covenants and other rights
appurtenant thereto;
(ii) all furniture, furnishings, fixtures, machinery,
equipment, inventory and other tangible personal property, and
replacements thereof, owned by Transferor and now or hereafter affixed
to or located at the Facility [or used or useful in connection with the
operation, maintenance or repair of the Facility] (the "Personal
Property");
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<PAGE>
(iii) all intangible property now or hereafter owned or held
by Transferor in connection with the Facility, including, without limitation,
(a) all licenses, permits, authorizations, approvals, [certificates of
occupancy] and all other approvals necessary for the current use and operation
of the Facility (to the extent assignable), and [(b) all right, title and
interest of Transferor in all books and records (including computer discs,
software and similar data),] trade names and development rights related to the
Facility, or any part thereof (collectively, the "Intangible Property") (items
(i) through (iii) are hereinafter referred to collectively as the "Property").
Notwithstanding the foregoing, the term "Property" shall not be deemed to
include, and Transferor shall not convey to Transferee hereunder, the assets of
Transferor listed on Schedule 1.1 hereof (the assets listed on Schedule 1.1
shall be known as the "Excluded Assets").
1.2 Purchase Price. The total consideration (the "Purchase
Price") to be paid by Transferee to Transferor for the Property shall be
immediately available funds to be paid to Transferor at the Closing in the
amount of $______________. The Purchase Price shall be allocated between real
and personal property as Transferor and Transferee shall agree; provided that
Transferor and Transferee hereby agree that not less than ninety percent (90%)
of the Purchase Price shall be allocated to the Real Property and the
improvements thereon.
1.3 No Liabilities to be Assumed by Transferee. Transferor and
Transferee agree that Transferee shall not assume any obligations of Transferor,
except obligations arising out of Permitted Liens (as hereinafter defined).
1.4 Lease of Property to Transferor. At Closing, Transferor
and Transferee shall enter into a lease agreement (the "Lease Agreement"),
substantially in the form of Exhibit B attached hereto and incorporated herein,
which shall provide for the lease of the Property by Transferee to Transferor or
an affiliate of Transferor on the terms and conditions set forth therein.
1.5 Closing. The closing of the Transaction (the "Closing")
shall occur simultaneously with the closing of the initial public offering (the
"IPO") of shares of beneficial interest in ElderTrust, a Maryland trust (the
"REIT"), provided that if the IPO has not occurred on or before March 31, 1998,
this Agreement shall terminate and neither party hereto shall have any further
liability to any other party hereto.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
Transferee hereby represents and warrants to Transferor as
follows:
2.1 Organization, Power and Authority, and Qualification.
Transferee is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Transferee has the requisite
power and authority to carry on its business as it is now being conducted and to
engage in the Transaction. Transferee has made available to Transferor complete
and correct copies of the governing documents of Transferee with all amendments
as in effect on the date of this Agreement. Transferee is qualified to do
business and is in good standing in each jurisdiction where the character of its
property owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the business or financial
condition of Transferee.
2.2 Authority Relative to this Agreement. All action of
Transferee necessary to authorize the execution, delivery and performance of
this Agreement by Transferee has been taken, and no other proceedings on the
part of Transferee are necessary to authorize the execution and delivery of this
Agreement by Transferee and the consummation by Transferee of the Transaction.
Neither the execution and delivery of this Agreement by
Transferee nor the consummation by Transferee of the Transaction nor compliance
by Transferee with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the partnership agreement of Transferee, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Transferee is a party or by which it or
any of its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Transferee or any
of the properties or assets of Transferee.
2.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferee to Transferor and constitutes a
valid and binding agreement of Transferee, enforceable against Transferee in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of limited
partnerships and to general principles of equity.
2.4 Brokers. Transferee has not employed any broker or finder,
or incurred any liability therefor, in connection with the transaction
contemplated by this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSFEROR
Transferor hereby represents and warrants to Transferee as
follows:
3.1 Organization and Qualification. Transferor is a
_____________________ duly organized, validly existing and in good standing
under the laws of the State of ______________. Transferor has the requisite
power and authority to carry on its business as it is now being conducted and to
engage in the Transaction. Transferor has made available to Transferee complete
and correct copies of the governing documents of Transferor, with all amendments
as in effect on the date of this Agreement. Transferor is qualified to do
business and is in good standing in each jurisdiction where the character of its
property owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the business or financial
condition of Transferor or on the Transaction. Transferor is not a "foreign
person" under Section 1445 of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
3.2 Authority Relative to this Agreement. All action necessary
to authorize the execution, delivery and performance of this Agreement by
Transferor has been taken, and no other proceedings are necessary to authorize
the execution and delivery by Transferor of this Agreement and the consummation
by Transferor of the Transaction.
Neither the execution and delivery of this Agreement by
Transferor, nor the consummation by Transferor of the Transaction nor compliance
by Transferor with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the organizational documents of Transferor,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, permit,
contract, agreement, easement, restriction or other instrument or obligation to
which Transferor is a party or by which Transferor or the Property may be bound,
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Transferor or the Property, except in the case of (ii)
or (iii) for violations, breaches, or defaults (A) which would not in the
aggregate have a material adverse effect on the business or financial condition
of Transferor, the Transaction or the Property or (B) for which waivers or
consents have been obtained or, as listed on Schedule 3.2, will be obtained
prior to the Closing Date.
3.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferor to Transferee and constitutes a
valid and binding agreement of Transferor, enforceable against Transferor in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of
_______________ and to general principles of equity.
7
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3.4 Brokers. Transferor has not employed any broker or finder,
or incurred any liability therefor, in connection with the transactions
contemplated by this Agreement.
3.5 Title to Property. Transferor has good and valid title to
the Personal Property. To Transferor's knowledge, the Property is not subject to
any imperfections in title, easements, liens, mortgages, encumbrances, pledges,
claims, charges, options, defects, preferential purchase rights or other
encumbrances (collectively referred to herein as "Liens") except for the
following ("Permitted Liens"):
(i) Liens for real property taxes and assessments or for
fire dues, library dues or similar assessments not
yet delinquent;
(ii) Liens that are not material in character, amount, or
extent and do not materially detract from the value,
or interfere with the use of, the Transferor's
assets subject thereto or affected thereby or
otherwise materially impair the business operations
being conducted or proposed to be conducted thereon;
(iii) the Mortgage Debt (as hereinafter defined); and
(iv) Liens shown on Schedule 3.5 hereto.
3.6 Debt. The Property is encumbered by the mortgage
indebtedness described on Schedule 3.6 hereto (the "Mortgage Debt"). To
Transferor's knowledge, there exists no default, or event which with the passage
of time or notice or both would constitute a default with respect to the
Mortgage Debt or any other debt of Transferor that has not been cured or that
would have a material adverse effect on the business or financial condition of
Transferor, the Transaction or the Property.
3.7 Financial Statements. The financial statements for the
Property attached as Schedule 3.7 hereto (the "Financial Statements") have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods specified. The balance sheets in the Financial Statements fairly present
the financial condition of the Property as of the dates shown, and the income
statements in the Financial Statements fairly present the results of operations
for the periods indicated.
3.8 Financial Condition. Since September 30, 1997, there has
been no material adverse change in the business or financial condition of
Transferor or the Property except to the extent the Multicare Acquisition would
be deemed to cause a material adverse change in the business or financial
condition of Transferor. For the purposes of this Agreement, the term "Multicare
Acquisition" means the transaction contemplated by that certain Agreement and
Plan of Merger among a 44% owned subsidiary of the Guarantor (as hereinafter
defined) ("Merger Sub") and The Multicare Companies, Inc. ("Multicare") pursuant
to which Merger Sub agreed to make a tender offer to purchase all of the
outstanding common shares of Multicare.
8
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3.9 Leases. Except as set forth on Schedule 3.9 hereto,
Transferor has not entered into any leases, tenancies or other rights of
occupancy in effect on the date hereof with respect to the Property. Each of the
leases referenced in Schedule 3.9 (the "Leases") has been delivered to or made
available to Transferee and is presently unamended (or with respect to each such
lease that has been amended, all amendments thereto have been delivered or made
available to Transferee), and, to Transferor's knowledge, are in full force and
effect without material default.
3.10 Contracts. To the knowledge of Transferor, Schedule 3.10
hereto sets forth all of the contracts or other understandings, written or oral,
to which Transferor is a party or by which Transferor is bound that relate to
the Property excluding contracts which are terminable on thirty (30) days or
less notice (collectively, the "Contracts", which term shall not be construed to
include any Leases). Each of the Contracts is valid and binding on Transferor
and is in full force and effect in all material respects. Except as set forth in
Schedule 3.10, neither Transferor nor, to Transferor's knowledge, any other
party thereto has breached or defaulted under the terms of any Contract, except
for such breaches or defaults that would not have a material adverse effect on
the business or operations of Transferor or the Property.
3.11 Permits. To the knowledge of Transferor, Transferor has
all such franchises, certificates, licenses, permits and other authorizations
from government political subdivisions, regulatory authorities or any other
person or entity (collectively "Permits") as are necessary for the ownership,
use, operation and licensing of the Property as it is currently being used,
except where the failure to possess such Permits would not have a material
adverse effect on the business or financial condition of Transferor or the
Property, and, to Transferor's knowledge, Transferor is not in violation of any
Permit and all Permits relating to the Property are valid and in full force and
effect.
3.12. Litigation. Other than as set forth on Schedule 3.12
attached hereto, there are no claims, actions, suits, proceedings or
investigations pending or, to Transferor's knowledge, threatened against
Transferor or any properties or rights of Transferor, that would have a material
adverse effect on the business or financial condition of Transferor, the
Transaction or the Property before any court or administrative, governmental or
regulatory authority or body, domestic or foreign, or any properties or rights
of Transferor. Neither Transferor nor the Property is subject to any order,
judgment, injunction or decree of any court, tribunal or other governmental
authority (other than generally applicable laws, rules and regulations) that
would have a material adverse effect on the business or financial condition of
Transferor or the Property.
3.13 Compliance with Laws. Transferor has not received any
written or other actual notice of any material violation of any applicable
zoning regulation or ordinance, or of any employment, environmental, or other
regulatory law, order, regulation or requirement, including applicable
subdivision laws, relating to the Property or the business or operations
thereon, which remains uncured and, to Transferor's knowledge, there are no such
violations which, individually or in the aggregate, would have a material
adverse effect on the business or financial condition of Transferor or the
Property.
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3.14 Taxes. Except for such matters as in the aggregate shall
not result in a material adverse effect on the business or financial condition
of Transferor, (i) all tax or information returns required to be filed on or
before the date hereof by or on behalf of Transferor have been filed through the
date hereof or will be filed on or before the Closing Date in accordance with
all applicable laws, (ii) there is no action, suit or proceeding pending
against, or with respect to, Transferor or the Property in respect of any tax
nor is any claim for additional tax asserted by any such authority, and (iii)
all taxes (including related penalties, interest and additional amounts) imposed
upon Transferor and required to be reported on a return required to be filed
(without regard to any applicable extensions) on or before the date hereof have
been paid or will be paid prior to the delinquency thereof.
3.15 Insurance. Transferor currently has in place the public
liability, casualty and other insurance coverage with respect to the Property as
is set forth in Schedule 3.15 hereto. To the knowledge of Transferor, each of
its insurance policies with respect to the Property is in full force and effect
and all premiums due and payable thereunder have been fully paid when due.
Transferor has not received from any insurance company notice of any material
defects or deficiencies affecting the insurability of the Property or notices of
cancellation or intent to cancel any such insurance.
3.16 Utilities. To the knowledge of Transferor, usable public
sanitary and storm sewers, public water, and gas and electrical utilities
(collectively, the "Public Utilities"), of adequate capacity for the operation
of the Property, are installed in, and are duly connected to, the Property and
can be used without any charge except the normal and usual metered charges
imposed for such Public Utilities. No amounts due and owing with respect to the
Property in connection with utilities, insurance, assessments or other charges
customarily prorated in real estate transactions have been outstanding more than
30 days.
3.17 Environmental. For the purpose of this Section 3.17, the
term "Hazardous Substances" shall mean substances defined as a "hazardous
waste," "hazardous substance," or "toxic substance" under any Environmental
Laws, including, without limitation, oil, petroleum, or any petroleum-derived
substance or waste, asbestos or asbestos-containing materials, PCBs, pesticides,
explosives, radioactive materials, dioxins, urea formaldehyde insulation or any
constituent of any such substance, pollutant or waste. As used herein,
"Environmental Laws" shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901, et seq., the Clean Air Act, 42 U.S.C. ss. 7401, et seq., the Clean Water
Act, 33 U.S.C. ss. 1251, et seq., the Toxic Substance Control Act, 15 U.S.C. ss.
2601, et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651, et
seq., as any of the preceding have been amended prior to the date of the
Closing, and any other federal, state or local law, ordinance, regulation, rule,
order, decision or permit relating to the protection of human health from
environmental effects of Hazardous Substances and which are applicable to the
Property.
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To Transferor's knowledge and except as may be revealed in the
Phase I Environmental Report prepared for the Property dated __________________,
(i) no Hazardous Substances are present in, on or under the Property that
require remediation under Environmental Law or would have a material adverse
affect on the condition (financial or otherwise), earnings, assets, business
affairs or business prospects of the Property, Transferor or the Transaction,
(ii) no liability under or violation of any Environmental Laws or condition that
could give rise to such liability or violation exists with respect to the
Property, except for liabilities that would not have a material adverse effect
on the business or financial condition of Transferor or the Property and (iii)
Transferor has not caused or allowed any discharge or disposal of any Hazardous
Substances at the Property except in compliance with Environmental Laws.
Transferor has not received any written notice from any governmental agency or
instrumentality having jurisdiction thereof of any violation of any
Environmental Laws which remains uncured or unremediated.
3.18 [INTENTIONALLY DELETED]
3.19 Pending Assessments and Eminent Domain. Transferor has no
knowledge and has received no notice of any pending proceeding for the
imposition of any special assessment, or the formation of a special assessment
district, or for a condemnation proceeding which would materially affect in any
manner any portion of the Property.
3.20 Compliance with Law; Approvals.
Except as set forth on Schedule 3.20:
(a) Transferor has operated the Property in compliance with
all applicable laws and regulations, including, without limitation, all laws,
regulations, orders and requirements promulgated by any governmental authority
or relating to consumer protection, equal opportunity, health, health care
industry regulation, third-party reimbursement (including, if applicable,
Medicare, Medicaid, fraud and abuse and workers compensation), environmental
protection, fire, zoning and building and occupational safety matters, except
for noncompliance that individually or in the aggregate would not, and in the
future will not, have a material adverse effect on the business or operations of
Transferor or the Property;
(b) Transferor has not received notice of any material
violation (or of any investigation, inspection, audit, or other proceeding by
any governmental authority involving allegations of any violation) of any
applicable law, or is in material default with respect to any applicable law and
to the knowledge of Transferor, no investigation, inspection, audit, or other
proceeding by any governmental authority involving allegations of violation of
any applicable law is threatened or contemplated.
3.21 Ground Lease. (i) The ground lease which creates a
leasehold interest in the Property (the "Ground Lease") is in full force and
effect, (ii) Transferor is not in material default under any of the terms,
conditions, covenants or provisions of the Ground Lease, (iii) neither
Transferor nor the landlord under the Ground Lease has commenced any action or
given or received any notice asserting a default thereunder or for the purpose
of terminating the Ground Lease and (iv) all rents, additional rents and other
sums due and payable under the Ground Lease by Transferor have been paid in
full.
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3.22 Governmental Proceedings. There is no governmental action
or governmental proceeding (zoning or otherwise) or governmental investigation
pending or, to Transferor's knowledge, threatened against or relating to the
Property or the transactions contemplated by this Agreement.
3.23 No Agreements. Except as set forth in Transferor's
organizational documents or as set forth on Schedule 3.23, other than the
Leases, the Property is not subject to any outstanding agreement of sale or
lease, option to purchase or other right of any third party to acquire any
interest therein.
ARTICLE IV
COVENANTS AND AGREEMENTS OF TRANSFEROR
Transferor hereby covenants and agrees with Transferee that
prior to the date of the Closing:
4.1 Actions Affecting Assets. Except in the ordinary course of
business, Transferor shall not sell, assign, pledge, transfer or encumber the
Property or any portion thereof, or, enter into any other material consent,
commitment, understanding or other agreement, or incur any material obligation
or liability (contingent or absolute) with respect to the Property. Transferor
shall not merge or consolidate with or into any other entity or enter into any
agreements relating thereto without Transferee's prior consent.
4.2 Access to Property and Records. Upon reasonable notice and
during regular business hours, Transferor shall give Transferee and Transferee's
authorized representatives full access to the Property and Transferor's
personnel and all properties, documents, contracts, facilities, books, equipment
and records of Transferor relating to the Property to conduct its
investigations, including, without limitation, surveys, site analyses, soil
tests, engineering studies, and other investigations.
4.3 Permits. Transferor shall maintain all Permits in full
force and effect, and will file timely all reports, statements, renewal
applications and other filings, and will pay timely all fees and charges in
connection therewith that are required to keep the Permits in full force and
effect.
4.4 Contracts. Transferor will not enter into any new
Contracts with respect to the Property except in the ordinary course of the
business of the operation of the Facility.
4.5 Insurance. Transferor shall maintain in full force and
effect substantially the same public liability and casualty insurance coverage
now in effect with respect to the Property.
4.6 Taxes and Assessments. Transferor shall pay or discharge
before delinquent all tax liabilities and obligations, including without
limitation those for federal, state or local income, property, unemployment,
withholding, sales, transfer, stamp, documentary, use and other taxes.
<PAGE>
4.7 Binding Commitments. Transferor shall not make any
commitments or representations to any applicable government authorities, any
adjoining or surrounding property owners, any civic association, any utility or
any other similar person or entity that would in any manner be binding upon
Transferee or the Property without Transferee's prior consent, except such
agreements that would not have a material adverse effect on the Property.
4.8 Compliance with Law. The operations of Transferor and the
Property will be conducted in compliance with all applicable laws, including,
without limitation, all such laws regulations, orders and requirements
promulgated by any governmental authority or relating to consumer protection,
equal opportunity, health, health care industry regulation, third party
reimbursement (including, if applicable, Medicare, Medicaid, fraud and abuse,
and workers compensation), environmental protection, fire, zoning and building
and occupational safety matters, except for noncompliance that individually or
in the aggregate would not and, insofar as may reasonably be foreseen, in the
future will not, have a material adverse effect on the business or operations of
Transferor or the Property.
4.9 Operation of Property. Transferor shall operate and
maintain the Property in the same manner as Transferor has heretofore operated
the Property and consistent with other assisted living facilities operated or
managed by Guarantor or affiliates thereof.
ARTICLE V
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY TRANSFEREE
The obligation of Transferee to consummate the Transaction
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
5.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferor in this Agreement
or in any document delivered by Transferor pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
5.2 No Material Adverse Change. There shall have been no
material adverse change in the value or condition of the Property since the date
hereof, except for changes contemplated by this Agreement and changes in the
ordinary course of business which do not have a material adverse effect on the
business or financial condition of the Property.
5.3 Title Insurance. Commonwealth Land Title Insurance Company
(the "Title Company") shall have issued to Transferee an ALTA owners title
insurance policy effective as of the date of the Closing or an unconditional
commitment therefor insuring fee simple title to the Property to be vested in
Transferee in the full amount of the Purchase Price, subject to no exceptions
other than Permitted Liens (other than the Mortgage Debt), with such
endorsements and otherwise in form acceptable to Transferee in its sole and
absolute discretion.
<PAGE>
5.4 No Order or Injunction. The consummation of the
Transaction shall not have been restrained, enjoined or prohibited by any order
or injunction of any court or governmental authority of competent jurisdiction
nor shall there be any pending or threatened condemnation proceeding with
respect to the Property or any portion thereof.
5.5 Instruments of Conveyance. Transferor shall have delivered
the instruments referred to in Section 7.1.
5.6 Consents. All consents listed on Schedule 3.2 or otherwise
necessary for the consummation of the Transaction by Transferor shall have been
obtained.
5.7 IPO Closing. The IPO shall close simultaneously with the
Transaction.
5.8 Simultaneous Closing. The Transaction shall close
simultaneously with the closings under the agreements listed on Schedule 5.8
hereof.
ARTICLE VI
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY TRANSFEROR
The obligation of Transferor to consummate the Transaction
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
6.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferee in this Agreement
or in any document delivered by Transferee pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
6.2 Consents. All consents necessary for the consummation of
the Transaction by Transferee shall have been obtained.
6.3 IPO Closing. The IPO shall close simultaneously with the
Transaction.
6.4 Simultaneous Closing. The Transaction shall close
simultaneously with the closings under the agreements listed on Schedule 5.8
hereof.
<PAGE>
ARTICLE VII
THE CLOSING
Subject to the terms and conditions of this Agreement, the
Closing shall take place promptly after satisfaction or waiver of the conditions
set forth in Articles V and VI hereof.
7.1 Closing Deliveries. At Closing, Transferor shall deliver
or cause to be delivered the following:
(a) a special warranty deed conveying good and
marketable fee simple title to the Property (subject only to
the Permitted Liens);
(b) a bill of sale pursuant to which Transferor shall
convey to Transferee good title to all the Personal Property,
free and clear of all liens and encumbrances (other than
Permitted Liens);
(c) a certification duly executed by Transferor under
penalty of perjury, setting forth Transferor's address and
Federal tax identification number and certifying that
Transferor is not a "foreign person" under Section 1445 (as
may be amended) of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder;
(d) such assignment agreements as may be deemed
necessary and appropriate by Transferee and Transferor
pursuant to which Transferor shall assign to Transferee all
other assets (other than the Excluded Assets) owned by
Transferor that are used or useful in connection with the
operation of the Property, including, without limitation, the
Permits (to the extent assignable) and the Intangible
Property;
(e) a certificate from a duly authorized agent of
Transferor certifying that the representations and warranties
of Transferor set forth herein are true and correct in all
material respects as of the Closing Date;
(f) the Lease Agreement duly executed by Transferor
or an affiliate of Transferor;
(g) a payoff letter or other instrument from the
holder of the Mortgage Debt sufficient to enable the Title
Company to issue the title insurance policy required by
Section 5.3 hereof without any exception for the Mortgage
Debt; and
(h) the Guaranty described in Section 10.11 hereof
duly executed by Genesis;
(i) the Indemnification Agreement described in
Section 10.11 hereof duly executed by Genesis; and
<PAGE>
(j) such other documents and instruments as
Transferee and Transferor agree are necessary or appropriate.
7.2 Closing Deliveries by Transferee. At Closing, Transferee
shall deliver or cause to be delivered the following:
(a) the Purchase Price;
(b) a certificate from a duly authorized officer of
Transferee certifying that the representations and warranties
of Transferee set forth herein are true and correct in all
material respects as of the Closing Date;
(c) the assignment agreements referenced in Section
7.1(d) above;
(d) the Lease Agreement, duly executed by Transferee;
and
(e) such other documents and instruments as
Transferor and Transferee agree are necessary or appropriate.
7.3 Closing Costs. Transferee and Transferor shall each pay
one-half (1/2) of documentary and transfer fees imposed on or in connection with
the Transaction. Transferee agrees to pay all other costs associated with the
Closing, including (i) survey costs and (ii) costs of obtaining a title
insurance policy for the benefit of Transferee and (iii) all recording fees and
charges. Each party shall pay its own legal fees.
7.4 Prorations. Transferor and Transferee agree that charges,
credits and adjustments shall be made as of the Closing Date, and a statement
setting forth such adjustments shall be initialed by the parties. The subject
areas of such adjustments shall include:
(a) Real estate, personal property and similar taxes
and assessments (general and special, ordinary and extraordinary) that
have become or may become a lien on the Property;
(b) Charges for public utilities servicing the
Property, payments under the Contracts, charges under easements and
similar agreements affecting the Property;
(c) Insurance premiums, if any, to the extent
policies are assumed by Transferee;
(d) All other charges and fees customarily prorated
and adjusted in similar transactions.
The parties shall prorate on the best available
information; all adjustments that cannot be determined precisely as of the
Closing Date shall be readjusted as soon as practicable. Transferor shall use
its best efforts to have all utility meters read as of the Closing Date. To the
extent practicable, as Transferor and Transferee agree as appropriate, such
prorations may occur outside the Closing by arrangement with the vendor or
supplier of services (e.g., utilities). Any prorations which are the obligation
of Transferee will be assumed by the lessee under the Lease Agreement.
<PAGE>
7.5 Possession. At Closing, Transferor shall deliver
possession of the Property to Transferee (subject to the rights of tenants under
the Leases), the Property to be in the same condition and repair as on the date
hereof, reasonable wear and tear excepted.
ARTICLE VIII
REMEDIES ON DEFAULT
8.1 Transferor's Remedies. Except for any breaches waived in
writing by Transferor, if Transferee fails to consummate the Transaction when
required to do so pursuant to the provisions hereof, then Transferor shall be
entitled to terminate this Agreement, whereupon this Agreement shall terminate
and, in addition thereto, Transferee shall reimburse Transferor for all
reasonable costs incurred by Transferee in connection with the Transaction,
provided that the amount to be reimbursed by Transferee shall not exceed One
Hundred Thousand Dollars ($100,000).
8.2 Transferee's Remedies. Except for any breaches waived in
writing by Transferee, if Transferor has breached any of its covenants or
obligations under this Agreement or has failed, refused or is unable to
consummate the Transaction by the date of the Closing when and as required to do
so hereunder, then Transferee shall have the right to bring an action at law or
in equity seeking the specific performance of the obligations of Transferor
hereunder and in addition thereto or in lieu thereof, Transferee may avail
itself of any other remedies available at law or in equity on account of such
breach, provided, however, except as provided in Section 10.1 the amount of
money damages that Transferee may recover from Transferor on account of such
breach shall not exceed One Hundred Thousand Dollars ($100,000).
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Transferor. Transferor hereby
indemnifies and agrees to defend and hold harmless Transferee, and its officers,
directors, employees, agents and successors and assigns, and its general
partners and any officers, trustees, directors, employees, agents and successors
and assigns of such general partners ("Transferee Indemnitees"), from and
against any and all demands, claims, actions or causes of action, assessments,
expenses, costs, damages, losses and liabilities (including attorneys' fees and
other charges) which may at any time be asserted against or suffered by any
Transferee Indemnitee, the Property, or any part thereof, whether before or
after the date of the Closing, as a result of, on account of or arising from (a)
the failure of Transferor to perform any of its obligations hereunder or, to the
extent provided in Section 10.1, the breach by Transferor of any of its
representations and warranties made herein, (b) events, contractual obligations,
acts or omissions of Transferor that occurred in connection with the ownership
or operation of the Property prior to the Closing, (c) damage to property or
injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times prior to
the Closing, or (d) any obligation, claim, suit, liability, contract, agreement,
debt or encumbrance (other than Permitted Liens) created, arising or accruing
prior to the date of the Closing, regardless of when asserted, relating to the
Property or its operation, including, without limitation, any and all
liabilities for federal or state income taxes or other taxes, which shall not
have been set forth or specifically described in this Agreement or the Schedules
and the Exhibits hereto. The obligations of Transferor under this Section 9.1
shall survive the Closing.
<PAGE>
9.2 Indemnification by Transferee. Transferee hereby
indemnifies and agrees to defend and hold harmless Transferor, and its officers,
directors, employees, agents and successors and assigns ("Transferor
Indemnitees"), from and against any and all demands, claims, actions or causes
of action, assessments, expenses, costs, damages, losses and liabilities
(including attorneys' fees and other charges) which may at any time be asserted
against or suffered by any Transferor Indemnitee, whether before or after the
date of the Closing, as a result of, on account of or arising from (a) the
failure of Transferee to perform any of its obligations hereunder or, to the
extent provided in Section 10.1, the breach by Transferee of any of its
representations and warranties made herein, (b) events, contractual obligations,
acts or omissions of Transferee that occurred in connection with the ownership
or operation of the Property subsequent to the Closing, (c) damage to property
or injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times subsequent
to the Closing, or (d) any damage to the Property caused by Transferee in
connection with any studies, investigations or tests conducted by Transferee
pursuant to Section 4.2 hereof. The obligations of Transferee under this Section
9.2 shall survive the Closing.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Liability with Respect to Representations and
Warranties. It is the express intention and agreement of the parties that the
representations and warranties of Transferee and Transferor set forth in this
Agreement shall survive the consummation of the Transaction for a period of one
(1) year from the date of the Closing except in the case of the representations
and warranties set forth in Section 3.17 hereof which shall survive the
consummation of the Transaction for a period of two (2) years from the date of
the Closing. Such representations and warranties shall expire and be terminated
and extinguished forever at the expiration of such period except where written
notice of a claim for breach shall have been delivered prior to the expiration
of such period. Any written notice given within such period setting forth a
claim must set forth the nature and details of the claim with specificity.
Transferor's liability for a breach of a representation and warranty shall not
be subject to the limitation of liability set forth in Section 8.2 hereof;
provided, however, the maximum amount that Transferee or its assigns may recover
for a breach of a representation and warranty by Transferor hereunder shall not
exceed $_________________ [20% of Purchase Price].
<PAGE>
10.2 Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by either
Transferor or Transferee to the other pursuant to this Agreement shall be in
writing and shall be hand delivered or transmitted by certified mail, express
overnight mail or delivery service, telegram, telex or facsimile transmission to
the parties at the following addresses:
If to Transferor: _______________________________
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Michael A. Walker
Chairman and Chief Executive Officer
Attention: Law Department: Ira C. Gubernick, Esq.
If to Transferee: ElderTrust Operating Limited Partnership
c/o ElderTrust
General Partner
415 McFarlan Road
Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive Officer
or such other address as the addressee may indicate by written notice to the
other party.
Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the delivery receipt, the affidavit of messenger or (with respect to a telex)
the answerback being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
10.3 Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of Pennsylvania (but not including the
choice of law rules thereof).
10.4 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Transferor (if the assignor is Transferee)
or Transferee (if the assignor is Transferor), which consent shall not be
unreasonably withheld, and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect, provided that Transferee may (i)
assign this Agreement and its rights hereunder, to a corporation, partnership,
limited liability company or other entity of which the entire ownership interest
is owned directly or indirectly by Transferee or its affiliates without the
consent of Transferor or (ii) contribute the Property, or any portion thereof,
to a corporation, partnership, limited liability company or other entity in
exchange for 100% of the ownership interests in such entity; no such assignment
or contribution shall relieve Transferee of its obligations hereunder.
<PAGE>
This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and assigns
as permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable only
by, the parties hereto or their respective successors and assigns as permitted
hereunder.
10.5 Severability. If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining parts of
such provisions or the remaining provisions of said agreement so long as the
economic and legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
10.6 Entire Agreement; Amendment. This Agreement and the
Exhibits and Schedules attached hereto (each of which shall be deemed
incorporated herein and made a part hereof) contain the final and entire
agreement between the parties hereto with respect to the Transaction and are
intended to be an integration of all prior negotiations and understandings.
Transferor and Transferee shall not be bound by any terms, conditions,
statements, warranties or representations, oral or written, not contained or
referred to herein or therein. No amendment, change or modification of this
Agreement shall be valid unless the same is in writing and signed by the parties
hereto.
10.7 No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified
therein.
10.8 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
<PAGE>
10.9 Risk of Loss. The risk of loss or damage to all or any
part of the Property by fire or other casualty prior to the Closing shall be
borne by Transferor. In the event of such damage to all or part of the Property,
Transferee may, at its election, (i) terminate this Agreement whereupon neither
party shall have any further liability to the other hereunder or (ii) consummate
the Transaction, in which event Transferor shall assign to Transferee at Closing
all of Transferor's right, title and interest in and to all of the proceeds of
insurance payable by virtue of such casualty.
10.10 Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
10.11 Guaranty. Genesis Health Ventures, Inc. ("Genesis")
shall indemnify Transferee or its assigns or contributees for loss or damage due
to a breach by Transferor of one or more of the representations and warranties
made by Transferor herein on the terms set forth in a certain Indemnification
Agreement to be executed and delivered by Genesis at Closing to and for the
benefit of Transferee or its assigns or contributees, which Indemnification
Agreement shall be substantially in the form of Exhibit C attached hereto and
made a part hereof. In addition thereto, at Closing, Genesis shall execute and
deliver for the benefit of Transferee and its assigns a guaranty of the
obligations of Transferor or its assigns under the Lease Agreement, which
guaranty shall be substantially in the form of Exhibit D attached hereto and
made a part hereof.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on
its behalf as of the date first above written.
TRANSFEREE:
ELDERTRUST OPERATING LIMITED PARTNERSHIP
By: ElderTrust Realty Group, Inc.,
general partner
By:
---------------------------
Name:
--------------------------
Title:
--------------------------
TRANSFEROR:
By:
---------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE>
Exhibits and Schedules
Exhibit A - Legal Description of Real Property
Exhibit B - Form of Lease Agreement
Exhibit C - Form of Indemnification Agreement
Exhibit D - Form of Lease Agreement Guaranty
Schedule 1.1 - Excluded Assets
Schedule 3.2 - Required Consents
Schedule 3.5 - Liens
Schedule 3.6 - Mortgage Debt
Schedule 3.7 - Financial Statements
Schedule 3.9 - Leases
Schedule 3.10 - Contracts
Schedule 3.12 - Litigation
Schedule 3.15 Insurance
Schedule 3.20 - Non-Compliance
Schedule 3.23 - Agreements
Schedule 5.8 - Concurrent Agreements
<PAGE>
EXHIBIT A
DESCRIPTION OF THE REAL PROPERTY
<PAGE>
EXHIBIT B
FORM OF LEASE AGREEMENT
<PAGE>
EXHIBIT C
FORM OF INDEMNIFICATION AGREEMENT
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is entered into as of
___, 1998 by GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation
("Indemnitor"), to and for the benefit of ELDERTRUST OPERATING LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Operating Partnership"), and
its successors and assigns (collectively, "Indemnitees").
WHEREAS, __________________________ ("Transferor") and the Operating
Partnership have entered into an asset transfer agreement (the "Transfer
Agreement") dated as of __________________, 1998;
WHEREAS, pursuant to the Transfer Agreement, the Operating Partnership
or a subsidiary of the Operating Partnership shall acquire from the Transferor
[an assisted living facility/skilled nursing facility/independent living
facility/office building] (the "Facility"), together with associated real and
personal property as described in the Transfer Agreement on the terms and
conditions set forth in the Transfer Agreement;
WHEREAS, Indemnitor, as the owner, directly or indirectly, of all of
the beneficial interest in Transferor, will be greatly benefited by the transfer
of the Facility to the Operating Partnership pursuant to the Transfer Agreement;
WHEREAS, in Article III of the Transfer Agreement, the applicable
Transferor has made certain representations and warranties to the Operating
Partnership and Indemnitor has agreed to indemnify the Operating Partnership in
the event of a breach of a representation and warranty set forth in the Transfer
Agreement by Transferor;
WHEREAS, the Operating Partnership would not have entered into the
Transfer Agreement without the execution and delivery of this Agreement by
Indemnitor; and
WHEREAS, in accordance with the Transfer Agreement, the Operating
Partnership assigned the Transfer Agreement to ________________________
("Transferee").
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, Indemnitor hereby agrees for the
benefit of Indemnitees as follows:
1. Representations and Warranties of Indemnitor
(a) Indemnitor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Pennsylvania.
Indemnitor has the requisite power and authority to carry on its business as it
is now being conducted and to perform its obligations hereunder. Indemnitor is
qualified to do business and is in good standing in each jurisdiction where the
character of its property owned or leased or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified and in
good standing would not have a material adverse effect on the business or
financial condition of Indemnitor.
<PAGE>
(b) All action of Indemnitor necessary to authorize the
execution, delivery and performance of this Agreement by Indemnitor has been
taken, and no other proceedings on the part of Indemnitor are necessary to
authorize the execution and delivery of this Agreement by Indemnitor and the
performance by Indemnitor of its obligations hereunder.
Neither the execution and delivery of this Agreement by
Indemnitor nor the performance by Indemnitor of its obligations hereunder nor
compliance by Indemnitor with any of the provisions hereof will (i) conflict
with or result in any breach of any provisions of the organizational documents
of Indemnitor, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Indemnitor is a
party or by which it or any of its properties or assets may be bound, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Indemnitor or any of the properties or assets of Indemnitor.
(c) This Agreement has been duly and validly executed and
delivered by Indemnitor and constitutes a valid and binding agreement of
Indemnitor, enforceable against Indemnitor in accordance with its terms, except
that such enforcement may be subject to bankruptcy, conservatorship,
receivership, insolvency, moratorium or similar laws affecting creditors' rights
generally or the rights of creditors of corporations and to general principles
of equity.
(d) None of the representations and warranties made by
Transferor in the Transfer Agreement contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements therein
not misleading.
2. Indemnification
Indemnitor hereby indemnifies and agrees to hold harmless the
Operating Partnership, Transferee and their successors and assigns from and
against all demands, claims, actions or causes of action, assessments, expenses,
damages, costs, losses and liabilities (including attorneys' fees and
disbursements) which may at any time be suffered by the Operating Partnership,
Transferee or its successors and assigns as a result of (i) the inaccuracy of
any representation or warranty made by Transferor in the Transfer Agreement or
(ii) the inaccuracy of any representation or warranty made by Indemnitor in
Section 1 of this Agreement.
<PAGE>
3. Survival Period; Limitation on Liability
(a) The indemnification obligation of Indemnitor set forth
herein shall be limited to the survival period set forth in the Transfer
Agreement with the effect that the obligations of Indemnitor set forth herein
shall terminate and be of no further force and effect (i) one (1) year after the
Closing Date (as defined below) in the case of a breach of any representation
and warranty set forth in Article III of the Transfer Agreement except Section
3.17 of the Transfer Agreement, (ii) two (2) years after the Closing Date in the
case of a breach of a representation and warranty set forth in Section 3.17 of
the Transfer Agreement and (iii) one (1) year after the Closing Date in the case
of a breach of a representation and warranty set forth in Section 1 of this
Agreement (in any such case, a "Termination Date"). Any claim for a breach of a
representation and warranty must be made in writing before the applicable
Termination Date. The "Closing Date" shall be the date of the closing of the
initial public offering of ElderTrust, a Maryland real estate investment trust,
which is anticipated to occur simultaneously with the closing under the Transfer
Agreement.
(b) Notwithstanding anything herein to the contrary, liability
of Indemnitor hereunder shall not exceed [20% of Purchase Price under the
Transfer Agreement].
4. Notice
Except as otherwise expressly provided herein, all notices,
demands, requests, or other communications which may be or are required to be
given, served or sent by any party to any other party pursuant to this Agreement
shall be in writing and shall be hand delivered, mailed by first-class,
registered or certified mail, return receipt requested, postage prepaid, or
delivered by overnight air courier, addressed as follows:
(a) If to Indemnitor:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Michael A. Walker
Chairman and Chief Executive Officer
Attention: Law Department, Ira C. Gubernick, Esq.
(b) If to the Operating Partnership or Transferee:
ElderTrust Operating Limited Partnership
c/o ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive Officer
or such other address as the addressee may indicate by written notice to the
other parties.
Each notice, demand, request, or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the return receipt, the delivery receipt or the affidavit of messenger being
deemed conclusive but not exclusive evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
<PAGE>
5. Benefit and Assignment
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable only
by, the parties hereto or their respective successors and assigns as permitted
hereunder. Indemnitor may not assign this Agreement or any rights hereunder
without the prior written consent of the Operating Agreement; the Operating
Partnership may not assign this Agreement without the prior written consent of
Indemnitor except that, in connection with the assignment by the Operating
Partnership of the Transfer Agreement in accordance with the terms of the
Transfer Agreement or contribution of the Facility by the Operating Partnership
in accordance with the terms of the Transfer Agreement, the Operating
Partnership may assign this Agreement in connection with any such assignment or
contribution.
6. Entire Agreement: Amendment
This Agreement contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior oral or
written agreements, commitments or understandings with respect to such matters.
This Agreement may not be changed orally, but only by an instrument in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
7. Headings
The headings of the sections and subsections contained in this
Agreement are inserted for convenience only and do not form a part or affect the
meaning, construction or scope thereof.
8. Applicable Law; Consent to Jurisdiction
This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania (but not including
the choice of law rules thereof).
<PAGE>
IN WITNESS WHEREOF, Indemnitor has caused this Indemnification
Agreement to be executed by its duly authorized agents as of the date and year
set forth above.
GENESIS HEALTH VENTURES, INC.
By:
---------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE>
EXHIBIT D
FORM OF LEASE AGREEMENT GUARANTY
<PAGE>
GUARANTY OF LEASE
THIS GUARANTY OF LEASE is made as of , 1998 by GENESIS HEALTH VENTURES,
INC., a Pennsylvania corporation ("Guarantor") having an address of: 148 West
State Street, Kennett Square, Pennsylvania, 19348, to and for the benefit of
_______________________________________ (the "Landlord") having an address of:
c/o ElderTrust, 415 McFarlan Road, Suite 202, Kennett Square, Pennsylvania
19348.
RECITALS:
A. Landlord has leased to _______________________________ a
and subsidiary of Guarantor ("Tenant") certain real property located in ,
as is more particularly described on Exhibit A attached hereto (the
"Premises"), pursuant to that certain Lease Agreement by and between Landlord
and Tenant dated of even date herewith (the "Lease").
B. All of the ownership interests in Tenant are owned directly or
indirectly by Guarantor, and therefore Guarantor is materially benefited by the
Lease.
C. The undertaking by Guarantor to execute and deliver this Guaranty is
a material inducement to Landlord to enter into the Lease, and, except for this
Guaranty, Landlord would not enter into the Lease with Tenant.
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor agrees with Landlord as follows:
1. Guaranty. Guarantor hereby guarantees and agrees to be personally
liable for any and all sums payable under the Lease by Tenant and for the full
performance and observance of each and every covenant and agreement of Tenant
contained in the Lease (including all exhibits thereto) to the same extent as if
Guarantor were the tenant under the Lease and had executed and delivered the
Lease (including all exhibits attached thereto). Guarantor unconditionally and
irrevocably guarantees that all sums stated in the Lease to be payable by Tenant
will be promptly paid in full when due in accordance with the Lease and that
Tenant will perform and observe each and every covenant and agreement in the
Lease required to be performed and observed by Tenant. This Guaranty is
irrevocable, unconditional and absolute, and if for any reason any such sums
shall not be paid promptly when due, Guarantor will promptly after notice
thereof and within the time period set forth in the Lease for the making of
payment of any such sums, pay the same to the person entitled thereto pursuant
to the Lease regardless of (a) whether Landlord shall have taken any steps to
enforce any rights against Tenant or any other person liable therefor to collect
such sum or any part thereof, (b) the termination of the Lease as a result of
the default of Tenant thereunder, or (c) any other condition or contingency
which would not exonerate Guarantor from liability under the Lease if it were
the tenant thereunder. Guarantor also agrees to pay to Landlord such further
amounts as shall be sufficient to cover the cost and expense of collecting such
sums or any part thereof or of otherwise enforcing this Guaranty, including,
without limitation, reasonable attorneys' fees.
<PAGE>
2. No Impairment. The obligations, covenants and agreements of
Guarantor under this Guaranty shall in no way be affected or impaired by reason
of the happening from time to time of any of the following, although without
notice to or the further consent of Guarantor:
(a) the waiver by Landlord of the performance or observance by
Guarantor, Tenant or any other party of any of the agreements, covenants or
conditions contained in the Lease or this Guaranty;
(b) the extension, in whole or in part, of the time for
payment by Guarantor or Tenant of any sums owing or payable under the Lease or
this Guaranty, or of any other sums or obligations under or arising out of or on
account of the Lease or this Guaranty, or the renewal of the Lease or this
Guaranty;
(c) any assignment of the Lease or subletting of the Premises
or any part thereof, subject to the provisions of Section 11 hereinbelow;
(d) the modification or amendment (whether material or
otherwise) of any of the obligations of Guarantor or Tenant under the Lease or
this Guaranty;
(e) the doing or the omission of any of the acts referred to
in the Lease or this Guaranty (including, without limitation, the giving of any
consent referred to therein);
(f) any failure, omission or delay on the part of Landlord to
enforce, assert or exercise any right, power or remedy conferred on or available
to Landlord in or by the Lease or this Guaranty, or any action on the part of
Landlord granting indulgence or extension in any form whatsoever;
(g) the voluntary or involuntary liquidation, dissolution,
sale of all or substantially all of the assets, marshaling of assets and
liabilities, receivership, conservatorship, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization, arrangement, composition or
readjustment of, or other similar proceeding affecting Tenant or Guarantor or
any of its assets; or
(h) the release of Guarantor or Tenant from the performance or
observance of any of the agreements, covenants, terms or conditions contained in
the Lease or this Guaranty by operation of law.
3. Warranties and Representations. Guarantor warrants and represents to
Landlord for the express purpose of inducing Landlord to enter into the Lease
and to accept this Guaranty, as follows:
<PAGE>
(a) Organization and Qualification. Guarantor is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Guarantor has the requisite power and authority to
carry on its business as it is now being conducted and to deliver this Guaranty.
Guarantor has made available to Landlord complete and correct copies of the
governing documents of Guarantor, with all amendments as in effect on the date
of this Guaranty. Guarantor is qualified to do business and is in good standing
in each jurisdiction where the character of its property owned or leased or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have a material
adverse effect on the business or financial condition of Guarantor or on this
Guaranty.
(b) Authority Relative to this Guaranty. All action necessary
to authorize the execution, delivery and performance of this Guaranty by
Guarantor has been taken, and no other proceedings are necessary to authorize
the execution and delivery by Guarantor of this Guaranty and the Guarantor's
performance hereunder.
Neither the execution and delivery of this Guaranty by
Guarantor, nor the compliance by Guarantor with any of the provisions hereof
will (i) conflict with or result in any breach of any provisions of the
organizational documents of Guarantor, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, permit, contract, Guaranty, restriction or other
instrument or obligation to which Guarantor is a party or by which Guarantor may
be bound, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Guarantor, except in the case of (ii) or (iii) for
violations, breaches, or defaults which would not in the aggregate have a
material adverse effect on the business or financial condition of Guarantor.
(c) Binding Obligation. This Guaranty has been duly and
validly executed and delivered by Guarantor to Landlord and constitutes a valid
and binding Guaranty of Guarantor, enforceable against Guarantor in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or the rights of creditors of Guarantor and to
general principles of equity.
(d) Solvency. Guarantor is solvent and is not rendered
insolvent by the obligations undertaken in this Guaranty. Guarantor is not
contemplating either the filing of a petition or proceeding under any state or
federal bankruptcy or insolvency or reorganization laws or the liquidating of
all or a major portion of Guarantor's property, and Guarantor has no knowledge
of any such petition or proceeding being filed against such Guarantor.
4. Governing Law. This Guaranty shall be construed in accordance with
the laws of the State of ____________________ (but not including the choice of
law rules thereof).
<PAGE>
5. No Oral Change. This Guaranty may not be modified or amended except
by a written agreement duly executed by Guarantor and Landlord.
6. Primary Liability. Guarantor's liability hereunder shall be primary
and not secondary, and shall be joint and several with that of Tenant. Landlord
may proceed against Guarantor under this Guaranty without initiating or
exhausting its remedy or remedies against Tenant, and may proceed against
Guarantor and/or Tenant separately or concurrently.
7. Waivers.
(a) Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any obligations or liabilities contracted or incurred by
Tenant.
(b) Guarantor may not assert any claim, right or remedy which
Guarantor may now have or hereafter acquire against Tenant that arises hereunder
and/or from the performance by Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of Landlord against the Tenant or any security which Landlord now has
or hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise, prior to the
expiration or earlier termination of the Lease and the satisfaction in full of
all obligations of Tenant under the Lease; provided, that Guarantor may give to
Tenant any notices necessary to preserve such claims, rights or remedies.
(c) Guarantor waives (a) any right to require Landlord to
proceed against Tenant to obtain payment; (b) any right to require Landlord to
proceed against or exhaust any security held from Tenant; (c) any right to
require Landlord to pursue any other remedy in Landlord's power; (d) any right
to receive any notices in connection with the existence, creation or nonpayment
of any sums due under the Lease including, without limitation, any notice of
acceptance by Landlord; (e) presentment, demand, notice of dishonor and protest;
(f) any defense arising by reason of any disability or by reason of the
cessation of the liability of Tenant for any reason; (g) any benefit of and any
right to participate in any security held by Landlord now or in the future; (h)
any defense based upon diligence in collection of or realization upon sums due
under the Lease; (i) any defense arising by reason of any disability incapacity,
lack of authority or death of any other person or the failure of Landlord to
file or enforce a claim against the estate (in administration, bankruptcy, or
any other proceeding) of any other person; and (j) any defense based upon an
election of remedies based upon any notice or demand of any kind that may be
required to be given by any statute or rule of law, or by any of the agreements
between Tenant and Landlord.
8. Estoppels. Within thirty (30) days after Landlord's written request
to Guarantor, Guarantor shall execute and deliver to Landlord a statement in
writing setting forth any amendments to this Guaranty and stating whether or not
this Guaranty is in full force and effect and specifying what reasons or
defenses, if any, support any claim that this Guaranty is not in full force and
effect.
<PAGE>
9. Notices. Any notice which Landlord may elect to send to Guarantor
shall be binding upon Guarantor if mailed to Guarantor at the address set forth
above or such other address as Guarantor may, in writing, make known to
Landlord, by United States Certified or Registered Mail, Return Receipt
Requested.
10. Parties Bound. This Guaranty shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
11. Release of Guaranty. Notwithstanding any contrary provision of this
Guaranty, in the event that: (i) Tenant assigns the Lease to a third-party or
non-wholly owned subsidiary of Guarantor in accordance with the terms of Section
23.4 of the Lease, or (ii) Landlord releases Tenant from liability under the
Lease, the obligations of Guarantor hereunder shall terminate. In the event that
Tenant assigns the Lease without the prior written consent of Landlord, or
otherwise in violation of the terms of the Lease, this Guaranty will continue in
full force and effect and no partial release will be granted.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
as of the date first above written.
WITNESS: GUARANTOR:
GENESIS HEALTH VENTURES, INC.
By:
---------------------------
Name:
--------------------------
Title:
--------------------------
State of
----------------------------
County of
----------------------------
The foregoing instrument was acknowledged before me this
______ day of ___________________, 199___ by ________________, of Genesis Health
Ventures, Inc. a Pennsylvania _________________________________________________-
corporation, on behalf of the corporation.
--------------------------
Notary Public
My Commission Expires:
--------------------------
<PAGE>
Exhibit A
(Property Description)
<PAGE>
ELDERTRUST
SCHEDULE OF GRANTORS AND PURCHASE PRICES
FOR PROPERTIES OWNED BY GENESIS AFFILIATES
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
PROPERTY GRANTOR PURCHASE PRICE
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Heritage Woods Genesis Health Ventures of $11,536,000.00
Massachusetts, Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
Willowbrook Edella Street Associates $ 5,894,000.00
- --------------------------------------- -------------------------------------- --------------------------------------
Riverview Ridge (leasehold interest River Ridge Partnership $ 1,230,595.00
only)
- --------------------------------------- -------------------------------------- --------------------------------------
Pleasant View McKerley Health Care Centers, Inc. $ 3,742,000.00
- --------------------------------------- -------------------------------------- --------------------------------------
Rittenhouse Care Center Geriatric and Medical Services, Inc. $ 8,855,000.00
- --------------------------------------- -------------------------------------- --------------------------------------
Lopatcong Care Center Geriatric and Medical Center, Inc. $13,778,000.00
- --------------------------------------- -------------------------------------- --------------------------------------
Phillipsburg Care Center Geriatric and Medical Services, Inc. $ 6,266,000.00
- --------------------------------------- -------------------------------------- --------------------------------------
Wayne Nursing and Rehabilitation Genesis Health Ventures of Wayne, $ 6,065,000.00
Center Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
Belvedere Nursing and Rehabilitation Genesis Health Ventures of Indiana, $ 9,792,000.00
Center Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
Chapel Manor Nursing and Genesis Health Ventures of Indiana, $10,658,000.00
Rehabilitation Facility Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
Pennsburg Manor Nursing and Genesis Health Ventures of Indiana, $10,000,000.00
Rehabilitation Facility Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
Professional Office Building I Genesis Health Ventures of Indiana, $ 4,000,000.00
(Leasehold) Inc.
- --------------------------------------- -------------------------------------- --------------------------------------
Lacey Branch Office Building Geriatric and Medical Services, Inc. $ 545,000.00
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
<PAGE>
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND MAY BE OFFERED OR SOLD
ONLY (1) UPON REGISTRATION OF THE LIMITED PARTNERSHIP INTERESTS UNDER THE ACT
AND THE STATE ACTS OR PURSUANT TO AN EXEMPTION THEREFROM, AND (2) AFTER
COMPLIANCE WITH ALL RESTRICTIONS ON TRANSFER OF SUCH LIMITED PARTNERSHIP
INTERESTS IMPOSED BY THIS AGREEMENT.
* * *
PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
THIS PLAN OF ASSET TRANSFER AND CONTRIBUTION
AGREEMENT (this "Agreement") is made and entered into as of September 25, 1997,
by and between ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership ("Transferee"), and SENIOR LIFECHOICE CORP., a Pennsylvania
corporation ("Contributor").
WHEREAS, Contributor is the sole general partner in Senior
LifeChoice of Paoli, L.P., a Pennsylvania limited partnership (the "Paoli
Partnership"), and owns an 88% interest in the Partnership (the "Paoli
Interest");
WHEREAS, Contributor also is the sole general partner in
Senior LifeChoice of Kimberton, L.P., a Pennsylvania limited partnership (the
"Kimberton Partnership") and owns a 90% general partnership interest in the
Kimberton Partnership (the "Kimberton General Partnership Interest"; the Paoli
Partnership and the Kimberton Partnership collectively shall be known as the
"Partnerships");
WHEREAS, Contributor also is a limited partner in the
Kimberton Partnership and owns a 5% limited partnership interest in the
Kimberton Partnership (the "Kimberton Limited Partnership Interest") (the
Kimberton Limited Partnership Interest and the Kimberton General Partnership
collectively shall be known as the "Kimberton Interests"; the Kimberton
Interests and the Paoli Interest collectively shall be known as the
"Interests");
WHEREAS, Contributor desires to contribute the Interests to
Transferee on the terms and conditions set forth;
WHEREAS, the Paoli Partnership owns and operates an assisted
living facility known as Highgate at Paoli Pointe (the "Highgate Facility"),
which Highgate Facility consists of the real property described in Exhibit A
hereto (the "Highgate Real Property"), the improvements thereon and all other
real and personal property associated therewith (collectively,
<PAGE>
the "Highgate Property"), all of which other real and personal property is
described in Exhibit A-1 hereto;
WHEREAS, the Kimberton Partnership owns and operates an
assisted living facility known as The Woodbridge (the "Woodbridge Facility"),
which Woodbridge Facility consists of the real property described in Exhibit B
hereto (the "Woodbridge Real Property"), the improvements thereon and all other
real and personal property associated therewith (collectively, the "Woodbridge
Property"), all of which other real and personal property is described in
Exhibit B-1 hereto (the Woodbridge Property and the Highgate Property
collectively shall be known as the "Property"; the Woodbridge Facility and
Highgate Facility collectively shall be known as the "Facilities");
WHEREAS, Gregory M. Stevens, Michael R. Walker, Richard R.
Howard, Michael P. Morgan, Kent P. Dauten, George V. Hager, David C. Barr, Lewis
J. Hoch, Edmund Wideman, III and Joe and Joann Thomson (collectively the
"Stockholders") are the sole stockholders of Contributor and hold the number and
percentage of shares of stock in Contributor as is set forth on Schedule 1.1
hereto;
WHEREAS, Transferee intends to acquire all of the partnership
interests in the Partnerships and thereafter cause the Paoli Partnership to
lease the Highgate Facility to Genesis Health Ventures, Inc. ("Genesis") and
cause the Kimberton Partnership to lease the Woodbridge Facility to Senior
LifeChoice, LLC ("Senior LifeChoice II"), a limited liability company comprised
of certain of the Stockholders (including Gregory M. Stevens, the president of
Contributor); and
WHEREAS, all capitalized terms not otherwise defined herein
shall have the meanings set forth in Article XIII hereof.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants set forth herein, Transferee and Contributor
hereby agree as follows:
ARTICLE I
THE CONTRIBUTION
1.1 Contribution and Acquisition of Contributed Property.
Subject to the terms and conditions set forth herein, Contributor agrees to
contribute to Transferee and Transferee agrees to acquire and accept from
Contributor, the Interests and all of Contributor's right, title and interest in
and to the Interests (including rights to distributions under each Partnership's
agreement of limited partnership that have accrued as of the Closing Date), in
exchange for units of limited partnership interest in Transferee (the "Units"),
as set forth in Article II hereof, in a transaction intended to qualify for
nonrecognition of gain to Contributor pursuant to Section 721 of the Internal
Revenue Code of 1986, as amended (the "Code") (the "Contribution").
- 2 -
<PAGE>
1.2. Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur simultaneously with the closing of
the initial public offering (the "IPO") of shares of beneficial interest in
ElderTrust, a Maryland real estate investment trust (the "REIT"); provided, that
if the IPO has not occurred on or before March 31, 1998, this Agreement shall
terminate and none of the parties hereto shall have any further liability to any
other party hereto. The Closing shall occur simultaneously with the delivery of
the following documents:
(a) the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C, executed by Transferee and Contributor;
(b) the Second Amended and Restated Agreement of Limited
Partnership of Transferee, substantially in the form attached hereto as Exhibit
D (the "Operating Partnership Agreement");
(c) the documents specified in Section 8.1 and Section 8.2
hereof; and
(d) such other documents as the parties may mutually agree.
ARTICLE II
EXCHANGE AMOUNT; LIABILITIES
2.1. Consideration. The total consideration to be paid by
Transferee for the Interests shall consist of the Units calculated in accordance
with Section 2.1(a) below and the cash consideration described in Section 2.1(b)
below.
(a) Units Delivered at Closing. In exchange for the
contribution of the Interests and upon execution and delivery of the Operating
Partnership Agreement by Contributor, Contributor shall receive, at the Closing,
an aggregate number of Units equal to (i) $3,317,000 divided by (ii) the
midpoint of the price range for shares of beneficial interest in the REIT as set
forth in the REIT's preliminary prospectus ("Final Preliminary Prospectus")
related to the IPO rounded up to the nearest whole unit. The rights of holders
of the Units as of the Closing will be as set forth in the Operating Partnership
Agreement.
(b) Cash Consideration. In addition to the Units, at Closing,
Transferee shall pay to Contributor the sum of One Million Two Hundred Sixty-Six
Thousand Dollars ($1,266,000) (the "Cash Consideration"). The Cash Consideration
shall be paid by certified check or wire transfer of immediately available funds
at Closing.
2.2 Issuance of Units. At the Closing, Transferee shall issue
the Units (as determined pursuant to Section 2.1(a) above) to Contributor.
2.3 Assumption of Liabilities. It is the intention of
Contributor and Transferee that, at Closing, the Partnerships shall have no
liabilities other than (i) the Bond Debt,
- 3 -
<PAGE>
(ii) obligations under Contracts (as defined in Section 4.12 below) and Leases
(as defined in Section 4.11 below) and (iii) obligations associated with
Permitted Liens. At or prior to the Closing, Contributor shall or shall cause
the Partnerships to satisfy and discharge all other obligations relating to the
Property, including, without limitation, accounts payable, accrued wages and
payroll taxes and all other liabilities associated with the Property.
2.4 Distribution of Assets.
(a) The parties hereby agree that immediately prior to the
Closing, the Contributor may cause the Paoli Partnership to distribute to the
Contributor and the Paoli Limited Partners (as defined in Section 7.10(a)
below), in accordance with the terms of the Limited Partnership Agreement of the
Paoli Partnership, an aggregate amount of cash equal to (x) the sum of the Paoli
Partnership's petty cash, operating cash accounts, prepayments, interest
receivables and accounts receivable and other receivables plus (y) the amount by
which any amounts in the Paoli Debt Service Reserve Fund and the Paoli Operating
Reserve Fund (each as defined in Section 4.8 below) exceed $1,115,000 plus (z)
all other amounts held in any other funds established in connection with the
Bond Debt (as hereinafter defined) relating to the Highgate Facility, all such
amounts referred to in clauses (x), (y) and (z) determined as of the Closing
Date (hereinafter defined).
(b) The parties hereby agree that immediately prior to the
Closing, the Contributor may cause the Kimberton Partnership to distribute to
the Contributor and the Kimberton Limited Partners (as defined in Section
7.10(b) below), in accordance with the terms of the Limited Partnership
Agreement of the Kimberton Partnership, an aggregate amount of cash equal to (x)
the sum of the Kimberton Partnership's petty cash, operating cash accounts,
prepayments, interest receivables and accounts receivable and other receivables
plus (y) the amount by which any amounts in the Kimberton Debt Service Reserve
Fund and the Kimberton Operating Reserve Fund (each as defined in Section 4.8
below) exceed $1,052,000 plus (z) all other amounts held in any other funds
established in connection with the Bond Debt relating to the Woodbridge
Facility, all such amounts referred to in clauses (x), (y) and (z) determined as
of the Closing Date (hereinafter defined).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
Transferee hereby represents and warrants to Contributor as
follows:
3.1 Organization, Power and Authority, and Qualification.
Transferee is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Transferee has the requisite
power and authority to carry on its respective business as it is now being
conducted. Transferee is qualified to do business and is in good standing in
each jurisdiction where the character of its property owned or leased or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified and
- 4 -
<PAGE>
in good standing would not have a material adverse effect on the business or
financial condition of Transferee.
3.2 Authority Relative to this Agreement. All action of
Transferee necessary to authorize the execution, delivery and performance of
this Agreement by Transferee has been taken, and no other proceedings on the
part of Transferee are necessary to authorize the execution and delivery of this
Agreement by Transferee and the consummation by Transferee of the Contribution.
Neither the execution and delivery of this Agreement by
Transferee nor the consummation by Transferee of the Contribution nor compliance
by Transferee with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the partnership agreement of Transferee, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Transferee is a party or by which it or
any of its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Transferee or any
of the properties or assets of Transferee.
3.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferee to Contributor and constitutes a
valid and binding agreement of Transferee, enforceable against Transferee in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of limited
partnerships and to general principles of equity.
3.4 Brokers. Transferee has not employed any broker or finder,
or incurred any liability therefor, in connection with the Contribution
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
Contributor hereby represents and warrants to Transferee as
follows:
4.1 Organization and Qualification. Each Partnership is a
limited partnership organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania. Contributor is the sole general
partner of each Partnership and is a corporation organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania. Each of the
Partnerships and Contributor has the requisite power and authority to carry on
its business as it is now being conducted. Contributor has made available to
Transferee complete and correct copies of the organizational documents of each
Partnership and of Contributor, with all amendments as in effect on the date of
this Agreement. Each of the Partnerships and Contributor is qualified to do
business and is in good standing in each jurisdiction where the character of its
property owned or leased or the nature of its activities
- 5 -
<PAGE>
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not have a material adverse effect on the business or
financial condition of such Partnership, Contributor or on the Contribution.
4.2 Authority Relative to this Agreement. All action necessary
to authorize the execution, delivery and performance of this Agreement by
Contributor has been taken, and no other proceedings are necessary to authorize
the execution and delivery by Contributor of this Agreement and the consummation
by Contributor of the Contribution.
Neither the execution and delivery of this Agreement by
Contributor, nor the consummation by Contributor of the Contribution nor
compliance by Contributor with any of the provisions hereof as of the date of
the Closing will (i) conflict with or result in any breach of any provisions of
the partnership agreement of Partnership or the articles of incorporation or
bylaws of Contributor, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
permit, contract, agreement, easement, restriction or other instrument or
obligation to which Contributor or either Partnership is a party or by which
Contributor or either Partnership or the Property may be bound, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Contributor, either Partnership or the Property, except in the case of (ii) or
(iii) for violations, breaches, or defaults (A) which would not in the aggregate
have a material adverse effect on the business or financial condition of
Contributor, the Partnerships, the Contribution or the Property or (B) for which
waivers or consents have been obtained or, as listed on Schedule 4.2, will be
obtained prior to the date of the Closing.
4.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Contributor to Transferee and constitutes a
valid and binding agreement of Contributor, enforceable against Contributor in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of
corporations and to general principles of equity.
4.4 Brokers. Contributor has not employed any broker or
finder, or incurred any liability therefor, in connection with the Contribution
contemplated by this Agreement.
4.5 Options to Acquire. Contributor has not granted to any
person any option, warrant or other right to acquire the Interests, and to
Contributor's knowledge, no other person or entity has granted to any person
(other than Transferee) any option, warrant or other right to acquire any
interest in either Partnership.
4.6 Assets. The Paoli Partnership owns no assets other than
the Highgate Property and the Highgate Excluded Property (as defined on Exhibit
A-1 hereto). The Kimberton Partnership owns no assets other than the Woodbridge
Property and the Woodbridge Excluded Property (as defined on Exhibit B-1
hereto).
- 6 -
<PAGE>
4.7 Title to Property. Contributor has good and marketable
title to the Interests, free and clear of any Liens (as hereinafter defined). To
Contributor's knowledge, the Paoli Partnership has fee simple title to the
Highgate Real Property and good and valid title to all the Highgate Personal
Property (as defined on Exhibit A-1). To Contributor's knowledge, the Kimberton
Partnership has fee simple title to the Woodbridge Real Property and good and
valid title to all the Woodbridge Personal Property (as defined on Exhibit B-1).
To Contributor's knowledge, the Property is not subject to any imperfections in
title, easements, liens, mortgages, encumbrances, pledges, claims, charges,
options, defects, preferential purchase rights or other encumbrances
(collectively referred to herein as "Liens") except for the following
("Permitted Liens"):
(i) Liens for real property taxes and assessments or for
fire dues, library dues or similar assessments not
yet delinquent;
(ii) Liens that are not material in character, amount, or
extent and do not materially detract from the value,
or interfere with the use of, the applicable
Partnership's assets subject thereto or affected
thereby or otherwise materially impair the business
operations being conducted or proposed to be
conducted thereon;
(iii) the Bond Debt (as hereinafter defined); and
(iv) Liens shown on Schedule 4.7 hereto.
4.8 Debt. The Property is subject to mortgage indebtedness
described on Schedule 4.8 hereto (the "Bond Debt"). Schedule 4.8 correctly sets
forth the interest rate, maturity date and outstanding amount of the Bond Debt
as of the date hereof. Except for the Bond Debt, neither Partnership has
material indebtedness other than indebtedness incurred by it in its ordinary
course of business. There exists no default, or event which with the passage of
time or notice or both would constitute a default with respect to the Bond Debt
or any other debt of the Partnership that has not been cured or that would have
a material adverse effect on the business or financial condition of either
Partnership, the Contribution or the Property. In connection with the Bond Debt
encumbering the Highgate Property, the Trustee thereunder is holding not less
than the sum of $912,000 as a debt service reserve (the "Highgate Debt Service
Reserve Fund") and not less than the sum of $203,000 as an operating reserve
(the "Highgate Operating Reserve Fund"). In connection with the Bond Debt
encumbering the Woodbridge Property, the Trustee thereunder is holding not less
than the sum of $960,000 as a debt service reserve (the "Woodbridge Debt Service
Reserve Fund") and not less than the sum of $92,000 as an operating reserve (the
"Woodbridge Operating Reserve Fund").
4.9 Financial Statements. The financial statements of the
Partnerships attached as Schedule 4.9 hereto (the "Financial Statements") have
been prepared from the books and records of the Partnerships in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified. The balance sheets in the Financial Statements
fairly present the financial condition of the Partnerships as of the dates
- 7 -
<PAGE>
shown, and the income statements in the Financial Statements fairly present the
results of operations for the periods indicated.
4.10 Financial Condition. Since June 30, 1997, there has been
no material adverse change in the business or financial condition of either
Partnership.
4.11 Leases. Except as set forth on Schedule 4.11 hereto,
there are no leases, tenancies or other rights of occupancy in effect on the
date hereof with respect to the Property. Each of the leases referenced in
Schedule 4.11 (the "Leases") has been delivered to or made available to
Transferee and is presently unamended (or with respect to each such lease that
has been amended, all amendments thereto have been delivered or made available
to Transferee) and in full force and effect without material default.
4.12 Contracts. Except for a management agreement for each
Facility and service contracts entered into in the ordinary course of business
of the operation of the Facilities, neither Partnership is a party to and
neither Partnership nor Contributor is bound by any contracts or other
understandings, written or oral, except for contracts or understandings that are
not material to the business and operations of the Property (collectively, the
"Contracts"). Each of the Contracts is valid and binding on Contributor or the
applicable Partnership, as applicable, and is in full force and effect in all
material respects. Neither Contributor nor the applicable Partnership nor, to
Contributor's knowledge, any other party thereto has breached or defaulted under
the terms of any Contract, except for such breaches or defaults that would not
have a material adverse effect on the business or operations of either
Partnership or the Property.
4.13 Permits. To the knowledge of Contributor, each
Partnership has all such franchises, certificates, licenses, permits and other
authorizations from government political subdivisions, regulatory authorities or
any other person or entity (collectively "Permits") as are necessary for the
ownership, use, operation and licensing of the Property as it is currently being
used, except where the failure to possess such Permits would not have a material
adverse effect on the business or financial condition of either Partnership or
the Property, and to Contributor's knowledge, neither Partnership is in
violation of any Permit in any material respect. No notice to, declaration,
filing or registration with, or Permit or consent from any governmental or
regulatory body or authority, or any other person or entity, is required to be
made or obtained by Contributor or either Partnership in connection with the
execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby, and no Permits will in any way be affected by,
or terminate or lapse by reason of, the Contribution or any of the other
agreements contemplated hereunder or executed herewith.
4.14. Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to Contributor's knowledge, threatened
against Contributor or either Partnership, or any properties or rights of
Contributor or either Partnership, that would have a material adverse effect on
the business or financial condition of Contributor or either Partnership, the
Contribution or the Property before any court or administrative, governmental or
regulatory authority or body, domestic or foreign. None of Contributor, either
Partnership, the Interests or the Property is subject to any order, judgment,
injunction or decree of any court, tribunal or other
- 8 -
<PAGE>
governmental authority (other than generally applicable laws, rules and
regulations) that would have a material adverse effect on the business or
financial condition of either Partnership, the Contribution or the Property.
4.15 Compliance with Laws. To Contributor's knowledge, neither
Partnership has received any written or other actual notice of any violation of
any applicable zoning regulation or ordinance, or of any employment,
environmental, or other regulatory law, order, regulation or requirement,
including applicable subdivision laws, relating to the Property or the business
or operations thereon, which remains uncured, and, to Contributor's knowledge,
there are no such violations which, individually or in the aggregate, would have
a material adverse effect on the business or financial condition of either
Partnership or the Property.
4.16 Taxes. Except for such matters as in the aggregate shall
not result in a material adverse effect on the business or financial condition
of either Partnership, (i) all tax or information returns required to be filed
on or before the date hereof by or on behalf of each Partnership have been filed
through the date hereof or will be filed on or before the date of the Closing in
accordance with all applicable laws, (ii) there is no action, suit or proceeding
pending against, or with respect to, either Partnership or the Property in
respect of any tax nor is any claim for additional tax asserted by any such
authority, and (iii) all taxes (including related penalties, interest and
additional amounts) imposed upon either Partnership and required to be reported
on a return required to be filed (without regard to any applicable extensions)
on or before the date hereof have been paid or will be paid prior to the
delinquency thereof.
4.17 Insurance. To the knowledge of Contributor, each of the
insurance policies with respect to the Property is in full force and effect and
all premiums due and payable thereunder have been fully paid when due. To the
knowledge of Contributor, neither Partnership has received from any insurance
company notice of any material defects or deficiencies affecting the
insurability of the Property or notices of cancellation or intent to cancel any
such insurance.
4.18 Employees. None of the employees of either Partnership is
subject to, and neither Partnership has entered into or is otherwise a party to,
any collective bargaining agreement. Neither Partnership maintains or sponsors
any Plan nor is obligated to make any contributions to any Plan (as defined
below).
4.19 Utilities. Usable public sanitary and storm sewers,
public water, and gas and electrical utilities (collectively, the "Public
Utilities"), of adequate capacity for the operation of the Property, are
installed in, and are duly connected to, the Property and can be used without
any charge except the normal and usual metered charges imposed for such Public
Utilities. Neither Partnership has been notified of any increase or proposed
increase in the charges imposed for such Public Utilities. No amounts due and
owing with respect to the Property in connection with utilities, insurance,
assessments or other charges customarily prorated in real estate transactions
have been outstanding more than 30 days.
4.20 Environmental. Except as may be revealed in the Phase I
Environmental Report prepared for the Highgate Property by Roy F. Weston, Inc.,
dated June, 1997, and the Phase I Environmental Report prepared for the
Woodbridge Property by Roy F. Weston, Inc.,
- 9 -
<PAGE>
dated June, 1997, (i) no Hazardous Substances are present at, on or under, and
there has been no Release of Hazardous Substances from, the Property that
require investigation, notification, remediation or response under applicable
law, (ii) no liability under or violation of any Environmental Laws or condition
that could give rise to such liability or violation exists with respect to the
Property, except for liabilities that would not have a material adverse effect
on the business or financial condition of either Partnership or the Property,
(iii) the Property contains no underground improvements, including but not
limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the management of Hazardous
Materials, and no portion of the Property is or has been used as a dump or
landfill or consists of or contains filled in land or wetlands; (iv) Contributor
has furnished to Transferee accurate and complete information pertaining to the
environmental history of the Property and the operations of the applicable
Partnership thereon, (v) neither PCBs nor asbestos-containing materials are
present on or in the Property, and (vi) no Lien in favor of any person relating
to or in connection with any Claim under any Environmental Law has been filed or
attached to the Property. Neither Partnership has received any notice from any
governmental agency or instrumentality having jurisdiction thereof or from any
other person of any actual or alleged violation of or liability under any
Environmental Laws.
4.21 Condition of Property. Except as set forth in the
structural report prepared for the Property by Burkavage Design, dated June 15,
1997, and in the structural report prepared for the Woodbridge Property by
Burkavage Design, dated June 15, 1997, and from which, to Contributor's
knowledge, there has been no material change, there is no material defect in the
condition of the Property, the improvements thereon, the structural elements
thereof and the mechanical systems therein, nor any material damage from
casualty or other cause, nor any soil condition of the Property that will not
support all of the improvements thereon without the need for unusual or new
subsurface excavations, fill, footings, caissons or other installations, except
for any such defect, damage or condition that has been corrected or will be
corrected in the ordinary course of the business of the Property as part of its
scheduled annual maintenance and improvement program.
4.22 Pending Assessments and Eminent Domain. Contributor has
no knowledge and neither Contributor nor either Partnership has received notice
of any pending proceeding for the imposition of any special assessment, or the
formation of a special assessment district, or for a condemnation proceeding
which would affect in any manner any portion of the Property.
4.23 Securities Matters.
(a) Contributor acknowledges that Transferee intends the offer
and issuance of the Units to be exempt from registration under the Securities
Act and applicable state securities laws by virtue of (i) the status of
Contributor and the Stockholders as accredited investors and (ii) Regulation D
promulgated under Section 4(2) of the Securities Act ("Regulation D").
Transferee will rely in part upon the representations and warranties made by
Contributor and the Stockholders in making a determination that the offer and
issuance of the
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Units qualify for exemption under Rule 506 of Regulation D as an offer and sale
only to accredited investors.
(b) Contributor is an Accredited Investor.
(c) Contributor will acquire the Units solely for its own
account, and not with a view to or for sale in connection with any
"distribution" thereof within the meaning of the Securities Act except to the
Stockholders.
(d) Contributor has sufficient knowledge and experience in
financial, tax and business matters to enable it to evaluate the merits and
risks of investment in the Units. Contributor has the ability to bear the
economic risk of acquiring the Units. Contributor acknowledges that (i) the
transactions contemplated by this Agreement involve complex tax consequences for
Contributor, and Contributor is relying solely on the advice of his, her or its
own tax advisors in evaluating such consequences, (ii) Transferee has not made
(or shall be deemed to have made) any representations or warranties as to the
tax consequences of such transaction to Contributor, and (iii) any references in
this Agreement to the intended tax effect of the Contribution and the other
matters described herein shall not be deemed to imply any representation by
Transferee as to a particular tax effect that may be obtained by Contributor.
Contributor remains solely responsible for all tax matters relating to
Contributor.
(e) Contributor has received and reviewed materials containing
certain information regarding Transferee, the REIT and the IPO prior to
executing this Agreement. Contributor has been supplied with, or had access to,
information to which a reasonable investor would attach significance in making
an investment decision to acquire the Units and any other information
Contributor has requested. Contributor has had an opportunity to ask questions
of and receive information and answers from Transferee concerning Transferee,
the REIT and the Units and to assess and evaluate any information supplied to
Contributor by Transferee.
(f) Contributor acknowledges that the Units are not registered
under the Securities Act or any state securities laws and cannot be resold
without registration thereunder or exemption therefrom. Except for transfers to
the Stockholders, Contributor agrees that he, she or it will not transfer all or
any portion of the Units for at least one (1) year after the date of the
Closing, and thereafter only if such transfer has been registered or is exempt
from registration under the Securities Act and any applicable state securities
laws.
4.24 Compliance with Law; Approvals.
(a) The operations of each Partnership have been and, to the
date of Closing, will continue to be conducted in compliance with all applicable
Laws and regulations, including, without limitation, all laws, regulations,
orders and requirements promulgated by any Governmental Authority or relating to
consumer protection, equal opportunity, health, health care industry regulation,
third-party reimbursement (including Medicare, Medicaid, and workers
compensation), environmental protection, fire, zoning and building and
occupational safety matters, except for noncompliance that individually or in
the aggregate would not and, insofar as
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may reasonably be foreseen, in the future will not, have a material adverse
effect on the business or operations of the Property or either Partnership.
(b) Neither of the Partnerships nor Contributor has received
notice of any violation (or of any investigation, inspection, audit, or other
proceeding by any Governmental Authority involving allegations of any violation)
of any applicable Law, or is in material default with respect to any applicable
Law and, to the best knowledge of Contributor, no investigation, inspection,
audit, or other proceeding by any Governmental Authority involving allegations
of violation of any applicable Law is threatened or contemplated.
(c) There are no physician shareholders of Contributor.
4.25 Fraud and Abuse Matters
Neither Partnership nor the officers, directors, employees or
agents of either Partnership or the General Partner, have engaged in any
activities which are prohibited, or are cause for civil penalties or mandatory
or permissive exclusion from Medicare or Medicaid, under ss.ss. 1320a-7,
1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute ("CHAMPUS"),
or the regulations promulgated pursuant to such statutes or regulation, or
related state or local statutes or which are prohibited by any private
accrediting organization from which either Partnership seeks accreditation or by
generally recognized professional standards of care or conduct, including but
not limited to the following activities:
(a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or other State Health Care
Program as defined in Section 1128(h) of the federal Social Security Act
(together with all regulations promulgated pursuant thereto, the "SSA") or any
Federal Health Care Program (as defined in Section 1128B(f) of the SSA) that is
(i) for an item or service that the person presenting or causing to be presented
knows or should know was not provided as claimed, or (ii) for an item or service
and the person presenting knows or should know that the claim is false or
fraudulent;
(d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (i) in return for
referring, or to induce the referral of, an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid, or
other State Health Care Program or any Federal Health Care Program, or (iii) in
return for, or to induce, the purchase, lease, or order, or the arranging for or
recommending of the purchase, lease, or order, of any good, facility, service,
or item for which payment may be made in whole or in part by
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CHAMPUS, Medicare or Medicaid or other State Health Care Program or any Federal
Health Care program; or
(e) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading) or
a material fact with respect to (i) the conditions or operations of a facility
in order that the facility may qualify for CHAMPUS, Medicare, Medicaid or other
State Health Care Program or Federal Health Care Program certification, or (ii)
information required to be provided under SSA ss. 1124A.
4.26 Medicare/Medicaid Participation
Neither Partnership nor any officer, director, agent (as
defined in 42 C.F.R. Section 1001.1001(a)(2)), or managing employee (as defined
in SSA Section 1126(b)) of either Partnership or the General Partner (1) has had
a civil monetary penalty assessed against it under SSA Section 1128A; (2) has
been excluded from participation under the Medicare program or a State Health
Care Program; (3) has been convicted (as that term is defined in 42 C.F.R.
Section 1001.2) of any of the following categories of offenses as described in
SSA Section 1128(a) and (b)(1), (2), (3):
(a) criminal offenses relating to the delivery of an item or
service under Medicare, Medicaid or any other State Health Care Program or any
Federal Health Care Program;
(b) criminal offenses under federal or state law relating to
patient neglect or abuse in connection with the delivery of a health care item
or service;
(c) criminal offenses under federal or state law relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local government agency;
(d) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense described in (a)
through (c) above; or
(e) criminal offenses under federal or state law relating to
the unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder represents and warrants to Transferee as to
himself or herself only as follows:
5.1 Securities Matters.
(a) Each Stockholder acknowledges that Transferee intends the
offer and issuance of the Units to be exempt from registration under the
Securities Act and applicable state securities laws by virtue of (i) the status
of Contributor and the Stockholders as accredited investors and (ii) Regulation
D. Transferee will rely in part upon the representations and warranties made by
Contributor and the Stockholders in making a determination that the offer and
issuance of the Units qualify for exemption under Rule 506 of Regulation D as an
offer and sale only to accredited investors.
(b) Contributor and each Stockholder is an Accredited
Investor.
(c) Each Stockholder will acquire the Units solely for his or
her own account, and not with a view to or for sale in connection with any
"distribution" thereof within the meaning of the Securities Act.
(d) Each Stockholder has sufficient knowledge and experience
in financial, tax and business matters to enable them to evaluate the merits and
risks of investment in the Units. Each Stockholder has the ability to bear the
economic risk of acquiring the Units. The Stockholders acknowledge that (i) the
transactions contemplated by this Agreement involve complex tax consequences for
the Stockholders, and each Stockholder is relying solely on the advice of his or
her own tax advisors in evaluating such consequences, (ii) Transferee has not
made (or shall be deemed to have made) any representations or warranties as to
the tax consequences of such transaction to any Stockholder, and (iii) any
references in this Agreement to the intended tax effect of the Contribution and
the other matters described herein shall not be deemed to imply any
representation by Transferee as to a particular tax effect that may be obtained
by any Stockholder. Each Stockholder remains solely responsible for all tax
matters relating to such Stockholder.
(e) Each Stockholder has received and reviewed materials
containing certain information regarding Transferee, the REIT and the IPO prior
to executing this Agreement. Each Stockholder has been supplied with, or had
access to, information to which a reasonable investor would attach significance
in making an investment decision to acquire the Units and any other information
any Stockholder has requested. Each Stockholder has had an opportunity to ask
questions of and receive information and answers from Transferee concerning
Transferee, the REIT and the Units and to assess and evaluate any information
supplied to any Stockholder by Transferee.
(f) Each Stockholder acknowledges that the Units are not
registered under the Securities Act or any state securities laws and cannot be
resold without registration thereunder or
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exemption therefrom. Each Stockholder agrees that he, she or it will not
transfer all or any portion of the Units for at least one (1) year after the
date of the Closing, and thereafter only if such transfer has been registered or
is exempt from registration under the Securities Act and any applicable state
securities laws.
ARTICLE VI
COVENANTS AND AGREEMENTS OF CONTRIBUTOR
Contributor hereby covenants and agrees with Transferee that
prior to the date of the Closing:
6.1 Actions Affecting Assets. Contributor shall not permit
either Partnership to sell, assign, pledge, transfer or encumber, or enter into
any other material consent, commitment, understanding or other agreement, or
incur any material obligation or liability (contingent or absolute) with respect
to the Property or merge or consolidate with or into any other entity or enter
into any agreements relating thereto without Transferee's prior consent;
provided, that Excluded Assets may be distributed to partners of the
Partnerships prior to the Closing.
6.2 Access to Property and Records. Upon reasonable notice and
during regular business hours, Contributor shall give Transferee and
Transferee's authorized representatives full access to each Partnership's
personnel and all properties, documents, contracts, facilities, books, equipment
and records of each Partnership.
6.3 Permits. Contributor shall cause each Partnership to
maintain all Permits in full force and effect, and will file timely all reports,
statements, renewal applications and other filings, and will pay timely all fees
and charges in connection therewith that are required to keep the Permits in
full force and effect.
6.4 Contracts. Contributor will not permit either Partnership
to enter into any new Contracts with respect to the Property without
Transferee's prior consent.
6.5 Insurance. Contributor shall cause each Partnership to
maintain in full force and effect substantially the same public liability and
casualty insurance coverage now in effect with respect to the Property.
6.6 Taxes and Assessments. Contributor shall cause each
Partnership to pay or discharge before delinquent all tax liabilities and
obligations, including without limitation those for federal, state or local
income, property, unemployment, withholding, sales, transfer, stamp,
documentary, use and other taxes.
6.7 Binding Commitments. Contributor shall not make nor permit
either Partnership to make any commitments or representations to any applicable
government authorities, any adjoining or surrounding property owners, any civic
association, any utility or any other similar person or entity that would in any
manner be binding upon Transferee or the
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Property without Transferee's prior consent. Contributor shall not permit either
Partnership to sell, assign, pledge, transfer or encumber, or enter into any
other material consent, commitment, understanding or other agreement, or incur
any material obligation or liability (contingent or absolute) with respect to
the Property or merge or consolidate with or into any other entity or enter into
any agreements relating thereto without Transferee's prior consent.
6.8 Compliance with Law. The operations of each Partnership
have been and will be conducted in compliance with all applicable Laws,
including, without limitation, all such laws regulations, orders and
requirements promulgated by any Governmental Authority or relating to consumer
protection, equal opportunity, health, health care industry regulation, third
party reimbursement (including Medicare, Medicaid, and workers compensation),
environmental protection, fire, zoning and building and occupational safety
matters.
6.9. No Action. Contributor shall not take or permit to be
taken any action that is taken with the intention to invalidate, void or make
untrue, inaccurate or incomplete any representation or warranty provided under
this Agreement. If any event occurs prior to the Closing which would cause any
of Contributor's or the Stockholders' representations or warranties to become
untrue, inaccurate or incomplete in any material respect, Contributor shall
notify Transferee in writing as soon as practicable after Contributor learns of
such occurrence.
6.10 Operation of Property. Contributor shall cause each
Partnership to continue to operate and maintain the Property owned by it in the
ordinary course of such Partnership's business and consistent with such
Partnership's current practices, and to maintain the Property in its present
order and condition, normal wear and tear excepted, and shall cause each
Partnership to continue the normal operation of the Property, including, without
limitation, the purchase and replacement of supplies and equipment, the
maintenance of beneficial relations with tenants, suppliers and others having
business dealings with the Partnerships and the continuation of the
Partnerships' past practice with respect to maintenance and repairs so that,
except for normal wear and tear, the Property shall be in substantially the same
condition on the Closing Date as on the date hereof.
6.11 Capital Contribution.
(a) In the event that, at Closing, the aggregate amount of the
Highgate Debt Service Reserve Fund and the Highgate Operating Reserve Fund is
less than $1,115,000, Contributor shall make a capital contribution to the Paoli
Partnership in the amount of the deficiency.
(b) In the event that, at Closing, the aggregate amount of the
Woodbridge Debt Service Reserve Fund and the Woodbridge Operating Reserve Fund
is less than $1,052,000, Contributor shall make a capital contribution to the
Kimberton Partnership in the amount of the deficiency.
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6.12 Termination of Employees. Prior to Closing, Contributor
shall cause each Partnership to terminate all employees of such Partnership.
Contributor hereby acknowledges that Transferee and, following the consummation
of the Contribution, each such Partnership, shall have no obligation to employ
any of the persons currently employed by such Partnership or employed by such
Partnership prior to the Closing Date and all obligations to pay any welfare and
other benefits, including without limitation, medical, dental, life insurance,
post-retirement medical, dental and life insurance, accidental death and
dismemberment insurance, disability (short-term and long-term), salary
continuation, vacation, severance, dependent care assistance, tuition
reimbursement, cafeteria plan (including spending accounts) and scholarship
award benefits (collectively, "Welfare Benefits") to any such employee, shall be
the obligation of Contributor. Contributor agrees that to the extent the United
States Worker Adjustment and Retraining Notification Act ("WARN") applies to the
Contribution or to the acquisition of all of the partnership interests in each
Partnership by Transferee, Contributor shall have the obligation to comply with
WARN and neither Transferee, nor following the consummation of the Transaction,
either Partnership shall have any obligation or liability therefor.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF CONTRIBUTION
The obligation of Transferee to consummate the Contribution
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
7.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Contributor and the
Stockholders in this Agreement or in any document delivered by Contributor
pursuant to this Agreement shall be true and correct when made and on and as of
the date of the Closing as though such representations, warranties and covenants
were made on and as of such date.
7.2 No Material Adverse Change. There shall have been no
material adverse change in the value or condition of the Property or either
Partnership since the date hereof, except for changes contemplated by this
Agreement and changes in the ordinary course of business which do not have a
material adverse effect on the business or financial condition of the
Contribution, either Partnership or the Property.
7.3 Title Insurance; Survey. Commonwealth Land Title Insurance
Company shall have issued an ALTA owners title insurance policy effective as of
the date of the Closing or an unconditional commitment therefor insuring the
Paoli Partnership's interest in the Highgate Property in an amount not less than
$2,300,000 and insuring the Kimberton Partnership's interest in the Woodbridge
Property in an amount not less than $2,775,000, in each case with only those
exceptions and containing such endorsements as are acceptable to Transferee in
its sole and absolute discretion and otherwise acceptable to Transferee in
Transferee's sole discretion; in addition thereto, Transferee shall have
received a survey for the Real Property that is acceptable to Transferee in
Transferee's sole discretion.
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7.4 No Order or Injunction. The consummation of the
Contribution shall not have been restrained, enjoined or prohibited by any order
or injunction of any court or governmental authority of competent jurisdiction.
7.5 Consents. All consents listed on Schedule 4.2 and all
other consents necessary for the execution and delivery of this Agreement by
Contributor and the consummation of the Contribution by Contributor have been
obtained.
7.6 Instruments of Conveyance. Contributor shall have executed
and delivered the instruments evidencing conveyance of the Interests referred to
in Section 8.1.
7.7 Leases.
(a) Transferee (or the Paoli Partnership) and Genesis or an
affiliate or subsidiary thereof shall have entered into a lease with respect to
the Paoli Facility;
(b) Transferee (or the Kimberton Partnership) and an affiliate
or subsidiary of Senior LifeChoice II shall have entered into a lease with
respect to the Woodbridge Facility (the "Woodbridge Lease") and Senior
LifeChoice II shall have executed a guaranty of the Woodbridge Lease.
7.8 Occupancy. At least 85% of the units in the Highgate
Facility shall be occupied as of the Closing Date and at least 70% of the units
in the Woodbridge Facility shall be occupied as of the Closing Date.
7.9 Zoning Change. There shall be no pending or threatened
zoning change without may affect the Property or any part thereof.
7.10 Other Transactions.
(a) Gregory M. Stevens or his designee shall have acquired the
shares of stock of Michael S. Hartnett in Contributor and Transferee or its
designee shall have acquired the limited partnership interests of Meyers
Partnership, Tigh Investments, Tigh Investments II, Anne C. Searle, Kenneth R.
Kuhnle, Harry J. Sniscak, Gregory M. Stevens, custodian for Julia A. Stevens and
Gregory M. Stevens, custodian for Katherine M. Stevens in the Partnership
(collectively, the "Highgate Limited Partners") pursuant to one or more
acquisition agreements between Transferee and the Highgate Limited Partners (the
"Highgate Limited Partner Agreements").
(b) Transferee or its designee shall have acquired the limited
partnership interests of Meyers Partnership, Gregory M. Stevens and Vogenberg
Family Limited Partnership (collectively, the "Woodbridge Limited Partners")
pursuant to one or more acquisition agreements between Transferee and the
Woodbridge Limited Partners (the "Woodbridge Limited Partner Agreements"; the
Highgate Limited Partner Agreements and the Woodbridge Limited Partner Agreement
collectively shall be known as the "Limited Partner Agreements").
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7.11. Trustee/Bondholder Consent. Eaton Vance, as holder of
certain of the bonds issued in connection with the Bond Debt, and, if required
the Trustee under the Bond Debt and A.H. Williams, as holder of certain of the
bonds (i) shall have consented to the Contribution and to the acquisition of all
of the partnership interests in each Partnership by Transferee or its designee,
(ii) shall agree and consent to such matters, including, without limitation, any
appropriate modifications to the documents and instruments evidencing or
securing the Bond Debt (the "Bond Documents") and the prepayment of that portion
of the Bond Debt evidenced by the Chester County Industrial Development
Authority $250,000 Assisted Living Facility Revenue Bonds (Senior LifeChoice of
Paoli, L.P.), Taxable Series 1994B, as shall have been requested by Transferee,
which agreements and consents shall be on terms and conditions acceptable to
Transferee in its sole discretion, (iii) shall have granted such waivers to
provisions of the Bond Documents as shall have been requested by Transferee,
which waivers shall be on terms and conditions acceptable to Transferee in its
sole discretion, (iv) Eaton Vance, as holder of certain of the bonds issued in
connection with the Bond Debt, and, if required the Trustee under the Bond Debt
shall have agreed to accept a letter of credit in lieu of the Debt Service
Reserve Fund and the Operating Reserve Fund, (v) shall have agreed to release to
Contributor for distribution to the partners of the Paoli Partnership, all
amounts held in all funds and reserves created and existing under the Bond
Documents relating to the Highgate Property in excess of $1,115,000 and (vi)
shall have agreed to release to Contributor for distribution to the partners of
the Kimberton Partnership, all amounts held in all funds and reserves created
and existing under the Bond Documents relating to the Woodbridge Property in
excess of $1,052,000.
7.12 Stockholder Consent. All of the stockholders of
Contributor shall have unanimously approved this Agreement and all of the
transactions contemplated herein.
7.13 Payments. Senior LifeChoice II shall have paid the sum of
$400,000 to the Kimberton Partnership.
ARTICLE VIII
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY CONTRIBUTOR
The obligation of Contributor to consummate the Contribution
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
8.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferee in this Agreement
or in any document delivered by Transferee pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
8.2 Consents. All consents necessary for the consummation of
the Contribution by Transferee shall have been obtained.
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8.3 IPO Closing. The IPO shall close simultaneously with the
Contribution.
8.4 Simultaneous Closing. The Contribution shall close
simultaneously with the closings under the Limited Partner Agreements.
8.5 Lease. Transferee (or the Kimberton Partnership) and an
affiliate or subsidiary of Senior LifeChoice II shall have entered into the
Woodbridge Lease.
8.6 Payment to Contributor.
(a) Contributor shall have received a payment for
distribution to all of the partners of the Paoli Partnership in an amount at
least equal to all amounts held in all funds and reserves created and existing
under the Bond Documents relating to the Highgate Property in excess of
$1,115,000.
(b) Contributor shall have received a payment for
distribution to all of the partners of the Kimberton Partnership in an amount at
least equal to all amounts held in all funds and reserves created and existing
under the Bond Documents relating to the Woodbridge Property in excess of
$1,052,000.
ARTICLE IX
THE CLOSING
Subject to the terms and conditions of this Agreement, the
Closing shall take place promptly after satisfaction or waiver of the conditions
set forth in Article VII hereof.
9.1 Closing Deliveries by Contributors. At Closing,
Contributor shall deliver the following:
(a) a written document of conveyance contributing to
Transferee title to the Interests, free and clear of any
adverse claim or interest;
(b) such documents and certificates as Transferee may
require to establish the authority of the parties executing
any documents in connection with the Contribution including,
in the case of any Contributor that is a corporation,
partnership, limited liability company or other similar entity
(other than a trust or estate), an opinion of counsel,
reasonably satisfactory to Transferee, as to the due execution
and delivery of such documents;
(c) such consents as are contemplated by Section 7.5
hereof, Section 7.11 hereof and Section 7.12 hereof;
(d) a certificate duly executed by Contributor under
penalty of perjury setting forth Contributor's address and
federal tax identification number and
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certifying that Contributor is not a "foreign person" in
accordance with the provisions of Section 1445 (as may be
amended prior to the date hereof) of the Internal Revenue
Code of 1986, as amended, and any regulations promulgated
thereunder; and
(e) such other documents and instruments as
Transferee and Contributor agree are necessary or appropriate.
9.2 Closing Deliveries by Transferee. At Closing, Transferee
shall deliver or cause to be delivered the following:
(a) the Units referred to in Article II hereof;
(b) copies of the executed Registration Rights
Agreement and Operating Partnership Agreement;
(c) the Cash Consideration; and
(d) such other documents and instruments as
Contributor and Transferee agree are necessary or appropriate.
9.3 Closing Costs. Transferee agrees to pay all costs
associated with the closing of the acquisition of the Interests by Transferee,
including (i) survey costs, (ii) costs of obtaining title insurance policies for
the benefit of Transferee, and (iii) except as provided below, all other fees
imposed on or in connection with the Contribution, provided, however, to the
extent any instruments are required to be recorded in connection with the
Contribution, Contributor, on one hand, and Transferee, on the other hand, shall
each pay one-half (1/2) of all costs, transfer and recordation taxes and fees
associated with the recordation. Each party shall pay its own legal fees.
ARTICLE X
REMEDIES ON DEFAULT
10.1 Contributor's Remedies. Except for any breaches waived in
writing by Contributor, if Transferee fails to consummate the Contribution when
required to do so pursuant to the provisions hereof, then Contributor shall be
entitled to terminate this Agreement as the exclusive and sole right and remedy
of Contributor (except as provided in this sentence), whereupon this Agreement
shall terminate and neither party hereto shall have any further obligations to
the other party hereto, provided, however that in such event, Transferee shall
reimburse Contributor for all reasonable costs incurred by Contributor in
connection with the Contribution, provided that the amount to be reimbursed by
Transferee shall not exceed Twenty-Five Thousand Dollars ($ 25,000).
10.2 Transferee's Remedies. Except for any breaches waived in
writing by Transferee, if Contributor has breached any of its covenants or
obligations under this Agreement
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or shall have failed, refused or are unable to consummate the Contribution by
the date of the Closing when and as required to do so hereunder, then Transferee
shall have the right to bring an action at law or in equity seeking the specific
performance of the obligations of Contributor hereunder and in addition thereto
or in lieu thereof, Transferee may avail itself of any other remedies available
at law or in equity on account of such breach, provided, however, except in the
case of a willful failure or refusal of Contributor to consummate the
Contribution by the date of the Closing or the inability of Contributor to
consummate the Contribution by the date of the Closing by virtue of an
intentional act of Contributor, the amount of money damages that Transferor may
recover from Contributor shall not exceed Twenty-Five Thousand Dollars
($25,000).
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by Contributor. Contributor hereby
indemnifies and agrees to defend and hold harmless Transferee, and its officers,
directors, employees, agents and successors and assigns and its general partner
and any officers, directors, employees, agents and successors and assigns of
such general partners ("Transferee Indemnitees"), from and against any and all
demands, claims, actions or causes of action, assessments, expenses, costs,
damages, losses and liabilities (including attorneys' fees and other charges)
which may at any time be asserted against or suffered by any Transferee
Indemnitee, the Property, or any part thereof, whether before or after date of
the Closing, as a result of, on account of or arising from (a) subject to
Section 10.2 above, the failure of Contributor to perform any of his, her or its
obligations hereunder or, to the extent provided in Section 13.1, the breach by
Contributor or the Stockholders of any of his, her or its representations and
warranties hereunder, (b) events, contractual obligations, acts or omissions of
Contributor or either Partnership that occurred in connection with the ownership
or operation of the Property prior to the Closing, (c) damage to property or
injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times prior to
the Closing, (d) any obligation, claim, suit, liability, contract, agreement,
debt or encumbrance created, arising or accruing prior to the date of the
Closing, regardless of when asserted, relating to the Property or its operation,
including, without limitation, any and all liabilities for federal or state
income taxes or other taxes, which shall not have been set forth or specifically
described in this Agreement or the Schedules and the Exhibits hereto, (e) any
claims made by any person employed by either Partnership for Welfare Benefits or
otherwise in connection with such person's employment by such Partnership or the
termination of said employment or (f) any claims relating to WARN to the extent
applicable to the Contribution or the acquisition of all of the partnership
interests in each Partnership by Transferee. The obligations of Contributor
under this Section 11.1 shall survive the Closing.
11.2 Indemnification by Transferee. Transferee hereby
indemnifies and agrees to defend and hold harmless Contributor, and its
respective successors and assigns ("Contributor Indemnitees"), from and against
any and all demands, claims, actions or causes
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of action, assessments, expenses, costs, damages, losses and liabilities
(including attorneys' fees and other charges) which may at any time be asserted
against or suffered by any Contributor Indemnitee, the Property, or any part
thereof, whether before or after the date of the Closing, as a result of, on
account of or arising from (a) subject to Section 10.1 above, the failure of
Transferee to perform any of its obligations hereunder or, to the extent
provided in Section 13.1, the breach by Transferee of any of its representations
and warranties made herein, (b) events, contractual obligations, acts or
omissions of Transferee that occurred in connection with the ownership or
operation of the Property prior to the Closing or (c) damage to property or
injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times prior to
the Closing. The obligations of Transferee under this Section 11.2 shall survive
the Closing.
ARTICLE XII
FEASIBILITY PERIOD
12.1 From the date of this Agreement until the Feasibility
Period Expiration Date (as defined below) ("Feasibility Period"), and if
Transferee elects to proceed to Closing, through the Closing Date, Transferee,
at its sole cost and expense, shall have a right to conduct such feasibility
studies of the Property, including, without limitation, architectural,
engineering, environmental, soil boring, development and economic feasibility
studies (collectively, "Feasibility Studies") as Transferee deems necessary.
Contributor shall cooperate fully with Transferee and its agents (which term for
all purposes of this Agreement shall be deemed to include third party
consultants and contractors) in permitting reasonable access to the Property to
conduct the Feasibility Studies. Such access may be either during normal
business hours or after normal business hours after the giving of reasonable
advance notice to Contributor and subject to the rights of tenants. Transferee
shall give Contributor at least two (2) Business Days advance notice of any
invasive test and shall perform any such test in strict accordance with best
industry procedures and in such a manner as to minimize any interference with
Contributor or Contributor's tenants. Transferee shall reasonably restore the
Property to its condition prior to any such Feasibility Studies and shall
indemnify and defend Contributor from any and all (x) physical damage to the
Property, (y) damage to persons or property of third persons, and (z) amounts
payable to third party contractors as a result of the Feasibility Studies which
may directly arise as a result of the performance of Feasibility Studies by
Transferee (not as a result of the information determined). Contributor shall
provide Transferee and its agents, from time to time during business hours, with
access to and copies upon request of all documents that relate to the ownership,
management, maintenance, repair or operation or the purchase of the Property in
the possession or control of Contributor and have not been previously delivered
to Transferee (the "Documents").
12.2 If in Transferee's sole and absolute discretion (i)
Transferee is not satisfied for any reason whatsoever with any of the results of
the Feasibility Studies, the review of the Title Commitment and/or the Survey,
then Transferee shall have the right to terminate this
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<PAGE>
Agreement by giving written notice to Contributor in the manner set forth in
Section 13.2, on or before the Feasibility Period Expiration Date.
12.3 In the event that this Agreement is terminated pursuant
to Section 12.2 above, Contributor and Transferee shall be relieved from all
further obligation or liability hereunder.
12.4 For the purposes of this Agreement, the "Feasibility
Period Expiration Date" shall be 5:00 p.m. EDT on the thirtieth (30th) day after
full execution by Contributor and Transferee of this Agreement. In the event
that the Feasibility Period Expiration Date falls on a weekend or a nationally
recognized holiday, the Feasibility Period Expiration Date shall be deemed to be
the next business day thereafter.
ARTICLE XIII
GENERAL PROVISIONS
13.1 Survival of Liability with Respect to Representations and
Warranties. (a) It is the express intention and agreement of the parties that
(i) the representations and warranties of Contributor set forth in Section 4.1
through Section 4.12, Section 4.13, Section 4.14, Section 4.16 through Section
4.19, Section 4.21, Section 4.22 and Section 4.24 of this Agreement and the
representations and warranties of Transferee set forth in Article III of this
Agreement shall survive the consummation of the Contribution for a period of one
(1) year from the date of the Closing; and (ii) the representations and
warranties of Contributor set forth in Section 4.20 of this Agreement shall
survive the consummation of the Contribution for a period of three (3) years
from the date of the Closing. Such representations and warranties shall expire
and be terminated and extinguished forever at the expiration of the applicable
period. In addition thereto, the representations and warranties of Contributor
set forth in Section 4.15, Section 4.23, Section 4.25 and Section 4.26 of this
Agreement and the representations and warranties of the Stockholders set forth
in Article V of this Agreement shall survive the consummation of the
Contribution and shall not terminate. Any written notice given within such
period setting forth a claim must set forth the nature and details of the claim
with specificity.
(b) Any liability of Contributor to Transferee pursuant to
this Section 13.1 shall not exceed twenty percent (20%) of the value of the
Units received by Contributor pursuant to this Agreement; provided, however,
that such limitation shall not apply to a breach by Contributor of the
representations and warranties made by Contributor in Section 4.23 hereof.
13.2 Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by either
Contributor or Transferee to the other pursuant to this Agreement shall be in
writing and shall be hand delivered or transmitted by certified mail, express
overnight mail or delivery service, telegram, telex or facsimile transmission to
the parties at the following addresses:
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<PAGE>
If to Contributor: Senior LifeChoice Corp.
2393 Kimberton Road
Suite 200
Kimberton, Pennsylvania 19442
Attention: Gregory M. Stevens
If to Transferee: Eldertrust Operating Limited Partnership
c/o ElderTrust Realty Group, Inc., General Partner
415 McFarlan Road
Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive Officer
Telecopier: (610) 925-0815
or such other address as the addressee may indicate by written notice to the
other party.
Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the delivery receipt, the affidavit of messenger or (with respect to a telex)
the answerback being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
13.3 Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of the Commonwealth of Pennsylvania
(but not including the choice of law rules thereof).
13.4 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Contributor (if the assignor is Transferee)
or Transferee (if the assignor is Contributor), which consent shall not be
unreasonably withheld, and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect, except that (i) Transferee may
assign this Agreement and its rights hereunder, to a corporation, partnership,
limited liability or other entity of which the entire ownership interest is
owned directly or indirectly by Transferee without the consent of Contributor;
no such assignment shall relieve Transferee of its obligations hereunder and
(ii) Transferee may designate one or more entities to acquire a portion of the
Interest.
This Agreement shall be binding upon and shall inure to the
benefit to the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable only
by, the parties hereto or their respective successors and assigns as permitted
hereunder.
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<PAGE>
13.5 Severability. If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining parts of
such provisions or the remaining provisions of said agreement so long as the
economic and legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
13.6 Entire Agreement; Amendment. This Agreement and the
Exhibits and Schedules attached hereto (each of which shall be deemed
incorporated herein and made a part hereof) contain the final and entire
agreement between the parties hereto with respect to the Contribution and are
intended to be an integration of all prior negotiations and understandings.
Contributor and Transferee shall not be bound by any terms, conditions,
statements, warranties or representations, oral or written, not contained or
referred to herein or therein. No amendment, change or modification of this
Agreement shall be valid unless the same is in writing and signed by the parties
hereto.
13.7 No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified
therein.
13.8 Power of Attorney. By executing this Agreement below or
pursuant to a Consent Form, Contributor and each Stockholder is constituting and
appointing each of Edward B. Romanov, Jr. and D. Lee McCreary, Jr.,
individually, with full power of substitution, the true and lawful
attorney-in-fact (the "Attorney") of Contributor and each Stockholder, with full
power and authority in the name of and for and on behalf of Contributor and each
Stockholder, to execute an instrument of conveyance contributing his, her or its
Interest to Transferee pursuant to the terms set forth in this Agreement, to
execute the Operating Partnership Agreement and the Registration Rights
Agreement and to execute any other instruments that Transferee reasonably deems
necessary or appropriate in connection with the contribution of the Interest
pursuant to this Agreement.
13.9 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
13.10 [INTENTIONALLY DELETED]
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<PAGE>
13.11 Confidentiality. Transferee and Contributor agree not to
make any public announcement about the Contribution without the prior written
consent of the other party. Notwithstanding the foregoing, the Contribution, the
terms and conditions of this Agreement may be described in any registration
statement or other document filed by the REIT with the United States Securities
and Exchange Commission (the "SEC") and a copy of this Agreement may be filed
with the SEC.
ARTICLE XIV
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall
have the following meanings:
"Claims" means all demands, claims, actions or causes of
action, assessments, losses, damages (including, without limitation, diminution
in value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements.
"Environmental Laws" means any Laws (including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act), including any plans, other criteria, or guidelines promulgated
pursuant to such Laws, now or hereafter in effect relating to the generation,
production, installation, use, storage, treatment, transportation, release,
threatened release or disposal of Hazardous Materials. noise control, or the
protection of human health or safety, natural resources or the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974 (together with all rules and regulations promulgated thereunder), as
amended, supplemented, or modified from time to time.
"ERISA Affiliate" means any trade or business under common
control (as it is defined in Section 414(b) or Section 414(c) of the Internal
Revenue Code of 1986, as amended, or Section 4001(b)(1) of ERISA) with either
Partnership.
"Governmental Authority" means any nation, government, state,
municipality or any political subdivision of any nation, government, state or
municipality, including any court or other entity exercising executive,
legislative, regulatory, judicial or administrative functions of or pertaining
to, government.
"Hazardous Materials" means any wastes, substances, radiation
or materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
or become defined as "pollutants," "contaminants," "hazardous materials,"
"hazardous wastes," "hazardous substances," "toxic substances," "radioactive
materials," "solid wastes," or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws; (iii) the presence of which
on
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<PAGE>
the Real Property cause or threaten to cause a nuisance pursuant to applicable
statutory or common law upon the Real Property or to adjacent properties; (iv)
without limitation, which contain polychlorinated biphenyls (PCBs), asbestos and
asbestos-containing materials, lead-based pains, urea-formaldehyde foam
insulation and petroleum or petroleum products (including, without limitation,
crude oil or any fraction thereof) or (v) which pose a hazard to human health,
safety, natural resources, industrial hygiene, or the environment, or an
impediment to working conditions.
"Laws" means all foreign, federal, state and local statutes,
laws ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, common law rulings, awards, (including, without limitation, awards
of any arbitrator), judgments and decrees applicable to the specified persons or
entities and to the businesses and Assets thereof (including, without
limitation, Laws relating to securities registration and regulation; the sale,
leasing, ownership or management of real property; employment practices, terms
and conditions, and wages and hours; building standards, land use and zoning;
safety, health and fire prevention; and environmental protection, including
Environmental Laws).
"Plan" means any plan, program or arrangement, whether or not
written, that is or was an "employee benefit plan" as it is defined in ERISA and
(a) that was or is established or maintained by either Partnership or any ERISA
Affiliate; (b) under which either Partnership or any ERISA Affiliate has
contributed or has been obligated to contribute or to fund or provide benefits,
or under which either Partnership or any ERISA Affiliate has any liability; or
(c) that provides or promises benefits to any person who performs or has
performed services for either Partnership or any ERISA Affiliate who, because of
such services, is or was a participant therein or entitled to benefits
thereunder.
"Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
or release of Hazardous Materials from any source (including, without
limitation, the Real Property and property adjacent to the Real Property) into
or upon the environment, including the air, soil, improvements, surface water,
groundwater, the sewer, septic system, storm drain, publicly owned treatment
works, or waste treatment, storage, or disposal systems at, on, from, above or
under the Real Property.
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<PAGE>
IN WITNESS WHEREOF, Contributor and Transferee have caused
this Agreement to be duly executed and delivered on its behalf and each of the
Stockholders has executed a separate Consent Form agreeing to be bound by the
terms of this Agreement as of the date first above written.
TRANSFEREE:
ELDERTRUST OPERATING LIMITED
PARTNERSHIP
By: ElderTrust Realty Group, Inc.
By: /s/ Edward B. Romanov, Jr.
------------------------------
Name: Edward B. Romanov, Jr.
Title: President and Chief
Executive Officer
CONTRIBUTOR:
SENIOR LIFECHOICE CORP.
By: _________________________________
Name:____________________________
Title:_____________________________
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<PAGE>
[COUNTERPART SIGNATURE PAGE OF SENIOR LIFECHOICE CORP. TO PLAN OF ASSET TRANSFER
AND CONTRIBUTION AGREEMENT MADE AND ENTERED INTO AS OF SEPTEMBER 25, 1997 BY AND
BETWEEN ELDERTRUST OPERATING LIMITED PARTNERSHIP AND SENIOR LIFECHOICE CORP.]
IN WITNESS WHEREOF, the undersigned has executed this Consent Form as
of the date indicated below.
SENIOR LIFECHOICE CORPORATION
Dated: 9/30/97
By: /s/ Gregory M. Stevens
------------------------------
Gregory M. Stevens
President
STATE OF PENNA )
: SS.
COUNTY OF CHESTER )
On the 30th day of September 1997, before me personally came
Gregory M. Stevens, to me known, who being by me duly sworn, did depose and say
that he resides at _________________________________________, that he is
President of Senior LifeChoice Corporation, a Pennsylvania corporation, which
executed the foregoing instrument, and that he signed his name thereto on behalf
of said corporation by order of the board of directors of said corporation, and
as the act and deed of said of corporation for the uses and purposes of therein
mentioned.
/s/ Carolyn M. Thomas
----------------------------
Notary Public
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<PAGE>
Exhibit 10.10
FORM OF ASSET TRANSFER AGREEMENT
THIS ASSET TRANSFER AGREEMENT (this "Agreement") is made and entered
into as of September 25, 1997, by and between ELDERTRUST OPERATING LIMITED
PARTNERSHIP, a Delaware limited partnership ("Transferee"), and __________
("Transferor").
WHEREAS, Transferor is a limited partner in Senior LifeChoice of Paoli,
L.P., a Pennsylvania limited partnership (the "Partnership") and owns the
limited partnership interests in the Partnership set forth on Schedule 1.1
hereof (the "Interest");
WHEREAS, Transferor desires to transfer the Interest to Transferee on
the terms and conditions set forth;
WHEREAS, the Partnership owns and operates an assisted living facility
known as ___________ (the "Facility"), which Facility consists of the real
property described in Exhibit A hereto (the "Real Property"), the improvements
thereon and all other real and personal property associated therewith
(collectively, the "Property"), all of which other real and personal property is
described in Exhibit B hereto; and
WHEREAS, all capitalized terms not otherwise defined herein shall have
the meanings set forth in Article XIII hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, Transferee and Transferor hereby agree
as follows:
ARTICLE I
THE TRANSFER
Subject to the terms and conditions set forth herein, Transferor agrees
to transfer to Transferee, and Transferee agrees to acquire from Transferor, the
Interest. The transfer of the Interest shall be effected pursuant to the
provisions of this Article I and other applicable provisions of this Agreement
(the "Transaction").
1.1 Transfer of Interest. On the Closing Date (as hereinafter defined),
in accordance with the terms and conditions set forth herein, Transferor shall
transfer to Transferee, and Transferee shall acquire from Transferor, the
<PAGE>
Interest and all of Transferor's right, title and interest in and to the
Interest (including rights to distributions under the Partnership's agreement of
limited partnership that have accrued as of the Closing Date).
1.2 Purchase Price. The total consideration (the "Purchase Price") to
be paid by Transferee to Transferor for the Interest shall be immediately
available funds to be paid to Transferor at the Closing in the amount of
_____________ ($___________).
1.3 Closing. The closing of the Transaction (the "Closing") shall occur
simultaneously with the closing of the initial public offering (the "IPO") of
shares of beneficial interest in ElderTrust, a Maryland real estate investment
trust (the "REIT"), provided that if the IPO has not occurred on or before March
31, 1998, this Agreement shall terminate and neither party hereto shall have any
further liability to any other party hereto.
ARTICLE II
[INTENTIONALLY DELETED]
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
Transferee hereby represents and warrants to Transferor as follows:
3.1 Organization, Power and Authority, and Qualification. Transferee is
a limited partnership duly organized, validly existing and in good standing
under the laws of the State of Delaware. Transferee has the requisite power and
authority to carry on its respective business as it is now being conducted.
Transferee is qualified to do business and is in good standing in each
jurisdiction where the character of its property owned or leased or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified and in good standing would not have a material adverse effect
on the business or financial condition of Transferee.
3.2 Authority Relative to this Agreement. All action of Transferee
necessary to authorize the execution, delivery and performance of this Agreement
by Transferee has been taken, and no other proceedings on the part of Transferee
are necessary to authorize the execution and delivery of this Agreement by
Transferee and the consummation by Transferee of the Transaction.
Neither the execution and delivery of this Agreement by Transferee nor
the consummation by Transferee of the Transaction nor compliance by Transferee
with any of the provisions hereof will (i) conflict with or result in any breach
of any provisions of the partnership agreement of Transferee, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
2
<PAGE>
instrument or obligation to which Transferee is a party or by which it or any of
its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Transferee or any
of the properties or assets of Transferee.
3.3 Binding Obligation. This Agreement has been duly and validly
executed and delivered by Transferee to Transferor and constitutes a valid and
binding agreement of Transferee, enforceable against Transferee in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or the rights of creditors of limited partnerships
and to general principles of equity.
3.4 Brokers. Transferee has not employed any broker or finder, or
incurred any liability therefor, in connection with the Transaction contemplated
by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRANSFEROR
Transferor hereby represents and warrants to Transferee as follows:
4.1 [INTENTIONALLY DELETED]
4.2 Authority Relative to this Agreement. All action necessary to
authorize the execution, delivery and performance of this Agreement by
Transferor has been taken, and no other proceedings are necessary to authorize
the execution and delivery by Transferor of this Agreement and the consummation
by Transferor of the Transaction.
Neither the execution and delivery of this Agreement by Transferor, nor
the consummation by Transferor of the Transaction nor compliance by Transferor
with any of the provisions hereof as of the date of the Closing will (i)
conflict with or result in any breach of any provisions of the partnership
agreement of the Partnership, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, permit, contract, agreement, easement, restriction or other
instrument or obligation to which Transferor or the Partnership is a party or by
which Transferor or the Partnership or the Property may be bound, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Transferor, the Partnership or the Property, except in the case of
(ii) or (iii) for violations, breaches, or defaults (A) which would not in the
aggregate have a material adverse effect on the business or financial condition
of Transferor, the Partnership, the Transaction or the Property or (B) for which
waivers or consents have been obtained or, as listed on Schedule 4.2, will be
obtained prior to the date of the Closing.
4.3 Binding Obligation. This Agreement has been duly and validly
executed and delivered by Transferor to Transferee and constitutes a valid and
binding agreement of Transferor, enforceable against Transferor in accordance
3
<PAGE>
with its terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or the rights of creditors of corporations and to
general principles of equity.
4.4 Brokers. Transferor has not employed any broker or finder, or
incurred any liability therefor, in connection with the Transaction contemplated
by this Agreement.
4.5 Options to Acquire. Transferor has not granted to any person any
option, warrant or other right to acquire the Interest, and to Transferor's
knowledge, no other person or entity has granted to any person (other than
Transferee) any option, warrant or other right to acquire any interest in the
Partnership.
4.6 [INTENTIONALLY DELETED]
4.7 Title to Property. Transferor has good and marketable title to the
Interest, free and clear of any Liens (as hereinafter defined). To Transferor's
knowledge, the Partnership has fee simple title to the Real Property and good
and valid title to all the Personal Property (as defined on Exhibit B). To
Transferor's knowledge, the Property is not subject to any imperfections in
title, easements, liens, mortgages, encumbrances, pledges, claims, charges,
options, defects, preferential purchase rights or other encumbrances
(collectively referred to herein as "Liens") except for the following
("Permitted Liens"):
(i) Liens for real property taxes and assessments or for fire dues,
library dues or similar assessments not yet delinquent;
(ii) Liens that are not material in character, amount, or extent and
do not materially detract from the value, or interfere with the
use of, the Partnership's assets subject thereto or affected
thereby or otherwise materially impair the business operations
being conducted or proposed to be conducted thereon;
(iii) the Bond Debt (as hereinafter defined); and
(iv) Liens shown on Schedule 4.7 hereto.
4.8 Debt. The Property is subject to mortgage indebtedness described on
Schedule 4.8 hereto (the "Bond Debt"). Schedule 4.8 correctly sets forth the
interest rate, maturity date and outstanding amount of the Bond Debt as of the
date hereof. Except for the Bond Debt, the Partnership has no material
indebtedness other than indebtedness incurred by it in its ordinary course of
business. There exists no default, or event which with the passage of time or
notice or both would constitute a default with respect to the Bond Debt or any
other debt of the Partnership that has not been cured or that would have a
material adverse effect on the business or financial condition of the
Partnership, the Transaction or the Property. In connection with the Bond Debt,
the Trustee thereunder is holding not less than the sum of $912,000 as a debt
service reserve (the "Debt Service Reserve Fund") and not less than the sum of
$203,000 as an operating reserve (the "Operating Reserve Fund").
4
<PAGE>
4.9 Financial Statements. The financial statements of the Partnership
attached as Schedule 4.9 hereto (the "Financial Statements") have been prepared
from the books and records of the Partnership in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods specified. The balance sheets in the Financial Statements fairly present
the financial condition of the Partnership as of the dates shown, and the income
statements in the Financial Statements fairly present the results of operations
for the periods indicated.
4.10 Financial Condition. Since June 30, 1997, there has been no
material adverse change in the business or financial condition of the
Partnership.
4.11 Leases. Except as set forth on Schedule 4.11 hereto, there are no
leases, tenancies or other rights of occupancy in effect on the date hereof with
respect to the Property. Each of the leases referenced in Schedule 4.11 (the
"Leases") has been delivered to or made available to Transferee and is presently
unamended (or with respect to each such lease that has been amended, all
amendments thereto have been delivered or made available to Transferee) and in
full force and effect without material default.
4.12 Contracts. Except for a management agreement for the Facility and
service contracts entered into in the ordinary course of business of the
operation of the Facility, the Partnership is not a party to and neither
Transferor nor the Partnership is bound by any contracts or other
understandings, written or oral, that relate to the Interest or the Property,
except for contracts or understandings that are not material to the business and
operations of the Property (collectively, the "Contracts"). Neither Transferor
nor the Partnership nor, to Transferor's knowledge, any other party thereto has
breached or defaulted under the terms of any Contract, except for such breaches
or defaults that would not have a material adverse effect on the business or
operations of the Partnership or the Property.
4.13 Permits. To the knowledge of Transferor, the Partnership has all
such franchises, certificates, licenses, permits and other authorizations from
government political subdivisions, regulatory authorities or any other person or
entity (collectively "Permits") as are necessary for the ownership, use,
operation and licensing of the Property as it is currently being used, except
where the failure to possess such Permits would not have a material adverse
effect on the business or financial condition of the Partnership or the
Property, and to Transferor's knowledge, the Partnership is not in violation of
any Permit in any material respect. No notice to, declaration, filing or
registration with, or Permit or consent from any governmental or regulatory body
or authority, or any other person or entity, is required to be made or obtained
by Transferor or the Partnership in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby, and no Permits will in any way be affected by, or terminate
or lapse by reason of, the Transaction or any of the other agreements
contemplated hereunder or executed herewith.
4.14. Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to Transferor's knowledge, threatened against
Transferor or the Partnership, or any properties or rights of Transferor or the
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Partnership, that would have a material adverse effect on the business or
financial condition of Transferor or the Partnership, the Transaction or the
Property before any court or administrative, governmental or regulatory
authority or body, domestic or foreign. None of Transferor, the Partnership, the
Interest or the Property is subject to any order, judgment, injunction or decree
of any court, tribunal or other governmental authority (other than generally
applicable laws, rules and regulations) that would have a material adverse
effect on the business or financial condition of the Partnership, the
Transaction or the Property.
4.15 Compliance with Laws. To Transferor's knowledge, the Partnership
has not received any written or other actual notice of any violation of any
applicable zoning regulation or ordinance, or of any employment, environmental,
or other regulatory law, order, regulation or requirement, including applicable
subdivision laws, relating to the Property or the business or operations
thereon, which remains uncured, and, to Transferor's knowledge, there are no
such violations which, individually or in the aggregate, would have a material
adverse effect on the business or financial condition of the Partnership or the
Property.
4.16 Taxes. Except for such matters as in the aggregate shall not
result in a material adverse effect on the business or financial condition of
the Partnership, (i) all tax or information returns required to be filed on or
before the date hereof by or on behalf of the Partnership have been filed
through the date hereof or will be filed on or before the date of the Closing in
accordance with all applicable laws, (ii) there is no action, suit or proceeding
pending against, or with respect to, the Partnership or the Property in respect
of any tax nor is any claim for additional tax asserted by any such authority,
and (iii) all taxes (including related penalties, interest and additional
amounts) imposed upon the Partnership and required to be reported on a return
required to be filed (without regard to any applicable extensions) on or before
the date hereof have been paid or will be paid prior to the delinquency thereof.
4.17 Insurance. To the knowledge of Transferor, each of the insurance
policies with respect to the Property is in full force and effect and all
premiums due and payable thereunder have been fully paid when due. To the
knowledge of Transferor, the Partnership has not received from any insurance
company notice of any material defects or deficiencies affecting the
insurability of the Property or notices of cancellation or intent to cancel any
such insurance.
4.18 [INTENTIONALLY DELETED]
4.19 Utilities. Usable public sanitary and storm sewers, public water,
and gas and electrical utilities (collectively, the "Public Utilities"), of
adequate capacity for the operation of the Property, are installed in, and are
duly connected to, the Property and can be used without any charge except the
normal and usual metered charges imposed for such Public Utilities. The
Partnership has not been notified of any increase or proposed increase in the
charges imposed for such Public Utilities. No amounts due and owing with respect
to the Property in connection with utilities, insurance, assessments or other
charges customarily prorated in real estate transactions have been outstanding
more than 30 days.
4.20 Environmental. Except as may be revealed in the Phase I
Environmental Report prepared for the Property by Roy F. Weston, Inc., dated
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June, 1997, (i) no Hazardous Substances are present at, on or under, and there
has been no Release of Hazardous Substances from, the Property that require
investigation, notification, remediation or response under applicable law, (ii)
no liability under or violation of any Environmental Laws or condition that
could give rise to such liability or violation exists with respect to the
Property, except for liabilities that would not have a material adverse effect
on the business or financial condition of the Partnership or the Property, (iii)
the Property contains no underground improvements, including but not limited to
treatment or storage tanks, or underground piping associated with such tanks,
used currently or in the past for the management of Hazardous Materials, and no
portion of the Property is or has been used as a dump or landfill or consists of
or contains filled in land or wetlands; (iv) Transferor has furnished to
Transferee accurate and complete information pertaining to the environmental
history of the Property and the operations of the Partnership thereon, (v)
neither PCBs nor asbestos-containing materials are present on or in the
Property, and (vi) no Lien in favor of any person relating to or in connection
with any Claim under any Environmental Law has been filed or attached to the
Property. The Partnership has not received any notice from any governmental
agency or instrumentality having jurisdiction thereof or from any other person
of any actual or alleged violation of or liability under any Environmental Laws.
4.21 Condition of Property. Except as set forth in the structural
report prepared for the Property by Burkavage Design, dated June 15, 1997, and
from which, to Transferor's knowledge, there has been no material change, there
is no material defect in the condition of the Property, the improvements
thereon, the structural elements thereof and the mechanical systems therein, nor
any material damage from casualty or other cause, nor any soil condition of the
Property that will not support all of the improvements thereon without the need
for unusual or new subsurface excavations, fill, footings, caissons or other
installations, except for any such defect, damage or condition that has been
corrected or will be corrected in the ordinary course of the business of the
Property as part of its scheduled annual maintenance and improvement program.
4.22 Pending Assessments and Eminent Domain. Transferor have no
knowledge and neither Transferor nor the Partnership has received notice of any
pending proceeding for the imposition of any special assessment, or the
formation of a special assessment district, or for a condemnation proceeding
which would affect in any manner any portion of the Property.
4.23 [INTENTIONALLY DELETED]
4.24 Compliance with Law; Approvals.
(a) The operations of the Partnership have been and, to the date of
Closing, will continue to be conducted in compliance with all applicable Laws
and regulations, including, without limitation, all laws, regulations, orders
and requirements promulgated by any Governmental Authority or relating to
consumer protection, equal opportunity, health, health care industry regulation,
third-party reimbursement (including Medicare, Medicaid, and workers
compensation), environmental protection, fire, zoning and building and
occupational safety matters, except for noncompliance that individually or in
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the aggregate would not and, insofar as may reasonably be foreseen, in the
future will not, have a material adverse effect on the business or operations of
the Property or either Partnership.
(b) Neither the Partnership nor Transferor has received notice of any
violation (or of any investigation, inspection, audit, or other proceeding by
any Governmental Authority involving allegations of any violation) of any
applicable Law, or is in material default with respect to any applicable Law
and, to the best knowledge of Transferor, no investigation, inspection, audit,
or other proceeding by any Governmental Authority involving allegations of
violation of any applicable Law is threatened or contemplated.
(c) There are no physician shareholders of Transferor.
4.25 Fraud and Abuse Matters
Neither the Partnership nor the officers, directors, employees or
agents of the Partnership or its general partner, have engaged in any activities
which are prohibited, or are cause for civil penalties or mandatory or
permissive exclusion from Medicare or Medicaid, under ss.ss. 1320a-7, 1320a-7a,
1320a-7b, or 1395nn of Title 42 of the United States Code, the federal Civilian
Health and Medical Plan of the Uniformed Services statute ("CHAMPUS"), or the
regulations promulgated pursuant to such statutes or regulation, or related
state or local statutes or which are prohibited by any private accrediting
organization from which the Partnership seeks accreditation or by generally
recognized professional standards of care or conduct, including but not limited
to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement
under CHAMPUS, Medicare, Medicaid or other State Health Care Program as defined
in Section 1128(h) of the federal Social Security Act (together with all
regulations promulgated pursuant thereto, the "SSA") or any Federal Health Care
Program (as defined in Section 1128B(f) of the SSA) that is (i) for an item or
service that the person presenting or causing to be presented knows or should
know was not provided as claimed, or (ii) for an item or service and the person
presenting knows or should know that the claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring,
or to induce the referral of, an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by CHAMPUS, Medicare or Medicaid, or other State Health
Care Program or any Federal Health Care Program, or (iii) in return for, or to
induce, the purchase, lease, or order, or the arranging for or recommending of
the purchase, lease, or order, of any good, facility, service, or item for which
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payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid or
other State Health Care Program or any Federal Health Care program; or
(e) knowingly and willfully making or causing to be made or inducing or
seeking to induce the making of any false statement or representation (or
omitting to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading) or a material fact with
respect to (i) the conditions or operations of a facility in order that the
facility may qualify for CHAMPUS, Medicare, Medicaid or other State Health Care
Program or Federal Health Care Program certification, or (ii) information
required to be provided under SSA ss. 1124A.
4.26 Medicare/Medicaid Participation
Neither the Partnership nor any officer, director, agent (as defined in
42 C.F.R. ss. 1001.1001(a)(2)), or managing employee (as defined in SSA ss.
1126(b)) of the Partnership or its general partner (1) has had a civil monetary
penalty assessed against it under SSA ss. 1128A; (2) has been excluded from
participation under the Medicare program or a State Health Care Program; (3) has
been convicted (as that term is defined in 42 C.F.R. ss. 1001.2) of any of the
following categories of offenses as described in SSA ss. 1128(a) and (b)(1),
(2), (3):
(a) criminal offenses relating to the delivery of an item or service
under Medicare, Medicaid or any other State Health Care Program or any Federal
Health Care Program;
(b) criminal offenses under federal or state law relating to patient
neglect or abuse in connection with the delivery of a health care item or
service;
(c) criminal offenses under federal or state law relating to fraud,
theft, embezzlement, breach of fiduciary responsibility, or other financial
misconduct in connection with the delivery of a health care item or service or
with respect to any act or omission in a program operated by or financed in
whole or in part by any federal, state or local government agency;
(d) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense described in (a)
through (c) above; or
(e) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a controlled
substance.
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ARTICLE V
[INTENTIONALLY DELETED]
ARTICLE VI
[INTENTIONALLY DELETED]
ARTICLE VII
CONDITIONS TO CONSUMMATION OF TRANSACTION
The obligation of Transferee to consummate the Transaction shall be
subject to fulfillment (or waiver) at or prior to the date of the Closing of the
following conditions:
7.1 Representations, Warranties and Covenants. The representations,
warranties and covenants made by Transferor in this Agreement or in any document
delivered by Transferor pursuant to this Agreement shall be true and correct
when made and on and as of the date of the Closing as though such
representations, warranties and covenants were made on and as of such date.
7.2 No Material Adverse Change. There shall have been no material
adverse change in the value or condition of the Property or the Partnership
since the date hereof, except for changes contemplated by this Agreement and
changes in the ordinary course of business which do not have a material adverse
effect on the business or financial condition of the Transaction, the
Partnership or the Property.
7.3 Title Insurance; Survey. Commonwealth Land Title Insurance Company
shall have issued an ALTA owners title insurance policy effective as of the date
of the Closing or an unconditional commitment therefor insuring the
Partnership's interest in the Property in an amount not less than $2,300,000, in
each case with only those exceptions and containing such endorsements as are
acceptable to Transferee in its sole and absolute discretion and otherwise
acceptable to Transferee in Transferee's sole discretion; in addition thereto,
Transferee shall have received a survey for the Real Property that is acceptable
to Transferee in Transferee's sole discretion.
7.4 No Order or Injunction. The consummation of the Transaction shall
not have been restrained, enjoined or prohibited by any order or injunction of
any court or governmental authority of competent jurisdiction.
7.5 Consents. All consents listed on Schedule 4.2 and all other
consents necessary for the execution and delivery of this Agreement by
Transferor and the consummation of the Transaction by Transferor have been
obtained.
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7.6 Instruments of Conveyance. Transferor shall have executed and
delivered the instruments evidencing conveyance of the Interest referred to in
Section 9.1.
7.7 Lease. Transferee (or the Partnership) and Genesis Health Ventures,
Inc. or an affiliate or subsidiary thereof shall have entered into a lease with
respect to the Facility.
7.8 Occupancy. At least 85% of the units in the Facility shall be
occupied as of the Closing Date.
7.9 Zoning Change. There shall be no pending or threatened zoning
change without may affect the Property or any part thereof.
7.10 Simultaneous Closing. The Transaction shall close simultaneously
with the closing under the agreements listed on Schedule 7.10 hereof.
7.11. Trustee/Bondholder Consent. Eaton Vance, as holder of certain of
the bonds issued in connection with the Bond Debt, and, if required, the Trustee
under the Bond Debt and A.H. Williams as holder of certain of the bonds (i)
shall have consented to the Transaction and to the acquisition of all of the
partnership interests in the Partnership by Transferee or its designee, (ii)
shall agree and consent to such matters, including, without limitation, any
appropriate modifications to the documents and instruments evidencing or
securing the Bond Debt (the "Bond Documents") and the prepayment of that portion
of the Bond Debt evidenced by the Chester County Industrial Development
Authority $250,000 Assisted Living Facility Revenue Bonds (Senior LifeChoice of
Paoli, L.P.) Taxable Series 1994B as shall have been requested by Transferee,
which agreements and consents shall be on terms and conditions acceptable to
Transferee in its sole discretion, (iii) shall have granted such waivers to
provisions of the Bond Documents as shall have been requested by Transferee,
which waivers shall be on terms and conditions acceptable to Transferee in its
sole discretion, (iv) Eaton Vance, as holder of the bonds issued in connection
with the Bond Debt, and, if required, the Trustee under the Bond Debt shall have
agreed to accept a letter of credit in lieu of the Debt Service Reserve Fund and
the Operating Reserve Fund, and (v) shall have agreed to release to the general
partner of the Partnership for distribution to the partners of the Partnership
all amounts held in all funds and reserves created and existing under the Bond
Documents in excess of $1,115,000.
ARTICLE VIII
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY TRANSFEROR
The obligation of Transferor to consummate the Transaction shall be
subject to fulfillment (or waiver) at or prior to the date of the Closing of the
following conditions:
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8.1 Representations, Warranties and Covenants. The representations,
warranties and covenants made by Transferee in this Agreement or in any document
delivered by Transferee pursuant to this Agreement shall be true and correct in
all material respects when made and on and as of the date of the Closing as
though such representations, warranties and covenants were made on and as of
such date.
8.2 Consents. All consents necessary for the consummation of the
Transaction by Transferee shall have been obtained.
8.3 IPO Closing. The IPO shall close simultaneously with the
Transaction.
8.4 Simultaneous Closing. The Transaction shall close simultaneously
with the closing under the agreements listed on Schedule 7.10 hereof.
8.5 Payment to General Partner. The general partner of the Partnership
shall have received, for distribution to all of the partners of the Partnership,
an amount at least equal to all amounts held in all funds and reserves created
under the Bond Documents in excess of $1,115,000.
ARTICLE IX
THE CLOSING
Subject to the terms and conditions of this Agreement, the Closing
shall take place promptly after satisfaction or waiver of the conditions set
forth in Article VII hereof.
9.1 Closing Deliveries by Transferor. At Closing, Transferor shall
deliver the following:
(a) one or more written documents of conveyance contributing to
Transferee title to the Interest, free and clear of any adverse claim
or interest;
(b) such documents and certificates as Transferee may require to
establish the authority of the parties executing any documents in
connection with the Transaction including, in the case of any
Transferor that is a corporation, partnership, limited liability
company or other similar entity (other than a trust or estate), an
opinion of counsel, reasonably satisfactory to Transferee, as to the
due execution and delivery of such documents;
(c) such consents as are contemplated by Section 7.5 hereof and
Section 7.11 hereof;
(d) a certificate duly executed by Transferor under penalty of
perjury setting forth Transferor's address and federal tax
identification number and certifying that Transferor is not a "foreign
person" in accordance with the provisions of Section 1445 (as may be
amended prior to the date hereof) of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder;
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(e) such other documents and instruments as Transferee and
Transferor agree are necessary or appropriate.
9.2 Closing Deliveries by Transferee. At Closing, Transferee shall
deliver or cause to be delivered the following:
(a) the Purchase Price;
(b) such other documents and instruments as
Transferor and Transferee agree are necessary or appropriate.
9.3 Closing Costs. Transferee agrees to pay all costs associated with
the closing of the acquisition of the Interest by Transferee, including (i)
survey costs, (ii) costs of obtaining title insurance policies for the benefit
of Transferee, and (iii) except as provided below, all other fees imposed on or
in connection with the Transaction. Each party shall pay its own legal fees.
ARTICLE X
REMEDIES ON DEFAULT
10.1 Transferor's Remedies. Except for any breaches waived in writing
by Transferor, if Transferee fails to consummate the Transaction when required
to do so pursuant to the provisions hereof, then Transferor shall be entitled to
terminate this Agreement as the exclusive and sole right and remedy of
Transferor (except as provided in this sentence), whereupon this Agreement shall
terminate and none of the parties hereto shall have any further obligations to
any other party hereto, provided, however that in such event, Transferee shall
reimburse Transferor for all reasonable costs incurred by Transferor in
connection with the Transaction, provided that the amount to be reimbursed by
Transferee shall not exceed Twenty-Five Thousand Dollars ($25,000).
10.2 Transferee's Remedies. Except for any breaches waived in writing
by Transferee, if Transferor has breached any of its covenants or obligations
under this Agreement or shall have failed, refused or are unable to consummate
the Transaction by the date of the Closing when and as required to do so
hereunder, then Transferee shall have the right to bring an action at law or in
equity seeking the specific performance of the obligations of Transferor
hereunder and in addition thereto or in lieu thereof, Transferee may avail
itself of any other remedies available at law or in equity on account of such
breach, provided, however, except in the case of a willful failure or refusal of
Transferor to consummate the Transaction by the date of Closing or the inability
of Transferor to consummate the Transaction by the date of Closing by virtue of
an intentional act of Transferor, the amount of money damages that Transferee
may recover from Transferor shall not exceed Twenty-Five Thousand Dollars
($25,000).
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ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by Transferor. Transferor hereby indemnifies and
agrees to defend and hold harmless Transferee, and its officers, directors,
employees, agents and successors and assigns and its general partner and any
officers, directors, employees, agents and successors and assigns of such
general partners ("Transferee Indemnitees"), from and against any and all
demands, claims, actions or causes of action, assessments, expenses, costs,
damages, losses and liabilities (including attorneys' fees and other charges)
which may at any time be asserted against or suffered by any Transferee
Indemnitee, the Property, or any part thereof, whether before or after date of
the Closing, as a result of, on account of or arising from (a) subject to
Section 10.2 above, the failure of Transferor to perform any of his, her or its
obligations hereunder or, to the extent provided in Section 13.1, the breach by
Transferor of any of his, her or its representations and warranties hereunder,
(b) events, contractual obligations, acts or omissions of Transferor or the
Partnership that occurred in connection with the ownership or operation of the
Property prior to the Closing, (c) damage to property or injury to or death of
any person or any claims for any debts or obligations occurring on or about or
in connection with the Property or any portion thereof or with respect to the
operation of the Property at any time or times prior to the Closing, or (d) any
obligation, claim, suit, liability, contract, agreement, debt or encumbrance
created, arising or accruing prior to the date of the Closing, regardless of
when asserted, relating to the Property or its operation, including, without
limitation, any and all liabilities for federal or state income taxes or other
taxes, which shall not have been set forth or specifically described in this
Agreement or the Schedules and the Exhibits hereto. The obligations of
Transferor under this Section 11.1 shall survive the Closing.
11.2 Indemnification by Transferee. Transferee hereby indemnifies and
agrees to defend and hold harmless Transferor, and its successors and assigns
("Transferor Indemnitees"), from and against any and all demands, claims,
actions or causes of action, assessments, expenses, costs, damages, losses and
liabilities (including attorneys' fees and other charges) which may at any time
be asserted against or suffered by any Transferor Indemnitee, the Property, or
any part thereof, whether before or after the date of the Closing, as a result
of, on account of or arising from (a) subject to Section 10.1 above, the failure
of Transferee to perform any of its obligations hereunder or, to the extent
provided in Section 13.1, the breach by Transferee of any of its representations
and warranties made herein, (b) events, contractual obligations, acts or
omissions of Transferee that occurred in connection with the ownership or
operation of the Property prior to the Closing or (c) damage to property or
injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times prior to
the Closing. The obligations of Transferee under this Section 11.2 shall survive
the Closing.
ARTICLE XII
[INTENTIONALLY DELETED]
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ARTICLE XIII
GENERAL PROVISIONS
13.1 Survival of Liability with Respect to Representations and
Warranties. (a) It is the express intention and agreement of the parties that
the representations and warranties of Transferor set forth in Article IV of this
Agreement and the representations and warranties of Transferee set forth in
Article III of this Agreement shall survive the consummation of the Transaction
for a period of one (1) year from the date of the Closing except that the
representations and warranties of Transferor set forth in Section 4.20 of this
Agreement shall survive the consummation of the Transaction for a period of
three (3) years from the date of the Closing. Such representations and
warranties shall expire and be terminated and extinguished forever at the
expiration of the applicable period. Any written notice given within such period
setting forth a claim must set forth the nature and details of the claim with
specificity.
(b) Any liability of Transferor to Transferee pursuant to this Section
13.1 shall not exceed twenty percent (20%) of the value of the Purchase Price
pursuant to this Agreement.
13.2 Notices. All notices, demands, requests or other communications
which may be or are required to be given or made by either Transferor or
Transferee to the other pursuant to this Agreement shall be in writing and shall
be hand delivered or transmitted by certified mail, express overnight mail or
delivery service, telegram, telex or facsimile transmission to the parties at
the following addresses:
If to Transferor: ___________________
___________________
___________________
___________________
If to Transferee: Eldertrust Operating Limited Partnership
c/o ElderTrust Realty Group, Inc., General Partner
415 McFarlan Road
Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive Officer
Telecopier: (610) 925-0815
or such other address as the addressee may indicate by written notice to the
other party.
Each notice, demand, request or communication which shall be given or
made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the
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delivery receipt, the affidavit of messenger or (with respect to a telex) the
answerback being deemed conclusive but not exclusive evidence of such delivery)
or at such time as delivery is refused by the addressee upon presentation.
13.3 Governing Law. This Agreement, the rights and obligations of the
parties hereto and any claims or disputes relating thereto shall be governed by
and construed under the laws of the Commonwealth of Pennsylvania (but not
including the choice of law rules thereof).
13.4 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Transferor (if the assignor is Transferee)
or Transferee (if the assignor is Transferor), which consent shall not be
unreasonably withheld, and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect, except that (i) Transferee may
assign this Agreement and its rights hereunder, to a corporation, partnership,
limited liability or other entity of which the entire ownership interest is
owned directly or indirectly by Transferee without the consent of Transferor; no
such assignment shall relieve Transferee of its obligations hereunder and (ii)
Transferee may designate one or more entities to acquire a portion of the
Interest.
This Agreement shall be binding upon and shall inure to the benefit to
the parties hereto and their respective successors and assigns as permitted
hereunder. No person or entity other than the parties hereto is or shall be
entitled to bring any action to enforce any provision of this Agreement against
any of the parties hereto, and the covenants and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable only by,
the parties hereto or their respective successors and assigns as permitted
hereunder.
13.5 Severability. If any part of any provision of this Agreement or
any other agreement, document or writing given pursuant to or in connection with
this Agreement shall be invalid or unenforceable under applicable law, such part
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such provisions or the
remaining provisions of said agreement so long as the economic and legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.
13.6 Entire Agreement; Amendment. This Agreement and the Exhibits and
Schedules attached hereto (each of which shall be deemed incorporated herein and
made a part hereof) contain the final and entire agreement between the parties
hereto with respect to the Transaction and are intended to be an integration of
all prior negotiations and understandings. Transferor and Transferee shall not
be bound by any terms, conditions, statements, warranties or representations,
oral or written, not contained or referred to herein or therein. No amendment,
change or modification of this Agreement shall be valid unless the same is in
writing and signed by the parties hereto.
13.7 No Waiver. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any other
instrument or document given in connection with or pursuant to this Agreement
shall impair any such right, power or privilege or be construed as a waiver of
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any default or any acquiescence therein. No single or partial exercise of any
such right, power or privilege shall preclude the further exercise of such
right, power or privilege. No waiver shall be valid against any party hereto
unless made in writing and signed by the party against whom enforcement of such
waiver is sought and then only to the extent expressly specified therein.
13.8 Power of Attorney. By executing this Agreement pursuant to a
Letter of Acceptance, Transferor is constituting and appointing each of Edward
B. Romanov, Jr. and D. Lee McCreary, Jr., individually, with full power of
substitution, the true and lawful attorney-in-fact (the "Attorney") of
Transferor, with full power and authority in the name of and for and on behalf
of Transferor, to execute an instrument of conveyance contributing his, her or
its Interest to Transferee pursuant to the terms set forth in this Agreement,
and to execute any other instruments that Transferee reasonably deems necessary
or appropriate in connection with the contribution of the Interest pursuant to
this Agreement.
13.9 Headings. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
13.10 [INTENTIONALLY DELETED]
13.11 Confidentiality. Transferee and Transferor agree not to make any
public announcement about the Transaction without the prior written consent of
the other party. Notwithstanding the foregoing, the Transaction, the terms and
conditions of this Agreement may be described in any registration statement or
other document filed by the REIT with the United States Securities and Exchange
Commission (the "SEC") and a copy of this Agreement may be filed with the SEC.
ARTICLE XIV
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
"Claims" means all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements.
"Environmental Laws" means any Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to the generation, production,
installation, use, storage, treatment, transportation, release, threatened
release or disposal of Hazardous Materials. noise control, or the protection of
human health or safety, natural resources or the environment.
17
<PAGE>
"Governmental Authority" means any nation, government, state,
municipality or any political subdivision of any nation, government, state or
municipality, including any court of other entity exercising executive,
legislative, regulatory, judicial or administrative functions of, or pertaining
to, government.
"Hazardous Materials" means any wastes, substances, radiation or
materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
or become defined as "pollutants," "contaminants," "hazardous materials,"
"hazardous wastes," "hazardous substances," "toxic substances," "radioactive
materials," "solid wastes," or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws; (iii) the presence of which
on the Real Property cause or threaten to cause a nuisance pursuant to
applicable statutory or common law upon the Real Property or to adjacent
properties; (iv) without limitation, which contain polychlorinated biphenyls
(PCBs), asbestos and asbestos-containing materials, lead-based pains,
urea-formaldehyde foam insulation and petroleum or petroleum products
(including, without limitation, crude oil or any fraction thereof) or (v) which
pose a hazard to human health, safety, natural resources, industrial hygiene, or
the environment, or an impediment to working conditions.
"Laws" means all foreign, federal, state and local statutes, laws
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, common law rulings, awards, (including, without limitation, awards
of any arbitrator), judgments and decrees applicable to the specified persons or
entities and to the businesses and Assets thereof (including, without
limitation, Laws relating to securities registration and regulation; the sale,
leasing, ownership or management of real property; employment practices, terms
and conditions, and wages and hours; building standards, land use and zoning;
safety, health and fire prevention; and environmental protection, including
Environmental Laws).
"Release" means any emission, spill, seepage, leak, escape, leaching,
discharge, injection, pumping, pouring, emptying, dumping, disposal, or release
of Hazardous Materials from any source (including, without limitation, the Real
Property and property adjacent to the Real Property) into or upon the
environment, including the air, soil, improvements, surface water, groundwater,
the sewer, septic system, storm drain, publicly owned treatment works, or waste
treatment, storage, or disposal systems at, on, from, above or under the Real
Property.
18
<PAGE>
IN WITNESS WHEREOF, Transferee has caused this Agreement to be
duly executed and delivered on its behalf and Transferor has executed a separate
Letter of Acceptance agreeing to be bound by the terms of this Agreement as of
the date first above written.
TRANSFEREE:
ELDERTRUST OPERATING LIMITED
PARTNERSHIP
By: ElderTrust Realty Group, Inc.
By: ____________________
Name: ____________________
Title:____________________
19
<PAGE>
[PARTNER COUNTERPART SIGNATURE PAGE
Please sign exactly as your name appears on the previous page. Trustees
and others acting in a representative capacity should indicate the capacity in
which they sign.
If by an individual on behalf of himself or herself:
____________________________________________________________
Signature of Partner Date
____________________________________________________________
Signature of Co-Owner, if any Date
If on behalf of an entity, or as Trustee, Custodian or
Partner:
____________________________________________________________
Print Name of Entity or capacity in which executed
____________________________________________________________
Signature of Officer, Trustee, Custodian or Partner
Individual Acknowledgment
- -------------------------
STATE OF )
: SS.
COUNTY OF )
On the _______ day of _________________ 1997, before me personally came
____________________________________________________, to me known and known to
me to be the individual described in the foregoing instrument, and acknowledged
that he executed the same.
________________________________
Notary Public
Trustee Acknowledgment
- ----------------------
STATE OF )
: SS.
COUNTY OF )
On the _______ day of _________________ 1997, before me personally came
_____________________________, to me known, who being by me duly sworn, did
depose and say that he resides at ______________________________, that he is
Trustee for ____________________________________________________________________
_______________________________________________________________, the trust
described in and which executed the foregoing instrument, and that he signed his
name thereto on behalf of said trust.
20
<PAGE>
___________________________
Notary Public
Corporate Acknowledgment
- ------------------------
STATE OF )
: SS.
COUNTY OF )
On the ____ day of ______ 19__, before me personally came
______________________, to me known, who being by me duly sworn, did depose and
say that he resides at _________________________________________________________
____________________________________________, that he is _______________________
__________________________________, of ____________________________, a _________
___________________ corporation, which executed the foregoing instrument, and
that he signed his name thereto on behalf of said corporation by order of the
board of directors of said corporation, and as the act and deed of said of
corporation for the uses and purposes of therein mentioned.
___________________________
Notary Public
Partnership Acknowledgment
- --------------------------
STATE OF )
: SS.
COUNTY OF )
On the ____ day of ________________ 1997, before me personally came
_________ ______________________, to me known, who being by me duly sworn, did
depose and say that he resides at ______________________________, that he is
________________________ of ___________ ____________________________, a
partnership, which executed the foregoing instrument, and that he signed his
name thereto on behalf of said partnership, and as the act and deed of said
partnership for the uses and purposes of therein mentioned.
___________________________
Notary Public
21
<PAGE>
EXHIBIT SCHEDULE
Cash
Partner Amount Interest
------- ------ --------
Senior LifeChoice of Paoli, LP:
Kenneth Kuhnle $42,000 1.5% LP
Meyers Partnership 84,000 3.0% LP
Anne Searle 42,000 1.5% LP
Harry J. Sniscak 42,000 1.5% LP
Gregory M. Stevens, as 21,000 .75% LP
custodian for
Julia M. Stevens
Gregory M. Stevens, as 21,000 .75% LP
custodian for
Katherine M. Stevens
Tigh Investments 42,000 1.5% LP
Tigh Investments 42,000 1.5% LP
Senior LifeChoice of Kimberton, LP:
Meyers Partnership 78,000 2.5% LP
Gregory M. Stevens 39,000 1.25% LP
Vogenberg Family Limited 39,000 1.25% LP
Partnership
22
<PAGE>
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND MAY BE OFFERED
OR SOLD ONLY (1) UPON REGISTRATION OF THE LIMITED PARTNERSHIP INTERESTS UNDER
THE SECURITIES ACT AND THE STATE ACTS OR PURSUANT TO AN EXEMPTION THEREFROM, AND
(2) AFTER COMPLIANCE WITH ALL RESTRICTIONS ON TRANSFER OF SUCH LIMITED
PARTNERSHIP INTERESTS IMPOSED BY THIS AGREEMENT.
* * *
PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
-------------------------------------------------
THIS PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT (this
"Agreement") is made and entered into as of September 25, 1997, by and between
ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership
("Transferee"), GHV ASSOCIATES, a Pennsylvania general partnership (the
"Partnership") and each of the parties listed on Schedule 1.1 attached hereto
who executes a Partner Consent (hereinafter defined) agreeing to become a party
to this Agreement (each a "Contributor" and collectively, "Contributors").
WHEREAS, Contributors each are partners in the Partnership;
WHEREAS, the Partnership owns and operates a clinic and
training facility known as Windsor Clinic/Windsor Training Facility consisting
of a leasehold estate in the real property described in Exhibit A hereto (the
"Clinic Real Property"), the improvements thereon and all other real and
personal property associated therewith all of which other real and personal
property is described in Exhibit A-1 hereto (the Clinic Real Property together
with all such other real and personal property shall be known as the "Clinic
Property");
WHEREAS, the Partnership owns and operates an office building
known as Windsor Office Building consisting of the real property described in
Exhibit B hereto (the "Office Real Property"), the improvements thereon and all
other real and personal property associated therewith all of which other real
and personal property is described in Exhibit B-1 hereto (the Office Real
Property together with all such other real and personal property shall be known
as the "Office Property") (the Clinic Real Property and the Office Real Property
hereinafter collectively shall be known as the "Real Property"; the Clinic
Property and the Office Property hereinafter collectively shall be known as the
"Property"); and
<PAGE>
WHEREAS, the Partnership desires to contribute the Property to
Transferee on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants set forth herein, Transferee, the Partnership and
Contributors hereby agree as follows:
ARTICLE I
THE CONTRIBUTION
1.1 Contribution and Acquisition of Contributed Property.
Subject to the terms and conditions set forth herein, the Partnership agrees to
contribute to Transferee and Transferee agrees to acquire and accept from the
Partnership, the Property, in exchange for units of limited partnership interest
in Transferee (the "Units"), as set forth in Article II hereof, in a transaction
intended to qualify for nonrecognition of gain to Contributors pursuant to
Section 721 of the Internal Revenue Code of 1986, as amended (the "Code") (the
"Contribution").
1.2. Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur simultaneously with the closing of
the initial public offering (the "IPO") of shares of beneficial interest in
ElderTrust, a Maryland real estate investment trust (the "REIT"); provided, that
if the IPO has not occurred on or before March 31, 1998, this Agreement shall
terminate and none of the parties hereto shall have any further liability to any
other party hereto. The Closing shall occur simultaneously with the delivery of
the following documents:
(a) the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C, executed by Transferee and Contributors;
(b) the Second Amended and Restated Agreement of Limited
Partnership of Transferee, substantially in the form attached hereto as Exhibit
D (the "Operating Partnership Agreement");
(c) the documents specified in Section 8.1 and Section 8.2
hereof; and
(d) such other documents as the parties may mutually agree.
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<PAGE>
ARTICLE II
EXCHANGE AMOUNT
2.1. Exchange Amount.
(a) Units Delivered at Closing. In exchange for the
contribution of the Property and upon execution and delivery of the Letter of
Direction (as defined below) by the Partnership and of the Operating Partnership
Agreement by Contributors, the Partnership shall receive on behalf of
Contributors, at the Closing, an aggregate number of Units equal to (i) $666,400
(the "Aggregate Amount") divided by (ii) the midpoint of the price range for
shares of beneficial interest in the REIT as set forth in the REIT's final
preliminary prospectus (the "Final Preliminary Prospectus") related to the IPO,
rounded up to the nearest whole Unit. The rights of holders of the Units as of
the Closing will be as set forth in the Operating Partnership Agreement.
(b) Distribution of Units. At the Closing, Transferee shall
issue the Units (as determined pursuant to Section 2.1(a) above) to Contributors
in the denominations set forth in the Letter of Direction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
Transferee hereby represents and warrants to the Partnership
and Contributors as follows:
3.1 Organization, Power and Authority, and Qualification.
Transferee is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Transferee has the requisite
power and authority to carry on its respective business as it is now being
conducted and to engage in the Contribution. Transferee has made available to
the Partnership and Contributors complete and correct copies of the governing
documents of Transferee with all amendments as in effect on the date of this
Agreement. Transferee is qualified to do business and is in good standing in
each jurisdiction where the character of its property owned or leased or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have a material
adverse effect on the business or financial condition of Transferee.
3.2 Authority Relative to this Agreement. All action of
Transferee necessary to authorize the execution, delivery and performance of
this Agreement by Transferee has been taken, and no other proceedings on the
part of Transferee are necessary to authorize the execution and delivery of this
Agreement by Transferee and the consummation by Transferee of the Contribution.
-3-
<PAGE>
Neither the execution and delivery of this Agreement by
Transferee nor the consummation by Transferee of the Contribution nor compliance
by Transferee with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the partnership agreement of Transferee, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Transferee is a party or by which it or
any of its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Transferee or any
of the properties or assets of Transferee.
3.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferee to the Partnership and Contributors
and constitutes a valid and binding agreement of Transferee, enforceable against
Transferee in accordance with its terms, except that such enforcement may be
subject to bankruptcy, conservatorship, receivership, insolvency, moratorium or
similar laws affecting creditors' rights generally or the rights of creditors of
limited partnerships and to general principles of equity.
3.4 Brokers. Transferee has not employed any broker or
finder, or incurred any liability therefor, in connection with the Contribution
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP AND EACH CONTRIBUTOR
The Partnership and Contributors hereby represent and warrant
to Transferee as follows:
4.1 Organization and Qualification. The Partnership is a
general partnership duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania. The Partnership has the requisite power and
authority to carry on its business as it is now being conducted. The Partnership
has made available to Transferee complete and correct copies of the
organizational documents of the Partnership, with all amendments as in effect on
the date of this Agreement. The Partnership is qualified to do business in each
jurisdiction where the character of its property owned or leased or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified and in good standing would not have a material adverse effect
on the business or financial condition of the Partnership or on the
Contribution. None of the Contributors nor the Partnership is a "foreign person"
under Section 1445 of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
-4-
<PAGE>
4.2 Authority Relative to this Agreement. All action
necessary to authorize the execution, delivery and performance of this Agreement
by the Partnership and Contributors has been taken, and no other proceedings are
necessary to authorize the execution and delivery by the Partnership and
Contributors of this Agreement and the consummation by the Partnership of the
Contribution.
Neither the execution and delivery of this Agreement by the
Partnership and Contributors, nor the consummation by the Partnership of the
Contribution nor compliance by the Partnership and Contributors with any of the
provisions hereof will (i) conflict with or result in any breach of any
provisions of the partnership agreement of the Partnership, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, permit, contract, agreement,
easement, restriction or other instrument or obligation to which Contributors or
the Partnership is a party or by which Contributors or the Partnership or the
Property may be bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Contributors, the Partnership or the
Property, except in the case of (ii) or (iii) for violations, breaches, or
defaults (A) which would not in the aggregate have a material adverse effect on
the business or financial condition of Contributors, the Partnership, the
Contribution or the Property or (B) for which waivers or consents have been
obtained or, as listed on Schedule 4.2, will be obtained prior to the date of
the Closing.
4.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by the Partnership and Contributors to Transferee
and constitutes a valid and binding agreement of the Partnership and each
Contributor, enforceable against the Partnership and each Contributor in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally and to general principles of equity.
4.4 Brokers. None of the Partnership or any of the
Contributors has employed any broker or finder, or incurred any liability
therefor, in connection with the Contribution contemplated by this Agreement.
4.5 Title to Assets. The Partnership has good and valid title
to the Clinic Personal Property (as defined on Exhibit A-1) and to the Office
Personal Property (as defined on Exhibit B-1). To the knowledge of the
Partnership and Contributors, the Property is not subject to any imperfections
in title, easements, liens, mortgages, encumbrances, pledges, claims, charges,
options, defects, preferential purchase rights or other encumbrances
(collectively referred to herein as "Liens") except for the following
("Permitted Liens"):
-5-
<PAGE>
(i) Liens for real property taxes and assessments or for fire
dues, library dues or similar assessments not yet
delinquent;
(ii) Liens that are not material in character, amount, or
extent and do not materially detract from the value, or
interfere with the use of, the Partnership's assets
subject thereto or affected thereby or otherwise
materially impair the business operations being conducted
or proposed to be conducted thereon;
(iii) the Mortgage Debt (as hereinafter defined); and
(iv) Liens shown on Schedule 4.5 hereto.
4.6 Debt. The Property is encumbered by the mortgage
indebtedness described on Schedule 4.6 hereto (the "Mortgage Debt"). Except for
the Mortgage Debt, the Partnership has no material indebtedness other than
indebtedness incurred by it in its ordinary course of business. To the knowledge
of the Partnership and Contributors, there exists no default, or event which
with the passage of time or notice or both would constitute a default with
respect to the Mortgage Debt or any other debt of the Partnership that has not
been cured or that would have a material adverse effect on the business or
financial condition of the Partnership, the Contribution or the Property.
4.7 Financial Statements. The financial statements of the
Partnership attached as Schedule 4.7 hereto (the "Financial Statements") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods specified. The balance
sheets in the Financial Statements fairly present the financial condition of the
Partnership as of the dates shown, and the income statements in the Financial
Statements fairly present the results of operations for the periods indicated.
4.8 Financial Condition. Since June 30, 1997, there has been
no material adverse change in the business or financial condition of the
Partnership.
4.9 Leases. Except as set forth on Schedule 4.9 hereto, the
Partnership has not entered into any leases, tenancies or other rights of
occupancy in effect on the date hereof with respect to the Property. Each of the
leases referenced in Schedule 4.9 (the "Leases") has been delivered to or made
available to Transferee and is presently unamended (or with respect to each such
lease that has been amended, all amendments thereto have been delivered or made
available to Transferee) and, to the knowledge of the Partnership and
Contributors, are in full force and effect without material default.
4.10 Contracts. The Partnership is not a party to and none of
Contributors nor the Partnership is bound by any contracts or other
understandings, written or oral, that relate to the Property, except for
contracts or understandings that are not material to the business and operations
of the Property (collectively, the "Contracts," which term shall not be
construed to include any leases). Neither Contributors nor the Partnership, as
applicable, nor, to the knowledge of the Partnership and Contributors, any other
party thereto has breached or defaulted under the terms of any Contract, except
for such breaches or defaults that would not have a material adverse effect on
the business or operations of the Partnership or the Property.
-6-
<PAGE>
4.11 Permits. To the knowledge of the Partnership and
Contributors, the Partnership has all such franchises, certificates, licenses,
permits and other authorizations from government political subdivisions,
regulatory authorities or any other person or entity (collectively "Permits") as
are necessary for the ownership, use, operation and licensing of the Property as
it is currently being used, except where the failure to possess such Permits
would not have a material adverse effect on the business or financial condition
of the Partnership or the Property, and to the knowledge of the Partnership and
Contributors, the Partnership is not in violation of any Permit in any material
respect and all Permits of the Partnership are valid and in full force and
effect.
4.12 Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Partnership
and Contributors, threatened against Contributors or the Partnership, or any
properties or rights of Contributors or the Partnership, that would have a
material adverse effect on the business or financial condition of the
Partnership, the Contribution or the Property before any court or
administrative, governmental or regulatory authority or body, domestic or
foreign. None of the Partnership or the Property is subject to any order,
judgment, injunction or decree of any court, tribunal or other governmental
authority (other than generally applicable laws, rules and regulations) that
would have a material adverse effect on the business or financial condition of
the Partnership, the Contribution or the Property.
4.13 Compliance with Laws. To the knowledge of the Partnership
and Contributors, the Partnership has not received any written or other actual
notice of any material violation of any applicable zoning regulation or
ordinance, or of any employment, environmental, or other regulatory law, order,
regulation or requirement, including applicable subdivision laws, relating to
the Property or the business or operations thereon, which remains uncured, and,
to the knowledge of the Partnership and Contributors, there are no such
violations which, individually or in the aggregate, would have a material
adverse effect on the business or financial condition of the Partnership or the
Property.
4.14 Taxes. Except for such matters as in the aggregate shall
not result in a material adverse effect on the business or financial condition
of the Partnership, (i) all tax or information returns required to be filed on
or before the date hereof by or on behalf of the Partnership have been filed
through the date hereof or will be filed on or before the date of the Closing in
accordance with all applicable laws, (ii) there is no action, suit or proceeding
pending against, or with respect to, the Partnership or the Property in respect
of any tax nor is any claim for additional tax asserted by any such authority,
and (iii) all taxes (including related penalties, interest and additional
amounts) imposed upon the Partnership and required to be reported on a return
required to be filed (without regard to any applicable extensions) on or before
the date hereof have been paid or will be paid prior to the delinquency thereof.
-7-
<PAGE>
4.15 Insurance. To the knowledge of the Partnership and
Contributors, each of the insurance policies with respect to the Property is in
full force and effect and all premiums due and payable thereunder have been
fully paid when due. To the knowledge of the Partnership and Contributors, the
Partnership has not received from any insurance company notice of any material
defects or deficiencies affecting the insurability of the Property or notices of
cancellation or intent to cancel any such insurance.
4.16 Employees. The Partnership has no employees.
4.17 Utilities. To the knowledge of the Partnership and
Contributors, usable public sanitary and storm sewers, public water, and gas and
electrical utilities (collectively, the "Public Utilities"), of adequate
capacity for the operation of the Property, are installed in, and are duly
connected to, the Property and can be used without any charge except the normal
and usual metered charges imposed for such Public Utilities. No amounts due and
owing with respect to the Property in connection with utilities, insurance,
assessments or other charges customarily prorated in real estate transactions
have been outstanding more than 30 days.
4.18 Environmental. For the purpose of this Section 4.18, the
term "Hazardous Substances" shall mean substances defined as a "hazardous
waste," "hazardous substance," or "toxic substance" under any Environmental
Laws, including, without limitation, oil, petroleum, or any petroleum-derived
substance or waste, asbestos or asbestos-containing materials, PCBs, pesticides,
explosives, radioactive materials, dioxins, urea formaldehyde insulation or any
constituent of any such substance, pollutant or waste. As used herein,
"Environmental Laws" shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901, et seq., the Clean Air Act, 42 U.S.C. ss. 7401, et seq., the Clean Water
Act, 33 U.S.C. ss. 1251, et seq., the Toxic Substance Control Act, 15 U.S.C. ss.
2601, et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651, et
seq., as any of the preceding have been amended prior to the date of the
Closing, and any other federal, state or local law, ordinance, regulation, rule,
order, decision or permit relating to the protection of human health from
environmental effects of Hazardous Substances and which are applicable to the
Property.
-8-
<PAGE>
To the knowledge of the Partnership and Contributors, and
except as may be revealed in the Phase I Environmental Report prepared for the
Property by Roy F. Weston, Inc., dated July, 1997, (i) no Hazardous Substances
are present in, on or under the Property that require remediation under
applicable law or would have a material adverse affect on the condition
(financial or otherwise), earnings, assets, business affairs or business
prospects of the Property, the Partnership or the Contribution, (ii) no
liability under or violation of any Environmental Laws or condition that could
give rise to such liability or violation exists with respect to the Property,
except for liabilities that would not have a material adverse effect on the
business or financial condition of the Partnership or the Property, and (iii)
the Partnership has not caused or allowed any discharge or disposal of any
Hazardous Substances at the Property except in compliance with Environmental
Laws. The Partnership has not received any written notice from any governmental
agency or instrumentality having jurisdiction thereof of any violation of any
Environmental Laws which remains uncured or unremediated.
4.19 [INTENTIONALLY DELETED]
4.20 Pending Assessments and Eminent Domain. None of the
Partnership or any of the Contributors has knowledge of, and neither
Contributors nor the Partnership has received notice of, any pending proceeding
for the imposition of any special assessment, or the formation of a special
assessment district, or for a condemnation proceeding which would materially
affect in any manner any portion of the Property.
4.21 Securities Matters.
(a) The Partnership and each Contributor acknowledge that
Transferee intends the offer and issuance of the Units to be exempt from
registration under the Securities Act and applicable state securities laws by
virtue of (i) the status of the Partnership and each Contributor as an
accredited investor and (ii) Regulation D promulgated under Section 4(2) of the
Securities Act ("Regulation D"). Transferee will rely in part upon the
representations and warranties made by the Partnership and Contributors in
making a determination that the offer and issuance of the Units qualify for
exemption under Rule 506 of Regulation D as an offer and sale only to accredited
investors.
(b) The Partnership and each Contributor is an Accredited
Investor.
(c) Each Contributor will acquire the Units solely for his,
her or its own account, and not with a view to or for sale in connection with
any "distribution" thereof within the meaning of the Securities Act.
-9-
<PAGE>
(d) The Partnership and each Contributor have sufficient
knowledge and experience in financial, tax and business matters to enable it or
him to evaluate the merits and risks of investment in the Units. The Partnership
and each Contributor have the ability to bear the economic risk of acquiring the
Units. The Partnership and each Contributor acknowledge that (i) the
transactions contemplated by this Agreement involve complex tax consequences for
the Partnership and each Contributor, and the Partnership and each Contributor
is relying solely on the advice of his, her or its own tax advisors in
evaluating such consequences, (ii) Transferee has not made (or shall be deemed
to have made) any representations or warranties as to the tax consequences of
such transaction to the Partnership and to Contributors, and (iii) any
references in this Agreement to the intended tax effect of the Contribution and
the other matters described herein shall not be deemed to imply any
representation by Transferee as to a particular tax effect that may be obtained
by the Partnership and Contributors. The Partnership and Contributors remain
solely responsible for all tax matters relating to the Partnership and
Contributors.
(e) The Partnership and each Contributor have received and
reviewed materials containing certain information regarding Transferee, the REIT
and the IPO prior to executing this Agreement. The Partnership and each
Contributor have been supplied with, or had access to, information to which a
reasonable investor would attach significance in making an investment decision
to acquire the Units and any other information the Partnership or any
Contributor has requested. The Partnership and each Contributor have had an
opportunity to ask questions of and receive information and answers from
Transferee concerning Transferee, the REIT and the Units and to assess and
evaluate any information supplied to the Partnership and Contributors by
Transferee.
(f) The Partnership and each Contributor acknowledge that the
Units are not registered under the Securities Act or any state securities laws
and cannot be resold without registration thereunder or exemption therefrom.
Each Contributor agrees that he, she or it will not transfer all or any portion
of the Units for at least one (1) year after the date of the Closing, and
thereafter only if such transfer has been registered or is exempt from
registration under the Securities Act and any applicable state securities laws.
4.22 [INTENTIONALLY DELETED]
4.23 Governmental Proceedings. There is no governmental action
or governmental proceeding (zoning or otherwise) or governmental investigation
pending or, to the knowledge of the Partnership and Contributors, threatened
against or relating to the Property or the transactions contemplated by this
Agreement.
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4.24 No Agreements. Except as set forth on Schedule 4.24,
other than the Leases, the Property is not subject to any outstanding agreement
of sale or lease, option to purchase or other right of any third party to
acquire any interest therein.
4.25 Ground Lease. (i) The ground lease which creates a
leasehold interest in the Clinic Real Property (the "Ground Lease") is in full
force and effect, (ii) Transferor is not in material default under any of the
terms, conditions, covenants or provisions of the Ground Lease, (iii) neither
Transferor nor the landlord under the Ground Lease has commenced any action or
given or received any notice asserting a default thereunder or for the purpose
of terminating the Ground Lease and (iv) all rents, additional rents and other
sums due and payable under the Ground Lease by Transferor have been paid in
full.
ARTICLE V
COVENANTS AND AGREEMENTS OF THE PARTNERSHIP AND CONTRIBUTORS
The Partnership and Contributors hereby covenant and agree
with Transferee that prior to the date of the Closing:
5.1 Actions Affecting Assets. Except in the ordinary course
of business, the Partnership shall not sell, assign, pledge, transfer or
encumber, or enter into any other material consent, commitment, understanding or
other agreement, or incur any material obligation or liability (contingent or
absolute) with respect to the Property or merge or consolidate with or into any
other entity or enter into any agreements relating thereto without Transferee's
prior consent.
5.2 Access to Property and Records. Upon reasonable notice
and during regular business hours, the Partnership shall give Transferee and
Transferee's authorized representatives full access to the Partnership's
personnel and all properties, documents, contracts, facilities, books, equipment
and records of the Partnership, relating to the Property to conduct its
investigations, including, without limitation, surveys, site analyses, soil
tests, engineering studies, and other investigations.
5.3 Permits. The Partnership shall maintain all Permits in
full force and effect, and will file timely all reports, statements, renewal
applications and other filings, and will pay timely all fees and charges in
connection therewith that are required to keep the Permits in full force and
effect.
5.4 Contracts. The Partnership shall not enter into any new
Contracts with respect to the Property except in the ordinary course of the
business of the operation of the Property.
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5.5 Insurance. The Partnership shall maintain in full force
and effect substantially the same public liability and casualty insurance
coverage now in effect with respect to the Property.
5.6 Taxes and Assessments. The Partnership shall pay or
discharge before delinquent all tax liabilities and obligations, including
without limitation those for federal, state or local income, property,
unemployment, withholding, sales, transfer, stamp, documentary, use and other
taxes.
5.7 Binding Commitments. The Partnership shall not make any
commitments or representations to any applicable government authorities, any
adjoining or surrounding property owners, any civic association, any utility or
any other similar person or entity that would in any manner be binding upon
Transferee or the Property without Transferee's prior consent, except such
agreements that would not have a material adverse effect on the Property.
5.8 Compliance with Law. The operations of the Partnership
and the Property will be conducted in compliance with all applicable laws,
including, without limitation, all such laws regulations, orders and
requirements promulgated by any governmental authority or relating to
environmental protection, fire, zoning and building and occupational safety
matters, except for noncompliance that individually or in the aggregate would
not and, insofar as may reasonably be foreseen, in the future will not, have a
material adverse effect on the business or operations of the Partnership or the
Property.
5.9 Operation of Property. The Partnership shall operate and
maintain the Property in the same manner as the Partnership has heretofore
operated the Property.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF
CONTRIBUTION BY TRANSFEREE
The obligation of Transferee to consummate the Contribution
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
6.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by the Partnership and
Contributors in this Agreement or in any document delivered by the Partnership
or any Contributor pursuant to this Agreement shall be true and correct in all
material respects when made and on and as of the date of the Closing as though
such representations, warranties and covenants were made on and as of such date.
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6.2 No Material Adverse Change. There shall have been no
material adverse change in the value or condition of the Property or the
Partnership since the date hereof, except for changes contemplated by this
Agreement and changes in the ordinary course of business which do not have a
material adverse effect on the business or financial condition of the
Contribution, the Partnership or the Property.
6.3 Title Insurance. Commonwealth Land Title Insurance
Company (the "Title Company") shall have issued to Transferee an ALTA owners
title insurance policy effective as of the date of the Closing or an
unconditional commitment therefor insuring leasehold title to the Property to be
vested in Transferee in the aggregate amount of not less than $666,400, subject
to no exceptions other than Permitted Liens (other than the Mortgage Debt), with
such endorsements and otherwise in form acceptable to Transferee in its sole and
absolute discretion.
6.4 No Order or Injunction. The consummation of the
Contribution shall not have been restrained, enjoined or prohibited by any order
or injunction of any court or governmental authority of competent jurisdiction
nor shall there be any pending or threatened condemnation proceeding with
respect to the Property or any portion thereof.
6.5 Consents. All consents listed on Schedule 4.2 or
otherwise necessary for the execution and delivery of this Agreement by the
Partnership and each Contributor and the consummation of the Contribution by the
Partnership have been obtained, including, without limitation, the execution by
the Partnership and each Contributor on or before the date hereof of a consent
form pursuant to which each such Contributor has executed this Agreement and
consented to each matter set forth herein (each, a "Partner Consent").
6.6 Instruments of Conveyance. The Partnership shall have
delivered the instruments evidencing conveyance of the Property referred to in
Section 8.1.
6.7 IPO Closing. The IPO shall close simultaneously with the
Contribution.
6.8 Simultaneous Closing. The Contribution shall close
simultaneously with the closing under the agreements listed on Schedule 6.8
hereof.
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ARTICLE VII
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY THE PARTNERSHIP AND CONTRIBUTORS
The obligation of the Partnership and Contributors to
consummate the Contribution shall be subject to fulfillment (or waiver) at or
prior to the date of the Closing of the following conditions:
7.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferee in this Agreement
or in any document delivered by Transferee pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
7.2 Consents. All consents necessary for the consummation of
the Contribution by Transferee shall have been obtained.
7.3 IPO Closing. The IPO shall close simultaneously with the
Contribution.
7.4 Simultaneous Closing. The Contribution shall close
simultaneously with the closings under the agreements listed on Schedule 6.8
hereof.
ARTICLE VIII
THE CLOSING
Subject to the terms and conditions of this Agreement, the
Closing shall take place promptly after satisfaction or waiver of the conditions
set forth in Articles VI and VII hereof.
8.1 Closing Deliveries by the Partnership and Contributors. At
Closing, the Partnership or each Contributor, as applicable, shall deliver (or
cause to be delivered pursuant to the Power of Attorney referred to in Section
11.8) the following:
(a) a special warranty deed conveying good and marketable
title to the Office Real Property (subject only to Permitted
Liens);
(b) an assignment of leasehold estate conveying good and
marketable title to the leasehold estate created by the Ground
Lease relating to the Windsor Clinic (subject only to
Permitted Liens);
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(c) if requested by Transferee, a special warranty deed
conveying good and marketable title to the improvements
located on the Clinic Real Property (subject only to Permitted
Liens);
(d) a bill of sale pursuant to which the Partnership shall
convey to Transferee good title to that Property that consist
of personal property, free and clear of all liens and
encumbrances (other than Permitted Liens);
(e) such assignment and assumption agreements as may be
deemed necessary and appropriate by Transferee and the
Partnership pursuant to which the Partnership shall assign to
transferee all other assets of the Partnership that are used
or useful in connection with the operation of the Property,
including, without limitation, the Leases, the Contracts, the
Permits (to the extent assignable), and pursuant to which
Transferor shall assume liabilities associated therewith that
arise after the Closing;
(f) a certification by the Partnership and each
Contributor, duly executed by the Partnership or such
Contributor, as applicable, under penalty of perjury, setting
forth the Partnership's or Contributor's, as applicable,
address and federal tax identification number and certifying
that such Contributor is not a "foreign person" under Section
1445 (as may be amended) of the Internal Revenue Code of 1986,
as amended, and the regulations promulgated thereunder;
(g) such documents and certificates as Transferee may
require to establish the authority of the parties executing
any documents in connection with the Contribution including,
in the case of the Partnership or any Contributor that is a
corporation, partnership, limited liability company or other
similar entity (other than a trust or estate), an opinion of
counsel, reasonably satisfactory to Transferee, as to the due
execution and delivery of such documents;
(h) such consents as are contemplated by Section 6.5
hereof;
(i) a certificate of the Partnership and Contributors
certifying that the representations and warranties of the
Partnership and Contributors set forth herein are true and
correct in all material respects as of the Closing Date;
(j) a letter of direction (the "Letter of Direction") from
the Partnership to Transferee directing Transferee to issue
certificates representing the Units to Contributors in the
denominations set forth in such Letter of Direction; and
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(k) such other documents and instruments as Transferee,
the Partnership and Contributors agree are necessary or
appropriate.
8.2 Closing Deliveries by Transferee. At Closing, Transferee
shall deliver or cause to be delivered the following:
(a) the Units referred to in Article II hereof;
(b) copies of the executed Registration Rights Agreement
and Operating Partnership Agreement;
(c) the assignment and assumption agreements referenced
in Section 8.1(c) above;
(d) a certificate of Transferee certifying that the
representations and warranties of Transferee set forth herein
are true and correct in all material respects as of the
Closing Date;
(e) such other documents and instruments as the
Partnership, Contributors and Transferee agree are necessary
or appropriate.
8.3 Closing Costs. Transferee agrees to pay all costs
associated with the closing of the acquisition of the Property by Transferee,
including (i) survey costs, (ii) costs of obtaining a title insurance policy for
the benefit of Transferee, (iii) documentary and transfer fees, and (iv) all
taxes, recording charges and other fees imposed on or in connection with the
Contribution; provided, however, to the extent any instruments are required to
be recorded in connection with the Contribution, the Partnership and
Contributors, on one hand, and Transferee, on the other hand, shall each pay
one-half (1/2) of all costs, transfer and recordation taxes and fees associated
with the recordation. Each party shall pay its own legal fees. Transferee's
obligation to pay the closing costs hereunder shall be in addition to and apart
from its obligation to deliver the Units to Contributors.
8.4 Adjustments. The Partnership, Contributors and Transferee
agree that charges, credits and adjustments shall be made as of the Closing
Date, and a statement setting forth such adjustments shall be initialed by the
parties. The subject areas of such adjustments shall include:
(a) Real estate, personal property and similar taxes and
assessments (general and special, ordinary and extraordinary) that have become
or may become a lien on the Property;
(b) Rents and other amounts payable under the Leases;
(c) Charges for public utilities servicing the Property,
payments under the Contracts, charges under easements and similar agreements
affecting the Property;
(d) Insurance premiums, if any, to the extent policies
are assumed by Transferee; and
(e) All other charges and fees customarily prorated and
adjusted in similar transactions.
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The parties shall prorate on the best available information;
all adjustments that cannot be determined precisely as of the Closing Date shall
be readjusted as soon as practicable. The Partnership shall use its best efforts
to have all utility meters read as of the Closing Date. To the extent
practicable, as the Partnership, Contributors and Transferee agree as
appropriate, such prorations may occur outside the Closing by arrangement with
the vendor or supplier of services (e.g., utilities).
ARTICLE IX
REMEDIES ON DEFAULT
9.1 Remedies of the Partnership and Contributors. Except for
any breaches waived in writing by the Partnership and Contributors, if
Transferee fails to consummate the Contribution when required to do so pursuant
to the provisions hereof, then the Partnership or Contributors shall be entitled
to terminate this Agreement as the exclusive and sole right and remedy of the
Partnership and Contributors (except as provided in the next sentence),
whereupon this Agreement shall terminate and none of the parties shall have any
further obligations to any other party, provided, however, that in such event,
Transferee shall reimburse the Partnership and Contributors for all reasonable
costs incurred by the Partnership and Contributors in connection with the
Transaction, provided that the amount to be reimbursed by Transferee shall not
exceed Twenty-Five Thousand Dollars ($25,000).
9.2 Transferee's Remedies. Except for any breaches waived in
writing by Transferee, if the Partnership or any Contributor has breached any of
his, her or its covenants or obligations under this Agreement or has failed,
refused or is unable to consummate the Contribution by the date of the Closing
when and as required to do so hereunder, then Transferee shall have the right to
bring an action at law or in equity seeking the specific performance of the
obligations of the Partnership and Contributors hereunder and in addition
thereto or in lieu thereof, Transferee may avail itself of any other remedies
available at law or in equity on account of such breach, provided, however, the
amount of money damages that Transferee may recover from the Partnership and
Contributors shall not exceed Twenty-Five Thousand Dollars ($25,000).
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9.3 Limitation on Liability of the Partnership and
Contributors. Any liability of the Partnership or Contributors to Transferee
pursuant to Section 9.2 shall be several and not joint and shall be limited to
the fair market value of the Units issued to Contributors at Closing (assuming
for this purpose that the fair market value of each Unit is equal to the price
per share of beneficial interest of the REIT at the time of determination).
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by the Partnership and Contributors. The
Partnership and Contributors hereby jointly and severally indemnify and agree to
defend and hold harmless Transferee, and its officers, directors, employees,
agents and successors and assigns and its general partners and any officers,
trustees, directors, employees, agents and successors and assigns of such
general partners ("Transferee Indemnitees"), from and against any and all
demands, claims, actions or causes of action, assessments, expenses, costs,
damages, losses and liabilities (including attorneys' fees and other charges)
which may at any time be asserted against or suffered by any Transferee
Indemnitee, the Property, or any part thereof, whether before or after date of
the Closing, as a result of, on account of or arising from (a) the failure of
the Partnership or Contributors to perform any of their obligations hereunder
or, to the extent provided in Section 11.1, the breach by the Partnership or
Contributors of any of their representations and warranties hereunder, (b)
events, contractual obligations, acts or omissions of Contributors or the
Partnership that occurred in connection with the ownership or operation of the
Property prior to the Closing, (c) damage to property or injury to or death of
any person or any claims for any debts or obligations occurring on or about or
in connection with the Property or any portion thereof or with respect to the
operation of the Property at any time or times prior to the Closing, or (d) any
obligation, claim, suit, liability, contract, agreement, debt or encumbrance
(other than Permitted Liens) created, arising or accruing prior to the date of
the Closing, regardless of when asserted, relating to the Property or its
operation, including, without limitation, any and all liabilities for federal or
state income taxes or other taxes, which shall not have been set forth or
specifically described in this Agreement or the Schedules and the Exhibits
hereto. The obligations of the Partnership and Contributors under this Section
10.1 shall survive the Closing.
10.2 Indemnification by Transferee. Transferee hereby
indemnifies and agrees to defend and hold harmless the Partnership and
Contributors, and their respective successors and assigns ("Contributor
Indemnitees"), from and against any and all demands, claims, actions or causes
of action, assessments, expenses, costs, damages, losses and liabilities
(including attorneys' fees and other charges) which may at any time be asserted
against or suffered by any Contributor Indemnitee, the Property, or any part
thereof, whether before or after the date of the Closing, as a result of, on
account of or arising from (a) the failure of Transferee to perform any of its
obligations hereunder or, to the extent provided in Section 11.1, the breach by
Transferee of any of its representations and warranties made herein, (b) events,
contractual obligations, acts or omissions of Transferee that occurred in
connection with the ownership or operation of the Property prior to the Closing,
(c) damage to property or injury to or death of any person or any claims for any
debts or obligations occurring on or about or in connection with the Property or
any portion thereof or with respect to the operation of the Property at any time
or times prior to the Closing, or (d) any damage to the Property caused by
Transferee in connection with any studies, investigations or tests conducted by
Transferee pursuant to Section 5.2 hereof. The obligations of Transferee under
this Section 10.2 shall survive the Closing.
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ARTICLE XI
GENERAL PROVISIONS
11.1 Survival of Liability with Respect to Representations and
Warranties. (a) It is the express intention and agreement of the parties that
the representations and warranties of Transferee, the Partnership and
Contributors set forth in this Agreement shall survive the consummation of the
Contribution for a period of one (1) year from the date of the Closing except
that (i) the representation and warranty of the Partnership and Contributors set
forth in Section 4.18 hereof shall survive the consummation of the Contribution
for a period of two (2) years from the date of the Closing and (ii) the
representations and warranties of the Partnership and Contributors set forth in
Section 4.21 hereof shall survive Closing and shall not terminate. Except as
provided in the preceding sentence, such representations and warranties shall
expire and be terminated and extinguished forever at the expiration of such
period. Any written notice given within such period setting forth a claim must
set forth the nature and details of the claim with specificity.
(b) Any liability of the Partnership or Contributors to
Transferee pursuant to this Section 11.1 shall be joint and several and, except
for a breach of a representation and warranty set forth in Section 4.21 hereof,
shall be limited to twenty percent (20%) of the fair market value of the Units
issued to Contributors at Closing (assuming for this purpose that the fair
market value of each Unit is equal to the price per share of beneficial interest
of the REIT at the time of determination).
11.2 Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by the
Partnership, Contributors or Transferee to the other pursuant to this Agreement
shall be in writing and shall be hand delivered or transmitted by certified
mail, express overnight mail or delivery service, telegram, telex or facsimile
transmission to the parties at the following addresses:
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If to a Contributor, at the address of Contributor set forth
on Schedule 1.1 hereto.
If to the Partnership: GHV Associates
c/o Michael P. Walker
Chairman and Chief Executive Officer
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
If to Transferee: ElderTrust Operating Limited
Partnership
c/o ElderTrust
General Partner
415 McFarlan Road
Suite 202
Kenneth Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and
Chief Executive Officer
or such other address as the addressee may indicate by written notice to the
other party.
Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the delivery receipt, the affidavit of messenger or (with respect to a telex)
the answerback being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
11.3 Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of the State of Connecticut (but not
including the choice of law rules thereof).
11.4 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of the Partnership and Contributors (if the
assignor is Transferee) or Transferee (if the assignor is the Partnership or
Contributors), which consent shall not be unreasonably withheld, and any
purported assignment contrary to the terms hereof shall be null, void and of no
force and effect, except that Transferee may assign all or a portion of this
Agreement and its rights hereunder, to a corporation, partnership, limited
liability or other entity of which the entire ownership interest is owned
directly or indirectly by Transferee without the consent of the Partnership or
Contributors; no such assignment shall relieve Transferee of its obligations
hereunder.
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This Agreement shall be binding upon and shall inure to the
benefit to the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable only
by, the parties hereto or their respective successors and assigns as permitted
hereunder.
11.5 Severability. If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining parts of
such provisions or the remaining provisions of said agreement so long as the
economic and legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
11.6 Entire Agreement; Amendment. This Agreement and the
Exhibits and Schedules attached hereto (each of which shall be deemed
incorporated herein and made a part hereof) contain the final and entire
agreement between the parties hereto with respect to the Contribution and are
intended to be an integration of all prior negotiations and understandings. The
Partnership, Contributors and Transferee shall not be bound by any terms,
conditions, statements, warranties or representations, oral or written, not
contained or referred to herein or therein. No amendment, change or modification
of this Agreement shall be valid unless the same is in writing and signed by the
parties hereto.
11.7 No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified
therein.
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11.8 Power of Attorney. By executing this Agreement pursuant
to a Consent Form, the Partnership and each Contributor is constituting and
appointing each of Edward B. Romanov, Jr. and D. Lee McCreary, Jr.,
individually, with full power of substitution, the true and lawful
attorney-in-fact (the "Attorney"), with full power and authority in the name of
and for and on behalf of the Partnership or such Contributor, to execute the
Operating Partnership Agreement and the Registration Rights Agreement and to
execute any other instruments that Transferee reasonably deems necessary or
appropriate in connection with the contribution of the Property pursuant to this
Agreement.
11.9 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
11.10 Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
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IN WITNESS WHEREOF, the Partnership and Transferee have caused
this Agreement to be duly executed and delivered on its behalf and each of the
Contributors has executed a separate Consent Form agreeing to be bound by the
terms of this Agreement as of the date first above written.
TRANSFEREE:
ELDERTRUST OPERATING LIMITED
PARTNERSHIP
By: ElderTrust Realty Group, Inc.,
general partner
By: /s/ Edward B. Romanov, Jr.
-------------------------------
Name: Edward B. Romanov, Jr.
Title: President and Chief
Executive Officer
PARTNERSHIP:
GHV ASSOCIATES
By: /s/ Michael R. Walker
------------------------------
Name: Michael R. Walker
Title: Managing General Partner
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[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP, GHV ASSOCIATES AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Michael R. Walker 9/28/97
--------------------- -------
Michael R. Walker Date
STATE OF PENNSYLVANIA)
: SS. October 1, 1997
COUNTY OF CHESTER )
On the 1st day of October 1997, before me personally came
Michael R. Walker, to me known and known to me to be the individual described in
the foregoing instrument, and acknowledged that he executed the same.
/s/ Dana E. Leibert
-------------------
Notary Public
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<PAGE>
[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP, GHV ASSOCIATES AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Gregory H. Doyle 9/26/97
-------------------- -------
Gregory H. Doyle Date
STATE OF PENNSYLVANIA)
: SS.
COUNTY OF DELAWARE )
On the 26th day of September 1997, before me personally came
Gregory H. Doyle, to me known and known to me to be the individual described in
the foregoing instrument, and acknowledged that he executed the same.
/s/ Dolores M. Folcarelli
-------------------------
Notary Public
<PAGE>
[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP, GHV ASSOCIATES AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Thomas Balderston 10/2/97
--------------------- -------
Thomas Balderston Date
STATE OF )
: SS.
COUNTY OF )
On the 2 day of Oct 1997, before me personally came Thomas
Balderston, to me known and known to me to be the individual described in the
foregoing instrument, and acknowledged that he executed the same.
/s/ Nadine G. Frakes
--------------------
Notary Public
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<PAGE>
[CONFORMED COPY]
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND MAY BE OFFERED
OR SOLD ONLY (1) UPON REGISTRATION OF THE LIMITED PARTNERSHIP INTERESTS UNDER
THE SECURITIES ACT AND THE STATE ACTS OR PURSUANT TO AN EXEMPTION THEREFROM, AND
(2) AFTER COMPLIANCE WITH ALL RESTRICTIONS ON TRANSFER OF SUCH LIMITED
PARTNERSHIP INTERESTS IMPOSED BY THIS AGREEMENT.
* * *
PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
THIS PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT (this
"Agreement") is made and entered into as of September 25, 1997, by and between
ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership
("Transferee"), and each of the parties listed on Schedule 1.1 attached hereto
who executes a Partner Consent (hereinafter defined) agreeing to become a party
to this Agreement (each a "Contributor" and collectively, "Contributors").
WHEREAS, Contributors each are partners in Salisbury Medical
Office Building General Partnership, a Pennsylvania general partnership (the
"Partnership"); each Contributor owns the interests in the Partnership set forth
next to such Contributor's name on Schedule 1.2 hereto (collectively, the
"Interests"); and
WHEREAS, Contributors desire to contribute the Interests to
Transferee on the terms and conditions set forth herein.
WHEREAS, the Partnership owns and operates an office building
known as Salisbury Medical Office Building, which office building consists of
the real property described in Exhibit A hereto (the "Real Property"), the
improvements thereon and all other real and personal property associated
therewith (together with the Real Property, the "Property"), all of which other
real and personal property is described in Exhibit B hereto;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants set forth herein, Transferee and Contributors
hereby agree as follows:
<PAGE>
ARTICLE I
THE CONTRIBUTION
1.1 Contribution and Acquisition of Contributed Property.
Subject to the terms and conditions set forth herein, Contributors agree to
contribute to Transferee and Transferee agrees to acquire and accept from
Contributors, the Interests, in exchange for units of limited partnership
interest in Transferee (the "Units"), as set forth in Article II hereof, in a
transaction intended to qualify for nonrecognition of gain to Contributors
pursuant to Section 721 of the Internal Revenue Code of 1986, as amended (the
"Code") (the "Contribution").
1.2. Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur simultaneously with the closing of
the initial public offering (the "IPO") of shares of beneficial interest in
ElderTrust, a Maryland real estate investment trust (the "REIT"); provided, that
if the IPO has not occurred on or before March 31, 1998, this Agreement shall
terminate and none of the parties hereto shall have any further liability to any
other party hereto. The Closing shall occur simultaneously with the delivery of
the following documents:
(a) the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C, executed by Transferee and Contributors;
(b) the Second Amended and Restated Agreement of Limited
Partnership of Transferee, substantially in the form attached hereto as Exhibit
D (the "Operating Partnership Agreement");
(c) the documents specified in Section 8.1 and Section 8.2
hereof; and
(d) such other documents as the parties may mutually agree.
ARTICLE II
EXCHANGE AMOUNT
2.1. Exchange Amount.
(a) Units Delivered at Closing. In exchange for the
contribution of the Interests and upon execution and delivery of the Operating
Partnership Agreement by Contributors, Contributors collectively shall receive,
at the Closing, an aggregate number of Units equal to (i) $417,200.00 divided by
(ii) the midpoint of the price range for shares of beneficial interest in the
REIT as set forth in the REIT's final preliminary prospectus (the "Final
Preliminary Prospectus") related to the IPO, rounded up to the nearest whole
Unit. The rights of holders of the Units as of the Closing will be as set forth
in the Operating Partnership Agreement.
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(b) Distribution of Units. At the Closing, Transferee shall
issue the Units (as determined pursuant to Section 2.1(a) above) to
Contributors, each Contributor to receive a number of Units equal to (i) the
total number of Units issued to all Contributors multiplied by (ii) a fraction,
the numerator of which is the Interest of such Contributor as set forth on
Schedule 1.2 hereto, and the denominator of which is the sum of all the
Interests (including the Interest of such Contributor) as set forth on Schedule
1.2 hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
Transferee hereby represents and warrants to Contributors as
follows:
3.1 Organization, Power and Authority, and Qualification.
Transferee is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Transferee has the requisite
power and authority to carry on its respective business as it is now being
conducted and to engage in the Contribution. Transferee has made available to
Contributors complete and correct copies of the governing documents of
Transferee with all amendments as in effect on the date of this Agreement.
Transferee is qualified to do business and is in good standing in each
jurisdiction where the character of its property owned or leased or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified and in good standing would not have a material adverse effect
on the business or financial condition of Transferee.
3.2 Authority Relative to this Agreement. All action of
Transferee necessary to authorize the execution, delivery and performance of
this Agreement by Transferee has been taken, and no other proceedings on the
part of Transferee are necessary to authorize the execution and delivery of this
Agreement by Transferee and the consummation by Transferee of the Contribution.
Neither the execution and delivery of this Agreement by
Transferee nor the consummation by Transferee of the Contribution nor compliance
by Transferee with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the partnership agreement of Transferee, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Transferee is a party or by which it or
any of its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Transferee or any
of the properties or assets of Transferee.
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3.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferee to Contributors and constitutes a
valid and binding agreement of Transferee, enforceable against Transferee in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of limited
partnerships and to general principles of equity.
3.4 Brokers. Transferee has not employed any broker or finder,
or incurred any liability therefor, in connection with the Contribution
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH CONTRIBUTOR
Contributors hereby represent and warrant to Transferee as
follows:
4.1 Organization and Qualification. The Partnership is a
general partnership duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania. The Partnership has the requisite power and
authority to carry on its business as it is now being conducted. Contributors
have made available to Transferee complete and correct copies of the
organizational documents of the Partnership, with all amendments as in effect on
the date of this Agreement. The Partnership is qualified to do business in each
jurisdiction where the character of its property owned or leased or the nature
of its activities makes such qualification necessary, except where the failure
to be so qualified and in good standing would not have a material adverse effect
on the business or financial condition of the Partnership or on the
Contribution. None of the Contributors is a "foreign person" under Section 1445
of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
4.2 Authority Relative to this Agreement. All action necessary
to authorize the execution, delivery and performance of this Agreement by
Contributors has been taken, and no other proceedings are necessary to authorize
the execution and delivery by Contributors of this Agreement and the
consummation by Contributors of the Contribution.
Neither the execution and delivery of this Agreement by
Contributors, nor the consummation by Contributors of the Contribution nor
compliance by Contributors with any of the provisions hereof will (i) conflict
with or result in any breach of any provisions of the partnership agreement of
the Partnership, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
permit, contract, agreement, easement, restriction or other instrument or
obligation to which Contributors or the Partnership is a party or by which
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Contributors or the Partnership or the Property may be bound, or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Contributors, the Partnership or the Property, except in the case of (ii) or
(iii) for violations, breaches, or defaults (A) which would not in the aggregate
have a material adverse effect on the business or financial condition of
Contributors, the Partnership, the Contribution or the Property or (B) for which
waivers or consents have been obtained or, as listed on Schedule 4.2, will be
obtained prior to the date of the Closing.
4.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Contributors to Transferee and constitutes a
valid and binding agreement of each Contributor, enforceable against each
Contributor in accordance with its terms, except that such enforcement may be
subject to bankruptcy, conservatorship, receivership, insolvency, moratorium or
similar laws affecting creditors' rights generally and to general principles of
equity.
4.4 Brokers. Contributors have not employed any broker or
finder, or incurred any liability therefor, in connection with the Contribution
contemplated by this Agreement.
4.5 Title to Assets. Each Contributor has good and valid title
to the Interest owned by him, free and clear of any Liens (as hereinafter
defined). The Partnership has good and valid title to the Personal Property. To
Contributor's knowledge, the Property is not subject to any imperfections in
title, easements, liens, mortgages, encumbrances, pledges, claims, charges,
options, defects, preferential purchase rights or other encumbrances
(collectively referred to herein as "Liens") except for the following
("Permitted Liens"):
(i) Liens for real property taxes and assessments or for
fire dues, library dues or similar assessments not
yet delinquent;
(ii) Liens that are not material in character, amount, or
extent and do not materially detract from the value,
or interfere with the use of, the Partnership's
assets subject thereto or affected thereby or
otherwise materially impair the business operations
being conducted or proposed to be conducted thereon;
(iii) the Mortgage Debt (as hereinafter defined); and
(iv) Liens shown on Schedule 4.5 hereto.
4.6 Debt. The Property is encumbered by the mortgage
indebtedness described on Schedule 4.6 hereto (the "Mortgage Debt"). Except for
the Mortgage Debt, the Partnership has no material indebtedness other than
indebtedness incurred by it in its ordinary course of business. To Contributors'
knowledge, there exists no default, or event which with the passage of time or
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<PAGE>
notice or both would constitute a default with respect to the Mortgage Debt or
any other debt of the Partnership that has not been cured or that would have a
material adverse effect on the business or financial condition of the
Partnership, the Contribution or the Property.
4.7 Financial Statements. The financial statements of the
Partnership attached as Schedule 4.7 hereto (the "Financial Statements") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods specified. The balance
sheets in the Financial Statements fairly present the financial condition of the
Partnership as of the dates shown, and the income statements in the Financial
Statements fairly present the results of operations for the periods indicated.
4.8 Financial Condition. Since June 30, 1997, there has been
no material adverse change in the business or financial condition of the
Partnership.
4.9 Leases. Except as set forth on Schedule 4.9 hereto, the
Partnership has not entered into any leases, tenancies or other rights of
occupancy in effect on the date hereof with respect to the Property. Each of the
leases referenced in Schedule 4.9 (the "Leases") has been delivered to or made
available to Transferee and is presently unamended (or with respect to each such
lease that has been amended, all amendments thereto have been delivered or made
available to Transferee) and, to Contributors' knowledge, are in full force and
effect without material default.
4.10 Contracts. The Partnership is not a party to and none of
Contributors or the Partnership is bound by any contracts or other
understandings, written or oral, that relate to the Interests or the Property,
except for contracts or understandings that are not material to the business and
operations of the Property (collectively, the "Contracts," which term shall not
be construed to include any leases). Neither Contributors nor the Partnership,
as applicable, nor, to Contributors' knowledge, any other party thereto has
breached or defaulted under the terms of any Contract, except for such breaches
or defaults that would not have a material adverse effect on the business or
operations of the Partnership or the Property.
4.11 Permits. To the knowledge of Contributors, the
Partnership has all such franchises, certificates, licenses, permits and other
authorizations from government political subdivisions, regulatory authorities or
any other person or entity (collectively "Permits") as are necessary for the
ownership, use, operation and licensing of the Property as it is currently being
used, except where the failure to possess such Permits would not have a material
adverse effect on the business or financial condition of the Partnership or the
Property, and to Contributors' knowledge, the Partnership is not in violation of
any Permit in any material respect and all Permits of the Partnership are valid
and in full force and effect.
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4.12. Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to Contributors' knowledge, threatened
against Contributors or the Partnership, or any properties or rights of
Contributors or the Partnership, that would have a material adverse effect on
the business or financial condition of Contributors or the Partnership, the
Contribution or the Property before any court or administrative, governmental or
regulatory authority or body, domestic or foreign. None of Contributors, the
Partnership, the Interests or the Property is subject to any order, judgment,
injunction or decree of any court, tribunal or other governmental authority
(other than generally applicable laws, rules and regulations) that would have a
material adverse effect on the business or financial condition of the
Partnership, the Contribution or the Property.
4.13 Compliance with Laws. To Contributors' knowledge, the
Partnership has not received any written or other actual notice of any material
violation of any applicable zoning regulation or ordinance, or of any
employment, environmental, or other regulatory law, order, regulation or
requirement, including applicable subdivision laws, relating to the Property or
the business or operations thereon, which remains uncured, and, to Contributors'
knowledge, there are no such violations which, individually or in the aggregate,
would have a material adverse effect on the business or financial condition of
the Partnership or the Property.
4.14 Taxes. Except for such matters as in the aggregate shall
not result in a material adverse effect on the business or financial condition
of the Partnership, (i) all tax or information returns required to be filed on
or before the date hereof by or on behalf of the Partnership have been filed
through the date hereof or will be filed on or before the date of the Closing in
accordance with all applicable laws, (ii) there is no action, suit or proceeding
pending against, or with respect to, the Partnership or the Property in respect
of any tax nor is any claim for additional tax asserted by any such authority,
and (iii) all taxes (including related penalties, interest and additional
amounts) imposed upon the Partnership and required to be reported on a return
required to be filed (without regard to any applicable extensions) on or before
the date hereof have been paid or will be paid prior to the delinquency thereof.
4.15 Insurance. To Contributors' knowledge, each of the
insurance policies with respect to the Property is in full force and effect and
all premiums due and payable thereunder have been fully paid when due. To
Contributors' knowledge, the Partnership has not received from any insurance
company notice of any material defects or deficiencies affecting the
insurability of the Property or notices of cancellation or intent to cancel any
such insurance.
4.16 Employees. The Partnership has no employees.
7
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4.17 Utilities. To the knowledge of Contributors, usable
public sanitary and storm sewers, public water, and gas and electrical utilities
(collectively, the "Public Utilities"), of adequate capacity for the operation
of the Property, are installed in, and are duly connected to, the Property and
can be used without any charge except the normal and usual metered charges
imposed for such Public Utilities. No amounts due and owing with respect to the
Property in connection with utilities, insurance, assessments or other charges
customarily prorated in real estate transactions have been outstanding more than
30 days.
4.18 Environmental. For the purpose of this Section 4.18, the
term "Hazardous Substances" shall mean substances defined as a "hazardous
waste," "hazardous substance," or "toxic substance" under any Environmental
Laws, including, without limitation, oil, petroleum, or any petroleum-derived
substance or waste, asbestos or asbestos-containing materials, PCBs, pesticides,
explosives, radioactive materials, dioxins, urea formaldehyde insulation or any
constituent of any such substance, pollutant or waste. As used herein,
"Environmental Laws" shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901, et seq., the Clean Air Act, 42 U.S.C. ss. 7401, et seq., the Clean Water
Act, 33 U.S.C. ss. 1251, et seq., the Toxic Substance Control Act, 15 U.S.C. ss.
2601, et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651, et
seq., as any of the preceding have been amended prior to the date of the
Closing, and any other federal, state or local law, ordinance, regulation, rule,
order, decision or permit relating to the protection of human health from
environmental effects of Hazardous Substances and which are applicable to the
Property.
To Contributors' knowledge, and except as may be revealed in
the Phase I Environmental Report prepared for the Property by Roy F. Weston,
Inc., dated July, 1997, (i) no Hazardous Substances are present in, on or under
the Property that require remediation under applicable law or would have a
material adverse affect on the condition (financial or otherwise), earnings,
assets, business affairs or business prospects of the Property, the Partnership
or the Contribution, (ii) no liability under or violation of any Environmental
Laws or condition that could give rise to such liability or violation exists
with respect to the Property, except for liabilities that would not have a
material adverse effect on the business or financial condition of the
Partnership or the Property, and (iii) the Partnership has not caused or allowed
any discharge or disposal of any Hazardous Substances at the Property except in
compliance with Environmental Laws. The Partnership has not received any written
notice from any governmental agency or instrumentality having jurisdiction
thereof of any violation of any Environmental Laws which remains uncured or
unremediated.
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4.19 [INTENTIONALLY DELETED]
4.20 Pending Assessments and Eminent Domain. Contributors have
no knowledge of, and neither Contributors nor the Partnership have received
notice of, any pending proceeding for the imposition of any special assessment,
or the formation of a special assessment district, or for a condemnation
proceeding which would materially affect in any manner any portion of the
Property.
4.21 Securities Matters.
(a) Each Contributor acknowledges that Transferee intends the
offer and issuance of the Units to be exempt from registration under the
Securities Act and applicable state securities laws by virtue of (i) the status
of each Contributor as an accredited investor and (ii) Regulation D promulgated
under Section 4(2) of the Securities Act ("Regulation D"). Transferee will rely
in part upon the representations and warranties made by Contributors in making a
determination that the offer and issuance of the Units qualify for exemption
under Rule 506 of Regulation D as an offer and sale only to accredited
investors.
(b) Each Contributor is an Accredited Investor.
(c) Each Contributor will acquire the Units solely for his,
her or its own account, and not with a view to or for sale in connection with
any "distribution" thereof within the meaning of the Securities Act.
(d) Each Contributor has sufficient knowledge and experience
in financial, tax and business matters to enable him to evaluate the merits and
risks of investment in the Units. Each Contributor has the ability to bear the
economic risk of acquiring the Units. Each Contributor acknowledges that (i) the
transactions contemplated by this Agreement involve complex tax consequences for
each Contributor, and each Contributor is relying solely on the advice of his,
her or its own tax advisors in evaluating such consequences, (ii) Transferee has
not made (or shall be deemed to have made) any representations or warranties as
to the tax consequences of such transaction to Contributors, and (iii) any
references in this Agreement to the intended tax effect of the Contribution and
the other matters described herein shall not be deemed to imply any
representation by Transferee as to a particular tax effect that may be obtained
by Contributors. Contributors remain solely responsible for all tax matters
relating to Contributors.
(e) Each Contributor has received and reviewed materials
containing certain information regarding Transferee, the REIT and the IPO prior
to executing this Agreement. Each Contributor has been supplied with, or had
access to, information to which a reasonable investor would attach significance
in making an investment decision to acquire the Units and any other information
any Contributor has requested. Each Contributor has had an opportunity to ask
questions of and receive information and answers from Transferee concerning
Transferee, the REIT and the Units and to assess and evaluate any information
supplied to Contributors by Transferee.
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(f) Each Contributor acknowledges that the Units are not
registered under the Securities Act or any state securities laws and cannot be
resold without registration thereunder or exemption therefrom. Each Contributor
agrees that he, she or it will not transfer all or any portion of the Units for
at least one (1) year after the date of the Closing, and thereafter only if such
transfer has been registered or is exempt from registration under the Securities
Act and any applicable state securities laws.
4.22 [INTENTIONALLY DELETED]
4.23 Governmental Proceedings. There is no governmental action
or governmental proceeding (zoning or otherwise) or governmental investigation
pending or, to Contributors' knowledge, threatened against or relating to the
Property or the transactions contemplated by this Agreement.
4.24 No Agreements. Except as set forth on Schedule 4.24,
other than the Leases, the Property is not subject to any outstanding agreement
of sale or lease, option to purchase or other right of any third party to
acquire any interest therein.
ARTICLE V
COVENANTS AND AGREEMENTS OF CONTRIBUTORS
Contributors hereby covenant and agree with Transferee that
prior to the date of the Closing:
5.1 Actions Affecting Assets. Except in the ordinary course of
business, Contributors shall not permit the Partnership to sell, assign, pledge,
transfer or encumber, or enter into any other material consent, commitment,
understanding or other agreement, or incur any material obligation or liability
(contingent or absolute) with respect to the Property or merge or consolidate
with or into any other entity or enter into any agreements relating thereto
without Transferee's prior consent.
5.2 Access to Property and Records. Upon reasonable notice and
during regular business hours, Contributors shall give Transferee and
Transferee's authorized representatives full access to the Partnership's
personnel and all properties, documents, contracts, facilities, books, equipment
and records of the Partnership, relating to the Property to conduct its
investigations, including, without limitation, surveys, site analyses, soil
tests, engineering studies, and other investigations.
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5.3 Permits. Contributors shall cause the Partnership to
maintain all Permits in full force and effect, and will file timely all reports,
statements, renewal applications and other filings, and will pay timely all fees
and charges in connection therewith that are required to keep the Permits in
full force and effect.
5.4 Contracts. Contributors will not permit the Partnership to
enter into any new Contracts with respect to the Property except in the ordinary
course of the business of the operation of the Property.
5.5 Insurance. Contributors shall cause the Partnership to
maintain in full force and effect substantially the same public liability and
casualty insurance coverage now in effect with respect to the Property.
5.6 Taxes and Assessments. Contributors shall cause the
Partnership to pay or discharge before delinquent all tax liabilities and
obligations, including without limitation those for federal, state or local
income, property, unemployment, withholding, sales, transfer, stamp,
documentary, use and other taxes.
5.7 Binding Commitments. Contributors shall not make nor
permit the Partnership to make any commitments or representations to any
applicable government authorities, any adjoining or surrounding property owners,
any civic association, any utility or any other similar person or entity that
would in any manner be binding upon Transferee or the Property without
Transferee's prior consent, except such agreements that would not have a
material adverse effect on the Property.
5.8 Compliance with Law. The operations of the Partnership and
the Property will be conducted in compliance with all applicable laws,
including, without limitation, all such laws regulations, orders and
requirements promulgated by any governmental authority or relating to
environmental protection, fire, zoning and building and occupational safety
matters, except for noncompliance that individually or in the aggregate would
not and, insofar as may reasonably be foreseen, in the future will not, have a
material adverse effect on the business or operations of the Partnership or the
Property.
5.9 Operation of Property. Contributors shall cause the
Partnership to operate and maintain the Property in the same manner as the
Partnership has heretofore operated the Property.
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ARTICLE VI
CONDITIONS TO CONSUMMATION OF
CONTRIBUTION BY TRANSFEREE
The obligation of Transferee to consummate the Contribution
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
6.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Contributors in this Agreement
or in any document delivered by any Contributors pursuant to this Agreement
shall be true and correct in all material respects when made and on and as of
the date of the Closing as though such representations, warranties and covenants
were made on and as of such date.
6.2 No Material Adverse Change. There shall have been no
material adverse change in the value or condition of the Property or the
Partnership since the date hereof, except for changes contemplated by this
Agreement and changes in the ordinary course of business which do not have a
material adverse effect on the business or financial condition of the
Contribution, the Partnership or the Property.
6.3 Title Insurance. Commonwealth Land Title Insurance Company
(the "Title Company") shall have issued to Transferee an ALTA owners title
insurance policy effective as of the date of the Closing or an unconditional
commitment therefor insuring fee simple title to the Property to be vested in
Transferee in the amount of at least $625,800, subject to no exceptions other
than Permitted Liens (other than the Mortgage Debt), with such endorsements and
otherwise in form acceptable to Transferee in its sole and absolute discretion.
6.4 No Order or Injunction. The consummation of the
Contribution shall not have been restrained, enjoined or prohibited by any order
or injunction of any court or governmental authority of competent jurisdiction
nor shall there be any pending or threatened condemnation proceeding with
respect to the Property or any portion thereof.
6.5 Consents. All consents listed on Schedule 4.2 or otherwise
necessary for the execution and delivery of this Agreement by Contributor and
the consummation of the Contribution by Contributor have been obtained,
including, without limitation, the execution by each Contributor on or before
the date hereof of a consent form pursuant to which each such Contributor has
executed this Agreement and consented to each matter set forth herein (each, a
"Partner Consent").
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6.6 Instruments of Conveyance. The Contributors shall have
delivered the instruments evidencing conveyance of the Interests referred to in
Section 8.1.
6.7 IPO Closing. The IPO shall close simultaneously with the
Contribution.
6.8 Simultaneous Closing. The Contribution shall close
simultaneously with the closing under the agreements listed on Schedule 6.8
hereof.
ARTICLE VII
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY CONTRIBUTORS
The obligation of Contributors to consummate the Contribution
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
7.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferee in this Agreement
or in any document delivered by Transferee pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
7.2 Consents. All consents necessary for the consummation of
the Contribution by Transferee shall have been obtained.
7.3 IPO Closing. The IPO shall close simultaneously with the
Contribution.
7.4 Simultaneous Closing. The Contribution shall close
simultaneously with the closings under the agreements listed on Schedule 6.8
hereof.
ARTICLE VIII
THE CLOSING
Subject to the terms and conditions of this Agreement, the
Closing shall take place promptly after satisfaction or waiver of the conditions
set forth in Articles VI and VII hereof.
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8.1 Closing Deliveries by Contributors. At Closing, each
Contributor shall deliver (or cause to be delivered pursuant to the Power of
Attorney referred to in Section 11.8) the following:
(a) a written document of conveyance contributing to
Transferee title to the Interests, free and clear of any
adverse claim or interest;
(b) a certification by each Contributor, duly
executed by such Contributor under penalty of perjury, setting
forth such Contributor's address and federal tax
identification number and certifying that such Transferor is
not a "foreign person" under Section 1445 (as may be amended)
of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder;
(c) such documents and certificates as Transferee may
require to establish the authority of the parties executing
any documents in connection with the Contribution including,
in the case of any Contributor that is a corporation,
partnership, limited liability company or other similar entity
(other than a trust or estate), an opinion of counsel,
reasonably satisfactory to Transferee, as to the due execution
and delivery of such documents;
(d) such consents as are contemplated by Section 6.5
hereof;
(e) a certificate of Contributors certifying that the
representations and warranties of Contributors set forth
herein are true and correct in all material respects as of the
Closing Date; and
(f) such other documents and instruments as
Transferee and Contributors agree are necessary or
appropriate.
8.2 Closing Deliveries by Transferee. At Closing,
Transferee shall deliver or cause to be delivered the following:
(a) the Units referred to in Article II hereof;
(b) copies of the executed Registration Rights
Agreement and Operating Partnership Agreement;
(c) a certificate of Transferee certifying that the
representations and warranties of Transferee set forth herein
are true and correct in all material respects as of the
Closing Date;
(d) such other documents and instruments as
Contributor and Transferee agree are necessary or appropriate.
14
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8.3 Closing Costs. Transferee agrees to pay all costs
associated with the closing of the acquisition of the Interests by Transferee,
including (i) survey costs, (ii) costs of obtaining a title insurance policy for
the benefit of Transferee, (iii) documentary and transfer fees, and (iv) all
taxes, recording charges and other fees imposed on or in connection with the
Contribution; provided, however, to the extent any instruments are required to
be recorded in connection with the Contribution, Contributors, on one hand, and
Transferee, on the other hand, shall each pay one-half (1/2) of all costs,
transfer and recordation taxes and fees associated with the recordation. Each
party shall pay its own legal fees. Transferee's obligation to pay the closing
costs hereunder shall be in addition to and apart from its obligation to deliver
the Units to the Contributors.
ARTICLE IX
REMEDIES ON DEFAULT
9.1 Contributors' Remedies. Except for any breaches waived in
writing by Contributors, if Transferee fails to consummate the Contribution when
required to do so pursuant to the provisions hereof, then Contributors shall be
entitled to terminate this Agreement as the exclusive and sole right and remedy
of Contributors (except as provided in this sentence), whereupon this Agreement
shall terminate and none of the parties shall have any further obligations to
any other party, provided, however, that in such event Transferee shall
reimburse Contributors for all reasonable costs incurred by Contributors in
connection with the Contribution, provided that the amount to be reimbursed by
Transferee shall not exceed Twenty-Five Thousand Dollars ($25,000).
9.2 Transferee's Remedies. Except for any breaches waived in
writing by Transferee, if any Contributor has breached any of his, her or its
covenants or obligations under this Agreement or has failed, refused or is
unable to consummate the Contribution by the date of the Closing when and as
required to do so hereunder, then Transferee shall have the right to bring an
action at law or in equity seeking the specific performance of the obligations
of any such Contributor hereunder and in addition thereto or in lieu thereof,
Transferee may avail itself of any other remedies available at law or in equity
on account of such breach, provided, however, the amount of money damages that
Transferee may recover from the Partnership and Contributors shall not exceed
Twenty-Five Thousand Dollars ($25,000).
9.3 Limitation on Contributor's Liability. Any liability of
Contributors to Transferee pursuant to Section 9.2 shall be several and not
joint and shall be limited to the fair market value of the Units issued to
Contributor at Closing (assuming for this purpose that the fair market value of
each Unit is equal to the price per share of beneficial interest of the REIT at
the time of determination).
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ARTICLE X
INDEMNIFICATION
10.1 Indemnification by Contributors. Contributors hereby
jointly and severally indemnify and agree to defend and hold harmless
Transferee, and its officers, directors, employees, agents and successors and
assigns and its general partners and any officers, trustees, directors,
employees, agents and successors and assigns of such general partners
("Transferee Indemnitees"), from and against any and all demands, claims,
actions or causes of action, assessments, expenses, costs, damages, losses and
liabilities (including attorneys' fees and other charges) which may at any time
be asserted against or suffered by any Transferee Indemnitee, the Property, or
any part thereof, whether before or after date of the Closing, as a result of,
on account of or arising from (a) the failure of Contributors to perform any of
their obligations hereunder or, to the extent provided in Section 11.1, the
breach by Contributors of any of their representations and warranties hereunder,
(b) events, contractual obligations, acts or omissions of Contributors or the
Partnership that occurred in connection with the ownership or operation of the
Property prior to the Closing, (c) damage to property or injury to or death of
any person or any claims for any debts or obligations occurring on or about or
in connection with the Property or any portion thereof or with respect to the
operation of the Property at any time or times prior to the Closing, or (d) any
obligation, claim, suit, liability, contract, agreement, debt or encumbrance
(other than Permitted Liens) created, arising or accruing prior to the date of
the Closing, regardless of when asserted, relating to the Property or its
operation, including, without limitation, any and all liabilities for federal or
state income taxes or other taxes, which shall not have been set forth or
specifically described in this Agreement or the Schedules and the Exhibits
hereto. The obligations of Contributor under this Section 10.1 shall survive the
Closing.
10.2 Indemnification by Transferee. Transferee hereby
indemnifies and agrees to defend and hold harmless Contributors, and their
respective successors and assigns ("Contributor Indemnitees"), from and against
any and all demands, claims, actions or causes of action, assessments, expenses,
costs, damages, losses and liabilities (including attorneys' fees and other
charges) which may at any time be asserted against or suffered by any
Contributor Indemnitee, the Property, or any part thereof, whether before or
after the date of the Closing, as a result of, on account of or arising from (a)
the failure of Transferee to perform any of its obligations hereunder or, to the
extent provided in Section 11.1, the breach by Transferee of any of its
representations and warranties made herein, (b) events, contractual obligations,
acts or omissions of Transferee that occurred in connection with the ownership
or operation of the Property prior to the Closing, (c) damage to property or
injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times prior to
the Closing, or (d) any damage to the Property caused by Transferee in
connection with any studies, investigations or tests conducted by Transferee
pursuant to Section 5.2 hereof. The obligations of Transferee under this Section
10.2 shall survive the Closing.
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ARTICLE XI
GENERAL PROVISIONS
11.1 Survival of Liability with Respect to Representations and
Warranties. (a) It is the express intention and agreement of the parties that
the representations and warranties of Transferee and Contributors set forth in
this Agreement shall survive the consummation of the Contribution for a period
of one (1) year from the date of the Closing except that (i) the representation
and warranty of Contributors set forth in Section 4.18 hereof shall survive the
consummation of the Contribution for a period of two (2) years from the date of
the Closing and (ii) the representations and warranties of Contributors set
forth in Section 4.21 hereof shall survive Closing and shall not terminate.
Except as provided in the previous sentence, such representations and warranties
shall expire and be terminated and extinguished forever at the expiration of
such period. Any written notice given within such period setting forth a claim
must set forth the nature and details of the claim with specificity.
(b) Any liability of Contributors to Transferee pursuant to
this Section 11.1 shall be several and not joint. Except for a breach of a
representation and warranty set forth in Section 4.21 hereof, each Contributor's
liability shall be limited to twenty percent (20%) of the fair market value of
the Units issued to such Contributor at Closing (assuming for this purpose that
the fair market value of each Unit is equal to the price per share of beneficial
interest of the REIT at the time of determination).
11.2 Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by either
Contributor or Transferee to the other pursuant to this Agreement shall be in
writing and shall be hand delivered or transmitted by certified mail, express
overnight mail or delivery service, telegram, telex or facsimile transmission to
the parties at the following addresses:
17
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If to Contributor, at the address of Contributor set forth on
Schedule 1.1 hereto
If to Transferee: Eldertrust Operating Limited Partnership
c/o ElderTrust
General Partner
415 McFarlan Road
Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive
Officer
or such other address as the addressee may indicate by written notice to the
other party.
Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the delivery receipt, the affidavit of messenger or (with respect to a telex)
the answerback being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
11.3 Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of the State of Maryland (but not
including the choice of law rules thereof).
11.4 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Contributor (if the assignor is Transferee)
or Transferee (if the assignor is Contributors), which consent shall not be
unreasonably withheld, and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect, except that Transferee may
assign all or a portion of this Agreement and its rights hereunder, to a
corporation, partnership, limited liability or other entity of which the entire
ownership interest is owned directly or indirectly by Transferee without the
consent of Contributor; no such assignment shall relieve Transferee of its
obligations hereunder.
This Agreement shall be binding upon and shall inure to the
benefit to the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable only
by, the parties hereto or their respective successors and assigns as permitted
hereunder.
18
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11.5 Severability. If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining parts of
such provisions or the remaining provisions of said agreement so long as the
economic and legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
11.6 Entire Agreement; Amendment. This Agreement and the
Exhibits and Schedules attached hereto (each of which shall be deemed
incorporated herein and made a part hereof) contain the final and entire
agreement between the parties hereto with respect to the Contribution and are
intended to be an integration of all prior negotiations and understandings.
Contributor and Transferee shall not be bound by any terms, conditions,
statements, warranties or representations, oral or written, not contained or
referred to herein or therein. No amendment, change or modification of this
Agreement shall be valid unless the same is in writing and signed by the parties
hereto.
11.7 No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified
therein.
11.8 Power of Attorney. By executing this Agreement pursuant
to a Consent Form, each Contributor is constituting and appointing each of
Edward B. Romanov, Jr. and D. Lee McCreary, Jr., individually, with full power
of substitution, the true and lawful attorney-in-fact (the "Attorney") of such
Contributor, with full power and authority in the name of and for and on behalf
of such Contributor, to execute an instrument of conveyance contributing his,
her or its Interest to Transferee pursuant to the terms set forth in this
Agreement, to execute the Operating Partnership Agreement and the Registration
Rights Agreement and to execute any other instruments that Transferee reasonably
deems necessary or appropriate in connection with the contribution of the
Interest pursuant to this Agreement.
19
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11.9 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
11.10 Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
20
<PAGE>
IN WITNESS WHEREOF, each of the Contributors has executed a
separate Consent Form agreeing to be bound by the terms of this Agreement and
Transferee has caused this Agreement to be duly executed and delivered on its
behalf as of the date first above written.
TRANSFEREE:
ELDERTRUST OPERATING LIMITED
PARTNERSHIP
By: ElderTrust Realty Group, Inc.,
general partner
By: /s/ Edward B. Romanov, Jr.
--------------------------------
Name: Edward B. Romanov, Jr.
Title: President and Chief
Executive Officer
21
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[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Michael R. Walker 9/28/97
-------------------------------------------------------------
Michael R. Walker Date
STATE OF PENNSYLVANIA)
: SS. October 1, 1997
COUNTY OF CHESTER )
On the 1st day of October 1997, before me personally came
Michael R. Walker, to me known and known to me to be the individual described in
the foregoing instrument, and acknowledged that he executed the same.
/s/ Donna E. Liebert
----------------------------
Notary Public
22
<PAGE>
[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Richard R. Howard 9/26/97
-------------------------------------------------------------
Richard R. Howard Date
STATE OF PENNSYLVANIA)
: SS. September 26, 1997
COUNTY OF CHESTER )
On the 26th day of September 1997, before me personally came
Richard R. Howard, to me known and known to me to be the individual described in
the foregoing instrument, and acknowledged that he executed the same.
/s/ Donna E. Liebert
-----------------------
Notary Public
23
<PAGE>
[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Joseph A. Williamson 9/30/97
-------------------------------------------------------------
Joseph A. Williamson Date
STATE OF PENNSYLVANIA)
: SS.
COUNTY OF CHESTER )
On the 30th day of September 1997, before me personally came
Joseph A. Williamson, to me known and known to me to be the individual described
in the foregoing instrument, and acknowledged that he executed the same.
/s/ Sandra L. Savidge
--------------------------
Notary Public
24
<PAGE>
[COUNTERPART SIGNATURE PAGE TO PLAN OF ASSET TRANSFER AND CONTRIBUTION AGREEMENT
DATED AS OF SEPTMBER 25, 1997 BY AND BETWEEN ELDERTRUST OPERATING LIMITED
PARTNERSHIP AND THE PARTIES LISTED ON SCHEDULE 1 THERETO]
Please sign exactly as your name appears on the previous page.
/s/ Gregory H. Doyle 9/26/97
-------------------------------------------------------------
Gregory H. Doyle Date
STATE OF PENNSYLVANIA)
: SS. October 1, 1997
COUNTY OF DELAWARE )
On the 26th day of September 1997, before me personally came
Gregory H. Doyle, to me known and known to me to be the individual described in
the foregoing instrument, and acknowledged that he executed the same.
/s/ Dolores M. Folcarelli
----------------------------
Notary Public
25
<PAGE>
Exhibit 10.13
FORM OF ASSET TRANSFER AGREEMENT
--------------------------------
THIS ASSET TRANSFER AGREEMENT (this "Agreement") is made and
entered into as of September 25, 1997, by and between ELDERTRUST OPERATING
LIMITED PARTNERSHIP, a Delaware limited partnership ("Transferee"), and
___________ ("Transferor").
WHEREAS, Transferor is a partner in Salisbury Medical Office
Building General Partnership, a Pennsylvania general partnership (the
"Partnership"); Transferor owns the interests in the Partnership set forth on
Schedule 1.1 hereto (the "Interest"); and
WHEREAS, Transferor desires to contribute the Interest to
Transferee on the terms and conditions set forth herein.
WHEREAS, the Partnership owns and operates an office building
known as Salisbury Medical Office Building, which office building consists of
the real property described in Exhibit A hereto (the "Real Property"), the
improvements thereon and all other real and personal property associated
therewith (together with the Real Property, the "Property"), all of which other
real and personal property is described in Exhibit B hereto;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants set forth herein, Transferee and Transferor hereby
agree as follows:
ARTICLE I
THE TRANSFER
Subject to the terms and conditions set forth herein,
Transferor agrees to transfer to Transferee, and Transferee agrees to acquire
from Transferor, the Interest. The transfer of the Interest shall be effected
pursuant to the provisions of this Article I and other applicable provisions of
this Agreement (the "Transaction").
1.1 Transfer of Interest. On the Closing Date (as hereinafter
defined), in accordance with the terms and conditions set forth herein,
Transferor shall transfer to Transferee, and Transferee shall acquire from
Transferor, the Interest.
1.2 Purchase Price. The total consideration (the "Purchase
Price") to be paid by Transferee to Transferor for the Interest shall be
<PAGE>
immediately available funds to be paid to Transferor at the Closing in the
amount of ____________________.
1.3 Closing. The closing of the Transaction (the "Closing")
shall occur simultaneously with the closing of the initial public offering (the
"IPO") of shares of beneficial interest in ElderTrust, a Maryland real estate
investment trust (the "REIT"), provided that if the IPO has not occurred on or
before March 31, 1998, this Agreement shall terminate and neither party hereto
shall have any further liability to any other party hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TRANSFEREE
Transferee hereby represents and warrants to Transferor as follows:
2.1 Organization, Power and Authority, and Qualification.
Transferee is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Transferee has the requisite
power and authority to carry on its respective business as it is now being
conducted and to engage in the Transaction. Transferee has made available to
Transferor complete and correct copies of the governing documents of Transferee
with all amendments as in effect on the date of this Agreement. Transferee is
qualified to do business and is in good standing in each jurisdiction where the
character of its property owned or leased or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified and in
good standing would not have a material adverse effect on the business or
financial condition of Transferee.
2.2 Authority Relative to this Agreement. All action of
Transferee necessary to authorize the execution, delivery and performance of
this Agreement by Transferee has been taken, and no other proceedings on the
part of Transferee are necessary to authorize the execution and delivery of this
Agreement by Transferee and the consummation by Transferee of the Transaction.
Neither the execution and delivery of this Agreement by
Transferee nor the consummation by Transferee of the Transaction nor compliance
by Transferee with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the partnership agreement of Transferee, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Transferee is a party or by which it or
any of its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Transferee or any
of the properties or assets of Transferee.
2
<PAGE>
2.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferee to Transferor and constitutes a
valid and binding agreement of Transferee, enforceable against Transferee in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of limited
partnerships and to general principles of equity.
2.4 Brokers. Transferee has not employed any broker or finder,
or incurred any liability therefor, in connection with the Transaction
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSFEROR
Transferor hereby represents and warrants to Transferee as follows:
3.1 Status. Transferor is not a "foreign person" under Section
1445 of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
3.2 Authority Relative to this Agreement. Neither the
execution and delivery of this Agreement by Transferor, nor the consummation by
Transferor of the Transaction nor compliance by Transferor with any of the
provisions hereof will (i) conflict with or result in any breach of any
provisions of the partnership agreement of the Partnership, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, permit, contract, agreement,
easement, restriction or other instrument or obligation to which Transferor or
the Partnership is a party or by which Transferor or the Partnership or the
Property may be bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Transferor, the Partnership or the
Property, except in the case of (ii) or (iii) for violations, breaches, or
defaults (A) which would not in the aggregate have a material adverse effect on
the business or financial condition of Transferor, the Partnership, the
Transaction or the Property or (B) for which waivers or consents have been
obtained or, as listed on Schedule 3.2, will be obtained prior to the date of
the Closing.
3.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Transferor to Transferee and constitutes a
valid and binding agreement of Transferor, enforceable against Transferor in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally and to general principles of equity.
3
<PAGE>
3.4 Brokers. Transferor has not employed any broker or finder,
or incurred any liability therefor, in connection with the Transaction
contemplated by this Agreement.
3.5 Title to Assets. Transferor has good and valid title to
the Interest, free and clear of any Liens (as hereinafter defined). The
Partnership has good and valid title to the Personal Property. To Transferor's
knowledge, the Property is not subject to any imperfections in title, easements,
liens, mortgages, encumbrances, pledges, claims, charges, options, defects,
preferential purchase rights or other encumbrances (collectively referred to
herein as "Liens") except for the following ("Permitted Liens"):
(i) Liens for real property taxes and assessments
or for fire dues, library dues or similar
assessments not yet delinquent;
(ii) Liens that are not material in character, amount, or
extent and do not materially detract from the value,
or interfere with the use of, the Partnership's
assets subject thereto or affected thereby or
otherwise materially impair the business operations
being conducted or proposed to be conducted thereon;
(iii) the Mortgage Debt (as hereinafter defined); and
(iv) Liens shown on Schedule 3.5 hereto.
3.6 Debt. The Property is encumbered by the mortgage
indebtedness described on Schedule 3.6 hereto (the "Mortgage Debt"). Except for
the Mortgage Debt, the Partnership has no material indebtedness other than
indebtedness incurred by it in its ordinary course of business. To Transferor's
knowledge, there exists no default, or event which with the passage of time or
notice or both would constitute a default with respect to the Mortgage Debt or
any other debt of the Partnership that has not been cured or that would have a
material adverse effect on the business or financial condition of the
Partnership, the Transaction or the Property.
3.7 Financial Statements. The financial statements of the
Partnership attached as Schedule 3.7 hereto (the "Financial Statements") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods specified. The balance
sheets in the Financial Statements fairly present the financial condition of the
Partnership as of the dates shown, and the income statements in the Financial
Statements fairly present the results of operations for the periods indicated.
3.8 Financial Condition. Since June 30, 1997, there has been
no material adverse change in the business or financial condition of the
Partnership.
4
<PAGE>
3.9 Leases. Except as set forth on Schedule 3.9 hereto, the
Partnership has not entered into any leases, tenancies or other rights of
occupancy in effect on the date hereof with respect to the Property. Each of the
leases referenced in Schedule 3.9 (the "Leases") has been delivered to or made
available to Transferee and is presently unamended (or with respect to each such
lease that has been amended, all amendments thereto have been delivered or made
available to Transferee) and, to Transferor's knowledge, are in full force and
effect without material default.
3.10 Contracts. The Partnership is not a party to and neither
Transferor nor the Partnership is bound by any contracts or other
understandings, written or oral, that relate to the Interest or the Property,
except for contracts or understandings that are not material to the business and
operations of the Property (collectively, the "Contracts," which term shall not
be construed to include any leases). Neither Transferor nor the Partnership, as
applicable, nor, to Transferor's knowledge, any other party thereto has breached
or defaulted under the terms of any Contract, except for such breaches or
defaults that would not have a material adverse effect on the business or
operations of the Partnership or the Property.
3.11 Permits. To the knowledge of Transferor, the Partnership
has all such franchises, certificates, licenses, permits and other
authorizations from government political subdivisions, regulatory authorities or
any other person or entity (collectively "Permits") as are necessary for the
ownership, use, operation and licensing of the Property as it is currently being
used, except where the failure to possess such Permits would not have a material
adverse effect on the business or financial condition of the Partnership or the
Property, and to Transferor's knowledge, the Partnership is not in violation of
any Permit in any material respect and all Permits of the Partnership are valid
and in full force and effect.
3.12. Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to Transferor's knowledge, threatened
against Transferor or the Partnership, or any properties or rights of Transferor
or the Partnership, that would have a material adverse effect on the business or
financial condition of Transferor or the Partnership, the Transaction or the
Property before any court or administrative, governmental or regulatory
authority or body, domestic or foreign. None of Transferor, the Partnership, the
Interest or the Property is subject to any order, judgment, injunction or decree
of any court, tribunal or other governmental authority (other than generally
applicable laws, rules and regulations) that would have a material adverse
effect on the business or financial condition of the Partnership, the
Transaction or the Property.
3.13 Compliance with Laws. To Transferor's knowledge, the
Partnership has not received any written or other actual notice of any material
violation of any applicable zoning regulation or ordinance, or of any
employment, environmental, or other regulatory law, order, regulation or
5
<PAGE>
requirement, including applicable subdivision laws, relating to the Property or
the business or operations thereon, which remains uncured, and, to Transferor's
knowledge, there are no such violations which, individually or in the aggregate,
would have a material adverse effect on the business or financial condition of
the Partnership or the Property.
3.14 Taxes. Except for such matters as in the aggregate shall
not result in a material adverse effect on the business or financial condition
of the Partnership, (i) all tax or information returns required to be filed on
or before the date hereof by or on behalf of the Partnership have been filed
through the date hereof or will be filed on or before the date of the Closing in
accordance with all applicable laws, (ii) there is no action, suit or proceeding
pending against, or with respect to, the Partnership or the Property in respect
of any tax nor is any claim for additional tax asserted by any such authority,
and (iii) all taxes (including related penalties, interest and additional
amounts) imposed upon the Partnership and required to be reported on a return
required to be filed (without regard to any applicable extensions) on or before
the date hereof have been paid or will be paid prior to the delinquency thereof.
3.15 Insurance. To Transferor's knowledge, each of the
insurance policies with respect to the Property is in full force and effect and
all premiums due and payable thereunder have been fully paid when due. To
Transferor's knowledge, the Partnership has not received from any insurance
company notice of any material defects or deficiencies affecting the
insurability of the Property or notices of cancellation or intent to cancel any
such insurance.
3.16 Employees. The Partnership has no employees.
3.17 Utilities. To the knowledge of Transferor, usable public
sanitary and storm sewers, public water, and gas and electrical utilities
(collectively, the "Public Utilities"), of adequate capacity for the operation
of the Property, are installed in, and are duly connected to, the Property and
can be used without any charge except the normal and usual metered charges
imposed for such Public Utilities. No amounts due and owing with respect to the
Property in connection with utilities, insurance, assessments or other charges
customarily prorated in real estate transactions have been outstanding more than
30 days.
3.18 Environmental. For the purpose of this Section 3.18, the
term "Hazardous Substances" shall mean substances defined as a "hazardous
waste," "hazardous substance," or "toxic substance" under any Environmental
Laws, including, without limitation, oil, petroleum, or any petroleum-derived
substance or waste, asbestos or asbestos-containing materials, PCBs, pesticides,
explosives, radioactive materials, dioxins, urea formaldehyde insulation or any
constituent of any such substance, pollutant or waste. As used herein,
"Environmental Laws" shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901, et seq., the Clean Air Act, 42 U.S.C. ss. 7401, et seq., the Clean Water
6
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Act, 33 U.S.C. ss. 1251, et seq., the Toxic Substance Control Act, 15 U.S.C. ss.
2601, et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651, et
seq., as any of the preceding have been amended prior to the date of the
Closing, and any other federal, state or local law, ordinance, regulation, rule,
order, decision or permit relating to the protection of human health from
environmental effects of Hazardous Substances and which are applicable to the
Property.
To Transferor's knowledge, and except as may be revealed in
the Phase I Environmental Report prepared for the Property by Roy F. Weston,
Inc., dated July, 1997, (i) no Hazardous Substances are present in, on or under
the Property that require remediation under applicable law or would have a
material adverse affect on the condition (financial or otherwise), earnings,
assets, business affairs or business prospects of the Property, the Partnership
or the Transaction, (ii) no liability under or violation of any Environmental
Laws or condition that could give rise to such liability or violation exists
with respect to the Property, except for liabilities that would not have a
material adverse effect on the business or financial condition of the
Partnership or the Property, and (iii) the Partnership has not caused or allowed
any discharge or disposal of any Hazardous Substances at the Property except in
compliance with Environmental Laws. The Partnership has not received any written
notice from any governmental agency or instrumentality having jurisdiction
thereof of any violation of any Environmental Laws which remains uncured or
unremediated.
3.19 [INTENTIONALLY DELETED]
3.20 Pending Assessments and Eminent Domain. Transferor has no
knowledge of, and neither Transferor nor the Partnership have received notice
of, any pending proceeding for the imposition of any special assessment, or the
formation of a special assessment district, or for a condemnation proceeding
which would materially affect in any manner any portion of the Property.
3.21 Governmental Proceedings. There is no governmental action
or governmental proceeding (zoning or otherwise) or governmental investigation
pending or, to Transferor's knowledge, threatened against or relating to the
Property or the transactions contemplated by this Agreement.
3.22 No Agreements. Except as set forth on Schedule 3.22,
other than the Leases, the Property is not subject to any outstanding agreement
of sale or lease, option to purchase or other right of any third party to
acquire any interest therein.
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ARTICLE IV
COVENANTS AND AGREEMENTS OF TRANSFEROR
Transferor hereby covenants and agrees with Transferee that
prior to the date of the Closing:
4.1 Actions Affecting Assets. Except in the ordinary course of
business, Transferor shall not permit the Partnership to sell, assign, pledge,
transfer or encumber, or enter into any other material consent, commitment,
understanding or other agreement, or incur any material obligation or liability
(contingent or absolute) with respect to the Property or merge or consolidate
with or into any other entity or enter into any agreements relating thereto
without Transferee's prior consent.
4.2 Access to Property and Records. Upon reasonable notice and
during regular business hours, Transferor shall give Transferee and Transferee's
authorized representatives full access to the Partnership's personnel and all
properties, documents, contracts, facilities, books, equipment and records of
the Partnership, relating to the Property to conduct its investigations,
including, without limitation, surveys, site analyses, soil tests, engineering
studies, and other investigations.
4.3 Permits. Transferor shall cause the Partnership to
maintain all Permits in full force and effect, and will file timely all reports,
statements, renewal applications and other filings, and will pay timely all fees
and charges in connection therewith that are required to keep the Permits in
full force and effect.
4.4 Contracts. Transferor will not permit the Partnership to
enter into any new Contracts with respect to the Property except in the ordinary
course of the business of the operation of the Property.
4.5 Insurance. Transferor shall cause the Partnership to
maintain in full force and effect substantially the same public liability and
casualty insurance coverage now in effect with respect to the Property.
4.6 Taxes and Assessments. Transferor shall cause the
Partnership to pay or discharge before delinquent all tax liabilities and
obligations, including without limitation those for federal, state or local
income, property, unemployment, withholding, sales, transfer, stamp,
documentary, use and other taxes.
4.7 Binding Commitments. Transferor shall not make nor permit
the Partnership to make any commitments or representations to any applicable
government authorities, any adjoining or surrounding property owners, any civic
association, any utility or any other similar person or entity that would in any
8
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manner be binding upon Transferee or the Property without Transferee's prior
consent, except such agreements that would not have a material adverse effect on
the Property.
4.8 Compliance with Law. The operations of the Partnership and
the Property will be conducted in compliance with all applicable laws,
including, without limitation, all such laws regulations, orders and
requirements promulgated by any governmental authority or relating to
environmental protection, fire, zoning and building and occupational safety
matters, except for noncompliance that individually or in the aggregate would
not and, insofar as may reasonably be foreseen, in the future will not, have a
material adverse effect on the business or operations of the Partnership or the
Property.
4.9 Operation of Property. Transferor shall cause the
Partnership to operate and maintain the Property in the same manner as the
Partnership has heretofore operated the Property.
ARTICLE V
CONDITIONS TO CONSUMMATION OF
BY TRANSFEREE
The obligation of Transferee to consummate the Transaction
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
5.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferor in this Agreement
or in any document delivered by Transferor pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
5.2 No Material Adverse Change. There shall have been no
material adverse change in the value or condition of the Property or the
Partnership since the date hereof, except for changes contemplated by this
Agreement and changes in the ordinary course of business which do not have a
material adverse effect on the business or financial condition of the
Transaction, the Partnership or the Property.
5.3 Title Insurance. Commonwealth Land Title Insurance Company
(the "Title Company") shall have issued to Transferee an ALTA owners title
insurance policy effective as of the date of the Closing or an unconditional
commitment therefor insuring fee simple title to the Property to be vested in
Transferee in the amount of at least Six Hundred Twenty-Five Thousand Eight
9
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Hundred Dollars ($625,800), subject to no exceptions other than Permitted Liens
(other than the Mortgage Debt), with such endorsements and otherwise in form
acceptable to Transferee in its sole and absolute discretion.
5.4 No Order or Injunction. The consummation of the
Transaction shall not have been restrained, enjoined or prohibited by any order
or injunction of any court or governmental authority of competent jurisdiction
nor shall there be any pending or threatened condemnation proceeding with
respect to the Property or any portion thereof.
5.5 Consents. All consents listed on Schedule 3.2 or otherwise
necessary for the execution and delivery of this Agreement by Transferor and the
consummation of the Transaction by Transferor have been obtained.
5.6 Instruments of Conveyance. The Transferor shall have
delivered the instruments evidencing conveyance of the Interest referred to in
Section 7.1.
5.7 IPO Closing. The IPO shall close simultaneously with the
Transaction.
5.8 Simultaneous Closing. The Transaction shall close
simultaneously with the closing under the agreements listed on Schedule 5.8
hereof.
ARTICLE VI
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY TRANSFEROR
The obligation of Transferor to consummate the Transaction
shall be subject to fulfillment (or waiver) at or prior to the date of the
Closing of the following conditions:
6.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Transferee in this Agreement
or in any document delivered by Transferee pursuant to this Agreement shall be
true and correct in all material respects when made and on and as of the date of
the Closing as though such representations, warranties and covenants were made
on and as of such date.
6.2 Consents. All consents necessary for the consummation of
the Transaction by Transferee shall have been obtained.
6.3 IPO Closing. The IPO shall close simultaneously with the
Transaction.
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6.4 Simultaneous Closing. The Transaction shall close
simultaneously with the closings under the agreements listed on Schedule 5.8
hereof.
ARTICLE VII
THE CLOSING
Subject to the terms and conditions of this Agreement, the
Closing shall take place promptly after satisfaction or waiver of the conditions
set forth in Articles VI and VII hereof.
7.1 Closing Deliveries by Transferor. At Closing, Transferor
shall deliver (or cause to be delivered pursuant to the Power of Attorney
referred to in Section 10.8) the following:
(a) a written document of conveyance transferring
to Transferee title to the Interest, free and clear of any
adverse claim or interest;
(b) a certification by Transferor, duly executed by
Transferor under penalty of perjury, setting forth
Transferor's address and federal tax identification number and
certifying that such Transferor is not a "foreign person"
under Section 1445 (as may be amended) of the Internal Revenue
Code of 1986, as amended, and the regulations promulgated
thereunder;
(c) such documents and certificates as Transferee may
require to establish the authority of the parties executing
any documents in connection with the Transaction;
(d) such consents as are contemplated by Section 5.5
hereof;
(e) a certificate of Transferor certifying that the
representations and warranties of Transferor set forth herein
are true and correct in all material respects as of the
Closing Date; and
(f) such other documents and instruments as
Transferee and Transferor agree are necessary or appropriate.
7.2 Closing Deliveries by Transferee. At Closing, Transferee
shall deliver or cause to be delivered the following:
(a) the Purchase Price;
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(b) a certificate of Transferee certifying that the
representations and warranties of Transferee set forth herein
are true and correct in all material respects as of the
Closing Date;
(c) such other documents and instruments as
Transferor and Transferee agree are necessary or appropriate.
7.3 Closing Costs. Transferee agrees to pay all costs
associated with the closing of the acquisition of the Interest by Transferee,
including (i) survey costs, (ii) costs of obtaining a title insurance policy for
the benefit of Transferee, (iii) documentary and transfer fees, and (iv) all
taxes, recording charges and other fees imposed on or in connection with the
Transaction.
ARTICLE VIII
REMEDIES ON DEFAULT
8.1 Transferor's Remedies. Except for any breaches waived in
writing by Transferor, if Transferee fails to consummate the Transaction when
required to do so pursuant to the provisions hereof, then Transferor shall be
entitled to terminate this Agreement as the exclusive and sole right and remedy
of Transferor (except as provided in this sentence), whereupon this Agreement
shall terminate and none of the parties shall have any further obligations to
any other party, provided, however, that in such event Transferee shall
reimburse Transferor for all reasonable costs incurred by Transferor in
connection with the Transaction, provided that the amount to be reimbursed by
Transferee shall not exceed Twenty-Five Thousand Dollars ($25,000).
8.2 Transferee's Remedies. Except for any breaches waived in
writing by Transferee, if any Transferee has breached any of his covenants or
obligations under this Agreement or has failed, refused or is unable to
consummate the Transaction by the date of the Closing when and as required to do
so hereunder, then Transferee shall have the right to bring an action at law or
in equity seeking the specific performance of the obligations of Transferor
hereunder and in addition thereto or in lieu thereof, Transferee may avail
itself of any other remedies available at law or in equity on account of such
breach, provided, however, the amount of money damages that Transferee may
recover from Transferor shall not exceed Twenty-Five Thousand Dollars ($25,000).
8.3 Limitation on Transferor's Liability. Any liability of
Transferor to Transferee pursuant to Section 8.2 shall be limited to the
Purchase Price.
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ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Transferor. Transferor hereby
indemnifies and agrees to defend and hold harmless Transferee, and its officers,
directors, employees, agents and successors and assigns and its general partners
and any officers, trustees, directors, employees, agents and successors and
assigns of such general partners ("Transferee Indemnitees"), from and against
any and all demands, claims, actions or causes of action, assessments, expenses,
costs, damages, losses and liabilities (including attorneys' fees and other
charges) which may at any time be asserted against or suffered by any Transferee
Indemnitee, the Property, or any part thereof, whether before or after date of
the Closing, as a result of, on account of or arising from (a) the failure of
Transferor to perform any of his obligations hereunder or, to the extent
provided in Section 10.1, the breach by Transferor of any of his representations
and warranties hereunder, (b) events, contractual obligations, acts or omissions
of Transferor or the Partnership that occurred in connection with the ownership
or operation of the Property prior to the Closing, (c) damage to property or
injury to or death of any person or any claims for any debts or obligations
occurring on or about or in connection with the Property or any portion thereof
or with respect to the operation of the Property at any time or times prior to
the Closing, or (d) any obligation, claim, suit, liability, contract, agreement,
debt or encumbrance (other than Permitted Liens) created, arising or accruing
prior to the date of the Closing, regardless of when asserted, relating to the
Property or its operation, including, without limitation, any and all
liabilities for federal or state income taxes or other taxes, which shall not
have been set forth or specifically described in this Agreement or the Schedules
and the Exhibits hereto. The obligations of Transferor under this Section 9.1
shall survive the Closing.
9.2 Indemnification by Transferee. Transferee hereby
indemnifies and agrees to defend and hold harmless Transferor, and his
respective successors and assigns ("Transferor Indemnitees"), from and against
any and all demands, claims, actions or causes of action, assessments, expenses,
costs, damages, losses and liabilities (including attorneys' fees and other
charges) which may at any time be asserted against or suffered by any Transferor
Indemnitee, the Property, or any part thereof, whether before or after the date
of the Closing, as a result of, on account of or arising from (a) the failure of
Transferee to perform any of its obligations hereunder or, to the extent
provided in Section 10.1, the breach by Transferee of any of its representations
and warranties made herein, (b) events, contractual obligations, acts or
omissions of Transferee that occurred in connection with the ownership or
operation of the Property prior to the Closing, (c) damage to property or injury
to or death of any person or any claims for any debts or obligations occurring
on or about or in connection with the Property or any portion thereof or with
respect to the operation of the Property at any time or times prior to the
Closing, or (d) any damage to the Property caused by Transferee in connection
13
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with any studies, investigations or tests conducted by Transferee pursuant to
Section 4.2 hereof. The obligations of Transferee under this Section 9.2 shall
survive the Closing.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Liability with Respect to Representations and
Warranties. (a) It is the express intention and agreement of the parties that
the representations and warranties of Transferee and Transferor set forth in
this Agreement shall survive the consummation of the Transaction for a period of
one (1) year from the date of the Closing except that the representation and
warranty of Transferor set forth in Section 3.18 hereof shall survive the
consummation of the Transaction for a period of two (2) years from the date of
the Closing. Such representations and warranties shall expire and be terminated
and extinguished forever at the expiration of such period. Any written notice
given within such period setting forth a claim must set forth the nature and
details of the claim with specificity.
(b) Transferor's liability shall be limited to twenty percent
(20%) of the Purchase Price.
10.2 Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by either
Transferor or Transferee to the other pursuant to this Agreement shall be in
writing and shall be hand delivered or transmitted by certified mail, express
overnight mail or delivery service, telegram, telex or facsimile transmission to
the parties at the following addresses:
If to Transferor: ___________________
c/o Senior LifeChoice, L.L.C.
2393 Kimberton Road
Suite 200
Kimberton, Pennsylvania 19442
If to Transferee: Eldertrust Operating Limited Partnership
c/o ElderTrust
General Partner
415 McFarlan Road
Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive
Officer
14
<PAGE>
or such other address as the addressee may indicate by written notice to the
other party.
Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the delivery receipt, the affidavit of messenger or (with respect to a telex)
the answerback being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
10.3 Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of the State of Maryland (but not
including the choice of law rules thereof).
10.4 Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Transferor (if the assignor is Transferee)
or Transferee (if the assignor is Transferor), which consent shall not be
unreasonably withheld, and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect, except that Transferee may
assign all or a portion of this Agreement and its rights hereunder, to a
corporation, partnership, limited liability or other entity of which the entire
ownership interest is owned directly or indirectly by Transferee without the
consent of Transferor; no such assignment shall relieve Transferee of its
obligations hereunder.
This Agreement shall be binding upon and shall inure to the
benefit to the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable only
by, the parties hereto or their respective successors and assigns as permitted
hereunder.
10.5 Severability. If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining parts of
such provisions or the remaining provisions of said agreement so long as the
economic and legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
10.6 Entire Agreement; Amendment. This Agreement and the
Exhibits and Schedules attached hereto (each of which shall be deemed
incorporated herein and made a part hereof) contain the final and entire
15
<PAGE>
agreement between the parties hereto with respect to the Transaction and are
intended to be an integration of all prior negotiations and understandings.
Contributor and Transferee shall not be bound by any terms, conditions,
statements, warranties or representations, oral or written, not contained or
referred to herein or therein. No amendment, change or modification of this
Agreement shall be valid unless the same is in writing and signed by the parties
hereto.
10.7 No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified
therein.
10.8 Power of Attorney. By executing this Agreement pursuant
to Letter of Acceptance, Transferor is constituting and appointing each of
Edward B. Romanov, Jr. and D. Lee McCreary, Jr., individually, with full power
of substitution, the true and lawful attorney-in-fact (the "Attorney") of
Transferor, with full power and authority in the name of and for and on behalf
of Transferor, to execute an instrument of conveyance transferring the Interest
to Transferee pursuant to the terms set forth in this Agreement, and to execute
any other instruments that Transferee reasonably deems necessary or appropriate
in connection with the transfer of the Interest pursuant to this Agreement.
10.9 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
10.10 Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
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<PAGE>
IN WITNESS WHEREOF, Transferor has executed a separate Letter
of Acceptance agreeing to be bound by the terms of this Agreement and Transferee
has caused this Agreement to be duly executed and delivered on its behalf as of
the date first above written.
TRANSFEREE:
ELDERTRUST OPERATING LIMITED
PARTNERSHIP
By: ElderTrust Realty Group, Inc.,
general partner
By:__________________________________
Name:_____________________________
Title:____________________________
17
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[COUNTERPART SIGNATURE PAGE]
Please sign exactly as your name appears on the previous page.
__________________________________
Date
STATE OF )
: SS.
COUNTY OF )
On the _______ day of ______________ 1997, before me
personally came ____________, to me known and known to me to be the individual
described in the foregoing instrument, and acknowledged that he executed the
same.
__________________________
Notary Public
18
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EXHIBIT SCHEDULE
----------------
Partner Cash Amount Interest
- ------- ----------- --------
Gregory M. Stevens $104,300 1/6
Robert W. Campion, Jr. 104,300 1/6
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<PAGE>
FORM OF TERM LOAN AGREEMENT
==========
TERM LOAN AGREEMENT
BETWEEN
[ ____________________________ ], AS BORROWER
AND
ELDERTRUST OPERATING LIMITED PARTNERSHIP, AS LENDER
_________, 1998
[ ____________ ] Township,
[ ____________ ] County, [ ____________ ]
[$---------------]
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS..............................................................1
1.2. Agreement.........................................................1
1.3. Assignments.......................................................1
1.4. Closing Date......................................................1
1.5. Collateral........................................................1
1.6. Deficiency........................................................2
1.7. Event of Default..................................................2
1.8. Governmental Authority...........................................2
1.9. Guaranty..........................................................2
1.10. Guarantor.........................................................2
1.11. Improvements......................................................2
1.12. Inspecting Architect/Engineer.....................................2
1.13. Land 2
1.14. Legal Requirements................................................3
1.15. Loan 3
1.16. Loan Documents....................................................3
1.17. Maturity Date.....................................................3
1.18. Mortgage..........................................................3
1.19. Note 3
1.20. Occupancy Stabilization...........................................3
1.21. Permitted Exceptions..............................................4
1.22. Project...........................................................4
1.23. Residential Living Agreement......................................4
1.24. Title Insurer.....................................................4
2. BACKGROUND; LOAN.........................................................4
2.1. Background........................................................4
2.2. Loan 4
2.3. Interest and Repayment............................................4
3. ADVANCE OF LOAN...........................................................5
3.1. Loan Advances.....................................................5
3.1.2. No Third-Party Benefit; No Liability; Lender's Waiver......5
3.2 Conditions Precedent to Funding...................................5
3.2.1. Loan Documents.............................................5
3.2.2. Other Documents............................................6
3.2.3. Section 3.1................................................9
3.2.4. Representations and Warranties.............................9
3.2.5. Performance and Compliance.................................9
3.3. Lender Advances Without Request...................................9
3.4. Prohibited Actions...............................................10
4. REPRESENTATIONS AND WARRANTIES...........................................10
4.1. Corporate Status.................................................10
4.2. Power and Authority..............................................10
4.3. Litigation and Labor Disputes....................................10
4.4. No Violation of Agreements or Laws...............................10
4.5. Consent..........................................................11
4.6. Names and Locations..............................................11
4.7. Tax Returns and Payments.........................................11
4.8. Compliance with ERISA............................................11
4.9. Financial Statements.............................................11
4.10. Disclosure.......................................................12
4.11. Permits and Approvals............................................12
4.12. Compliance; Zoning...............................................12
4.13. Title............................................................12
4.14. Utilities........................................................13
4.15. Roads............................................................13
4.16. Insurance........................................................13
4.17. No Default.......................................................13
4.18. Condemnation.....................................................14
4.19. Residential Living Agreement.....................................14
4.20. Environmental Concerns...........................................14
4.21. Governmental Authorities.........................................14
5. COVENANTS OF BORROWER....................................................14
5.1. Affirmative Covenants............................................14
5.1.1 Existence................................................14
5.1.2. Required Notices.........................................14
5.1.3. Copies of Notices........................................15
5.1.4. Payment of Debts, Taxes..................................15
5.1.5. Compliance...............................................15
5.1.6. Subcontracts.............................................15
5.1.7. Maintenance..............................................15
5.1.8. Authorized Persons.......................................16
5.1.9. Books and Records........................................16
5.1.10. Financial Statements.....................................16
5.1.11. Change in Circumstance...................................16
5.1.12. Additional Instruments...................................16
5.1.13. Indemnification..........................................17
5.2. Negative Covenants...............................................17
5.2.1. Amendment or Modification.................................17
5.2.2. Conveyance or Lease.......................................17
5.2.3. Assignment................................................17
5.2.4. Encumbrances..............................................17
5.2.5. Governing Documents.......................................18
5.2.6. Modification of Residential Living Agreements.............18
6. EVENTS OF DEFAULT AND REMEDIES...........................................18
6.1. Events of Default................................................18
6.2. Remedies.........................................................20
6.3. Remedies Cumulative; Waivers.....................................21
7. INSURANCE................................................................21
7.1. Coverage.........................................................21
7.2. Certificates; Notices............................................21
8. MISCELLANEOUS............................................................22
8.1. Lender's Discretion..............................................22
8.2. No Third Party Beneficiary.......................................22
8.3. No Joint Venture.................................................23
8.4. Reliance on Representations and Warranties.......................23
8.5. Assignment; Further Assurances...................................23
8.6. Notices..........................................................23
8.6.1. If to Lender:.............................................24
8.6.2. If to Borrower:...........................................24
8.7. Table of Contents; Headings......................................24
8.8. Time of the Essence..............................................25
8.9. Counterparts.....................................................25
8.10. Governing Law....................................................25
8.11. Severability.....................................................25
8.12. JURISDICTION; WAIVER OF JURY TRIAL...............................25
8.13. Survival.........................................................25
8.14. Controlling Document; Amendment..................................26
8.15. Extension of Maturity Date.......................................26
8.16. Modification of documents........................................26
8.17. Reimbursement of Expenses........................................26
<PAGE>
FORM OF
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (this "Agreement"), is dated as of
______________, 1998, between [ ______________________ ], a ______________
corporation ("Borrower"), and ELDERTRUST OPERATING LIMITED PARTNERSHIP, a
Delaware limited partnership (together with its successors and assigns and/or
any subsequent holder of the Note (as defined below), "Lender").
1. DEFINITIONS
The following terms when used in this Agreement shall have the
respective meanings set forth below:
1.1. Affiliate: Affiliate of any Person means any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person (excluding any trustee under, or any committee with
responsibility for administering, any bankruptcy or similar insolvency plan). A
Person shall be deemed to be "controlled by" another Person if such other
Person possesses, directly or indirectly, power to vote 51% or more of the
securities (on a fully diluted basis) or other applicable equity interests
having ordinary voting power for the election of directors or managing general
partners.
1.2. Agreement: This Term Loan Agreement between Borrower and Lender,
as the same may be modified, amended, supplemented or assigned from time to
time.
1.3. Assignments: Collectively, the Assignment of Rents and Leases and
the Collateral Assignment of Agreements Affecting Real Estate, all as described
in Section 3.2.1. hereof, as the same be modified, amended, supplemented or
assigned from time to time.
1.4. Closing Date: The date of this Agreement.
1.5. Collateral: The real property and personal property pledged to
Lender to secure the Loan pursuant to the Mortgage and the Assignments
including, without limitation, the Land, the Improvements and all construction
materials stored by Borrower which are intended to become part of the
Improvements, and any and all products, replacements and proceeds of the
foregoing whether now owned or hereinafter acquired.
1.6. Deficiency: As defined in Section 3.1.3. below.
1.7. Event of Default: The occurrence of any event described in
Section _____ hereof.
<PAGE>
1.8. Governmental Authority: The United States of America, the State
of _________ and any political subdivision (including, without limitation, the
Township of _________ and the County of _________) or regional division
thereof, and any agency, department, court, regulatory body, commission, board,
bureau or instrumentality of any of them which exercises jurisdiction over the
Land, the Project or Borrower.
1.9. Guaranty: The Guaranty, bearing even date herewith, by Guarantor,
the parent affiliate of Borrower, in favor of Lender, unconditionally
guaranteeing Borrower's obligations under the Loan Documents, as the same may
be modified, amended, supplemented or assigned from time to time.
1.10. Guarantor: [ ____________ ], a ___________ corporation.
1.11. Improvements: The improvements to be constructed on the Land,
consisting of an approximately [_____] square foot, _____ (___) story senior
assisted living facility containing, among other things, approximately __ units
and approximately __ beds, with paved parking, site improvements, and all the
fixtures, furnishings, machinery, equipment and other construction and
materials related thereto, to be built in accordance with and as more
particularly described in the Plans and Specifications together with all
Off-Site Improvements.
1.12. Inspecting Architect/Engineer: Any architect or engineer as
Lender may designate from time to time, including any employee of Lender.
1.13. Land: The approximately __________________________ acres of real
property owned in fee by Borrower, together with all easements and other rights
appurtenant thereto, located at _________, __________ Township, ______________,
____________, as more particularly described in Exhibit A to the Mortgage.
1.14. Legal Requirements: All applicable laws, statutes, ordinances,
rulings, regulations, codes, decrees, orders, judgments, conditions,
restrictions, approvals, permits and requirements of, from or by any
Governmental Authority, including, but not limited to, zoning, subdivision,
land development, land use, senior assisted living, environmental, building,
safety, health, housing and fire.
1.15. Loan: The amount of ________________ ($_________) to be advanced
by Lender to Borrower pursuant to this Agreement, and to be evidenced by the
Note and secured by, among other things, the Mortgage, the Assignments and the
Guaranty.
1.16. Loan Documents: This Agreement, the Note, the Mortgage, the
Assignments, the Guaranty and all other instruments, certificates, legal
opinions and documents executed and delivered by either or both of Borrower or
Lender in connection with the Loan, as the same may be modified, amended,
supplemented or assigned from time to time.
<PAGE>
1.17. Maturity Date: The earlier of _______________, ____ or the date
on which the Loan is declared by Lender to be immediately due and payable.
1.18. Mortgage: The ____________, dated as of the date hereof, between
Borrower and Lender and any other mortgage, deed of trust or other agreement or
instrument executed by Borrower, as mortgagor, to Lender, as mortgagee,
granting a first lien and security interest in, among other things, (1) the
Land, (2) the Improvements, and (3) all personal property thereon and therein,
all as more fully set forth therein, all may be modified, amended, supplemented
or assigned from time to time.
1.19. Note: The Note from Borrower, as maker, to Lender, as payee,
bearing even date herewith evidencing the Loan hereunder, in an amount not to
exceed $__________, as the same may be modified, amended, supplemented or
assigned from time to time.
1.20. Occupancy Stabilization: Such time as the Project achieves an
occupancy level of 90% or more for three (3) consecutive months, as determined
in accordance with generally accepted accounting principles consistently
applied and approved by Lender.
1.21. Permitted Exceptions: The title exceptions identified in
Paragraph l of the Mortgage.
1.22. Project: The Land, together with the Improvements proposed to be
constructed and actually constructed thereon.
1.23. Residential Living Agreement: The residential living agreement
to be entered into with residents of the Project, the form of which is attached
hereto as Exhibit A.
1.24. Title Insurer: Commonwealth Land Title Insurance Company or such
other title insurance company as Lender may approve, which title insurance
company shall insure the lien and priority of the Mortgage in accordance with
Section 3.2.2.3. hereof.
2. BACKGROUND; LOAN
2.1. Background: Borrower is the owner in fee of the Land and desires
to borrow funds, to, among other things, carry on its operations during its
lease up and Occupancy Stabilization Phase.
2.2. Loan: Subject to the terms and conditions of this Agreement,
Lender shall lend to Borrower and Borrower shall borrow from Lender an amount
not to exceed in the aggregate ________________ ($_________). The Loan shall
not be of a revolving nature and any portion thereof paid in advance of
maturity shall not be readvanced by the Lender to the Borrower.
<PAGE>
2.3. Interest and Repayment: The Loan will be evidenced by the Note,
will bear interest at the rate set forth in the Note, and will be repaid as set
forth in the Note. The outstanding principal balance of the Note, and all
accrued but unpaid interest and fees shall be due and payable in full on the
Maturity Date.
3. ADVANCE OF LOAN
3.1. Loan Advances. Subject to compliance by Borrower with the terms
and conditions of this Agreement, Lender shall advance, and Borrower shall be
obligated to borrow the total proceeds of the Loan at Closing.
3.1.1. Lender shall not make an advance of the Loan proceeds unless
and until each of the conditions precedent (such conditions being identified in
Section 3.2. hereof) is satisfied.
3.1.2. No Third-Party Benefit; No Liability; Lender's Waiver. All
conditions and requirements of this Agreement relating to the obligations of
Lender to make advances of the Loan are for the sole benefit of Lender, and no
other person or party shall have the right to rely on the satisfaction of such
conditions and requirements by Borrower as a condition precedent to Lender
making an advance of the Loan. Anything in this Agreement or any other
agreement made with respect to the Loan to the contrary notwithstanding, any
advance of the Loan or approval given by Lender, herein or therein, shall not
give rise to any liability or responsibility of Lender. Lender shall have the
right, in its sole discretion, to waive any condition or requirement as a
condition precedent to making an advance of the Loan.
3.2. Conditions Precedent to Funding. The obligation of Lender to lend
under this Agreement is subject to the fulfillment of each of the following
conditions:
3.2.1. Loan Documents. Borrower shall have executed and delivered (or
shall have caused to be executed and delivered) to Lender all of the Loan
Documents, in form and substance reasonably satisfactory to Lender, including,
without limitation, the following:
3.2.1.1. This Agreement.
3.2.1.2. The Note.
3.2.1.3. The Mortgage, which shall be recorded. 3.2.1.4. An Assignment
of Rents and Leases, which shall be recorded, assigning to Lender all existing
and future Residential Living Agreements for space in the Project and all
rents, issues and profits therefrom or otherwise relating to the Project.
3.2.1.5. A Collateral Assignment of Agreements Affecting Real Estate,
which shall be recorded, assigning to Lender all contracts between Borrower and
third parties in connection with the Project, including without limitation, any
agreements with design professionals, all agreements, allocations and rights
with all utility services serving the Project, all development agreements, and
all approvals, allocations, permits and licenses necessary for the improvement
or operation of the Project from any Governmental Authority.
<PAGE>
3.2.1.6. UCC-l financing statements, to be filed in such public
offices as may be necessary to perfect Lender's lien against the Collateral.
3.2.1.7. The Guaranty.
3.2.2. Other Documents. Borrower shall have delivered to Lender such
other documents as Lender may require, each in form and substance reasonably
satisfactory to Lender, including, without limitation, the following:
3.2.2.1 Copies of all contracts then entered into with any
subcontractors. Each such contract shall be with a subcontractor reasonably
satisfactory in all respects to Lender.
3.2.2.2. A certified copy of each agreement with any Governmental
Authority or agency pertaining to the further development of the Project,
including any obligating Borrower to construct or install municipal
improvements, such as streets, roads, curbs, sidewalks, fire hydrants, street
lighting and the like, together with evidence reasonably satisfactory to Lender
relating to any financial security required in connection therewith. If no such
agreements exist and none is required, Borrower shall so certify in writing on
the Closing Date and provide evidence thereof reasonably satisfactory to
Lender.
3.2.2.3. A standard ALTA mortgagee's title insurance policy or a
marked-up binder representing the commitment of the Title Insurer to issue a
mortgagee's title insurance policy (on the 1970 ALTA form of loan policy, as
amended) insuring title to the Project in accordance with Sections 4.12.,
4.13., 4.14. and 4.15. hereof, and Lender's interest therein as a valid and
enforceable first lien, subject only to the Permitted Exceptions, and without
exception for (1) any liens for labor or materials, actual or inchoate, (2)
parties in possession, or (3) discrepancies or conflicts in boundary lines,
unrecorded easements, encroachments, area content or any other survey matters.
Such policy shall be in the full amount of the Loan, subject to a "pending
disbursements" clause providing for coverage in an amount equal to the
outstanding amount of the Loan from time to time. Such policy shall include
endorsements (including, without limitation, zoning and comprehensive
endorsements) as Lender may request and shall provide for such reinsurance as
Lender may require.
3.2.2.4. Evidence reasonably satisfactory to Lender in form and
substance that all required insurance for the Project is in full force and
effect with insurers satisfactory to Lender, and that all premiums have been
paid with respect thereto.
3.2.2.5. An ALTA/ACSM as built survey of the Project, prepared and
signed by a surveyor licensed in the state in which the Land is located and
approved by Lender, in its sole discretion, hereto and certified to Lender and
Title Insurer, together with a metes and bounds legal description of the Land
corresponding to the survey and a certification (which may be part of the
certification affixed to the survey) that the existing Improvements lie
entirely within the boundaries of the Land and do not violate any set back or
other applicable restrictions or Legal Requirements.
<PAGE>
3.2.2.6. A certified copy of releases of liens executed by any
contractor, architect, each other design professional with whom Borrower has
had a direct agreement and each subcontractor claiming through or under any of
them, respectively, releasing any and all mechanics' or material suppliers'
liens or claims that any of them may have in connection with work performed or
materials supplied through the date of this Agreement, all in such form and
containing such provisions as may be required by Lender or Title Insurer, to be
recorded by Title Insurer prior to the commencement of any further work on the
Land and stamped with the original stamp of the office where such releases of
liens and claims are required to be filed if filing is required to make such
release effective and binding. A certified copy of waivers of liens executed by
any such contractor, architect or other design professional with whom Borrower
has had a direct agreement, respectively, waiving their respective rights, if
any, and any right of a subcontractor claiming through or under any of them, to
hereafter file or maintain any mechanics' or material suppliers' liens or
claims, all in such form and containing such provisions as may be required by
Lender or Title Insurer, to be recorded by Title Insurer prior to the
commencement of any further work on the Land and stamped with the original
stamp of the office where such waivers of liens are required to be filed if
filing is required to make such waiver effective and binding upon parties
claiming by, through or under such contractor, architect or any other design
professional with whom Borrower has had a direct agreement.
3.2.2.7. Evidence reasonably satisfactory to Lender that all
utilities, including water, electric, gas and telephone, and all storm and
sanitary sewer drainage facilities are available at the Land for utilization by
Borrower for the Project, and that the respective lines and treatment or
generating plants are of adequate size and capacity to service the Project
adequately, together with a copy of the agreement with each such utility
service and evidence of the cost thereof.
3.2.2.8. Evidence reasonably satisfactory to Lender that all roads,
sidewalks, sewers, sewage treatment and disposal facilities which are part of
the Project are dedicated to the appropriate Governmental Authority and are
being operated and maintained by such Governmental Authority.
3.2.2.9. Evidence reasonably satisfactory to Lender that (1) all
required approvals, allocations, certificates, authorizations, permits and
licenses have been obtained as of the date hereof from all appropriate
Governmental Authorities and have been validly and irrevocably obtained without
qualification, appeal or existence of unexpired appeal periods, (2) there is no
pending or threatened investigations, appeals, suits or other actions leading
to or threatening the revocation, suspension or qualification of any of such
permits or approvals, and (3) all necessary or required zoning variances or
special approvals necessary to carry out operations of the Project, as
constructed, have been obtained, and that any subdivided lot or parcel in
connection with the Premises has been duly recorded.
<PAGE>
3.2.2.10. Evidence reasonably satisfactory to Lender that the Land
constitutes a separate lot for real estate tax and assessment purposes, and
that the enforcement of any of the rights or remedies of Lender under the Loan
Documents including, without limitation, the right to cause any of the Project,
or any part thereof, to be sold at judicial or non-judicial sale, shall not be
subject to or conditioned upon obtaining any governmental approvals (including,
without limitation, subdivision approval). All conditions pertaining to the
granting of any subdivision approval, if necessary, shall have been satisfied
in a manner acceptable to Lender prior to the Closing Date.
3.2.2.11. Certificate of Occupancy. Evidence reasonably satisfactory
to Lender that a permanent and unconditional certificate of occupancy or its
equivalent was issued for the Project by each of the appropriate Governmental
Authorities.
3.2.2.12. Financial Information. Evidence reasonably satisfactory to
Lender of (a) the rent roll evidencing each resident then under a Residential
Living Agreement for any unit at the Project and such other matters as Lender
may request, and (b) a current and projected operating statement showing the
income and expenses for the Project for the then current year and the
subsequent year.
3.2.2.13. A copy of Borrower's Certificate of Organization, as
amended, certified by the Secretary of the State of __________________.
3.2.2.14. A certificate of Borrower's secretary certifying to (a) a
copy of the resolutions adopted by Borrower authorizing this Agreement and the
transactions contemplated hereby and (b) an incumbency certificate containing
the signatures of the individuals executing the Loan Documents on behalf of the
Borrower.
3.2.2.15. An executed copy of Borrower's bylaws, as amended, certified
by the secretary of Borrower.
3.2.2.16. An originally executed counterpart of the consent of board
of directors of Borrower authorizing this Agreement and the transactions
contemplated hereby.
3.2.2.17. A certificate of good standing of Borrower from the
Secretary of the State of ___________.
3.2.2.18. The opinions of counsel engaged by Borrower and Guarantor
and reasonably satisfactory to Lender, dated the date hereof and addressed to
Lender, reasonably satisfactory to Lender and its counsel in form and
substance.
3.2.2.19. A copy of Guarantor's Certificate of Organization, as
amended, certified by the Secretary of the State of .
3.2.2.20. A certificate of Guarantor's secretary certifying to (a) a
copy of the resolutions adopted by Guarantor authorizing the Guaranty and the
transactions contemplated thereby and (b) an incumbency certificate containing
the signatures of the individuals executing the Guaranty on behalf of the
Guarantor.
<PAGE>
3.2.2.21. An executed copy of Guarantor's bylaws, as amended,
certified by the secretary of the Guarantor.
3.2.2.22. An originally executed counterpart of the consent of all
members of Guarantor authorizing the Guaranty and the transactions contemplated
hereby.
3.2.2.23. A certificate of good standing of Guarantor from the
Secretary of the State of ___________.
3.2.2.24. A true and complete copy of a phase I environmental
assessment of the Project prepared by a duly licensed environmental consultant
approved by Lender, which assessment must be reasonably acceptable to Lender in
all respects.
3.2.3. Section 3.1. All of the conditions precedent set forth in
Section 3.1 hereof shall have been satisfied as of the date of Closing.
3.2.4. Representations and Warranties. All of the representations and
warranties contained in Article 4 hereof shall be true, correct and complete.
3.2.5. Performance and Compliance. Borrower shall have performed all
agreements and complied with all covenants and provisions of the Loan
Documents, which as of the time of the advance are to have been performed
and/or completed by Borrower, no Event of Default shall have occurred and
remain uncured and no event shall have occurred which, with the giving of
notice, the passage of time, or both, would become an Event of Default.
3.3. Lender Advances Without Request. Upon three (3) days prior
written notice to Borrower, Lender may, but is not obligated to, from time to
time make additional advances on behalf of Borrower (a) to itself to pay
interest on the payment dates when interest is due and owing in accordance with
the terms of the Note, or to pay itself other sums due Lender pursuant to this
Agreement or any of the Loan Documents, or (b) to taxing authorities or
insurers to pay taxes or insurance premiums when due. Any advance so made shall
be deemed to be an advance made to and received by Borrower, and shall be part
of the Borrower's obligations secured under the Loan Documents. Lender shall
notify Borrower when such an advance has been made.
3.4. Prohibited Actions. Borrower will not, without Lender's prior
written approval, knowingly take any action which would (i) relieve others
(including, without limitation, any contractor, architect or interior designer)
of any existing duty, liability or obligation to Borrower with respect to the
Project or impose such duty, liability or obligation, directly or indirectly,
upon Borrower, (ii) impair the quality of the Project in any material respect
or (iii) change the aesthetics of the Project in any material respect.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as of the date hereof and
at all times when this Agreement shall remain in effect or the Note shall
remain outstanding that:
4.1. Corporate Status. Borrower is a corporation duly formed, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Borrower has the power and authority to own its own property and
assets and to transact the business in which it is engaged. Borrower is not
required to qualify to do business in any state or jurisdiction except as set
forth on Exhibit F attached hereto.
4.2. Power and Authority. Borrower has the power and authority to
execute, deliver and perform, as the case may be, the terms and provisions of
this Agreement, the Note and the other Loan Documents, and Borrower has taken
all necessary action to authorize the execution, delivery and performance of
this Agreement, the borrowings hereunder, the liens granted upon the Collateral
pursuant hereto, the making and delivery of the Note and the other Loan
Documents. This Agreement, the Note and all of the other Loan Documents
constitute the authorized, valid and legally binding obligations of Borrower
enforceable in accordance with their respective terms.
4.3. Litigation and Labor Disputes. There are no actions, suits or
proceedings pending, or to the knowledge of Borrower, threatened, against or
affecting Borrower or the Project before any court or before any governmental
or administrative body or agency, which if determined adversely to Borrower,
individually or in the aggregate, would have a material adverse effect on
Borrower's business or properties or this Project. Borrower is not a party to
any labor dispute, which if determined adversely to Borrower would have a
material adverse effect on the Borrower's business or properties or this
Project.
4.4. No Violation of Agreements or Laws. Borrower is not in default
under the provisions of any agreement to which it is a party and Borrower is
not in violation of any applicable provision of law or any applicable
regulation of any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, environmental laws and
regulations), which would have a material adverse effect on Borrower's business
or properties or this Project. Neither the execution and delivery of this
Agreement, the Note or any of the other Loan Documents, nor the consummation of
the transactions herein or therein contemplated, nor compliance with the terms
and provisions hereof or thereof, will violate any applicable provision of law
or any applicable regulation, or any order, writ, injunction or decree of any
court or governmental department, commission, board, bureau, agency or
instrumentality or will conflict or will be inconsistent with, or will result
in any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to impose) any lien, charge or encumbrance upon any of the property
or assets of any Borrower (including the Project) pursuant to the terms of any
indenture, franchise, license, permit, mortgage, deed of trust, agreement or
other instrument to which Borrower is a party or by which Borrower may be
bound, or to which Borrower may be subject.
<PAGE>
4.5. Consent. No consent, approval or other authorization of or by any
Governmental Authority is required in connection with the execution or delivery
by Borrower of this Agreement or any of the other Loan Documents, or compliance
with any of the provisions hereof or thereof, except for a certificate of
occupancy and such other licenses, permits, authorizations, consents and
approvals required for the operation of the completed Project which have been
obtained.
4.6. Names and Locations. Neither Borrower nor its predecessors
operates or does business, or, within the past five (5) years, has operated or
done business, under a fictitious, trade or assumed name, except the names set
forth on Exhibit F. All of the locations at which Borrower conduct its business
are listed on Exhibit F.
4.7. Tax Returns and Payments. Borrower has filed all tax returns
required by law to be filed by it and has paid all taxes, assessments and other
governmental charges levied upon it and any of its respective properties,
assets, income or franchises which are due and payable, other than those
presently payable without penalty or interest.
4.8. Compliance with ERISA. Borrower is in compliance with all
applicable provisions of ERISA.
4.9. Financial Statements. With respect to any financial statements
delivered by Borrower to Lender after the date of this Agreement, all such
financial statements shall have been prepared in accordance with generally
accepted accounting procedures applied on a consistent basis throughout the
period specified and present fairly in all material respects the financial
position of Borrower as of the date specified and the results of operations and
statements of cash flow for the period specified.
4.10. Disclosure. Neither this Agreement nor any other Loan Document
delivered to Lender by or on behalf of Borrower in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in this Agreement and in such other Loan Documents,
certificates or instruments not misleading and, at the time of the submission
to Lender of any Request for Advance or the funding of any advance, shall
contain, any untrue statement of any material fact or omit to state a material
fact necessary in order to make the statements containing therein not
misleading. There is no fact (other than matters of a general economic or
political nature which do not affect such Borrower uniquely) which materially
adversely affects or in the future may (so far as such Borrower can now
foresee) materially adversely affect the business, condition (financial or
otherwise), operations, properties or prospects of Borrower which has not been
set forth in this Agreement or in the other Loan Documents delivered to Lender
by or on behalf of Borrower specifically for use in connection with the
transactions contemplated by this Agreement.
<PAGE>
4.11. Permits and Approvals. Each license, permit, authorization,
consent and approval obtained by Borrower and required by any Governmental
Authority in connection with the Project, including any zoning variances or
approvals in connection with any contemplated subdivision, has been paid in
full, is without restriction or modification, remains in full force and effect,
and is final and unappealable, all appeal periods therefrom having expired
without appeal taken, except for certificates of occupancy and such other
licenses, permits, authorizations, consents and approvals required for the
operation of the Project.
4.12. Compliance; Zoning. Borrower has complied with all Legal
Requirements and all recorded instruments affecting the Project. The zoning
classification for the Land is ____________. The use of the Land for the
Project complies in all material respects with all zoning and use-related Legal
Requirements.
4.13. Title. 4.13.1. Borrower holds good, indefeasible and marketable
fee simple title to the Land and existing Improvements, if any, free and clear
of all mortgages, deeds of trust, liens, encumbrances, ground rents, leases,
tenancies, licenses, security interests, covenants, conditions, restrictions,
rights of way, easements, encroachments and any other matters affecting title
except the Permitted Exceptions and the liens and encumbrances created in favor
of Lender pursuant to the Loan Documents. To the extent, if any, that the
Permitted Exceptions include any restrictions, covenants or conditions, the
construction or operation of the Improvements or Project will not violate any
such matters.
4.13.2. Borrower's right, title and interest in and to each of the
agreements, documents, contracts, permits, licenses and other materials
assigned to Lender pursuant to this Agreement or other Loan Documents is free
and clear of all liens, encumbrances, leases, licenses, covenants, conditions,
restrictions, security interests, other assignments, mechanics' liens, material
suppliers' liens and other matters affecting title. Borrower is permitted to
assign such agreements, documents, contracts, permits, licenses and other
materials pursuant to the terms thereof, or has obtained all necessary
approvals therefor (provided, that such permits and licenses are assigned to
Lender only to the extent permitted by law), and Borrower has no knowledge of
the existence of any default under or breach of any thereof.
4.14. Utilities. All utility services necessary for the operation of
the Project are available, and at the title lines of the Land (or, if they pass
through adjoining private land, in accordance with valid public or unencumbered
private easements which inure to the benefit of Borrower and run with the Land,
copies of which have been delivered to Lender and are set forth on the Survey
and in the Title Report of the Insurer) including, without limitation, public
sanitary sewer service, storm sewers, drainage, public water, electricity, gas
and telephone service. There is no moratorium, suspension, cessation,
limitation or conditions existing or to Borrower's knowledge threatened with
respect to the provisions of any such utility services.
<PAGE>
4.15. Roads. The Land is located along a dedicated public street or
highway and all curb-cut and street opening permits or licenses required for
vehicular access to and from the Project to any adjoining public street or
highway, as well as all other required traffic-related permits and approvals,
have been obtained and paid for by Borrower and are in full force and effect.
All roads necessary for the full utilization of the Project for its intended
purposes are indicated on the Survey and have been completed.
4.16. Insurance. No notice has been received from any insurance
company which issued any of the insurance policies for the Project, or from any
of their agents, brokers or representatives, stating in effect that any such
policy (i) will not be renewed, (ii) will be renewed only at a higher premium
than is presently payable therefor, or (iii) will be renewed only with lesser
or less complete coverage than is presently provided.
4.17. No Default. No event has occurred and is continuing that is an
Event of Default or that would be an Event of Default with the giving of notice
or the passage of time or both.
4.18. Condemnation. There is no pending condemnation, expropriation,
eminent domain or similar proceeding affecting the Land or any portion thereof,
and Borrower has not received any written or oral notice of any thereof and has
no knowledge that any such proceeding is contemplated.
4.19. Residential Living Agreement. Attached hereto as Exhibit C is a
true and complete copy of the form of Residential Living Agreement in
substantially the form Borrower intends to execute the same with each of the
residents at the Project.
4.20. Environmental Concerns. All of the covenants, representations
and warranties of Borrower regarding environmental matters set forth in the
Mortgage are incorporated herein by reference and are hereby made as if set
forth herein in full, and such representations and warranties are true and
correct in all respects.
4.21. Governmental Authorities. Borrower has complied in all material
respects with all of the terms and conditions of each agreement with each
Governmental Authority in connection with the Project.
5. COVENANTS OF BORROWER
5.1. Affirmative Covenants. Borrower covenants and agrees that from
the date hereof and so long as this Agreement shall remain in effect or the
Note shall remain outstanding, Borrower shall:
5.1.1 Existence. Do or cause to be done all things necessary to
preserve and keep its corporate existence in full force and effect under the
laws of its state of formation and to remain qualified and licensed in all
jurisdictions in which such qualification or licensing is required for the
conduct of Borrower's business, including, without limitation, the state in
which the Land is located.
<PAGE>
5.1.2. Required Notices. Give, or cause to be given, prompt written
notice to Lender of: (1) any action or proceeding instituted by or against
Borrower, Guarantor or the Project before any Governmental Authority, or any
such proceeding threatened against Borrower that would have a material adverse
affect on Borrower's business or properties, Guarantor or the Project; or (2)
any other action, event or condition of any nature which may have a material
adverse effect upon the business or assets of Borrower or Guarantor or which,
with notice or lapse of time or both, would constitute an Event of Default
under this Agreement or a default under any other material contract, instrument
or agreement to which Borrower is a party or by which Borrower or any of
Borrower's properties or assets may be bound or subject.
5.1.3. Copies of Notices. For matters that would have a material
adverse effect on the Project, forward to Lender copies of all notices given or
received by Borrower, promptly upon the giving or receipt of such notice, to or
from: (1) any insurer, (2) any claim of default, or relating to any work
stoppage, notice of violation or cease and desist order, strike, claim,
litigation, damage, loss or any other materially adverse condition,
circumstance or event and (3) in connection with any environmental matter under
Paragraph 25 of the Mortgage.
5.1.4. Payment of Debts, Taxes. Pay and discharge or cause to be paid
and discharged promptly all taxes, assessments and governmental charges or
levies imposed upon Borrower, its income or receipts, or any of its properties,
including but not limited to the Project, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a lien or charge upon such properties
or any part thereof, unless the same shall be contested by Borrower in good
faith by appropriate proceedings and Borrower shall have posted a bond or
escrow with Lender equal to such contested amount.
5.1.5. Compliance. Promptly and faithfully comply with, conform to and
obey, all present and future Legal Requirements applicable to Borrower, the
Land or the Project, all present and future requirements affecting title to the
Project, the Loan Documents, all Residential Living Agreements now or hereafter
entered into from time to time, any agreements with subcontractors, and all
other agreements and covenants to which Borrower is bound or subject which, the
failure to comply, conform or obey would have a material adverse result on
Borrower's business or properties or this Project. Borrower shall not agree to
any material modification or termination of any of the foregoing documents
without the prior approval of Lender in writing; provided, however, that
Borrower shall be permitted without the prior written consent of the Lender to
modify any Residential Living Agreement to the extent that the rates charged
thereunder are not materially reduced.
5.1.6. Subcontracts. Make available for inspection at all times by the
Lender copies of any such subcontracts and furnish to Lender, upon request,
copies of the same.
<PAGE>
5.1.7. Maintenance. Cause the Improvements to be kept in good
condition and repair, and maintain the same in a clean and orderly manner, and
operate the same properly, efficiently and in compliance with all Legal
Requirements, except as would not have a material adverse effect on the
Project.
5.1.8. Authorized Persons. From time to time, at the request of
Lender, certify to Lender the names, signatures, and positions of all persons
authorized to make application for advances hereunder.
5.1.9. Books and Records. Keep, or cause to be kept, in accordance
with generally accepted accounting principles consistently applied, proper and
complete books of record and account concerning the financial affairs of
Borrower and the Project, and make such records available at the Project or in
Borrower's offices at all reasonable times for inspection by Lender. Borrower
agrees to maintain accounting records for the Improvements and the Project
separate from any other accounting records which Borrower may maintain.
Borrower agrees to maintain all such books and records for a period of two
years after the repayment in full of the Loan.
5.1.10. Financial Statements. So long as the Loan or any portion
thereof remains outstanding, deliver or cause to be delivered to Lender the
following: (a) as soon as available and in any event within forty-five (45)
days after the end of each calendar quarter, unaudited financial statements of
Borrower and of Guarantor for the calendar quarter then ended, prepared on a
basis consistent with the annual statements, and certified by the managing
member of Borrower and of Guarantor to be true and correct; and (b) as soon as
available and in any event within ninety (90) days after the end of each
calendar year of Borrower and of Guarantor, financial statements of Borrower
and of Guarantor, prepared in accordance with generally accepted accounting
principles, and including a balance sheet, a statement of income and expenses
for the year then ended and which, at Lender's request, shall be reviewed by a
nationally recognized certified public accounting firm or other independent
certified public accounting firm acceptable to Lender.
5.1.11. Change in Circumstance. Promptly notify Lender in writing of
any change in any fact or circumstance represented or warranted by Borrower
herein or in any other documents furnished to Lender in connection with this
Agreement.
5.1.12. Additional Instruments. Execute such additional instruments as
may be requested by Lender in order to carry out the intent of this Agreement
and to perfect or give further assurances of any of the rights granted or
provided for hereunder or under any of the Loan Documents.
5.1.13. Indemnification. Indemnify, defend and hold harmless Lender
and its officers, directors, employees and agents from and against any and all
liabilities, losses, claims, damages and expenses, including reasonable
attorneys' fees and expenses, of any kind or nature directly or indirectly
resulting from or arising out of the Loan, any of the Loan Documents or any act
or omission to act by Lender or its officers, directors, employees or agents in
connection therewith, including, without limitation, all claims for commissions
to any broker or intermediary, disputes between or among Borrower, any
subcontractors, material suppliers, purchasers and tenants, unless caused by
the gross negligence or willful malfeasance of Lender or by Lender's failure to
perform its covenants under the Loan Documents.
<PAGE>
5.2. Negative Covenants. Borrower covenants and agrees that from the
date hereof and for so long as this Agreement shall remain in effect or the
Note shall remain outstanding, Borrower shall not:
5.2.1. Amendment or Modification. Except as permitted by Sections 3.6.
and 5.1.5. above, materially amend, vary, terminate or modify, or permit to be
materially amended, varied, terminated or modified, or waive or permit waiver
of compliance with any provisions or requirements of any of the agreements with
contractors or Governmental Authorities or any agreement or contract assigned
to Lender.
5.2.2. Conveyance or Lease. Except for the execution of permitted
Residential Living Agreements or other agreements entered into in the ordinary
course of business or as otherwise may be expressly permitted in the Loan
Documents (including assignments to Affiliates) sell, assign, transfer, convey,
lease, or otherwise dispose of the Land or the Project, or any part thereof or
interest or estate therein, either directly or indirectly by deed, merger,
stock, partnership or membership interest transfer or liquidation, or otherwise
permit ownership or control of the Land or the Project to be other than in
Borrower as constituted as of the date hereof.
5.2.3. Assignment. Assign this Agreement or any of the other Loan
Documents, except to an Affiliate.
5.2.4. Encumbrances. Create by mortgage, pledge, assignment, security
agreement or otherwise, or suffer to exist, any security interest, pledge,
lien, charge or other encumbrance upon the Land or the Project or any portion
thereof, except (1) the liens or security interests created pursuant to the
Loan Documents, (2) liens for taxes not yet due and payable, (3) mechanics' or
tax liens being contested by Borrower in appropriate proceedings with the
approval of Lender, a bond or escrow having been posted with Lender for the
full amount of such lien, (4) Residential Living Agreements with residents as
contemplated and permitted hereby, and (5) liens, on the real property
benefiting the Project.
5.2.5. Governing Documents. Amend, or permit to be amended, Borrower's
Certificate of Incorporation if such amendment would have a material adverse
effect on Lender's rights under this Agreement or under any of the other Loan
Documents.
5.2.6. Modification of Residential Living Agreements. Charge any
resident under a Residential Living Agreement materially less than the standard
charge for the applicable unit in accordance with the Schedule of Charges
attached hereto as Exhibit D, without, in each instance, obtaining Lender's
prior written approval, which approval shall not be unreasonably withheld.
<PAGE>
6. EVENTS OF DEFAULT AND REMEDIES
6.1. Events of Default. The occurrence of any of the following shall
constitute an event of default ("Event of Default") hereunder:
6.1.1. The failure of Borrower to pay within seven (7) days of the
date due any installment of principal and/or interest due under the Note, or
any other monetary obligation under any of the Loan Documents;
6.1.2. The failure of Borrower to perform any term, covenant or
condition of this Agreement or of any other Loan Document (including, without
limitation, the Mortgage) (other than defaults which are separately and
expressly identified in this Section 6, which defaults shall not be included in
the operation of this Section 6.1.3.) and the continuation of such default for
more than thirty (30) days following the giving of notice of such default to
Borrower; provided, however, that such default shall not be deemed to be an
Event of Default if such default cannot reasonably be cured within such thirty
(30) day period, and Borrower shall have commenced to cure such default within
such thirty (30) day period and thereafter diligently and expeditiously
proceeds to cure the same, and Borrower shall submit to Lender, within such
thirty (30) day period, a detailed plan to cure such default satisfactory to
Lender, such thirty (30) day period shall be extended for so long as it shall
require Borrower in the exercise of due diligence to cure such default, it
being agreed that no such extension shall be for a period in excess of one
hundred and twenty (120) days. The rights to notice and a cure period granted
herein shall not be cumulative with any other rights to notice or a cure period
in any other Loan Document, any and all grace periods in any Loan Document
shall run concurrently and not successively, and the giving of notice or a cure
period pursuant to this paragraph shall satisfy any and all obligations of
Lender to grant any such notice or cure period pursuant to any of the Loan
Documents;
6.1.3. Any representation or warranty of Borrower hereunder or under
any of the other Loan Documents or other materials submitted to Lender in
connection with the Loan shall have been untrue or incorrect in any material
respect when made;
6.1.4. The appearance on any survey required or requested by Lender
pursuant to the provisions of this Agreement of any condition which materially
and adversely affects the Property not approved by Lender, and failure to
remove such condition after notice thereof by Lender to Borrower within thirty
(30) days after such notice, or if Lender agrees (which agreement shall not be
unreasonably withheld), such additional time as necessary to remove such
condition;
6.1.5. (a) The commencement by Borrower or Guarantor of a voluntary
case under any Chapter of the Bankruptcy Code (Title 11 of the United States
Code) as now or hereafter in effect, or the taking by Borrower or Guarantor of
any equivalent or similar action by the filing of a petition or otherwise under
any other federal or state law in effect at the time relating to bankruptcy or
insolvency; (b) the filing of a petition against Borrower or Guarantor under
any Chapter of the Bankruptcy Code (Title 11 of the United States Code) as now
or hereafter in effect, or the filing of a petition seeking any such equivalent
or similar relief against Borrower or Guarantor under any other federal or
state law in effect at the time relating to bankruptcy or insolvency, and the
failure of the Borrower or guarantor to obtain a dismissal of said petition
within sixty (60) consecutive days from the filing date of said petition; (c)
the making by Borrower or Guarantor of a general assignment for the benefit of
its or any of their creditors; (d) the appointment of a receiver, trustee,
custodian or similar officer for Borrower or Guarantor or for the property of
Borrower or Guarantor and the failure by Borrower or Guarantor to secure the
discharge of such receiver, trustee, custodian or similar officer within ninety
(90) consecutive days from the date of appointment; or (e) the admission in
writing by Borrower or Guarantor of any inability to pay debts generally as
they become due;
<PAGE>
6.1.6. Any permit (including, without limitation, the Building
Permit), approval or agreement obtained from or issued by any Governmental
Authority is withdrawn, canceled, terminated, or modified to the material
detriment of Borrower or the Project, unless Borrower reinstates and confirms
in all respects the permit, approval, or agreement previously in effect within
a period of ten (10) days thereafter;
6.1.7. Any material breach of any environmental covenant, or if any
representation or warranty herein or in any other Loan Document regarding
environmental matters proves false in any material respect;
6.1.8. The occurrence of a default under and as defined in any other
Loan Document or a default by Borrower under any other Loan Document after the
expiration of any applicable notice and/or grace periods;
6.1.9. Any litigation or administrative proceeding shall commence
involving Borrower, this Agreement, any other Loan Document, or Borrower's
construction of the Improvements which, in Lender's sole judgment, has or may
have a material and adverse effect on the ability of Borrower to perform any of
its obligations under this Agreement or any other Loan Document, or to operate
and use the Improvements, or any part thereof, for the purposes intended, or
the value of the Collateral as security for the Note, and such litigation or
proceeding shall not have been terminated or dismissed or stayed within sixty
(60) days after the commencement thereof;
6.1.10 The creation or sufferance of any lien, mortgage, pledge or
other encumbrance on the Collateral (or any portion thereof), other than the
Permitted Exceptions or as otherwise expressly permitted under Section 5.2.5;
6.1.11. The occurrence of any Event of Default under and as defined in
the Guaranty; or
6.1.12. Any sale, assignment or transfer of the Collateral (or any
portion thereof) except in the ordinary course of business.
6.2. Remedies. Upon the occurrence of any Event of Default, Lender, in
addition to any other rights or remedies available at law or in equity, or
under any of the other Loan Documents, may exercise any or all of the following
rights and remedies as it, in its sole discretion, deems necessary or
desirable:
<PAGE>
6.2.1. Declare immediately due and payable, without further notice or
demand, all monies advanced under this Agreement, the Note, the Mortgage or any
of the Loan Documents which are then unpaid, together with all interest then
accrued thereon and all other amounts then owing (including, without
limitation, the prepayment fee provided for under Section 3.3 of the Note), and
exercise all rights and remedies available under the Note, Mortgage and any of
the other Loan Documents at law, in equity or otherwise;
6.2.2. Enter upon the Land and take possession of the Land,
Improvements and Project, in connection with the sale of same pursuant to the
Mortgage and all materials, supplies, tools, equipment, facilities and
appliances located thereon, and proceed either in the name of Lender or in the
name of Borrower, as the attorney-in-fact of Borrower (which authority is
hereby granted by Borrower, is coupled with an interest, and is irrevocable),
as Lender shall elect, to repossess and operate the Project, in connection with
the preservation of its rights under the Loan Documents, at the cost and
expense of Borrower, pursuant to advances made on behalf of Borrower hereunder
or otherwise. Lender may enforce or cancel all contracts entered into by
Borrower or make other contracts which are in Lender's sole opinion advisable,
and Borrower shall be liable to pay Lender upon demand any amount or amounts
expended by Lender for such performance, together with any costs, charges, or
expenses incident thereto or otherwise incurred or expended by Lender or its
representatives on behalf of Borrower in connection with the Improvements, and
the amounts so expended shall be considered part of the Loan evidenced by the
Note and secured by the Mortgage and the Assignments, and shall bear interest
at the Default Rate specified in the Note to be payable by Borrower on such
indebtedness;
6.2.3. Terminate Lender's obligations under this Agreement, including
the obligation to make further advances (including advances requested prior to
such termination but not actually made at the time such termination occurs);
and
6.2.4. Institute appropriate proceedings for injunctive relief
(including specific performance of the obligations of Borrower hereunder and
under the other Loan Documents).
6.3. Remedies Cumulative; Waivers. All of the remedies herein given to
Lender or otherwise available at law or in equity to Lender shall be cumulative
and may be exercised separately, successively or concurrently. Failure to
exercise any one of the remedies herein provided shall not constitute a waiver
thereof by Lender, nor shall the use of any such remedies prevent the
subsequent or concurrent resort to any other remedy or remedies vested in
Lender by the Loan Documents or at law or in equity. To be effective, any
waiver by Lender must be in writing, and such waiver shall be limited in its
effect to the condition or default specified therein, and no such waiver shall
extend to any subsequent condition or default.
<PAGE>
7. INSURANCE
7.1. Coverage. Borrower shall, from and after the date hereof and at
all times while this Agreement is in effect or the Note remains outstanding,
maintain at Borrower's expense insurance in amounts, with deductibles and with
companies reasonably satisfactory to Lender, and having such other terms and
provisions, all as described below or in Paragraph 5 of the Mortgage, including
but not limited to, a policy of extended coverage fire insurance, and a rental
curtailment or interruption insurance policy in an amount reasonably
satisfactory to Lender.
7.2. Certificates; Notices.
7.2.1. Borrower shall furnish to Lender duplicate copies of policies
of insurance or certificates of Borrower's insurance agent certifying to the
insurance required and including photocopies of all policies certified by such
agent to be correct, complete and current, as Lender may request (i) on or
before the Closing Date, (ii) upon the renewal or replacement of existing
coverage or the obtaining of additional coverage, and (iii) at any other time
upon the request of Lender.
7.2.2. Each insurance policy of Borrower shall name Lender as an
additional insured party and shall provide that all proceeds payable thereunder
shall be paid to Lender as loss payee or trustee for the beneficial owners
thereof. All policies shall be issued by companies acceptable to Lender and
having a Standard & Poors financial rating of AA or better and a size class
rating of XII or larger.
7.2.3. Each insurance policy of Borrower shall be on a non-reporting
and non-contributing form basis and shall contain a provision (i) requiring the
insurer to notify Lender, in writing and at least thirty (30) days in advance,
of any cancellation or material change in the policy, and (ii) stating that any
loss otherwise payable thereunder shall be payable notwithstanding any act or
neglect of the insureds and notwithstanding (a) the occupation or use of the
Project for purposes more hazardous than permitted by the terms of such policy,
(b) any change in title to or ownership of the Project, or (c) any provision of
the policy relieving the insurer thereunder of liability for any loss by reason
of the existence of other policies of insurance covering the Project against
the peril involved, whether or not collectible. The amount of insurance in all
cases shall be sufficient to prevent any co-insurance contribution on any loss.
8. MISCELLANEOUS
8.1. Lender's Discretion. If any condition of this Agreement requires
the submission of evidence of the existence or non-existence of a specified
fact or facts, or implies as a condition the existence or non-existence of such
fact or facts, Lender will, at all times, be free independently to establish to
its reasonable satisfaction and in its reasonable discretion such existence or
nonexistence. Where any matter herein requires the approval or consent of the
Lender, the giving or refusal to give such approval or consent shall be within
Lender's reasonable discretion, except as may be expressly stated otherwise.
Any waiver of any condition in connection with an advance by Lender, on any one
or more occasions, shall not constitute or be deemed to constitute a waiver of
any such other condition for that or for any other advance, and Lender may
strictly enforce all conditions hereof with respect to any advance.
<PAGE>
8.2. No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this
Agreement be construed to make or render Lender liable to any purchaser,
materialman, contractor, subcontractor, laborer or other person for goods or
materials supplied or work or labor furnished or services rendered in
connection with the construction of the Improvements, or for debts or claims
accruing to any such persons against Borrower. Lender shall not be liable for
the manner in which any advance may be applied by Borrower. Notwithstanding
anything contained herein, in the Note or in any other Loan Document, or any
conduct or course of conduct by either or both of Borrower and Lender, before
or after the execution of this Agreement, this Agreement shall not be construed
as creating any right, claim or cause of action against Lender or any of its
officers, directors, agents or employees, in favor of any contractor,
subcontractor, design professional, supplier of labor or materials, or any of
their respective creditors, or any other person other than Borrower. Without
limiting the generality of the foregoing, advances made to any contractor,
subcontractor, design professional, supplier of labor or materials or other
creditor of Borrower, whether or not such advances are approved by Lender,
shall not be deemed a recognition by Lender of third party beneficiary status
of any such person. No part of the Loan will be at any time subject, or liable
to attachment or levy at the suit of any creditor of Borrower, or at the suit
of any contractor, subcontractor or material supplier, or any of their
creditors, and regardless of any other term, condition or provision hereof, no
such third party will have any status, right or entitlement hereunder.
8.3. No Joint Venture. Nothing contained in this Agreement or the
other Loan Documents shall create a partnership or joint venture or
principal-agent relationship between Borrower and Lender or between Lender and
any other party, or cause Lender to be liable in any way for the debts or
obligations of Borrower or any other party.
8.4. Reliance on Representations and Warranties. Lender shall be
entitled to rely upon the representations and warranties of Borrower set forth
in any of the Loan Documents without any investigation by Lender and
notwithstanding any investigation conducted by Lender or on its behalf before
or after the date hereof.
8.5. Assignment; Further Assurances.
8.5.1. The rights of Borrower hereunder shall not be assignable in any
respect without the prior written consent of Lender, which consent may be
granted or withheld in Lender's sole discretion; provided, however, that
Borrower shall be entitled to assign its rights hereunder to an Affiliate of
the Borrower upon written notice to Lender. If such assignment hereof is made
by Borrower pursuant to this Section 8.5.1., Lender shall be entitled to make
advances to such assignee and such advances shall be secured by the Mortgage
and the Assignments. In any case, Borrower shall remain liable for repayment of
all sums advanced hereunder before and after such assignment.
<PAGE>
8.5.2. Without Borrower's consent or approval, this Agreement, the
Note and any of the other Loan Documents may be endorsed, assigned or
transferred in whole or in part by Lender, and interests in the Loan may be
participated by Lender and any such holder, assignee or participant thereof
shall succeed to and be possessed of the rights of Lender under all of the Loan
Documents to the extent so endorsed, transferred, participated or assigned.
8.5.3. Subject to the foregoing, this Agreement shall be binding upon,
and shall inure to the benefit of, Borrower and Lender and their respective
successors and assigns.
8.5.4. Borrower shall execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings and do such other
acts as may be necessary (a) to evidence, preserve and/or protect the
Collateral at any time securing or intended to secure the Note, and/or (b) to
further and more effectively carry out the intents and purposes of this
Agreement and the other Loan Documents, as Lender may require from time to
time, in Lender's discretion.
8.6. Notices. All notices, approvals, consents requests, demands and
other communications with, to, from or upon the respective parties hereto shall
be in writing and shall be hand delivered or sent by guaranteed overnight
delivery service or by registered mail, return receipt requested, postage
prepaid, addressed as follows:
8.6.1. If to Lender:
ElderTrust Operating Limited Partnership
415 McFarlan Road
Suite 202
Kennett Square, PA 19348
With a required copy (which shall not
constitute notice) to the following, but
only in connection with defaults hereunder:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
8.6.2. If to Borrower:
__________________________________
__________________________________
__________________________________
__________________________________
<PAGE>
With a required copy (which shall not
constitute notice) to the following, but
only in connection with defaults hereunder:
____________________________________________
____________________________________________
____________________________________________
____________________________________________
or to such other address as either party may designate from time to time by
notice to the other in the manner set forth herein. All such communications
shall be deemed to be given (i) if hand delivered or sent by guaranteed
overnight delivery service, on the day received, or (ii) if mailed, on the
second business day following deposit thereof in the U.S. Mail.
8.7. Table of Contents; Headings. The table of contents preceding this
Agreement and the headings preceding the text of the paragraphs of this
Agreement are used solely for convenience of reference and shall not affect the
meaning or interpretation of this Agreement.
8.8. Time of the Essence. All dates and times for performance set
forth herein or in any of the other Loan Documents (whether or not elsewhere so
stated) are of the essence.
8.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed all original, but all of which
together shall constitute one and the same instrument.
8.10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of __________, but not including the
choice of law provisions thereof.
8.11. Severability. Any provision in any of the Loan Documents that is
unenforceable or invalid in any jurisdiction shall, as to such jurisdiction, be
ineffective, but only to the extent of such unenforceability or invalidity of
and without affecting the remaining provisions thereof or affecting the
operation, enforceability or validity of such provision in any other
jurisdiction.
8.12. JURISDICTION; WAIVER OF JURY TRIAL. BORROWER HEREBY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ____________ AND THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ___________ IN ANY AND ALL
ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ITS ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS BORROWER MAY DIRECT BY
NOTICE TO LENDER. BORROWER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY
TRIAL AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND
LENDER, WHETHER HEREUNDER OR OTHERWISE.
<PAGE>
8.13. Survival. All agreements, representations and warranties made in
this Agreement shall survive the making of each advance hereunder and shall
remain in full force and effect until the entire unpaid principal amount of the
Loan, together with accrued but unpaid interest thereon and all other amounts
due and payable by Borrower to Lender have been paid in full.
8.14. Controlling Document; Amendment. The provisions of this
Agreement (including the exhibits attached hereto) shall be deemed
complementary to the provisions of the other Loan Documents, but in the event
of conflict, the provisions hereof shall be deemed to modify and supersede the
conflicting provisions in such other Loan Documents and to control to the
extent enforceable under applicable law. Neither this Agreement nor any of the
other Loan Documents may be modified or amended except by a written agreement
executed by the party against whom enforcement thereof is sought.
8.15. Extension of Maturity Date. Subject to the terms and conditions
of this Section 8.15., Borrower shall have the right to request an extension of
the Maturity Date for up to ___ (__) additional twelve (12) month periods.
Borrower's request to extend the Maturity Date for each of such twelve (12)
month periods shall be approved by Lender provided each of the following
conditions precedent to each such extension shall have been satisfied to the
sole satisfaction of Lender: (i) Borrower's written request to extend the
Maturity Date shall have been received by Lender no later than 60 days prior to
the Maturity Date; (ii) each of the conditions set forth in Section 3.3. of
this Agreement shall have been satisfied; (iii) no Event of Default shall exist
under this Agreement or any other Loan Document and no event shall exist which
with the passage of time or the giving of notice, or both, would constitute an
Event of Default under this Agreement or any other Loan Document; and (iv)
Borrower shall have paid Lender an extension fee equal to ________ percent
(___%) of the original principal amount of the Loan (the "Extension Fee"). In
connection with any such extension permitted under this Section 8.15., the
interest rate under the Note shall be revised to equal the Three Year Treasury
Rate (as defined in the Note) on the date immediately preceding the applicable
extension period, plus ________ (___%). In the event the Maturity Date is not
extended in accordance with the terms of this Section 8.15., the Maturity Date
shall remain two years from date of closing.
8.16. Modification of Documents. In connection with any extension of
the Maturity Date in accordance with Section 8.15., Borrower shall
simultaneously execute and deliver (or cause to be executed and delivered by
the relevant party) such modifications and amendments to the Loan Documents,
opinions of counsel and "bringdowns" and endorsements to Lender's policy of
title insurance as Lender may request in its sole discretion.
<PAGE>
8.17. Reimbursement of Expenses. Borrower shall reimburse Lender for
all reasonable costs and expenses incurred by Lender incurred after the closing
date in connection with the administration of the Loan, including, without
limitation, the reasonable fees and expenses (including travel, lodging and
similar expenses) of counsel and other professionals. The obligations of
Borrower under this Section 8.17. shall survive the termination of this
Agreement and the payment of the Note.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be duly executed as of the day and year set forth on the first page hereof.
BORROWER
[ --------------------------- ]
By:
Name:
Title:
LENDER
ELDERTRUST OPERATING LIMITED PARTNERSHIP
By: ElderTrust, General Partner
By:
---------------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT SCHEDULE
TERM LOANS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Borrower Loan Amount Interest Rate Extension Rights
-------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
1. Mifflin $5,164,000 Fixed at 400 basis points Right to one year extension
(Genesis) over 3-year Treasury
Bills as of the date of
the Term Loans
- -------------------------------------------------------------------------------------------------------------------
2. Cooquina Place $4,577,000 Fixed at 400 basis points Right to one year extension
(Genesis) over 3-year Treasury
Bills as of the date of
the Term Loan
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FORM OF TERM LOAN SECURED NOTE
SECURED NOTE
$[------------] ------------------------
, 1998
------------------
FOR VALUE RECEIVED, ________________, a __________, with offices at
___________________________________________________ ("Maker"), hereby promises
to pay to the order of ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware
limited partnership, with offices at 415 McFarlan Road, Suite 202, Kennett
Square, PA 19348 (herein with all subsequent holders of this Note referred to,
collectively, as "Holder"), at the offices of Holder or at such other place as
Holder shall designate in writing, the principal amount of _____________ DOLLARS
($[_____________]), or so much thereof as may be disbursed pursuant to the Loan
Agreement (as defined below) (the "Loan"), in lawful money of the United States
of America, and in immediately available funds, with interest thereon from the
date hereof at the Interest Rate stated below ("Interest"), all such principal
and Interest to be paid as set forth below, without offset.
1. Interest Rate. The interest rate hereon (the "Interest Rate")
(computed on the basis of actual days elapsed and a year of 360 days) shall be
______ percent (____%) per annum; provided, however, that in the event that the
Maturity Date (as defined below) is extended pursuant to Section 8.16 of the
Loan Agreement (as defined below), the Interest Rate for such extension period
shall be revised to equal the Three Year Treasury Rate on the date immediately
preceding the applicable extension period, plus _____ percent (___%). As used
herein, the term "Three Year Treasury Rate" shall mean the yield on the United
States Treasury note or bond, as identified by Holder, having the closest
maturity (month and year) to the date which is three (3) years from the first
day of the applicable extension period.
2. Security. This Note evidences a loan advanced in connection with
that certain Term Loan Agreement (the "Loan Agreement"), dated as of the date
hereof between Maker and Holder, and is secured by (a) a Mortgage and Security
Agreement, dated as of the date hereof, to be executed by Maker in favor of
Holder (the "Mortgage"), which Mortgage was or shall be recorded following its
execution, and is intended to and does encumber, among other things, that
certain parcel of land, together with the buildings, structures and other
improvements now or hereafter erected thereon and owned by Maker located in
_______________, _________, as more fully described in the Mortgage (and
referred to in the Mortgage and herein as the "Mortgaged Premises"); (b) an
Assignment of Rents and Leases by Maker in favor of Holder (the "Assignment of
Leases"); (c) an Assignment of Agreements affecting Real Estate by Maker in
favor of Holder (the "Assignment of Agreements"); (d) a Guaranty by
________________, an affiliate of Maker, in favor of Holder (the "Guaranty");
and (e) other documents given or to be given as security for the Loan. This
Note, together with the Mortgage, Assignment of Leases, Assignment of
Agreements, Guaranty and all other documents executed in connection therewith,
as the same may be modified, amended, supplemented or assigned from time to
time, are sometimes referred to herein collectively as the "Loan Documents" or
individually as a "Loan Document."
<PAGE>
3.Repayment; Maturity.
3.1. Interest on the outstanding principal balance hereof shall accrue
from the date hereof and shall be due and payable in arrears on the first
business day of each month, commencing on the first such day of the month next
commencing after the date hereof.
3.2. The entire unpaid principal amount hereof, together with all
accrued but unpaid Interest thereon and all other amounts payable hereunder or
under any of the Loan Documents shall be due and payable on the earlier to occur
of the following: (a) the date on which the Mortgaged Premises is sold or
transferred by Maker to any third party and (b) ________________, _____ (the
"Maturity Date"), or such earlier date resulting from acceleration by Holder of
the indebtedness evidenced by this Note in connection with any Event of Default
(as defined below) or otherwise.
3.3 Any payment on this Note coming due on a Saturday, Sunday or a day
which is a legal holiday in the place at which a payment is to be made hereunder
shall be made on the next succeeding day which is a business day in such place,
and any such extension of the time of payment shall be included in the
computation of interest hereunder.
4.Additional Payments, Default Rate.
4.1. In addition to the payments provided for in Paragraph 3 above,
Maker promises to pay on demand any future advances or additional monies
required to be paid or advanced by Maker, or paid or advanced on behalf of Maker
by Holder, pursuant to the terms of the Loan Agreement, the Mortgage and the
other Loan Documents. Maker promises to pay all costs and expenses (including
without limitation reasonable attorneys' fees, recording costs and
disbursements) incurred by Holder in connection with the collection hereof or in
the protection or realization of any collateral now or hereafter given as
security for the repayment hereof. This Note shall evidence, and the Mortgage
and other Loan Documents shall secure the payment of, all such sums so advanced
or paid, and such advances or payments shall bear interest at the same rate as
the principal indebtedness hereunder.
4.2. From and after the Maturity Date and from and after the occurrence
of any Event of Default irrespective of any acceleration or otherwise, all
amounts remaining unpaid or thereafter accruing hereunder, as well as any
amounts owing pursuant to the foregoing Paragraph 4.1, shall bear interest at a
default rate (the "Default Rate") of two (2) percent (2%) per annum above the
Interest Rate.
<PAGE>
5.Application of Interest. In the event the interest provisions hereof
or any exactions provided for herein or in any of the Loan Documents shall
result in an effective rate of interest which, for any period of time, exceeds
the limit of any usury or other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice between or by any party
hereto, be applied toward repayment of outstanding principal immediately upon
receipt of such moneys by Holder with the same force and effect as if Maker had
specifically designated such extra sums to be so applied to principal and Holder
had agreed to accept such extra payment(s) in repayment of the principal balance
hereof. Notwithstanding the foregoing, however, Holder may at any time and from
time to time elect, by notice in writing to Maker, to reduce or limit the
collection of any interest to such sums which shall not result in any payment of
interest in excess of that lawfully collectable. Maker agrees that in
determining whether or not any interest payable under this Note exceeds the
highest rate permitted by law, any non-principal payment shall be deemed to the
extent permitted by law to be an expense, fee, premium or penalty, rather than
interest.
6.Events of Default. The occurrence of any one or more of the following
shall constitute an "Event of Default" hereunder:
(a) Failure to pay, when due, the principal, any interest or any other
sum payable hereunder (whether upon the Maturity Date or upon acceleration or
otherwise);
(b) The occurrence of any Event of Default, as defined in the Loan
Agreement; or
(c) The occurrence of any Event of Default, as defined in the Mortgage.
7.Remedies. If an Event of Default exists, Holder may exercise any
right, power or remedy permitted by law or as set forth herein or in the
Mortgage, the Loan Agreement or in any other Loan Document and, without limiting
the generality of the foregoing, Holder shall thereupon have the right to
declare the entire unpaid principal amount hereof and all interest accrued
hereon, and all other sums secured by the Mortgage, the Loan Agreement or by any
other Loan Document to be, and such principal, interest and other sums shall
thereupon become, forthwith due and payable. Holder shall have the right of
set-off against all property of the undersigned now or at any time in Holder's
possession.
<PAGE>
8.Rights Cumulative. The rights and remedies of Holder as
provided herein and in any other Loan Document, and all warrants of attorney
contained herein and therein shall be cumulative and concurrent, and may be
pursued singly, successively or together against Maker or the Mortgaged Premises
or any other collateral security for payment of amounts due hereunder, at the
sole discretion of Holder; and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of the same. No single or
partial exercise by the Holder of any right hereunder or under any Loan Document
shall preclude any other or further exercise of any other rights. Holder shall
not by any act of omission or commission be deemed to waive any of its rights or
remedies under this Note unless such waiver is in writing and signed by Holder,
and then only to the extent specifically set forth therein; and a waiver of one
event shall not be construed as continuing or as a bar to or waiver of such
right or remedy on a subsequent event.
9.Waivers.
9.1. Maker expressly waives presentment for payment, demand, notice of
dishonor, protest, notice of protest, diligence of collection, and (except as
otherwise expressly provided herein or in any other Loan Document to the
contrary) any other notice of any kind, and hereby consents to any number of
renewals and extensions of time of payment hereof, which renewals and extensions
shall not affect the liability of Maker.
9.2. Maker hereby waives and releases all errors, defects and
imperfections in any proceedings instituted by Holder under the terms of this
Note, or under any other Loan Document, as well as all benefit that might accrue
to Maker by virtue of any present or future laws exempting the Mortgaged
Premises, or any other property, real, personal or mixed, or any part of the
proceeds arising from any sale of such property, from attachment, levy or sale
under execution, or providing for any stay of execution, exemption from civil
process, or extension of time for payment. Maker agrees that any real estate
that may be levied upon pursuant to a judgment obtained by virtue hereof, or
upon any writ of execution issued thereon, may be sold upon any such writ in
whole or in part in any order desired by Holder.
10. Construction of Terms. The word "Maker" whenever used herein is
intended to and shall be construed to mean the entity who has executed this
Note, and its successors and assigns, and the liability of each such person or
entity shall be joint and several. All covenants, promises, agreements,
authorizations, waivers, releases, options, undertakings, rights and benefits
made or given herein by Maker shall bind and affect all persons who are
hereinabove defined as "Maker" as fully as though all such persons were
specifically named herein whenever the term "Maker" is used. Whenever used, the
singular number shall include the plural, the plural the singular, and the use
of any gender shall be applicable to all genders.
<PAGE>
11. JURISDICTION; TRIAL BY JURY. MAKER HEREBY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF [_______________] AND/OR THE COURTS
OF THE UNITED STATES LOCATED IN THE STATE OF [_______________] IN ANY AND ALL
ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS
ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS MAKER MAY DIRECT BY NOTICE TO
HOLDER. MAKER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL AND THE
RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN MAKER AND HOLDER, WHETHER
HEREUNDER OR OTHERWISE.
12. Modifications. This Note may not be changed orally, but only by an
agreement in writing signed by Maker and Holder.
13. Governing Law. This Note shall be governed by and construed
according to the law of the State of __________ (but not including the choice of
law provisions thereof).
14. Headings. The headings preceding the text of the paragraphs hereof
are inserted solely for convenience of reference and shall not constitute a part
of this Note nor shall they affect its meaning, construction or effect.
15. Severability. If any provision of this Note or the application
thereof is held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall not be affected thereby,
and each provision of this Note shall be valid and enforceable to the fullest
extent permitted by law.
16. Communications. All communications required or permitted by this
Note shall be in accordance with Section 8.7 of the Loan Agreement.
17. Assignment. This Note and the obligations of Maker hereunder shall
not be assigned in any respect without the prior written consent of Holder,
which consent may be granted or withheld in Holder's sole discretion. Holder
shall have the absolute right, without Maker's consent or approval, to assign in
whole or in part this Note and/or the other Loan Documents to any third
party(ies).
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first above written.
MAKER:
--------------------------------
By:
-----------------------------
Name:
Title:
<PAGE>
Tax Parcel No.:
________________________________
This document prepared by:
________________________________
________________________________
________________________________
Attention: ____________________
FORM OF MORTGAGE AND SECURITY AGREEMENT
by and between
-----------------------------
as Mortgagor
and
ELDERTRUST OPERATING LIMITED PARTNERSHIP
as Mortgagee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. REPRESENTATIONS, WARRANTIES AND COVENANTS...................................................................5
2. ASSIGNMENT OF LEASES AND RENTS.............................................................................13
3. DECLARATION OF NO SET-OFF..................................................................................13
4. INSPECTION.................................................................................................14
5. REQUIRED NOTICES...........................................................................................14
6. CURE BY MORTGAGEE..........................................................................................14
7. CHANGE IN LAWS.............................................................................................15
8. RETENTION OF COUNSEL.......................................................................................15
9. EVENTS OF DEFAULT..........................................................................................16
10. REMEDIES...................................................................................................16
11. RIGHTS AND REMEDIES CUMULATIVE.............................................................................18
12. POSSESSION BY MORTGAGEE....................................................................................19
13. WAIVERS....................................................................................................20
14. CONDEMNATION...............................................................................................20
15. SECURITY AGREEMENT.........................................................................................21
16. FURTHER ASSURANCES.........................................................................................22
17. NO OFFSET..................................................................................................23
18. MISCELLANEOUS PROVISIONS...................................................................................23
19. ENVIRONMENTAL MATTERS......................................................................................25
--------------------
</TABLE>
SCHEDULE OF EXHIBITS
--------------------
Exhibit A: Legal Description of Mortgaged Premises
i
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
-------------------------------
THIS IS A MORTGAGE UNDER __________________________WHICH
SECURES, AMONG OTHER THINGS, FUTURE ADVANCES.
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made
as of this _________ day of ____________ , 1998, by and between _______________,
a _________________ with offices at ______________________ ("Mortgagor"), and
ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership with
offices at 415 McFarlan Road, Suite 202 Kennett Square, Pennsylvania 19348
(together with its successors and assigns, "Mortgagee").
BACKGROUND
WHEREAS, Mortgagor and Mortgagee have entered into that
certain Construction Loan Agreement, dated as of the date hereof (as modified,
renewed, extended, amended, supplemented and/or assigned from time to time, the
"Loan Agreement"), the terms of which are incorporated herein by reference,
pursuant to which the Mortgagee has agreed to make a loan (the "Loan") to the
Mortgagor;
WHEREAS, in connection with the Loan Agreement, Mortgagor has
executed and delivered a Secured Note (as modified, renewed, extended, amended,
supplemented and/or assigned from time to time, the "Note"), dated as of the
date hereof, payable to the order of Mortgagor as holder in the principal amount
of $_________________ ;
WHEREAS, as a condition of making the Loan to Mortgagor,
Mortgagee has required Mortgagor to execute and deliver this Mortgage;
WHEREAS, as additional security for the obligations secured
hereby, Mortgagor has executed and delivered (or caused to be executed and
delivered) to Mortgagee: (a) an Assignment of Rents and Leases assigning, among
other things, all of Mortgagor's rights under all Residential Living Agreements
(as defined in the Loan Agreement) as well as all other rents and income
relating to or affecting the Mortgaged Premises (as defined herein) now or
hereafter in effect (the "Assignment of Leases"); (b) an Assignment of
Agreements Affecting Real Estate by Mortgagor in favor of Mortgagee (the
"Assignment of Agreements"); (c) a Guaranty and Suretyship Agreement by _______
_____________________, an affiliate of Mortgagor, in favor of Mortgagee (the
"Guaranty"); and (d) other documents given or to be given as security for the
indebtedness evidenced by the Note;
WHEREAS, this Mortgage, together with the Loan Agreement, the
Note, Assignment of Leases, Assignment of Agreements, the Guaranty and all other
<PAGE>
documents executed in connection therewith and herewith, as the same may be
modified, renewed, extended, amended, supplemented and/or assigned from time to
time, are sometimes collectively referred to herein as the "Loan Documents" or
individually as a "Loan Document";
WHEREAS, the principal balance of the Note, together with
interest thereon and all other sums payable thereunder or under the Loan
Document or secured by the Loan Documents, is herein collectively referred to as
the "Indebtedness"; and
WHEREAS, capitalized terms used but not otherwise defined
herein shall have the meaning set forth in the Loan Agreement.
CONVEYANCE
NOW, THEREFORE, Mortgagor, in consideration of the
Indebtedness, and to secure payment of the same, with interest and in accordance
with the terms and conditions of the Loan Documents, and for performance of the
agreements, conditions, covenants, provisions and stipulations contained herein
and therein (the "Obligations"), has granted, bargained, sold, released and
conveyed and by these presents hereby does grant, bargain, sell, release and
convey unto Mortgagee, its successors and assigns, the real property located in
____________________, as described in Exhibit A attached hereto and incorporated
herein by reference (the "Real Estate");
TOGETHER WITH all of Mortgagor's right, title and interest now
owned or hereafter acquired in all buildings and improvements erected or
hereafter erected on the Real Estate (the "Improvements");
AND TOGETHER WITH all of Mortgagor's right, title and interest
now owned or hereafter acquired, in or to (a) all furnishings, fixtures,
machinery, equipment and other articles of property of every nature whatsoever,
whether or not real property, now or at any time hereafter installed in,
attached to or situated in or upon, or used, useful, or intended to be used in
connection with or in the operation or maintenance of, the Real Estate or the
Improvements, or in the operation of any Improvements, plant or business now or
hereafter situate thereon, which shall include, but not be limited to, all
lighting, heating, ventilating, security, air conditioning, sprinkling and
plumbing equipment, fixtures and systems, irrigation, water and power systems
and fixtures, engines and machinery, boilers, gas and electric fixtures,
radiators, heaters, ranges, furnaces, oil burners or units thereof, elevators
and motors, refrigeration plants or units, communication systems, dynamos,
transformers, generators, electrical equipment, storm and screen windows,
shutters, doors, decorations, awnings, shades, blinds and signs, and trees,
shrubbery and other plantings; (b) all furnishings, furniture, appliances,
supplies, tools, accessories and operating inventory now or hereafter located on
the Real Estate; (c) all building
-3-
<PAGE>
materials, fixtures, building machinery and building equipment delivered on site
to the Real Estate or any portion thereof during the course of, or in connection
with the construction of, or reconstruction of, or remodeling of any
Improvements, from time to time during the term hereof; (d) all parts, fittings,
accessories, accessions, substitutions and replacements therefor and thereof;
and (e) all proceeds from the sale, transfer or other disposition of any of the
foregoing, whether voluntary or involuntary, and all proceeds of the conversion
of any of the foregoing into cash or liquidated claims, including without
limitation, proceeds of insurance and condemnation awards (collectively, the
"Related Property");
AND TOGETHER WITH all and singular the tenements,
hereditaments and appurtenances belonging to the Real Estate or any part
thereof, hereby mortgaged or intended so to be, or in anywise appertaining
thereto (including, without limitation, all rents, issues, income and profits
arising therefrom); all streets, alleys, passages, ways, watercourses; all other
rights, liberties, easements, covenants and privileges of whatsoever kind or
character; the reversions and remainders; and all the estate, right, title,
interest, property, possession, claim and demand whatsoever, as well at law as
in equity, of Mortgagor, in and to all of the foregoing or any or every part
thereof, and all of the estate, right, title and interest of Mortgagor in and to
each and every existing and future Residential Living Agreement and lease with
respect to all or any portion of the Real Estate, including, without limitation,
all rents, issues, income and profits arising therefrom (collectively the
"Appurtenances"). All of the Real Estate, Improvements, Related Property and the
Appurtenances, are collectively referred to herein as the "Mortgaged Premises".
TO HAVE AND TO HOLD the Mortgaged Premises hereby granted and
conveyed, or mentioned and intended to be so granted and conveyed, with the
appurtenances, unto Mortgagee, forever.
AS INDEPENDENT AND SEPARATE SECURITY for the payment of the
Indebtedness and performance of the Obligations, Mortgagor hereby grants to
Mortgagee as security interest in and lien upon and hereby assigns to Mortgagee
the following (collectively, the "Collateral"): (a) all property included in the
Mortgaged Premises which might otherwise be deemed "personal property" and the
"proceeds" thereof (as defined in the Uniform Commercial Code as in effect from
time to time in the ______________________ (the "UCC")), including, without
limitation, fixtures, furnishings, furniture, equipment, appliances, machinery,
supplies, tools, accessories and operating inventory thereof, (b) all
Residential Living Agreements and leases, whether now in existence or hereafter
created, together with all rents, issues, income and profits due and to become
due thereunder and deposits and other payments made in respect thereof and, upon
the occurrence of an Event of Default (as hereinafter defined), confers upon
Mortgagee the power to enter upon and take possession of the Mortgaged Premises
and to rent the same, either in its own name or in the name of Mortgagor, and to
receive the rents, issues, income and profits and to apply the same to the
payment of interest, principal, taxes, insurance premiums, repairs, alterations,
-4-
<PAGE>
improvements and other expenses in such order of priority as Mortgagee shall
determine, but such collection of rents, issues, income and profits shall not
operate as an affirmance of any resident, tenant, Residential Living Agreement,
lease or sublease in the event that title to all or any part of the Mortgaged
Premises should be acquired by Mortgagee or any other purchaser at a foreclosure
sale or otherwise, (c) all Accounts (as defined in the UCC), agreements of sale,
contract rights, accounts receivable and business records relating to the
Mortgaged Premises, together with all deposits and other payments made in
respect thereof, and (d) all of Mortgagor's right, title and interest in and to
all insurance policies, proceeds of insurance policies and condemnation proceeds
applicable to all or any part of the Mortgaged Premises, regardless of who
maintains such insurance, including but not limited to Mortgagor or any resident
or tenant of the Mortgaged Premises.
ADDITIONAL PROVISIONS
1. Representations. Warranties and Covenants. Mortgagor
represents, covenants, warrants and agrees to and with Mortgagee, as follows:
(a) Title; Power. Mortgagor has good and marketable
fee simple title to the Mortgaged Premises, to all rents, issues, income and
profits therefrom and to the Collateral, and has the right, full power and
lawful authority to grant, convey and assign the same to Mortgagee in the manner
and form set forth herein. The Mortgaged Premises and the Collateral are free
and clear of all liens, encumbrances and other charges whatsoever, excepting
only those items expressly excepted from the coverage of the ALTA Loan Policy of
Title Insurance issued and dated as of the date hereof by Commonwealth Land
Title Insurance Company to, and approved by, Mortgagee (the "Permitted
Exceptions"). Mortgagor hereby grants Mortgagee, its successors and assigns, the
right of quiet enjoyment and possession of the Mortgaged Premises, and Mortgagor
shall defend as to all of the Mortgaged Premises the title of Mortgagee hereby
created.
(b) Compliance. Except as would not have a material
adverse effect on Mortgagor or the Mortgaged Premises, Mortgagor shall duly
observe, conform, obey and comply with, or shall cause due observation,
conformance, obedience and compliance with, all Legal Requirements (as defined
in the Loan Agreement) affecting all or any part of the Mortgaged Premises or
the occupancy thereof, the business or operations now or hereafter conducted
thereon or the Collateral, and Mortgagor will comply and will ensure that the
Mortgaged Premises and the Collateral hereafter continuously complies with all
applicable environmental and other Legal Requirements; provided, however, that
if Mortgagor in good faith and by appropriate legal action contests the validity
or application of any such Legal Requirement, then Mortgagor's failure to comply
with any such Legal Requirement, shall not be an Event of Default so long as the
contest (i) operates to prevent enforcement thereof or the potential sale,
forfeiture or loss of the Mortgaged Premises, (ii) does not interfere with the
development, use, occupancy or operations of
-5-
<PAGE>
the Mortgaged Premises, the rent, fees and/or charges payable by residents of
the Mortgaged Premises and the timely payment of all sums due hereunder, and
(iii) is maintained and prosecuted with diligence and has not been terminated or
discontinued adversely to Mortgagor.
(c) Payment and Performance. Mortgagor shall pay to
Mortgagee, in accordance with the terms of the Note, the Loan Agreement and this
Mortgage, all the Indebtedness, and shall perform and comply with all of the
material Obligations.
(d) Taxes and Other Charges. Mortgagor shall promptly
pay or cause to be paid when due and payable and before interest or penalties
shall accrue thereon, without any deduction, defalcation or abatement, all
taxes, assessments, water and sewer rents and all other charges or claims which
may be assessed, levied or filed at any time against Mortgagor, the Mortgaged
Premises, the Collateral or any part thereof or against the interest of
Mortgagee therein, or which by any present or future law may have priority over
the indebtedness secured hereby either in lien or in distribution out of the
proceeds of any judicial sale. Mortgagor, if and as requested by Mortgagee,
shall produce to Mortgagee, not later than ten (10) days prior to the dates when
any of the same shall commence to bear interest or penalties, receipts for the
payment thereof. Notwithstanding the foregoing, if Mortgagor in good faith and
by appropriate legal action shall contest the validity or application of any
such item or the amount thereof and, at the option of Mortgagee, shall have
established on its books or by deposit of cash with Mortgagee a reserve for the
payment thereof in such amount as Mortgagee may require, and Mortgagee has
consented in writing to such action, then Mortgagor shall not be required to pay
the item or to produce the required receipts while the reserve is maintained and
so long as the contest operates to prevent collection, to stay any proceedings
which may be instituted to enforce payment of such item and to prevent a sale of
the Mortgaged Premises or the Collateral to pay such item (unless required by
law as a condition of such contest), such contest is maintained and prosecuted
with diligence, and shall not have been terminated or discontinued adversely to
Mortgagor. Mortgagor shall not apply for or claim any deduction, by reason of
this Mortgage, from the taxable value of all or any part of the Mortgaged
Premises or the Collateral. It is expressly agreed that no credit shall be
claimed or allowed on the interest payable on the Note because of any taxes or
other charges paid.
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(e) Insurance.
(i) Mortgagor shall, from and after the date hereof and at all
times while this Mortgage is in force or the Note remains outstanding, maintain
at Mortgagor's expense insurance in amounts, with deductibles and with companies
satisfactory to Mortgagee. Without limiting the generality of the foregoing,
Mortgagor shall maintain the following minimum coverages and shall not carry
separate insurance, concurrent in kind or form, unless otherwise agreed to in
writing by Mortgagee:
(A) insurance which complies with the workers'
compensation and employers' liability laws of all states in which Mortgagor
shall have employees;
(B) comprehensive general liability insurance
covering all operations of Mortgagor and with a combined single limit of not
less than $3,000,000.00 per occurrence for bodily injury (including death) and
property damage;
(C) during the course of any construction,
reconstruction, remodeling or repair of Improvements, builders' all-risk
extended coverage insurance in amounts based upon the replacement value of the
improvements (excluding roads, foundations, parking areas, paths, walkways and
like improvements), including coverage for loss of contents and endorsed to
provide that occupancy by any person shall not void such coverage;
(D) following completion of construction and prior to
occupancy by any person, fire, extended coverage, vandalism and malicious
mischief insurance in an amount equal to the replacement value of the
Improvements, including coverage for loss of contents owned by Mortgagor (but
excluding the costs of all excavations and foundations and footings below the
lowest basement floor), but in no event less than the outstanding principal
amount of the Note, which policy shall contain a replacement cost endorsement;
(E) automobile liability insurance covering all
owned, non-owned and hired vehicles used by Mortgagor in the conduct of its
business, with a combined single limit for bodily injury (including death) and
property damage of not less than $1,000,000.00 per occurrence;
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(F) umbrella liability insurance concurrent with the
coverages named in subparagraphs (B), (C), (D) and (E) of this Paragraph
1(e)(i), in an amount not less than $5,000,000.00;
(G) if the Mortgaged Premises is in an area
designated by the Secretary of Housing and Urban Development as having special
flood hazards, flood insurance on the improvements on the Mortgaged Premises and
any and all personal property used or to be used in connection therewith;
(H) following completion of construction and prior to
occupancy by any resident, business interruption insurance and/or "loss of
rental value" insurance, as appropriate, for a period of twelve (12) months in
an amount equal to the gross income from the Mortgaged Premises for a period of
twelve (12) months, as determined from time to time to be reasonably
satisfactory to Mortgagee; and
(I) such other insurance, and in such amounts, as
reasonably required by Mortgagee from time to time.
(ii) Upon execution hereof, Mortgagor shall furnish to
Mortgagee duplicate copies of such policies of insurance or certificates of
Mortgagor's insurance agent certifying to the insurance required and including
photocopies of all policies certified by such agent to be true and correct, in
each case specifying the expiration date. Not less than thirty (30) days prior
to the expiration of any such coverage, Mortgagor shall deliver to Mortgagee a
duplicate policy or certificate evidencing the renewal of such coverage and the
payment of all premiums.
(iii) The liability insurance policies required under
subparagraphs (B) and (F) shall name Mortgagee as an additional insured and the
policies required under subparagraphs (C), (D) and (G) shall name Mortgagee as
mortgagee under a standard mortgagee clause. The policy required under
subparagraph (H) shall name Mortgagee as loss payee under a loss payable
endorsement. All policies shall be issued by and maintained with companies
acceptable to Mortgagee.
(iv) Each insurance policy shall be on a nonreporting and
noncontributing form basis and shall contain a provision (A) requiring the
insured to notify Mortgagee, in writing and at least thirty (30) days in
advance, of any cancellation or material change in the policy, (B) stating that
any loss otherwise payable thereunder shall be payable to Mortgagee
notwithstanding any act or neglect of the insureds and notwithstanding the
occupation or use of the Mortgaged Premises for purposes more hazardous than
permitted by the terms of such policy, any change in title to or ownership of
the Mortgaged Premises, or any provision of the policy relieving the insurer
thereunder of liability for any loss by reason of the existence of
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other policies of insurance covering the Mortgaged Premises against the peril
involved, whether or not collectible, and (C) excluding Mortgagee from the
operation of any coinsurance clause.
(v) If the insurance, or any part thereof, shall expire, or be
withdrawn, or become void or unsafe, in the opinion of Mortgagee, by reason of
Mortgagor's breach of any condition thereof, or by reason of the failure or
impairment of the capital of any company in which the insurance shall be
carried, or if for any reason whatsoever the insurance shall be unsatisfactory
to Mortgagee, Mortgagor shall place new insurance on the Mortgaged Premises
satisfactory to Mortgagee.
(vi) In the event of loss to all or any portion of the
Mortgaged Premises, Mortgagor shall give immediate written and oral notice
thereof to Mortgagee, and Mortgagee may make proof of loss if not made promptly
by Mortgagor; provided, however, that any adjustment of proof of loss shall
require the prior written consent of Mortgagee. Each insurance company concerned
is hereby authorized and directed to make payment under such insurance,
including return of unearned premiums, to Mortgagee instead of to Mortgagor and
Mortgagee jointly, and Mortgagor irrevocably appoints Mortgagee as Mortgagor's
attorney-in-fact to endorse any draft thereof, which appointment, being for
security, is coupled with an interest and is irrevocable.
(vii) All policies of insurance required hereunder and all
renewals thereof are hereby assigned to Mortgagee as additional security for
payment of the indebtedness hereby secured and Mortgagor hereby agrees that, if
an Event of Default hereunder shall have occurred and be continuing, any amounts
available thereunder upon cancellation or termination of any of such policies or
renewals, whether in the form of return of premiums or otherwise, shall be
payable to Mortgagee as assignee thereof. If Mortgagee becomes the owner of the
Mortgaged Premises, or any part thereof, by foreclosure, deed in lieu thereof,
or otherwise, such policies, including all right, title and interest of
Mortgagor thereunder, shall become the absolute property of Mortgagee.
(viii) Mortgagee shall have the right to retain and apply the
proceeds of any such insurance, at its sole election, to reduction of the
indebtedness secured hereby, or to require Mortgagor to restore or repair the
damaged portion of the Mortgaged Premises. If Mortgagee elects to require
Mortgagor to restore or repair the damaged portion of the Mortgaged Premises,
such restoration and repair shall be in accordance with plans and specifications
approved by Mortgagee, and the proceeds therefor shall be disbursed by Mortgagee
to Mortgagor only in accordance with the terms and conditions of the Loan
Agreement applicable to the disbursement of loan proceeds as if such loan
proceeds were loan advances thereunder. Notwithstanding anything contained in
the foregoing to the contrary, (A) provided no Event of Default then exists and
(B) Mortgagee in its reasonable judgment is satisfied that there are sufficient
net proceeds to complete
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restoration of the building(s) and improvements on the Real Estate to
substantially the same value, condition and character as existed prior to such
damage within the term of the Note (or, in the case of any deficiency, Mortgagor
shall have deposited with Mortgagee an amount equal to such deficiency),
Mortgagee shall allow the insurance proceeds to be used for restoration of the
Mortgaged Premises, such proceeds to be disbursed from time to time as
restoration progresses in accordance with the terms and conditions of the Loan
Agreement applicable to the disbursement of loan proceeds.
(f) Insurance and Tax Escrows. Upon the occurrence and during
the continuance of an Event of Default, Mortgagor, at the request of Mortgagee,
agrees to pay to Mortgagee, in addition to and at the time of the required
payments of Indebtedness, and commencing with the first payment due after the
date of such request, a sum equal to the premiums which will next become due on
the insurance policies required by this Mortgage, plus taxes, water and sewer
rents and assessments next due on the Mortgaged Premises (all as estimated by
Mortgagee) together with any sums due for special assessments, charges or claims
and any other item which at any time may be or become a lien upon the Mortgaged
Premises prior to the lien of this Mortgage, less all sums already paid therefor
or deposited with Mortgagee for the payment thereof, divided by the number of
payments to become due before one (1) month prior to the date when such
premiums, taxes, assessments and other charges will become due, such sums to be
held by Mortgagee, without interest, to pay such premiums, taxes and assessments
when due. If the amount of such deposits shall exceed payments made by Mortgagee
for such premiums, taxes and assessments, the excess shall be credited on
account of subsequent deposits to be made by Mortgagor. If such deposits shall
be insufficient to pay such insurance premiums, taxes and assessments when due,
Mortgagor shall pay to Mortgagee the amount of the deficiency no later than the
first day of the month following determination of the deficiency. No amount so
paid shall be deemed to be trust funds but may be commingled with general funds
of Mortgagee, and no interest shall be paid to Mortgagor on such funds. If,
pursuant to any provision of the Note, the Loan Agreement or this Mortgage, the
whole amount of the principal debt secured hereby becomes due and payable,
Mortgagee shall have the right, at its sole election, to apply any amount so
held against the entire Indebtedness.
(g) Waste; Maintenance; Alterations; Compliance. Mortgagor
shall (i) abstain from and shall not permit the commission of waste in or about
the Mortgaged Premises, (ii) maintain the Mortgaged Premises and the Collateral
in good order and condition, reasonable wear and tear excepted, and, except with
respect to any undeveloped portion thereof, in a rentable and tenantable state
of repair, (iii) make or cause to be made, as and when necessary, all repairs
and replacements, structural and non-structural, exterior and interior, ordinary
and extraordinary, foreseen and unforeseen, whether or not the same may be
necessary by reason of fire or other casualty and whether or not insurance
proceeds are available therefor, (iv) not remove or demolish the buildings or
other Improvements now or hereafter erected upon the Real Estate, nor alter the
design or structural character of any building or other Improvements, now or
hereafter
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erected thereon so as to diminish the value thereof, unless Mortgagee
shall first consent thereto in writing (other than such renovations and
construction as is permitted and required by the Loan Agreement) and (v) comply
with all Legal Requirements and all licenses, permits, approvals and
restrictions affecting the Mortgaged Premises and the Collateral, including,
without limitation, deed restrictions.
(h) Residential Living Agreements.
(i) Mortgagor shall timely perform all of
its obligations under the terms and conditions of all Residential Living
Agreements affecting the Mortgaged Premises and expressly covenants that it
shall not accept rent, fees or charges therefor in advance for a period of more
than one (1) month.
(ii) Mortgagor represents that there are no
Residential Living Agreements, leases or agreements to lease all or any part of
the Real Estate now in effect, except those specifically set forth in the
Assignment of Leases, and assigned to Mortgagee hereunder and by the Assignment
of Leases. Mortgagor shall execute, acknowledge and deliver to Mortgagee
assignments of all future Residential Living Agreements and leases of all or any
portion of the Real Estate in form and substance satisfactory to Mortgagee and
shall at the request of Mortgagee, at Mortgagor's expense, record assignments
thereof.
(iii) There is no assignment or pledge of
any rents, issues, income and profits of or from the Mortgaged Premises or the
Collateral now in effect, except pursuant to the Assignment of Leases. Mortgagor
shall not make any assignment or pledge thereof to anyone other than Mortgagee
until the Indebtedness is fully irrevocably and indefeasibly paid and this
instrument is canceled.
(iv) No existing or future Residential
Living Agreement or lease shall be altered or modified to materially reduce the
fee payable thereunder without the prior written consent of Mortgagee.
(i) No Transfer; No Other Liens.
(i) Without the prior written consent of
Mortgagee, Mortgagor shall abstain from and shall not cause or permit any
conveyance, transfer or other disposition of title to, or an equitable interest
in, the Mortgaged Premises, the Collateral or any part thereof (other than by
execution on the Note or foreclosure under the Loan Agreement or this Mortgage)
voluntarily or by operation of law or any agreement to do any of the foregoing
(including but not limited to an installment sale contract) except to an
Affiliate of Mortgagor. If Mortgagor is a corporation, a transfer of any stock
of Mortgagor shall be deemed to violate this prohibition on transfers; if
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Mortgagor is a partnership, a transfer of any partnership interest in Mortgagor
shall be deemed to violate this prohibition on transfer; and if Mortgagor is a
limited liability company, a transfer of any membership interest in Mortgagor
shall be deemed to violate this prohibition on transfer. A consent by Mortgagee
to one such transfer or disposition shall not be construed as continuing or as a
bar to or waiver of the requirement the Mortgagor obtain the prior written
consent of Mortgagee to any other subsequent transfer or disposition.
(ii) Without the prior written consent of
Mortgagee, Mortgagor shall not lease any personal property, as lessee, which is
now or hereafter intended to be a part of the Mortgaged Premises or the
Collateral or is necessary for the operation of Mortgagor's business at the
Mortgaged Premises or the Collateral, or create or cause or permit to exist any
lien on, or security interest in the Mortgaged Premises or Collateral, including
any furniture, fixtures, appliances, equipment, funds or other items of personal
property which are intended to be or become part of the Mortgaged Premises or
the Collateral.
(iii) Mortgagor shall not, without the prior
written consent of Mortgagee, create or cause or permit to exist (voluntarily or
involuntarily) any lien (other than the lien of this Mortgage), encumbrance or
charge on, or security interest in, all or any part of the Mortgaged Premises or
the Collateral, excepting only the Permitted Exceptions and any such interest
existing at law for real estate taxes which are not yet due and payable. If any
such lien or encumbrance is filed or entered, Mortgagor shall cause it to be
removed of record within fifteen (15) days after it is filed or entered by
either paying it, having it bonded in a manner which removes it of record or
otherwise having it removed of record. By placing or accepting a mortgage, lien
or encumbrance of any type, whether voluntary or involuntary, against the
Mortgaged Premises, the holder thereof shall be deemed to have agreed, without
any further act or documentation being required, that its mortgage, lien, or
encumbrance shall be subordinate in lien priority to this Mortgage and to any
future amendments, consolidations or extensions to this Mortgage (including,
without limitation, amendments which increase the interest rate on the Note,
provide for future advances secured by this Mortgage or provide for the release
of portions of the additional Mortgaged Premises or the Collateral with or
without consideration).
(iv) The provision of this Paragraph 1(i)
shall be deemed notice to the holder of any subordinate mortgage or other
mortgage or lien, whether or not consented to by Mortgagee, that it has been
deemed to have waived and relinquishes any rights which it may have, whether
under a legal theory of marshaling of assets or any other theory at law or in
equity, to restrain Mortgagee from, or recover damages from Mortgagee as a
result of, Mortgagee's exercising its various remedies hereunder and under any
other documents or instruments evidencing or securing the indebtedness secured
hereby, in such order and with such timing as Mortgagee shall deem appropriate
in its sole and absolute discretion.
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(v) Mortgagee may, at any time or from time
to time, renew, extend or increase the amount of this Mortgage, or alter or
modify the terms of this Mortgage or the Note in any way, or waive any of the
terms, covenants or conditions hereof or of the Note in whole or in part and may
release any portion of the Mortgaged Premises, the Collateral or any other
security, and grant such extensions and indulgences in relation to the
indebtedness secured hereby as the Mortgagee may determine, without the consent
of any junior lienor or encumbrancer and without any obligation to give notice
of any kind thereto and without in any manner affecting the priority or the lien
hereof on all or any part of the Mortgaged Premises or the Collateral.
2. Assignment of Leases and Rents.
Mortgagor hereby absolutely and presently conveys,
transfers and assigns to Mortgagee all Leases and Rents. It is the intention of
Mortgagor that the foregoing assignment constitute a present, absolute
assignment of the Leases and Rents and not an assignment for additional security
only, which gives Mortgagee the present right to collect the rents and apply the
Rents in partial payment of the Note. Mortgagor intends that the Leases and
Rents be absolutely irrevocably and unconditionally assigned and that they no
longer be property of Mortgagor or property of the estate of Mortgagor, as
defined in 11 U.S.C.ss. 541. If any law exists requiring Mortgagee to take
actual possession of the Mortgaged Premises or the Collateral (or some action
equivalent to taking possession of the Mortgaged Premises or the Collateral,
such as securing the appointment of a receiver) in order for Mortgagee to
"perfect" or "activate" the right and remedies of Mortgagee, Mortgagor waives
the benefit of such law. Subject to the terms of this Mortgage and the
Assignment of Leases, Mortgagee grants to Mortgagor a license, revocable, as
hereinafter provided, to collect and use the Rents subject to the requirements
of this Mortgage and the Assignment of Leases. Upon the occurrence of any Event
of Default (as defined below), the license granted to Mortgagor herein shall, at
Mortgagee's election, be revoked by Mortgagee, and Mortgagee shall immediately
be entitled to possession of all Rents collected thereafter (including Rents
past due and unpaid) whether or not Mortgagee enters upon or takes control of
the Mortgaged Premises. Upon such a revocation of the license granted herein,
Mortgagee promptly shall provide Mortgagor with written notice of same. Any
Rents collected by Mortgagor from and after the date on which an Event of
Default occurred shall be held by Mortgagor in trust for Mortgagee. Mortgagee is
hereby granted and assigned by Mortgagor the right, at its option, upon
revocation of the license granted herein, to enter upon the Mortgaged Premises
in person, by agent or by court appointed receiver to collect the Rents.
3. Declaration of No Set-Off. If requested at any
time by Mortgagee, Mortgagor shall promptly (and in any event within ten (10)
days after Mortgagee's request) furnish Mortgagee or Mortgagee's designee with a
declaration of no set-off, in form and substance satisfactory to Mortgagee or
any such designee, certifying, in a
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writing duly acknowledged, the amount of principal, interest and other charges
then owing under the Loan Documents, and whether there are any set-offs or
defenses against the same, and, if so, the nature and amount thereof.
4. Inspection. Mortgagee and any persons authorized
by Mortgagee shall have the right at any time, upon notice to Mortgagor, to
enter upon the Mortgaged Premises during normal business hours to inspect and
photograph the condition and state of repair of the Mortgaged Premises and the
Collateral.
5. Required Notices. Mortgagor shall notify Mortgagee
promptly of the occurrence of any of the following: (a) a fire or other casualty
causing damage to the Mortgaged Premises or the Collateral; (b) receipt of
notice of eminent domain proceedings or condemnation of all or any portion of
the Real Estate; (c) receipt of notice from any governmental authority relating
to the structure, use, operation or occupancy of the Mortgaged Premises; (d)
receipt of any notice with regard to any Hazardous Discharge (as hereinafter
defined) or any other environmental matter affecting the Mortgaged Premises or
Mortgagor's interest therein, including a Release (as hereinafter defined) of
any Hazardous Substance, request for information, demand letter or notification
of potential liability from any entity relating to potential responsibility for
investigation or clean-up of Hazardous Substances on the Mortgaged Premises or
any other site owned or operated by Mortgagor; (e) substantial change in the
occupancy, operation or use of any portion of the Mortgaged Premises or the
Collateral; (f) receipt of any notice of the imposition of, or of threatened or
actual execution on, any lien on, or security interest in, the Mortgaged
Premises; (g) commencement of any litigation or notice of any threat of
litigation affecting the Mortgaged Premises or the Collateral; or (h) receipt of
any notice from any resident at the Mortgaged Premises alleging a default,
failure to perform or any right to terminate its Residential Living Agreement or
to set-off rents, fees and/or charges.
6. Cure by Mortgagee. If Mortgagor at any time fails
to pay any claim, lien or encumbrance which shall be prior to this Mortgage, or
fails to respond promptly to a Release or threat of Release (as hereinafter
defined) of a hazardous, toxic or polluting substance or waste including
petroleum or petroleum products ("Hazardous Substances"), or an Environmental
Complaint (as hereinafter defined), or fails to diligently and expeditiously
complete actions necessary to comply with applicable Legal Requirements, or to
any notice described in Paragraph 5(d) or Paragraph 19(b) hereof, or to pay when
due any tax or assessment or any insurance premium, or to keep the Mortgaged
Premises in repair, or to replace or restore as required hereby, or shall commit
or permit waste, or if there be commenced any action or proceeding affecting the
Mortgaged Premises, the Collateral or the title thereto, Mortgagee, at its
option, may pay such claim, lien, encumbrance, tax, assessment or premium, with
right of subrogation thereunder, may procure such abstracts or other evidence of
title as it deems necessary, may make such cleanup, repairs, replacements or
restorations and take such steps as it deems advisable to
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prevent or cure such failure, and may appear in any such action therein as
Mortgagee deems advisable, and for any of such purposes Mortgagee may advance
such sums of money as it deems necessary to carry out the foregoing (but in no
event shall Mortgagee be under any obligation to do any of the foregoing or to
advance any such sums). Mortgagor shall pay to Mortgagee immediately and without
demand all sums of money advanced by Mortgagee pursuant to this Paragraph 6,
together with interest on each advance at the Default Rate, as defined in the
Note, and all such sums and interest thereon shall be secured hereby.
7. Change in Laws. In the event of the passage, after
the date of this Mortgage, of any law deducting from the value of lands, for the
purpose of taxation, any lien thereon, or imposing upon Mortgagee the obligation
to pay the whole, or any part, of the taxes, assessments, charges or liens
herein required to be paid by Mortgagor, the entire unpaid balance of the
indebtedness secured by this Mortgage shall, at the option of Mortgagee and
after sixty (60) days notice to Mortgagor, become due and payable; provided,
however, that if Mortgagee requests that Mortgagor pay such taxes, assessments,
charges or liens, or to reimburse Mortgagee therefor, and Mortgagor lawfully
makes payment thereof or reimburses Mortgagee therefor, then there shall be no
such acceleration of the time for payment of the unpaid balance of the
Indebtedness.
8. Retention of Counsel. If Mortgagee retains the
services of counsel by reason of a claim of a default or an Event of Default
hereunder or under the other Loan Documents, or on account of any matter
involving Mortgagor's title to the Mortgaged Premises, the Collateral or the
security interest intended to be granted hereby, including, without limitation,
review of easements, amendments to the Loan Documents, other related agreements
or documents, any condemnation proceedings, bankruptcy proceedings, or
proceedings involving defects in title which are not covered by Mortgagee's
title insurance policy, or for examination of matters subject to Mortgagee's
approval under the Loan Documents, all costs of suit, if any, and all reasonable
attorneys' fees shall forthwith become due and payable and shall be secured
hereby. If Mortgagee shall institute legal proceedings to foreclose this
Mortgage or enter judgment on the Note, Mortgagor shall pay all expenses,
including attorneys' fees as herein provided and court costs, of Mortgagee in
connection with all such proceedings, whether or not otherwise legally
chargeable to Mortgagor, together with interest at [the higher of the judgment
rate or] the Default Rate (as defined in the Note) until actual payment is made
of the full amount due Mortgagee, and all such sums shall be secured hereby.
9. Events of Default. Each of the following shall
constitute an event of default ("Event of Default") hereunder:
(a) The occurrence of any Event of Default under and
as defined in the Loan Agreement, Note or any other Loan Document.
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(b) The failure of Mortgagor to perform any term,
covenant or agreement in this Mortgage.
(c) Any representation or warranty of Mortgagor
hereunder shall have been untrue or incorrect in any material respect.
(d) Mortgagor's delivery to Mortgagee of a notice
under 42 Pa.C.S.A. ss.8143(c) or if any third party provides notice to Mortgagee
under 42 Pa.C.S.A. ss.8143(b) and the effect of such notice is to materially
impair Mortgagee's interest in the Mortgaged Premises or the Collateral.
10. Remedies.
(a) Acceleration. Upon the occurrence of any Event of
Default, the Indebtedness shall become immediately due and payable, at the
option of Mortgagee, without further notice or demand.
(b) Remedies. When the entire indebtedness evidenced
by the Note shall become due and payable, either because of maturity or because
of the occurrence of any Event of Default, or otherwise, then Mortgagee may
exercise the following remedies as well as any and all other remedies available
at law:
(i) Mortgagee may institute any one or more
actions of mortgage foreclosure against all of any part of the Mortgaged
Premises or the Collateral, or take such other action at law or in equity for
the enforcement of this Mortgage and realization on the security herein or
elsewhere provided for, as the law may allow, and may proceed therein to final
judgment and execution for the entire unpaid balance of the principal debt, with
interest at the Interest Rate defined in the Note to the date of default, and
thereafter at the Default Rate, together with all other sums due by Mortgagor in
accordance with the provisions of the Note and this Mortgage, including all sums
which may have been loaned by Mortgagee to Mortgagor after the date of this
Mortgage, and all sums which may have been advanced by Mortgagee for taxes,
water or sewer rents, charges or claims, payments on prior liens, insurance,
utilities or repairs to the Mortgaged Premises, all costs of suit, together with
interest at the Default Rate defined in the Note on any judgment obtained by
Mortgagee from and after the date of any Sheriff or other judicial sale until
actual payment is made of the full amount due Mortgagee, and reasonable
attorneys' fees and expenses; and
(ii) Mortgagee may enter into possession of
the Mortgaged Premises and the Collateral, with or without legal action, and by
force if necessary; collect therefrom all rentals (which term shall also include
sums payable for use and occupation under all Residential Living Agreements)
and, after deducting all costs of collection and administration expense, apply
the net rentals to any one or more of the following items in such manner and in
such order of priority as
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Mortgagee, in Mortgagee's sole discretion, may elect: the payment of any sums
due under any prior lien, taxes, water and sewer rents, charges and claims,
insurance premiums and all other carrying charges, and to the maintenance,
repair or restoration of the Mortgaged Premises, and on account and in reduction
of the principal and interest, or both, hereby secured; in and for that purpose
Mortgagor hereby assigns to Mortgagee all rentals due and to become due under
any lease or leases or rights to use and occupation of the Mortgaged Premises
hereafter created, as well as all rights and remedies provided in such lease or
leases or at law or in equity for the collection of the rentals.
(c) Right to Recover. Mortgagee shall have the right,
from time to time, to bring an appropriate action to recover any sums required
to be paid by Mortgagor under the terms of this Mortgage, as they become due,
without regard to whether or not the Indebtedness shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of mortgage
foreclosure, or any other action, for any default by Mortgagor existing at the
time the earlier action was commenced.
(d) Sale. Any real estate sold pursuant to any writ
of execution issued on a judgment obtained by virtue of the Note or this
Mortgage, or pursuant to any other judicial proceedings under the Mortgage, may
be sold in one parcel, as an entirety, or in such parcels, and in such manner or
order as Mortgagee, in its sole discretion, may elect.
(e) Appointment of Receiver. Mortgagee shall have the
absolute and unconditional right to have a receiver appointed for the Mortgaged
Premises and the Collateral. Such appointment may be made either before or after
sale, without notice, without the need to establish waste or the absence of any
Mortgagor equity in the Mortgaged Premises and without regard to the solvency or
insolvency of Mortgagor at the time of application for such receiver and without
regard to the then value of the Mortgaged Premises or the Collateral or whether
the Mortgaged Premises shall be then occupied as a homestead or not and
Mortgagee hereunder or any agent of Mortgagee may be appointed as such receiver.
Mortgagor hereby approves of and consents to the appointment of any such
receiver upon any Event of Default. Such receiver shall have the power to
perform all of the acts permitted Mortgagee pursuant to Paragraph 10(b) above
and such other powers which may be necessary or are customarily in such cases
for the protection, possession, control, management and operation of the
Mortgaged Premises during such period.
(f) Application of Collections. All sums collected by
Mortgagee under this Mortgage or under the Note on account of principal or
interest or other amounts owing hereunder including, without limitation, costs
of collection and attorneys' fees and expenses, may be applied in such order and
manner as Mortgagee, in its sole discretion, may elect.
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(g) INTEREST. INTEREST AT A RATE EQUAL TO THE DEFAULT
RATE SHALL BE DUE ON ANY JUDGMENT OBTAINED BY MORTGAGEE FROM THE DATE OF SUCH
JUDGMENT UNTIL ACTUAL PAYMENT IS MADE OF THE FULL AMOUNT OF THE JUDGMENT BY THE
SHERIFF OR OTHERWISE. THE OBLIGATIONS OF THE MORTGAGOR AND THE RIGHTS AND
REMEDIES OF THE MORTGAGEE HEREUNDER SHALL CONTINUE AFTER AND SURVIVE THE ENTRY
OF JUDGMENT THEREUNDER OR UNDER THE OBLIGATION THIS MORTGAGE SECURES, IT BEING
THE INTENTION OF THE PARTIES HERETO THAT SUCH RIGHTS, REMEDIES AND OBLIGATIONS
SHALL NOT MERGE INTO OR BE EXTINGUISHED BY ANY SUCH JUDGMENT BUT WILL CONTINUE
UNTIL ALL SUMS SECURED HEREBY SHALL HAVE BEEN IRREVOCABLY AND INDEFEASIBLY PAID
IN FULL.
11. Rights and Remedies Cumulative.
(a) The rights and remedies of Mortgagee as provided
in this Mortgage, in the Note and in any other Loan Document shall be cumulative
and concurrent and are in addition to any other remedies Mortgagee may have at
law or in equity; may be pursued separately, successively or together against
Mortgagor or against the Mortgaged Premises or the Collateral, or any of them,
at the sole discretion of Mortgagee, and may be exercised as often as occasion
therefor shall arise. The failure to exercise any such right or remedy shall in
no event be construed as a waiver or release thereof.
(b) Neither Mortgagor nor any other person now or
hereafter obligated for payment of all or any part of the sums now or hereafter
secured by this Mortgage shall be relieved of such obligation by reason of the
failure of Mortgagee to comply with any request of Mortgagor or of any other
person so obligated to take action to foreclose on this Mortgage or otherwise
enforce any provisions of the Mortgage or the Note, by reason of the release,
regardless of consideration, of all or any part of the security held for the
indebtedness secured by this Mortgage, or by reason of any agreement or
stipulation between any subsequent owner of the Mortgaged Premises or the
Collateral and Mortgagee extending the time of payment or modifying the terms of
the Mortgage or Note without first having obtained the consent of Mortgagor or
such other person; and in the latter event Mortgagor and all such other persons
shall continue to be liable to make payments according to the terms of any such
extension or modification agreement, unless expressly released and discharged in
writing by Mortgagee.
(c) Mortgagee may release, regardless of
consideration, any part of the security held for the indebtedness secured by
this Mortgage without, as to the remainder of the security, in any way impairing
or affecting the lien of this Mortgage or its priority over any subordinate
lien.
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(d) For payment of the Indebtedness, Mortgagee may
resort to any security held by Mortgagee in such order and manner as Mortgagee
may elect. Mortgagor specifically waives the right to require ordering or
marshaling of assets in connection with the realization by Mortgagee of the
security hereunder.
(e) The receipt by Mortgagee of any sums from
Mortgagor after the date on which Mortgagee elects to accelerate the
indebtedness secured hereby by reason of a default hereunder, under the Note or
any other Loan Document shall not constitute a cure or waiver of such default or
a reinstatement of the Note or Mortgage or such other Loan Document, unless
Mortgagee expressly agrees, by written notice to Mortgagor, that such payment
shall be accepted as a cure or waiver of the default.
12. Possession of Mortgaged Premises by Mortgagee. If
Mortgagee shall take possession of the Mortgaged Premises as provided herein,
Mortgagee may do all or any of the following (provided that nothing herein
contained shall obligate Mortgagee to do any of the same): (a) hold, manage,
operate, lease and sublease the Mortgaged Premises, to Mortgagor or any other
person or persons, on such terms and for such periods of time as Mortgagee may
deem proper, and the provisions of any lease or sublease made by Mortgagee
pursuant hereto shall be valid and binding upon Mortgagor notwithstanding the
fact that Mortgagee's right of possession may terminate or this Mortgage may be
satisfied of record prior to the expiration of the term of any such lease; (b)
make such alterations, additions, improvements, renovations, repairs and
replacements to the Mortgaged Premises as Mortgagee may deem proper; (c)
demolish any part or all of the buildings, structures or other improvements on
the Real Estate which in the judgment of Mortgagee may be in unsafe condition
and dangerous to life or property; (d) remodel such buildings or other
Improvements so as to make them available in whole or in part for any business,
dwelling, multiple dwelling or other purposes; and (e) collect the rents, issues
and profits arising from the Mortgaged Premises, both past due and thereafter
becoming due, and apply the same, in order of priority as Mortgagee may
determine, to the payment of all charges and commissions incidental to the
collection of rents and the management of the Mortgaged Premises and all other
sums or charges required to be paid by Mortgagor hereunder or under the Note.
All moneys advanced by Mortgagee for the purposes aforesaid and not repaid out
of the rents collected shall be added to the principal indebtedness hereby
secured and without demand shall be repaid by Mortgagor to Mortgagee, together
with interest thereon at the Default Rate set forth in the Note. The taking of
possession and collection of rents by Mortgagee as aforesaid shall not be
construed to be an affirmation of any lease, or any part thereof, and Mortgagee
or any other purchaser at any foreclosure sale may (if otherwise entitled so to
do) exercise the right to terminate any lease as though such taking of
possession and collection of rents had not occurred.
13. Waivers. The granting of an extension or extensions of
time by Mortgagee with respect to the performance of any provision of this
Mortgage or the Loan Documents on the part of Mortgagor to be performed, or the
taking of any additional security, or the waiver by Mortgagee or failure by
Mortgagee to enforce any provision of this Mortgage or the
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Loan Documents, or to declare a default with respect thereto, shall not operate
as a waiver of any subsequent default or defaults or affect the right of
Mortgagee thereafter, to insist upon strict performance by Mortgagor of the
terms hereof or to exercise all rights, powers or remedies set forth herein and
therein.
14. Condemnation.
(a) Mortgagee shall be entitled to receive all sums
which have been or may be awarded Mortgagor for the taking or condemnation of
the Mortgaged Premises or any part thereof for any public or quasi-public use or
purpose, and any sums which may be awarded Mortgagor for damages caused by
public works or construction on or near the Mortgaged Premises. All such
proceeds and awards are hereby assigned to Mortgagee, and Mortgagor, upon
request by Mortgagee, agrees to make, execute and deliver any additional
assignments or documents which may be necessary from time to time to enable
Mortgagee, at its option, to collect and receive the same. Mortgagee shall have
the right to retain and apply all such proceeds and awards, at its election, to
reduction of the indebtedness secured hereby or to require Mortgagor to apply
such proceeds and awards to the repair and restoration of the Mortgaged Premises
in the same manner as set forth in Paragraph 1(e)(viii) hereof with respect to
insurance proceeds. No settlement of any such award shall be made by Mortgagor
without Mortgagee's prior written consent.
(b) Notwithstanding anything contained in the
foregoing to the contrary, (i) provided no Event of Default then exists and (ii)
Mortgagee in its reasonable judgment is satisfied that there are sufficient net
proceeds to complete restoration of the building(s) and improvements on the Real
Estate to substantially the same value, condition and character as existed prior
to such condemnation within the term of the Note (or, in the event of a
deficiency, Mortgagor deposits an amount equal to any such deficiency),
Mortgagee shall allow the condemnation proceeds to be used for restoration of
the Mortgaged Premises, such proceeds to be disbursed from time to time as
restoration progresses in accordance with the terms and conditions of the Loan
Agreement applicable to the disbursement of loan proceeds.
(c) If the amount of the initial award of damages for
the taking or condemnation is insufficient to pay in full the indebtedness
secured hereby with interest and other appropriate charges and other sums
secured hereby, Mortgagee shall have the right to prosecute to final
determination or settlement an appeal or other appropriate proceedings in the
name of Mortgagee or Mortgagor, for which Mortgagee is hereby appointed
attorney-in-fact for Mortgagor, which appointment, being for security, is
coupled with an interest and is irrevocable. In that event, the expenses of the
proceeding, including attorneys' fees as aforesaid,
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shall be paid first out of the proceeds, and only the excess, if any, paid to
Mortgagee shall be credited against the amounts due under the Note and this
Mortgage.
(d) Nothing herein shall limit the rights otherwise
available to Mortgagee, at law or in equity, including the right to intervene as
a party to any condemnation proceeding; and Mortgagee is hereby expressly given
the right to intervene as a party to, and otherwise participate in, any such
proceeding, to engage counsel on its behalf, and to add the reasonable
attorneys' fees of any such counsel to the amounts secured hereby.
15. Security Agreement.
(a) This Mortgage constitutes a security agreement
under the UCC, and Mortgagor hereby grants to Mortgagee a security interest in
and lien on all of the Collateral under the UCC and under any other applicable
law. Mortgagor shall execute, deliver, file and refile any financing statements,
continuation statements, or other security agreements Mortgagee may require from
time to time to confirm the lien of this Mortgage with respect to such property.
Without limiting the generality of the foregoing, Mortgagor hereby irrevocably
appoints Mortgagee attorney-in-fact for Mortgagor to execute, deliver and file
such financing statements, continuation statements and other documents necessary
to carry out the provisions hereof, to carry out the purposes hereof or to
confirm the priority of the lien created hereby, for and on behalf of Mortgagor,
which appointment, being for security, is coupled with an interest and is
irrevocable. The security agreement contained in this Mortgage shall survive any
discharge of this Mortgage for so long as any Indebtedness remains unpaid under
the Note or any other Loan Document.
(b) In addition to any other remedies granted in this
Mortgage, Mortgagee may, upon the occurrence of an Event of Default, proceed
under the UCC and any other applicable law as to all or any part of the
Collateral and shall have and may exercise, with respect to the Collateral, all
rights, remedies and powers of secured party under the UCC and any other
applicable law, including, without limitation, the right and power to sell at
public or private sale or sales, or otherwise dispose of, lease or utilize the
Collateral or any parts thereof in any manner authorized or permitted under the
UCC and any other applicable law after default by debtor, and to apply the
proceeds thereof in payment of any costs and expenses and attorney's fees and
legal expenses thereby incurred by the Mortgagee, and to the payment of
indebtedness secured by this Mortgage in such order and manner as the Mortgagee
may elect.
(c) Upon the occurrence of an Event of Default,
Mortgagee may take possession of the Collateral and enter upon any premises
where the same may be situated for such purpose without being guilty of
trespassing and without liability for damages thereby, and take any action
deemed necessary or appropriate or
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desirable by Mortgagee, at its option, to repair, refurbish or otherwise prepare
the Collateral for sale, lease or other use or disposition as herein authorized.
(d) To the extent permitted by law, Mortgagor
expressly waives any notice of sale or other disposition of the Collateral and
any other rights or remedies of a debtor or formalities prescribed by law
relative to a sale or disposition of the Collateral or exercise of any other
right or remedy of Mortgagee existing after default of Mortgagor hereunder; and
to the extent any such notice is required and cannot be waived, Mortgagor agrees
that if such notice is mailed, postage prepaid, to Mortgagor at its address
shown above, at least ten (10) days before the time of sale or disposition, such
notice shall be deemed reasonable and shall fully satisfy any statutory or other
requirement for the giving of such notice. Upon the occurrence of an Event of
Default, Mortgagee shall have the right, at its option, to transfer at any time
to itself or its nominee, the Collateral or any part thereof, and to receive the
monies, income, proceeds or benefits attributable or accruing thereto and to
hold the same as security for the Indebtedness or to apply it to principal or
interest and other amounts owing on any of the Indebtedness in such order and
manner as Mortgagee may elect. All rights to marshaling of assets of Mortgagor,
including any such right with respect to the Collateral, are hereby waived.
(e) Mortgagee may require Mortgagor to assemble the
Collateral and make it available to Mortgagee at a place to be designated by
Mortgagee that is reasonably convenient to both parties. All expenses of
retaking, holding, preparing for sale, lease or other use, and of disposition,
selling, leasing or otherwise using or disposing of the Collateral and the like
which are incurred or paid by Mortgagee as authorized or permitted hereunder,
including all attorneys' fees, legal expenses and costs shall be added to the
indebtedness secured by this Mortgage and Mortgagor shall be liable therefor.
16. Further Assurances. Mortgagor shall execute and deliver
such further instruments and perform such further acts as may be reasonably
requested by Mortgagee from time to time to confirm the provisions of this
Mortgage, the Loan Agreement or the Note, to carry out more effectively the
purposes of this Mortgage or the Loan Documents, or to confirm the priority of
the lien created by this Mortgage on any property, rights or interests
encumbered or intended to be encumbered by the lien of this Mortgage or the
other documents securing the Note.
17. No Offset. All sums payable by Mortgagor herein shall be
paid without notice, demand, counterclaim, setoff, deduction or defense, without
abatement, suspension, deferment, diminution, or reduction, and the obligation
and liabilities of Mortgagor hereunder shall in no way be released, discharged
or otherwise affected (except as expressly provided herein) by reason of (a) any
damage to or destruction of or any condemnation or similar taking of the
Mortgaged Premises or any part thereof; (b) any restriction or prevention of or
interference with any use of the Mortgaged Premises or any part thereof; (c) any
title defect or encumbrance or
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any eviction from the Mortgaged Premises or any part thereof by title, paramount
or otherwise; (d) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
Mortgagee, or any action taken with respect to this Mortgage by any trustee or
receiver of Mortgagee or by any court in any such proceeding; (e) any claim
which Mortgagor has or might have against Mortgagee; (f) any default or failure
on the part of Mortgagee to conform or comply with any of the terms hereof or
any other document or agreement entered into with Mortgagor; or (g) any other
occurrences whatsoever, whether or not Mortgagor shall have notice or knowledge
of any of the foregoing. Mortgagor waives all rights now and hereafter conferred
by statute or otherwise to any abatement, suspension, deferment, diminution or
reduction of any sum secured hereby and payable by Mortgagor.
18. Miscellaneous Provisions.
(a) Mortgagee as Party to Litigation. If Mortgagee shall
become a party, as plaintiff or defendant, to any suit or legal proceeding
brought by or against any third party affecting the lien hereby created on the
Mortgaged Premises or in any way involving Mortgagee on account of its position
as Mortgagee under this Mortgage, as payee under the Note or the Loan Agreement
or as assignee under the Assignment of Leases or any other assignment or Loan
Document, Mortgagor shall indemnify, defend, and hold harmless Mortgagee from
and against all claims, losses or liabilities by reason of such litigation,
including reasonable attorney's fees and expenses incurred by Mortgagee in any
such litigation, whether or not any such litigation is prosecuted to judgment.
Mortgagor agrees to pay to Mortgagee on demand its costs, expenses and
attorneys' fees as aforesaid in any such suit or proceeding.
(b) Stamps or Taxes on Mortgage or Notes. Mortgagor agrees to
pay the cost of any revenue, tax or other stamps now or hereafter required by
law at any time to be affixed to this Mortgage or the Note or the Loan
Agreement, or any tax directly or indirectly on Mortgagee with respect to the
Mortgaged Premises, the Collateral the value of Mortgagor's equity therein, or
the indebtedness evidenced by the Note or secured by this Mortgage, but
excluding any tax on the income of Mortgagee.
(c) Construction of Terms. The word "Mortgagor" whenever used
herein is intended to and shall be construed to include its successors and
assigns permitted hereunder and the word "Mortgagee" whenever used herein is
intended to and shall be construed to include its successors and assigns.
(d) Binding Obligation. All covenants, agreements,
authorizations, waivers, releases, rights, representations and warranties
contained in this Mortgage made or given by or on behalf of Mortgagor shall be
binding upon Mortgagor's successors in title or interest and Mortgagor's heirs,
executors, administrators,
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successors and assigns, whether so expressed or not, and all covenants,
agreements, authorizations, waivers, releases, rights, representations and
warranties contained herein shall inure to the benefit of Mortgagee and its
successors and assigns.
(e) Communications.
(i) All notices and other communications required or
permitted by this Mortgage shall be given in accordance with Section 8.7 of the
Loan Agreement.
(ii) Mortgagee shall not be required to give notice
under more than one Loan Document with respect to the same occurrence or
omission and any communication given by Mortgagee hereunder or under any of the
other Loan Documents with respect to such occurrence or omission shall be deemed
to be a notice under all of the Loan Documents. From and after the effective
date of such notice, the time periods for cure or other action by Mortgagor
shall run concurrently as to all Loan Documents.
(f) Covenant Running with the Land. Any act or agreement to be
done or performed by Mortgagor shall be construed as a covenant running with the
land and shall be binding upon Mortgagor and its heirs, executors, successors
and assigns as if they personally made such agreement.
(g) Captions. The captions preceding the text of the
paragraphs or subparagraphs of this Mortgage are inserted for convenience of
reference only and shall not constitute a part of this Mortgage, nor shall they
in any way affect its meaning, construction or effect.
(h) Severability. If any provision of this Mortgage or the
application thereof is held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions hereof shall not be affected thereby,
and each provision of this Mortgage shall be valid and enforceable to the
fullest extent permitted by law.
(i) Governing Law. This Mortgage shall be governed by and
construed in accordance with the law of the Commonwealth of Pennsylvania (but
not including the choice of law provisions thereof).
(j) Modifications. Neither this Mortgage nor the Note, the
Loan Agreement, or any of the Loan Documents may be supplemented, extended or
otherwise modified except by agreement in writing between Mortgagee and
Mortgagor.
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(k) JURISDICTION; TRIAL BY JURY. MORTGAGOR HEREBY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE ______________ AND THE COURTS
OF THE UNITED STATES DISTRICT COURT LOCATED IN ________________________________,
IN ANY AND ALL ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND
IRREVOCABLY AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO ITS ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS MORTGAGOR
MAY DIRECT BY NOTICE TO MORTGAGEE. MORTGAGOR IRREVOCABLY AS AN INDEPENDENT
COVENANT WAIVES A JURY TRIAL AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING
BETWEEN MORTGAGOR AND MORTGAGEE, WHETHER HEREUNDER OR OTHERWISE.
(l) Joint and Several Liability. If Mortgagor consists of more
than one person, all agreements, conditions, covenants, provisions,
stipulations, warrants of attorney, authorizations, waivers, releases, options,
undertakings, rights and benefits made or given by Mortgagor shall be joint and
several, and shall bind and affect all persons who are defined as "Mortgagor" as
fully as though all of them were specifically named herein wherever the word
"Mortgagor" is used.
(m) Future Advances. This Mortgage is given to secure and
hereby secures, among other things, all future advances and obligations of
Mortgagor to Mortgagee incurred or to be incurred pursuant to the terms of the
Loan Agreement, the Note and this Mortgage, including, but not limited to, all
advances made with respect to the Mortgaged Premises and the Collateral for the
payment of taxes, assessments, maintenance charges, insurance premiums or costs
incurred for the protection of the Mortgaged Premises or Collateral or the lien
of this Mortgage, expenses incurred by Mortgagee by reason of a default by
Mortgagor under this Mortgage or any other Loan Document. This Mortgage secures
all advances authorized under _________________.
19. Environmental Matters.
(a) The Mortgagor represents, covenants and warrants that:
(i) the Mortgaged Premises, and the
operations being conducted thereon have been and will be operated in compliance
with all applicable environmental Legal Requirements and all permits, licenses
and approvals required thereunder have been obtained and complied with in all
material respects;
(ii) no Hazardous Substances have been or
are being emitted, released, spilled, discharged, leaked, dumped or disposed
(each, a "Release") or pose a threat of Release at, upon, under, within, or from
the Mortgaged Premises;
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(iii) there are no aboveground or
underground storage tanks, radon, asbestos materials, PCBs or urea formaldehyde
insulation at, upon, under or within the Mortgaged Premises;
(iv) the Mortgaged Premises has never been
used for the treatment, storage, recycling, or disposal of Hazardous Substances;
(v) no Hazardous Substances are present at
the Mortgaged Premises excepting small quantities of petroleum and chemical
products, in proper storage containers, as are necessary for the construction or
operation of the business of Mortgagor, and the usual waste products therefrom
stored and handled in full compliance with environmental Legal Requirements
("Permitted Substances"). Other than Permitted Substances, Mortgagor will not
place or permit to be placed any Hazardous Substances on the Mortgaged Premises;
(vi) there is no basis for the imposition of
any lien based on any governmental environmental action at the site, and no such
lien has been imposed and none is threatened;
(vii) its grantor was not required to and
did not place a notice in the deed to the Mortgaged Premises related to presence
of Hazardous Substances at the Mortgaged Premises as required by 35 P.S. Section
6018.405 or otherwise;
(viii) neither the Mortgagor nor, to the
best of its knowledge after diligent inquiry, any other person or entity has
been, is or will be involved in operations upon the Mortgaged Premises which
could lead to the imposition of environmental liability on Mortgagor, or on any
other subsequent or former owner of the Mortgaged Premises or the creation of an
environmental lien on the Mortgaged Premises; and
(ix) Mortgagor has not permitted, and will
not permit, any resident, occupant or other user of the Mortgaged Premises to
engage in any activity with respect to the use, manufacturing, generation,
treatment, processing, storage, recycling or disposal of any Hazardous
Substances that could impose environmental liability on such resident, occupant
or user, on the Mortgagor or on any owner or operator of any of the Mortgaged
Premises.
(b) In the event the Mortgagor obtains, gives or
receives notice of any Release or threat of Release of any Hazardous Substances
at the Mortgaged Premises (any such event being hereinafter referred to as a
"Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Mortgaged Premises, demand letter
or complaint, order, citation, or other notice with regard to any Hazardous
Discharge or any other environmental matter affecting the
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Mortgaged Premises or Mortgagor's interest therein (an "Environmental
Complaint") from any person or entity, including any federal, state or local
government authority, then the Mortgagor shall, within five (5) business days,
forward a copy of same to Mortgagee and give written notice of same to the
Mortgagee detailing facts and circumstances giving rise to the Hazardous
Discharge or Environmental Complaint. Such information is to be provided to
allow Mortgagee to protect its security interest in the Mortgaged Premises.
(c) Promptly upon the written request of the
Mortgagee, which written request may be made by the Mortgagee only with the
reasonable belief that there has been an actual or alleged violation of
environmental Legal Requirements or a Hazardous Discharge at the Mortgaged
Premises, or in the event of notice to Mortgagee of a Hazardous Discharge or
presence of Hazardous Substances at the Mortgaged Premises or an environmental
condition forming the basis of the Environmental Complaint, or there has been an
Event of Default, the Mortgagor at its sole expense shall provide Mortgagee with
an environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of the
Mortgagee, assessing with a reasonable degree of certainty the existence of a
Hazardous Discharge, presence of Hazardous Substances or such other
environmental condition and an estimate of the potential cost in connection with
investigation, removal, remedial action or other response action with respect to
any Hazardous Substance found on, under, at or within the Mortgaged Premises or
the potential cost to cure or fully respond to such environmental condition.
(d) If the estimate described in subparagraph (c)
above, individually or in the aggregate, exceeds $5,000, Mortgagee shall have
the option of declaring such occurrence an Event of Default hereunder or
requiring Mortgagor to post a bond in favor of Mortgagee in an amount equal to
125% of such estimate, issued by an institutional surety satisfactory to
Mortgagee. In the event the Mortgagee requires such a bond, it shall be posted
within thirty (30) days of Mortgagee's request and Mortgagor shall diligently
and in good faith commence and thereafter continually pursue the appropriate
investigation, removal, remedial action or other response or action to
Mortgagee's satisfaction.
(e) If the Environmental Complaint or Hazardous
Discharge is the subject of any governmental inquiry, investigation or audit,
failure by Mortgagor to comply with any requirement imposed as a result of such
governmental action shall be an Event of Default hereunder.
(f) Mortgagor shall defend and indemnify the
Mortgagee and hold Mortgagee harmless from and against all losses, liabilities,
damages and expenses (including, without limitation, reasonable attorneys' fees
and expenses), claims, costs, fines and penalties suffered or incurred by the
Mortgagee, whether as holder of this Mortgage, as a mortgagee in possession, or
as successor-in-interest to
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the Mortgagor by foreclosure deed or deed in lieu of foreclosure, under or on
account of (i) any environmental Legal Requirement, including the assertion of
any lien thereunder, with respect to any violation or non-compliance with
environmental Legal Requirements, an Environmental Complaint or Hazardous
Discharge, (ii) the presence or release of any Hazardous Substance affecting the
Mortgaged Premises whether or not the same originates or emanates from the
Mortgaged Premises or any contiguous real estate, including any loss of value of
the Mortgaged Premises as a result of the foregoing so long as no such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting directly from actions on the part of Mortgagee or (iii) the breach of
any of the foregoing environmental representations, warranties or covenants.
With respect to Hazardous Discharges, Mortgagor's obligations under this
Paragraph 19 shall arise upon the discovery of the presence of any Hazardous
Substance at the Mortgaged Premises, whether or not any federal, state, or local
environmental agency has taken or threatened any action in connection with the
presence of any Hazardous Substance, and shall survive the termination of this
Mortgage. Mortgagor further waives and releases Mortgagee in its capacity as a
secured creditor and/or lender from any claims, liabilities, losses, damages,
costs, rights, claims for contribution or defenses Mortgagor may have under
common law or environmental Legal Requirements whether known or unknown, fixed
or contingent, now in existence or which arise in the future arising from,
relating to or resulting from the presence or Release of Hazardous Substances,
except to the extent caused by the gross negligence or willful misconduct of
Mortgagee.
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IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be
duly executed and delivered on the date first above written.
MORTGAGOR:
Witness: ______________________________
__________________________ By:___________________________
Name: Name:
Title:
[CORPORATE SEAL]
I hereby certify that the address
of the within-Mortgagee is:
Attention:
- ---------------------------------
On behalf of the within Mortgagee
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__________________________:
: ss.
COUNTY OF_________________:
On this _______ day of ________________, 1998, before me, a
Notary Public in and for the ___________________ aforesaid, the undersigned
officer, personally appeared ___________________, who acknowledged himself to be
the __________________________ of ____________, a ___________, and that he, as
such ________________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such _______________.
IN WITNESS WHEREOF, I hereunto set my hand and notarial seal.
__________________________
[Notarial Seal] Notary Public
My Commission Expires:
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EXHIBIT A
Legal Description of Mortgaged Premises
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FORM OF TERM LOAN ASSIGNMENT OF RENTS AND LEASES
ASSIGNMENT OF RENTS AND LEASES
THIS ASSIGNMENT OF RENTS AND LEASES (this "Assignment") is
made as of this ______ day of _________________1998, by _______________________,
a ___________________________ corporation with offices at _____________________
("Borrower") to ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership with offices at 415 McFarlan Road, Suite 202, Kennett Square,
Pennsylvania 19348 (together with its successors and assigns, "Lender").
BACKGROUND
A. Lender has agreed to advance up to ________________________
Dollars ($[_______________]) to Borrower (the "Loan"), pursuant to a Term Loan
Agreement, dated as of the date hereof, between Borrower and Lender (the "Loan
Agreement"), the terms and conditions of which are incorporated herein by this
reference, for the purpose of financing the construction, erection and
completion of certain improvements at or about the Property (as hereinafter
defined) in order to convert the Property into a senior assisted living facility
(the "Project"). The Loan is evidenced by a Secured Note of Borrower (the
"Note") and secured by certain collateral documents described in the Loan
Agreement, all dated as of the date hereof, including, without limitation, a
Mortgage and Security Agreement (the "Mortgage") from Borrower in favor of
Lender encumbering certain real property situate in the Township of
_________________, State of ____________________, as described more fully in
Exhibit A attached hereto and made a part hereof (the "Property") and a Guaranty
by ______________________________ ("_________________"), an affiliate of
Borrower, in favor of Lender (the "Guaranty"). The Mortgage will be
simultaneously recorded in __________________________________. The Loan
Agreement, the Note, the Mortgage, the Guaranty and other collateral documents
described in or accompanying the Loan Agreement, as the same may be modified,
amended, supplemented or assigned from time to time, are hereinafter sometimes
collectively referred to as the "Loan Documents". The Project and Property are
hereinafter referred to collectively as the "Premises". Capitalized terms not
otherwise defined herein shall have the same meanings as set forth in the Loan
Agreement.
B. As a condition of making the Loan to Borrower, Lender has
required Borrower to execute and deliver this Assignment.
<PAGE>
TERMS AND CONDITIONS
1. Assignment. In consideration of the Loan and Lender's
undertakings pursuant to the Loan Agreement and in order to secure the payment
of all sums due Lender pursuant to the Note, the Mortgage and the Loan
Agreement, and the timely performance of all of the terms, covenants,
representations, warranties and conditions contained in the Loan Documents,
Borrower hereby absolutely, presently and unconditionally conveys, transfers and
assigns to Lender, its successors and assigns, all of Borrower's rights, title,
interest and privileges in and to the following:
1.1. All Residential Living Agreements (as defined
in the Loan Agreement) and leases now or hereafter in existence with respect to
the Premises or any part thereof (all such Residential Living Agreements and
leases are collectively referred to herein as the "Leases"); and
1.2. All rents, income, profits, revenues, proceeds,
deposits, accounts, rights and benefits due or to become due under the Leases
(the "Rents"), it being the intention of the Borrower that this Assignment
constitute a present, absolute assignment of the Leases and the Rents and not a
collateral assignment for additional security only.
This Assignment presently gives Lender the right to collect
the Rents and apply the Rents in payment of the Note. Borrower intends that the
Leases and Rents be absolutely assigned and that they no longer be, during the
term of this Assignment, property of Borrower or property of the estate of
Borrower, as defined in 11 U.S.C. ss.541. If any law exists requiring Lender to
take actual possession of the Premises (or some action equivalent to taking
possession of the Premises, such as securing the appointment of a receiver) in
order for Lender to "perfect" or "activate" the rights and remedies of Lender as
provided in this Agreement, Borrower waives the benefit of such law. Subject to
the terms of this Assignment and the Loan Agreement, Lender grants to Borrower a
license, revocable, as hereinafter provided, to collect and use the Rents
subject to the requirements of this Assignment and the Loan Agreement. Upon the
occurrence of any Event of Default (as defined below), the license granted to
Borrower herein shall, at Lender's election, be revoked by Lender, and Lender
shall immediately be entitled to possession of all Rents collected thereafter
(including Rents past due and unpaid) whether or not Lender enters upon or takes
control of the Premises. Upon such a revocation of the license granted herein,
Lender shall promptly provide Borrower with written notice of same. Any Rents
collected by Borrower from and after the date on which an Event of Default
occurred shall be held by Borrower in trust for Lender. Lender is hereby granted
and assigned by Borrower the right, at its option, upon revocation of the
license granted herein, to enter upon the Premises in person, by agent or by
court appointed receiver and to take any and all action necessary to collect the
Rents.
<PAGE>
2. Performance by Borrower.
2.1. Notwithstanding this Assignment, Borrower shall
remain liable for any obligations undertaken by it pursuant to any Lease. Lender
may elect, in its sole discretion, to assume any and all such obligations of
Borrower under any Lease by written notice to the resident under such Lease with
a copy to Borrower; provided, however, that Borrower shall remain liable for
such obligations notwithstanding such election by Lender.
2.2. Notwithstanding any legal presumption to the
contrary, Lender shall not be obligated by reason of acceptance of this
Assignment to perform any obligation of Borrower under the Leases. This
Assignment shall not place responsibility for the control, care, management,
upkeep, operation or repair of all or any part of the Premises upon Lender, or
make Lender liable or responsible for any negligence in the control, care,
management, upkeep, operation or repair of all or any part of the Premises
resulting in loss or injury or death to any tenant, resident, licensee, employee
or other person or loss of or damage to the property of any of the foregoing.
2.3. Borrower hereby agrees to defend, indemnify and
hold harmless Lender from any and all claims, liability, loss or damage, costs
and expenses (including reasonable attorneys' fees) arising from any claims by
any tenant, resident or licensee under any Lease or any employee or other person
in connection with the Lease, except for actions arising solely by reason of
Lender's negligence or willful misconduct.
2.4. Borrower agrees that it will faithfully
observe, discharge and perform all of the obligations and agreements imposed
upon Borrower under the Leases. Borrower shall not do any of the following
without the prior written consent of Lender, which consent shall not be
unreasonably withheld: (a) consent to any material modification, alteration,
cancellation, extension or assignment of any of the Leases; (b) reduce, waive or
defer payment of the Rent under any of the Leases to any material extent; (c)
collect or accept payment of any of the Rents arising or accruing under any
Lease more than one (1) month in advance of the time when the same shall become
due under the terms of such Lease; or (d) waive or release any resident or
tenant from any material obligation or condition under any of the Leases.
3. Warranties. Borrower represents and warrants a
follows:
3.1. Borrower has title to and full right to assign
the Leases and the Rents thereunder; and no other assignment other than that
granted hereby to Lender of any interest in any of the Leases has been made.
<PAGE>
3.2. All Leases executed on or before the date
hereof are in full force and effect.
3.3. There is no existing default by Borrower or, to
Borrower's knowledge, any resident under the provisions of any of the Leases. No
event has occurred which due to the passage of time, the giving or failure to
give notice, or both, would constitute a default under any of the Leases.
4. Events of Default. The occurrence of any Event of Default
under and as defined in the Loan Agreement, the Note and/or the Mortgage shall
constitute an event of default (an "Event of Default") hereunder.
5. Remedies. Upon the occurrence of an Event of Default,
Lender shall be entitled to exercise any one or more of the following rights,
powers and remedies:
5.1. Enter and take possession of the Premises and
collect, in its own name or in the name of Borrower, the Rents accrued but
unpaid and in arrears as of the date of such Event of Default, as well as the
Rents which thereafter become due and payable. Borrower hereby authorizes and
directs the residents and tenants under the Leases, upon receipt of written
notice from Lender, to pay to Lender any and all Rents due thereunder without
the necessity of any inquiry to Borrower and notwithstanding any claim by
Borrower to the contrary. Borrower further agrees that it shall facilitate in
all reasonable ways Lender's collection of the Rents and will, upon the request
of Lender, execute and deliver a written notice to each resident under the
Leases directing such resident to pay the Rents to Lender. Borrower shall have
no right or claim against any parties to any Lease who make payment to Lender
after receipt of written notice from Lender requesting same.
5.2. Take over and assume the management, operation
and maintenance of the Premises and perform in its own name or in the name of
Borrower, all acts necessary and proper, and expend such sums out of the income
of the Premises as may be necessary in connection therewith, including the right
to enter into new Leases, to cancel existing Leases, to alter or amend the terms
of existing Leases, to renew existing Leases or to make concessions to the
parties thereto.
5.3. Endorse as Borrower's attorney-in-fact,
Borrower's name on all checks, drafts and similar forms of payment received in
payment of the Rents and Borrower hereby appoints Lender its attorney-in-fact
for such purposes and to otherwise enforce the purposes of this Assignment. The
aforesaid power of attorney shall be deemed coupled with an interest and shall
be irrevocable.
5.4. After payment of all proper charges and
expenses, including reasonable compensation to such managing agent as Lender may
select or employ, and after the accumulation of a reserve to meet taxes,
assessments, water rents, fire and liability insurance in requisite amounts,
Lender shall credit the net proceeds received by it from the Premises by virtue
of this Assignment to any amounts due and owing to Lender by Borrower under the
terms of the Loan Documents, provided that the manner of application of such
proceeds and the items to be credited shall be determined in the sole discretion
of Lender. Lender shall not be accountable for more monies than it actually
receives from the Premises, nor shall it be liable for failure to collect any
such proceeds.
<PAGE>
6. Notice to Tenants. Borrower hereby authorizes Lender to
give written notice of this Assignment at any time to each resident or tenant
under the Leases.
7. No Waiver.
7.1. The acceptance of this Assignment and the
collection of Rents under the Leases assigned hereby shall not constitute a
waiver of any rights of Lender under the terms of the Loan Documents. All rights
and remedies of Lender hereunder and under the Mortgage are cumulative and
concurrent and may be exercised singly, successively or concurrently, at the
sole discretion of Lender.
7.2. The receipt by Lender of any Rents pursuant to
this Assignment after the institution of foreclosure or sale proceedings under
the Mortgage shall not cure such default or affect such proceedings or any sale
pursuant thereto.
8. List of Leases. Borrower shall, upon the request of Lender,
furnish a complete list, as of the date of such request, of all Leases and
providing such further reasonable detail as may be requested by Lender. Further,
as requested by Lender, Borrower shall deliver to Lender executed or certified
copies of all Leases, and all correspondence and memoranda relating thereto.
Such requests may be made at any reasonable time. Monthly requests, or more
frequent requests if made after an Event of Default under this Assignment shall
be deemed to be reasonable.
9. Further Assignments. Borrower shall, upon request of
Lender, promptly execute, acknowledge and deliver specific separate assignments
of any future Leases.
10. Termination of Assignment. This Assignment shall terminate
upon the repayment in full of the Note and the full performance of the
obligations under the Loan Documents.
11. Construction. When the content so requires, the singular
shall include the plural and conversely and use of any gender shall include all
genders.
<PAGE>
12. Notices. All notices and other communications required
under this Assignment shall be made in accordance with the Section 8.7 of the
Loan Agreement.
13. JURISDICTION. BORROWER HEREBY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF ____________________ AND THE COURTS
OF THE UNITED STATES LOCATED IN THE STATE OF ___________________ IN ANY AND ALL
ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS
ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS BORROWER MAY DIRECT BY NOTICE
TO LENDER. BORROWER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL
AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND LENDER,
WHETHER HEREUNDER OR OTHERWISE.
14. Headings. The headings preceding the text of the
paragraphs of this Assignment are inserted only for convenience of reference and
shall not constitute a part of this Assignment, nor shall they in any way affect
its meaning, construction or effect.
15. Governing Law. This Assignment shall be governed by the
law of the State of _____________________ (but not including the choice of law
provisions thereof).
16. Binding Obligation. This Assignment shall be binding upon
Borrower and its successors and assigns and this Assignment shall inure to the
benefit of Lender and its successors and assigns, including any assignee of the
Loan Documents or participant in the Loan.
17. Modification. This Assignment may not be modified except
by a written agreement executed by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be
duly executed as of the day and year first above mentioned.
BORROWER:
___________________________________
WITNESS:
____________________________ By:________________________________
Name: Name:
Title:
[CORPORATE SEAL]
<PAGE>
STATE OF___________________________ :
: ss.
COUNTY OF__________________________ :
On this _______________ day of ____________, 1998, before me,
a Notary Public in and for the __________________________________ aforesaid, the
undersigned officer, personally appeared _________________, who acknowledged
himself to be the _______________________ of ______________________________, a
_________________________ corporation, and that he, as such ______________ being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of such corporation by himself as such
___________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
[Notarial Seal] ________________________
Notary Public
My Commission Expires:
<PAGE>
Exhibit A
Description of the Property
<PAGE>
FORM OF TERM LOAN COLLATERAL ASSIGNMENT
OF AGREEMENTS AFFECTING REAL ESTATE
COLLATERAL ASSIGNMENT OF
AGREEMENTS AFFECTING REAL ESTATE
--------------------------------
THIS COLLATERAL ASSIGNMENT OF AGREEMENTS AFFECTING REAL ESTATE
(the "Assignment") is made as of this _____ day of _____________, 1998, by
_______________________________, a __________________________ corporation with
offices at _______________________________ ("Borrower") to ELDERTRUST OPERATING
LIMITED PARTNERSHIP, a Delaware limited partnership, with offices at 415
McFarlan Road, Suite 202, Kennett Square, PA 19348 (together with its successors
and assigns, "Lender").
BACKGROUND
----------
A. Lender has agreed to advance up to
________________________________ Dollars ($[_____________]) to Borrower (the
"Loan") pursuant to a Term Loan Agreement, dated as of the date hereof, between
Borrower and Lender (the "Loan Agreement"), the terms and conditions of which
are incorporated herein by this reference, for the purpose of financing the
construction, erection and completion of certain improvements at and about the
Property (as hereinafter defined) in order to convert the Property into a senior
assisted living facility (the "Project"). The Loan is evidenced by a Secured
Note of Borrower (the "Note") and other collateral documents described in the
Loan Agreement, all of even date herewith, including, without limitation, a
Mortgage and Security Agreement (the "Mortgage") from Borrower in favor of
Lender encumbering certain real property situate in the Township of
______________, State of __________ as described more fully in Exhibit A
attached hereto and made a part hereof (the "Property") and a Guaranty Agreement
by _______________________________ ("_________"), an affiliate of Borrower, in
favor of Lender (the "Guaranty"). The Mortgage will be simultaneously recorded
in _________________. The Loan Agreement, the Note, the Mortgage, the Guaranty,
and the other collateral documents described in or accompanying the Loan
Agreement, as the same may be modified, amended, supplemented or assigned from
time to time, are hereinafter sometimes collectively referred to as the "Loan
Documents." The Project and Property are hereinafter referred to collectively as
the "Premises". Capitalized terms not otherwise defined herein shall have the
same meanings as set forth in the Loan Agreement.
B. As a condition of making the Loan to Borrower, Lender has
required Borrower to execute and deliver this Assignment.
<PAGE>
TERMS AND CONDITIONS
--------------------
In consideration of the Loan, and intending to be legally
bound, Borrower and Lender hereby agree:
I. Definition of Additional Collateral. The items which shall
be the subject of this Assignment and which are sometimes collectively referred
to herein as "Additional Collateral" are as follows:
1.1. All licenses, permits, approvals, certificates
and agreements with or from all boards, agencies, departments, governmental or
otherwise, relating, directly or indirectly, to the construction, ownership,
use, operation and maintenance of the Premises, whether heretofore or hereafter
issued or executed, together with all renewals, extensions and amendments
thereto and thereof (collectively, the "Licenses"; said boards, agencies,
departments, governmental or otherwise being hereinafter collectively referred
to as "Governmental Authorities").
1.2. All contracts related to the Project, including
contracts, subcontracts, agreements, service and supply agreements, management
contracts and purchase orders which have heretofore been or will hereafter be
executed by or on behalf of Borrower, or which have been or will hereafter be
assigned to Borrower, in connection with the construction, use, operation and
maintenance of the Premises (collectively, and as the same may be amended,
modified or supplemented from time to time, the "Contracts"; the parties with
whom or to whom such Contracts have been, are or may hereafter be given are
hereinafter collectively referred to as the "Contractors").
1.3. All warranties, guarantees, and other rights of
Borrower, direct and indirect, against manufacturers, dealers, suppliers,
Contractors and others in connection with the work done or to be done and the
materials supplied or to be supplied for the Project (together, the
"Warranties").
2. Assignment. Borrower hereby assigns, transfers and sets
over unto Lender all of Borrower's right, title and interest in and to the
Additional Collateral and all rights and benefits therefrom, as security for the
full, timely and faithful repayment by Borrower of the Loan and performance of
all of the obligations under the Loan Documents, to the fullest extent permitted
by law and by the terms of the Additional Collateral.
3. Prior to Default; Notice of Default. Until the occurrence
of an Event of Default under any of the Loan Documents, Borrower may retain, use
and enjoy the benefits of the Additional Collateral. Upon the occurrence of any
Event of Default under any of the Loan Documents, Lender may enforce this
Assignment upon notice to Borrower. The affidavit or written statement of an
officer, agent or attorney of Lender stating that there has been an Event of
Default shall constitute conclusive evidence thereof, and any of the
Governmental Authorities and Contractors or any other person is authorized and
directed to rely thereon.
-2-
<PAGE>
4. Remedies.
4.1. Upon the occurrence of any Event of Default,
Lender may elect to exercise any and all of Borrower's rights and remedies to,
upon and under the Additional Collateral, without any interference or objection
from Borrower, and Borrower shall cooperate in causing the Contractors to comply
with all the terms and conditions of the Contracts.
4.2. Upon the occurrence of any Event of Default
under any Loan Document, if and to the extent permitted by law and the terms of
the Additional Collateral, Lender may, with or without entry upon the Premises,
at its option, exercise any one or more of the following rights, powers and
remedies: (a) take over and enjoy the benefits of the Licenses, Contracts and
the other Additional Collateral and exercise Borrower's rights under the
Additional Collateral, and perform all acts in the same manner and to the same
extent as Borrower is entitled; (b) enter and take possession of the Premises;
and (c) take over and assume the management, operation and maintenance of the
Premises and perform in its own name or in the name of Borrower all acts
necessary and proper in connection therewith. Borrower hereby appoints Lender
its attorney-in-fact to enforce such remedies and to otherwise enforce the
purposes of this Assignment. The aforesaid power of attorney shall be deemed
coupled with an interest and shall be irrevocable. In connection with any and
all of the foregoing powers, and without limiting the same, Lender may effect
new Contracts, Licenses and Warranties, cancel or surrender existing Contracts,
Licenses and Warranties, alter and amend the terms of and renew existing
Contracts and Licenses, and make concessions to Governmental Authorities and
Contractors and warrantors. Borrower hereby releases any and all claims which it
has or might have against Lender arising out of any such action by Lender.
5. Faithful Performance. Borrower agrees faithfully to observe
and perform all of the obligations and agreements imposed upon Borrower under
the Licenses, Contracts and Warranties. From and after the date hereof, no
Contract or License may be altered, amended or canceled.
6. No Assumption by Lender. Lender will not be deemed in any
manner to have assumed any liabilities or obligations relating to any of the
Additional Collateral, nor shall Lender be liable to Governmental Authorities or
Contractors by reason of any default by any party under the Licenses or
Contracts. Borrower agrees to indemnify and to hold Lender harmless of and from
any and all liability, loss or damage which it may or might incur by reason of
any claims or demands against it based on its alleged assumption of Borrower's
duty and obligation to perform and discharge the terms, covenants and agreements
of said Licenses, Contracts and Warranties.
7. Liberal Construction; Advances by Lender. All of the
foregoing powers herein granted to Lender shall be liberally construed. Any
amounts expended by Lender in the exercise of its rights hereunder, together
with any reasonable attorneys' fees incurred in connection herewith, shall be
considered advances for and on behalf of Borrower, secured by this Assignment
and also evidenced and secured by the other Loan Documents. Any amounts so
advanced shall
-3-
<PAGE>
bear interest at the Default Rate set forth in the Note from the respective
dates of any such advances to the date of repayment in full.
8. Copies Furnished. Borrower shall, upon request of Lender,
furnish Lender with a complete list of all Contracts, Licenses and Warranties.
Further, if requested, Borrower shall deliver to Lender executed or certified
copies of all Contracts, Licenses, Warranties and other written agreements,
correspondence and memoranda between Borrower (and its predecessors in title)
and any of Borrower's contract parties and Governmental Authorities setting
forth the contractual and other arrangements between them. Such requests may be
made at any reasonable time. Monthly requests, or more frequent requests if made
after the occurrence of an Event of Default, shall be deemed reasonable.
9. No Waiver, Mortgagee in Possession or Joint Venture.
Nothing herein contained shall be construed as making Lender a mortgagee in
possession, or as constituting a waiver or suspension by Lender of its right to
enforce payment of the debts under the terms of the Loan Documents. Lender is
not the agent, partner or joint venturer of either the Borrower or of any of
Borrower's contract parties or Governmental Authorities.
10. Lender's Option to Enforce. This Assignment may be
enforced from time to time by Lender in its discretion, with or without order of
any court, and with or without appointment of a receiver, as Lender shall
determine. Lender may also, at any time, cease to enforce this Assignment. Any
failure on the part of Lender promptly to exercise any option hereby given or
reserved shall not prevent the exercise of any such option at any time
thereafter. Lender may pursue and enforce any remedy or remedies accorded it
herein independently of, in conjunction or concurrently with, or subsequent to
its pursuit and enforcement of any remedy or remedies which it may have under
any of the Loan Documents under law or at equity.
11. Warranties and Representations. Borrower warrants and
represents that:
11.1. It has the right, power and authority to
execute and deliver this Assignment.
11.2. All third party consents and approvals
necessary to effectuate this Agreement, if any, have been obtained and are in
full force and effect.
11.3. It has made no prior assignment of the
Additional Collateral.
11.4. All Additional Collateral which exists on the
date hereof is in full force and effect on the date hereof, subject to no
appeal, claims, litigation, defaults, defenses, setoffs or counterclaims
whatsoever. All fees required for the full effectiveness of each existing
License have been paid in full.
11.5. There exists no event, condition or occurrence
which constitutes, or which with notice or the passage of time would constitute,
a breach of or default under any term
-4-
<PAGE>
or condition of any of the Additional Collateral. Borrower hereby covenants and
agrees not to do any act which would destroy or impair the security to the
Lender of this Assignment.
12. Termination of Assignment. This Assignment shall terminate
upon the repayment in full of the Note and the full performance of the
obligations under the Loan Documents.
13. Construction. When the content so requires, the singular
shall include the plural and conversely, and use of any gender shall include all
genders.
14. Notices. All notices and other communications under this
Assignment shall be made in accordance with Section 8.7 of the Loan Agreement.
15. JURISDICTION. BORROWER HEREBY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF _______________ AND THE COURTS OF THE
UNITED STATES LOCATED IN THE STATE OF __________________ IN ANY AND ALL ACTIONS
OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY AGREES TO
SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS
SET FORTH HEREIN OR SUCH OTHER ADDRESS AS BORROWER MAY DIRECT BY NOTICE TO
LENDER. BORROWER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL AND
THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND LENDER,
WHETHER HEREUNDER OR OTHERWISE.
16. Headings. The headings preceding the text of the
paragraphs of this Assignment are inserted only for convenience of reference and
shall not constitute a part of this Assignment, nor shall they in any way affect
its meaning, construction or effect.
17. Miscellaneous. This Assignment (a) shall be governed by
and construed according to the law of the State of ____________________ (but not
including the choice of law provisions thereof), (b) shall be binding upon
Borrower, its successors and assigns, including any subsequent owner of the
Premises, and shall inure to the benefit of Lender, its successors and assigns,
including any assignee of or participant in the Loan, and (c) may not be amended
except by a written agreement executed by the parties hereto.
-5-
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be
duly executed as of the day and year first above mentioned.
_______________________________
WITNESS:
_________________________ By:____________________________
Name: Name:
Title:
[CORPORATE SEAL]
-6-
<PAGE>
STATE OF ______________________ :
: ss.
COUNTY OF______________________ :
On this _______________ day of ____________, 1998, before me,
a Notary Public in and for the ________________________________ aforesaid, the
undersigned officer, personally appeared _________________, who acknowledged
himself to be the ____________________ of ______________________________, a
__________________ corporation, and that he, as such ______________ being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of such corporation by himself as such
___________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
[Notarial Seal] __________________________
Notary Public
My Commission Expires:
<PAGE>
Exhibit A
FORM OF TERM LOAN GUARANTY AGREEMENT
GUARANTY
THIS GUARANTY (this "Guaranty") is executed and delivered on
this day of , 1998 by ______________________, a ___________ corporation
("Guarantor") with an address at ______________________________, in favor of
ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership
(together with its successors and assigns, "Lender") with an address at 415
McFarlan Road, Suite 202, Kennett Square, Pennsylvania 19348, to secure certain
obligations of , a __________ corporation ("Borrower"), with an address at
_________________________________________________________________.
BACKGROUND
A. Borrower and Lender have entered into that certain Term
Loan Agreement, dated as of the date hereof (as the same may be modified,
renewed, extended, amended, supplemented and/or assigned from time to time, the
"Loan Agreement"), relating to the conversion of an existing building into a
____ unit senior assisted living facility (the "Project") on certain real estate
located in __________ Township, __________. Capitalized terms used herein
without definition shall have the meanings ascribed to such terms as in the Loan
Agreement.
B. In connection with the Loan Agreement, Borrower has
executed and delivered a Secured Note (as modified, renewed, extended, amended,
supplemented and/or assigned from time to time, the "Note"), dated as of the
date hereof, payable to the order of the Lender in the face amount of
$[_____________], a Mortgage and Security Agreement as security for the
obligations secured by the Note (as modified, renewed, extended, amended and/or
assigned from time to time, the "Mortgage"), and certain other collateral
documents identified in the Loan Agreement, all dated as of the date hereof. The
Loan Agreement, Note, Mortgage and the other collateral documents identified in
the Loan Agreement, as the same is modified, renewed, extended, amended,
supplemented and/or assigned from time to time, are sometimes collectively
referred to herein as the "Loan Documents", and individually as a "Loan
Document". The principal balance of the Note, together with all interest thereon
and all other sums payable thereunder or under the Loan Documents or secured by
the Loan Documents, is hereinafter collectively referred to as the
"Indebtedness".
C. Guarantor is an affiliate of Borrower.
D. In order to induce Lender to enter into the Loan Agreement,
Guarantor has agreed to execute and deliver this Guaranty in favor of Lender.
<PAGE>
AGREEMENTS
In consideration of the recitals above, and for other good and
valuable consideration, and intending to be legally bound hereby, Guarantor
hereby agrees:
1. Obligations. The following guarantees and obligations
(together, the "Obligations") are undertaken by Guarantor:
(a) Guarantor hereby unconditionally and absolutely
guarantees and becomes surety to Lender for the prompt payment when due of the
Indebtedness. The obligations of Guarantor constitute a guarantee of payment and
not merely of collection, are absolute and unconditional under all circumstances
and shall not in any event be discharged, impaired, or otherwise affected except
by payment in full to Lender. Guarantor agrees that it will, within three (3)
business days after written notice from Lender that any Event of Default has
occurred under the Loan Agreement, the Note or under any other Loan Document,
pay in full directly to Lender the then existing amount of the Indebtedness.
Guarantor further agrees that any payment required hereunder will be made to
Lender regardless of whether such sums have become due by reason of the maturity
of the Note or acceleration of the Indebtedness or whether such liability
becomes barred by any statute of limitations or otherwise becomes unenforceable.
The proceeds of any amounts paid pursuant to this Guaranty will be applied first
to the payment of accrued interest, if any, on the Note, then to any other sums
payable in connection with the Note or secured by the Loan Documents, and the
balance of the proceeds will be applied to reduce the then outstanding principal
amount of the Note, whether then matured or not, in the inverse order of its
maturity.
(b) Guarantor hereby unconditionally and absolutely
guarantees and hereby agrees to be guarantor of (i) the full and timely
performance of all of Borrower's obligations under the Loan Documents. Guarantor
hereby unconditionally and absolutely guarantees that there shall be no
mechanics' liens, claims or other liens or charges filed against the Project or,
if they are so filed, Guarantor shall cause such liens to be timely removed or
satisfied of record within ten (10) days after notice thereof to Guarantor. If
Borrower defaults with respect to any matter herein guaranteed, then, within
five (5) days after written notice from Lender, Guarantor will immediately
assume all responsibility for all obligations of Borrower under the Loan
Agreement and the other Loan Documents or take such other action as Lender may
request to remedy such default, or both. If Guarantor does not fully assume such
responsibility and obligations within such five (5) day period to Lender's
satisfaction, then Lender may elect, without further notice to Guarantor, to
take any action it believes necessary to protect its interests under the Loan
Documents, but with the further right to suspend or terminate such actions at
any time. No such actions by Lender shall release or limit the liability of
Guarantor and Guarantor agrees to repay Lender all sums expended by it in
undertaking.
<PAGE>
(c) Lender shall have the right to require Guarantor
to pay, comply with and satisfy its obligations and liabilities under this
Guaranty and shall have the right to proceed immediately against Guarantor with
respect thereto, without being required to bring any proceeding or take any
action of any kind against Borrower or any other guarantor or any other person,
entity or property (including, without limitation, the Project) prior thereto,
the liability of Guarantor hereunder being, in any event, independent of and
separate from the liability of Borrower, any other guarantors and persons and
the availability of other collateral security for the Note and the Loan
Documents.
(d) This Guaranty shall be deemed to be a continuing
guaranty of Indebtedness from Lender to Borrower and of all expenses incurred by
Lender in connection therewith.
2. Cancellation. This Guaranty and all of the Obligations will
be canceled when the Indebtedness has been irrevocably and indefeasibly paid in
full; provided, however, that this Guaranty shall remain in full force and
effect for so long as such payment may be voided in bankruptcy or other
insolvency proceedings as a preference, or for any other reason or generally set
aside as a result of any action or proceedings by creditors. If this Guaranty is
canceled pursuant to this Paragraph 2 or otherwise by Lender, Lender will,
within forty-five (45) business days thereafter, mark the original hereof
"Canceled" and return it to Borrower.
3. Events of Default; Costs and Fees; Indemnification.
Guarantor hereby agrees that if it does not satisfy the Obligations set forth in
Section 1 hereof in accordance with the terms thereof, the same shall be an
Event of Default hereunder. Lender shall have the right, in addition to the
other rights described in this Guaranty, to collect from Guarantor all costs,
fees and expenses (including reasonable attorneys' fees) incurred by Lender in
connection with the enforcement of this Guaranty against such Guarantor, as well
as interest on the unpaid Obligations at the Default Rate set forth in the Note,
from and after the date of such Event of Default through the date of payment. In
the event of any default hereunder, Guarantor shall indemnify and defend the
Lender against, and hold Lender harmless from, all liability, damage, cost and
expense, including, without limitation, costs of suit and attorneys' fees, which
Lender may incur by reason of such default by Guarantor.
4. Additional Remedies. Lender shall have and may exercise, in
addition to any and all rights or remedies provided herein or by law, the
specific rights and remedies, exercisable by Lender in its discretion, to sue
for and obtain specific performance of Guarantor's covenants set forth herein,
all of which costs shall be borne by Guarantor. Lender may, at its option,
proceed to enforce this Guaranty against Guarantor without first proceeding
against Borrower or any other person and without first resorting to any security
held by Lender as security or to any other remedies, and the liability of
Guarantor hereunder shall be in no manner affected or impaired by any failure,
delay, neglect, omission or election by Lender not to realize upon or pursue any
persons liable or security for the Indebtedness or the other obligations of
Borrower under the Loan Agreement or the other Loan Documents.
<PAGE>
5. Bankruptcy of Borrower or Guarantor. The Obligations shall
not be discharged, impaired or otherwise affected by the insolvency, bankruptcy,
liquidation, readjustment, composition, dissolution or other similar proceeding
involving or affecting Borrower or Guarantor, proceedings affecting the
ownership of either of the above through merger, consolidation or otherwise,
inconsistent orders in or claims by parties to any such proceedings or other
release of obligations by operation of law.
6. Covenants. Guarantor hereby covenants and agrees that:
(a) The Obligations shall not be released or
otherwise affected by (and hereby waives notice of) any agreement, amendment,
release, suspension, compromise, forbearance, indulgence, waiver, extension,
renewal, supplement or modification or assignment of any of the Loan Documents,
or of any obligations of Borrower to Lender;
(b) Lender may, without affecting the liability of
Guarantor under this Guaranty, (i) exchange, release or surrender any property
pledged by or on behalf of Borrower or any other guarantor of any liabilities of
Borrower to Lender, (ii) renew or change, with the consent of Borrower, the
terms of any of Borrower's liabilities to Lender, or (iii) waive any of Lender's
rights or remedies against Borrower or any other guarantor of any obligations of
Borrower, all without obtaining consent thereto from Guarantor;
(c) The Obligations shall not be reduced or affected
either by any payment made by or on behalf of any other party to the Loan
Documents or by failure of any such party to make payment;
(d) The Obligations shall be in addition to that
stated in any other guaranty of parties other than the undersigned or any other
guaranty that has been or may be hereafter given by the undersigned and shall
not be reduced or affected by any payment made under any such guaranty;
(e) Any failure or delay by Lender to exercise any
right under this Guaranty or under any other guaranty or with respect to any of
the Loan Documents or otherwise with respect to the Indebtedness shall not be
construed as a waiver of the right to exercise the same or any other right
hereunder at any time and from time to time thereafter;
(f) The Obligations shall not be affected by any of
Borrower's liabilities to Lender in excess of the amounts guaranteed hereunder,
and any payment received by Lender from Borrower may first be credited against
any such excess liability;
<PAGE>
(g) Lender shall not, under any circumstances, be
required to exhaust remedies or proceed against Borrower, other sureties,
parties, or any other security for the Indebtedness before proceeding under this
Guaranty against the undersigned;
(h) Until all of the Obligations are indefeasibly
paid in full, under no circumstances shall Guarantor become subrogated to the
claims or liens of Lender against Borrower or any other guarantor and that all
amounts due to Lender shall have priority in right of payment over any amounts,
whether or not related to the Loan Documents or the Project, payable now or
hereafter from Borrower to Guarantor;
(i) The Obligations shall not be affected by any
provision in the Loan Documents limiting Lender's rights against Borrower to the
Project or any other Collateral, or limiting Lender's rights to a deficiency
judgment against Borrower;
(j) To the extent Guarantor controls (whether
directly or indirectly) Borrower, it will neither knowingly take or cause to be
taken any action, or permit any inaction, which will violate or cause a default
or Event of Default under any of the Loan Documents;
(k) Notice or demand hereunder by Lender shall be by
hand delivery or registered or certified mail, postage prepaid, addressed to
Guarantor at its address set forth on the first page hereof, and shall be deemed
given when hand delivered, or if mailed, upon deposit of such notice in the
United States mail;
(l) No single exercise of the power to bring any
action or institute any proceeding shall be deemed to exhaust such power, but
such power shall continue undiminished and may be exercised from time to time as
often as Lender may elect until all of Guarantor's liabilities and obligations
hereunder have been satisfied; and
(m) Without the prior written consent of Lender,
which consent shall not be unreasonably withheld, Guarantor's liability under
this Guaranty shall in no way be released or otherwise affected by any
assignment by Borrower of its rights or obligations under any Loan Document, or
by the commencement, existence or completion of any proceeding against Borrower,
or any other person or entity or otherwise with respect to the collection of the
Indebtedness; and Lender shall be under no obligation to take any action and
shall not be liable for any action taken or any failure to take action or any
delay in taking action against Guarantor, Borrower or any other person or entity
or otherwise with respect to the Indebtedness.
<PAGE>
7. Representations and Warranties. Guarantor hereby represents
and warrants to Lender as of the date hereof and at all times when this Guaranty
shall remain in effect:
(a) Guarantor is a __________ duly formed, validly
existing and in good standing under the laws of its jurisdiction of formation.
Guarantor has the power and authority to own its own property and assets and to
transact the business in which it is engaged;
(b) Guarantor has the power and authority to execute,
deliver and perform the terms and provisions of this Guaranty and Guarantor has
taken all necessary action to authorize the execution, delivery and performance
of this Guaranty. This Guaranty constitutes the authorized, valid and legal
binding obligation of Guarantor enforceable in accordance with its terms;
(c) There are no actions, suits or proceedings
pending, or to the knowledge of Guarantor, threatened, against or affecting
Guarantor before any court or before any governmental or administrative body or
agency which, if determined adversely to Guarantor, individually or in the
aggregate, would have a material adverse effect on Guarantor's business or
properties;
(d) Guarantor is not in default under the provisions
of any agreement to which it is a party and Guarantor is not in violation of any
applicable provision of law or any applicable regulation of any governmental
department, commission, board, bureau, agency or instrumentality, the violation
of which would have a material adverse effect on Guarantor's business or
properties or the Project. Neither the execution and delivery of this Guaranty
nor the consummation of the transactions herein contemplated, nor compliance
with the terms and provisions hereof, (i) will violate any applicable provision
of law or any applicable regulation, or any order, writ, injunction or decree of
any court or governmental department, commission, board, bureau, agency or
instrumentality or (ii) will conflict or will be inconsistent with, or will
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation of imposition of
(or the obligation to impose) any lien, charge or encumbrance upon any of the
property or assets of Guarantor pursuant to the terms of any indenture,
franchise, license, permit, mortgage, deed of trust, agreement or other
instrument to which Guarantor is a party or by which Guarantor may be bound, or
to which Guarantor may be subject, except as would not have a material adverse
effect;
(e) Guarantor has filed all tax returns required by
law to be filed by it and has paid all taxes, assessments and other governmental
charges levied upon it and any of it respective properties, assets, income or
franchises which are due and payable, other than those presently payable without
penalty or interest;
<PAGE>
(f) Guarantor is in compliance with all applicable
provisions of ERISA;
(g) With respect to any financial statements
delivered by Guarantor to Lender after the date of this Guaranty, all such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period specified and present fairly in all material respects the financial
position of Guarantor as of the date specified and the results of operations and
statements of cash flow for the period specified;
(h) Neither this Guaranty nor any other document
delivered to Lender by or on behalf of Guarantor in connection with the
transactions contemplated by the Loan Documents contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained in this Guaranty and in such other documents, certificates
or instruments not misleading. There is no fact (other than matter of a general
economic or political nature which do not uniquely affect Guarantor) which
materially adversely affects or in the future may (so far as such Guarantor can
foresee) materially adversely affect the business, condition (financial or
otherwise), operations, properties or prospects of Guarantor which has not been
set forth in this Guaranty; and
(i) The Indebtedness is and will be of direct
benefit, interest and advantage to Guarantor.
8. Waivers.
(a) Guarantor waives (i) any notice of Lender's
intention to act in reliance of this Guaranty, (ii) diligence, presentment,
demand, protest or notice of dishonor, extension of time of payment, nonpayment
or other default with respect to the Indebtedness, and indulgences and notices
of every kind and (iii) the commencement or prosecution of any enforcement
proceeding against Borrower or any other person or entity with respect to the
Indebtedness or otherwise. Guarantor hereby consents to any and all forbearances
and extensions of time of payment of the Note, and to any and all changes in
terms, covenants, and conditions thereof or of the other Loan Documents; it
being the intention hereof that Guarantor shall remain liable as a principal
until the Indebtedness shall have been fully paid and until the terms,
covenants, and conditions of the Note and of the other Loan Documents shall have
been performed and observed by Borrower, notwithstanding any act, omission, or
thing which might otherwise operate as a legal or equitable discharge of
Guarantor.
(b) Guarantor agrees that the Obligations shall not
be impaired, modified, changed, released, or limited in any manner whatsoever by
any impairment, modification, change, release, or limitation of the liability of
Borrower or its estate in bankruptcy, resulting from the operation of any
present or future provision of the bankruptcy laws or other similar statute, or
from the decision of any court.
<PAGE>
(c) Guarantor irrevocably waives all claims of
waiver, release, surrender, alteration or compromise and all defenses, set-offs,
counterclaims, recoupments, reductions, limitations or impairments.
(d) Guarantor waives the right to marshaling of
Borrower's assets, any stay of execution and the benefit of all exemption laws,
to the extent permitted by law, or any other protection granted by law to
guarantors, now or hereafter in effect with respect to any action or proceeding
brought by Lender against Guarantor.
9. Miscellaneous. The invalidity or unenforceability of any
one or more provisions of this Guaranty shall not affect any other provision.
This Guaranty will be governed by the law of the State of __________ (but not
including the choice of law provisions thereof) and may be amended only by a
written instrument executed by Guarantor and Lender. This Guaranty is
irrevocable. The provisions of this Guaranty will bind and inure to the benefit
of the respective successors and assigns of Guarantor and Lender. Whenever the
context requires, all terms used in the singular will be construed in the plural
and vice versa, and each gender will include the other gender.
10. Assignment. This Guaranty and the obligations of Guarantor
hereunder shall not be assigned in any respect without the prior written consent
of Lender, which consent shall not be unreasonably withheld. Lender shall have
the absolute right, without Guarantor's consent or approval, to assign in whole
or in part this Guaranty and/or the other Loan Documents to any third
party(ies).
11. JURISDICTION; TRIAL BY JURY. GUARANTOR HEREBY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF __________ AND THE
COURTS OF THE UNITED STATES LOCATED IN THE STATE OF __________, IN ANY AND ALL
ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS
ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS GUARANTOR MAY DIRECT BY NOTICE
TO MORTGAGEE. GUARANTOR IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY
TRIAL AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN GUARANTOR AND
LENDER, WHETHER HEREUNDER OR OTHERWISE.
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed and delivered this
Guaranty as of the day and year first written above.
GUARANTOR:
--------------------------------------
Witness: By:
------------------------------ ----------------------------------
Name: Name:
Title: Title:
[Corporate Seal]
<PAGE>
FORM OF CONSTRUCTION LOAN AGREEMENT
CONSTRUCTION LOAN AGREEMENT
BETWEEN
_____________________________, AS BORROWER
AND
ELDERTRUST OPERATING LIMITED PARTNERSHIP, AS LENDER
_________, 1998
--------------------------------- ,
_________________ County, ______________________
$------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1.
DEFINITIONS....................................................................................1
1.2. Agreement...................................................................................1
1.3. Architect...................................................................................1
1.4. Architect's Agreement.......................................................................1
1.5. Architect's Certificate.....................................................................1
1.6. Assignments.................................................................................1
1.7. Borrower's Equity Contribution..............................................................2
1.8. Building Permit.............................................................................2
1.9. Closing Date................................................................................2
1.10. Collateral.................................................................................2
1.11. Completion Date............................................................................2
1.12. Completion of Construction.................................................................2
1.13. Construction Contract......................................................................3
1.14. Construction Loan Budget...................................................................3
1.15 Contingency Reserve........................................................................4
1.16. Contractor.................................................................................4
1.17. Deficiency.................................................................................4
1.18. Direct Construction Costs..................................................................4
1.19. Event of Default...........................................................................4
1.20. Governmental Authority.....................................................................4
1.21. Guaranty...................................................................................4
1.22. Guarantor..................................................................................4
1.23. Improvements...............................................................................4
1.24. Initial Advance............................................................................5
1.25. Inspecting Architect/Engineer..............................................................5
1.26. Interest Reserve...........................................................................5
1.27. Interior Designer..........................................................................5
1.28. Land .....................................................................................5
1.29. Legal Requirements.........................................................................5
1.30. Loan ......................................................................................5
1.31. Loan Documents.............................................................................6
1.32. Maturity Date..............................................................................6
1.33. Mortgage...................................................................................6
1.34. Note...................................................................................... 6
1.35. Occupancy Stabilization....................................................................6
1.36. Off-Site Improvements......................................................................6
1.37. Operating Reserve..........................................................................6
1.38. Other Project Costs........................................................................7
1.39. Permitted Exceptions.......................................................................7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1.40. Plans and Specifications...................................................................7
1.41. Project....................................................................................7
1.42. Request for Advance........................................................................7
1.43. Residential Living Agreement...............................................................7
1.44. Retainage..................................................................................7
1.45. Schedule of Other Project Costs............................................................7
1.46. Title Insurer..............................................................................8
1.47. Trade Breakdown Schedule...................................................................8
2. BACKGROUND LOAN...................................................................................8
2.1. Background..................................................................................8
2.2. Loan........................................................................................8
2.3. Interest and Repayment......................................................................8
3. ADVANCE OF LOAN...................................................................................8
3.1. Loan Advances...............................................................................8
3.1.1. Loan Advances for Direct Construction Costs and Other Project
Costs...........................................................................9
3.1.2. No Third-Party Benefit; No Liability; Lender's Waiver...............................12
3.1.3. Frequency of Advances...............................................................12
3.2. Conditions Precedent to First Advance......................................................12
3.2.1. Loan Documents......................................................................12
3.2.2. Other Documents.....................................................................13
3.2.3. Borrower's Equity Contribution......................................................17
3.2.4. Section 3.1.........................................................................17
3.2.5. Representations and Warranties......................................................17
3.2.6. Performance and Compliance..........................................................17
3.2.7. Excavation Work.....................................................................17
3.2.8. Composition of First Advance........................................................17
3.3. Conditions Precedent to Subsequent Advances................................................17
3.3.1. Prior Conditions Satisfied..........................................................18
3.3.2. Construction; Retainage.............................................................18
3.3.3. Damage or Injury....................................................................18
3.3.4. No Default..........................................................................18
3.3.5. Statements of Payment...............................................................18
3.3.6. Additional Surveys..................................................................19
3.4. Conditions Precedent to Final Advance of Direct Construction Costs.........................19
3.4.1. Prior Conditions Satisfied..........................................................19
3.4.2. Certificate of Occupancy............................................................19
3.4.3. Certificates from Architect and Inspecting Architect/Engineer.......................19
3.4.4. Release of Liens....................................................................20
3.4.5. Financial Information...............................................................20
3.4.6. As-Built Survey.....................................................................20
3.5. Lender Advances Without Request............................................................20
3.6. Prohibited Actions.........................................................................20
3.7. Draws in Respect of Contingency Reserve....................................................20
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4. REPRESENTATIONS AND
WARRANTIES..................................................................................................21
4.1. Corporate Status.........................................................................................21
4.2. Power and Authority......................................................................................21
4.3. Litigation and Labor Disputes............................................................................21
4.4. No Violation of Agreements or Laws.......................................................................21
4.5. Consent..................................................................................................22
4.6. Names and Locations......................................................................................22
4.7. Tax Returns and Payments.................................................................................22
4.8. Compliance with ERISA....................................................................................22
4.9. Financial Statements.....................................................................................22
4.10.Disclosure...............................................................................................23
4.11. Permits and Approvals...................................................................................23
4.12. Compliance; Zoning......................................................................................23
4.13. Title...................................................................................................23
4.14. Plans and Specifications................................................................................24
4.15. Utilities...............................................................................................24
4.16. Roads...................................................................................................24
4.17. Insurance...............................................................................................25
4.18. No Default..............................................................................................25
4.19. Condemnation............................................................................................25
4.20. Construction............................................................................................25
4.21. Residential Living Agreement............................................................................25
4.22. Environmental Concerns..................................................................................25
4.23. Governmental Authorities................................................................................25
5. COVENANTS OF
BORROWER...................................................................................................26
5.1. Affirmative Covenants...................................................................................26
5.1.1 Existence........................................................................................26
5.1.2. Required Notices.................................................................................26
5.1.3. Copies of Notices................................................................................26
5.1.4. Payment of Debts, Taxes..........................................................................26
5.1.5. Compliance.......................................................................................27
5.1.6. Subcontracts.....................................................................................27
5.1.7. Prosecution and Completion of Construction.......................................................27
5.1.8. Inspection; Repair...............................................................................28
5.1.9. Maintenance......................................................................................28
5.1.10. Authorized Persons..............................................................................28
5.1.11. Use of Proceeds.................................................................................28
5.1.12. Books and Records...............................................................................28
5.1.13. Financial Statements............................................................................29
5.1.14. Change in Circumstance..........................................................................29
5.1.15. Additional Instruments..........................................................................29
5.1.16. Indemnification.................................................................................29
5.2. Negative Covenants......................................................................................29
5.2.1. Amendment or Modification........................................................................30
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.2.2. Conveyance or Lease..................................................................30
5.2.3. Assignment...........................................................................30
5.2.4. Encumbrances.........................................................................30
5.2.5. Governing Documents..................................................................30
5.2.6. Modification of Residential Living Agreements........................................30
6. EVENTS OF DEFAULT AND
REMEDIES.......................................................................................31
6.1. Events of Default...........................................................................31
6.2. Remedies....................................................................................33
6.3. Remedies Cumulative; Waivers................................................................34
7. INSURANCE.........................................................................................34
7.1.Coverage.....................................................................................34
7.2.Certificates; Notices........................................................................34
7.3. Liability Insurance of Design Professionals.................................................35
7.4. Contractor's Insurance......................................................................35
8. MISCELLANEOUS.....................................................................................35
8.1. Lender's Discretion.........................................................................35
8.2. No Third Party Beneficiary..................................................................36
8.3. No Joint Venture............................................................................36
8.4. Reliance on Representations and Warranties..................................................36
8.5. Assignment; Further Assurances..............................................................36
8.6. Notices.....................................................................................37
8.6.1. If to Lender:........................................................................37
8.6.2. If to Borrower:......................................................................37
8.7. Table of Contents; Headings.................................................................38
8.8. Time of the Essence.........................................................................38
8.9. Counterparts................................................................................38
8.10. Governing Law..............................................................................38
8.11. Severability...............................................................................38
8.12. JURISDICTION; WAIVER OF JURY TRIAL.........................................................39
8.13. Survival...................................................................................39
8.14. Controlling Document; Amendment............................................................39
8.15. Extension of Maturity Date.................................................................39
8.16. Modification of Documents..................................................................40
8.17. Reimbursement of Expenses..................................................................40
</TABLE>
iv
<PAGE>
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT (this "Agreement"), is
dated as of ______________, 1998, between ___________________________________,
a _______________________ ("Borrower"), and ELDERTRUST OPERATING LIMITED
PARTNERSHIP, a Delaware limited partnership (together with its successors and
assigns and/or any subsequent holder of the Note (as defined below),
"Lender").
1. DEFINITIONS
The following terms when used in this Agreement shall have the
respective meanings set forth below:
1.1. Affiliate: Affiliate of any Person means any other
Person which, directly or indirectly, controls, is controlled by or is under
common control with such Person (excluding any trustee under, or any committee
with responsibility for administering, any bankruptcy or similar insolvency
plan). A Person shall be deemed to be "controlled by" another Person if such
other Person possesses, directly or indirectly, power to vote 51% or more of
the securities (on a fully diluted basis) or other applicable equity interests
having ordinary voting power for the election of directors or managing general
partners.
1.2. Agreement : This Construction Loan Agreement between Borrower and
Lender, as the same may be modified, amended, supplemented or assigned from time
to time.
1.3. Architect : [___________________________________________], or such
other architect as Lender may approve.
1.4. Architect's Agreement : The Agreement between Contractor and
Architect dated , 199__ regarding the Project.
1.5. Architect's Certificate : As defined in Section 3.2.2.10. hereof.
1.6. Assignments : Collectively, the Assignment of Rents and Leases and
the Collateral Assignment of Agreements Affecting Real Estate, all as described
in Section 3.2.1. hereof, as the same be modified, amended, supplemented or
assigned from time to time.
1.7. Borrower's Equity Contribution : An amount equal to ten (10%)
percent of the total Project Budget (including Direct Construction Costs, Other
Project Costs and the Land). If and to the extent the Borrower's Equity
Contribution is to include demonstrated equity in the Land (to the extent not
being financed with the Loan), the value of such Land shall be mutually agreed
upon by Borrower and Lender. In the event that Borrower and Lender cannot agree
upon the value of the Land, the value of such Land shall be established by an
appraisal performed by an independent M.A.I. certified appraiser who is licensed
in the jurisdiction in which the Project is
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located, has at least 10 years experience in the appraisal of similar types of
projects and is otherwise reasonably satisfactory to Lender. If and to the
extent Borrower's Equity Contribution includes cash, an amount equal to the
amount of each advance of Loan requested shall be irrevocably deposited by
Borrower with Lender on or prior to the date of each such Request for Advance
until the entire cash portion of the Borrower's Equity Contribution has been
deposited with Lender. Such amounts shall be readvanced by Lender to Borrower as
the first advances hereunder until exhausted, such that Lender shall advance
first and prior to any portion of the Loan, all of Borrower's Equity
Contribution against amounts set forth in Requests for Advances. Borrower's
Equity Contribution (if cash) shall be deposited by Lender at a bank selected by
Lender and held in a separate account in the name of Lender, as escrow agent,
which account is and shall remain under Lender's exclusive control and dominion.
Lender shall have the right to make withdrawals from and write checks against
such account in connection with making advances to Borrower hereunder.
1.8. Building Permit : The building permit(s) issued on
__________________, 199_ by __________________ Township, County of
_________________, ________________ for construction of the Improvements.
1.9. Closing Date : The date of this Agreement.
1.10. Collateral : The real property and personal property pledged to
Lender to secure the Loan pursuant to the Mortgage and the Assignments
including, without limitation, the Land, the Improvements and all construction
materials stored by Borrower which are intended to become part of the
Improvements.
1.11. Completion Date : [-------------------------------].
1.12. Completion of Construction : The date on which all of the
following conditions have been satisfied:
1.12.1 The Improvements as certified by the Architect on standard AIA
forms and approved by the Inspecting Architect/Engineer have been completed in
strict accordance with (a) the Plans and Specifications, and (b) all applicable
Legal Requirements;
1.12.2. All permits, licenses and approvals required for the use and
occupancy of the Land and the Improvements (including, but not limited to, a
permanent and unconditional certificate of occupancy or its equivalent for each
building comprising any part of the Improvements and each other improvement
requiring any such permit under applicable laws) for the purposes intended have
been issued by the appropriate Governmental Authority and are in full force and
effect, confirming completion of construction of the Improvements sufficient to
permit legal use and occupancy of the units at the Project by residents and all
utilities services necessary for the full operation of the Project are
installed, permitted, hooked-up and operational;
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1.12.3. The Improvements have been equipped with all furnishings,
fixtures and equipment required for the use and operation of the Improvements
for its intended purpose or which may be required by applicable Legal
Requirements;
1.12.4. All Direct Construction Costs, Other Project Costs and other
costs and expenses incurred in connection with the construction and equipping of
the Improvements shall have been paid in full, or sufficient funds shall be held
in escrow with Lender, or available from undisbursed Loan proceeds, for such
purpose; and
1.12.5. Lender shall have received releases of liens, in form and
substance reasonably satisfactory to the Lender, executed by the Contractor,
subcontractor and any other party from whom Lender wishes to obtain such a
release.
1.13. Construction Contract : The Construction Contract between Borrower
and Contractor dated ____________ __, 199_, as amended, for the rendering of all
services and furnishing of all materials for the construction of the
Improvements, consistent with the Plans and Specifications and otherwise with
the requirements of this Agreement. The term Construction Contract shall also
include any other contract between Borrower and any contractor or material
supplier for the rendering of services or the furnishing of materials in
connection with the construction of the Improvements. The Construction Contract
shall provide for a lump sum price or guaranteed maximum price which is less
than or equal to the corresponding price described in the Construction Loan
Budget unless otherwise agreed to in writing by Lender.
1.14. Construction Loan Budget : The schedule attached hereto as Exhibit A,
setting forth the allocation of Loan proceeds for the payment of costs and
expenses related to the Project.
1.15 Contingency Reserve : The amount identified in the Constitution Loan
Budget with respect to the line item title "Contingent Reserve" and as further
described in Section 3.8. below.
1.16. Contractor : _______________________, and such other contractors,
construction managers and material suppliers as shall be engaged by Borrower in
connection with the Project, subject to Lender's approval, which approval shall
not be unreasonably withheld.
1.17. Deficiency : As defined in Section 3.1.3. below.
1.18. Direct Construction Costs : As defined in Section 3.1. below.
1.19. Event of Default : The occurrence of any event described in Section
6.1. hereof.
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1.20. Governmental Authority : The United States of America, the
___________________________ and any political subdivision (including, without
limitation, the Township of ________________________ and the County of
______________) or regional division thereof, and any agency, department, court,
regulatory body, commission, board, bureau or instrumentality of any of them
which exercises jurisdiction over the Land, the Project or Borrower.
1.21. Guaranty : The Guaranty and Suretyship Agreement, bearing even date
herewith, by Guarantor, the parent affiliate of Borrower, in favor of Lender,
unconditionally guaranteeing Borrower's obligations under the Loan Documents, as
the same may be modified, amended, supplemented or assigned from time to time.
1.22. Guarantor : ---------------------------------------------.
1.23. Improvements : The improvements to be constructed on the Land,
consisting of an approximately ________________ square foot, two (2) story
senior assisted living facility containing, among other things, approximately __
units and approximately __ beds, with paved parking, site improvements, and all
the fixtures, furnishings, machinery, equipment and other construction and
materials related thereto, to be built in accordance with and as more
particularly described in the Plans and Specifications together with all
Off-Site Improvements.
1.24. Initial Advance : The Initial Advance shall be a sum in the amount of
$__________________.
1.25. Inspecting Architect/Engineer : Any architect or engineer as Lender
may designate from time to time, including any employee of Lender.
1.26. Interest Reserve : The amount identified in the Construction Loan
Budget with respect to the line item titled "Interest Reserve" and as further
described in Section 3.9.
1.27. Interior Designer : ________________________________, or such other
interior designer or consultant as Lender may approve, which approval shall not
be unreasonably withheld.
1.28. Land : The approximately _____________________ acres of real property
owned in fee by Borrower, together with all easements and other rights
appurtenant thereto, located at _________, _____________________ Township,
__________________ County, _____________, as more particularly described in
Exhibit A to the Mortgage.
1.29. Legal Requirements : All applicable laws, statutes, ordinances,
rulings, regulations, codes, decrees, orders, judgments, conditions,
restrictions, approvals, permits and requirements of, from or by any
Governmental Authority, including, but not limited to, zoning,
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subdivision, land development, land use, senior assisted living, environmental,
building, safety, health, housing and fire.
1.30. Loan : The ______________________________ Dollars ($_____________) to
be advanced by Lender to Borrower pursuant to this Agreement and evidenced by
the Note and secured by, among other things, the Mortgage, the Assignments and
the Guaranty.
1.31. Loan Documents : This Agreement, the Note, the Mortgage, the
Assignments, the Guaranty and all other instruments, certificates, legal
opinions and documents executed and delivered by either or both of Borrower or
Lender in connection with the Loan, as the same may be modified, amended,
supplemented or assigned from time to time.
1.32. Maturity Date : The earlier of _______________, ____ or the date on
which the Loan is declared by Lender to be immediately due and payable.
1.33. Mortgage : The Mortgage and Security Agreement, dated as of the date
hereof, between Borrower and Lender and any other mortgage, deed of trust or
other agreement or instrument executed by Borrower, as mortgagor, to Lender, as
mortgagee, granting a first lien and security interest in, among other things,
(1) the Land, (2) the Improvements, and (3) all personal property thereon and
therein, all as more fully set forth therein, all may be modified, amended,
supplemented or assigned from time to time.
1.34. Note : The Note from Borrower, as maker, to Lender, as payee, bearing
even date herewith evidencing the Loan hereunder, in an amount not to exceed
$____________, as the same may be modified, amended, supplemented or assigned
from time to time.
1.35. Occupancy Stabilization : Such time as the Project achieves an
occupancy level of 90% or more for three (3) consecutive months, as determined
in accordance with generally accepted accounting principles consistently applied
and approved by Lender.
1.36. Off-Site Improvements : All improvements needed to be constructed on
property other than the Land to permit the complete and lawful use, occupancy
and enjoyment of the Improvements, including but not limited to:
_________________.
1.37. Operating Reserve : The amount identified on the Construction Loan
Budget with respect to the line item titled "Operating Reserve".
1.38. Other Project Costs : As defined in Section 3.1. hereof.
1.39. Permitted Exceptions : The title exceptions identified in Paragraph l
of the Mortgage.
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1.40. Plans and Specifications : The drawings and specifications for the
development and construction of the Improvements, prepared by the Architect (and
other design professionals, including the structural and mechanical engineers)
and approved by Lender, by the Inspecting Architect/Engineer and, when
necessary, by each appropriate Governmental Authority, all of which are more
particularly described in Exhibit B hereto, and all additions thereto and
amendments and modifications thereof approved by Lender, by the Inspecting
Architect/Engineer and, when necessary, by each appropriate Governmental
Authority.
1.41. Project : The Land, together with the Improvements proposed to be
constructed and actually constructed thereon.
1.42. Request for Advance : As defined in Section 3.1.1.2. hereof and as
shown in part on Exhibit C hereto.
1.43. Residential Living Agreement : The residential living agreement to be
entered into with residents of the Project, the form of which is attached hereto
as Exhibit E.
1.44. Retainage : As defined in Section 3.3.2. hereof.
1.45. Schedule of Other Project Costs : As defined in Section 3.1. hereof
and as itemized on Exhibit A hereto, as amended from time to time with Lender's
approval, which shall not be unreasonably withheld.
1.46. Title Insurer : Commonwealth Land Title Insurance Company or such
other title insurance company as Lender may approve, which title insurance
company shall insure the lien and priority of the Mortgage in accordance with
Section 3.2.2.11. hereof.
1.47. Trade Breakdown Schedule : As defined in Section 3.1. hereof and as
itemized on Exhibit A hereto.
2. BACKGROUND; LOAN
2.1. Background : Borrower is the owner in fee of the Land and desires to
construct (or cause to be constructed) the Improvements prior to the Completion
Date and in accordance with the Plans and Specifications.
2.2. Loan : Subject to the terms and conditions of this Agreement, Lender
shall lend to Borrower and Borrower shall borrow from Lender an amount not to
exceed in the aggregate ____________________________________ Dollars
($____________). The Loan shall not be of a revolving nature and any portion
thereof paid in advance of maturity shall not be readvanced by the Lender to the
Borrower.
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2.3. Interest and Repayment : The Loan will be evidenced by the Note, will
bear interest at the rate set forth in the Note, and will be repaid as set forth
in the Note. The outstanding principal balance of the Note, and all accrued but
unpaid interest and fees shall be due and payable in full on the Maturity Date.
3. ADVANCE OF LOAN
3.1. Loan Advances. Subject to compliance by Borrower with the terms and
conditions of this Agreement, Lender shall make advances of the Loan to Borrower
(1) for direct construction costs incurred by Borrower in connection with the
construction of the Improvements (the "Direct Construction Costs"), as itemized
in the trade breakdown schedule set forth in the Construction Loan Budget which
is Exhibit A hereto (the "Trade Breakdown Schedule") and (2) for costs other
than Direct Construction Costs incurred by Borrower in connection with the Loan
or the construction of the Improvements and for the Operating Reserve up to
Occupancy Stabilization (hereinafter collectively referred to as "Other Project
Costs"), as itemized in the Construction Loan Budget which is Exhibit A hereto
(the "Schedule of Other Project Costs"). Borrower shall be obligated to borrow
the Initial Advance at the Closing Date hereof.
3.1.1. Loan Advances for Direct Construction Costs and Other Project Costs.
3.1.1.1. Lender shall not make any advances of the Loan unless and until
each of the conditions precedent to the first advance (such conditions being
identified in Section 3.2. hereof) is satisfied.
3.1.1.2. Each request by Borrower to Lender for an advance of the Loan
prior to the completion of construction (a "Construction Advance") shall be in
the form of an advance certificate (AIA-G702) accompanied by the additional
information in the form attached hereto as Exhibit C, and signed by a duly
authorized representative of Borrower (each, a "Request for Advance"). Each
Request for Advance shall be delivered to Lender no fewer than seven (7)
business days prior to the date upon which a Construction Advance is requested,
shall be based upon the Trade Breakdown Schedule and the Schedule of Other
Project Costs and shall be accompanied by (1) such waivers and releases of lien
and other documents as may be required by, and in form and substance
satisfactory to, the Title Insurer (to induce the Title Insurer to insure each
advance of the Loan made hereunder against all mechanics' and material
suppliers' liens for labor furnished and material supplied in connection with
the construction of the Improvements), (2) at the request of Lender, the
requisitions for payment from the Contractor, subcontractors and material
suppliers engaged in the construction of the Improvements, in form and content
reasonably satisfactory to Lender, and (3) such other information and documents
as may be requested or required by Lender or the Inspecting Architect/Engineer.
All such requests and requisitions for payment shall be approved by Borrower,
the Architect and the Inspecting Architect/Engineer.
3.1.1.3. Each Request for Advance shall be accompanied by a certificate of
the Inspecting Architect/Engineer in the form attached to the Request for
Advance in
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Exhibit C hereto based upon an on-site inspection of the Improvements
made by the Inspecting Architect/Engineer not more than ten (10) days prior to
the date of such Request for Advance, in which the Inspecting Architect/Engineer
shall (1) certify that the portion of the Improvements completed as of the date
of such inspection has been completed in accordance with the Plans and
Specifications, and (2) state its estimate of (a) the percentage of construction
of the Improvements completed as of the date of such inspection based on work in
place as part of the Improvements and the Trade Breakdown Schedule, (b) Direct
Construction Costs actually incurred for work in place as part of the
Improvements as of the date of such inspection, (c) the actual sum necessary to
complete construction of the Improvements in accordance with the Plans and
Specifications, and (d) the amount of time from the date of such inspection
which will be required to complete construction of the Improvements in
accordance with the Plans and Specifications.
3.1.1.4. Prior to or simultaneously with each Construction Advance the
Title Insurer shall have issued (1) a continuation of title showing title to the
Land and Improvements to be vested in Borrower, with no exceptions to the title
of the Land and Improvements other than Permitted Exceptions, and (2) an
endorsement to the title insurance policy issued by the Title Insurer insuring
the priority of the lien of the Mortgage, subject only to Permitted Exceptions,
for the full amount of the Loan. Such continuation of title shall contain
affirmative insurance that no mechanic's, materialmen's or supplier's liens have
attached and that neither public or private conditions, covenants and
restrictions, if any, affecting the Land have been violated.
3.1.1.5. Prior to each Construction Advance by Lender to Borrower pursuant
to this Agreement, Borrower shall, upon request of Title Insurer, furnish Title
Insurer with evidence satisfactory to Title Insurer showing payment of all bills
and charges for which advances of the Loan have been previously made pursuant to
this Agreement, and partial releases of liens to the extent of such payments.
Borrower shall also deliver to Lender upon request such bills, receipts,
invoices and other evidence as may reasonably be required by Lender to
substantiate the actual incurrence by Borrower of Direct Construction Costs and
Other Project Costs.
3.1.1.6. Each Construction Advance shall be made, in whole or in part, at
Lender's election (1) by crediting the amount thereof to an account at
Borrower's bank, or (2) at the reasonable discretion of Lender, by paying the
Contractor or any subcontractor, material supplier or other creditor of Borrower
for work performed, services rendered or materials supplied by such party in
connection with the construction of the Improvements or the operation of the
Project, or (3) as set forth in Section 3.5. below, or (4) in such other manner
as shall be mutually agreed upon by Borrower and Lender.
3.1.1.7. Lender shall not be required to make any Construction Advance
until the portion of Borrower's Equity Contribution which is required to be
funded in accordance with Section 1.7 has been fully disbursed by Lender. The
Borrower's Equity Contribution shall be advanced by Lender from time to time
subject to all of the terms and conditions hereof as are applicable to
Construction Advances. Lender shall not at any time be obligated to make
aggregate advances of the Loan in excess of the amount of the verified Project
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Costs completed to date and, in no event, in excess of the amount of such costs
as may be approved by the Inspecting Architect/Engineer and the Architect,
subject, nonetheless, to the Retainage requirements set forth in Section 3.3.2.
below. Lender shall not be required to make Construction Advances for costs
incurred by Borrower with respect to materials stored on or off the Premises
unless Lender shall, in its sole discretion, deem it advisable to do so. Lender
shall not be obligated to make a Construction Advance with respect to any
subcontractor or material supplier providing work or materials with respect to
the Improvements unless such subcontractor or material supplier is providing
such work or material under a signed contract or purchase order. Lender shall
not be obligated to make a Construction Advance unless Lender is satisfied, in
its sole discretion, that the conditions precedent to the making of such advance
have been satisfied by Borrower and that no Event of Default has occurred or is
continuing under this Agreement or any other Loan Document.
3.1.1.8. Establishment of an interest reserve in the Construction Loan
Budget shall not relieve Borrower of its obligation to pay interest under the
Note once the interest reserve is depleted or deemed insufficient by Lender.
3.1.1.9. Lender shall not be obligated to make any Construction Advance to
Borrower if, in the sole opinion of Lender, the balance of the Loan yet to be
advanced by Lender is at any time less (the amount by which it is less being
hereinafter referred to as the "Deficiency") than the sum, as estimated by
Lender and the Inspecting Architect/Engineer, which will be required to complete
construction of the Improvements and the Project in accordance with the Plans
and Specifications and this Agreement and to pay all Direct Construction Costs,
Other Project Costs and all other costs and expenses of any nature whatsoever
(including interest) which will be incurred in connection with the completion of
construction of the Improvements. Borrower shall, within fifteen (15) days after
receipt from Lender of a notice of Deficiency, which notice Lender may send to
Borrower at any time or times as Lender may reasonably deem appropriate to
notify Borrower that there is or may be a Deficiency, either (1) invest in the
Improvements in a manner reasonably satisfactory to Lender an amount equal to
the Deficiency and deliver to Lender evidence reasonably satisfactory to Lender
of such investment, which investment shall remain invested in the Improvements
until the Loan has been paid in full, or (2) deposit with Lender an amount
sufficient to eliminate the Deficiency. Any amounts deposited by Borrower with
Lender to pay any Deficiency shall not bear interest and may be commingled with
the general funds of Lender and shall be applied by Lender, as Lender shall
direct, to pay Direct Construction Costs and Other Project Costs as construction
of the Improvements progresses. If an Event of Default shall occur and be
continuing, Lender, in addition to all other rights which it may have, shall
have the unconditional right, at its option, to apply in whole or in part any
amounts deposited by Borrower with Lender with respect to any Deficiency to the
payment of the Loan in such order and priority as Lender shall deem appropriate.
In addition, Lender shall not be obligated to make any advance of the Loan to
Borrower with respect to any particular line item in the Construction Loan
Budget if such request exceeds the amount allocated to such line item in the
Construction Loan Budget; provided, however, upon completion of any particular
line item in accordance with the terms and conditions of this Agreement for an
amount less than the amount allocated to such line item in the Construction Loan
Budget, Borrower shall be permitted to apply such unused funds to any other line
item in the Construction Loan Budget which has not been completed; provided,
further, that at any time and from time to time, Borrower may reallocate amounts
among specific line items in the
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Construction Loan Budget as long as the aggregate amount of the Construction
Loan Budget is unaffected.
3.1.1.10. Except for the Contractor, the Architect and the Interior
Designer (which shall have been approved by Lender prior to the date hereof),
and for any contracts or agreements that have been assigned to Borrower by
Lender or any of its affiliates as of the date hereof, Lender shall have
approved, which approval shall not be unreasonably withheld, each of the other
consultants and design professionals with whom Borrower has a direct agreement
in connection with this Project.
3.1.1.11. Each Request for Advance shall constitute, without the
necessity of specifically containing a written statement to such effect, a
reconfirmation to Lender that all of the representations and warranties of
Borrower set forth in Article 4 hereof are true and correct as of the date of
such Request for Advance, and with respect to the work and materials for which
payment is requested, that they have been physically incorporated into the
construction free of liens and encumbrances, that the value is as estimated,
that they have been performed or installed in a good and workmanlike manner,
that all materials and fixtures usually furnished and installed at that stage of
construction have been furnished or installed, and that the work and materials
conform to the Plans and Specifications and to all Legal Requirements and
applicable building restrictions.
3.1.2 No Third-Party Benefit; No Liability; Lender's Waiver. All conditions
and requirements of this Agreement relating to the obligations of Lender to make
advances of the Loan are for the sole benefit of Lender, and no other person or
party (including, without limitation, the Contractor, subcontractors and
material suppliers engaged in the construction of the Improvements) shall have
the right to rely on the satisfaction of such conditions and requirements by
Borrower as a condition precedent to Lender making an advance of the Loan.
Anything in this Agreement or any other agreement made with respect to the Loan
to the contrary notwithstanding, any advance of the Loan or approval given by
Lender or the Inspecting Architect/Engineer, herein or therein, whether or not
before or after an inspection of the Improvements by the Inspecting
Architect/Engineer or otherwise, shall not be deemed to be an approval by Lender
of any work performed thereon or approval or acceptance by Lender of any work or
materials done or furnished with respect thereto or a representation by Lender
as to the fitness of such work or materials, and shall not give rise to any
liability or responsibility of Lender. Lender shall have the right, in its sole
discretion, to waive any such condition or requirement as a condition precedent
to making an advance of the Loan.
3.1.3. Frequency of Advances. Lender shall not be obligated to make
disbursements of the Loan more frequently than once every thirty (30) days.
3.2. Conditions Precedent to First Advance. The obligation of Lender under
this Agreement to make the first advance is subject to the fulfillment of each
of the following conditions:
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3.2.1. Loan Documents. Borrower shall have executed and delivered (or shall
have caused to be executed and delivered) to Lender all of the Loan Documents,
in form and substance reasonably satisfactory to Lender, including, without
limitation, the following:
3.2.1.1. This Agreement.
3.2.1.2. The Note.
3.2.1.3. The Mortgage, which shall be recorded.
3.2.1.4. An Assignment of Rents and Leases, which shall be recorded,
assigning to Lender all existing and future Residential Living Agreements for
space in the Project and all rents, issues and profits therefrom or otherwise
relating to the Project.
3.2.1.5. An Assignment of Agreements Affecting Real Estate, which shall
be recorded, assigning to Lender all contracts between Borrower and third
parties in connection with the Project, including without limitation the
Architect's Agreement, the Construction Contract, any other agreements with
design professionals, all agreements, allocations and rights with all utility
services serving the Project, all development agreements, and all approvals,
allocations, permits and licenses necessary for the construction and/or
operation of the Project from any Governmental Authority.
3.2.1.6. UCC-l financing statements, to be filed in such public offices
as may be necessary to perfect Lender's lien against the Collateral.
3.2.1.7. The Guaranty.
3.2.2. Other Documents. Borrower shall have delivered to Lender such other
documents as Lender may require, each in form and substance reasonably
satisfactory to Lender, including, without limitation, the following:
3.2.2.1. An originally executed counterpart of the Architect's
Agreement.
3.2.2.2. An originally executed counterpart of any agreement with any
design professional involved with the Project, including, without limitation,
the agreement with the Interior Designer.
3.2.2.3. An originally executed counterpart of the Construction
Contract.
3.2.2.4. A surety bond issued by a company and in a form, both
reasonably acceptable to Lender, to guaranty to Lender and to Borrower as dual
obligees the performance of the Construction Contract by the Contractor and the
payment of all amounts due for labor and materials required for construction of
the Improvements.
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3.2.2.5. Copies of the Plans and Specifications, certified as correct
and complete by Borrower, Contractor and Architect, and certified by each of
them to be the same as those approved by applicable Governmental Authorities
including, without limitations, those reviewed in connection with issuance of
the Building Permit.
3.2.2.6 Copies of all contracts then entered into with any
subcontractors. Each such contract shall be with a subcontractor reasonably
satisfactory in all respects to Lender and the Inspecting Architect/Engineer.
3.2.2.7. A list of all subcontractors (including the name, address,
telephone number, contact person and trade) then retained for the Project,
certified by Borrower and Contractor, together with a timetable for the awarding
of other subcontracts, if any, in connection with the construction of the
Improvements.
3.2.2.8. A certified copy of each agreement with any Governmental
Authority or agency pertaining to the development of the Project, including
any obligating Borrower to construct or install municipal improvements, such
as streets, roads, curbs, sidewalks, fire hydrants, street lighting and the
like, together with evidence reasonably satisfactory to Lender relating to any
financial security required in connection therewith. If no such agreements
exist and none is required, Borrower shall so certify in writing on the
Closing Date and provide evidence thereof reasonably satisfactory to Lender.
3.2.2.9. Letters signed by the Architect, each other design and
engineering professional with whom Borrower has a direct agreement (including,
without limitation, the Interior Designer) and the Contractor, obligating each
such party to perform its obligations under such contract at no additional cost
or expense for the benefit of Lender or its nominee if (1) Borrower or
Contractor shall default or become insolvent; (2) a default shall occur under
the Loan Documents; or (3) a foreclosure shall occur under the Mortgage. Each
such letter shall be in form and substance reasonably satisfactory in all
respects to Lender and its counsel.
3.2.2.10. An Architect's Certificate, executed by the Architect
certifying to Lender to the effects set forth in Section 3.2.2.8. above and,
further, that the Project, the Plans and Specifications and the construction of
the Improvements comply with all Legal Requirements, that all necessary permits
have been obtained, that no further steps or requirements remain to be taken or
satisfied by Borrower, that all necessary utilities are available and that the
Improvements can be completed by the Completion Date.
3.2.2.11. A standard ALTA mortgagee's title insurance policy or a
marked-up binder representing the commitment of the Title Insurer to issue a
mortgagee's title insurance policy (on the 1970 ALTA form of loan policy, as
amended) insuring title to the Project in accordance with Sections 4.12., 4.14.
and 4.15. hereof, and Lender's interest therein as a valid and enforceable first
lien, subject only to the Permitted Exceptions, and without exception for (1)
any liens for labor or materials, actual or inchoate, (2) parties in possession,
or (3) discrepancies or conflicts in boundary lines, unrecorded easements,
encroachments, area content or any other survey matters. Such policy shall be in
the full amount of the Loan, subject to a "pending disbursements" clause
providing for coverage in an amount equal to the outstanding amount of the Loan
from time
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to time. Such policy shall include endorsements (including, without
limitation, zoning and comprehensive endorsements) as Lender may request and
shall provide for such reinsurance as Lender may require.
3.2.2.12. Evidence reasonably satisfactory to Lender in form and
substance that all required insurance for the Project is in full force and
effect with insurers satisfactory to Lender, and that all premiums have been
paid with respect thereto.
3.2.2.13. An ALTA/ACSM survey of the Project, prepared and signed by a
surveyor licensed in the state in which the Land is located and approved by
Lender, containing the items set forth on Exhibit D hereto and certified to
Lender and Title Insurer, together with a metes and bounds legal description of
the Land corresponding to the survey and a certification (which may be part of
the certification affixed to the survey) that the proposed Improvements lie
entirely within the boundaries of the Land and the location thereof will not
violate any set back or other applicable restrictions or Legal Requirements.
3.2.2.14. A certified copy of releases of liens executed by the
Contractor, the Architect, each other design professional with whom Borrower has
a direct agreement and each subcontractor claiming through or under any of them,
respectively, releasing any and all mechanics' or material suppliers' liens or
claims that any of them may have in connection with work performed or materials
supplied through the date of this Agreement, all in such form and containing
such provisions as may be required by Lender or Title Insurer, to be recorded by
Title Insurer prior to the commencement of any further work on the Land and
stamped with the original stamp of the office where such releases of liens and
claims are required to be filed if filing is required to make such release
effective and binding. A certified copy of waivers of liens executed by the
Contractor, the Architect and each other design professional with whom Borrower
has a direct agreement, respectively, waiving their respective rights, if any,
and any right of a subcontractor claiming through or under any of them, to
hereafter file or maintain any mechanics' or material suppliers' liens or
claims, all in such form and containing such provisions as may be required by
Lender or Title Insurer, to be recorded by Title Insurer prior to the
commencement of any further work on the Land and stamped with the original stamp
of the office where such waivers of liens are required to be filed if filing is
required to make such waiver effective and binding upon parties claiming by,
through or under the Contractor, the Architect or any other design professional
with whom Borrower has a direct agreement.
3.2.2.15. Evidence reasonably satisfactory to Lender that all
utilities, including water, electric, gas and telephone, and all storm and
sanitary sewer drainage facilities are available at the Land for utilization by
Borrower for the Project, or have been provided for in the Plans and
Specifications or Construction Loan Budget to the satisfaction of Lender, and
that the respective lines and treatment or generating plants are of adequate
size and capacity to service the Project adequately, together with a copy of the
agreement with each such utility service and evidence of the cost thereof
consistent with the Construction Loan Budget.
3.2.2.16. Evidence reasonably satisfactory to Lender that all roads,
sidewalks, sewers, sewage treatment and disposal facilities proposed to be
constructed on the Land
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as part of the Project will, when completed, be dedicated to the appropriate
Governmental Authority and will be operated and maintained by such Governmental
Authority.
3.2.2.17. Evidence reasonably satisfactory to Lender that (1) the
construction of the Improvements as shown in the Plans and Specifications and
Subdivision Plan complies with all Legal Requirements, (2) all required
approvals, allocations, certificates, authorizations, permits and licenses have
been obtained as of the date hereof from all appropriate Governmental
Authorities and have been validly and irrevocably obtained without
qualification, appeal or existence of unexpired appeal periods, (3) there is no
pending or threatened investigations, appeals, suits or other actions leading to
or threatening the revocation, suspension or qualification of any of such
permits or approvals, and (4) all necessary or required zoning variances or
special approvals necessary to carry out the subdivision of the Land
contemplated in the Subdivision Plan and Specifications have been obtained, and
that the subdivided lot or parcel has been duly recorded.
3.2.2.18. Evidence reasonably satisfactory to Lender that the Land
constitutes a separate lot for real estate tax and assessment purposes, and that
the enforcement of any of the rights or remedies of Lender under the Loan
Documents including, without limitation, the right to cause any of the Project,
or any part thereof, to be sold at judicial or non-judicial sale, shall not be
subject to or conditioned upon obtaining any governmental approvals (including,
without limitation, subdivision approval). All conditions pertaining to the
granting of any subdivision approval, if necessary, shall have been satisfied in
a manner acceptable to Lender prior to the Closing Date.
3.2.2.19. A copy of Borrower's Certificate of Organization, as
amended, [certified by the Secretary of ____________________________________].
3.2.2.20. A certificate of Borrower's secretary certifying to (a) a
copy of the resolutions adopted by Borrower authorizing this Agreement and the
transactions contemplated hereby and (b) an incumbency certificate containing
the signatures of the individuals executing the Loan Documents on behalf of the
Borrower.
3.2.2.21. An executed copy of Borrower's [bylaws, as amended, certified
by the secretary of Borrower].
3.2.2.22. An originally executed counterpart of the consent of [board
of directors] of Borrower authorizing this Agreement and the transactions
contemplated hereby.
3.2.2.23. A certificate of good standing of Borrower from the Secretary
of the ___________________________.
3.2.2.24. The opinions of counsel engaged by Borrower and Guarantor and
reasonably satisfactory to Lender, dated the date hereof and addressed to
Lender, reasonably satisfactory to Lender and its counsel in form and substance.
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3.2.2.25. A copy of Guarantor's Certificate of Organization, as
amended, certified by the Secretary of the ___________________________.
3.2.2.26. A certificate of Guarantor's secretary certifying to (a) a
copy of the resolutions adopted by Guarantor authorizing the Guaranty and the
transactions contemplated thereby and (b) an incumbency certificate containing
the signatures of the individuals executing the Guaranty on behalf of the
Guarantor.
3.2.2.27. An executed copy of Guarantor's bylaws, as amended,
certified by the secretary of the Guarantor.
3.2.2.28. An originally executed counterpart of the consent of [the
______________] of Guarantor authorizing the Guaranty and the transactions
contemplated hereby.
3.2.2.29. A certificate of good standing of Guarantor from the
Secretary of the ______________________________.
3.2.2.30. A true and complete copy of a phase I environmental
assessment of the Project prepared by a duly licensed environmental consultant
approved by Lender, which assessment must be reasonably acceptable to Lender in
all respects.
3.2.3. Borrower's Equity Contribution.
The amount of Borrower's Equity Contribution which is required to be
advanced pursuant to Section 1.7 shall have been advanced.
3.2.4. Section 3.1. All of the conditions precedent set forth in
Section 3.1 hereof shall have been satisfied as of the date of such advance.
3.2.5. Representations and Warranties. All of the representations and
warranties contained in Article 4 hereof shall be true, correct and complete.
3.2.6. Performance and Compliance. Borrower shall have performed all
agreements and complied with all covenants and provisions of the Loan Documents,
which as of the time of the advance are to have been performed and/or completed
by Borrower, no Event of Default shall have occurred and remain uncured and no
event shall have occurred which, with the giving of notice, the passage of time,
or both, would become an Event of Default.
3.2.7. Excavation Work. In the event all excavation work has been
completed and the foundation for the Project has been constructed, Borrower
shall supply Lender with a certification from a registered surveyor confirming
that such excavation and foundation work has been completed within the title
lines of the Land and in accordance with the Survey and the Subdivision Plan.
3.2.8. Composition of First Advance. The first advance of the Loan
shall relate only to (i) Borrower's acquisition costs for the Land (to the
extent the value of the Land is not
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included in Borrower's Equity Contribution) and (ii) certain Other Project
Costs, which must be acceptable to Lender in its sole discretion.
3.3. Conditions Precedent to Subsequent Advances. The obligations of
Lender under this Agreement to make each subsequent advance other than the final
advance are subject to the fulfillment of each of the following conditions:
3.3.1. Prior Conditions Satisfied. All of the conditions precedent to
the advances set forth in Sections 3.1. and 3.2. hereof shall have been
satisfied as of the date of such subsequent advance.
3.3.2. Construction; Retainage. The Improvements theretofore
constructed shall have been constructed in accordance with the Plans and
Specifications and all Legal Requirements without any material departure
therefrom not approved by Lender and the certificates of the Architect and the
Inspecting Architect/Engineer to such effect shall have been delivered to, and
reasonably approved by, Lender. All advances on account of Direct Construction
Costs shall be limited to the cost or the value of work in place, whichever is
less, minus any Retainage. The term "Retainage" as used in this Agreement shall
mean an amount equal to the amount actually held back by Borrower from the
Contractor under the Construction Contract. Unless otherwise provided in the
Construction Contract and approved by Lender, the Retainage shall not be
released until construction of the Improvements has been substantially completed
in accordance with the Plans and Specifications approved by the Inspecting
Architect/Engineer and the provisions of this Agreement. It is understood and
agreed that the Project costs for any line item shall not exceed the amounts set
forth for such line item in the Construction Loan Budget; provided, however,
that in the event Borrower has completed all work with respect to any line item
and the cost for such work, as finally determined, is less than the amount
allocated for such line item in the Construction Loan Budget, then in such
event, Borrower may direct Lender to allocate any such demonstrated savings to
any other line item so long as no Event of Default has occurred and is
continuing. All disbursements, if any, for contingency, miscellaneous, overhead,
and marketing or advertising categories of the Loan shall be made by Lender in
its sole discretion.
3.3.3. Damage or Injury. The Improvements shall not have been
materially injured or damaged by fire or other casualty unless there shall have
been received by Lender, or by a person approved by Lender, insurance proceeds
sufficient in the judgment of Lender and the Inspecting Architect/Engineer to
effect the satisfactory restoration of the Improvements and to permit the
completion thereof prior to the Completion Date.
3.3.4. No Default. No Event of Default shall have occurred and remain
uncured, and no event shall have occurred which with the passage of time or the
giving of notice or both would become an Event of Default.
3.3.5. Statements of Payment. If required by Lender, Borrower shall
have delivered to Lender a written statement executed by the Contractor
certifying that the Contractor has received payment in full of all monies owed
to the Contractor, and a written statement executed by each subcontractor and
material supplier engaged in the construction of the Improvements on
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behalf of the Contractor or Borrower certifying that each such subcontractor and
material supplier has received payment in full of all monies owed to each such
subcontractor and material supplier by the Contractor or Borrower.
3.3.6. Additional Surveys. At Borrower's expense, the Borrower shall
have (1) provided from time to time as construction progresses such additional
surveys as Lender may reasonably require to confirm that construction has taken
place within the title lines of the Land and in accordance with the Survey, the
Subdivision Plan and this Agreement; (2) if not previously supplied to Lender in
connection with the first advance under Section 3.2., of this Agreement, upon
completion of excavation work and construction of the foundation for the
Project, supplied Lender with a certification from a registered surveyor
confirming that such excavation and foundation work has been completed within
the title lines of the Land and in accordance with the Survey and the
Subdivision Plan; and (3) upon Completion of Construction, delivered to Lender
an as-built Survey of the Land and Project, as stipulated in Section 3.4.6.
hereof showing the location of the Improvements and otherwise in accordance with
Exhibit C hereto, including all utilities and easements, evidencing no
encroachments onto or from the Land, and evidencing compliance with applicable
set back and other restrictions.
3.4. Conditions Precedent to Final Advance of Direct Construction
Costs. The obligation of Lender under this Agreement to make the final advance
in respect of Direct Construction Costs (including the Retainage described in
Section 3.3.2. hereof) is subject to the fulfillment of each of the following
conditions:
3.4.1. Prior Conditions Satisfied. All of the conditions precedent to
advances set forth in Sections 3.1., 3.2. and 3.3. hereof shall have been
satisfied as of the date of the final advance.
3.4.2. Certificate of Occupancy. Lender shall have received a permanent
and unconditional certificate of occupancy or its equivalent issued for the
Improvements by each of the appropriate Governmental Authorities confirming
Completion of Construction.
3.4.3. Certificates from Architect and Inspecting Architect/ Engineer.
Lender shall have received certificates from the Architect and the Inspecting
Architect/Engineer: (1) stating that Completion of Construction has been
achieved; (2) certifying that no condition exists which would require continued
unusual maintenance; (3) stating that all utilities, such as public water, sewer
and electricity, have been connected to the Project, are adequate for the
proposed use and are operational; and (4) stating that the Project is ready for
occupancy.
3.4.4. Release of Liens. Lender shall have received releases of liens
executed by the Contractor, subcontractors and any other party from whom Lender
wishes to obtain such a release. All such releases shall be in form and
substance reasonably satisfactory to Lender.
3.4.5. Financial Information. Lender shall have received (a) a rent
roll evidencing each resident then under a Residential Living Agreement for any
unit at the Project and
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such other matters as Lender may request, and (b) a current and projected
operating statement showing the income and expenses for the Project for the then
current year and the subsequent year.
3.4.6. As-Built Survey. Lender shall have received an updated survey
done in accordance with Section 3.2.2.13. hereof, which survey shall be
acceptable to Lender in its sole discretion.
3.5. Lender Advances Without Request. Upon three (3) days prior written
notice to Borrower, Lender may, but is not obligated to, from time to time make
advances on behalf of Borrower (a) to itself to pay interest on the payment
dates when interest is due and owing in accordance with the terms of the Note,
or to pay itself other sums due Lender pursuant to this Agreement or any of the
Loan Documents, (b) to taxing authorities or insurers to pay taxes or insurance
premiums when due, or (c) to the Contractor or any subcontractor, material
supplier or other creditor of Borrower. Any advance so made shall be deemed to
be an advance made to and received by Borrower. Lender shall notify Borrower
when such an advance has been made.
3.6. Prohibited Actions. Borrower will not, without Lender's prior
written approval, knowingly take any action which would (i) relieve others
(including, without limitation, the Contractor, the Architect and the Interior
Designer) of any existing duty, liability or obligation to Borrower with respect
to the Project or impose such duty, liability or obligation, directly or
indirectly, upon Borrower, (ii) materially increase any of the Direct
Construction Costs or the Other Project Costs, (iii) extend the Completion Date,
(iv) impair the quality of the Project in any material respect and (v) change
the Plans and Specification or the aesthetics of the Project in any material
respect.
3.7. Draws in Respect of Contingency Reserve. ________________ Dollars
($_________) of the Construction Loan Budget shall be established as a
contingency reserve (the "Contingency Reserve") to cover direct construction and
other cost overruns, including soft costs incurred in connection with the
development of the Project, which Contingency Reserve shall be disbursed by
Lender if Borrower so requests and Lender approves such request. Any portion of
the Contingency Reserve which remains unused upon Completion of Construction
shall be contributed to and become a part of the Operating Reserve.
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as of the date hereof and at
all times when this Agreement shall remain in effect or the Note shall remain
outstanding that:
4.1. Corporate Status. Borrower is a corporation duly formed, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Borrower has the power and authority to own its own property and
assets and to transact the business in which it is engaged. Borrower is not
required to qualify to do business in any state or jurisdiction except as set
forth on Exhibit F attached hereto.
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4.2. Power and Authority. Borrower has the power and authority to
execute, deliver and perform, as the case may be, the terms and provisions of
this Agreement, the Note and the other Loan Documents, and Borrower has taken
all necessary action to authorize the execution, delivery and performance of
this Agreement, the borrowings hereunder, the liens granted upon the Collateral
pursuant hereto, the making and delivery of the Note and the other Loan
Documents. This Agreement, the Note and all of the other Loan Documents
constitute the authorized, valid and legally binding obligations of Borrower
enforceable in accordance with their respective terms.
4.3. Litigation and Labor Disputes. There are no actions, suits or
proceedings pending, or to the knowledge of Borrower, threatened, against or
affecting Borrower or the Project before any court or before any governmental or
administrative body or agency, which if determined adversely to Borrower,
individually or in the aggregate, would have a material adverse effect on
Borrower's business or properties or this Project. Borrower is not a party to
any labor dispute, which if determined adversely to Borrower would have a
material adverse effect on the Borrower's business or properties or this
Project.
4.4. No Violation of Agreements or Laws. Borrower is not in default
under the provisions of any agreement to which it is a party and Borrower is not
in violation of any applicable provision of law or any applicable regulation of
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, environmental laws and
regulations), which would have a material adverse effect on Borrower's business
or properties or this Project. Neither the execution and delivery of this
Agreement, the Note or any of the other Loan Documents, nor the consummation of
the transactions herein or therein contemplated, nor compliance with the terms
and provisions hereof or thereof, will violate any applicable provision of law
or any applicable regulation, or any order, writ, injunction or decree of any
court or governmental department, commission, board, bureau, agency or
instrumentality or will conflict or will be inconsistent with, or will result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to impose) any lien, charge or encumbrance upon any of the property
or assets of any Borrower (including the Project) pursuant to the terms of any
indenture, franchise, license, permit, mortgage, deed of trust, agreement or
other instrument to which Borrower is a party or by which Borrower may be bound,
or to which Borrower may be subject.
4.5. Consent. No consent, approval or other authorization of or by any
Governmental Authority is required in connection with the execution or delivery
by Borrower of this Agreement or any of the other Loan Documents, or compliance
with any of the provisions hereof or thereof, except for a certificate of
occupancy and such other licenses, permits, authorizations, consents and
approvals required for the operation of the completed Project which have been
obtained.
4.6. Names and Locations. Neither Borrower nor its predecessors
operates or does business, or, within the past five (5) years, has operated or
done business, under a fictitious,
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trade or assumed name, except the names set forth on Exhibit F. All of the
locations at which Borrower conduct its business are listed on Exhibit F.
4.7. Tax Returns and Payments.
Borrower has filed all tax returns required by law to be filed by it and has
paid all taxes, assessments and other governmental charges levied upon it and
any of its respective properties, assets, income or franchises which are due
and payable, other than those presently payable without penalty or interest.
4.8. Compliance with ERISA. Borrower is in compliance with all
applicable provisions of ERISA.
4.9. Financial Statements. With respect to any financial statements
delivered by Borrower to Lender after the date of this Agreement, all such
financial statements shall have been prepared in accordance with generally
accepted accounting procedures applied on a consistent basis throughout the
period specified and present fairly in all material respects the financial
position of Borrower as of the date specified and the results of operations and
statements of cash flow for the period specified.
4.10. Disclosure. Neither this Agreement nor any other Loan Document
delivered to Lender by or on behalf of Borrower in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in this Agreement and in such other Loan Documents,
certificates or instruments not misleading and, at the time of the submission to
Lender of any Request for Advance or the funding of any advance, shall contain,
any untrue statement of any material fact or omit to state a material fact
necessary in order to make the statements containing therein not misleading.
There is no fact (other than matters of a general economic or political nature
which do not affect such Borrower uniquely) which materially adversely affects
or in the future may (so far as such Borrower can now foresee) materially
adversely affect the business, condition (financial or otherwise), operations,
properties or prospects of Borrower which has not been set forth in this
Agreement or in the other Loan Documents delivered to Lender by or on behalf of
Borrower specifically for use in connection with the transactions contemplated
by this Agreement.
4.11. Permits and Approvals. Each license, permit, authorization,
consent and approval obtained by Borrower and required by any Governmental
Authority for the construction of the Improvements and the development of the
Project in accordance with the Plans and Specifications, including any zoning
variances or approvals in connection with the subdivision contemplated by the
Plans and Specifications and Subdivision Plan, has been paid in full, is without
restriction or modification, remains in full force and effect, and is final and
unappealable, all appeal periods therefrom having expired without appeal taken,
except for certificates of occupancy and such other licenses, permits,
authorizations, consents and approvals required for the operation of the
completed Project.
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4.12. Compliance; Zoning. Borrower has complied with all Legal
Requirements and all recorded instruments affecting the Project. The zoning
classification for the Land is ____________. The anticipated use of the Land for
the Project complies in all material respects with all zoning and use-related
Legal Requirements.
4.13. Title.
4.13.1. Borrower holds good, indefeasible and marketable fee simple
title to the Land and existing Improvements, if any, free and clear of all
mortgages, deeds of trust, liens, encumbrances, ground rents, leases, tenancies,
licenses, security interests, covenants, conditions, restrictions, rights of
way, easements, encroachments and any other matters affecting title except the
Permitted Exceptions and the liens and encumbrances created in favor of Lender
pursuant to the Loan Documents. To the extent, if any, that the Permitted
Exceptions include any restrictions, covenants or conditions, the construction
or operation of the Improvements or Project will not violate any such matters.
4.13.2. Borrower's right, title and interest in and to each of the
agreements, documents, contracts, permits, licenses and other materials assigned
to Lender pursuant to this Agreement or other Loan Documents is free and clear
of all liens, encumbrances, leases, licenses, covenants, conditions,
restrictions, security interests, other assignments, mechanics' liens, material
suppliers' liens and other matters affecting title. Borrower is permitted to
assign such agreements, documents, contracts, permits, licenses and other
materials pursuant to the terms thereof, or has obtained all necessary approvals
therefor (provided, that such permits and licenses are assigned to Lender only
to the extent permitted by law), and Borrower has no knowledge of the existence
of any default under or breach of any thereof.
4.14. Plans and Specifications. The Plans and Specifications comply
with all Legal Requirements and are satisfactory to Borrower and, to the extent
required by any Legal Requirements or restrictions affecting the Property, have
been approved by all Governmental Authorities and by the beneficiaries of any
such restrictions.
4.15. Utilities. All utility services necessary for the full
development, construction, equipping and operation of the Project are available
at no cost or expense (or if there is additional cost, that cost is provided for
in the Construction Loan Budget) and at the title lines of the Land (or, if they
pass through adjoining private land, in accordance with valid public or
unencumbered private easements which inure to the benefit of Borrower and run
with the Land, copies of which have been delivered to Lender and are set forth
on the Survey and in the Title Report of the Insurer) including, without
limitation, public sanitary sewer service, storm sewers, drainage, public water,
electricity, gas and telephone service. There is no moratorium, suspension,
cessation, limitation or conditions existing or to Borrower's knowledge
threatened with respect to the provisions of any such utility services.
Particularly, but not in limitation of the foregoing, all permits and approvals
have been obtained or are available so that the Improvements may be hooked up to
public water and sanitary sewer service, which public water and sanitary sewer
service shall be available to the full extent required for the full operation of
the Project and shall permit
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provision of water and the discharge of sewage of the types and amounts
anticipated to be needed by and produced from the Project.
4.16. Roads. The Land is located along a dedicated public street or
highway and all curb-cut and street opening permits or licenses required for
vehicular access to and from the Project to any adjoining public street or
highway, as well as all other required traffic-related permits and approvals,
have been obtained and paid for by Borrower and are in full force and effect.
All roads necessary for the full utilization of the Project for its intended
purposes are indicated on the Survey and the Plans and Specifications and have
either been completed or the necessary rights of way therefor have been acquired
by Borrower or by the appropriate Governmental Authority having jurisdiction.
4.17. Insurance. No notice has been received from any insurance company
which issued any of the insurance policies for the Project, or from any of their
agents, brokers or representatives, stating in effect that any such policy (i)
will not be renewed, (ii) will be renewed only at a higher premium than is
presently payable therefor, or (iii) will be renewed only with lesser or less
complete coverage than is presently provided.
4.18. No Default. No event has occurred and is continuing that is an
Event of Default or that would be an Event of Default with the giving of notice
or the passage of time or both.
4.19. Condemnation. There is no pending condemnation, expropriation,
eminent domain or similar proceeding affecting the Land or any portion thereof,
and Borrower has not received any written or oral notice of any thereof and has
no knowledge that any such proceeding is contemplated.
4.20. Construction. As of the date of this Agreement, no construction
or other work has been performed on, and no materials or supplies have been
delivered to, the Land.
4.21. Residential Living Agreement. Attached hereto as Exhibit E is a
true and complete copy of the form of Residential Living Agreement in
substantially the form Borrower intends to execute the same with each of the
residents at the Project.
4.22. Environmental Concerns. All of the covenants, representations and
warranties of Borrower regarding environmental matters set forth in the Mortgage
are incorporated herein by reference and are hereby made as if set forth herein
in full, and such representations and warranties are true and correct in all
respects.
4.23. Governmental Authorities. Borrower has complied in all material
respects with all of the terms and conditions of each agreement with each
Governmental Authority in connection with the Project.
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5. COVENANTS OF BORROWER
5.1. Affirmative Covenants. Borrower covenants and agrees that from the
date hereof and so long as this Agreement shall remain in effect or the Note
shall remain outstanding, Borrower shall:
5.1.1 Existence. Do or cause to be done all things necessary to
preserve and keep its corporate existence in full force and effect under the
laws of its state of formation and to remain qualified and licensed in all
jurisdictions in which such qualification or licensing is required for the
conduct of Borrower's business, including, without limitation, the state in
which the Land is located.
5.1.2. Required Notices. Give, or cause to be given, prompt written
notice to Lender of: (1) any action or proceeding instituted by or against
Borrower, Guarantor or the Project before any Governmental Authority, or any
such proceeding threatened against Borrower that would have a material adverse
affect on Borrower's business or properties, Guarantor or the Project; or (2)
any other action, event or condition of any nature which may have a material
adverse effect upon the business or assets of Borrower or Guarantor or which,
with notice or lapse of time or both, would constitute an Event of Default under
this Agreement or a default under any other material contract, instrument or
agreement to which Borrower is a party or by which Borrower or any of Borrower's
properties or assets may be bound or subject.
5.1.3. Copies of Notices. For matters that would have a material
adverse effect on the Project, forward to Lender copies of all notices given or
received by Borrower, promptly upon the giving or receipt of such notice, to or
from: (1) any insurer, (2) the Contractor or any subcontractor or material
supplier, or any of the design professionals with respect to the Project,
(including notices relating to any nonconforming construction, any refusal or
inability to pay or perform pursuant to the terms of any contract, lease or
agreement or any delay, default, charge order or substitution), (3) any claim of
default, or relating to any work stoppage, notice of violation or cease and
desist order, strike, claim, litigation, damage, loss or any other materially
adverse condition, circumstance or event and (4) in connection with any
environmental matter under Paragraph 25 of the Mortgage.
5.1.4. Payment of Debts, Taxes. Pay and discharge or cause to be paid
and discharged promptly all taxes, assessments and governmental charges or
levies imposed upon Borrower, its income or receipts, or any of its properties,
including but not limited to the Project, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a lien or charge upon such properties
or any part thereof, unless the same shall be contested by Borrower in good
faith by appropriate proceedings and Borrower shall have posted a bond or escrow
with Lender equal to such contested amount.
5.1.5. Compliance. Promptly and faithfully comply with, conform to and
obey, all present and future Legal Requirements applicable to Borrower, the Land
or the Project, all present and future requirements affecting title to the
Project, the Loan Documents, all
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Residential Living Agreements now or hereafter entered into from time to time,
the Architect's Agreement, the Construction Contract, the agreements with design
professionals, all subcontractors, and all other agreements and covenants to
which Borrower is bound or subject which failure to comply, conform or obey
would have a material adverse result on Borrower's business or properties or
this Project. Borrower shall not agree to any material modification or
termination of any of the foregoing documents without the prior approval of
Lender in writing; provided, however, that Borrower shall be permitted without
the prior written consent of the Lender to modify any Residential Living
Agreement to the extent that the rates charged thereunder are not materially
reduced.
5.1.6. Subcontracts. Make available for inspection at all times by the
Inspecting Architect/Engineer and Lender copies of all subcontracts and design
professional agreements and furnish to the Inspecting Architect/Engineer and
Lender, upon request, copies of the same.
5.1.7. Prosecution and Completion of Construction.
5.1.7.1. Continue construction of the Improvements after the date
hereof and cause all work on the Project to proceed diligently and continuously,
with sufficient workers employed and sufficient materials supplied for that
purpose so that Completion of Construction is achieved no later than the
Completion Date.
5.1.7.2. Cause all construction work to be performed in strict
conformity with the Plans and Specifications, the Legal Requirements, the
requirements of fire underwriters, and with the requirements set forth herein
and in the other Loan Documents.
5.1.7.3. Cause all materials acquired or furnished in connection with
the construction of the Improvements but not affixed or incorporated into the
Project to be stored on the Land or at other locations approved by Lender in
writing, in each case under adequate safeguards to minimize the possibility of
loss, theft, damage or commingling with other materials or projects; provided
that the foregoing shall not create any obligation on the part of Lender to
advance funds in respect of such stored materials.
5.1.7.4. By the Completion Date, deliver to Lender a permanent and
unconditional certificate of occupancy for the Project or its equivalent issued
by the appropriate Governmental Authority and confirming that construction of
the Improvements has been completed in accordance with all applicable Legal
Requirements.
5.1.7.5. Notwithstanding the foregoing, in the event that construction
is delayed at any time by changes ordered in the work (with the consent of
Lender as set forth above), or by labor disputes, fire, unusually severe and
adverse weather conditions, unavoidable casualties, or other causes beyond
Borrower's control, then, upon Borrower's request in writing as set forth below,
the Completion Date may be extended by Lender for such time, if any, as Lender
in its sole discretion may determine is appropriate; provided, however, that
notice of any event occasioning such a delay or request for extension of time,
and setting forth an estimate by Borrower of the probable period of such delay,
shall be made in writing to Lender not more than
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ten (10) days after the first commencement of the delay caused by such event;
otherwise, Borrower shall have waived its right to request any such extension.
5.1.8. Inspection; Repair. Provide adequate facilities at all times for
inspection of the construction work, the Plans and Specifications and all shop
and related drawings by Lender or its authorized representatives, and afford
full and free access to the Land and the Improvements to such persons as may be
designated from time to time by Lender. Within ten (10) days after receipt of
written notice from Lender, Borrower shall proceed diligently to remove all
fixtures, equipment and other materials which do not strictly conform to the
Plans and Specifications, and immediately thereafter repair and replace all work
and materials so removed or damaged thereby, in each case at Borrower's sole
cost and expense and not from the proceeds of the Loan.
5.1.9. Maintenance. Cause the Improvements to be kept in good condition
and repair and maintain the same in a clean and orderly manner and operate the
same properly, efficiently and in compliance with all Legal Requirements, except
as would not have a material adverse effect on the Project.
5.1.10. Authorized Persons. From time to time, at the request of
Lender, certify to Lender the names, signatures, and positions of all persons
authorized to make application for advances hereunder.
5.1.11. Use of Proceeds. Use all funds borrowed hereunder solely for
the payment of Direct Construction Costs, Other Project Costs and Working
Capital Deficits in accordance with the terms of this Agreement, as itemized in
the Construction Loan Budget, as such schedule may be amended from time to time
with the prior written consent of Lender, and for no other purposes.
5.1.12. Books and Records. Keep, or cause to be kept, in accordance
with generally accepted accounting principles consistently applied, proper and
complete books of record and account concerning the financial affairs of
Borrower and the Project, and make such records available at the Project or in
Borrower's offices at all reasonable times for inspection by Lender. Borrower
agrees to maintain accounting records for the Improvements and the Project
separate from any other accounting records which Borrower may maintain. Borrower
agrees to maintain all such books and records for a period of two years after
the repayment in full of the Loan.
5.1.13. Financial Statements. So long as the Loan or any portion
thereof remains outstanding, deliver or cause to be delivered to Lender the
following: (a) as soon as available and in any event within forty-five (45) days
after the end of each calendar quarter, unaudited financial statements of
Borrower and of Guarantor for the calendar quarter then ended, prepared on a
basis consistent with the annual statements, and certified by the managing
member of Borrower and of Guarantor to be true and correct; and (b) as soon as
available and in any event within ninety (90) days after the end of each
calendar year of Borrower and of Guarantor, financial statements of Borrower and
of Guarantor, prepared in accordance with generally accepted accounting
principles, and including a balance sheet, a statement of income and expenses
for the year then ended and which, at Lender's request, shall be reviewed by a
nationally recognized
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certified public accounting firm or other independent certified public
accounting firm acceptable to Lender.
5.1.14. Change in Circumstance. Promptly notify Lender in writing of
any change in any fact or circumstance represented or warranted by Borrower
herein or in any other documents furnished to Lender in connection with this
Agreement.
5.1.15. Additional Instruments. Execute such additional instruments as
may be requested by Lender in order to carry out the intent of this Agreement
and to perfect or give further assurances of any of the rights granted or
provided for hereunder or under any of the Loan Documents.
5.1.16. Indemnification. Indemnify, defend and hold harmless Lender and
its officers, directors, employees and agents from and against any and all
liabilities, losses, claims, damages and expenses, including reasonable
attorneys' fees and expenses, of any kind or nature directly or indirectly
resulting from or arising out of the Loan, any of the Loan Documents or any act
or omission to act by Lender or its officers, directors, employees or agents in
connection therewith, including, without limitation, all claims for commissions
to any broker or intermediary, disputes between or among Borrower, Contractor,
Architect, any design professional, subcontractors, material suppliers,
purchasers and tenants, unless caused by the gross negligence or willful
malfeasance of Lender or by Lender's failure to perform its covenants under the
Loan Documents.
5.2. Negative Covenants. Borrower covenants and agrees that from the
date hereof and for so long as this Agreement shall remain in effect or the Note
shall remain outstanding, Borrower shall not:
5.2.1. Amendment or Modification. Except as permitted by Sections 3.6.
and 5.1.5. above, materially amend, vary, terminate or modify, or permit to be
materially amended, varied, terminated or modified, or waive or permit waiver of
compliance with any provisions or requirements of the Plans and Specifications,
the Construction Loan Budget, the Construction Contract, any of the agreements
with design professionals (including, without limitation, the Architect and the
Interior Designer) or Contractors or Governmental Authorities or any agreement
or contract assigned to Lender.
5.2.2. Conveyance or Lease. Except for the execution of permitted
Residential Living Agreements or other agreements entered into in the ordinary
course of business or as otherwise may be expressly permitted in the Loan
Documents (including assignments to Affiliates) sell, assign, transfer, convey,
lease, or otherwise dispose of the Land or the Project, or any part thereof or
interest or estate therein, either directly or indirectly by deed, merger,
stock, partnership or membership interest transfer or liquidation, or otherwise
permit ownership or control of the Land or the Project to be other than in
Borrower as constituted as of the date hereof.
5.2.3. Assignment. Assign this Agreement or any of the other Loan
Documents except to an Affiliate.
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<PAGE>
5.2.4. Encumbrances. Create by mortgage, pledge, assignment, security
agreement or otherwise, or suffer to exist, any security interest, pledge, lien,
charge or other encumbrance upon the Land or the Project or any portion thereof,
except (1) the liens or security interests created pursuant to the Loan
Documents, (2) liens for taxes not yet due and payable, (3) mechanics' or tax
liens being contested by Borrower in appropriate proceedings with the approval
of Lender, a bond or escrow having been posted with Lender for the full amount
of such lien, (4) Residential Living Agreements with residents as contemplated
and permitted hereby and (5) liens on the real property benefiting the Project.
5.2.5. Governing Documents. Amend, or permit to be amended, Borrower's
Certificate of Incorporation if such amendment would have a material adverse
effect on Lender's rights under this Agreement or under any of the other Loan
Documents.
5.2.6. Modification of Residential Living Agreements. Charge any
resident under a Residential Living Agreement materially less than the standard
charge for the applicable unit in accordance with the Schedule of Charges
attached hereto as Exhibit F, without, in each instance, obtaining Lender's
prior written approval, which approval shall not be unreasonably withheld.
6. EVENTS OF DEFAULT AND REMEDIES
6.1. Events of Default. The occurrence of any of the following shall
constitute an event of default ("Event of Default") hereunder:
6.1.1. The failure to complete the Improvements substantially in
accordance with the Plans and Specifications, in the judgment of the Inspecting
Architect/Engineer, on or before the Completion Date;
6.1.2. The failure of Borrower to pay within seven (7) days of the date
due any installment of principal and/or interest due under the Note, or any
other monetary obligation under any of the Loan Documents;
6.1.3. The failure of Borrower to perform any term, covenant or
condition of this Agreement or of any other Loan Document (including, without
limitation, the Mortgage) (other than defaults which are separately and
expressly identified in this Section 6, which defaults shall not be included in
the operation of this Section 6.1.3.) and the continuation of such default for
more than thirty (30) days following the giving of notice of such default to
Borrower; provided, however, that such default shall not be deemed to be an
Event of Default if such default cannot reasonably be cured within such thirty
(30) day period, and Borrower shall have commenced to cure such default within
such thirty (30) day period and thereafter diligently and expeditiously proceeds
to cure the same, and Borrower shall submit to Lender, within such thirty (30)
day period, a detailed plan to cure such default satisfactory to Lender, such
thirty (30) day period shall be extended for so long as it shall require
Borrower in the exercise of due diligence to cure such default, it being agreed
that no such extension (a) shall be for a period in excess of one
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hundred and twenty (120) days or (b) shall be construed as having the effect of
extending the Completion Date. The rights to notice and a cure period granted
herein shall not be cumulative with any other rights to notice or a cure period
in any other Loan Document, any and all grace periods in any Loan Document shall
run concurrently and not successively, and the giving of notice or a cure period
pursuant to this paragraph shall satisfy any and all obligations of Lender to
grant any such notice or cure period pursuant to any of the Loan Documents;
6.1.4. Any representation or warranty of Borrower hereunder or under
any of the other Loan Documents or other materials submitted to Lender in
connection with the Loan shall have been untrue or incorrect in any material
respect when made;
6.1.5. The appearance on any survey required or requested by Lender
pursuant to the provisions of this Agreement of any condition which materially
and adversely affects the Property not approved by Lender, and failure to remove
such condition after notice thereof by Lender to Borrower within thirty (30)
days after such notice, or if Lender agrees (which agreement shall not be
unreasonably withheld), such additional time as necessary to remove such
condition;
6.1.6. The failure to carry on construction of the Improvements with
reasonable diligence, in the judgment of the Inspecting Architect/Engineer, or
if the Inspecting Architect/Engineer becomes of the opinion that the
Improvements cannot be completed by the Completion Date, unless such judgment or
opinion is reasonably contested by Borrower and the Lender agrees to such
contest, which agreement shall not be unreasonably withheld;
6.1.7. (a) The commencement by Borrower or Guarantor of a voluntary
case under any Chapter of the Bankruptcy Code (Title 11 of the United States
Code) as now or hereafter in effect, or the taking by Borrower or Guarantor of
any equivalent or similar action by the filing of a petition or otherwise under
any other federal or state law in effect at the time relating to bankruptcy or
insolvency; (b) the filing of a petition against Borrower or Guarantor under any
Chapter of the Bankruptcy Code (Title 11 of the United States Code) as now or
hereafter in effect, or the filing of a petition seeking any such equivalent or
similar relief against Borrower or Guarantor under any other federal or state
law in effect at the time relating to bankruptcy or insolvency, and the failure
of the Borrower or guarantor to obtain a dismissal of said petition within sixty
(60) consecutive days from the filing date of said petition; (c) the making by
Borrower or Guarantor of a general assignment for the benefit of its or any of
their creditors; (d) the appointment of a receiver, trustee, custodian or
similar officer for Borrower or Guarantor or for the property of Borrower or
Guarantor and the failure by Borrower or Guarantor to secure the discharge of
such receiver, trustee, custodian or similar officer within ninety (90)
consecutive days from the date of appointment; or (e) the admission in writing
by Borrower or Guarantor of any inability to pay debts generally as they become
due;
6.1.8. Any permit (including, without limitation, the Building Permit),
approval or agreement obtained from or issued by any Governmental Authority is
withdrawn, canceled, terminated, or modified to the material detriment of
Borrower or the Project, unless
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Borrower reinstates and confirms in all respects the permit, approval, or
agreement previously in effect within a period of ten (10) days thereafter;
6.1.9. Any material breach of any environmental covenant, or if any
representation or warranty herein or in any other Loan Document regarding
environmental matters proves false in any material respect;
6.1.10. The occurrence of a default under and as defined in any other
Loan Document or a default by Borrower under any other Loan Document after the
expiration of any applicable notice and/or grace periods;
6.1.11. Any litigation or administrative proceeding shall commence
involving Borrower, this Agreement, any other Loan Document, or Borrower's
construction of the Improvements which, in Lender's sole judgment, has or may
have a material and adverse effect on the ability of Borrower to perform any of
its obligations under this Agreement or any other Loan Document, or to complete,
or to operate and use, the Improvements, or any part thereof, for the purposes
intended, or the value of the Collateral as security for the Note, and such
litigation or proceeding shall not have been terminated or dismissed or stayed
within sixty (60) days after the commencement thereof;
6.1.12 The creation or sufferance of any lien, mortgage, pledge or
other encumbrance on the Collateral (or any portion thereof), other than the
Permitted Exceptions or as otherwise expressly permitted under Section 5.2.5;
6.1.13. The occurrence of any Event of Default under and as defined in
the Guaranty; or
6.1.14. Any sale, assignment or transfer of the Collateral (or any
portion thereof) except in the ordinary course of business.
6.2. Remedies.
Upon the occurrence of any Event of Default, Lender, in addition to any
other rights or remedies available at law or in equity, or under any of the
other Loan Documents, may exercise any or all of the following rights and
remedies as it, in its sole discretion, deems necessary or desirable:
6.2.1. Declare immediately due and payable, without further notice or
demand, all monies advanced under this Agreement, the Note, the Mortgage or any
of the Loan Documents which are then unpaid, together with all interest then
accrued thereon and all other amounts then owing (including, without limitation,
the prepayment fee provided for under Section 3.3 of the Note), and exercise all
rights and remedies available under the Note, Mortgage and any of the other Loan
Documents at law, in equity or otherwise;
6.2.2. Enter upon the Land and take possession of the Land,
Improvements and Project, either in the course of construction or completed, and
all materials, supplies, tools, equipment and construction facilities and
appliances located thereon, and proceed either in the name of Lender or in the
name of Borrower, as the attorney-in-fact of Borrower (which
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authority is hereby granted by Borrower, is coupled with an interest, and is
irrevocable), as Lender shall elect, to complete the Improvements at the cost
and expense of Borrower, pursuant to advances made on behalf of Borrower
hereunder or otherwise. If Lender elects to complete or cause the Improvements
to be so completed, it shall do so substantially in accordance with such
changes, alterations or modifications in and to the Plans and Specifications as
Lender shall reasonably deem expedient or necessary, and Lender may enforce or
cancel all contracts entered into by Borrower or make other contracts which are
in Lender's sole opinion advisable, and Borrower shall be liable to pay Lender
upon demand any amount or amounts expended by Lender for such performance,
together with any costs, charges, or expenses incident thereto or otherwise
incurred or expended by Lender or its representatives on behalf of Borrower in
connection with the Improvements, and the amounts so expended shall be
considered part of the Loan evidenced by the Note and secured by the Mortgage
and the Assignments, and shall bear interest at the Default Rate specified in
the Note to be payable by Borrower on such indebtedness;
6.2.3. Terminate Lender's obligations under this Agreement, including
the obligation to make further advances (including advances requested prior to
such termination but not actually made at the time such termination occurs); and
6.2.4. Institute appropriate proceedings for injunctive relief
(including specific performance of the obligations of Borrower hereunder and
under the other Loan Documents).
6.3. Remedies Cumulative; Waivers. All of the remedies herein given to
Lender or otherwise available at law or in equity to Lender shall be cumulative
and may be exercised separately, successively or concurrently. Failure to
exercise any one of the remedies herein provided shall not constitute a waiver
thereof by Lender, nor shall the use of any such remedies prevent the subsequent
or concurrent resort to any other remedy or remedies vested in Lender by the
Loan Documents or at law or in equity. To be effective, any waiver by Lender
must be in writing, and such waiver shall be limited in its effect to the
condition or default specified therein, and no such waiver shall extend to any
subsequent condition or default. No grace period, qualification or condition
stated with respect to any Event of Default shall modify or extend, or will be
construed as an undertaking by Lender to modify or extend, the Completion Date,
which Completion Date remains always of the essence in this Agreement.
7. INSURANCE
7.1. Coverage. Borrower shall, from and after the date hereof and at
all times while this Agreement is in effect or the Note remains outstanding,
maintain at Borrower's expense insurance in amounts, with deductibles, with
companies reasonably satisfactory to Lender, and having such other terms and
provisions, all as described below or in Paragraph 5 of the Mortgage.
7.2. Certificates; Notices.
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7.2.1. Borrower shall furnish to Lender duplicate copies of policies of
insurance or certificates of Borrower's insurance agent certifying to the
insurance required and including photocopies of all policies certified by such
agent to be correct, complete and current, as Lender may request (i) on or
before the Closing Date, (ii) upon the renewal or replacement of existing
coverage or the obtaining of additional coverage, and (iii) at any other time
upon the request of Lender.
7.2.2. Each insurance policy of Borrower shall name Lender as an
additional insured party and shall provide that all proceeds payable thereunder
shall be paid to Lender as loss payee or trustee for the beneficial owners
thereof. All policies shall be issued by companies acceptable to Lender and
having a Standard & Poors financial rating of AA or better and a size class
rating of XII or larger.
7.2.3. Each insurance policy of Borrower shall be on a non-reporting
and non-contributing form basis and shall contain a provision (i) requiring the
insurer to notify Lender, in writing and at least thirty (30) days in advance,
of any cancellation or material change in the policy, and (ii) stating that any
loss otherwise payable thereunder shall be payable notwithstanding any act or
neglect of the insureds and notwithstanding (a) the occupation or use of the
Project for purposes more hazardous than permitted by the terms of such policy,
(b) any change in title to or ownership of the Project, or (c) any provision of
the policy relieving the insurer thereunder of liability for any loss by reason
of the existence of other policies of insurance covering the Project against the
peril involved, whether or not collectible. The amount of insurance in all cases
shall be sufficient to prevent any co-insurance contribution on any loss. Upon
completion of construction of the Improvements and prior to any occupancy, the
builder's risk policy shall be replaced by a policy of extended coverage fire
insurance, and the Borrower shall also deliver to the Lender a rental
curtailment or interruption insurance policy in the amount reasonably
satisfactory to Lender.
7.2.4. Each insurance policy of any of the design professionals
required pursuant to Section 7.3. hereof, or of the Contractor required pursuant
to Section 7.4. hereof, shall contain a provision requiring the insurer to
notify Lender in writing at least thirty (30) days in advance of any
cancellation or material change in the policy.
7.3. Liability Insurance of Design Professionals. Borrower shall
require all of the design professionals under a direct agreement with Borrower
to procure and maintain professional liability insurance for claims arising out
of the performance by each such design professional of professional services in
connection with the Project. Such professional liability insurance shall provide
for coverage in such amounts, with such deductible provisions, and for such
periods of time as are reasonably satisfactory to Lender.
7.4. Contractor's Insurance. Borrower shall require the Contractor to
procure and maintain the insurance coverages described in Paragraphs 5.1.1. and
5.1.3. of the Mortgage with insurance companies reasonably acceptable to Lender.
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8. MISCELLANEOUS
8.1. Lender's Discretion. If any condition of this Agreement requires
the submission of evidence of the existence or non-existence of a specified fact
or facts, or implies as a condition the existence or non-existence of such fact
or facts, Lender will, at all times, be free independently to establish to its
reasonable satisfaction and in its reasonable discretion such existence or
nonexistence. Where any matter herein requires the approval or consent of the
Lender, the giving or refusal to give such approval or consent shall be within
Lender's reasonable discretion, except as may be expressly stated otherwise. Any
waiver of any condition in connection with an advance by Lender, on any one or
more occasions, shall not constitute or be deemed to constitute a waiver of any
such other condition for that or for any other advance, and Lender may strictly
enforce all conditions hereof with respect to any advance.
8.2. No Third Party Beneficiary. The parties do not intend the benefits
of this Agreement to inure to any third party, nor shall this Agreement be
construed to make or render Lender liable to any purchaser, materialman,
contractor, subcontractor, laborer or other person for goods or materials
supplied or work or labor furnished or services rendered in connection with the
construction of the Improvements, or for debts or claims accruing to any such
persons against Borrower. Lender shall not be liable for the manner in which any
advance may be applied by Borrower. Notwithstanding anything contained herein,
in the Note or in any other Loan Document, or any conduct or course of conduct
by either or both of Borrower and Lender, before or after the execution of this
Agreement, this Agreement shall not be construed as creating any right, claim or
cause of action against Lender or any of its officers, directors, agents or
employees, in favor of any contractor, subcontractor, design professional,
supplier of labor or materials, or any of their respective creditors, or any
other person other than Borrower. Without limiting the generality of the
foregoing, advances made to any contractor, subcontractor, design professional,
supplier of labor or materials or other creditor of Borrower, whether or not
such advances are approved by Lender, shall not be deemed a recognition by
Lender of third party beneficiary status of any such person. No part of the Loan
will be at any time subject, or liable to attachment or levy at the suit of any
creditor of Borrower, or at the suit of any contractor, subcontractor or
material supplier, or any of their creditors, and regardless of any other term,
condition or provision hereof, no such third party will have any status, right
or entitlement hereunder.
8.3. No Joint Venture. Nothing contained in this Agreement or the other
Loan Documents shall create a partnership or joint venture or principal-agent
relationship between Borrower and Lender or between Lender and any other party,
or cause Lender to be liable in any way for the debts or obligations of Borrower
or any other party.
8.4. Reliance on Representations and Warranties. Lender shall be
entitled to rely upon the representations and warranties of Borrower set forth
in any of the Loan Documents without any investigation by Lender and
notwithstanding any investigation conducted by Lender or on its behalf before or
after the date hereof.
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8.5. Assignment; Further Assurances.
8.5.1. The rights of Borrower hereunder shall not be assignable in any
respect without the prior written consent of Lender, which consent may be
granted or withheld in Lender's sole discretion; provided, however, that
Borrower shall be entitled to assign its rights hereunder to an Affiliate of the
Borrower upon written notice to Lender. If such assignment hereof is made by
Borrower pursuant to this Section 8.5.1., Lender shall be entitled to make
advances to such assignee and such advances shall be secured by the Mortgage and
the Assignments. In any case, Borrower shall remain liable for repayment of all
sums advanced hereunder before and after such assignment.
8.5.2. Without Borrower's consent or approval, this Agreement, the Note
and any of the other Loan Documents may be endorsed, assigned or transferred in
whole or in part by Lender, and interests in the Loan may be participated by
Lender and any such holder, assignee or participant thereof shall succeed to and
be possessed of the rights of Lender under all of the Loan Documents to the
extent so endorsed, transferred, participated or assigned.
8.5.3. Subject to the foregoing, this Agreement shall be binding upon,
and shall inure to the benefit of, Borrower and Lender and their respective
successors and assigns.
8.5.4. Borrower shall execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings and do such other acts
as may be necessary (a) to evidence, preserve and/or protect the Collateral at
any time securing or intended to secure the Note, and/or (b) to further and more
effectively carry out the intents and purposes of this Agreement and the other
Loan Documents, as Lender may require from time to time, in Lender's discretion.
8.6. Notices. All notices, approvals, consents requests, demands and
other communications with, to, from or upon the respective parties hereto shall
be in writing and shall be hand delivered or sent by guaranteed overnight
delivery service or by registered mail, return receipt requested, postage
prepaid, addressed as follows:
8.6.1. If to Lender:
ElderTrust Operating Limited Partnership
415 McFarlan Road
Suite 202
Kennett Square, PA 19348
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With a required copy (which shall not
constitute notice) to the following, but
only in connection with defaults
hereunder:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
8.6.2. If to Borrower:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
With a required copy (which shall not
constitute notice) to the following, but
only in connection with defaults
hereunder:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
or to such other address as either party may designate from time to time by
notice to the other in the manner set forth herein. All such communications
shall be deemed to be given (i) if hand delivered or sent by guaranteed
overnight delivery service, on the day received, or (ii) if mailed, on the
second business day following deposit thereof in the U.S. Mail.
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8.7. Table of Contents; Headings. The table of contents preceding this
Agreement and the headings preceding the text of the paragraphs of this
Agreement are used solely for convenience of reference and shall not affect the
meaning or interpretation of this Agreement.
8.8. Time of the Essence. All dates and times for performance set forth
herein or in any of the other Loan Documents (whether or not elsewhere so
stated) are of the essence.
8.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed all original, but all of which
together shall constitute one and the same instrument.
8.10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the _________________________________, but not
including the choice of law provisions thereof.
8.11. Severability. Any provision in any of the Loan Documents that is
unenforceable or invalid in any jurisdiction shall, as to such jurisdiction, be
ineffective, but only to the extent of such unenforceability or invalidity of
and without affecting the remaining provisions thereof or affecting the
operation, enforceability or validity of such provision in any other
jurisdiction.
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8.12. JURISDICTION; WAIVER OF JURY TRIAL. BORROWER HEREBY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE
______________________________________________ AND THE UNITED STATES DISTRICT
COURT FOR ________________________________________ IN ANY AND ALL ACTIONS OR
PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY AGREES TO
SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS
SET FORTH HEREIN OR SUCH OTHER ADDRESS AS BORROWER MAY DIRECT BY NOTICE TO
LENDER. BORROWER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL AND
THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND LENDER,
WHETHER HEREUNDER OR OTHERWISE.
8.13. Survival. All agreements, representations and warranties made in
this Agreement shall survive the making of each advance hereunder and shall
remain in full force and effect until the entire unpaid principal amount of the
Loan, together with accrued but unpaid interest thereon and all other amounts
due and payable by Borrower to Lender have been paid in full.
8.14. Controlling Document; Amendment. The provisions of this Agreement
(including the exhibits attached hereto) shall be deemed complementary to the
provisions of the other Loan Documents, but in the event of conflict, the
provisions hereof shall be deemed to modify and supersede the conflicting
provisions in such other Loan Documents and to control to the extent enforceable
under applicable law. Neither this Agreement nor any of the other Loan Documents
may be modified or amended except by a written agreement executed by the party
against whom enforcement thereof is sought.
8.15. Extension of Maturity Date. Subject to the terms and conditions
of this Section 8.15., Borrower shall have the right to request an extension of
the Maturity Date for up to two (2) additional twelve (12) month periods.
Borrower's request to extend the Maturity Date for each of such twelve (12)
month periods shall be approved by Lender provided each of the following
conditions precedent to each such extension shall have been satisfied to the
sole satisfaction of Lender: (i) Borrower's written request to extend the
Maturity Date shall have been received by Lender no later than 60 days prior to
the Maturity Date; (ii) the Improvements shall have been completed in strict
accordance with the terms of this Agreement no later than the Completion Date;
(iii) each of the conditions set forth in Section 3.4. of this Agreement shall
have been satisfied; (iv) no Event of Default shall exist under this Agreement
or any other Loan Document and no event shall exist which with the passage of
time or the giving of notice, or both, would constitute an Event of Default
under this Agreement or any other Loan Document; and (v) Borrower shall have
paid Lender an extension fee equal to ____________________ percent (______%) of
the original principal amount of the Loan (the "Extension Fee"). In connection
with any such extension permitted under this Section 8.15., the interest rate
under the Note shall be revised to equal the Three Year Treasury Rate (as
defined in the Note) on the date immediately preceding the applicable extension
period, plus _____________________________
36
<PAGE>
percent (_____%). In the event the Maturity Date is not extended in accordance
with the terms of this Section 8.15., the Maturity Date shall remain [three
years from date of closing].
8.16. Modification of Documents. In connection with any extension of
the Maturity Date in accordance with Section 8.15., Borrower shall
simultaneously execute and deliver (or cause to be executed and delivered by the
relevant party) such modifications and amendments to the Loan Documents,
opinions of counsel and "bringdowns" and endorsements to Lender's policy of
title insurance as Lender may request in its sole discretion.
8.17. Reimbursement of Expenses. Borrower shall reimburse Lender for
all reasonable costs and expenses incurred by Lender after the closing date in
connection with the construction, inspection and financing of the Project and
the administration of the Loan, including, without limitation, the reasonable
fees and expenses (including travel, lodging and similar expenses) of
architects, designers, surveyors, title insurers and counsel. The obligations of
Borrower under this Section 8.17. shall survive the termination of this
Agreement and the payment of the Note.
IN WITNESS WHEREOF, Borrower and Lender have caused this
Agreement to be duly executed as of the day and year set forth on the first
page hereof.
BORROWER
-----------------------------
By:
----------------------------------
Name:
Title:
LENDER
ELDERTRUST OPERATING LIMITED PARTNERSHIP
By: ElderTrust, General Partner
By:
----------------------------------
Name:
Title:
37
<PAGE>
EXHIBIT SCHEDULE
CONSTRUCTION LOANS
<TABLE>
<CAPTION>
- -- ------------------ ------------ ----------------------- -------------------------- --------------------- --------------------
Borrower Loan Amount Mandatory Initial Draw Interest Rate Extension Rights Management Agreement
-------- ----------- ---------------------- ------------- ---------------- --------------------
<S> <C> <C> <C> <C>
1. The Oaks (Genesis) $5,380,000 $1,500,000 Fixed at 350 basis points Rights to 2 one-year None
over 3-year Treasury Bills extensions
as of closing date
- -- ------------------ ------------ ----------------------- -------------------------- --------------------- --------------------
</TABLE>
<PAGE>
FORM OF SECURED NOTE
$ ---------- -----------------------
__________________, 1998
FOR VALUE RECEIVED, _______________________________, a
___________________________, with offices at
___________________________________________________ ("Maker"), hereby promises
to pay to the order of ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware
limited partnership, with offices at 415 McFarlan Road, Suite 202, Kennett
Square, PA 19348 (herein with all subsequent holders of this Note referred to,
collectively, as "Holder"), at the offices of Holder or at such other place as
Holder shall designate in writing, the principal amount of ________________
_____________________________________ ($_____________), or so much thereof as
may be disbursed pursuant to the Loan Agreement (as defined below) (the "Loan"),
in lawful money of the United States of America, and in immediately available
funds, with interest thereon from the date hereof at the Interest Rate stated
below ("Interest"), all such principal and Interest to be paid as set forth
below, without offset.
1. Interest Rate. The interest rate hereon (the "Interest
Rate") (computed on the basis of actual days elapsed and a year of 360 days)
shall be ______ percent (____%) per annum; provided, however, that in the event
that the Maturity Date (as defined below) is extended pursuant to Section 8.15
of the Loan Agreement (as defined below), the Interest Rate for such extension
periods shall be revised to equal the Three Year Treasury Rate on the date
immediately preceding the applicable extension period, plus ___________________
percent (____%). As used herein, the term "Three Year Treasury Rate" shall mean
the yield on the United States Treasury note or bond, as identified by Holder,
having the closest maturity (month and year) to the date which is three (3)
years from the first day of the applicable extension period.
2. Security. This Note evidences a loan advanced in connection
with that certain Construction Loan Agreement (the "Loan Agreement"), dated as
of the date hereof between Maker and Holder, and is secured by (a) a Mortgage
and Security Agreement, dated as of the date hereof, to be executed by Maker in
favor of Holder (the "Mortgage"), which Mortgage was or shall be recorded
following its execution, and is intended to and does encumber, among other
things, that certain parcel of land, together with the buildings, structures and
other improvements now or hereafter erected thereon and owned by Maker located
in ____________ Township, Pennsylvania, as more fully described in the Mortgage
(and referred to in the Mortgage and herein as the "Mortgaged Premises"); (b) an
Assignment of
<PAGE>
Rents and Leases by Maker in favor of Holder (the "Assignment of Leases"); (c)
an Assignment of Agreements affecting Real Estate by Maker in favor of Holder
(the "Assignment of Agreements"); (d) a Guaranty and Suretyship Agreement by
______________________________, an affiliate of Maker, in favor of Holder (the
"Guaranty"); and (e) other documents given or to be given as security for the
Loan. This Note, together with the Mortgage, Assignment of Leases, Assignment of
Agreements, Guaranty and all other documents executed in connection therewith,
as the same may be modified, amended, supplemented or assigned from time to
time, are sometimes referred to herein collectively as the "Loan Documents" or
individually as a "Loan Document."
3.Repayment; Maturity.
3.1. Interest on the outstanding principal balance hereof
shall accrue from the date hereof and shall be due and payable in arrears on the
first business day of each month, commencing on the first such day of the month
next commencing after the date hereof.
3.2. The entire unpaid principal amount hereof, together with
all accrued but unpaid Interest thereon and all other amounts payable hereunder
or under any of the Loan Documents shall be due and payable on the earlier to
occur of the following: (a) the date on which the Mortgaged Premises is sold or
transferred by Maker to any third party and (b) _________________
________________, (the "Maturity Date"), or such earlier date resulting from
acceleration by Holder of the indebtedness evidenced by this Note in connection
with any Event of Default (as defined below) or otherwise. The Maturity Date may
be extended by up to ____ additional twelve (12) month periods pursuant to
Section 8.15 of the Loan Agreement.
3.3 Any payment on this Note coming due on a Saturday, Sunday
or a day which is a legal holiday in the place at which a payment is to be made
hereunder shall be made on the next succeeding day which is a business day in
such place, and any such extension of the time of payment shall be included in
the computation of interest hereunder.
4.Additional Payments, Default Rate.
4.1. In addition to the payments provided for in Paragraph 3
above, Maker promises to pay on demand any future advances or additional monies
required to be paid or advanced by Maker, or paid or advanced on behalf of Maker
by Holder, pursuant to the terms of the Loan Agreement, the Mortgage and the
other Loan Documents. Maker promises to pay all costs and expenses (including
without limitation reasonable attorneys' fees and disbursements) incurred by
Holder in connection with the collection hereof or in the protection or
realization of any collateral now or hereafter given as security for the
repayment hereof. This Note shall evidence, and the Mortgage and other Loan
Documents shall secure the payment of, all such
-2-
<PAGE>
sums so advanced or paid, and such advances or payments shall bear interest at
the same rate as the principal indebtedness hereunder.
4.2. From and after the Maturity Date (as extended, if
appropriate) and from and after the occurrence of any Event of Default
irrespective of any acceleration or otherwise, all amounts remaining unpaid or
thereafter accruing hereunder, as well as any amounts owing pursuant to the
foregoing Paragraph 4.1, shall bear interest at a default rate (the "Default
Rate") of two (2) percent (2%) per annum above the Interest Rate.
5. Application of Interest. In the event the interest
provisions hereof or any exactions provided for herein or in any of the Loan
Documents shall result in an effective rate of interest which, for any period of
time, exceeds the limit of any usury or other law applicable to the loan
evidenced hereby, all sums in excess of those lawfully collectible as interest
for the period in question shall, without further agreement or notice between or
by any party hereto, be applied toward repayment of outstanding principal
immediately upon receipt of such moneys by Holder with the same force and effect
as if Maker had specifically designated such extra sums to be so applied to
principal and Holder had agreed to accept such extra payment(s) in repayment of
the principal balance hereof. Notwithstanding the foregoing, however, Holder may
at any time and from time to time elect, by notice in writing to Maker, to
reduce or limit the collection of any interest to such sums which shall not
result in any payment of interest in excess of that lawfully collectable. Maker
agrees that in determining whether or not any interest payable under this Note
exceeds the highest rate permitted by law, any non-principal payment shall be
deemed to the extent permitted by law to be an expense, fee, premium or penalty,
rather than interest.
6. Events of Default. The occurrence of any one or more of the
following shall constitute an "Event of Default" hereunder:
(a) Failure to pay, when due, the principal, any interest or
any other sum payable hereunder (whether upon the Maturity Date or upon
acceleration or otherwise);
(b) The occurrence of any Event of Default, as defined in the
Loan Agreement; or
(c) The occurrence of any Event of Default, as defined in the
Mortgage.
7.Remedies. If an Event of Default exists, Holder may exercise
any right, power or remedy permitted by law or as set forth herein or in the
Mortgage, the Loan Agreement or in any other Loan Document and, without limiting
the generality of the foregoing, Holder shall thereupon have the right to
declare the entire unpaid principal amount hereof and all interest accrued
hereon, and all other sums secured by the Mortgage, the Loan Agreement or by any
other Loan Document to be, and such
-3-
<PAGE>
principal, interest and other sums shall thereupon become, forthwith due and
payable. Holder shall have the right of set-off against all property of the
undersigned now or at any time in Holder's possession.
8.Rights Cumulative. The rights and remedies of Holder as
provided herein and in any other Loan Document, and all warrants of attorney
contained herein and therein shall be cumulative and concurrent, and may be
pursued singly, successively or together against Maker or the Mortgaged Premises
or any other collateral security for payment of amounts due hereunder, at the
sole discretion of Holder; and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of the same. No single or
partial exercise by the Holder of any right hereunder or under any Loan Document
shall preclude any other or further exercise of any other rights. Holder shall
not by any act of omission or commission be deemed to waive any of its rights or
remedies under this Note unless such waiver is in writing and signed by Holder,
and then only to the extent specifically set forth therein; and a waiver of one
event shall not be construed as continuing or as a bar to or waiver of such
right or remedy on a subsequent event.
9.Waivers.
9.1. Maker expressly waives presentment for payment, demand,
notice of dishonor, protest, notice of protest, diligence of collection, and
(except as otherwise expressly provided herein or in any other Loan Document to
the contrary) any other notice of any kind, and hereby consents to any number of
renewals and extensions of time of payment hereof, which renewals and extensions
shall not affect the liability of Maker.
9.2. Maker hereby waives and releases all errors, defects and
imperfections in any proceedings instituted by Holder under the terms of this
Note, or under any other Loan Document, as well as all benefit that might accrue
to Maker by virtue of any present or future laws exempting the Mortgaged
Premises, or any other property, real, personal or mixed, or any part of the
proceeds arising from any sale of such property, from attachment, levy or sale
under execution, or providing for any stay of execution, exemption from civil
process, or extension of time for payment. Maker agrees that any real estate
that may be levied upon pursuant to a judgment obtained by virtue hereof, or
upon any writ of execution issued thereon, may be sold upon any such writ in
whole or in part in any order desired by Holder.
10. Construction of Terms. The word "Maker" whenever used
herein is intended to and shall be construed to mean the entity who has executed
this Note, and its successors and assigns, and the liability of each such person
or entity shall be joint and several. All covenants, promises, agreements,
authorizations, waivers, releases, options, undertakings, rights and benefits
made or given herein by Maker shall bind and affect all persons who are
hereinabove defined as "Maker" as fully as though all such persons were
specifically named herein whenever the term "Maker" is
-4-
<PAGE>
used. Whenever used, the singular number shall include the plural, the plural
the singular, and the use of any gender shall be applicable to all genders.
11. JURISDICTION; TRIAL BY JURY. MAKER HEREBY CONSENTS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND/OR
THE COURTS OF THE UNITED STATES LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN
ANY AND ALL ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND
IRREVOCABLY AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO ITS ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS MAKER MAY
DIRECT BY NOTICE TO HOLDER. MAKER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES
A JURY TRIAL AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN MAKER AND
HOLDER, WHETHER HEREUNDER OR OTHERWISE.
12. Modifications. This Note may not be changed orally, but
only by an agreement in writing signed by Maker and Holder.
13. Governing Law. This Note shall be governed by and
construed according to the law of the Commonwealth of Pennsylvania (but not
including the choice of law provisions thereof).
14. Headings. The headings preceding the text of the
paragraphs hereof are inserted solely for convenience of reference and shall not
constitute a part of this Note nor shall they affect its meaning, construction
or effect.
15. Severability. If any provision of this Note or the
application thereof is held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions hereof shall not be affected thereby,
and each provision of this Note shall be valid and enforceable to the fullest
extent permitted by law.
16. Communications. All communications required or permitted
by this Note shall be in accordance with Section 8.6 of the Loan Agreement.
18. Assignment. This Note and the obligations of Maker
hereunder shall not be assigned in any respect without the prior written consent
of Holder, which consent may be granted or withheld in Holder's sole discretion.
Holder shall have the absolute right, without Maker's consent or approval, to
assign in whole or in part this Note and/or the other Loan Documents to any
third party(ies).
IN WITNESS WHEREOF, Maker has caused this Note to be duly
executed as of the day and year first above written.
-5-
<PAGE>
MAKER:
-------------------------------------
By:
---------------------------------
Name:
Title:
<PAGE>
Exhibit 10.15.3
Tax Parcel No.:
_________________________________
This document prepared by:
_________________________________
_________________________________
_________________________________
Attention: _____________________
FORM OF CONSTRUCTION LOAN MORTGAGE
AND SECURITY AGREEMENT
by and between
as Mortgagor
and
ELDERTRUST OPERATING LIMITED PARTNERSHIP
as Mortgagee
<PAGE>
TABLE OF CONTENTS
Page
----
1. REPRESENTATIONS, WARRANTIES AND COVENANTS.............................5
2. ASSIGNMENT OF LEASES AND RENTS.......................................13
3. DECLARATION OF NO SET-OFF............................................13
4. INSPECTION...........................................................14
5. REQUIRED NOTICES.....................................................14
6. CURE BY MORTGAGEE....................................................14
7. CHANGE IN LAWS.......................................................15
8. RETENTION OF COUNSEL.................................................15
9. EVENTS OF DEFAULT....................................................15
10. REMEDIES.............................................................16
11. RIGHTS AND REMEDIES CUMULATIVE.......................................18
12. POSSESSION BY MORTGAGEE..............................................19
13. WAIVERS..............................................................19
14. CONDEMNATION.........................................................20
15. SECURITY AGREEMENT...................................................21
16. FURTHER ASSURANCES...................................................22
17. NO OFFSET............................................................22
18. MISCELLANEOUS PROVISIONS.............................................23
19. ENVIRONMENTAL MATTERS................................................25
--------------------
SCHEDULE OF EXHIBITS
--------------------
Exhibit A: Legal Description of Mortgaged Premises
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
THIS IS A MORTGAGE UNDER __________________________ WHICH
SECURES, AMONG OTHER THINGS, FUTURE ADVANCES.
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made
as of this _________ day of ____________ , 1998, by and between , a
_________________ with offices at ("Mortgagor"), and ELDERTRUST OPERATING
LIMITED PARTNERSHIP, a Delaware limited partnership with offices at 415 McFarlan
Road, Suite 202 Kennett Square, Pennsylvania 19348 (together with its successors
and assigns, "Mortgagee").
BACKGROUND
WHEREAS, Mortgagor and Mortgagee have entered into that
certain Construction Loan Agreement, dated as of the date hereof (as modified,
renewed, extended, amended, supplemented and/or assigned from time to time, the
"Loan Agreement"), the terms of which are incorporated herein by reference,
pursuant to which the Mortgagee has agreed to make a loan (the "Loan") to the
Mortgagor;
WHEREAS, in connection with the Loan Agreement, Mortgagor has
executed and delivered a Secured Note (as modified, renewed, extended, amended,
supplemented and/or assigned from time to time, the "Note"), dated as of the
date hereof, payable to the order of Mortgagor as holder in the principal amount
of $___________;
WHEREAS, as a condition of making the Loan to Mortgagor,
Mortgagee has required Mortgagor to execute and deliver this Mortgage;
WHEREAS, as additional security for the obligations secured
hereby, Mortgagor has executed and delivered (or caused to be executed and
delivered) to Mortgagee: (a) an Assignment of Rents and Leases assigning, among
other things, all of Mortgagor's rights under all Residential Living Agreements
(as defined in the Loan Agreement) as well as all other rents and income
relating to or affecting the Mortgaged Premises (as defined herein) now or
hereafter in effect (the "Assignment of Leases"); (b) an Assignment of
Agreements Affecting Real Estate by Mortgagor in favor of Mortgagee (the
"Assignment of Agreements"); (c) a Guaranty and Suretyship Agreement by Genesis
Health Ventures, Inc., an affiliate of Mortgagor, in favor of Mortgagee (the
"Guaranty"); and (d) other documents given or to be given as security for the
indebtedness evidenced by the Note;
WHEREAS, this Mortgage, together with the Loan Agreement, the
Note, Assignment of Leases, Assignment of Agreements, the Guaranty and all other
<PAGE>
documents executed in connection therewith and herewith, as the same may be
modified, renewed, extended, amended, supplemented and/or assigned from time to
time, are sometimes collectively referred to herein as the "Loan Documents" or
individually as a "Loan Document";
WHEREAS, the principal balance of the Note, together with
interest thereon and all other sums payable thereunder or under the Loan
Document or secured by the Loan Documents, is herein collectively referred to as
the "Indebtedness"; and
WHEREAS, capitalized terms used but not otherwise defined
herein shall have the meaning set forth in the Loan Agreement.
CONVEYANCE
NOW, THEREFORE, Mortgagor, in consideration of the
Indebtedness, and to secure payment of the same, with interest and in accordance
with the terms and conditions of the Loan Documents, and for performance of the
agreements, conditions, covenants, provisions and stipulations contained herein
and therein (the "Obligations"), has granted, bargained, sold, released and
conveyed and by these presents hereby does grant, bargain, sell, release and
convey unto Mortgagee, its successors and assigns, the real property located in
_______________________, as described in Exhibit A attached hereto and
incorporated herein by reference (the "Real Estate");
TOGETHER WITH all of Mortgagor's right, title and interest now
owned or hereafter acquired in all buildings and improvements erected or
hereafter erected on the Real Estate (the "Improvements");
AND TOGETHER WITH all of Mortgagor's right, title and interest
now owned or hereafter acquired, in or to (a) all furnishings, fixtures,
machinery, equipment and other articles of property of every nature whatsoever,
whether or not real property, now or at any time hereafter installed in,
attached to or situated in or upon, or used, useful, or intended to be used in
connection with or in the operation or maintenance of, the Real Estate or the
Improvements, or in the operation of any Improvements, plant or business now or
hereafter situate thereon, which shall include, but not be limited to, all
lighting, heating, ventilating, security, air conditioning, sprinkling and
plumbing equipment, fixtures and systems, irrigation, water and power systems
and fixtures, engines and machinery, boilers, gas and electric fixtures,
radiators, heaters, ranges, furnaces, oil burners or units thereof, elevators
and motors, refrigeration plants or units, communication systems, dynamos,
transformers, generators, electrical equipment, storm and screen windows,
shutters, doors, decorations, awnings, shades, blinds and signs, and trees,
shrubbery and other plantings; (b) all furnishings, furniture, appliances,
supplies, tools, accessories and operating inventory now or hereafter located on
the Real Estate; (c) all building materials, fixtures, building machinery and
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<PAGE>
building equipment delivered on site to the Real Estate or any portion thereof
during the course of, or in connection with the construction of, or
reconstruction of, or remodeling of any Improvements, from time to time during
the term hereof; (d) all parts, fittings, accessories, accessions, substitutions
and replacements therefor and thereof; and (e) all proceeds from the sale,
transfer or other disposition of any of the foregoing, whether voluntary or
involuntary, and all proceeds of the conversion of any of the foregoing into
cash or liquidated claims, including without limitation, proceeds of insurance
and condemnation awards (collectively, the "Related Property");
AND TOGETHER WITH all and singular the tenements,
hereditaments and appurtenances belonging to the Real Estate or any part
thereof, hereby mortgaged or intended so to be, or in anywise appertaining
thereto (including, without limitation, all rents, issues, income and profits
arising therefrom); all streets, alleys, passages, ways, watercourses; all other
rights, liberties, easements, covenants and privileges of whatsoever kind or
character; the reversions and remainders; and all the estate, right, title,
interest, property, possession, claim and demand whatsoever, as well at law as
in equity, of Mortgagor, in and to all of the foregoing or any or every part
thereof, and all of the estate, right, title and interest of Mortgagor in and to
each and every existing and future Residential Living Agreement and lease with
respect to all or any portion of the Real Estate, including, without limitation,
all rents, issues, income and profits arising therefrom (collectively the
"Appurtenances"). All of the Real Estate, Improvements, Related Property and the
Appurtenances, are collectively referred to herein as the "Mortgaged Premises".
TO HAVE AND TO HOLD the Mortgaged Premises hereby granted and
conveyed, or mentioned and intended to be so granted and conveyed, with the
appurtenances, unto Mortgagee, forever.
AS INDEPENDENT AND SEPARATE SECURITY for the payment of the
Indebtedness and performance of the Obligations, Mortgagor hereby grants to
Mortgagee as security interest in and lien upon and hereby assigns to Mortgagee
the following (collectively, the "Collateral"): (a) all property included in the
Mortgaged Premises which might otherwise be deemed "personal property" and the
"proceeds" thereof (as defined in the Uniform Commercial Code as in effect from
time to time in the _____________________ (the "UCC")), including, without
limitation, fixtures, furnishings, furniture, equipment, appliances, machinery,
supplies, tools, accessories and operating inventory thereof, (b) all
Residential Living Agreements and leases, whether now in existence or hereafter
created, together with all rents, issues, income and profits due and to become
due thereunder and deposits and other payments made in respect thereof and, upon
the occurrence of an Event of Default (as hereinafter defined), confers upon
Mortgagee the power to enter upon and take possession of the Mortgaged Premises
and to rent the same, either in its own name or in the name of Mortgagor, and to
receive the rents, issues, income and profits and to apply the same to the
payment of interest, principal, taxes, insurance premiums, repairs, alterations,
-4-
<PAGE>
improvements and other expenses in such order of priority as Mortgagee shall
determine, but such collection of rents, issues, income and profits shall not
operate as an affirmance of any resident, tenant, Residential Living Agreement,
lease or sublease in the event that title to all or any part of the Mortgaged
Premises should be acquired by Mortgagee or any other purchaser at a foreclosure
sale or otherwise, (c) all Accounts (as defined in the UCC), agreements of sale,
contract rights, accounts receivable and business records relating to the
Mortgaged Premises, together with all deposits and other payments made in
respect thereof, and (d) all of Mortgagor's right, title and interest in and to
all insurance policies, proceeds of insurance policies and condemnation proceeds
applicable to all or any part of the Mortgaged Premises, regardless of who
maintains such insurance, including but not limited to Mortgagor or any resident
or tenant of the Mortgaged Premises.
ADDITIONAL PROVISIONS
1. Representations, Warranties and Covenants. Mortgagor
represents, covenants, warrants and agrees to and with Mortgagee, as follows:
(a) Title; Power. Mortgagor has good and marketable fee
simple title to the Mortgaged Premises, to all rents, issues, income and profits
therefrom and to the Collateral, and has the right, full power and lawful
authority to grant, convey and assign the same to Mortgagee in the manner and
form set forth herein. The Mortgaged Premises and the Collateral are free and
clear of all liens, encumbrances and other charges whatsoever, excepting only
those items expressly excepted from the coverage of the ALTA Loan Policy of
Title Insurance issued and dated as of the date hereof by Commonwealth Land
Title Insurance Company to, and approved by, Mortgagee (the "Permitted
Exceptions"). Mortgagor hereby grants Mortgagee, its successors and assigns, the
right of quiet enjoyment and possession of the Mortgaged Premises, and Mortgagor
shall defend as to all of the Mortgaged Premises the title of Mortgagee hereby
created.
(b) Compliance. Except as would not have a material
adverse effect on Mortgagor or the Mortgaged Premises, Mortgagor shall duly
observe, conform, obey and comply with, or shall cause due observation,
conformance, obedience and compliance with, all Legal Requirements (as defined
in the Loan Agreement) affecting all or any part of the Mortgaged Premises or
the occupancy thereof, the business or operations now or hereafter conducted
thereon or the Collateral, and Mortgagor will comply and will ensure that the
Mortgaged Premises and the Collateral hereafter continuously complies with all
applicable environmental and other Legal Requirements; provided, however, that
if Mortgagor in good faith and by appropriate legal action contests the validity
or application of any such Legal Requirement, then Mortgagor's failure to comply
with any such Legal Requirement, shall not be an Event of Default so long as the
contest (i) operates to prevent enforcement thereof or the potential sale,
forfeiture or loss of the Mortgaged Premises, (ii) does not interfere with the
development, use, occupancy or operations of the Mortgaged Premises, the rent,
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<PAGE>
fees and/or charges payable by residents of the Mortgaged Premises and the
timely payment of all sums due hereunder, and (iii) is maintained and prosecuted
with diligence and has not been terminated or discontinued adversely to
Mortgagor.
(c) Payment and Performance. Mortgagor shall pay to
Mortgagee, in accordance with the terms of the Note, the Loan Agreement and this
Mortgage, all the Indebtedness, and shall perform and comply with all of the
Obligations.
(d) Taxes and Other Charges. Mortgagor shall promptly pay
or cause to be paid when due and payable and before interest or penalties shall
accrue thereon, without any deduction, defalcation or abatement, all taxes,
assessments, water and sewer rents and all other charges or claims which may be
assessed, levied or filed at any time against Mortgagor, the Mortgaged Premises,
the Collateral or any part thereof or against the interest of Mortgagee therein,
or which by any present or future law may have priority over the indebtedness
secured hereby either in lien or in distribution out of the proceeds of any
judicial sale. Mortgagor, if and as requested by Mortgagee, shall produce to
Mortgagee, not later than ten (10) days prior to the dates when any of the same
shall commence to bear interest or penalties, receipts for the payment thereof.
Notwithstanding the foregoing, if Mortgagor in good faith and by appropriate
legal action shall contest the validity or application of any such item or the
amount thereof and, at the option of Mortgagee, shall have established on its
books or by deposit of cash with Mortgagee a reserve for the payment thereof in
such amount as Mortgagee may require, and Mortgagee has consented in writing to
such action, then Mortgagor shall not be required to pay the item or to produce
the required receipts while the reserve is maintained and so long as the contest
operates to prevent collection, to stay any proceedings which may be instituted
to enforce payment of such item and to prevent a sale of the Mortgaged Premises
or the Collateral to pay such item (unless required by law as a condition of
such contest), such contest is maintained and prosecuted with diligence, and
shall not have been terminated or discontinued adversely to Mortgagor. Mortgagor
shall not apply for or claim any deduction, by reason of this Mortgage, from the
taxable value of all or any part of the Mortgaged Premises or the Collateral. It
is expressly agreed that no credit shall be claimed or allowed on the interest
payable on the Note because of any taxes or other charges paid.
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(e) Insurance.
(i) Mortgagor shall, from and after the date hereof
and at all times while this Mortgage is in force or the Note remains
outstanding, maintain at Mortgagor's expense insurance in amounts, with
deductibles and with companies satisfactory to Mortgagee. Without limiting the
generality of the foregoing, Mortgagor shall maintain the following minimum
coverages and shall not carry separate insurance, concurrent in kind or form,
unless otherwise agreed to in writing by Mortgagee:
(A) insurance which complies with the
workers' compensation and employers' liability laws of all states in which
Mortgagor shall have employees;
(B) comprehensive general liability
insurance covering all operations of Mortgagor and with a combined single limit
of not less than $3,000,000.00 per occurrence for bodily injury (including
death) and property damage;
(C) during the course of any construction,
reconstruction, remodeling or repair of Improvements, builders' all-risk
extended coverage insurance in amounts based upon the replacement value of the
improvements (excluding roads, foundations, parking areas, paths, walkways and
like improvements), including coverage for loss of contents and endorsed to
provide that occupancy by any person shall not void such coverage;
(D) following completion of construction and
prior to occupancy by any person, fire, extended coverage, vandalism and
malicious mischief insurance in an amount equal to the replacement value of the
Improvements, including coverage for loss of contents owned by Mortgagor (but
excluding the costs of all excavations and foundations and footings below the
lowest basement floor), but in no event less than the outstanding principal
amount of the Note, which policy shall contain a replacement cost endorsement;
(E) automobile liability insurance covering
all owned, non-owned and hired vehicles used by Mortgagor in the conduct of its
business, with a combined single limit for bodily injury (including death) and
property damage of not less than $1,000,000.00 per occurrence;
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(F) umbrella liability insurance concurrent
with the coverages named in subparagraphs (B), (C), (D) and (E) of this
Paragraph 1(e)(i), in an amount not less than $5,000,000.00;
(G) if the Mortgaged Premises is in an area
designated by the Secretary of Housing and Urban Development as having special
flood hazards, flood insurance on the improvements on the Mortgaged Premises and
any and all personal property used or to be used in connection therewith;
(H) following completion of construction and
prior to occupancy by any resident, business interruption insurance and/or "loss
of rental value" insurance, as appropriate, for a period of twelve (12) months
in an amount equal to the gross income from the Mortgaged Premises for a period
of twelve (12) months, as determined from time to time to be reasonably
satisfactory to Mortgagee; and
(I) such other insurance, and in such
amounts, as reasonably required by Mortgagee from time to time.
(ii) Upon execution hereof, Mortgagor shall furnish
to Mortgagee duplicate copies of such policies of insurance or certificates of
Mortgagor's insurance agent certifying to the insurance required and including
photocopies of all policies certified by such agent to be true and correct, in
each case specifying the expiration date. Not less than thirty (30) days prior
to the expiration of any such coverage, Mortgagor shall deliver to Mortgagee a
duplicate policy or certificate evidencing the renewal of such coverage and the
payment of all premiums.
(iii) The liability insurance policies required under
subparagraphs (B) and (F) shall name Mortgagee as an additional insured and the
policies required under subparagraphs (C), (D) and (G) shall name Mortgagee as
mortgagee under a standard mortgagee clause. The policy required under
subparagraph (H) shall name Mortgagee as loss payee under a loss payable
endorsement. All policies shall be issued by and maintained with companies
acceptable to Mortgagee.
(iv) Each insurance policy shall be on a nonreporting
and noncontributing form basis and shall contain a provision (A) requiring the
insured to notify Mortgagee, in writing and at least thirty (30) days in
advance, of any cancellation or material change in the policy, (B) stating that
any loss otherwise payable thereunder shall be payable to Mortgagee
notwithstanding any act or neglect of the insureds and notwithstanding the
occupation or use of the Mortgaged Premises for purposes more hazardous than
permitted by the terms of such policy, any change in title to or ownership of
the Mortgaged Premises, or any provision of the policy relieving the insurer
thereunder of liability for any loss by reason of the existence of other
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policies of insurance covering the Mortgaged Premises against the peril
involved, whether or not collectible, and (C) excluding Mortgagee from the
operation of any coinsurance clause.
(v) If the insurance, or any part thereof, shall
expire, or be withdrawn, or become void or unsafe, in the opinion of Mortgagee,
by reason of Mortgagor's breach of any condition thereof, or by reason of the
failure or impairment of the capital of any company in which the insurance shall
be carried, or if for any reason whatsoever the insurance shall be
unsatisfactory to Mortgagee, Mortgagor shall place new insurance on the
Mortgaged Premises satisfactory to Mortgagee.
(vi) In the event of loss to all or any portion of
the Mortgaged Premises, Mortgagor shall give immediate written and oral notice
thereof to Mortgagee, and Mortgagee may make proof of loss if not made promptly
by Mortgagor; provided, however, that any adjustment of proof of loss shall
require the prior written consent of Mortgagee. Each insurance company concerned
is hereby authorized and directed to make payment under such insurance,
including return of unearned premiums, to Mortgagee instead of to Mortgagor and
Mortgagee jointly, and Mortgagor irrevocably appoints Mortgagee as Mortgagor's
attorney-in-fact to endorse any draft thereof, which appointment, being for
security, is coupled with an interest and is irrevocable.
(vii) All policies of insurance required hereunder
and all renewals thereof are hereby assigned to Mortgagee as additional security
for payment of the indebtedness hereby secured and Mortgagor hereby agrees that,
if an Event of Default hereunder shall have occurred and be continuing, any
amounts available thereunder upon cancellation or termination of any of such
policies or renewals, whether in the form of return of premiums or otherwise,
shall be payable to Mortgagee as assignee thereof. If Mortgagee becomes the
owner of the Mortgaged Premises, or any part thereof, by foreclosure, deed in
lieu thereof, or otherwise, such policies, including all right, title and
interest of Mortgagor thereunder, shall become the absolute property of
Mortgagee.
(viii) Mortgagee shall have the right to retain and
apply the proceeds of any such insurance, at its sole election, to reduction of
the indebtedness secured hereby, or to require Mortgagor to restore or repair
the damaged portion of the Mortgaged Premises. If Mortgagee elects to require
Mortgagor to restore or repair the damaged portion of the Mortgaged Premises,
such restoration and repair shall be in accordance with plans and specifications
approved by Mortgagee, and the proceeds therefor shall be disbursed by Mortgagee
to Mortgagor only in accordance with the terms and conditions of the Loan
Agreement applicable to the disbursement of loan proceeds as if such loan
proceeds were loan advances thereunder. Notwithstanding anything contained in
the foregoing to the contrary, (A) provided no Event of Default then exists and
(B) Mortgagee in its reasonable judgment is satisfied that there are sufficient
net proceeds to complete restoration of the building(s) and improvements on the
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Real Estate to substantially the same value, condition and character as existed
prior to such damage within the term of the Note (or, in the case of any
deficiency, Mortgagor shall have deposited with Mortgagee an amount equal to
such deficiency), Mortgagee shall allow the insurance proceeds to be used for
restoration of the Mortgaged Premises, such proceeds to be disbursed from time
to time as restoration progresses in accordance with the terms and conditions of
the Loan Agreement applicable to the disbursement of loan proceeds.
(f) Insurance and Tax Escrows. Upon the occurrence and
during the continuance of an Event of Default, Mortgagor, at the request of
Mortgagee, agrees to pay to Mortgagee, in addition to and at the time of the
required payments of Indebtedness, and commencing with the first payment due
after the date of such request, a sum equal to the premiums which will next
become due on the insurance policies required by this Mortgage, plus taxes,
water and sewer rents and assessments next due on the Mortgaged Premises (all as
estimated by Mortgagee) together with any sums due for special assessments,
charges or claims and any other item which at any time may be or become a lien
upon the Mortgaged Premises prior to the lien of this Mortgage, less all sums
already paid therefor or deposited with Mortgagee for the payment thereof,
divided by the number of payments to become due before one (1) month prior to
the date when such premiums, taxes, assessments and other charges will become
due, such sums to be held by Mortgagee, without interest, to pay such premiums,
taxes and assessments when due. If the amount of such deposits shall exceed
payments made by Mortgagee for such premiums, taxes and assessments, the excess
shall be credited on account of subsequent deposits to be made by Mortgagor. If
such deposits shall be insufficient to pay such insurance premiums, taxes and
assessments when due, Mortgagor shall pay to Mortgagee the amount of the
deficiency no later than the first day of the month following determination of
the deficiency. No amount so paid shall be deemed to be trust funds but may be
commingled with general funds of Mortgagee, and no interest shall be paid to
Mortgagor on such funds. If, pursuant to any provision of the Note, the Loan
Agreement or this Mortgage, the whole amount of the principal debt secured
hereby becomes due and payable, Mortgagee shall have the right, at its sole
election, to apply any amount so held against the entire Indebtedness.
(g) Waste; Maintenance; Alterations; Compliance. Mortgagor
shall (i) abstain from and shall not permit the commission of waste in or about
the Mortgaged Premises, (ii) maintain the Mortgaged Premises and the Collateral
in good order and condition, reasonable wear and tear excepted, and, except with
respect to any undeveloped portion thereof, in a rentable and tenantable state
of repair, (iii) make or cause to be made, as and when necessary, all repairs
and replacements, structural and non-structural, exterior and interior, ordinary
and extraordinary, foreseen and unforeseen, whether or not the same may be
necessary by reason of fire or other casualty and whether or not insurance
proceeds are available therefor, (iv) not remove or demolish the buildings or
other Improvements now or hereafter erected upon the Real Estate, nor alter the
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design or structural character of any building or other Improvement now or
hereafter erected thereon so as to diminish the value thereof, unless Mortgagee
shall first consent thereto in writing (other than such renovations and
construction as is permitted and required by the Loan Agreement) and (v) comply
with all Legal Requirements and all licenses, permits, approvals and
restrictions affecting the Mortgaged Premises and the Collateral, including,
without limitation, deed restrictions.
(h) Residential Living Agreements.
(i) Mortgagor shall timely perform all of its
obligations under the terms and conditions of all Residential Living Agreements
affecting the Mortgaged Premises and expressly covenants that it shall not
accept rent, fees or charges therefor in advance for a period of more than one
(1) month.
(ii) Mortgagor represents that there are no
Residential Living Agreements, leases or agreements to lease all or any part of
the Real Estate now in effect, except those specifically set forth in the
Assignment of Leases, and assigned to Mortgagee hereunder and by the Assignment
of Leases. Mortgagor shall execute, acknowledge and deliver to Mortgagee
assignments of all future Residential Living Agreements and leases of all or any
portion of the Real Estate in form and substance satisfactory to Mortgagee and
shall at the request of Mortgagee, at Mortgagor's expense, record assignments
thereof.
(iii) There is no assignment or pledge of any rents,
issues, income and profits of or from the Mortgaged Premises or the Collateral
now in effect, except pursuant to the Assignment of Leases. Mortgagor shall not
make any assignment or pledge thereof to anyone other than Mortgagee until the
Indebtedness is fully irrevocably and indefeasibly paid and this instrument is
canceled.
(iv) No existing or future Residential Living
Agreement or lease shall be altered or modified to materially reduce the fee
payable thereunder without the prior written consent of Mortgagee.
(i) No Transfer; No Other Liens.
(i) Without the prior written consent of
Mortgagee, Mortgagor shall abstain from and shall not cause or permit any
conveyance, transfer or other disposition of title to, or an equitable interest
in, the Mortgaged Premises, the Collateral or any part thereof (other than by
execution on the Note or foreclosure under the Loan Agreement or this Mortgage)
voluntarily or by operation of law or any agreement to do any of the foregoing
(including but not limited to an installment sale contract) except to an
Affiliate of Mortgagor. If Mortgagor is a corporation, a transfer of any stock
of Mortgagor shall be deemed to violate this prohibition on transfers; if
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Mortgagor is a partnership, a transfer of any partnership interest in Mortgagor
shall be deemed to violate this prohibition on transfer; and if Mortgagor is a
limited liability company, a transfer of any membership interest in Mortgagor
shall be deemed to violate this prohibition on transfer. A consent by Mortgagee
to one such transfer or disposition shall not be construed as continuing or as a
bar to or waiver of the requirement the Mortgagor obtain the prior written
consent of Mortgagee to any other subsequent transfer or disposition.
(ii) Without the prior written consent of
Mortgagee, Mortgagor shall not lease any personal property, as lessee, which is
now or hereafter intended to be a part of the Mortgaged Premises or the
Collateral or is necessary for the operation of Mortgagor's business at the
Mortgaged Premises or the Collateral, or create or cause or permit to exist any
lien on, or security interest in the Mortgaged Premises or Collateral, including
any furniture, fixtures, appliances, equipment, funds or other items of personal
property which are intended to be or become part of the Mortgaged Premises or
the Collateral.
(iii) Mortgagor shall not, without the prior
written consent of Mortgagee, create or cause or permit to exist (voluntarily or
involuntarily) any lien (other than the lien of this Mortgage), encumbrance or
charge on, or security interest in, all or any part of the Mortgaged Premises or
the Collateral, excepting only the Permitted Exceptions and any such interest
existing at law for real estate taxes which are not yet due and payable. If any
such lien or encumbrance is filed or entered, Mortgagor shall cause it to be
removed of record within fifteen (15) days after it is filed or entered by
either paying it, having it bonded in a manner which removes it of record or
otherwise having it removed of record. By placing or accepting a mortgage, lien
or encumbrance of any type, whether voluntary or involuntary, against the
Mortgaged Premises, the holder thereof shall be deemed to have agreed, without
any further act or documentation being required, that its mortgage, lien, or
encumbrance shall be subordinate in lien priority to this Mortgage and to any
future amendments, consolidations or extensions to this Mortgage (including,
without limitation, amendments which increase the interest rate on the Note,
provide for future advances secured by this Mortgage or provide for the release
of portions of the additional Mortgaged Premises or the Collateral with or
without consideration).
(iv) The provision of this Paragraph 1(i)
shall be deemed notice to the holder of any subordinate mortgage or other
mortgage or lien, whether or not consented to by Mortgagee, that it has been
deemed to have waived and relinquishes any rights which it may have, whether
under a legal theory of marshaling of assets or any other theory at law or in
equity, to restrain Mortgagee from, or recover damages from Mortgagee as a
result of, Mortgagee's exercising its various remedies hereunder and under any
other documents or instruments evidencing or securing the indebtedness secured
hereby, in such order and with such timing as Mortgagee shall deem appropriate
in its sole and absolute discretion.
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(v) Mortgagee may, at any time or from time
to time, renew, extend or increase the amount of this Mortgage, or alter or
modify the terms of this Mortgage or the Note in any way, or waive any of the
terms, covenants or conditions hereof or of the Note in whole or in part and may
release any portion of the Mortgaged Premises, the Collateral or any other
security, and grant such extensions and indulgences in relation to the
indebtedness secured hereby as the Mortgagee may determine, without the consent
of any junior lienor or encumbrancer and without any obligation to give notice
of any kind thereto and without in any manner affecting the priority or the lien
hereof on all or any part of the Mortgaged Premises or the Collateral.
2. Assignment of Leases and Rents.
Mortgagor hereby absolutely and presently conveys,
transfers and assigns to Mortgagee all Leases and Rents. It is the intention of
Mortgagor that the foregoing assignment constitute a present, absolute
assignment of the Leases and Rents and not an assignment for additional security
only, which gives Mortgagee the present right to collect the rents and apply the
Rents in partial payment of the Note. Mortgagor intends that the Leases and
Rents be absolutely irrevocably and unconditionally assigned and that they no
longer be property of Mortgagor or property of the estate of Mortgagor, as
defined in 11 U.S.C.ss. 541. If any law exists requiring Mortgagee to take
actual possession of the Mortgaged Premises or the Collateral (or some action
equivalent to taking possession of the Mortgaged Premises or the Collateral,
such as securing the appointment of a receiver) in order for Mortgagee to
"perfect" or "activate" the right and remedies of Mortgagee, Mortgagor waives
the benefit of such law. Subject to the terms of this Mortgage and the
Assignment of Leases, Mortgagee grants to Mortgagor a license, revocable, as
hereinafter provided, to collect and use the Rents subject to the requirements
of this Mortgage and the Assignment of Leases. Upon the occurrence of any Event
of Default (as defined below), the license granted to Mortgagor herein shall, at
Mortgagee's election, be revoked by Mortgagee, and Mortgagee shall immediately
be entitled to possession of all Rents collected thereafter (including Rents
past due and unpaid) whether or not Mortgagee enters upon or takes control of
the Mortgaged Premises. Upon such a revocation of the license granted herein,
Mortgagee promptly shall provide Mortgagor with written notice of same. Any
Rents collected by Mortgagor from and after the date on which an Event of
Default occurred shall be held by Mortgagor in trust for Mortgagee. Mortgagee is
hereby granted and assigned by Mortgagor the right, at its option, upon
revocation of the license granted herein, to enter upon the Mortgaged Premises
in person, by agent or by court appointed receiver to collect the Rents.
3. Declaration of No Set-Off. If requested at any time by
Mortgagee, Mortgagor shall promptly (and in any event within ten (10) days after
Mortgagee's request) furnish Mortgagee or Mortgagee's designee with a
declaration of no set-off, in form and substance satisfactory to Mortgagee or
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any such designee, certifying, in a writing duly acknowledged, the amount of
principal, interest and other charges then owing under the Loan Documents, and
whether there are any set-offs or defenses against the same, and, if so, the
nature and amount thereof.
4. Inspection. Mortgagee and any persons authorized by
Mortgagee shall have the right at any time, upon notice to Mortgagor, to enter
upon the Mortgaged Premises during normal business hours to inspect and
photograph the condition and state of repair of the Mortgaged Premises and the
Collateral.
5. Required Notices. Mortgagor shall notify Mortgagee promptly
of the occurrence of any of the following: (a) a fire or other casualty causing
damage to the Mortgaged Premises or the Collateral; (b) receipt of notice of
eminent domain proceedings or condemnation of all or any portion of the Real
Estate; (c) receipt of notice from any governmental authority relating to the
structure, use, operation or occupancy of the Mortgaged Premises; (d) receipt of
any notice with regard to any Hazardous Discharge (as hereinafter defined) or
any other environmental matter affecting the Mortgaged Premises or Mortgagor's
interest therein, including a Release (as hereinafter defined) of any Hazardous
Substance, request for information, demand letter or notification of potential
liability from any entity relating to potential responsibility for investigation
or clean-up of Hazardous Substances on the Mortgaged Premises or any other site
owned or operated by Mortgagor; (e) substantial change in the occupancy,
operation or use of any portion of the Mortgaged Premises or the Collateral; (f)
receipt of any notice of the imposition of, or of threatened or actual execution
on, any lien on, or security interest in, the Mortgaged Premises; (g)
commencement of any litigation or notice of any threat of litigation affecting
the Mortgaged Premises or the Collateral; or (h) receipt of any notice from any
resident at the Mortgaged Premises alleging a default, failure to perform or any
right to terminate its Residential Living Agreement or to set-off rents, fees
and/or charges.
6. Cure by Mortgagee. If Mortgagor at any time fails to pay
any claim, lien or encumbrance which shall be prior to this Mortgage, or fails
to respond promptly to a Release or threat of Release (as hereinafter defined)
of a hazardous, toxic or polluting substance or waste including petroleum or
petroleum products ("Hazardous Substances"), or an Environmental Complaint (as
hereinafter defined), or fails to diligently and expeditiously complete actions
necessary to comply with applicable Legal Requirements, or to any notice
described in Paragraph 5(d) or Paragraph 19(b) hereof, or to pay when due any
tax or assessment or any insurance premium, or to keep the Mortgaged Premises in
repair, or to replace or restore as required hereby, or shall commit or permit
waste, or if there be commenced any action or proceeding affecting the Mortgaged
Premises, the Collateral or the title thereto, Mortgagee, at its option, may pay
such claim, lien, encumbrance, tax, assessment or premium, with right of
subrogation thereunder, may procure such abstracts or other evidence of title as
it deems necessary, may make such cleanup, repairs, replacements or restorations
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and take such steps as it deems advisable to prevent or cure such failure, and
may appear in any such action therein as Mortgagee deems advisable, and for any
of such purposes Mortgagee may advance such sums of money as it deems necessary
to carry out the foregoing (but in no event shall Mortgagee be under any
obligation to do any of the foregoing or to advance any such sums). Mortgagor
shall pay to Mortgagee immediately and without demand all sums of money advanced
by Mortgagee pursuant to this Paragraph 6, together with interest on each
advance at the Default Rate, as defined in the Note, and all such sums and
interest thereon shall be secured hereby.
7. Change in Laws. In the event of the passage, after the date
of this Mortgage, of any law deducting from the value of lands, for the purpose
of taxation, any lien thereon, or imposing upon Mortgagee the obligation to pay
the whole, or any part, of the taxes, assessments, charges or liens herein
required to be paid by Mortgagor, the entire unpaid balance of the indebtedness
secured by this Mortgage shall, at the option of Mortgagee and after sixty (60)
days notice to Mortgagor, become due and payable; provided, however, that if
Mortgagee requests that Mortgagor pay such taxes, assessments, charges or liens,
or to reimburse Mortgagee therefor, and Mortgagor lawfully makes payment thereof
or reimburses Mortgagee therefor, then there shall be no such acceleration of
the time for payment of the unpaid balance of the Indebtedness.
8. Retention of Counsel. If Mortgagee retains the services of
counsel by reason of a claim of a default or an Event of Default hereunder or
under the other Loan Documents, or on account of any matter involving
Mortgagor's title to the Mortgaged Premises, the Collateral or the security
interest intended to be granted hereby, including, without limitation, review of
easements, amendments to the Loan Documents, other related agreements or
documents, any condemnation proceedings, bankruptcy proceedings, or proceedings
involving defects in title which are not covered by Mortgagee's title insurance
policy, or for examination of matters subject to Mortgagee's approval under the
Loan Documents, all costs of suit, if any, and all reasonable attorneys' fees
shall forthwith become due and payable and shall be secured hereby. If Mortgagee
shall institute legal proceedings to foreclose this Mortgage or enter judgment
on the Note, Mortgagor shall pay all expenses, including attorneys' fees as
herein provided and court costs, of Mortgagee in connection with all such
proceedings, whether or not otherwise legally chargeable to Mortgagor, together
with interest at [the higher of the judgment rate or] the Default Rate (as
defined in the Note) until actual payment is made of the full amount due
Mortgagee, and all such sums shall be secured hereby.
9. Events of Default. Each of the following shall constitute
an event of default ("Event of Default") hereunder:
(a) The occurrence of any Event of Default under and as
defined in the Loan Agreement, Note or any other Loan Document.
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(b) The failure of Mortgagor to perform any term, covenant
or agreement in this Mortgage.
(c) Any representation or warranty of Mortgagor hereunder
shall have been untrue or incorrect in any material respect.
(d) Mortgagor's delivery to Mortgagee of a notice under 42
Pa.C.S.A. ss.8143(c) or if any third party provides notice to Mortgagee under 42
Pa.C.S.A. ss.8143(b) and the effect of such notice is to materially impair
Mortgagee's interest in the Mortgaged Premises or the Collateral.
10. Remedies.
(a) Acceleration. Upon the occurrence of any Event of
Default, the Indebtedness shall become immediately due and payable, at the
option of Mortgagee, without further notice or demand.
(b) Remedies. When the entire indebtedness evidenced by
the Note shall become due and payable, either because of maturity or because of
the occurrence of any Event of Default, or otherwise, then Mortgagee may
exercise the following remedies as well as any and all other remedies available
at law:
(i) Mortgagee may institute any one or more actions
of mortgage foreclosure against all of any part of the Mortgaged Premises or the
Collateral, or take such other action at law or in equity for the enforcement of
this Mortgage and realization on the security herein or elsewhere provided for,
as the law may allow, and may proceed therein to final judgment and execution
for the entire unpaid balance of the principal debt, with interest at the
Interest Rate defined in the Note to the date of default, and thereafter at the
Default Rate, together with all other sums due by Mortgagor in accordance with
the provisions of the Note and this Mortgage, including all sums which may have
been loaned by Mortgagee to Mortgagor after the date of this Mortgage, and all
sums which may have been advanced by Mortgagee for taxes, water or sewer rents,
charges or claims, payments on prior liens, insurance, utilities or repairs to
the Mortgaged Premises, all costs of suit, together with interest at the Default
Rate defined in the Note on any judgment obtained by Mortgagee from and after
the date of any Sheriff or other judicial sale until actual payment is made of
the full amount due Mortgagee, and reasonable attorneys' fees and expenses; and
(ii) Mortgagee may enter into possession of the
Mortgaged Premises and the Collateral, with or without legal action, and by
force if necessary; collect therefrom all rentals (which term shall also include
sums payable for use and occupation under all Residential Living Agreements)
and, after deducting all costs of collection and administration expense, apply
the net rentals to any one or more of the following items in such manner and in
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such order of priority as Mortgagee, in Mortgagee's sole discretion, may elect:
the payment of any sums due under any prior lien, taxes, water and sewer rents,
charges and claims, insurance premiums and all other carrying charges, and to
the maintenance, repair or restoration of the Mortgaged Premises, and on account
and in reduction of the principal and interest, or both, hereby secured; in and
for that purpose Mortgagor hereby assigns to Mortgagee all rentals due and to
become due under any lease or leases or rights to use and occupation of the
Mortgaged Premises hereafter created, as well as all rights and remedies
provided in such lease or leases or at law or in equity for the collection of
the rentals.
(c) Right to Recover. Mortgagee shall have the right,
from time to time, to bring an appropriate action to recover any sums required
to be paid by Mortgagor under the terms of this Mortgage, as they become due,
without regard to whether or not the Indebtedness shall be due, and without
prejudice to the right of Mortgagee thereafter to bring an action of mortgage
foreclosure, or any other action, for any default by Mortgagor existing at the
time the earlier action was commenced.
(d) Sale. Any real estate sold pursuant to any writ
of execution issued on a judgment obtained by virtue of the Note or this
Mortgage, or pursuant to any other judicial proceedings under the Mortgage, may
be sold in one parcel, as an entirety, or in such parcels, and in such manner or
order as Mortgagee, in its sole discretion, may elect.
(e) Appointment of Receiver. Mortgagee shall have the
absolute and unconditional right to have a receiver appointed for the Mortgaged
Premises and the Collateral. Such appointment may be made either before or after
sale, without notice, without the need to establish waste or the absence of any
Mortgagor equity in the Mortgaged Premises and without regard to the solvency or
insolvency of Mortgagor at the time of application for such receiver and without
regard to the then value of the Mortgaged Premises or the Collateral or whether
the Mortgaged Premises shall be then occupied as a homestead or not and
Mortgagee hereunder or any agent of Mortgagee may be appointed as such receiver.
Mortgagor hereby approves of and consents to the appointment of any such
receiver upon any Event of Default. Such receiver shall have the power to
perform all of the acts permitted Mortgagee pursuant to Paragraph 10(b) above
and such other powers which may be necessary or are customarily in such cases
for the protection, possession, control, management and operation of the
Mortgaged Premises during such period.
(f) Application of Collections. All sums collected by
Mortgagee under this Mortgage or under the Note on account of principal or
interest or other amounts owing hereunder including, without limitation, costs
of collection and attorneys' fees and expenses, may be applied in such order and
manner as Mortgagee, in its sole discretion, may elect.
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(g) INTEREST. INTEREST AT A RATE EQUAL TO THE DEFAULT
RATE SHALL BE DUE ON ANY JUDGMENT OBTAINED BY MORTGAGEE FROM THE DATE OF SUCH
JUDGMENT UNTIL ACTUAL PAYMENT IS MADE OF THE FULL AMOUNT OF THE JUDGMENT BY THE
SHERIFF OR OTHERWISE. THE OBLIGATIONS OF THE MORTGAGOR AND THE RIGHTS AND
REMEDIES OF THE MORTGAGEE HEREUNDER SHALL CONTINUE AFTER AND SURVIVE THE ENTRY
OF JUDGMENT THEREUNDER OR UNDER THE OBLIGATION THIS MORTGAGE SECURES, IT BEING
THE INTENTION OF THE PARTIES HERETO THAT SUCH RIGHTS, REMEDIES AND OBLIGATIONS
SHALL NOT MERGE INTO OR BE EXTINGUISHED BY ANY SUCH JUDGMENT BUT WILL CONTINUE
UNTIL ALL SUMS SECURED HEREBY SHALL HAVE BEEN IRREVOCABLY AND INDEFEASIBLY PAID
IN FULL.
11. Rights and Remedies Cumulative.
(a) The rights and remedies of Mortgagee as provided
in this Mortgage, in the Note and in any other Loan Document shall be cumulative
and concurrent and are in addition to any other remedies Mortgagee may have at
law or in equity; may be pursued separately, successively or together against
Mortgagor or against the Mortgaged Premises or the Collateral, or any of them,
at the sole discretion of Mortgagee, and may be exercised as often as occasion
therefor shall arise. The failure to exercise any such right or remedy shall in
no event be construed as a waiver or release thereof.
(b) Neither Mortgagor nor any other person now or
hereafter obligated for payment of all or any part of the sums now or hereafter
secured by this Mortgage shall be relieved of such obligation by reason of the
failure of Mortgagee to comply with any request of Mortgagor or of any other
person so obligated to take action to foreclose on this Mortgage or otherwise
enforce any provisions of the Mortgage or the Note, by reason of the release,
regardless of consideration, of all or any part of the security held for the
indebtedness secured by this Mortgage, or by reason of any agreement or
stipulation between any subsequent owner of the Mortgaged Premises or the
Collateral and Mortgagee extending the time of payment or modifying the terms of
the Mortgage or Note without first having obtained the consent of Mortgagor or
such other person; and in the latter event Mortgagor and all such other persons
shall continue to be liable to make payments according to the terms of any such
extension or modification agreement, unless expressly released and discharged in
writing by Mortgagee.
(c) Mortgagee may release, regardless of
consideration, any part of the security held for the indebtedness secured by
this Mortgage without, as to the remainder of the security, in any way impairing
or affecting the lien of this Mortgage or its priority over any subordinate
lien.
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(d) For payment of the Indebtedness, Mortgagee may
resort to any security held by Mortgagee in such order and manner as Mortgagee
may elect. Mortgagor specifically waives the right to require ordering or
marshaling of assets in connection with the realization by Mortgagee of the
security hereunder.
(e) The receipt by Mortgagee of any sums from
Mortgagor after the date on which Mortgagee elects to accelerate the
indebtedness secured hereby by reason of a default hereunder, under the Note or
any other Loan Document shall not constitute a cure or waiver of such default or
a reinstatement of the Note or Mortgage or such other Loan Document, unless
Mortgagee expressly agrees, by written notice to Mortgagor, that such payment
shall be accepted as a cure or waiver of the default.
12. Possession of Mortgaged Premises by Mortgagee. If
Mortgagee shall take possession of the Mortgaged Premises as provided herein,
Mortgagee may do all or any of the following (provided that nothing herein
contained shall obligate Mortgagee to do any of the same): (a) hold, manage,
operate, lease and sublease the Mortgaged Premises, to Mortgagor or any other
person or persons, on such terms and for such periods of time as Mortgagee may
deem proper, and the provisions of any lease or sublease made by Mortgagee
pursuant hereto shall be valid and binding upon Mortgagor notwithstanding the
fact that Mortgagee's right of possession may terminate or this Mortgage may be
satisfied of record prior to the expiration of the term of any such lease; (b)
make such alterations, additions, improvements, renovations, repairs and
replacements to the Mortgaged Premises as Mortgagee may deem proper; (c)
demolish any part or all of the buildings, structures or other improvements on
the Real Estate which in the judgment of Mortgagee may be in unsafe condition
and dangerous to life or property; (d) remodel such buildings or other
Improvements so as to make them available in whole or in part for any business,
dwelling, multiple dwelling or other purposes; and (e) collect the rents, issues
and profits arising from the Mortgaged Premises, both past due and thereafter
becoming due, and apply the same, in order of priority as Mortgagee may
determine, to the payment of all charges and commissions incidental to the
collection of rents and the management of the Mortgaged Premises and all other
sums or charges required to be paid by Mortgagor hereunder or under the Note.
All moneys advanced by Mortgagee for the purposes aforesaid and not repaid out
of the rents collected shall be added to the principal indebtedness hereby
secured and without demand shall be repaid by Mortgagor to Mortgagee, together
with interest thereon at the Default Rate set forth in the Note. The taking of
possession and collection of rents by Mortgagee as aforesaid shall not be
construed to be an affirmation of any lease, or any part thereof, and Mortgagee
or any other purchaser at any foreclosure sale may (if otherwise entitled so to
do) exercise the right to terminate any lease as though such taking of
possession and collection of rents had not occurred.
13. Waivers. The granting of an extension or
extensions of time by Mortgagee with respect to the performance of any provision
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of this Mortgage or the Loan Documents on the part of Mortgagor to be performed,
or the taking of any additional security, or the waiver by Mortgagee or failure
by Mortgagee to enforce any provision of this Mortgage or the Loan Documents, or
to declare a default with respect thereto, shall not operate as a waiver of any
subsequent default or defaults or affect the right of Mortgagee thereafter, to
insist upon strict performance by Mortgagor of the terms hereof or to exercise
all rights, powers or remedies set forth herein and therein.
14. Condemnation.
(a) Mortgagee shall be entitled to receive all sums
which have been or may be awarded Mortgagor for the taking or condemnation of
the Mortgaged Premises or any part thereof for any public or quasi-public use or
purpose, and any sums which may be awarded Mortgagor for damages caused by
public works or construction on or near the Mortgaged Premises. All such
proceeds and awards are hereby assigned to Mortgagee, and Mortgagor, upon
request by Mortgagee, agrees to make, execute and deliver any additional
assignments or documents which may be necessary from time to time to enable
Mortgagee, at its option, to collect and receive the same. Mortgagee shall have
the right to retain and apply all such proceeds and awards, at its election, to
reduction of the indebtedness secured hereby or to require Mortgagor to apply
such proceeds and awards to the repair and restoration of the Mortgaged Premises
in the same manner as set forth in Paragraph 1(e)(viii) hereof with respect to
insurance proceeds. No settlement of any such award shall be made by Mortgagor
without Mortgagee's prior written consent.
(b) Notwithstanding anything contained in the
foregoing to the contrary, (i) provided no Event of Default then exists and (ii)
Mortgagee in its reasonable judgment is satisfied that there are sufficient net
proceeds to complete restoration of the building(s) and improvements on the Real
Estate to substantially the same value, condition and character as existed prior
to such condemnation within the term of the Note (or, in the event of a
deficiency, Mortgagor deposits an amount equal to any such deficiency),
Mortgagee shall allow the condemnation proceeds to be used for restoration of
the Mortgaged Premises, such proceeds to be disbursed from time to time as
restoration progresses in accordance with the terms and conditions of the Loan
Agreement applicable to the disbursement of loan proceeds.
(c) If the amount of the initial award of damages for
the taking or condemnation is insufficient to pay in full the indebtedness
secured hereby with interest and other appropriate charges and other sums
secured hereby, Mortgagee shall have the right to prosecute to final
determination or settlement an appeal or other appropriate proceedings in the
name of Mortgagee or Mortgagor, for which Mortgagee is hereby appointed
attorney-in-fact for Mortgagor, which appointment, being for security, is
coupled with an interest and is irrevocable. In that event, the expenses of the
proceeding, including attorneys' fees as aforesaid, shall be paid first out of
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the proceeds, and only the excess, if any, paid to Mortgagee shall be credited
against the amounts due under the Note and this Mortgage.
(d) Nothing herein shall limit the rights otherwise
available to Mortgagee, at law or in equity, including the right to intervene as
a party to any condemnation proceeding; and Mortgagee is hereby expressly given
the right to intervene as a party to, and otherwise participate in, any such
proceeding, to engage counsel on its behalf, and to add the reasonable
attorneys' fees of any such counsel to the amounts secured hereby.
15. Security Agreement.
(a) This Mortgage constitutes a security agreement
under the UCC, and Mortgagor hereby grants to Mortgagee a security interest in
and lien on all of the Collateral under the UCC and under any other applicable
law. Mortgagor shall execute, deliver, file and refile any financing statements,
continuation statements, or other security agreements Mortgagee may require from
time to time to confirm the lien of this Mortgage with respect to such property.
Without limiting the generality of the foregoing, Mortgagor hereby irrevocably
appoints Mortgagee attorney-in-fact for Mortgagor to execute, deliver and file
such financing statements, continuation statements and other documents necessary
to carry out the provisions hereof, to carry out the purposes hereof or to
confirm the priority of the lien created hereby, for and on behalf of Mortgagor,
which appointment, being for security, is coupled with an interest and is
irrevocable. The security agreement contained in this Mortgage shall survive any
discharge of this Mortgage for so long as any Indebtedness remains unpaid under
the Note or any other Loan Document.
(b) In addition to any other remedies granted in this
Mortgage, Mortgagee may, upon the occurrence of an Event of Default, proceed
under the UCC and any other applicable law as to all or any part of the
Collateral and shall have and may exercise, with respect to the Collateral, all
rights, remedies and powers of secured party under the UCC and any other
applicable law, including, without limitation, the right and power to sell at
public or private sale or sales, or otherwise dispose of, lease or utilize the
Collateral or any parts thereof in any manner authorized or permitted under the
UCC and any other applicable law after default by debtor, and to apply the
proceeds thereof in payment of any costs and expenses and attorney's fees and
legal expenses thereby incurred by the Mortgagee, and to the payment of
indebtedness secured by this Mortgage in such order and manner as the Mortgagee
may elect.
(c) Upon the occurrence of an Event of Default,
Mortgagee may take possession of the Collateral and enter upon any premises
where the same may be situated for such purpose without being guilty of
trespassing and without liability for damages thereby, and take any action
deemed necessary or appropriate or desirable by Mortgagee, at its option, to
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repair, refurbish or otherwise prepare the Collateral for sale, lease or other
use or disposition as herein authorized.
(d) To the extent permitted by law, Mortgagor
expressly waives any notice of sale or other disposition of the Collateral and
any other rights or remedies of a debtor or formalities prescribed by law
relative to a sale or disposition of the Collateral or exercise of any other
right or remedy of Mortgagee existing after default of Mortgagor hereunder; and
to the extent any such notice is required and cannot be waived, Mortgagor agrees
that if such notice is mailed, postage prepaid, to Mortgagor at its address
shown above, at least ten (10) days before the time of sale or disposition, such
notice shall be deemed reasonable and shall fully satisfy any statutory or other
requirement for the giving of such notice. Upon the occurrence of an Event of
Default, Mortgagee shall have the right, at its option, to transfer at any time
to itself or its nominee, the Collateral or any part thereof, and to receive the
monies, income, proceeds or benefits attributable or accruing thereto and to
hold the same as security for the Indebtedness or to apply it to principal or
interest and other amounts owing on any of the Indebtedness in such order and
manner as Mortgagee may elect. All rights to marshaling of assets of Mortgagor,
including any such right with respect to the Collateral, are hereby waived.
(e) Mortgagee may require Mortgagor to assemble the
Collateral and make it available to Mortgagee at a place to be designated by
Mortgagee that is reasonably convenient to both parties. All expenses of
retaking, holding, preparing for sale, lease or other use, and of disposition,
selling, leasing or otherwise using or disposing of the Collateral and the like
which are incurred or paid by Mortgagee as authorized or permitted hereunder,
including all attorneys' fees, legal expenses and costs shall be added to the
indebtedness secured by this Mortgage and Mortgagor shall be liable therefor.
16. Further Assurances. Mortgagor shall execute and
deliver such further instruments and perform such further acts as may be
reasonably requested by Mortgagee from time to time to confirm the provisions of
this Mortgage, the Loan Agreement or the Note, to carry out more effectively the
purposes of this Mortgage or the Loan Documents, or to confirm the priority of
the lien created by this Mortgage on any property, rights or interests
encumbered or intended to be encumbered by the lien of this Mortgage or the
other documents securing the Note.
17. No Offset. All sums payable by Mortgagor herein
shall be paid without notice, demand, counterclaim, setoff, deduction or
defense, without abatement, suspension, deferment, diminution, or reduction, and
the obligation and liabilities of Mortgagor hereunder shall in no way be
released, discharged or otherwise affected (except as expressly provided herein)
by reason of (a) any damage to or destruction of or any condemnation or similar
taking of the Mortgaged Premises or any part thereof; (b) any restriction or
prevention of or interference with any use of the Mortgaged Premises or any part
thereof; (c) any title defect or encumbrance or any eviction from the Mortgaged
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Premises or any part thereof by title, paramount or otherwise; (d) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to Mortgagee, or any action taken
with respect to this Mortgage by any trustee or receiver of Mortgagee or by any
court in any such proceeding; (e) any claim which Mortgagor has or might have
against Mortgagee; (f) any default or failure on the part of Mortgagee to
conform or comply with any of the terms hereof or any other document or
agreement entered into with Mortgagor; or (g) any other occurrences whatsoever,
whether or not Mortgagor shall have notice or knowledge of any of the foregoing.
Mortgagor waives all rights now and hereafter conferred by statute or otherwise
to any abatement, suspension, deferment, diminution or reduction of any sum
secured hereby and payable by Mortgagor.
18. Miscellaneous Provisions.
(a) Mortgagee as Party to Litigation. If Mortgagee
shall become a party, as plaintiff or defendant, to any suit or legal proceeding
brought by or against any third party affecting the lien hereby created on the
Mortgaged Premises or in any way involving Mortgagee on account of its position
as Mortgagee under this Mortgage, as payee under the Note or the Loan Agreement
or as assignee under the Assignment of Leases or any other assignment or Loan
Document, Mortgagor shall indemnify, defend, and hold harmless Mortgagee from
and against all claims, losses or liabilities by reason of such litigation,
including reasonable attorney's fees and expenses incurred by Mortgagee in any
such litigation, whether or not any such litigation is prosecuted to judgment.
Mortgagor agrees to pay to Mortgagee on demand its costs, expenses and
attorneys' fees as aforesaid in any such suit or proceeding.
(b) Stamps or Taxes on Mortgage or Notes. Mortgagor
agrees to pay the cost of any revenue, tax or other stamps now or hereafter
required by law at any time to be affixed to this Mortgage or the Note or the
Loan Agreement, or any tax directly or indirectly on Mortgagee with respect to
the Mortgaged Premises, the Collateral the value of Mortgagor's equity therein,
or the indebtedness evidenced by the Note or secured by this Mortgage, but
excluding any tax on the income of Mortgagee.
(c) Construction of Terms. The word "Mortgagor"
whenever used herein is intended to and shall be construed to include its
successors and assigns permitted hereunder and the word "Mortgagee" whenever
used herein is intended to and shall be construed to include its successors and
assigns.
(d) Binding Obligation. All covenants, agreements,
authorizations, waivers, releases, rights, representations and warranties
contained in this Mortgage made or given by or on behalf of Mortgagor shall be
binding upon Mortgagor's successors in title or interest and Mortgagor's heirs,
executors, administrators, successors and assigns, whether so expressed or not,
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and all covenants, agreements, authorizations, waivers, releases, rights,
representations and warranties contained herein shall inure to the benefit of
Mortgagee and its successors and assigns.
(e) Communications.
(i) All notices and other communications
required or permitted by this Mortgage shall be given in accordance with Section
8.7 of the Loan Agreement.
(ii) Mortgagee shall not be required to give
notice under more than one Loan Document with respect to the same occurrence or
omission and any communication given by Mortgagee hereunder or under any of the
other Loan Documents with respect to such occurrence or omission shall be deemed
to be a notice under all of the Loan Documents. From and after the effective
date of such notice, the time periods for cure or other action by Mortgagor
shall run concurrently as to all Loan Documents.
(f) Covenant Running with the Land. Any act or
agreement to be done or performed by Mortgagor shall be construed as a covenant
running with the land and shall be binding upon Mortgagor and its heirs,
executors, successors and assigns as if they personally made such agreement.
(g) Captions. The captions preceding the text of the
paragraphs or subparagraphs of this Mortgage are inserted for convenience of
reference only and shall not constitute a part of this Mortgage, nor shall they
in any way affect its meaning, construction or effect.
(h) Severability. If any provision of this Mortgage
or the application thereof is held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions hereof shall not be affected
thereby, and each provision of this Mortgage shall be valid and enforceable to
the fullest extent permitted by law.
(i) Governing Law. This Mortgage shall be governed by
and construed in accordance with the law of the Commonwealth of Pennsylvania
(but not including the choice of law provisions thereof).
(j) Modifications. Neither this Mortgage nor the
Note, the Loan Agreement, or any of the Loan Documents may be supplemented,
extended or otherwise modified except by agreement in writing between Mortgagee
and Mortgagor.
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(k) JURISDICTION; TRIAL BY JURY. MORTGAGOR HEREBY
SUBMITS AND CONSENTS TO THE JURISDICTION OF THE COURTS OF THE
_____________________ AND THE COURTS OF THE UNITED STATES DISTRICT COURT LOCATED
IN THE COMMONWEALTH OF PENNSYLVANIA, IN ANY AND ALL ACTIONS OR PROCEEDINGS
ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY AGREES TO SERVICE OF
PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS SET FORTH
HEREIN OR SUCH OTHER ADDRESS AS MORTGAGOR MAY DIRECT BY NOTICE TO MORTGAGEE.
MORTGAGOR IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL AND THE
RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN MORTGAGOR AND MORTGAGEE,
WHETHER HEREUNDER OR OTHERWISE.
(l) Joint and Several Liability. If Mortgagor
consists of more than one person, all agreements, conditions, covenants,
provisions, stipulations, warrants of attorney, authorizations, waivers,
releases, options, undertakings, rights and benefits made or given by Mortgagor
shall be joint and several, and shall bind and affect all persons who are
defined as "Mortgagor" as fully as though all of them were specifically named
herein wherever the word "Mortgagor" is used.
(m) Future Advances. This Mortgage is given to secure
and hereby secures, among other things, all future advances and obligations of
Mortgagor to Mortgagee incurred or to be incurred pursuant to the terms of the
Loan Agreement, the Note and this Mortgage, including, but not limited to, all
advances made with respect to the Mortgaged Premises and the Collateral for the
payment of taxes, assessments, maintenance charges, insurance premiums or costs
incurred for the protection of the Mortgaged Premises or Collateral or the lien
of this Mortgage, expenses incurred by Mortgagee by reason of a default by
Mortgagor under this Mortgage or any other Loan Document. This Mortgage secures
all advances authorized under ______________.
19. Environmental Matters.
(a) The Mortgagor represents, covenants and warrants
that:
(i) the Mortgaged Premises, and the
operations being conducted thereon have been and will be operated in compliance
with all applicable environmental Legal Requirements and all permits, licenses
and approvals required thereunder have been obtained and complied with in all
material respects;
(ii) no Hazardous Substances have been or
are being emitted, released, spilled, discharged, leaked, dumped or disposed
(each, a "Release") or pose a threat of Release at, upon, under, within, or from
the Mortgaged Premises;
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(iii) there are no aboveground or
underground storage tanks, radon, asbestos materials, PCBs or urea formaldehyde
insulation at, upon, under or within the Mortgaged Premises;
(iv) the Mortgaged Premises has never been
used for the treatment, storage, recycling, or disposal of Hazardous Substances;
(v) no Hazardous Substances are present at
the Mortgaged Premises excepting small quantities of petroleum and chemical
products, in proper storage containers, as are necessary for the construction or
operation of the business of Mortgagor, and the usual waste products therefrom
stored and handled in full compliance with environmental Legal Requirements
("Permitted Substances"). Other than Permitted Substances, Mortgagor will not
place or permit to be placed any Hazardous Substances on the Mortgaged Premises;
(vi) there is no basis for the imposition of
any lien based on any governmental environmental action at the site, and no such
lien has been imposed and none is threatened;
(vii) its grantor was not required to and
did not place a notice in the deed to the Mortgaged Premises related to presence
of Hazardous Substances at the Mortgaged Premises as required by 35 P.S. Section
6018.405 or otherwise;
(viii) neither the Mortgagor nor, to the
best of its knowledge after diligent inquiry, any other person or entity has
been, is or will be involved in operations upon the Mortgaged Premises which
could lead to the imposition of environmental liability on Mortgagor, or on any
other subsequent or former owner of the Mortgaged Premises or the creation of an
environmental lien on the Mortgaged Premises; and
(ix) Mortgagor has not permitted, and will
not permit, any resident, occupant or other user of the Mortgaged Premises to
engage in any activity with respect to the use, manufacturing, generation,
treatment, processing, storage, recycling or disposal of any Hazardous
Substances that could impose environmental liability on such resident, occupant
or user, on the Mortgagor or on any owner or operator of any of the Mortgaged
Premises.
(b) In the event the Mortgagor obtains, gives or
receives notice of any Release or threat of Release of any Hazardous Substances
at the Mortgaged Premises (any such event being hereinafter referred to as a
"Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Mortgaged Premises, demand letter
or complaint, order, citation, or other notice with regard to any Hazardous
Discharge or any other environmental matter affecting the Mortgaged Premises or
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Mortgagor's interest therein (an "Environmental Complaint") from any person or
entity, including any federal, state or local government authority, then the
Mortgagor shall, within five (5) business days, forward a copy of same to
Mortgagee and give written notice of same to the Mortgagee detailing facts and
circumstances giving rise to the Hazardous Discharge or Environmental Complaint.
Such information is to be provided to allow Mortgagee to protect its security
interest in the Mortgaged Premises.
(c) Promptly upon the written request of the
Mortgagee, which written request may be made by the Mortgagee only with the
reasonable belief that there has been an actual or alleged violation of
environmental Legal Requirements or a Hazardous Discharge at the Mortgaged
Premises, or in the event of notice to Mortgagee of a Hazardous Discharge or
presence of Hazardous Substances at the Mortgaged Premises or an environmental
condition forming the basis of the Environmental Complaint, or there has been an
Event of Default, the Mortgagor at its sole expense shall provide Mortgagee with
an environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of the
Mortgagee, assessing with a reasonable degree of certainty the existence of a
Hazardous Discharge, presence of Hazardous Substances or such other
environmental condition and an estimate of the potential cost in connection with
investigation, removal, remedial action or other response action with respect to
any Hazardous Substance found on, under, at or within the Mortgaged Premises or
the potential cost to cure or fully respond to such environmental condition.
(d) If the estimate described in subparagraph (c)
above, individually or in the aggregate, exceeds $5,000, Mortgagee shall have
the option of declaring such occurrence an Event of Default hereunder or
requiring Mortgagor to post a bond in favor of Mortgagee in an amount equal to
125% of such estimate, issued by an institutional surety satisfactory to
Mortgagee. In the event the Mortgagee requires such a bond, it shall be posted
within thirty (30) days of Mortgagee's request and Mortgagor shall diligently
and in good faith commence and thereafter continually pursue the appropriate
investigation, removal, remedial action or other response or action to
Mortgagee's satisfaction.
(e) If the Environmental Complaint or Hazardous
Discharge is the subject of any governmental inquiry, investigation or audit,
failure by Mortgagor to comply with any requirement imposed as a result of such
governmental action shall be an Event of Default hereunder.
(f) Mortgagor shall defend and indemnify the
Mortgagee and hold Mortgagee harmless from and against all losses, liabilities,
damages and expenses (including, without limitation, reasonable attorneys' fees
and expenses), claims, costs, fines and penalties suffered or incurred by the
Mortgagee, whether as holder of this Mortgage, as a mortgagee in possession, or
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as successor-in-interest to the Mortgagor by foreclosure deed or deed in lieu of
foreclosure, under or on account of (i) any environmental Legal Requirement,
including the assertion of any lien thereunder, with respect to any violation or
non-compliance with environmental Legal Requirements, an Environmental Complaint
or Hazardous Discharge, (ii) the presence or release of any Hazardous Substance
affecting the Mortgaged Premises whether or not the same originates or emanates
from the Mortgaged Premises or any contiguous real estate, including any loss of
value of the Mortgaged Premises as a result of the foregoing so long as no such
loss, liability, damage and expense is attributable to any Hazardous Discharge
resulting directly from actions on the part of Mortgagee or (iii) the breach of
any of the foregoing environmental representations, warranties or covenants.
With respect to Hazardous Discharges, Mortgagor's obligations under this
Paragraph 19 shall arise upon the discovery of the presence of any Hazardous
Substance at the Mortgaged Premises, whether or not any federal, state, or local
environmental agency has taken or threatened any action in connection with the
presence of any Hazardous Substance, and shall survive the termination of this
Mortgage. Mortgagor further waives and releases Mortgagee in its capacity as a
secured creditor and/or lender from any claims, liabilities, losses, damages,
costs, rights, claims for contribution or defenses Mortgagor may have under
common law or environmental Legal Requirements whether known or unknown, fixed
or contingent, now in existence or which arise in the future arising from,
relating to or resulting from the presence or Release of Hazardous Substances,
except to the extent caused by the gross negligence or willful misconduct of
Mortgagee.
-28-
<PAGE>
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be
duly executed and delivered on the date first above written.
MORTGAGOR:
Witness: ______________________________
__________________________ By:___________________________
Name: Name:
Title:
[CORPORATE SEAL]
I hereby certify that the address
of the within-Mortgagee is:
Attention:
__________________________________
On behalf of the within Mortgagee
-29-
<PAGE>
_____________________________:
: ss.
COUNTY OF ___________________:
On this _______ day of ________________, 1998, before me, a
Notary Public in and for the aforesaid, the undersigned officer, personally
appeared ___________________, who acknowledged himself to be the _____________
__________________________ of , a ___________, and that he, as such ___________
________________, being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as such _______________.
IN WITNESS WHEREOF, I hereunto set my hand and notarial seal.
_________________________
[Notarial Seal] Notary Public
My Commission Expires:
-30-
<PAGE>
EXHIBIT A
Legal Description of Mortgaged Premises
-31-
<PAGE>
FORM OF ASSIGNMENT OF RENTS AND LEASES
THIS ASSIGNMENT OF RENTS AND LEASES (this "Assignment") is
made as of this ______ day of _________________1998, by ____________________, a
_______________________ with offices at ________________________ ("Borrower") to
ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership with
offices at 415 McFarlan Road, Suite 202, Kennett Square, Pennsylvania 19348
(together with its successors and assigns, "Lender").
BACKGROUND
A. Lender has agreed to advance up to _________ ($ _________)
to Borrower (the "Loan"), pursuant to a Construction Loan Agreement, dated as of
the date hereof, between Borrower and Lender (the "Loan Agreement"), the terms
and conditions of which are incorporated herein by this reference, for the
purpose of financing the construction, erection and completion of certain
improvements at or about the Property (as hereinafter defined) in order to
convert the Property into a senior assisted living facility (the "Project"). The
Loan is evidenced by a Secured Note of Borrower (the "Note") and secured by
certain collateral documents described in the Loan Agreement, all dated as of
the date hereof, including, without limitation, a Mortgage and Security
Agreement (the "Mortgage") from Borrower in favor of Lender encumbering certain
real property situate in the Township of ___________________, ________________
as described more fully in Exhibit A attached hereto and made a part hereof (the
"Property") and a Guaranty and Suretyship Agreement by
_________________________________ ("_____"), an affiliate of Borrower, in favor
of Lender (the "Guaranty"). The Mortgage will be simultaneously recorded in
__________________________________. The Loan Agreement, the Note, the Mortgage,
the Guaranty and other collateral documents described in or accompanying the
Loan Agreement, as the same may be modified, amended, supplemented or assigned
from time to time, are hereinafter sometimes collectively referred to as the
"Loan Documents". The Project and Property are hereinafter referred to
collectively as the "Premises". Capitalized terms not otherwise defined herein
shall have the same meanings as set forth in the Loan Agreement.
B. As a condition of making the Loan to Borrower, Lender has
required Borrower to execute and deliver this Assignment.
<PAGE>
TERMS AND CONDITIONS
--------------------
1. Assignment. In consideration of the Loan and Lender's
undertakings pursuant to the Loan Agreement and in order to secure the payment
of all sums due Lender pursuant to the Note, the Mortgage and the Loan
Agreement, and the timely performance of all of the terms, covenants,
representations, warranties and conditions contained in the Loan Documents,
Borrower hereby absolutely, presently and unconditionally conveys, transfers and
assigns to Lender, its successors and assigns, all of Borrower's rights, title
interest and privileges in and to the following:
1.1. All Residential Living Agreements (as defined in
the Loan Agreement) and leases now or hereafter in existence with respect to the
Premises or any part thereof (all such Residential Living Agreements and leases
are collectively referred to herein as the "Leases"); and
1.2. All rents, income, profits, revenues, proceeds,
deposits, accounts, rights and benefits due or to become due under the Leases
(the "Rents"), it being the intention of the Borrower that this Assignment
constitute a present, absolute assignment of the Leases and the Rents and not a
collateral assignment for additional security only.
This Assignment presently gives Lender the right to collect
the Rents and apply the Rents in partial payment of the Note. Borrower intends
that the Leases and Rents be absolutely assigned and that they no longer be,
during the term of this Assignment, property of Borrower or property of the
estate of Borrower, as defined in 11 U.S.C. ss.541. If any law exists requiring
Lender to take actual possession of the Premises (or some action equivalent to
taking possession of the Premises, such as securing the appointment of a
receiver) in order for Lender to "perfect" or "activate" the rights and remedies
of Lender as provided in this Agreement, Borrower waives the benefit of such
law. Subject to the terms of this Assignment and the Loan Agreement, Lender
grants to Borrower a license, revocable, as hereinafter provided, to collect and
use the Rents subject to the requirements of this Assignment and the Loan
Agreement. Upon the occurrence of any Event of Default (as defined below), the
license granted to Borrower herein shall, at Lender's election, be revoked by
Lender, and Lender shall immediately be entitled to possession of all Rents
collected thereafter (including Rents past due and unpaid) whether or not Lender
enters upon or takes control of the Premises. Upon such a revocation of the
license granted herein, Lender shall promptly provide Borrower with written
notice of same. Any Rents collected by Borrower from and after the date on which
an Event of Default occurred shall be held by Borrower in trust for Lender.
Lender is hereby granted and assigned by Borrower the right, at its option, upon
revocation of the license granted herein, to enter upon the Premises in person,
by agent or by court appointed receiver and to take any and all action necessary
to collect the Rents.
-2-
<PAGE>
2. Performance by Borrower.
2.1. Notwithstanding this Assignment, Borrower shall
remain liable for any obligations undertaken by it pursuant to any Lease. Lender
may elect, in its sole discretion, to assume any and all such obligations of
Borrower under any Lease by written notice to the resident under such Lease with
a copy to Borrower; provided, however, that Borrower shall remain liable for
such obligations notwithstanding such election by Lender.
2.2. Notwithstanding any legal presumption to the
contrary, Lender shall not be obligated by reason of acceptance of this
Assignment to perform any obligation of Borrower under the Leases. This
Assignment shall not place responsibility for the control, care, management,
upkeep, operation or repair of all or any part of the Premises upon Lender, or
make Lender liable or responsible for any negligence in the control, care,
management, upkeep, operation or repair of all or any part of the Premises
resulting in loss or injury or death to any tenant, resident, licensee, employee
or other person or loss of or damage to the property of any of the foregoing.
2.3. Borrower hereby agrees to defend, indemnify and
hold harmless Lender from any and all claims, liability, loss or damage, costs
and expenses (including reasonable attorneys' fees) arising from any claims by
any tenant, resident or licensee under any Lease or any employee or other person
in connection with the Lease, except for actions arising solely by reason of
Lender's negligence or willful misconduct.
2.4. Borrower agrees that it will faithfully observe,
discharge and perform all of the obligations and agreements imposed upon
Borrower under the Leases. Borrower shall not do any of the following without
the prior written consent of Lender, which consent shall not be unreasonably
withheld: (a) consent to any material modification, alteration, cancellation,
extension or assignment of any of the Leases; (b) reduce, waive or defer payment
of the Rent under any of the Leases to any material extent; (c) collect or
accept payment of any of the Rents arising or accruing under any Lease more than
one (1) month in advance of the time when the same shall become due under the
terms of such Lease; or (d) waive or release any resident or tenant from any
material obligation or condition under any of the Leases.
3. Warranties. Borrower represents and warrants as follows:
3.1. Borrower has title to and full right to assign
the Leases and the Rents thereunder; and no other assignment other than that
granted hereby to Lender of any interest in any of the Leases has been made.
-3-
<PAGE>
3.2. All Leases executed on or before the date hereof
are in full force and effect.
3.3. There is no existing default by Borrower or, to
Borrower's knowledge, any resident under the provisions of any of the Leases. No
event has occurred which due to the passage of time, the giving or failure to
give notice, or both, would constitute a default under any of the Leases.
4. Events of Default. The occurrence of any Event of Default
under and as defined in the Loan Agreement, the Note and/or the Mortgage shall
constitute an event of default (an "Event of Default") hereunder.
5. Remedies. Upon the occurrence of an Event of Default,
Lender shall be entitled to exercise any one or more of the following rights,
powers and remedies:
5.1. Enter and take possession of the Premises and
collect, in its own name or in the name of Borrower, the Rents accrued but
unpaid and in arrears as of the date of such Event of Default, as well as the
Rents which thereafter become due and payable. Borrower hereby authorizes and
directs the residents and tenants under the Leases, upon receipt of written
notice from Lender, to pay to Lender any and all Rents due thereunder without
the necessity of any inquiry to Borrower and notwithstanding any claim by
Borrower to the contrary. Borrower further agrees that it shall facilitate in
all reasonable ways Lender's collection of the Rents and will, upon the request
of Lender, execute and deliver a written notice to each resident under the
Leases directing such resident to pay the Rents to Lender. Borrower shall have
no right or claim against any parties to any Lease who make payment to Lender
after receipt of written notice from Lender requesting same.
5.2. Take over and assume the management, operation
and maintenance of the Premises and perform in its own name or in the name of
Borrower, all acts necessary and proper, and expend such sums out of the income
of the Premises as may be necessary in connection therewith, including the right
to enter into new Leases, to cancel existing Leases, to alter or amend the terms
of existing Leases, to renew existing Leases or to make concessions to the
parties thereto.
5.3. Endorse as Borrower's attorney-in-fact,
Borrower's name on all checks, drafts and similar forms of payment received in
payment of the Rents and Borrower hereby appoints Lender its attorney-in-fact
for such purposes and to otherwise enforce the purposes of this Assignment. The
aforesaid power of attorney shall be deemed coupled with an interest and shall
be irrevocable.
5.4. After payment of all proper charges and
expenses, including reasonable compensation to such managing agent as Lender may
select or employ, and after the accumulation of a reserve to meet taxes,
assessments, water rents, fire and
-4-
<PAGE>
liability insurance in requisite amounts, Lender shall credit the net proceeds
received by it from the Premises by virtue of this Assignment to any amounts due
and owing to Lender by Borrower under the terms of the Loan Documents, provided
that the manner of application of such proceeds and the items to be credited
shall be determined in the sole discretion of Lender. Lender shall not be
accountable for more monies than it actually receives from the Premises, nor
shall it be liable for failure to collect any such proceeds.
6. Notice to Tenants. Borrower hereby authorizes Lender to
give written notice of this Assignment at any time to each resident or tenant
under the Leases.
7. No Waiver.
7.1. The acceptance of this Assignment and the
collection of Rents under the Leases assigned hereby shall not constitute a
waiver of any rights of Lender under the terms of the Loan Documents. All rights
and remedies of Lender hereunder and under the Mortgage are cumulative and
concurrent and may be exercised singly, successively or concurrently, at the
sole discretion of Lender.
7.2. The receipt by Lender of any Rents pursuant to
this Assignment after the institution of foreclosure or sale proceedings under
the Mortgage shall not cure such default or affect such proceedings or any sale
pursuant thereto.
8. List of Leases. Borrower shall, upon the request of Lender,
furnish a complete list, as of the date of such request, of all Leases and
providing such further reasonable detail as may be requested by Lender. Further,
as requested by Lender, Borrower shall deliver to Lender executed or certified
copies of all Leases, and all correspondence and memoranda relating thereto.
Such requests may be made at any reasonable time. Monthly requests, or more
frequent requests if made after an Event of Default under this Assignment shall
be deemed to be reasonable.
9. Further Assignments. Borrower shall, upon request of
Lender, promptly execute, acknowledge and deliver specific separate assignments
of any future Leases.
10. Termination of Assignment. This Assignment shall terminate
upon the repayment in full of the Note and the full performance of the
obligations under the Loan Documents.
11. Construction. When the content so requires, the singular
shall include the plural and conversely and use of any gender shall include all
genders.
12. Notices. All notices and other communications required
under this Assignment shall be made in accordance with the Section 8.6 of the
Loan Agreement.
-5-
<PAGE>
13. JURISDICTION. BORROWER HEREBY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE COURTS OF
THE UNITED STATES LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY AND ALL
ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS
ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS BORROWER MAY DIRECT BY NOTICE
TO LENDER. BORROWER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL
AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND LENDER,
WHETHER HEREUNDER OR OTHERWISE.
14. Headings. The headings preceding the text of the
paragraphs of this Assignment are inserted only for convenience of reference and
shall not constitute a part of this Assignment, nor shall they in any way affect
its meaning, construction or effect.
15. Governing Law. This Assignment shall be governed by the
law of the Commonwealth of Pennsylvania (but not including the choice of law
provisions thereof).
16. Binding Obligation. This Assignment shall be binding upon
Borrower and its successors and assigns and this Assignment shall inure to the
benefit of Lender and its successors and assigns, including any assignee of the
Loan Documents or participant in the Loan.
17. Modification. This Assignment may not be modified except
by a written agreement executed by the parties hereto.
-6-
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be
duly executed as of the day and year first above mentioned.
BORROWER:
WITNESS:
__________________________ By:______________________________
Name: Name:
Title:
[CORPORATE SEAL]
-7-
<PAGE>
____________________________:
: ss.
COUNTY OF :
On this _______________ day of ____________, 1998, before me,
a Notary Public in and for the aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
_______________________ of , a __________________________ corporation, and that
he, as such ______________ being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of such
corporation by himself as such ___________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
[Notarial Seal] _________________________________
Notary Public
My Commission Expires:
-8-
<PAGE>
Exhibit A
Description of the Property
<PAGE>
FORM OF COLLATERAL ASSIGNMENT OF
AGREEMENTS AFFECTING REAL ESTATE
THIS COLLATERAL ASSIGNMENT OF AGREEMENTS AFFECTING REAL ESTATE
(the "Assignment") is made as of this _____ day of _____________, 1998, by , a
______________________ with offices at _______________________________
("Borrower") to ELDERTRUST OPERATING LIMITED PARTNERSHIP, a Delaware limited
partnership, with offices at 415 McFarlan Road, Suite 202, Kennett Square, PA
19348 (together with its successors and assigns, "Lender").
BACKGROUND
A. Lender has agreed to advance up to _________ ($_________)
to Borrower (the "Loan") pursuant to a Construction Loan Agreement, dated as of
the date hereof, between Borrower and Lender (the "Loan Agreement"), the terms
and conditions of which are incorporated herein by this reference, for the
purpose of financing the construction, erection and completion of certain
improvements at and about the Property (as hereinafter defined) in order to
convert the Property into a senior assisted living facility (the "Project"). The
Loan is evidenced by a Secured Note of Borrower (the "Note") and other
collateral documents described in the Loan Agreement, all of even date herewith,
including, without limitation, a Mortgage and Security Agreement (the
"Mortgage") from Borrower in favor of Lender encumbering certain real property
situate in the Township of ___________________, as described more fully in
Exhibit A attached hereto and made a part hereof (the "Property") and a Guaranty
and Suretyship Agreement by ___________________ ("_____"), an affiliate of
Borrower, in favor of Lender (the "Guaranty"). The Mortgage will be
simultaneously recorded in _________________. The Loan Agreement, the Note, the
Mortgage, the Guaranty, and the other collateral documents described in or
accompanying the Loan Agreement, as the same may be modified, amended,
supplemented or assigned from time to time, are hereinafter sometimes
collectively referred to as the "Loan Documents." The Project and Property are
hereinafter referred to collectively as the "Premises". Capitalized terms not
otherwise defined herein shall have the same meanings as set forth in the Loan
Agreement.
B. As a condition of making the Loan to Borrower, Lender has
required Borrower to execute and deliver this Assignment.
<PAGE>
TERMS AND CONDITIONS
In consideration of the Loan, and intending to be legally
bound, Borrower and Lender hereby agree:
0. Definition of Additional Collateral. The items which shall
be the subject of this Assignment and which are sometimes collectively referred
to herein as "Additional Collateral" are as follows:
0.1. All licenses, permits, approvals, certificates
and agreements with or from all boards, agencies, departments, governmental or
otherwise, relating, directly or indirectly, to the construction, ownership,
use, operation and maintenance of the Premises, whether heretofore or hereafter
issued or executed, together with all renewals, extensions and amendments
thereto and thereof (collectively, the "Licenses"; said boards, agencies,
departments, governmental or otherwise being hereinafter collectively referred
to as "Governmental Authorities").
0.2. All contracts related to the Project, including
(a) the Construction Contract between Borrower and _____________________________
dated __________________, (b) the Architect's Agreement between Borrower and
_________________________________ dated ________________________, (c) the
Interior Design Services Agreement between Borrower and
________________________________ dated __________________ and (d) all other
contracts, subcontracts, agreements, service and supply agreements, management
contracts and purchase orders which have heretofore been or will hereafter be
executed by or on behalf of Borrower, or which have been or will hereafter be
assigned to Borrower, in connection with the construction, use, operation and
maintenance of the Premises (collectively, and as the same may be amended,
modified or supplemented from time to time, the "Contracts"; the parties with
whom or to whom such Contracts have been, are or may hereafter be given are
hereinafter collectively referred to as the "Contractors").
0.3. All warranties, guarantees, and other rights of
Borrower, direct and indirect, against manufacturers, dealers, suppliers,
Contractors and others in connection with the work done or to be done and the
materials supplied or to be supplied for the Project (together, the
"Warranties").
1. Assignment. Borrower hereby assigns, transfers and sets
over unto Lender all of Borrower's right, title and interest in and to the
Additional Collateral and all rights and benefits therefrom, as security for the
full, timely and faithful repayment by Borrower of the Loan and performance of
all of the obligations under the Loan Documents, to the fullest extent permitted
by law and by the terms of the Additional Collateral.
<PAGE>
2. Prior to Default; Notice of Default. Until the occurrence
of an Event of Default under any of the Loan Documents, Borrower may retain, use
and enjoy the benefits of the Additional Collateral. Upon the occurrence of any
Event of Default under any of the Loan Documents, Lender may enforce this
Assignment upon notice to Borrower. The affidavit or written statement of an
officer, agent or attorney of Lender stating that there has been an Event of
Default shall constitute conclusive evidence thereof, and any of the
Governmental Authorities and Contractors or any other person is authorized and
directed to rely thereon.
3. Remedies.
3.1. Upon the occurrence of any Event of Default,
Lender may elect to exercise any and all of Borrower's rights and remedies to,
upon and under the Additional Collateral, without any interference or objection
from Borrower, and Borrower shall cooperate in causing the Contractors to comply
with all the terms and conditions of the Contracts.
3.2. Upon the occurrence of any Event of Default
under any Loan Document, if and to the extent permitted by law and the terms of
the Additional Collateral, Lender may, with or without entry upon the Premises,
at its option, exercise any one or more of the following rights, powers and
remedies: (a) take over and enjoy the benefits of the Licenses, Contracts and
the other Additional Collateral and exercise Borrower's rights under the
Additional Collateral, and perform all acts in the same manner and to the same
extent as Borrower is entitled; (b) enter and take possession of the Premises;
and (c) take over and assume the management, operation and maintenance of the
Premises and perform in its own name or in the name of Borrower all acts
necessary and proper in connection therewith. Borrower hereby appoints Lender
its attorney-in-fact to enforce such remedies and to otherwise enforce the
purposes of this Assignment. The aforesaid power of attorney shall be deemed
coupled with an interest and shall be irrevocable. In connection with any and
all of the foregoing powers, and without limiting the same, Lender may effect
new Contracts, Licenses and Warranties, cancel or surrender existing Contracts,
Licenses and Warranties, alter and amend the terms of and renew existing
Contracts and Licenses, and make concessions to Governmental Authorities and
Contractors and warrantors. Borrower hereby releases any and all claims which it
has or might have against Lender arising out of any such action by Lender.
4. Faithful Performance. Borrower agrees faithfully to observe
and perform all of the obligations and agreements imposed upon Borrower under
the Licenses, Contracts and Warranties. From and after the date hereof, no
Contract or License may be altered, amended or canceled.
5. No Assumption by Lender. Lender will not be deemed in any
manner to have assumed any liabilities or obligations relating to any of the
Additional Collateral, nor shall Lender be liable to Governmental Authorities or
Contractors by reason of any default by any party under the Licenses or
Contracts. Borrower agrees to indemnify and to hold Lender harmless of and from
any and all liability, loss or damage which it may or might incur by reason of
any claims or demands against it based on its alleged assumption of Borrower's
duty and obligation to perform and discharge the terms, covenants and agreements
of said Licenses, Contracts and Warranties.
<PAGE>
6. Liberal Construction; Advances by Lender. All of the
foregoing powers herein granted to Lender shall be liberally construed. Any
amounts expended by Lender in the exercise of its rights hereunder, together
with any reasonable attorneys' fees incurred in connection herewith, shall be
considered advances for and on behalf of Borrower, secured by this Assignment
and also evidenced and secured by the other Loan Documents. Any amounts so
advanced shall bear interest at the Default Rate set forth in the Note from the
respective dates of any such advances to the date of repayment in full.
7. Copies Furnished. Borrower shall, upon request of Lender,
furnish Lender with a complete list of all Contracts, Licenses and Warranties.
Further, if requested, Borrower shall deliver to Lender executed or certified
copies of all Contracts, Licenses, Warranties and other written agreements,
correspondence and memoranda between Borrower (and its predecessors in title)
and Contractors and Governmental Authorities setting forth the contractual and
other arrangements between them. Such requests may be made at any reasonable
time. Monthly requests, or more frequent requests if made after the occurrence
of an Event of Default, shall be deemed reasonable.
8. No Waiver, Mortgagee in Possession or Joint Venture.
Nothing herein contained shall be construed as making Lender a mortgagee in
possession, or as constituting a waiver or suspension by Lender of its right to
enforce payment of the debts under the terms of the Loan Documents. Lender is
not the agent, partner or joint venturer of either the Borrower or of any of the
Contractors or Governmental Authorities.
9. Lender's Option to Enforce. This Assignment may be enforced
from time to time by Lender in its discretion, with or without order of any
court, and with or without appointment of a receiver, as Lender shall determine.
Lender may also, at any time, cease to enforce this Assignment. Any failure on
the part of Lender promptly to exercise any option hereby given or reserved
shall not prevent the exercise of any such option at any time thereafter. Lender
may pursue and enforce any remedy or remedies accorded it herein independently
of, in conjunction or concurrently with, or subsequent to its pursuit and
enforcement of any remedy or remedies which it may have under any of the Loan
Documents under law or at equity.
10. Warranties and Representations. Borrower warrants and
represents that:
<PAGE>
10.1. It has the right, power and authority to
execute and deliver this Assignment.
10.2. All third party consents and approvals
necessary to effectuate this Agreement, if any, have been obtained and are in
full force and effect.
10.3. It has made no prior assignment of the
Additional Collateral.
10.4. All Additional Collateral which exists on the
date hereof is in full force and effect on the date hereof, subject to no
appeal, claims, litigation, defaults, defenses, setoffs or counterclaims
whatsoever. All fees required for the full effectiveness of each existing
License have been paid in full.
10.5. There exists no event, condition or occurrence
which constitutes, or which with notice or the passage of time would constitute,
a breach of or default under any term or condition of any of the Additional
Collateral. Borrower hereby covenants and agrees not to do any act which would
destroy or impair the security to the Lender of this Assignment.
11. Termination of Assignment. This Assignment shall terminate
upon the repayment in full of the Note and the full performance of the
obligations under the Loan Documents.
12. Construction. When the content so requires, the singular
shall include the plural and conversely, and use of any gender shall include all
genders.
13. Notices. All notices and other communications under this
Assignment shall be made in accordance with Section 8.6 of the Loan Agreement.
14. JURISDICTION. BORROWER HEREBY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE COURTS OF
THE UNITED STATES LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA IN ANY AND ALL
ACTIONS OR PROCEEDINGS ARISING HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS
ADDRESS SET FORTH HEREIN OR SUCH OTHER ADDRESS AS BORROWER MAY DIRECT BY NOTICE
TO LENDER. BORROWER IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL
AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND LENDER,
WHETHER HEREUNDER OR OTHERWISE.
<PAGE>
15. Headings. The headings preceding the text of the
paragraphs of this Assignment are inserted only for convenience of reference and
shall not constitute a part of this Assignment, nor shall they in any way affect
its meaning, construction or effect.
16. Miscellaneous. This Assignment (a) shall be governed by
and construed according to the law of the Commonwealth of Pennsylvania (but not
including the choice of law provisions thereof), (b) shall be binding upon
Borrower, its successors and assigns, including any subsequent owner of the
Premises, and shall inure to the benefit of Lender, its successors and assigns,
including any assignee of or participant in the Loan, and (c) may not be amended
except by a written agreement executed by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Assignment to be
duly executed as of the day and year first above mentioned.
WITNESS:
_________________________ By: ____________________________
Name: Name:
Title:
[CORPORATE SEAL]
<PAGE>
_______________________:
: ss.
COUNTY OF______________:
On this _______________ day of ____________, 1998, before me,
a Notary Public in and for the aforesaid, the undersigned officer, personally
appeared _________________, who acknowledged himself to be the
____________________ of , a ________________________, and that he, as such
______________ being authorized to do so, executed the foregoing instrument for
the purposes therein contained by signing the name of such corporation by
himself as such ___________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
[Notarial Seal] _________________________________
Notary Public
My Commission Expires:
<PAGE>
EXHIBIT A
<PAGE>
FORM OF GUARANTY AND SURETYSHIP AGREEMENT
(Payment and Completion)
THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Guaranty") is
executed and delivered on this day of , 1998 by ___________________
__________________________________, a _______________________ corporation
("Guarantor") with an address at
_________________________________________________, in favor of ELDERTRUST
OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership (together with its
successors and assigns, "Lender") with an address at 415 McFarlan Road, Suite
202, Kennett Square, Pennsylvania 19348, to secure certain obligations of
____________________________________________________, a
______________________________ ("Borrower"), with an address at
_________________________________________________________________________.
BACKGROUND
A. Borrower and Lender have entered into that certain
Construction and Loan Agreement, dated as of the date hereof (as the same may be
modified, renewed, extended, amended, supplemented and/or assigned from time to
time, the "Loan Agreement"), relating to the conversion of an existing building
into a ____ unit ______________________ facility (the "Project") on certain real
estate located in _________________ Township, _____________________. Capitalized
terms used herein without definition shall have the meanings ascribed to such
terms as in the Loan Agreement.
B. In connection with the Loan Agreement, Borrower has
executed and delivered a Secured Note (as modified, renewed, extended, amended,
supplemented and/or assigned from time to time, the "Note"), dated as of the
date hereof, payable to the order of the Lender in the face amount of
$_____________, a Mortgage and Security Agreement as security for the
obligations secured by the Note (as modified, renewed, extended, amended and/or
assigned from time to time, the "Mortgage"), and certain other collateral
documents identified in the Loan Agreement, all dated as of the date hereof. The
Loan Agreement, Note, Mortgage and the other collateral documents identified in
the Loan Agreement, as the same is modified, renewed, extended, amended,
supplemented and/or assigned from time to time, are sometimes collectively
referred to herein as the "Loan Documents", and individually as a "Loan
Document". The principal balance of the Note, together with all interest thereon
and all other sums payable thereunder or under the Loan Documents or secured by
the Loan Documents, is hereinafter collectively referred to as the
"Indebtedness".
C. Guarantor is an affiliate of Borrower.
<PAGE>
D. In order to induce Lender to enter into the Loan Agreement,
Guarantor has agreed to execute and deliver this Guaranty in favor of Lender.
AGREEMENTS
In consideration of the recitals above, and for other good and
valuable consideration, and intending to be legally bound hereby, Guarantor
hereby agrees:
1. Obligations. The following guarantees and obligations (together, the
"Obligations") are undertaken by Guarantor:
(a) Guarantor hereby unconditionally and absolutely guarantees
and becomes surety to Lender for the prompt payment when due of the
Indebtedness. The obligations of Guarantor constitute a guarantee of payment and
not merely of collection, are absolute and unconditional under all circumstances
and shall not in any event be discharged, impaired, or otherwise affected except
by payment in full to Lender. Guarantor agrees that it will, within three (3)
business days after written notice from Lender that any Event of Default has
occurred under the Loan Agreement, the Note or under any other Loan Document,
pay in full directly to Lender the then existing amount of the Indebtedness.
Guarantor further agrees that any payment required hereunder will be made to
Lender regardless of whether such sums have become due by reason of the maturity
of the Note or acceleration of the Indebtedness or whether such liability
becomes barred by any statute of limitations or otherwise becomes unenforceable.
The proceeds of any amounts paid pursuant to this Guaranty will be applied first
to the payment of accrued interest, if any, on the Note, then to any other sums
payable in connection with the Note or secured by the Loan Documents, and the
balance of the proceeds will be applied to reduce the then outstanding principal
amount of the Note, whether then matured or not, in the inverse order of its
maturity.
(b) Guarantor hereby unconditionally and absolutely guarantees
and hereby agrees to be guarantor of (i) the full and timely performance of all
of Borrower's obligations under the Loan Documents, including, without
limitation, the construction and completion of the Project in strict accordance
with the Plans and Specifications, and (ii) the full and timely payment of all
contractors, subcontractors and material suppliers whose work and materials have
been or may hereafter be delivered or supplied to, or incorporated into, the
Project. Guarantor hereby unconditionally and absolutely guarantees that there
shall be no mechanics' liens, claims or other liens or charges filed against the
Project or, if they are so filed, Guarantor shall cause such liens to be timely
removed or satisfied of record within ten (10) days after notice thereof to
Guarantor. If for any reason Borrower fails to complete the construction of the
Improvements in accordance with the terms of the Loan Agreement, or if Borrower
defaults with respect to any other matter herein guaranteed, then, within five
(5) days after written notice from Lender, Guarantor will immediately assume all
responsibility for the completion of the Improvements and all obligations of
Borrower under the Loan
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<PAGE>
Agreement and the other Loan Documents or take such other action as Lender may
request to remedy such default, or both. If Guarantor does not fully assume such
responsibility and obligations within such five (5) day period to Lender's
satisfaction, then Lender may elect, without further notice to Guarantor, to
take any action it believes necessary to complete the Improvements, but with the
further right to suspend or terminate such actions at any time. No such actions
by Lender shall release or limit the liability of Guarantor and Guarantor agrees
to repay Lender all sums expended by it in undertaking to complete such
construction, whether or not construction is actually completed.
(c) Lender shall have the right to require Guarantor to pay,
comply with and satisfy its obligations and liabilities under this Guaranty and
shall have the right to proceed immediately against Guarantor with respect
thereto, without being required to bring any proceeding or take any action of
any kind against Borrower or any other guarantor or any other person, entity or
property (including, without limitation, the Project) prior thereto, the
liability of Guarantor hereunder being, in any event, independent of and
separate from the liability of Borrower, any other guarantors and persons and
the availability of other collateral security for the Note and the Loan
Documents.
(d) This Guaranty shall be deemed to be a continuing guaranty
of Indebtedness from Lender to Borrower and of all expenses incurred by Lender
in connection therewith.
2. Cancellation. This Guaranty and all of the Obligations will be
canceled when the Indebtedness has been irrevocably and indefeasibly paid in
full and the Improvements have been constructed and completed in accordance with
the Loan Agreement; provided, however, that this Guaranty shall remain in full
force and effect for so long as such payment may be voided in bankruptcy or
other insolvency proceedings as a preference, or for any other reason or
generally set aside as a result of any action or proceedings by creditors. If
this Guaranty is canceled pursuant to this Paragraph 2 or otherwise by Lender,
Lender will, within forty-five (45) business days thereafter, mark the original
hereof "Canceled" and return it to Borrower.
3. Events of Default; Costs and Fees; Indemnification. Guarantor hereby
agrees that if it does not satisfy the Obligations set forth in Section 1 hereof
in accordance with the terms thereof, the same shall be an Event of Default
hereunder. Lender shall have the right, in addition to the other rights
described in this Guaranty, to collect from Guarantor all costs, fees and
expenses (including reasonable attorneys' fees) incurred by Lender in connection
with the enforcement of this Guaranty against such Guarantor, as well as
interest on the unpaid Obligations at the Default Rate set forth in the Note,
from and after the date of such Event of Default through the date of payment. In
the event of any default hereunder, Guarantor shall indemnify and defend the
Lender against, and hold Lender harmless from, all liability, damage, cost
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<PAGE>
and expense, including, without limitation, costs of suit and attorneys' fees,
which Lender may incur by reason of such default by Guarantor.
4. Additional Remedies. Lender shall have and may exercise, in addition
to any and all rights or remedies provided herein or by law, the specific rights
and remedies, exercisable by Lender in its discretion, to sue for and obtain
specific performance of Guarantor's covenants set forth herein, all of which
costs shall be borne by Guarantor. Lender may, at its option, proceed to enforce
this Guaranty against Guarantor without first proceeding against Borrower or any
other person and without first resorting to any security held by Lender as
security or to any other remedies, and the liability of Guarantor hereunder
shall be in no manner affected or impaired by any failure, delay, neglect,
omission or election by Lender not to realize upon or pursue any persons liable
or security for the Indebtedness or the other obligations of Borrower under the
Loan Agreement or the other Loan Documents.
5. Bankruptcy of Borrower or Guarantor. The Obligations shall not be
discharged, impaired or otherwise affected by the insolvency, bankruptcy,
liquidation, readjustment, composition, dissolution or other similar proceeding
involving or affecting Borrower or Guarantor, proceedings affecting the
ownership of either of the above through merger, consolidation or otherwise,
inconsistent orders in or claims by parties to any such proceedings or other
release of obligations by operation of law.
6. Covenants. Guarantor hereby covenants and agrees that:
(a) The Obligations shall not be released or otherwise
affected by (and hereby waives notice of) any agreement, amendment, release,
suspension, compromise, forbearance, indulgence, waiver, extension, renewal,
supplement or modification or assignment of any of the Loan Documents, or of any
obligations of Borrower to Lender;
(b) Lender may, without affecting the liability of Guarantor
under this Guaranty, (i) exchange, release or surrender any property pledged by
or on behalf of Borrower or any other guarantor of any liabilities of Borrower
to Lender, (ii) renew or change, with the consent of Borrower, the terms of any
of Borrower's liabilities to Lender, or (iii) waive any of Lender's rights or
remedies against Borrower or any other guarantor of any obligations of Borrower,
all without obtaining consent thereto from Guarantor;
(c) The Obligations shall not be reduced or affected either by
any payment made by or on behalf of any other party to the Loan Documents or by
failure of any such party to make payment;
(d) The Obligations shall be in addition to that stated in any
other guaranty of parties other than the undersigned or any other guaranty that
has been or may be hereafter given by the undersigned and shall not be reduced
or affected by any payment made under any such guaranty;
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<PAGE>
(e) Any failure or delay by Lender to exercise any right under
this Guaranty or under any other guaranty or with respect to any of the Loan
Documents or otherwise with respect to the Indebtedness shall not be construed
as a waiver of the right to exercise the same or any other right hereunder at
any time and from time to time thereafter;
(f) The Obligations shall not be affected by any of Borrower's
liabilities to Lender in excess of the amounts guaranteed hereunder, and any
payment received by Lender from Borrower may first be credited against any such
excess liability;
(g Lender shall not, under any circumstances, be required to
exhaust remedies or proceed against Borrower, other sureties, parties, or any
other security for the Indebtedness before proceeding under this Guaranty
against the undersigned;
(h) Until all of the Obligations are indefeasibly paid in
full, under no circumstances shall Guarantor become subrogated to the claims or
liens of Lender against Borrower or any other guarantor and that all amounts due
to Lender shall have priority in right of payment over any amounts, whether or
not related to the Loan Documents or the Project, payable now or hereafter from
Borrower to Guarantor;
(i) The Obligations shall not be affected by any provision in
the Loan Documents limiting Lender's rights against Borrower to the Project or
any other Collateral, or limiting Lender's rights to a deficiency judgment
against Borrower;
(j) To the extent Guarantor controls (whether directly or
indirectly) Borrower, it will neither knowingly take or cause to be taken any
action, or permit any inaction, which will violate or cause a default or Event
of Default under any of the Loan Documents;
(k) Notice or demand hereunder by Lender shall be by hand
delivery or registered or certified mail, postage prepaid, addressed to
Guarantor at its address set forth on the first page hereof, and shall be deemed
given when hand delivered, or if mailed, upon deposit of such notice in the
United States mail;
(l) No single exercise of the power to bring any action or
institute any proceeding shall be deemed to exhaust such power, but such power
shall continue
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<PAGE>
undiminished and may be exercised from time to time as often as Lender may elect
until all of Guarantor's liabilities and obligations hereunder have been
satisfied; and
(m) Without the prior consent of Lender, which consent shall
not be unreasonably withheld, Guarantor's liability under this Guaranty shall in
no way be released or otherwise affected by any assignment by Borrower of its
rights or obligations under any Loan Document, or by the commencement, existence
or completion of any proceeding against Borrower, or any other person or entity
or otherwise with respect to the collection of the Indebtedness; and Lender
shall be under no obligation to take any action and shall not be liable for any
action taken or any failure to take action or any delay in taking action against
Guarantor, Borrower or any other person or entity or otherwise with respect to
the Indebtedness.
7. Representations and Warranties. Guarantor hereby represents and
warrants to Lender as of the date hereof and at all times when this Guaranty
shall remain in effect:
(a) Guarantor is a _____________________ duly formed, validly
existing and in good standing under the laws of its jurisdiction of formation.
Guarantor has the power and authority to own its own property and assets and to
transact the business in which it is engaged;
(b) Guarantor has the power and authority to execute, deliver
and perform the terms and provisions of this Guaranty and Guarantor has taken
all necessary action to authorize the execution, delivery and performance of
this Guaranty. This Guaranty constitutes the authorized, valid and legal binding
obligation of Guarantor enforceable in accordance with its terms;
(c) There are no actions, suits or proceedings pending, or to
the knowledge of Guarantor, threatened, against or affecting Guarantor before
any court or before any governmental or administrative body or agency which, if
determined adversely to Guarantor, individually or in the aggregate, would have
a material adverse effect on Guarantor's business or properties;
(d) Guarantor is not in default under the provisions of any
agreement to which it is a party and Guarantor is not in violation of any
applicable provision of law or any applicable regulation of any governmental
department, commission, board, bureau, agency or instrumentality, the violation
of which would have a material adverse effect on Guarantor's business or
properties or the Project. Neither the execution and delivery of this Guaranty
nor the consummation of the transactions herein contemplated, nor compliance
with the terms and provisions hereof, (i) will violate any applicable provision
of law or any applicable regulation, or any order, writ, injunction or decree of
any court or governmental department, commission, board, bureau, agency or
instrumentality or (ii) will conflict or will be inconsistent with, or will
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation of imposition of
(or the obligation to
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<PAGE>
impose) any lien, charge or encumbrance upon any of the property or assets of
Guarantor pursuant to the terms of any indenture, franchise, license, permit,
mortgage, deed of trust, agreement or other instrument to which Guarantor is a
party or by which Guarantor may be bound, or to which Guarantor may be subject,
except as would not have a material adverse effect;
(e) Guarantor has filed all tax returns required by law to be
filed by it and has paid all taxes, assessments and other governmental charges
levied upon it and any of it respective properties, assets, income or franchises
which are due and payable, other than those presently payable without penalty or
interest;
(f) Guarantor is in compliance with all applicable provisions
of ERISA;
(g) With respect to any financial statements delivered by
Guarantor to Lender after the date of this Guaranty, all such financial
statements shall have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the period
specified and present fairly in all material respects the financial position of
Guarantor as of the date specified and the results of operations and statements
of cash flow for the period specified;
(h) Neither this Guaranty nor any other document delivered to
Lender by or on behalf of Guarantor in connection with the transactions
contemplated by the Loan Documents contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained in this Guaranty and in such other documents, certificates or
instruments not misleading. There is no fact (other than matter of a general
economic or political nature which do not uniquely affect Guarantor) which
materially adversely affects or in the future may (so far as such Guarantor can
foresee) materially adversely affect the business, condition (financial or
otherwise), operations, properties or prospects of Guarantor which has not been
set forth in this Guaranty; and
(i) The Indebtedness is and will be of direct benefit,
interest and advantage to Guarantor.
8. Waivers.
(a) Guarantor waives (i) any notice of Lender's intention to
act in reliance of this Guaranty, (ii) diligence, presentment, demand, protest
or notice of dishonor, extension of time of payment, nonpayment or other default
with respect to the Indebtedness, and indulgences and notices of every kind and
(iii) the commencement or prosecution of any enforcement proceeding against
Borrower or any
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<PAGE>
other person or entity with respect to the Indebtedness or otherwise. Guarantor
hereby consents to any and all forbearances and extensions of time of payment of
the Note, and to any and all changes in terms, covenants, and conditions thereof
or of the other Loan Documents; it being the intention hereof that Guarantor
shall remain liable as a principal until the Indebtedness shall have been fully
paid and until the terms, covenants, and conditions of the Note and of the other
Loan Documents shall have been performed and observed by Borrower,
notwithstanding any act, omission, or thing which might otherwise operate as a
legal or equitable discharge of Guarantor.
(b) Guarantor agrees that the Obligations shall not be
impaired, modified, changed, released, or limited in any manner whatsoever by
any impairment, modification, change, release, or limitation of the liability of
Borrower or its estate in bankruptcy, resulting from the operation of any
present or future provision of the bankruptcy laws or other similar statute, or
from the decision of any court.
(c) Guarantor irrevocably waives all claims of waiver,
release, surrender, alteration or compromise and all defenses, set-offs,
counterclaims, recoupments, reductions, limitations or impairments.
(d) Guarantor waives the right to marshaling of Borrower's
assets, any stay of execution and the benefit of all exemption laws, to the
extent permitted by law, or any other protection granted by law to guarantors,
now or hereafter in effect with respect to any action or proceeding brought by
Lender against Guarantor.
9. Miscellaneous. The invalidity or unenforceability of any one or more
provisions of this Guaranty shall not affect any other provision. This Guaranty
will be governed by the law of the Commonwealth of Pennsylvania (but not
including the choice of law provisions thereof) and may be amended only by a
written instrument executed by Guarantor and Lender. This Guaranty is
irrevocable. The provisions of this Guaranty will bind and inure to the benefit
of the respective successors and assigns of Guarantor and Lender. Whenever the
context requires, all terms used in the singular will be construed in the plural
and vice versa, and each gender will include the other gender.
10. Assignment. This Guaranty and the obligations of Guarantor
hereunder shall not be assigned in any respect without the prior written consent
of Lender, which consent shall not be unreasonably withheld, Lender shall have
the absolute right, without Guarantor's consent or approval, to assign in whole
or in part this Guaranty and/or the other Loan Documents to any third
party(ies).
11. JURISDICTION; TRIAL BY JURY. GUARANTOR HEREBY SUBMITS AND CONSENTS
TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE
COURTS OF THE UNITED STATES LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA, IN ANY
AND ALL ACTIONS OR PROCEEDINGS ARISING
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<PAGE>
HEREUNDER OR PURSUANT HERETO, AND IRREVOCABLY AGREES TO SERVICE OF PROCESS BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS SET FORTH HEREIN OR
SUCH OTHER ADDRESS AS GUARANTOR MAY DIRECT BY NOTICE TO MORTGAGEE. GUARANTOR
IRREVOCABLY AS AN INDEPENDENT COVENANT WAIVES A JURY TRIAL AND THE RIGHT THERETO
IN ANY ACTION OR PROCEEDING BETWEEN GUARANTOR AND LENDER, WHETHER HEREUNDER OR
OTHERWISE.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty
as of the day and year first written above.
GUARANTOR:
-----------------------------------
Witness:______________________ By:________________________________
Name: Name:
Title: Title:
[Corporate Seal]
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<PAGE>
[Montchanin Loan Assignment]
FORM OF
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is
made and entered into as of January ____, 1998, among (i) Genesis Health
Ventures, Inc., a Pennsylvania corporation, in its capacity as the assigning
lender hereunder ("Genesis"), (ii) Elder Trust Operating Limited Partnership, a
Delaware limited partnership (the "Operating Partnership") and (iii) Senior
LifeChoice, LLC, a Pennsylvania limited liability company (together with its
successors and assigns, the "Borrower").
WHEREAS, Genesis and the Borrower entered into that certain
Construction Loan and Working Capital Deficit Agreement, dated as of September
30, 1997 (as may be amended or assigned from time to time, the "Loan
Agreement"), pursuant to which Genesis agreed to make a loan to the Borrower in
the aggregate principal amount of $9,500,000 (the "Loan"), and in connection
with which the Borrower executed and delivered to Genesis that certain Open-End
Mortgage and Security Agreement (the "Mortgage") in which Genesis was granted a
first priority lien in and to all of the property and premises, as improved from
time to time, located at Route 141, Rockland Road and Rockland Connector,
Brandywine Hundred, New Castle County, Delaware (the "Property") as well as a
security interest in Borrower's fixtures, equipment and other collateral
identified therein to secure the obligations of the Borrower in connection with,
among other things, the Loan.
WHEREAS, the Loan was evidenced by that certain Construction
Mortgage Note, dated as of September 30, 1997 (the "Note"), executed by
Borrower, and payable to the order of Genesis in the principal amount of
$9,500,000;
WHEREAS, simultaneously with the execution and delivery of the
Loan Agreement, the Borrower executed and delivered to Genesis that certain
Assignment of Rents and Leases and Collateral Assignment of Agreements Affecting
Real Estate (together, the "Assignments" and collectively with the Loan
Agreement, Note and Mortgage, and any all other documents executed in connection
therewith, as may be modified, replaced, renewed or amended from time to time,
the "Loan Documents");
WHEREAS, the Operating Partnership has agreed to purchase, and
Genesis has agreed to sell, transfer and assign to the Operating Partnership the
Note and all of Genesis' rights, title and interest therein and thereto, as well
as all of its rights, title and interest in and to each of the Loan Documents;
WHEREAS, the Operating Partnership wishes to become a party to
the Loan Agreement as a lender and is willing to assume the rights and
obligations of a lender therein contained;
<PAGE>
WHEREAS, by executing this Agreement, Borrower is
acknowledging, agreeing and consenting to the assignment of all of Genesis'
rights, title and interests in and to the Loan Documents, and specifically, its
rights to all of the benefits as a secured party thereunder.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, capitalized terms used but not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement.
2. ASSIGNMENT AND ASSUMPTION.
2.1 At or before 12:00 noon on January ____, 1998, the
Operating Partnership shall pay to Genesis, in immediately available funds, an
amount equal to __________________ Dollars ($__________) (the "Purchase Price").
Effective upon the date of receipt by Genesis of the Purchase Price (the
"Transfer Effective Date"), Genesis hereby irrevocably sells, assigns and
transfers to the Operating Partnership, without recourse, and the Operating
Partnership hereby irrevocably purchases, takes and assumes from Genesis the
Note, as well as all of the Loan Documents.
2.2 From and after the Transfer Effective Date, the Operating
Partnership shall be a party to the Loan Agreement as a lender for all purposes
thereof.
2.3 All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of Genesis
pursuant to the Loan Agreement or the Note shall instead be payable to the
Operating Partnership.
2.4 All interest, fees and other amounts that otherwise accrue
for the account of Genesis from and after the Transfer Effective Date pursuant
to the Loan Agreement and the Note shall, instead, accrue for the account of,
and be payable to the Operating Partnership.
2.5 The parties hereto agree and acknowledge that effective
from and after the Transfer Effective Date, the Operating Partnership shall be
secured under, and shall be the beneficiary of the security interests and liens
granted under, the Mortgage, Loan Agreement, the Assignments and any and all of
the other Loan Documents to secure the obligations of the Borrower in connection
with the Loan, and that wherever the term "Lender" is used in any such document,
that term shall mean the Operating Partnership.
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<PAGE>
2.6 Concurrently with the execution of this Agreement, Genesis
will provide to the Operating Partnership conformed copies of all of the Loan
Documents.
2.7 By executing and delivering this Agreement, the parties
confirm and agree as follows:
(a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim and that Genesis has performed all of its
obligations under the Loan Documents to date. Genesis makes no representation
and warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Agreement
or any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Agreement, the Note or any other
Loan Document;
(b) Genesis makes no representation and warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under any of the Loan Documents;
(c) the Operating Partnership has received a copy of
each of the Loan Documents together with such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Agreement; and
(d) the Operating Partnership will, independently
and without reliance upon Genesis, continue to make its own credit decisions in
taking or not taking action under the Loan Documents.
(e) the Operating Partnership hereby agrees to
indemnify, defend and hold harmless Genesis and its officers, directors,
employees and agents from and against any and all liabilities, losses, claims,
damages and expenses, including reasonable attorneys' fees and expenses, of any
kind or nature directly or indirectly resulting from or arising out of any of
the Loan Documents assigned hereunder, or any act or omission to act by Genesis
or its officers, directors, employees or agents in connection therewith,
including, without limitation, all claims for commissions to any broker or
intermediary, disputes between or among Borrower, any subcontractors, material
suppliers, purchasers and tenants, unless caused by the gross negligence or
willful malfeasance of Genesis or by Genesis' breach of its representations and
warranties under this Agreement, or failure to perform under this Agreement.
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<PAGE>
3. MISCELLANEOUS.
3.1 This Agreement shall be binding and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
3.2 If any of the provisions or terms of this Agreement shall
for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any of the other terms hereof, and this
Agreement shall be construed as if such unenforceable term has never been
contained herein.
3.3 This Agreement may be executed in one or more
counterparts, each of which shall constitute an original Agreement but all of
which together shall constitute one and the same instrument.
3.4 The descriptive headings herein are for convenience only
and shall not affect the meaning or construction of any of the provisions
hereof. Words used herein, regardless of the number and gender specifically used
shall be deemed and construed to include any other number, singular, or plural,
and any other gender, masculine, feminine or neuter, as the context requires.
3.5 All notices, requests, consents, demands, approvals and
other communications hereunder shall be deemed to have been duly given, made or
served if in writing and when delivered personally (including without limitation
by means of telex, telecopies or telefax systems), or the day following delivery
to a nationally recognized, reputable overnight courier service which guarantees
delivery within twenty-four hours, charges prepaid, to the respective parties to
this Agreement as follows:
(a) If to the Borrower, to:
Senior Life Choice, LLC
2393 Kimberton Road
P.O. Box 864
Kimberton, PA 19442
Attention:
With a copy (which shall not constitute notice) to:
Heller, Kapustin, Gershman & Vogel
486 Norristown Road, Suite 230
Blue Bell, PA 19422
Attention: Warren Vogel, Esq.
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<PAGE>
(b) If to Genesis, to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Chairman & Chief Executive Officer
Law Department - General Counsel - Corporate
(c) If to the Operating Partnership, to:
ElderTrust Operating Limited Partnership
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
Attention: Edward B. Romanov, Jr.
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004
Attention: George P. Barsness, Esq.
The designation of the person to be so notified or the address
of such person for the purposes of such notice may be changed from time to time
by similar notice in writing, except that any communication with respect to a
change of address shall be deemed to be given and made when received by the
party to whom such communication was sent.
3.6 The validity, meaning and effect of this Agreement shall
be determined in accordance with the laws of the State of Pennsylvania without
regard to conflicts of laws principles thereof.
3.7 No provision of this Agreement may be amended, modified,
terminated or waived except by a writing duly executed by each party sought to
be bound by such amendment, modification, termination or waiver.
3.8 The parties hereto agree to execute any and all such
further documents as the Operating Partnership may require or request in order
to carry out the intentions of the parties hereunder.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
-5-
<PAGE>
IN WITNESS WHEREOF, each party hereto has duly executed or
caused this Assignment and Assumption Agreement to be duly executed on such
party's behalf as of the date first above written.
GENESIS HEALTH VENTURES, INC.,
Assignor
By:__________________________________
Name:________________________________
Title:_______________________________
ELDERTRUST OPERATING LIMITED PARTNERSHIP
Assignee
By: ElderTrust, a Maryland real estate
investment trust, general partner
By:__________________________________
Name:________________________________
Title:_______________________________
SENIOR LIFE CHOICE, LLC
Borrower
By:__________________________________
Name:________________________________
Title:_______________________________
-6-
<PAGE>
FORM OF CONSTRUCTION LOAN COMMITMENT LETTER
___________________________, 1998
[Genesis Sub]
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, PA 19348
Attn: _____________________________
Re: Construction Loan
Dear ___________________:
ElderTrust Operating Limited Partnership (the "Operating
Partnership") is pleased to offer its commitment to provide a $_____________
secured construction loan (the "Loan"), to [Genesis Sub.] (the "Borrower"), as
contemplated by, and upon and subject to the terms and conditions of this letter
agreement (the "Letter Agreement") and the Summary of Terms and Conditions
(herein so called) attached hereto as Exhibit A. All capitalized terms used
herein but not defined will have the meanings set forth in the Summary of Terms
and Conditions.
If the Borrower accepts this offer as hereinafter provided,
the closing of the Loan will be conditioned upon (i) the preparation,
negotiation, execution and delivery of definitive loan documentation in form and
substance satisfactory to the Operating Partnership and its counsel reflecting
the Summary of Terms and Conditions and containing such other terms and
conditions as are usual and customary for transactions of this nature, (ii) the
absence of a material adverse change in the financial condition, business
operations, properties or prospects of Borrower, or Genesis Health Ventures,
Inc. (the "Guarantor") since the date of this Letter Agreement, (iii) the
absence of a material adverse change in the financial condition, business
operations, properties or prospects of the Operating Partnership, as determined
by the Operating Partnership in its sole discretion, (iv) the payment by the
Borrower of the fees in accordance with the Summary of Terms and Conditions and
(v) satisfaction of each of the conditions precedent set forth in the Summary of
Terms and Conditions and other usual and customary conditions precedent in
transactions of this nature.
By acceptance of this offer, Borrower agrees to pay the costs
and expenses, including reasonable attorneys' fees and expenses and expenses of
due diligence incurred before and after the date hereof by the Operating
Partnership in connection with the Loan, whether or not the Loan is ever closed
or a funding ever occurs under the Loan.
<PAGE>
January___, 1998
Page 2
In addition, Borrower agrees to indemnify and hold harmless
the Operating Partnership and its affiliates, officers, directors, employees,
agents and advisors (each, an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, fees and disbursements of counsel) which may be incurred by or
asserted or awarded against any Indemnified Party (other than a claim made in
good faith by Borrower against an Indemnified Party under the Loan), in each
case arising out of or in connection with or by reason of, or in connection with
the preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with the Loan, including, without
limitation, any transaction in which the proceeds of any borrowing under the
Loan are or are to be applied, whether or not an Indemnified Party is a party
thereto and whether or not the liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. Borrower
will not settle or consent to judgment with respect to any such investigation,
litigation or proceeding without the prior written consent of the Operating
Partnership, as applicable, unless such settlement or consent includes an
unconditional release of each Indemnified Party.
You acknowledge and agree that the Operating Partnership may
share with any of its affiliates any information relating to the Loan, the
Borrower, the Guarantor, any affiliate of the Borrower or the Guarantor, or any
of the business operations thereof.
By acceptance of this Letter Agreement, Borrower represents
and warrants to the Operating Partnership that all historical financial
statements and other information regarding the Borrower, the Guarantor or any
affiliate thereof heretofore delivered to the Operating Partnership in
connection with the Loan are true, correct and not misleading in any material
respect and that any projections heretofore delivered to the Operating
Partnership in connection with the Loan have been prepared in good faith and
based on information believed to be true, correct and not misleading in any
material respect.
Neither this offer nor the undertaking and commitment
contained herein may be disclosed to any other person or entity other than your
accountants, attorneys and other advisors and potential equity investors,
without the prior written consent of the Operating Partnership, except that
following your acceptance hereof you may make disclosure hereof to the extent
required by law. No party other than Borrower may rely upon this Letter
Agreement.
<PAGE>
January___, 1998
Page 3
This offer will automatically expire at 5:00 p.m.,
Philadelphia time, on ________________, 1998, unless Borrower executes this
Letter Agreement and returns it to the Operating Partnership prior to that time,
whereupon this Letter Agreement shall become a binding commitment. Thereafter,
the commitment of the Operating Partnership will automatically expire at 5:00
p.m., Philadelphia time, on _______________________, 1998 unless definitive loan
documentation is executed and delivered prior to that time.
This Letter Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania (but without regard to the choice of laws rules
thereof). This Letter Agreement may be modified or amended only in writing.
THIS LETTER AGREEMENT (WHICH INCLUDES THE SUMMARY OF TERMS AND
CONDITIONS) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
January___, 1998
Page 4
If you are in agreement with the foregoing, please execute
duplicate originals of this Letter Agreement and return one original to the
undersigned.
ELDERTRUST OPERATING LIMITED
PARTNERSHIP
By: ElderTrust Realty Group, Inc.,
General Partner
__________________________________
By:
Its:
Accepted and Agreed To:
[GENESIS SUB]
___________________________________
By:
Its:
Date of Return to the Operating Partnership:_______________________
<PAGE>
EXHIBIT A
ATTACHED HERETO
<PAGE>
January___, 1998
Page 7
BRANDYWINE COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : Geriatric and Medical Services, Inc.
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $5,355,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the
first day of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon the payment of a 0.5% extension fee,
to extend the loan term for up to two (2) one (1) year extension
periods with interest to be reset at a fixed rate equal to 3-year
T-Bills plus 350 basis points as of the first day of each
extension period.
SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the property on or before
the maturity of the Construction Loan (as extended at the option
of Borrower) at a price (the "Purchase Price") to be determined
based upon a valuation formula as follows:
(i) If the facility has reached 90% average monthly occupancy for
three consecutive months ("Stabilized Occupancy"), the price
equals Projected Operating Cash Flow divided by a return factor
equal to the ten year T-Note rate as of the date on which the
Operating Partnership purchases the property (the "Purchase Date")
plus 525 basis points.
Projected Operating Cash Flow is defined as the operating income
from the facility for the prior three months assuming a 5%
management fee and adjusting revenue to reflect an occupancy level
of 92% (using weighted average per diem rates for the prior three
months) and adjusting operating expenses to reflect ongoing
expense levels for marketing, staffing and other costs assuming a
long-term occupancy level of 92%.
</TABLE>
<PAGE>
January___, 1998
Page 8
<TABLE>
<CAPTION>
<S> <C>
(ii) If the facility has not reached Stabilized Occupancy before
the maturity of the Construction Loan (as extended at the option
of Borrower), the Operating Partnership shall purchase the
facility as of such maturity date at a price equal to the actual
operating income from the facility for the prior three months
multiplied by four and adjusted to reflect an assumed management
fee of 5% of facility revenues, divided by a return factor equal
to the ten year T-Note rate (as of the Purchase Date) plus 525
basis points.
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Date for two (2) years; all other
representations will survive for one (1) year.
(ii) Limit on liability will be 20% of sales price.
</TABLE>
<PAGE>
January___, 1998
Page 9
<TABLE>
<CAPTION>
<S> <C>
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
facility by the Operating Partnership during the term (as
extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
</TABLE>
<PAGE>
January___, 1998
Page 10
<TABLE>
<CAPTION>
<S> <C>
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of beds at the facility during the lease
term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the facility lease.
</TABLE>
<PAGE>
January___, 1998
Page 11
LACEY COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : Geriatric and Medical Services, Inc.
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $4,590,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the
first day of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon the payment of a 0.5% extension fee,
to extend the loan term for up to two (2) one (1) year extension
periods, with interest to be reset at a fixed rate equal to 3-year
T-Bills plus 350 basis points as of the first day of each
extension period.
SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the property on or before
the maturity of the Construction Loan (as extended at the option
of Borrower) at a price (the "Purchase Price") to be determined
based upon a valuation formula as follows:
(i) If the facility has reached 90% average monthly occupancy for
three consecutive months ("Stabilized Occupancy"), the price
equals Projected Operating Cash Flow divided by a return factor
equal to the ten year T-Note rate as of the date on which the
Operating Partnership purchases the property (the "Purchase Date")
plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 12
<TABLE>
<CAPTION>
<S> <C>
Projected Operating Cash Flow is defined as the operating income
from the facility for the prior three months assuming a 5%
management fee and adjusting revenue to reflect an occupancy level
of 92% (using weighted average per diem rates for the prior three
months) and adjusting operating expenses to reflect ongoing
expense levels for marketing, staffing and other costs assuming a
long-term occupancy level of 92%.
(ii) If the facility has not reached Stabilized Occupancy before
the maturity of the Construction Loan (as extended at the option
of Borrower), the Operating Partnership shall purchase the
facility as of such maturity date at a price equal to the actual
operating income from the facility for the prior three months
multiplied by four and adjusted to reflect an assumed management
fee of 5% of facility revenues, divided by a return factor equal
to the ten year T-Note rate (as of the Purchase Date) plus 525
basis points.
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Date for two (2) years; all other
representations will survive for one (1) year.
(ii) Limit on liability will be 20% of sales price.
</TABLE>
<PAGE>
January___, 1998
Page 13
<TABLE>
<CAPTION>
<S> <C>
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
facility by the Operating Partnership during the term (as
extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
</TABLE>
<PAGE>
January___, 1998
Page 14
<TABLE>
<CAPTION>
<S> <C>
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of beds at the facility during the lease
term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the facility lease.
</TABLE>
<PAGE>
January___, 1998
Page 15
BRAKELY PARK (PHILLIPSBURG) COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : Northwest Total Care Centers Associates, L.P.
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $5,184,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the
first day of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon the payment of a 0.5% extension fee,
to extend the loan term for up to two (2) one (1) year extension
periods with interest to be reset at a fixed rate equal to 3-year
T-Bills plus 350 basis points as of the first day of each
extension period.
II. SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the property on or before
the maturity of the Construction Loan (as extended at the option
of Borrower) at a price (the "Purchase Price") to be determined
based upon a valuation formula as follows:
(i) If the facility has reached 90% average monthly occupancy for
three consecutive months ("Stabilized Occupancy"), the price
equals Projected Operating Cash Flow divided by a return factor
equal to the ten year T-Note rate as of the date on which the
Operating Partnership purchases the property (the "Purchase Date")
plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 16
<TABLE>
<CAPTION>
<S> <C>
Projected Operating Cash Flow is defined as the operating income
from the facility for the prior three months assuming a 5%
management fee and adjusting revenue to reflect an occupancy level
of 92% (using weighted average per diem rates for the prior three
months) and adjusting operating expenses to reflect ongoing
expense levels for marketing, staffing and other costs assuming a
long-term occupancy level of 92%.
(ii) If the facility has not reached Stabilized Occupancy before
the maturity of the Construction Loan (as extended at the option
of Borrower), the Operating Partnership shall purchase the
facility as of such maturity date at a price equal to the actual
operating income from the facility for the prior three months
multiplied by four and adjusted to reflect an assumed management
fee of 5% of facility revenues, divided by a return factor equal
to the ten year T-Note rate (as of the Purchase Date) plus 525
basis points.
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Date for two (2) years; all other
representations will survive for one (1) year.
</TABLE>
<PAGE>
January___, 1998
Page 17
<TABLE>
<CAPTION>
<S> <C>
(ii) Limit on liability will be 20% of sales price.
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
facility by the Operating Partnership during the term (as
extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
</TABLE>
<PAGE>
January___, 1998
Page 18
<TABLE>
<CAPTION>
<S> <C>
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of beds at the facility during the lease
term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the facility lease.
</TABLE>
<PAGE>
January___, 1998
Page 19
LONGWOOD COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : [Genesis Sub]
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $4,929,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the
first day of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon the payment of a 0.5% extension fee,
to extend the loan term for up to two (2) one (1) year extension
periods with interest to be reset at a fixed rate equal to 3-year
T-Bills plus 350 basis points as of the first day of each
extension period.
II. SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the property on or before
the maturity of the Construction Loan (as extended at the option
of Borrower) at a price (the "Purchase Price") to be determined
based upon a valuation formula as follows:
(i) If the facility has reached 90% average monthly occupancy for
three consecutive months ("Stabilized Occupancy"), the price
equals Projected Operating Cash Flow divided by a return factor
equal to the ten year T-Note rate as of the date on which the
Operating Partnership purchases the property (the "Purchase Date")
plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 20
<TABLE>
<CAPTION>
<S> <C>
Projected Operating Cash Flow is defined as the operating income
from the facility for the prior three months assuming a 5%
management fee and adjusting revenue to reflect an occupancy level
of 92% (using weighted average per diem rates for the prior three
months) and adjusting operating expenses to reflect ongoing
expense levels for marketing, staffing and other costs assuming a
long-term occupancy level of 92%.
(ii) If the facility has not reached Stabilized Occupancy before
the maturity of the Construction Loan (as extended at the option
of Borrower), the Operating Partnership shall purchase the
facility as of such maturity date at a price equal to the actual
operating income from the facility for the prior three months
multiplied by four and adjusted to reflect an assumed management
fee of 5% of facility revenues, divided by a return factor equal
to the ten year T-Note rate (as of the Purchase Date) plus 525
basis points.
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Date for two (2) years; all other
representations will survive for one (1) year.
(ii) Limit on liability will be 20% of sales price.
</TABLE>
<PAGE>
January___, 1998
Page 21
<TABLE>
<CAPTION>
<S> <C>
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
facility by the Operating Partnership during the term (as
extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
</TABLE>
<PAGE>
January___, 1998
Page 22
<TABLE>
<CAPTION>
<S> <C>
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of beds at the facility during the lease
term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the facility lease.
</TABLE>
<PAGE>
January____, 1998
Page 23
LAKELAND COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : Polk Meridian Limited Partnership
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $4,909,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the
first day of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon payment of a 0.5% extension fee, to
extend the loan term for up to two (2) one (1) year extension
periods with interest to be reset at a fixed rate equal to 3-year
T-Bills plus 350 basis points as of the first day of each
extension period.
II. SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the property on or before
the maturity of the Construction Loan (as extended at the option
of Borrower) at a price (the "Purchase Price") to be determined
based upon a valuation formula as follows:
(i) If the facility has reached 90% average monthly occupancy for
three consecutive months ("Stabilized Occupancy"), the price
equals Projected Operating Cash Flow divided by a return factor
equal to the ten year T-Note rate as of the date on which the
Operating Partnership purchases the property (the "Purchase Date")
plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 24
<TABLE>
<CAPTION>
<S> <C>
Projected Operating Cash Flow is defined as the operating income
from the facility for the prior three months assuming a 5%
management fee and adjusting revenue to reflect an occupancy level
of 92% (using weighted average per diem rates for the prior three
months) and adjusting operating expenses to reflect ongoing
expense levels for marketing, staffing and other costs assuming a
long-term occupancy level of 92%.
(ii) If the facility has not reached Stabilized Occupancy before
the maturity of the Construction Loan (as extended at the option
of Borrower), the Operating Partnership shall purchase the
facility as of such maturity date at a price equal to the actual
operating income from the facility for the prior three months
multiplied by four and adjusted to reflect an assumed management
fee of 5% of facility revenues, divided by a return factor equal
to the ten year T-Note rate (as of the Purchase Date) plus 525
basis points.
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Date for two (2) years; all other
representations will survive for one (1) year.
(ii) Limit on liability will be 20% of sales price.
</TABLE>
<PAGE>
January___, 1998
Page 25
<TABLE>
<CAPTION>
<S> <C>
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
facility by the Operating Partnership during the term (as
extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
</TABLE>
<PAGE>
January___, 1998
Page 26
<TABLE>
<CAPTION>
<S> <C>
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of beds at the facility during the lease
term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the facility lease.
</TABLE>
<PAGE>
January___, 1998
Page 27
CONCORD COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : [Genesis/Concord Joint Venture]
B. GUARANTOR : [Genesis Health Ventures, Inc. ("Genesis")]
C. LENDER : Operating Partnership
D. AMOUNT : $4,926,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the first day
of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon payment of a 0.5% extension fee, to
extend the loan term for up to two (2) one (1) year extension
periods with interest to be reset at a fixed rate equal to 3-year
T-Bills plus 400 basis points as of the first day of each
extension period.
II. SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the property on or before
the maturity of the Construction Loan (as extended at the option
of Genesis) at a price (the "Purchase Price") to be determined
based upon a valuation formula as follows:
(i) If the facility has reached 90% average monthly occupancy for
three consecutive months ("Stabilized Occupancy"), the price
equals Projected Operating Cash Flow divided by a return factor
equal to the ten year T-Note rate as of the date on which the
Operating Partnership purchases the property (the "Purchase Date")
plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 28
<TABLE>
<CAPTION>
<S> <C>
Projected Operating Cash Flow is defined as the operating income
from the facility for the prior three months assuming a 5%
management fee and adjusting revenue to reflect an occupancy level
of 92% (using weighted average per diem rates for the prior three
months) and adjusting operating expenses to reflect ongoing
expense levels for marketing, staffing and other costs assuming a
long-term occupancy level of 92%.
(ii) If the facility has not reached Stabilized Occupancy before
the maturity of the Construction Loan (as extended at the option
of Borrower), the Operating Partnership shall purchase the
facility as of such maturity date at a price equal to the actual
operating income from the facility for the prior three months
multiplied by four and adjusted to reflect an assumed management
fee of 5% of facility revenues, divided by a return factor equal
to the ten year T-Note rate (as of the Purchase Date) plus 525
basis points.
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Date for two (2) years; all other
representations will survive for one (1) year.
</TABLE>
<PAGE>
January___, 1998
Page 29
<TABLE>
<CAPTION>
<S> <C>
(ii) Limit on liability will be 20% of sales price.
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
facility by the Operating Partnership during the term (as
extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
</TABLE>
<PAGE>
January___, 1998
Page 30
<TABLE>
<CAPTION>
<S> <C>
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of beds at the facility during the lease
term.
J. GUARANTEE : Genesis will guarantee the obligations of the lessee
under the facility lease.
</TABLE>
<PAGE>
January___, 1998
Page 32
RITTENHOUSE SNF RENOVATION COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : [Genesis Sub]
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $5,580,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-Bills as of the first day
of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon the payment of a 0.5% extension fee,
to extend the loan term for up to two (2) one (1) year extensions
with interest to be reset at a fixed rate equal to 3-year T-Bills
plus 350 basis points as of the first day of the extension period.
II. SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the constructed
improvements on or before the maturity of the Construction Loan
(as extended at the option of Borrower) at a price (the "Purchase
Price") which will result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten year T-Note
rate as of the date on which the Operating Partnership purchases
the property (the "Purchase Date") plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 33
<TABLE>
<CAPTION>
<S> <C>
B. REPRESENTATIONS AND
WARRANTIES : (i) Liability for representations regarding environmental concerns
will survive the Purchase Price for two (2) years; all other
representations will survive for one (1) year.
(ii) Limit on liability will be 20% of sales price.
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
skilled nursing units at the facility by the Operating Partnership
during the term (as extended) and for one year thereafter.
G. MINIMUM RENT : For the first lease year Minimum Rent shall be based upon the
Operating Partnership realizing an annual yield on the Purchase
Price equal to the ten year T-Note rate as of the Commencement
Date of the lease plus 350 basis ---- points; thereafter annual
escalations shall equal the lesser of (i) 5% of the increase in
gross revenues for the facility during the immediately preceding
year, or (ii) one-half of the increase on the Consumer Price Index
during the immediately preceding year.
</TABLE>
<PAGE>
January___, 1998
Page 34
<TABLE>
<CAPTION>
<S> <C>
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to two (2) months Minimum
Rent. The Operating Partnership will pay interest on the security
deposit quarterly in arrears at a rate equal to the 90-day T-Bill
rate as of the last day of each quarter.
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to the sum of $3,000
multiplied by the number of skilled nursing beds at the facility
during the lease term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the skilled nursing facility lease.
</TABLE>
<PAGE>
January___, 1998
Page 35
RITTENHOUSE ALF ADDITION COMMITMENT LETTER
CONSTRUCTION LOAN
<TABLE>
<CAPTION>
<S> <C>
I. LOAN TERMS
A. BORROWER : [Genesis Sub]
B. GUARANTOR : Genesis Health Ventures, Inc. ("Genesis")
C. LENDER : Operating Partnership
D. AMOUNT : $1,800,000
E. INTEREST RATE : Fixed at 350 basis points over 3 year T-bill as of the first day
of the term.
F. TERM : Three years
G. EXTENSION RIGHTS : Borrower has the right, upon the payment of a 0.5% extension fee,
to extend the loan term for up to two (2) one (1) year extension
periods with interest to be reset at a fixed rate equal to 3-year
T-bills plus 350 basis points as of the first day of the extension
period.
II. SALE/LEASEBACK TERMS
A. PURCHASE OBLIGATION/
PRICE : The Operating Partnership must purchase the constructed
improvements on or before the maturity of the Construction Loan
(as extended at the option of Borrower) at a price (the "Purchase
Price") which will result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten year T-Note
rate as of the date on which the Operating Partnership purchases
the property (the "Purchase Date") plus 525 basis points.
</TABLE>
<PAGE>
January___, 1998
Page 36
<TABLE>
<CAPTION>
<S> <C>
B. REPRESENTATIONS AND
WARRANTIES :
(i) Liability for representations regarding environmental concerns
will survive the closing of the purchase for two (2) years, all
other representations will survive for one (1) year.
(ii) Limit on liability will be 20% of sales price.
C. OTHER TERMS AND
CONDITIONS : Receipt of all necessary governmental and third party licenses,
permits, regulatory approvals and consents.
D. LEASE TERM : Ten years; lessee has an option to extend for two consecutive
five-year periods.
E. LEASE TYPE : triple-net
F. RIGHT OF
FIRST REFUSAL : Lessee has a right of first refusal on sale or lease of the
assisted living units at the facility by the Operating Partnership
during the term (as extended) and for one year thereafter.
G. PERCENTAGE RENT : A percentage of gross revenues, paid on an estimated basis monthly
in advance based on the gross revenues for the immediately
preceding quarter, with quarterly and annual reconciliations,
which percentage (the "Percentage Rent Percentage") shall be
determined as follows:
(i) If the facility has reached Stabilized Occupancy as of the
Purchase Date, the Percentage Rent Percentage shall equal that
percentage of the deemed annual gross revenues for the facility
(based upon the gross revenues for the facility for the prior
</TABLE>
<PAGE>
January___, 1998
Page 37
<TABLE>
<CAPTION>
<S> <C>
three (3) months, as adjusted to reflect an occupancy level of 92%
using weighted average per diem rates for the prior three (3)
months) which would result in the Operating Partnership realizing
an annual yield on the Purchase Price equal to the ten-year T-Note
rate (as of the Purchase Date) plus 525 basis points; or
(ii) In the event that the facility has not reached Stabilized
Occupancy as of the Purchase Date, the Percentage Rent Percentage
shall equal that percentage of the product of four (4) times the
actual gross revenues for the facility for the three (3) months
ended immediately prior to the Purchase Date which would result in
the Operating Partnership realizing an annual yield on the
Purchase Price equal to the ten-year T-Note rate (as of the
Purchase Date) plus 525 basis points.
Percentage Rent during any extension period will be the fair
market rental rate as of the beginning of any such extension
period based on an appraisal at such time.
H. SECURITY DEPOSIT : Lessee will deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year based on
the opening budget for such year. The Operating Partnership will
pay interest on the security deposit quarterly in arrears at a
rate equal to the 90-day T-Bill rate as of the last day of each
quarter for which interest is being paid.
</TABLE>
<PAGE>
January___, 1998
Page 38
<TABLE>
<CAPTION>
<S> <C>
I. CAPITAL
EXPENDITURES : During the last four years of the term (as extended), lessee is
required to make capital expenditures equal to $3,000 multiplied
by the number of beds at the facility during the lease term.
J. GUARANTEE : Genesis will guarantee the obligations of lessee under
the facility lease.
</TABLE>
<PAGE>
[Penn Mortgage Assignment]
FORM OF
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is
made and entered into as of January ____, 1998, among (i) Geri-Med Corp., a
Pennsylvania corporation, in its capacity as the assigning lender hereunder
("Geri-Med"), (ii) ElderTrust Operating Limited Partnership, a Delaware limited
partnership (the "Operating Partnership") and (iii) Philadelphia Suburban
Development Corporation, a Pennsylvania corporation (together with its
successors and assigns, the "Borrower").
WHEREAS, Geri-Med agreed to make a loan to the Borrower in the
aggregate principal amount of $800,000.00 (the "Loan"), in connection with which
the Borrower executed and delivered to Geri-Med that certain Open-End Mortgage
and Security Agreement dated as of even date therewith (the "Mortgage") in which
Geri-Med was granted a first priority lien in and to all of the property and
premises, as improved from time to time, located at 600 University Avenue,
Philadelphia, Pennsylvania, as well as a security interest in Borrower's
fixtures, equipment, personal property and other collateral identified therein
to secure the obligations of the Borrower in connection with, among other
things, the Loan.
WHEREAS, the Loan was evidenced by that certain Mortgage Note,
dated as of November 11, 1997 (the "Note"), payable to the order of Geri-Med in
the principal amount of $800,000;
WHEREAS, simultaneously with the execution and delivery of the
Note, the Borrower and Geri-Med entered into that certain Assignment of Rents
and Leases and Collateral Assignment of Agreements Affecting Real Estate
(together, the "Assignments" and collectively with the Note, Mortgage, and any
all other documents executed in connection therewith, as may be modified,
replaced, renewed or amended from time to time, the "Loan Documents");
WHEREAS, the Operating Partnership has agreed to purchase, and
Geri-Med has agreed to sell, transfer and assign to the Operating Partnership
the Note and all of Geri-Med's rights, title and interest therein and thereto,
as well as all of its rights, title and interest in and to each of the Loan
Documents;
WHEREAS, the Operating Partnership wishes to become a party to
the Loan Agreement as a lender and is willing to assume the rights and
obligations of a lender therein contained;
<PAGE>
WHEREAS, by executing this Agreement, Borrower is
acknowledging, agreeing and consenting to the assignment of all of Geri-Med's
rights, title and interests in and to the Loan Documents, and specifically, its
rights to all of the benefits as a secured party thereunder.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, capitalized terms used but not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement.
2. ASSIGNMENT AND ASSUMPTION.
2.1 At or before 12:00 noon on January ____, 1998, the
Operating Partnership shall pay to Geri-Med, in immediately available funds, an
amount equal to __________ Million __________________ Thousand Dollars
($__________) (the "Purchase Price"). Effective upon the date of receipt by
Geri-Med of the Purchase Price (the "Transfer Effective Date"), Geri-Med hereby
irrevocably sells, assigns and transfers to the Operating Partnership, without
recourse, and the Operating Partnership hereby irrevocably purchases, takes and
assumes from Geri-Med the Note, as well as all of the Loan Documents.
2.2 From and after the Transfer Effective Date, the Operating
Partnership shall be a party to the Loan Agreement as a lender for all purposes
thereof.
2.3 All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of Geri-Med
pursuant to the Note or any of the Loan Documents shall instead be payable to
the Operating Partnership.
2.4 All interest, fees and other amounts that otherwise accrue
for the account of Geri-Med from and after the Transfer Effective Date pursuant
to the Loan Agreement and the Note shall, instead, accrue for the account of,
and be payable to the Operating Partnership.
2.5 The parties hereto agree and acknowledge that effective
from and after the Transfer Effective Date, the Operating Partnership shall be
secured under, and shall be the beneficiary of the security interests and liens
granted under, the Mortgage, the Assignments and any and all of the other Loan
Documents to secure the obligations of the Borrower in connection with the Loan,
and that wherever the term "Lender" is used in any such document, that term
shall mean the Operating Partnership.
-2-
<PAGE>
2.6 Concurrently with the execution of this Agreement,
Geri-Med will provide to the Operating Partnership conformed copies of all of
the Loan Documents.
2.7 By executing and delivering this Agreement, the parties
confirm and agree as follows:
(a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim and that it has performed all of its obligations
under the Loan Documents to date, Geri-Med makes no representation and warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or any other
Loan Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Note or any other Loan Document;
(b) Geri-Med makes no representation and warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under any of the Loan Documents;
(c) the Operating Partnership has received a copy of
each of the Loan Documents together with such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Agreement; and
(d) the Operating Partnership will, independently and
without reliance upon Geri-Med, continue to make its own credit decisions in
taking or not taking action under the Loan Documents.
(e) the Operating Partnership hereby agrees to
indemnify, defend and hold harmless Geri-Med and its officers, directors,
employees and agents from and against any and all liabilities, losses, claims,
damages and expenses, including reasonable attorneys' fees and expenses, of any
kind or nature directly or indirectly resulting from or arising out of any of
the Loan Documents assigned hereunder, or any act or omission to act by Geri-Med
or its officers, directors, employees or agents in connection therewith,
including, without limitation, all claims for commissions to any broker or
intermediary, disputes between or among Borrower, any subcontractors, material
suppliers, purchasers and tenants, unless caused by the gross negligence or
willful malfeasance of Geri-Med or by Geri-Med's breach of its representations
and warranties under this Agreement, or failure to perform under this Agreement.
-3-
<PAGE>
3. MISCELLANEOUS.
3.1 This Agreement shall be binding and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
3.2 If any of the provisions or terms of this Agreement shall
for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any of the other terms hereof, and this
Agreement shall be construed as if such unenforceable term has never been
contained herein.
3.3 This Agreement may be executed in one or more
counterparts, each of which shall constitute an original Agreement but all of
which together shall constitute one and the same instrument.
3.4 The descriptive headings herein are for convenience only
and shall not affect the meaning or construction of any of the provisions
hereof. Words used herein, regardless of the number and gender specifically used
shall be deemed and construed to include any other number, singular, or plural,
and any other gender, masculine, feminine or neuter, as the context requires.
3.5 All notices, requests, consents, demands, approvals and
other communications hereunder shall be deemed to have been duly given, made or
served if in writing and when delivered personally (including without limitation
by means of telex, telecopies or telefax systems), or the day following delivery
to a nationally recognized, reputable overnight courier service which guarantees
delivery within twenty-four hours, charges prepaid, to the respective parties to
this Agreement as follows:
(a) If to the Borrower, to:
Philadelphia Suburban Development Corporation
_________________, Pennsylvania
Attention:
With a copy (which shall not constitute notice) to:
Attention:
(b) If to Geri-Med, to:
Geri-Med Corp.
-4-
<PAGE>
With a copy (which shall not constitute notice) to:
Attention:
(c) If to the Operating Partnership, to:
ElderTrust Operating Limited Partnership
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
Attention: Edward B. Romanov, Jr.
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004
Attention: George P. Barsness, Esq.
The designation of the person to be so notified or the address
of such person for the purposes of such notice may be changed from time to time
by similar notice in writing, except that any communication with respect to a
change of address shall be deemed to be given and made when received by the
party to whom such communication was sent.
3.6 The validity, meaning and effect of this Agreement shall
be determined in accordance with the laws of the State of Pennsylvania without
regard to conflicts of laws principles thereof.
3.7 No provision of this Agreement may be amended, modified,
terminated or waived except by a writing duly executed by each party sought to
be bound by such amendment, modification, termination or waiver.
3.8 The parties hereto agree to execute any and all such
further documents as the Operating Partnership may require or request in order
to carry out the intentions of the parties hereunder.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
-5-
<PAGE>
IN WITNESS WHEREOF, each party hereto has duly executed or
caused this Assignment and Assumption Agreement to be duly executed on such
party's behalf as of the date first above written.
GERI-MED CORP.
Assignor
By:______________________________
Name:____________________________
Title:___________________________
ELDERTRUST OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership
Assignee
By: ElderTrust, a Maryland real estate
investment trust, general partner
By:______________________________
Name:____________________________
Title:___________________________
PHILADELPHIA SUBURBAN
DEVELOPMENT CORPORATION
Borrower
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
[Governing Rights Among Junior Lenders/
Option to Purchase Note]
FORM OF
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is
made and entered into as of January ____, 1998, among (i) Genesis Health
Ventures, Inc., a Pennsylvania corporation, in its capacity as the assigning
lender hereunder ("Genesis"), and in its capacity as agent for the lenders (the
"Agent"), (ii) ET Capital Corp., a Delaware corporation ("ET Capital", together
with Genesis and their successors and assigns, the "Lenders") and (iii) Age
Institute of Florida, Inc., a Florida non-profit corporation (together with its
successors and assigns, the "Borrower").
WHEREAS, Genesis and the Borrower entered into that certain
Working Capital Loan and Security Agreement, dated as of August 31, 1996 (as may
be amended or assigned from time to time, the "Loan Agreement"), pursuant to
which Genesis agreed to make a loan to the Borrower in the aggregate principal
amount of $10,000,000 (the "Loan") and the Borrower granted Genesis a security
interest in certain collateral to secure its obligations in connection with the
Loan;
WHEREAS, the Loan was evidenced by that certain Promissory
Note, dated August 31, 1996 (the "Note"), payable to the order of Genesis in the
principal amount of $10,000,000;
WHEREAS, simultaneously with the execution and delivery of the
Loan Agreement, the Borrower and Genesis entered into that certain Security
Agreement, dated as of August 31, 1996 (the "Security Agreement"), whereby the
Borrower granted Genesis a security interest in all of its accounts, inventory,
equipment and general intangibles to secure the obligations of the Borrower in
connection with, among other things, the Loan;
WHEREAS, ET Capital has agreed to purchase, and Genesis has
agreed to sell, a portion of the principal amount of the Note equal to
$7,500,000 on the terms and conditions set forth herein;
WHEREAS, ET Capital wishes to become a party to the Loan
Agreement as a lender and is willing to assume the rights and obligations of a
lender therein contained;
WHEREAS, Genesis and ET Capital, as lenders, wish to appoint
Genesis to act as their Agent under the Loan Agreement, the Security Agreement
and the other agreements, instruments and documents executed and delivered in
connection therewith;
WHEREAS, Genesis has agreed to grant ET Capital an option to
purchase the remaining principal amount of the Note on the terms and conditions
set forth herein; and
<PAGE>
WHEREAS, in connection with this Agreement, (i) the Lenders
and the Borrower are entering into an Amendment to Working Capital Loan
Agreement, dated as of the date hereof, (ii) the Lenders and the Borrower are
entering into an Assignment and Amendment to Security Agreement, dated as of the
date hereof; and (iii) the Borrower is granting a mortgage and security interest
in the Facilities (as defined in the Loan Agreement) and related property
pursuant to a Second Mortgage, Assignment of Rents and Security Interest, dated
as of the date hereof (the "Mortgage").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:
CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the
following meanings:
"$2,500,000 Amended and Restated Note" means the Amended and
Restated Promissory Note executed by the Borrower payable to the order of
Genesis in the principal amount of $2,500,000, in substantially the form
attached hereto as Exhibit A.
"$7,500,000 Amended and Restated Note" means the Amended and
Restated Promissory Note executed by the Borrower payable to the order of ET
Capital in the principal amount of $7,500,000, in substantially the form
attached hereto as Exhibit B.
"Amended and Restated Notes" means, collectively, the
$2,500,000 Amended and Restated Note and the $7,500,000 Amended and Restated
Note.
"Collateral" means, collectively, the "Collateral" as defined
in the Loan Agreement, the "Collateral" as defined in the Security Agreement and
the "Property" as defined in the Mortgage.
"Intercreditor Agreement" means that certain Intercreditor
Agreement, dated as of the date hereof, among Genesis, in its capacity as senior
lender, junior lender and agent, ET Capital and the Borrower.
"Loan Documents" means the Loan Agreement, the Amended and
Restated Notes, the Security Agreement, the Mortgage and all other agreements,
instruments and documents executed in connection therewith, as such documents
may be amended, renewed, modified, extended, assigned, refinanced or replaced
from time to time.
-2-
<PAGE>
Capitalized terms used but not otherwise defined herein shall
have the meanings set forth in the Loan Agreement.
2. ASSIGNMENT AND ASSUMPTION.
2.1 At or before 12:00 noon on January ____, 1998, ET Capital
shall pay to Genesis, in immediately available funds, an amount equal to Seven
Million Five Hundred Thousand Dollars ($7,500,00.00) (the "Purchase Price").
Effective upon the date of receipt by Genesis of the Purchase Price (the
"Transfer Effective Date"), Genesis hereby irrevocably sells, assigns and
transfers to ET Capital, without recourse, and ET Capital hereby irrevocably
purchases, takes and assumes from Genesis (a) a portion of the outstanding
principal amount under the Loan equal to seventy-five percent (75%). Genesis
shall retain a twenty-five percent (25%) portion of such outstanding principal
amount of the Loan.
2.2 From and after the Transfer Effective Date, ET Capital
shall be a party to the Loan Agreement as a lender for all purposes thereof.
2.3 All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of Genesis
pursuant to the Working Capital Loan Agreement or the Note shall instead be
payable to Genesis and ET Capital in accordance with their respective interests
as reflected in Section 2.1 hereof.
2.4 All interest, fees and other amounts that otherwise accrue
for the account of Genesis from and after the Transfer Effective Date pursuant
to the Loan Agreement and the Note shall, instead, accrue for the account of,
and be payable to, Genesis and ET Capital, as the case may be, in accordance
with their respective interests as reflected in Section 2.1 hereof.
2.5 As a condition to the obligation to purchase, and on or
prior to the Transfer Effective Date, the Borrower shall execute and deliver to
the Agent the Amended and Restated Notes reflecting the interests set forth in
Section 2.1 hereof, and shall have executed and delivered an amendment of the
Loan Documents as contemplated hereby and an amendment of any and all management
agreements pertaining to the Facilities in form satisfactory to the Lenders
which provides for subordination of certain management fees in the event of
default under the Loan Documents as agreed between the parties. Promptly after
the Transfer Effective Date, the Agent will deliver to Genesis the $2,500,000
Amended and Restated Note and will deliver to ET Capital the $7,500,000 Amended
and Restated Note, and Genesis will surrender the Note to the Borrower, marked
"Canceled by Substitution."
2.6 Each of the Lenders shall be secured by the security
interests granted under the Security Agreement, the Loan Agreement and the
Mortgage to secure the obligations of the Borrower in connection with the Loan
on a pro rata basis in proportion to the portion of the outstanding principal
amount of the Loan owed to each Lender. Each of the Lenders and the Agent
acknowledges that in accordance with the terms of the Intercreditor Agreement,
the security interests granted under the Loan Agreement, the Security Agreement
and the Mortgage to secure the obligations of the Borrower in connection with
the Loan are subordinated to the security interests granted by the Borrower to
secure the obligations of the Borrower in connection with the Acquisition Loan
(as defined in the Security Agreement).
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<PAGE>
2.7 Concurrently with the execution of this Agreement, Genesis
will provide to ET Capital conformed copies of all of the Loan Documents.
2.8 By executing and delivering this Agreement, Genesis and ET
Capital confirm and agree as follows:
(a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, Genesis makes no representation and warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or any other
Loan Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, the Note or any other Loan Document;
(b) Genesis makes no representation and warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under any of the Loan Documents;
(c) ET Capital has received a copy of each of the
Loan Documents together with such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Agreement; and
(d) ET Capital will, independently and without
reliance upon Genesis, continue to make its own credit decisions in taking or
not taking action under the Loan Documents.
-4-
<PAGE>
3. AGENCY.
3.1 The Lenders hereby irrevocably appoint and authorize the
Agent to act as their agent under the Loan Agreement, the Security Agreement,
the Mortgage and each of the other Loan Documents, and the Agent hereby accepts
such appointment and authorization. Each of the Lenders and any subsequent
holder of the Amended and Restated Notes by its acceptance thereof, irrevocably
authorizes the Agent to execute and take such action on its behalf under the
provisions of the Loan Documents and to exercise such powers hereunder and
thereunder as are specifically delegated to the Agent by the terms hereof and
thereof and such powers as are reasonably incidental thereto. The Agent is
hereby expressly authorized on behalf of the Lenders, without limiting any
implied authority, (i) to execute any and all Loan Documents on behalf of the
Lenders, except where Lenders are parties thereto, (ii) to distribute to each
Lender copies of all notices, agreements and other material as provided for in
the Loan Agreement, the Security Agreement or in the other Loan Documents, (iii)
to hold and apply any and all Collateral, and the proceeds thereof, on behalf of
the Lenders on a pari passu basis, subject to the terms of and rights set forth
in the Intercreditor Agreement, (iv) to exercise any and all rights, powers and
remedies of the Lenders under the Loan Documents, (v) to execute and deliver and
file and possess instruments and documents, including without limitation
financing statements, financing statement amendments and continuation
statements, on behalf of any or all of the Lenders; and (vi) in the event of any
acceleration of the Loan or any amounts due under the Amended and Restated
Notes, to use its best efforts to sell or otherwise liquidate or dispose of the
Collateral and otherwise exercise the rights of the Lenders under the Loan
Agreement, the Security Agreement and the Mortgage.
3.2 Each Lender agrees (a) to reimburse the Agent in the
amount of such Lender's pro rata share based on its percentage of the
outstanding principal amount of the Loan for any expenses incurred by the Agent
for the benefit of the Lenders, including counsel fees and compensation of
agents and employees, and all other amounts paid by the Agent respectively, for
services rendered on behalf of the Lenders and (b) to indemnify and hold
harmless the Agent and any of its directors, officers, employees or agents, on
demand, in the amount of its pro rata share, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in its capacity as the Agent or
any of its directors, officers, employees or agents in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the Agent or
any of its directors, officers, employees or agents under the Loan Documents, to
the extent not reimbursed by the Borrower; provided, however, that no Lender
shall be liable to the Agent for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgment, suits, costs, expenses or
disbursements resulting from the gross negligence or willful misconduct of the
Agent, or any of its directors, officers, employees or agents.
3.3 Neither the Agent nor any of its officers, directors,
employees or agents will be liable to the Lenders for any action taken or
omitted hereunder or in connection herewith or in connection with any document
or instrument now or hereafter executed in connection herewith unless caused by
its gross negligence or willful misconduct. The Agent will not be responsible
for any recitals, warranties or representations in the Loan Agreement, the
Mortgage or any other Loan Document. The Lenders acknowledge that they have
reviewed the Loan Agreement, the Amended and Restated Notes, the Security
Agreement, the Mortgage and all of the other Loan Documents and are fully aware
of the terms hereof and thereof. The Agent may execute any of its duties by or
through agents or employees and will be entitled to advice of counsel,
accountants or other professionals of its selection concerning all matters
pertaining to the Loan Documents and its duties hereunder and thereunder. The
Agent will be entitled to rely upon any writing or other document, telegram or
telephone conversation believed by it to have been signed, sent or made by the
proper person or persons and, in respect of legal matters, upon the advice of
counsel selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under the Loan Agreement and the other Loan
Documents unless it shall first receive such advice or concurrence of all the
Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action
except for its own gross negligence or willful misconduct. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of all the
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Amended and Restated Notes.
-5-
<PAGE>
3.4 Each Lender acknowledges that the Agent has not made any
representation or warranty to it and that no act taken by the Agent will be
deemed to constitute a representation or warranty by the Agent to any Lender.
Each Lender further acknowledges that it has taken and will continue to take
such action and to make such investigation as it deems necessary to inform
itself of the affairs of the Borrower and that it has made and will continue to
make its own independent investigation of the creditworthiness and the business
and operations of the Borrower. In making an advance hereunder, each Lender
represents that it has not relied and will not rely upon any information or
representations furnished or given by the Agent. The Agent will be under no duty
or responsibility to the Lenders to ascertain or to inquire into the performance
or observance by the Borrower of any of the provisions of this Agreement or any
document or instrument now or hereafter executed in connection herewith. The
Agent will not have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrower or any affiliate thereof which may come into the
possession of the Agent. The Lenders understand and agree that the Agent will
not be deemed to have knowledge of the existence, occurrence or continuance of
any event of default under any of the Loan Documents, unless the officers of the
Agent immediately responsible for matters concerning this Agreement will have
actual knowledge of such occurrence or will have been notified in writing by any
Lender or Borrower that the Lender or the Borrower, as applicable, considers
that such event of default has occurred and is continuing and specifying the
nature thereof.
3.5 Upon the occurrence and during the continuation of an
Event of Default (as defined in the Loan Agreement), and following a declaration
by a Lender that a Amended and Restated Note is due and payable, the Agent upon
the request of the Lender, will proceed to enforce the rights of the Lender
under the Amended and Restated Note by such proceedings as the Agent may deem
appropriate, whether at law or in equity. The Agent, on behalf of all the
Lenders, will hold in accordance with the Loan Agreement, the Security Agreement
and the Mortgage, subject to the provisions of the Intercreditor Agreement, all
items of Collateral received or held by the Agent. Subject to the Agent's rights
to reimbursement for its costs and expenses hereunder and, subject to the
provisions of the Intercreditor Agreement, each Lender will have an interest in
any Collateral in the same proportions that the aggregate outstanding principal
obligations owed such Lender pursuant to the Loan Agreement bear to the
aggregate outstanding principal obligations owed to all the Lenders, without
priority or preference among the Lenders.
3.6 The Agent, in all cases, will be fully protected in
acting, or in refraining from acting, hereunder or in connection with any other
documents or instruments now or hereafter executed in connection herewith in
accordance with written instructions of the Lenders.
3.7 Subject to the appointment and acceptance of a successor
Agent as provided below, the Agent may resign at any time by notifying the
Lenders and the Borrower. Upon any such resignation, the Lenders will have the
right to appoint a successor Agent. If no successor Agent will have been so
appointed by the Lenders and will have accepted such appointment within thirty
(30) days after the retiring Agent gives notice of its resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon
the acceptance of any appointment as Agent hereunder by a successor, such
successor will thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent will
be discharged from its duties and obligations hereunder and under the Loan
Documents. After any Agent's resignation hereunder, the provisions of this
Section 3 will continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
-6-
<PAGE>
4. PURCHASE OPTION
At any time prior to the close of business on
________________________, 1999, ET Capital shall have the right to purchase from
Genesis all, but not part, of the outstanding principal amount of the Loan held
by Genesis evidenced by the $2,500,000 Amended and Restated Note (the "Option
Asset") by delivering to Genesis written notice (the "Exercise Notice") on or
prior to said date. The Exercise Notice shall state ET Capital's intention to
exercise the purchase option pursuant to this Section 4 and shall further
specify the closing date of such purchase (the "Closing Date"); provided,
however, that such Closing Date shall not be sooner than five (5) business days
nor later than twenty (20) business days after the date of delivery of the
Exercise Notice. The purchase price for the Option Asset shall be an amount (the
"Purchase Price") equal to the outstanding principal amount of the $2,500,000
Amended and Restated Note on the date of such purchase. On the Closing Date, (i)
ET Capital shall deliver the Purchase Price to Genesis in immediately available
funds, (ii) Genesis shall deliver the $2,500,000 Amended and Restated Note to
the Agent, the Borrower shall issue a new promissory note in favor of ET Capital
in the amount of the outstanding principal amount of the Loan being purchased
and the Agent shall surrender the $2,500,000 Amended and Restated Note to the
Borrower marked "Canceled by Substitution," and (iii) ET Capital, Genesis and
the Borrower shall execute and deliver an Assignment and Assumption Agreement
containing provisions substantially similar to the provisions contained in
Section 2 hereof. Notwithstanding any provision herein to the contrary, in the
event an Exercise Notice is not delivered on or before _________________, 1999,
the provisions of this Section 4 shall be of no further force and effect.
-7-
<PAGE>
5. MISCELLANEOUS.
5.1 This Agreement shall be binding and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
5.2 If any of the provisions or terms of this Agreement shall
for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any of the other terms hereof, and this
Agreement shall be construed as if such unenforceable term has never been
contained herein.
5.3 This Agreement may be executed in one or more
counterparts, each of which shall constitute an original Agreement but all of
which together shall constitute one and the same instrument.
5.4 The descriptive headings herein are for convenience only
and shall not affect the meaning or construction of any of the provisions
hereof. Words used herein, regardless of the number and gender specifically used
shall be deemed and construed to include any other number, singular, or plural,
and any other gender, masculine, feminine or neuter, as the context requires.
5.5 All notices, requests, consents, demands, approvals and
other communications hereunder shall be deemed to have been duly given, made or
served if in writing and when delivered personally (including without limitation
by means of telex, telecopies or telefax systems), or the day following delivery
to a nationally recognized, reputable overnight courier service which guarantees
delivery within twenty-four hours, charges prepaid, to the respective parties to
this Agreement as follows:
-8-
<PAGE>
(a) If to the Borrower, to:
Age Institute of Florida, Inc.
Professional Arts Building
25 Penncraft Avenue
Chambersburg, Pennsylvania 17201
Attention: Carol A. Tschop, President
With a copy (which shall not constitute notice) to:
Blank, Rome, Comisky & McCauley
1 Logan Square
Philadelphia, Pennsylvania 19103
Attention: Harry A. Madonna, Esq.
(b) If to the Agent or to Genesis, to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention:
With a copy (which shall not constitute notice) to:
Attention:
(c) If to ET Capital, to:
ET Capital Corporation
Attention:
with a copy (which shall not constitute notice) to:
Attention:
-9-
<PAGE>
The designation of the person to be so notified or the address
of such person for the purposes of such notice may be changed from time to time
by similar notice in writing, except that any communication with respect to a
change of address shall be deemed to be given and made when received by the
party to whom such communication was sent.
5.6 The validity, meaning and effect of this Agreement shall
be determined in accordance with the laws of the State of Florida without regard
to conflicts of laws principles thereof.
5.7 No provision of this Agreement may be amended, modified,
terminated or waived except by a writing duly executed by each party sought to
be bound by such amendment, modification, termination or waiver.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
-10-
<PAGE>
IN WITNESS WHEREOF, each party hereto has duly executed or
caused this Assignment and Assumption Agreement to be duly executed on such
party's behalf as of the date first above written.
GENESIS HEALTH VENTURES, INC.,
as Agent
By:__________________________________
Name:________________________________
Title:_______________________________
GENESIS HEALTH VENTURES, INC.,
as a Lender
By:__________________________________
Name:________________________________
Title:_______________________________
ET CAPITAL CORPORATION
as a Lender
By:__________________________________
Name:________________________________
Title:_______________________________
AGE INSTITUTE OF FLORIDA
Borrower
By:__________________________________
Name:________________________________
Title:_______________________________
-11-
<PAGE>
FORM OF
AMENDMENT TO WORKING CAPITAL LOAN AND SECURITY AGREEMENT
This AMENDMENT TO WORKING CAPITAL LOAN AND SECURITY AGREEMENT
(this "Amendment") is made and entered into as of this ___ day of January 1998,
by and among AGE INSTITUTE OF FLORIDA, INC., a Florida non-profit corporation
(together with its successors in interest and assigns, "Borrower"), GENESIS
HEALTH VENTURES, INC., a Pennsylvania business corporation (together with its
successors in interest and assigns, "Genesis"), and ET CAPITAL CORP., a Delaware
corporation (together with its successors in interest and assigns, "ET Capital";
Genesis and ET Capital are sometimes collectively referred to herein as
"Lenders").
BACKGROUND
A. On August 31, 1996, Borrower acquired from Edgemont
Partners, L.P. eleven (11) health care facilities located in the State of
Florida (the "Facilities").
B. Borrower and Genesis entered into that certain Working
Capital Loan and Security Agreement, dated as of August 31, 1996 (the
"Agreement"), whereby Genesis agreed to provide Borrower with a loan in the
maximum principal amount of $10,000,000 (the "Loan") for the working capital
needs of the Facilities.
C. The Loan was evidenced by a Promissory Note, dated as of
August 31, 1995 (the "Note"), payable to the order of Genesis in the maximum
principal amount of $10,000,000.
D. Pursuant to that certain Assignment and Assumption
Agreement, dated as of the date hereof (the "Assignment"), among Genesis, ET
Capital and Borrower, Genesis sold and ET Capital purchased a portion of the
principal amount of the Note equal to $7,500,000, and ET Capital assumed the
rights and obligations of a lender under the Agreement.
E. Contemporaneously with the execution and delivery hereof,
Borrower is executing and delivering (i) the Amended and Restated Promissory
Note, dated the date hereof, payable to the order of ET Capital in the principal
amount of $7,500,000 (the "ET Capital Note") and (ii) the Amended and Restated
Promissory Note, dated the date hereof, payable to the order of Genesis in the
principal amount of $2,500,000 (the "Genesis Note").
F. Borrower and Lenders have agreed to amend certain
provisions of the Agreement as set forth herein.
<PAGE>
G. As security for Borrower's obligations to Lenders, Borrower
has agreed to execute and deliver a Second Mortgage, Assignment of Rents and
Security Agreement in favor of Genesis, as agent on behalf of the Lenders.
TERMS
NOW, THEREFORE, in consideration of the terms and conditions
set forth herein, and of any loans, advances, or extensions of credit
heretofore, now or hereafter made to or for the benefit of Borrower by Lenders,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions.
1.1 All capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Agreement.
1.2 The Agreement is hereby amended such that all references
in the Agreement to "Lender" shall be deemed to be references to "Lenders", as
such term is defined in this Amendment.
1.3 The Agreement is hereby amended such that all references
in the Agreement to "Note" shall be deemed to refer collectively to the ET
Capital Note and the Genesis Note.
2. Amendment to Expiration Date.
Section 1.1 of the Agreement is hereby amended by deleting in
the first sentence thereof "August 31, 2001" as the Expiration Date, and
replacing it with "August 31, 2007."
3. Elimination of Revolving Nature of the Loan.
Section 1.1 of the Agreement is further amended by deleting
the last sentence of such Section in its entirety and replacing it with the
following sentence:
"Borrower shall be permitted to repay amounts drawn hereunder,
but shall not be permitted to draw again upon such amounts repaid."
4. Amendment to Security Interest Provisions.
4.1 The parties hereto acknowledge that, pursuant to the
Assignment, Lenders have appointed Genesis to act as their agent under the
Agreement, including, without limitation, with respect to the security interests
granted thereunder.
1
<PAGE>
4.2 Section 1.5(a) of the Agreement is hereby amended by
deleting the first sentence of such sentence in its entirety and replacing it
with the following:
"Borrower hereby grants to Genesis, as agent on behalf of
Lenders, a second priority lien and security interest on all of Borrower's Gross
Patient Accounts Receivable and other personal property utilized in the
Facilities or in connection with the operation thereof, tangible or intangible,
whether now owned or hereafter acquired, documents, contracts, guarantees, books
and records, processing cards, tapes, tabulating runs, programs and similar
material related thereto, together with all products and replacements thereof
and all proceeds of any of the foregoing (collectively, "Personal Property" and
the "Collateral"). Such lien and security interest shall be held by Genesis for
the benefit of the Lenders in accordance with the provisions of the Assignment."
5. Amendment to Notice Provision.
Section 9.1 of the Agreement is amended by adding the following to the
end of subsection (B) of such Section:
"and a copy to:
ET Capital Corp.
Attention:___________"
6. Successors and Assigns.
This Amendment shall be binding upon and inure to the benefit
of Borrower and Lenders and their respective successors and assigns, except that
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of Lenders.
7. Ratification of Agreement.
Other than as specifically amended hereby and pursuant to the
Assignment, the Agreement is and shall continue to be in full force and effect
and is hereby ratified and confirmed in all respects.
8. Counterparts.
This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
2
<PAGE>
9. Governing Law.
This Amendment and the rights and obligation of the parties
hereunder shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
ATTEST: AGE INSTITUTE OF FLORIDA, INC.
- ----------------------------- -------------------------------------
Name: Name:
Title: Title:
ATTEST: GENESIS HEALTH VENTURES, INC.
- ----------------------------- -------------------------------------
Secretary Name:
Title:
ATTEST: ET CAPITAL CORP.
- ----------------------------- -------------------------------------
Secretary Name:
Title:
<PAGE>
[Governing rights between
Senior Lender and Junior
Lenders]
FORM OF
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement") is made and
entered into as of January _____, 1998, among (i) Genesis Health Ventures, Inc.,
a Pennsylvania corporation ("Genesis"), in its capacity as a senior lender
(together with its successors and assigns, the "Senior Lender"), (ii) ET Capital
Corp., a Delaware corporation ("ET Capital"), (iii) Genesis, in its capacity as
a junior lender (together with ET Capital and their successors and assigns, the
"Junior Lenders"), (iv) Genesis, in its capacity as agent for the Junior Lenders
(the "Junior Agent"), (v) Genesis, in its capacity as collateral agent for the
Senior Lender and the Junior Lenders (the "Master Collateral Agent") and (vi)
Age Institute of Florida, Inc., a Florida non-profit corporation (the
"Borrower").
WHEREAS, Genesis, as Senior Lender, and the Borrower entered
into that certain Acquisition Loan and Security Agreement, dated as of August
31, 1996, as amended (the "Acquisition Loan Agreement"), pursuant to which the
Senior Lender agreed to make a loan to the Borrower in the original principal
amount of $45,000,000 (the "Acquisition Loan") and the Borrower granted the
Senior Lender a first priority security interest in the Facilities Collateral
(as hereinafter defined) and a second priority security interest in the Accounts
Receivable Collateral (as hereinafter defined) to secure its obligations in
connection with the Acquisition Loan;
WHEREAS, the Acquisition Loan was evidenced by a Promissory
Note dated August 31, 1996 by Borrower payable to the order of the Senior Lender
in the principal amount of $45,000,000;
WHEREAS, Genesis, as Junior Lender, and the Borrower also
entered into that certain Working Capital Loan and Security Agreement, dated as
of August 31, 1996, as amended (the "Working Capital Loan Agreement"), pursuant
to which Genesis agreed to make loans to the Borrower in the aggregate principal
amount of $10,000,000 (the "Working Capital Loan") and the Borrower granted
Genesis a first priority security interest in the Accounts Receivable Collateral
to secure its obligations in connection with the Working Capital Loan;
WHEREAS, the Working Capital Loan was evidenced by a
Promissory Note, dated August 31, 1996, made by Borrower payable to the order of
Genesis in the principal amount of $10,000,000 (the "Working Capital Note");
WHEREAS, simultaneously with the execution and delivery of the
Acquisition Loan Agreement and the Working Capital Loan Agreement, the Borrower
and Genesis also entered into a separate Security Agreement, dated as of August
31, 1996, as amended (the "Security Agreement"), whereby the Borrower granted
Genesis a security interest in all of its accounts, inventory, equipment and
general intangibles to secure the obligations of the Borrower under both the
Acquisition Loan and the Working Capital Loan (collectively, the "Working
Capital Loan Documents");
<PAGE>
WHEREAS, the Borrower also entered into that certain Mortgage,
Assignment of Rents and Security Agreement, dated as of August 31, 1996, as
amended (the "Senior Mortgage"), whereby the Borrower granted the Senior Lender
a mortgage and security interest in the Facilities (as hereinafter defined) and
in certain other property to secure the obligations of the Borrower in
connection with the Acquisition Loan;
WHEREAS, pursuant to an Assignment and Assumption Agreement,
dated as of the date hereof (the "Assignment"), among the Junior Lenders, the
Junior Agent and the Borrower, ET Capital agreed to purchase, and Genesis agreed
to sell, an interest in the Working Capital Note in the amount of $7,500,000,
and Genesis was appointed as agent for the Junior Lenders;
WHEREAS, in connection with the Assignment, the Borrower is
amending and restating the Working Capital Note so that it is evidenced by (i)
an Amended and Restated Promissory Note payable to the order of Genesis in the
principal amount of $2,500,000 (the "$2.5 Million Note") and (ii) an Amended and
Restated Promissory Note payable to the order of ET Capital in the principal
amount of $7,500,000 (the "$7.5 Million Note"), each of which continues to be
secured as set forth in the Working Capital Loan Documents and in the
Assignment;
WHEREAS, the Borrower and the Junior Lenders have also entered
into an Amendment to Working Capital Loan and Security Agreement, dated as of
the date hereof, pursuant to which the Junior Lenders have agreed to extend the
maturity date of the Working Capital Loan;
WHEREAS, in consideration thereof and for other good and
valuable consideration, the Borrower has entered into that certain Second
Mortgage, Assignment of Rents and Security Agreement, dated as of the date
hereof (the "Junior Mortgage"), whereby the Borrower granted the Junior Agent
for the benefit of the Junior Lenders a second priority mortgage and security
interest in the Facilities and certain other property to secure the obligations
of the Borrower in connection with the Working Capital Loan;
WHEREAS, on the date hereof, the Borrower and the Senior
Lender entered into an Amendment to Acquisition Loan and Security Agreement,
which, among other things, reduced the principal amount of the Acquisition Loan
to $40,000,000, and Borrower executed and delivered an Amended and Restated
Promissory Note, dated the date hereof, payable to the order of the Senior
Lender in the principal amount of $40,000,000 (the "Acquisition Note");
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WHEREAS, Genesis, the Borrower and the Master Collateral Agent
have entered into an Assignment and Amendment to the Security Agreement, dated
as of the date hereof (the "Amendment to Security Agreement") pursuant to which
Genesis has assigned all of its rights and obligations as a secured party under
the Security Agreement to the Master Collateral Agent for the benefit of the
Senior Lender and the Junior Lenders, subject to the terms and provisions of
this Agreement; and
WHEREAS, the parties are entering into this Agreement in order
to define the existing relative rights and security interest priorities between
the Senior Lender and the Junior Lenders and to appoint Genesis as the Master
Collateral Agent to act on behalf of the Senior Lender, the Junior Lenders, and
the Junior Agent.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the
following meanings:
"Accounts Receivable Collateral" means all of Borrower's Gross
Patients Accounts Receivable and other personal property utilized in the
Facilities or in connection with the operation thereof, tangible or intangible,
whether now or hereafter acquired, and all proceeds and products thereof,
together with all documents, contracts, guarantees, books and records,
processing cards, tapes, tabulating runs, programs and similar material related
thereto.
"Acquisition Loan Documents" means the Acquisition Loan
Agreement, the Senior Note, the Security Agreement, the Senior Mortgage and all
other agreements, instruments and documents executed and/or delivered in
connection therewith, as such documents may be amended, renewed, modified,
extended, assigned, refinanced or replaced from time to time.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
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"Collateral" means, collectively, the Accounts Receivable
Collateral, the Facilities Collateral, the "Collateral" as defined in the
Security Agreement, which includes all of the Borrower's existing or hereafter
acquired Accounts, Inventory, Equipment and General Intangibles (all as defined
in the Security Agreement) and proceeds thereof and all of the "Property" as
defined in the Senior Mortgage and the Junior Mortgage, and any and all proceeds
of the foregoing.
"Facilities" means the eleven health care facilities located
in the Counties of Pinellas, Polk, Volusia, Bay and Okaloosa in the State of
Florida owned by Borrower and as described in the Acquisition Loan Agreement.
"Facilities Collateral" means the Facilities and all proceeds
and products thereof, together with all documents, contracts, guarantees, books
and records, processing cards, tapes, tabulating runs, programs and similar
material related thereto.
"Gross Patients Accounts Receivable" means all accounts
receivable of Borrower, including all rights of Borrower, if any, arising from
the payment for goods sold or leased or for services rendered with respect to
the Facilities, including, without limitation, (i) all accounts arising from the
operation of the Facilities and (ii) all rights to payment from the Medicare
program, Medicaid program or similar state or federal programs, boards, bureaus
or agencies and rights to payments from patients or private insurers and others
arising from the operation of their businesses, including rights to payment from
Reimbursement Contracts. Gross Patients Accounts Receivable shall include the
proceeds of the foregoing (whether cash or noncash, movable or immovable,
tangible or intangible) received from the sale, exchange, transfer, collection
or other disposition or substitution thereof but, shall not include, (i) gifts,
grants, bequests, donations and/or contributions made to Borrower and (ii) with
respect to reimbursements from Medicare or Medicaid or like programs, not those
accounts receivable in excess of allowable reimbursement amounts.
"Person" means any individual, corporation, association,
partnership, limited liability company, joint venture, cooperative, foundation,
trust or other organization, any individual, and any government, any political
subdivision thereof, and any agency of any such government or political
subdivision.
"Senior Indebtedness" means all present and future
obligations, liabilities and indebtedness of the Borrower of every type and
nature, currently or hereafter due, incurred or created, arising under or in
connection with the Acquisition Loan Documents, including, without limitation,
all principal and interest provided for in the Acquisition Loan Documents
(including, without limitation, interest arising prior to and after the
commencement of any bankruptcy or similar proceeding in which the Borrower is
the debtor, whether or not such interest is an allowed claim in such proceeding)
and all fees, premiums, charges, expenses, indemnities and other amounts payable
under or incidental to the Acquisition Loan Documents, including as such
obligations, liabilities and indebtedness may be amended, renewed, modified,
extended, assigned, refinanced or replaced from time to time. Notwithstanding
the foregoing, Senior Indebtedness held (whether as a result of subrogation or
otherwise) by the Borrower or any Affiliate of the Borrower (whether as a result
of subrogation or otherwise) or by any person who has acquired Senior
Indebtedness, directly or indirectly, which has been held by the Borrower or any
Affiliate of the Borrower, shall not constitute "Senior Indebtedness" under this
Agreement (other than under this sentence) until such time as all Senior
Indebtedness held by Persons other than the Borrower or Affiliates of the
Borrower has been indefeasibly paid in full in cash or cash equivalents, and no
Person acquiring Senior Indebtedness from the Borrower or an Affiliate of the
Borrower shall acquire any rights hereunder by virtue of holding such Senior
Indebtedness.
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"Senior Note" means the Acquisition Note and any amendments,
renewals, replacements, extensions, modifications, refinancings or assignments
thereof.
"Senior Noteholder" means the Senior Lender, in its capacity
as holder of the Senior Note and the Senior Indebtedness, and any other Person
acquiring all or any part of the Senior Note or the Senior Indebtedness;
provided, however, that neither the Borrower nor any Affiliate of the Borrower
or their successors or assigns shall have any rights otherwise available to the
Senior Noteholder under this Agreement in the event that any such party acquires
all or any part of the Senior Note or the Senior Indebtedness.
"Subordinated Indebtedness" means all present and future
obligations, liabilities and indebtedness of the Borrower of every type and
nature, currently or hereafter due, incurred or created, arising under or in
connection with the Working Capital Loan Documents, including, without
limitation, all principal and interest provided for in the Working Capital Loan
Documents and all fees, premiums, charges, expenses, indemnities and other
amounts arising under or incidental to the Working Capital Loan Documents, as
such obligations, liabilities and indebtedness may be amended, renewed,
modified, extended, assigned, refinanced or replaced from time to time, subject
to the provisions of this Agreement.
"Subordinated Noteholders" means the Junior Lenders, in their
capacity as holders of the Subordinated Notes and the Subordinated Indebtedness,
and any other Person acquiring all or any part of the Subordinated Notes or the
Subordinated Indebtedness; provided, however, that neither the Borrower nor any
Affiliate of the Borrower or their successors or assigns shall have any rights
otherwise available to the Subordinated Noteholders under this Agreement in the
event that any such party acquires all or any part of the Subordinated Notes or
the Subordinated Indebtedness.
"Subordinated Notes" means, collectively, the $2.5 Million
Note and the $7.5 Million Note, and any amendments, renewals, replacements,
extensions, modifications or assignments thereof.
"Working Capital Loan Documents" means the Working Capital
Loan Agreement, the Subordinated Notes, the Security Agreement, the Junior
Mortgage and all other agreements, instruments and documents executed in
connection therewith, as such documents may be amended, renewed, modified,
extended, assigned, refinanced or replaced from time to time.
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2. CONSENTS OF HOLDERS.
Notwithstanding any of the terms or provisions of the Working
Capital Loan Documents, each Subordinated Noteholder, by its acceptance of a
Subordinated Note, does hereby ratify and acknowledge the existence of the
Senior Indebtedness and the liens securing the Senior Indebtedness and the
obligations of the Borrower in connection with the Acquisition Loan Documents.
Each Subordinated Noteholder further agrees that (i) such Subordinated
Noteholder will not challenge the liens and security interests securing payment
of the Senior Indebtedness, (ii) as between the Senior Noteholders and such
Subordinated Noteholder, the terms of this Agreement shall govern, even if part
or all of the Senior Indebtedness or any liens or security interest securing
payment thereof are avoided, disallowed, set aside or otherwise invalidated, and
(iii) to the extent that any of the terms and provisions of this Agreement may
be inconsistent with any of the terms or provisions of the Acquisition Loan
Documents or the Working Capital Loan Documents, such terms and provisions shall
be deemed to be superseded, and the terms of this Agreement shall govern.
3. PRIORITY OF LIENS.
As long as all or any portion of the Senior Indebtedness
remains outstanding, unpaid or unsatisfied, each of the Subordinated Noteholders
agrees that, notwithstanding any provision to the contrary in any of the
Acquisition Loan Documents or the Working Capital Loan Documents and
irrespective of the time, order or method of perfection, creation or attachment
of any security interests or liens in the Collateral, (i) the interests and
liens of the Senior Noteholders in all of the Collateral are, and shall be
deemed to be, prior and senior to any interests or liens the Subordinated
Noteholders or the Junior Agent may have in the Collateral, (ii) the interests
and liens of the Subordinated Noteholders and the Junior Agent in the Collateral
are, and shall be deemed to be, junior, subject and subordinate in all respects
to the interests and liens of the Senior Noteholders in the Noteholders and
(iii) the Subordinated Noteholders shall refrain from taking any action to
foreclose upon, acquire title to (by bidding at foreclosure or otherwise), take
possession of, liquidate or proceed against any of the Collateral.
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4. SUBORDINATION OF PAYMENT RIGHTS.
Each of the Borrower and the Subordinated Noteholders
covenants and agrees (and each such Subordinated Noteholder by its acceptance of
a Subordinated Note confirms) that all rights of each present and future
Subordinated Noteholder to payments or distributions of any kind or character
under or in respect of the Subordinated Indebtedness are hereby expressly
subordinated, to the extent and in the manner set forth in this Agreement, to
the prior indefeasible payment in full in cash or cash equivalents of all Senior
Indebtedness in accordance with the terms thereof.
5. LIQUIDATION, ETC.
(a) Upon any payment or distribution of any assets of the
Borrower of any kind or character, whether in cash, property or securities
(including, without limitation, payments or distributions payable to the
Subordinated Noteholders by virtue of the terms of any indebtedness which is
subordinated in right of payment to Subordinated Indebtedness (a "Junior
Subordinated Payment")), by set-off or otherwise, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Borrower, as the case may be, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other similar proceedings or upon an
assignment for the benefit of creditors, or any other marshaling of its assets
and liabilities (referred to herein as a "Proceeding"), the holders of Senior
Indebtedness shall first be entitled to receive payment in full in cash or cash
equivalents, in accordance with the terms of the Senior Indebtedness, of all
amounts payable under or in respect of the Senior Indebtedness, before any
payment or distribution is made on, or in respect of, any Subordinated
Indebtedness; and, upon any such Proceeding, any distribution or payment to
which the Subordinated Noteholders would be entitled except for the provisions
hereof, shall be paid by the Borrower, or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the Master Collateral Agent for the benefit of the
Senior Noteholders to the extent necessary to pay all such Senior Indebtedness
in full, after giving effect to any concurrent payment or distribution to the
Senior Noteholders.
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(b) If, notwithstanding the foregoing, in any Proceeding any
Junior Subordinated Payment or other payment or distribution of any assets of
the Borrower, as the case may be, of any kind or character, whether in cash,
property or securities, by set-off or otherwise, shall be received by any
Subordinated Noteholder before all Senior Indebtedness is indefeasibly paid in
full in cash or cash equivalents, such payment or distribution shall be received
(whether or not such payment or distribution shall have been made in accordance
with a plan of reorganization or arrangement approved in bankruptcy or other
proceedings) in trust on behalf of the Senior Noteholders and shall be paid over
to the Master Collateral Agent on behalf of the Senior Noteholders for
application to the payment of all Senior Indebtedness remaining unpaid until
such Senior Indebtedness shall have been indefeasibly paid in full in cash or
cash equivalents, after giving effect to any concurrent payment or distribution
to the Senior Noteholders. In the event of the failure of any Subordinated
Noteholder to endorse or assign to the Master Collateral Agent any such payment
or distribution, the Master Collateral Agent is hereby irrevocably authorized to
endorse or assign the same on behalf of such holder.
(c) For purposes of this Section 5 only, the words "any
payment or distribution of any assets of the Borrower of any kind or character,
whether in cash, property or securities" shall not be deemed to include a
payment or distribution of securities of the Borrower provided for by a plan of
reorganization or readjustment authorized by an order or decree of a court of
competent jurisdiction in a reorganization proceeding under any applicable
bankruptcy law or of any other corporation provided for by such plan of
reorganization or readjustment authorized by an order or decree of a court of
competent jurisdiction which securities are subordinate in right of payment to
all then outstanding Senior Indebtedness at least to the same extent as the
Subordinated Indebtedness is so subordinate as provided in this Agreement.
(d) Notwithstanding any statute, including, without
limitation, the United States Bankruptcy Code and any state bankruptcy law, any
rule of law or any bankruptcy procedure to the contrary, to the extent permitted
by applicable usury limitations, the right of the holders of Senior Indebtedness
to have all of the Senior Indebtedness indefeasibly paid and satisfied in full
prior to the payment of any of the Subordinated Indebtedness shall include,
without limitation, the right of Senior Noteholders to be paid in full all
interest accruing (or that would have accrued in the absence of such statute,
rule, law or procedure at any time) on such obligations prior to any payment or
distribution to the Subordinated Noteholders by or out of the assets of the
Borrower. To the extent that the Senior Noteholders would not be entitled to the
interest referenced in the preceding sentence under such statute, rule or
procedure, then the difference between the amount to which they are entitled
under this paragraph and the amount to which they otherwise would be entitled
under such statute, rule or procedure, shall be paid from amounts otherwise due
to the Subordinated Noteholders, and the total amounts to be paid to the
Subordinated Noteholders shall be reduced accordingly.
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(e) To enable the Master Collateral Agent to enforce the
rights of the Senior Noteholders hereunder in any Proceeding, the Master
Collateral Agent is hereby irrevocably authorized and empowered, in its
discretion (i) to make and present such proofs of claim against the Borrower on
account of the Subordinated Indebtedness as it may deem expedient or proper, and
(ii) to receive and collect on behalf of the Senior Noteholders any and all
dividends and other payments or distributions made thereon in whatever form the
same may be paid; and upon the request of the Master Collateral Agent, each
Subordinated Noteholder shall execute and deliver to the Master Collateral
Agent, Senior Noteholders or their authorized representatives such powers of
attorney, assignments and other documents and instruments as such holders or
representatives may request, consistent with this Agreement. Nothing contained
in this Section 5(e) or elsewhere in this Agreement shall be construed to give
the Master Collateral Agent or the Senior Noteholders any right to vote with
respect to the treatment of the Subordinated Indebtedness or any claim
thereunder, or any portion of such Subordinated Indebtedness or such claim, in
any Proceeding, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of a trustee or otherwise.
6. DEFAULT.
(a) In the event that any Senior Payment Default (as defined
below) shall have occurred and shall be continuing, then, effective at such time
as the Borrower first receives notice or acquires actual knowledge of the
occurrence of such Senior Payment Default, no payment or distribution of any
kind, whether in cash, property or securities (including, without limitation,
any Junior Subordinated Payment), by set-off or otherwise, shall be made on, or
in respect of, any Subordinated Indebtedness or for the acquisition, retirement,
repurchase, redemption or defeasance thereof unless and until such Senior
Payment Default shall have been cured or waived in accordance with the terms of
the Senior Indebtedness or shall have ceased to exist or all amounts then due
and payable in respect of Senior Indebtedness shall have been paid in full, or
provision shall have been made for such payment in cash or cash equivalents in a
manner satisfactory to the Senior Noteholders. "Senior Payment Default" means
any default in the payment when due of any Senior Indebtedness, whether at its
stated maturity, upon acceleration or otherwise.
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(b) In the event that any Senior Nonmonetary Default (as
defined below) shall have occurred and shall be continuing, then, upon receipt
by the Borrower of written notice (a "Nonmonetary Default Notice") of such
Senior Nonmonetary Default from any Senior Noteholder or any representative of
such a holder, no Junior Subordinated Payment or other payment or distribution
of any kind, whether in cash, property or securities, by set-off or otherwise,
shall be made on, or in respect of, any Subordinated Indebtedness or for the
acquisition, retirement, repurchase, redemption or defeasance of any
Subordinated Indebtedness during the period (the "Payment Blockage Period")
commencing on the date such Nonmonetary Default Notice is given and ending on
the earlier of (i) the date on which the Senior Noteholders that issued such
Nonmonetary Default Notice provide written notice to the Borrower that such
Senior Nonmonetary Default has been cured or waived in accordance with the terms
of the Senior Indebtedness or has been rescinded or annulled or the Senior
Indebtedness to which such Senior Nonmonetary Default relates has been fully
discharged in a manner satisfactory to the Senior Noteholders (which notice
shall be provided promptly by the applicable Senior Noteholders), or (ii) the
[179th] day after the date such Nonmonetary Default Notice is given. "Senior
Nonmonetary Default" means the occurrence or existence and continuance of any
event of default, other than a Senior Payment Default, permitting one or more
Senior Noteholder to declare such Senior Indebtedness due and payable prior to
the date on which it would otherwise become due and payable. If a Senior
Nonmonetary Default identified in a Nonmonetary Default Notice is cured, such
Senior Nonmonetary Default may not be the basis for another Nonmonetary Default
Notice in the [90] days immediately following the completion of such cure.
(c) If, notwithstanding the foregoing, any Subordinated
Noteholder shall receive any payment or distribution of any assets of the
Borrower of any kind or character, whether in cash, property or securities
(including, without limitation, any Junior Subordinated Payment), by set-off or
otherwise, in violation of this Section 6, then such cash, property or
securities shall be held in trust by the recipient thereof on behalf of the
Senior Noteholders and shall be paid over to the Master Collateral Agent acting
for the benefit of the Senior Noteholders for application to the payment of all
Senior Indebtedness until all Senior Indebtedness shall have been indefeasibly
paid in full in cash or cash equivalents, after giving effect to any concurrent
payment or distribution to the Senior Noteholders. In the event of the failure
of any Subordinated Noteholders to endorse or assign to the Master Collateral
Agent any such payment or distribution, the Master Collateral Agent is hereby
irrevocably authorized to endorse or assign the same on behalf of any
Subordinated Noteholder.
(d) The provisions of this Section 6 shall not apply to any
payment or distribution by the Borrower in any Proceeding (such amounts and
distributions being subject to Section 5).
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7. PERMITTED PAYMENTS; LIMITS ON RECOURSE FOR PAYMENT OF
SUBORDINATED INDEBTEDNESS.
Until and unless a Senior Payment Default has occurred or a
Payment Blockage Period is in effect, the Borrower may make and the Subordinated
Noteholders may receive Interest Payments (as hereinafter defined) as the same
become due and payable. For purposes of this Section 7, "Interest Payments"
means the payments of interest which are due on the outstanding principal amount
of the Working Capital Loan, and shall in no event be deemed to refer to any
late charges or default interest or any other premium, fees, costs or other
payments. Until such time as all Senior Indebtedness is indefeasibly paid in
full in cash or cash equivalents, neither the Borrower nor any Affiliate of the
Borrower shall pay, and no Subordinated Noteholder shall ask, demand, claim,
take or receive from the Borrower, any Affiliate of the Borrower or any other
Person, any payment of the principal of the Subordinated Indebtedness or any
other payment of the Subordinated Indebtedness or any other premium, fee or cost
other than Interest Payments as permitted by this Section 7.
8. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Agreement are and are intended solely
for the purpose of defining the relative rights of the Subordinated Noteholders,
on the one hand, and the Senior Noteholders, on the other hand. Nothing
contained in this Agreement is intended to or shall (a) impair the obligation of
the Borrower, which is absolute and unconditional, to pay to the Subordinated
Noteholders the principal of and interest on the Subordinated Indebtedness and
all other amounts payable thereunder as and with the terms hereof and of the
Subordinated Indebtedness, (b) affect the relative rights against the Borrower
of creditors of the Borrower other than the Senior Noteholders and the
Subordinated Noteholders, or (c) increase the total obligations of the Borrower
under the Senior Indebtedness or the Subordinated Indebtedness.
9. APPOINTMENT OF MASTER COLLATERAL AGENT.
(a) Each of the Senior Noteholders, the Subordinated
Noteholders and the Junior Agent hereby irrevocably appoints and authorizes
Genesis as the Master Collateral Agent to act on behalf of such person hereunder
and under the Acquisition Loan Documents and the Working Capital Loan Documents
with respect to the Collateral and Genesis hereby accepts such appointment and
authorization. The Master Collateral Agent is hereby specifically authorized to
enter into the Amendment to Security Agreement as the secured party thereunder,
it being understood and agreed that the security interests granted under the
Security Agreement to the Master Collateral Agent are held by the Master
Collateral Agent for the benefit of the Senior Noteholders and Subordinated
Noteholders. It is further understood and agreed that, with respect to any
Collateral as to which perfection is accomplished by possession, the Master
Collateral Agent is holding such Collateral for the benefit of the Senior
Noteholders and the Subordinated Noteholders, thereby perfecting the security
interests in such Collateral on behalf of each of them. However, each of
Subordinated Noteholders and the Junior Agent also understand and agree that, so
long as any Senior Indebtedness shall not have been fully and indefeasibly paid,
the Master Collateral Agent shall accept directions only from the Senior
Noteholders with respect to any matter relating to the Collateral and shall have
no duty to the Subordinated Noteholders or the Junior Agent other than (i) the
safekeeping of Collateral or (ii) the perfection of liens on behalf of the
Subordinated Noteholder and the Junior Agent, and the Subordinated Noteholders
and the Junior Agent shall not have any rights to require the Master Collateral
Agent to take or omit to take any other action with respect to the Collateral.
Upon the indefeasible payment in full of the Senior Indebtedness, if the Master
Collateral Agent shall then be in possession of any Collateral at any time any
Subordinated Indebtedness shall be outstanding, then the Master Collateral
Agent's sole responsibility or obligation shall be, upon notice to the Junior
Agent, to turn over same to the Junior Agent or to whomever a court of competent
jurisdiction directs.
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(b) Each Senior Noteholder and each Subordinated Noteholder
agrees (which agreement shall survive the termination of this Agreement) to
indemnify the Master Collateral Agent, pro rata, according to such Senior
Noteholder's or such Subordinated Noteholder's ratable percentage of the
aggregate principal amount of the aggregate Senior Indebtedness and the
Subordinated Indebtedness, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in its capacity as the Master Collateral
Agent or any of its directors, officers, employees or agents in any way relating
to or arising out of the Acquisition Loan Documents or the Working Capital Loan
Documents or any action taken or omitted by the Master Collateral Agent or any
of its directors, officers, employees or agents under the Acquisition Loan
Documents or the Working Capital Loan Documents, to the extent not reimbursed by
the Borrower; provided, however, that the Senior Noteholders and the
Subordinated Noteholders shall not be liable to the Master Collateral Agent for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgment, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Master Collateral Agent, or any of
its directors, officers, employees or agents.
(c) Neither the Master Collateral Agent nor any of its
officers, directors, employees or agents will be liable to the Senior
Noteholders or the Subordinated Noteholders for any action taken or omitted
hereunder or in connection herewith or in connection with any document or
instrument now or hereafter executed in connection herewith unless caused by its
gross negligence or willful misconduct. The Master Collateral Agent will not be
responsible for any recitals, warranties or representations in the Acquisition
Loan Documents or the Working Capital Loan Documents. The Master Collateral
Agent may execute any of its duties by or through agents or employees and will
be entitled to advice of counsel, accountants or other professionals of its
selection concerning all matters pertaining to its duties hereunder and
thereunder. The Master Collateral Agent will be entitled to rely upon any
writing or other document, telegram or telephone conversation believed by it to
have been signed, sent or made by the proper person or persons and, in respect
of legal matters, upon the advice of counsel selected by the Master Collateral
Agent. The Master Collateral Agent shall be fully justified in failing or
refusing to take any action under the Acquisition Loan Documents or the Working
Capital Loan Documents unless it shall first receive such advice or concurrence
of all the Senior Noteholders or the Subordinated Noteholders, as it deems
appropriate, or it shall first be indemnified to its satisfaction by the Senior
Noteholders and the Subordinated Noteholders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action except for its own gross negligence or willful misconduct.
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(d) Each of the Senior Noteholders and the Subordinated
Noteholders acknowledges that the Master Collateral Agent has not made any
representation or warranty to it and that no act taken by the Master Collateral
Agent will be deemed to constitute a representation or warranty by the Master
Collateral Agent to any of the Senior Noteholders or the Subordinated
Noteholders. Each Senior Noteholder and Subordinated Noteholder further
acknowledges that it has taken and will continue to take such action and to make
such investigation as it deems necessary to inform itself of the affairs of the
Borrower and that it has made and will continue to make its own independent
investigation of the creditworthiness and the business and operations of the
Borrower. In making an advance hereunder, each Senior Noteholder and
Subordinated Noteholder represents that it has not relied and will not rely upon
any information or representations furnished or given by the Master Collateral
Agent. The Master Collateral Agent will be under no duty or responsibility to
any Senior Noteholder or Subordinated Noteholder to ascertain or to inquire into
the performance or observance by the Borrower of any of the provisions of this
Agreement or any document or instrument now or hereafter executed in connection
herewith. The Master Collateral Agent will not have any duty or responsibility
to provide any Senior Noteholder or Subordinated Noteholder with any credit or
other information concerning the affairs, financial condition or business of the
Borrower or any affiliate thereof which may come into the possession of the
Master Collateral Agent. The Senior Noteholders and Subordinated Noteholders
understand and agree that the Master Collateral Agent will not be deemed to have
knowledge of the existence, occurrence or continuance of any event of default
under any of the Acquisition Loan Documents or the Working Capital Loan
Documents, unless the officers of the Master Collateral Agent immediately
responsible for matters concerning this Agreement will have actual knowledge of
such occurrence or will have been notified in writing by any Senior Noteholder
or Subordinated Noteholder or Borrower that such person or the Borrower, as
applicable, considers that such event of default has occurred and is continuing
and specifying the nature thereof.
(e) Subject to the appointment and acceptance of a successor
Master Collateral Agent as provided below, the Master Collateral Agent may
resign at any time by notifying the Senior Noteholders, the Subordinated
Noteholders and the Borrower. Upon any such resignation, the Senior Noteholders
and the Subordinated Noteholders will have the right to appoint a successor
Master Collateral Agent. If no successor Master Collateral Agent will have been
so appointed by the Senior Noteholders and the Subordinated Noteholders and will
have accepted such appointment within thirty (30) days after the retiring Master
Collateral Agent gives notice of its resignation, then the retiring Master
Collateral Agent may, on behalf of the Senior Noteholders and Subordinated
Noteholders, appoint a successor Master Collateral Agent. Upon the acceptance of
any appointment as Master Collateral Agent hereunder by a successor, such
successor will thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Master Collateral Agent and the
retiring Master Collateral Agent will be discharged from its duties and
obligations hereunder and under the Acquisition Loan Documents and the Working
Capital Loan Documents. After any Master Collateral Agent's resignation
hereunder, the provisions of this Section 9 will continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
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<PAGE>
10. SUPPLEMENTAL ASSIGNMENTS, POWER OF ATTORNEY.
(a) Each Subordinated Noteholder agrees to execute and deliver
to the Master Collateral Agent such assignments or other instruments as may be
reasonably requested by the Master Collateral Agent in order to enable it to
enforce their rights hereunder and to collect, to the extent entitled thereto
under this Agreement, any and all dividends or other payments or disbursements
which may be made at any time on account of all or any of the Subordinated
Indebtedness so long as any Senior Indebtedness remains unpaid.
(b) Each Subordinated Noteholder hereby irrevocably
constitutes and appoints the Master Collateral Agent, and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in its place and
stead, in its own name or otherwise, from time to time (i) to receive, endorse
or assign payments and distributions made with respect to such Subordinated
Noteholder's Subordinated Indebtedness to the extent that such payments and
distributions are required to be made or turned over to the Senior Noteholders
and (ii) to execute and deliver such documents and instruments necessary to
enable the Senior Noteholders to enforce their rights under this Agreement. Each
Subordinated Noteholder hereby ratifies any and all lawful actions taken
pursuant to the foregoing power of attorney and confirms and agrees that such
power of attorney is coupled with an interest and is irrevocable.
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<PAGE>
11. NO OBLIGATIONS OF SENIOR NOTEHOLDERS; BENEFIT OF SUBORDINATION PROVISIONS.
(a) Each Subordinated Noteholder agrees that the Senior
Noteholder shall not be liable for any action or failure to act under or in
connection with any of the Acquisition Loan Documents, it being understood that
the decisions as to whether or not to act and the manner of proceeding under
such instruments and documents are within the sole discretion of the Senior
Noteholder and shall not be affected in any manner by the existence of the
Subordinated Indebtedness. It is further agreed that such obligations as may be
imposed under the Acquisition Loan Documents shall run exclusively to the
benefit of the Senior Noteholder and may be enforced or waived only by the
Senior Noteholder.
(b) The powers conferred on Genesis as Senior Lender and
Senior Noteholder under this Agreement are solely to protect its interests under
this Agreement and shall not impose any duty upon Genesis or any other holders
to exercise any such powers. In particular, neither Genesis nor any other Senior
Noteholder shall be required to make any demand or to make any inquiry as to the
nature of sufficiency of any payment received by it. Genesis and such other
holders shall be accountable only for amounts actually received as a result of
the exercise of such powers, and neither Genesis nor any other Senior
Noteholder, nor any of their respective officers, directors, employees, agents
or participants shall be responsible to the Borrower or any Subordinated
Noteholder, for any act or failure to act by it or them under this Agreement,
except for its or their own gross negligence or willful misconduct. Genesis and
each such other holder shall be entitled to rely upon any paper, instrument or
document which it in good faith believes to be genuine and correct and to have
been signed or sent by the proper person or persons.
12. NO PAYMENTS IN VIOLATION OF AGREEMENT.
The Borrower agrees that no payments or distributions, by
set-off or otherwise, will be made by or on behalf of the Borrower in violation
of the terms of this Agreement; and each Subordinated Noteholder agrees that it
will not receive or accept any such payment or distribution.
13. AVOIDED PAYMENTS.
Without limiting any other provision of this Agreement, Senior
Indebtedness shall not be deemed to have been paid for purposes of this
Agreement if any payment in respect thereof (i) shall have been avoided or
recovered by the payor or its trustee or other representative or successor in
accordance with the order of any court of competent jurisdiction in any
insolvency, bankruptcy, dissolution, liquidation or reorganization of the payor,
or as required upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with respect to the payor or any substantial part of
its property or otherwise, or (ii) is the subject of a pending or threatened
proceeding in which such avoidance or recovery is (or would be) sought. For
purposes of this Section 13, a payment in respect of Senior Indebtedness shall
be deemed to be the subject of a "threatened proceeding" only if the payor or a
trustee for or other authorized representative of the payor or its estate has
expressly informed the Senior Noteholders that such payment will be sought to be
avoided or recovered.
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<PAGE>
14. NOTICE OF DEFAULT.
Each Subordinated Noteholder agrees to notify the Master
Collateral Agent and the Senior Noteholder in writing promptly upon any default
under any of the Working Capital Loan Documents and shall notify the Master
Collateral Agent and the Senior Noteholder in writing at least two (2) business
days prior to taking any action to accelerate such Subordinated Indebtedness.
15. CERTAIN POWERS OF SENIOR NOTEHOLDERS.
Each Subordinated Noteholder agrees that, without notice to or
further consent by it, (a) the liability of the Borrower in respect of the
Senior Indebtedness, the Acquisition Loan and the liens of the Senior
Noteholders may, in whole or in part, be amended, supplemented, renewed,
extended, modified, released, replaced, refinanced or refunded by the Senior
Noteholders and, as the Senior Noteholders may deem advisable, (b) any
Collateral and/or security interests in respect of the Senior Indebtedness may,
from time to time, in whole or in part, be exchanged, sold or surrendered by the
Master Collateral Agent, (c) the amount of the Senior Indebtedness may, from
time to time, be increased through further loans, or otherwise, (d) any deposit
balance or balances to the credit of the Borrower may, from time to time, in
whole or in part, be surrendered or released by the Master Collateral Agent or
the Senior Noteholders to the Borrower and (e) any of the provisions hereof may
be waived partially or entirely by the Master Collateral Agent or the Senior
Noteholders as to some Subordinated Indebtedness but not other Subordinated
Indebtedness, all without impairing or in any way affecting the subordination
contained in this Agreement; nor shall the subordination herein contained be
impaired or affected in any way by any other action, inaction or omission in
respect of the Senior Indebtedness or the liens of the Senior Noteholder.
16. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future Master Collateral Agent or
Senior Noteholder to enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Borrower or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Borrower with the terms, provisions and covenants
of this Agreement, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
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<PAGE>
17. SUBROGATION TO RIGHTS OF THE SENIOR NOTEHOLDERS.
If, in any Proceeding or otherwise, the Senior Noteholder
receives distributions or payments which, but for this Agreement, would have
been made to the Subordinated Noteholders, then, subject to the payment in full
of all amounts due or to become due on or in respect of Senior Indebtedness, or
the provision for such payment in cash or cash equivalents in a manner
satisfactory to the Senior Noteholder, the Subordinated Noteholders shall be
subrogated to the rights of the Senior Noteholder to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness until the principal of and any interest on the Subordinated
Indebtedness and all other amounts payable in respect of Subordinated
Indebtedness shall be paid in full. For purposes of such subrogation, no
payments or distributions to the Senior Noteholder of any cash, property or
securities to which the Subordinated Noteholders would be entitled except for
the provisions of this Agreement, and no payment over pursuant to the provisions
of this Agreement to the Senior Noteholder by the Subordinated Noteholders,
shall, as among the Borrower and their creditors (other than Senior Noteholder
and Subordinated Noteholders), be deemed to be a payment or distribution by the
Borrower to or on account of the Senior Indebtedness. At such time as the
Subordinated Noteholders become subrogated to the rights of the Senior
Noteholder to receive payments and distributions of cash, property and
securities applicable to Senior Indebtedness as set forth in this Section 17,
the Senior Noteholder shall execute and deliver to the Subordinated Noteholders
such assignments of the Acquisition Loan Documents (without recourse and without
representation or warranty of any kind, other than the ability of such holders
to execute and deliver such assignments) to the Subordinated Noteholders, as
such Subordinated Noteholders may reasonably request.
18. RELIANCE BY MASTER COLLATERAL AGENT.
Upon any payment or distribution of assets of the Borrower
referred to in this Agreement (whether such payment or distribution is made in a
Proceeding or otherwise), the Master Collateral Agent shall be entitled to rely
upon any order or decree entered by any court of competent jurisdiction in which
such Proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
Subordinated Noteholders for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the Senior Noteholder and holders
of other indebtedness of the Borrower, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Agreement.
19. NO CHANGES TO SUBORDINATED INDEBTEDNESS.
None of the Subordinated Noteholders shall, without the prior
written consent of the Senior Noteholder, (a) make or agree to make any loans or
any advances of money or property to the Borrower other than the Working Capital
Loan, (b) amend, supplement, renew, extend, modify, replace or refinance in any
respect any of the Working Capital Loan Documents or any documents or
instruments creating, evidencing, securing or exchangeable for or convertible
into the Subordinated Indebtedness, (c) sell, assign or transfer all or any
portion of its interest in the Subordinated Indebtedness unless the buyer,
assignee or transferee thereof shall agree in writing to become bound by the
provisions of this Agreement and the Senior Noteholder shall have been furnished
with original counterparts of such agreements, together with opinions of counsel
or other appropriate confirmation of the validity and binding effect of such
agreements, all in form and substance reasonably satisfactory to the Senior
Noteholder, or (d) subordinate any Subordinated Indebtedness to any existing or
future indebtedness other than the Senior Indebtedness.
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<PAGE>
20. NO OFFSET.
Each Subordinated Noteholder hereby covenants and agrees that
as long as any Senior Indebtedness remains outstanding, unpaid or unsatisfied,
if such Subordinated Noteholder at any time incurs any obligation to pay money
to the Borrower, such Subordinated Noteholder shall not set off or credit or
otherwise apply such obligation against any amount owed (or claimed to be owed)
to such Subordinated Noteholder with respect to Subordinated Indebtedness.
21. BINDING NATURE.
This Agreement shall be binding and inure to the benefit of
the parties hereto and their respective heirs, legal representatives, successors
and assigns.
22. SEVERABILITY.
If any of the provisions or terms of this Agreement shall for
any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any of the other terms hereof, and this
Agreement shall be construed as if such unenforceable term has never been
contained herein.
23. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall constitute an original Agreement but all of which together
shall constitute one and the same instrument.
24. HEADINGS.
The descriptive headings herein are for convenience only and
shall not affect the meaning or construction of any of the provisions hereof.
Words used herein, regardless of the number and gender specifically used shall
be deemed and construed to include any other number, singular, or plural, and
any other gender, masculine, feminine or neuter, as the context requires.
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<PAGE>
25. NOTICES.
All notices, requests, consents, demands, approvals and other
communications hereunder shall be deemed to have been duly given, made or served
if in writing and when delivered personally (including without limitation by
means of telex, telecopies or telefax systems), or the day following delivery to
a nationally recognized, reputable overnight courier service which guarantees
delivery within twenty-four hours, charges prepaid, to the respective parties to
this Agreement as follows:
(a) If to the Borrower, to:
Age Institute of Florida, Inc.
Professional Arts Building
25 Penncraft Avenue
Chambersburg, Pennsylvania 17201
Attention: Carol A. Tschop, President
With a copy (which shall not constitute notice) to:
Blank, Rome, Comisky & McCauley
1 Logan Square
Philadelphia, Pennsylvania 19103
Attention: Harry D. Madonna, Esq.
(b) If to the Senior Noteholders, to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention:
With a copy (which shall not constitute notice) to:
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<PAGE>
Attention:
(c) If to the Junior Agent or the Subordinated Noteholders,
to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention:
and
ET Capital Corporation
Attention:
with a copy (which shall not constitute notice) to:
Attention:
(d) If to the Master Collateral Agent, to:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention:
with a copy (which shall not constitute notice) to:
Attention:
The designation of the person to be so notified or the address
of such person for the purposes of such notice may be changed from time to time
by similar notice in writing, except that any communication with respect to a
change of address shall be deemed to be given and made when received by the
party to whom such communication was sent.
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<PAGE>
26. GOVERNING LAW.
The validity, meaning and effect of this Agreement shall be
determined in accordance with the substantive laws of the State of Florida
without regard to conflicts of laws principles thereof.
27. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION, ETC.
EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE
VALIDITY, PROTECTION, INTERPRETATION, OR ENFORCEMENT HEREOF. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF FLORIDA AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
OF ANY FEDERAL COURT LOCATED IN THE STATE OF FLORIDA IN CONNECTION WITH ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
VALIDITY, PROTECTION INTERPRETATION OR ENFORCEMENT HEREOF. Each Subordinated
Noteholder irrevocably consents to the service of process on such Subordinated
Noteholder in any such proceeding by certified mail or overnight courier,
postage prepaid, to such Subordinated Noteholder at the address referred to in
Section 25. Each of the parties hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may effectively do so, any objection to the
venue of any such action or proceeding brought in any such court and any defense
that any such court is an inconvenient forum for any such action or proceeding.
28. ENTIRE AGREEMENT.
This Agreement represents the entire agreement among the
parties hereto with respect to the subject matter hereof and, except as
expressly provided herein, shall not be affected by reference to any other
documents.
29. AMENDMENT.
No provision of this Agreement may be amended, modified,
terminated or waived except by a writing duly executed by each party sought to
be bound by such amendment, modification, termination or waiver.
30. NO BENEFIT TO THE BORROWER.
The Borrower is not a beneficiary of any portion of this
Agreement and shall not have any rights arising under this Agreement or the
right to enforce any provision hereof.
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<PAGE>
IN WITNESS WHEREOF, each party hereto has duly executed or
caused this Subordination Agreement to be duly executed on such party's behalf
as of the date first above written.
GENESIS HEALTH VENTURES, INC.,
as Senior Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
GENESIS HEALTH VENTURES, INC.,
as Junior Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
ET CAPITAL CORP.,
as Junior Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
AGE INSTITUTE OF FLORIDA,
as Borrower
By:_____________________________________
Name:___________________________________
Title:__________________________________
GENESIS HEALTH VENTURES, INC.,
as Junior Agent
By:_____________________________________
Name:___________________________________
Title:__________________________________
GENESIS HEALTH VENTURES, INC.,
as Master Collateral Agent
By:_____________________________________
Name:___________________________________
Title:__________________________________
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<PAGE>
FORM OF
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement"), is made as of this
___ day of January, 1998, by and between MCKERLEY HEALTH FACILITIES, a New
Hampshire partnership ("Optionor") and ELDERTRUST OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership (together with its successors and assigns
"Optionee").
BACKGROUND
WHEREAS, Optionor owns and operates an assisted living
facility known as Holton Point (the "Facility") which Facility consists of the
real property described in Exhibit A hereto (the "Real Property"), the
improvements thereon and certain other real and personal property associated
therewith, all as more particularly described below.
WHEREAS, Optionor wishes to grant unto Optionee, its
successors and assigns, the option to purchase the Facility, including said real
and personal property, and Optionee wishes to accept such option to purchase
upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, Optionor, for and in consideration of the
Option Payment (hereinafter defined) and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, hereby grants unto Optionee, its successors and
assigns, the option to purchase the Property on the terms hereinafter set forth.
ARTICLE I
OPTION
1.1 Grant of Option.
Optionor hereby irrevocably grants unto Optionee, its
successors and assigns, and Optionee hereby accepts from Optionor, the exclusive
and irrevocable right and option (the "Option") to purchase the Property (as
hereinafter defined) upon the terms and conditions set forth herein (the
"Transaction").
1.2 Consideration for Option.
In consideration for the Option granted herein, Optionee has,
among other things, simultaneous with the execution hereof, paid to Optionor the
sum of One Thousand Dollars ($1,000.00) (the "Option Payment"), receipt of which
is hereby acknowledged by Optionor.
<PAGE>
1.3 Term; Exercise of Option.
Optionee, and its successors and assigns, shall have the right
to exercise the Option by delivering written notice thereof (the "Exercise
Notice") to Optionor at any time on or after the first anniversary of the date
on which the Facility reaches Stabilized Occupancy (as defined in Section 1.6).
In no event shall the Option be exercised after the later of (i) the date which
is thirty-six (36) months after the date hereof, or (ii) if the Facility reaches
Stabilized Occupancy between the twenty-fourth (24th) month and thirty-sixth
(36th) month after the date hereof, the first anniversary of the date on which
the Facility reaches Stabilized Occupancy (the "Expiration Date"). Optionor
shall deliver written notice to Optionee within thirty (30) days after
Optionor's determination that the Facility has reached Stabilized Occupancy. In
the event that Optionee makes an earlier determination that the Facility has
reached Stabilized Occupancy from review of the occupancy reports received
pursuant to Section 4.10 hereinbelow, Optionee shall deliver written notice of
the same to Optionor. In the event that any controversy shall arise between the
parties hereto regarding the determination whether the Facility has reached
Stabilized Occupancy, which controversy the parties are unable to settle by
agreement, such controversy shall be determined by arbitration to be initiated
and conducted as provided in Exhibit C hereto. It is hereby acknowledged and
agreed that the Option hereby granted constitutes a present and absolute grant
of option as of the date hereof notwithstanding the fact that it will not be
exercised prior to the date set forth above. The Exercise Notice shall specify
the date (the "Closing Date") on which settlement hereunder shall occur (the
"Closing"); provided, however, that the Closing Date shall be at least ninety
(90) days after the date of the Exercise Notice. The Closing shall be held at
the offices of Hogan & Hartson, L.L.P., 8300 Greensboro Drive, Suite 1100,
McLean, Virginia 22012, or at such other location as the parties may mutually
agree upon. Upon Optionee's exercise of the Option as above provided, this
Agreement will automatically become an agreement by Optionor to sell and convey
the Property to Optionee and an agreement by Optionee (or its successor or
assign) to purchase the Property from Optionor, in each case upon the terms and
conditions set forth herein.
1.4 Assets Subject to Option. On the Closing Date, upon the
terms and subject to the conditions set forth herein, Optionor shall transfer to
Optionee, and Optionee shall acquire from Optionor, the following assets:
(i) the Real Property, the buildings situated thereon and all
of the other improvements, easements, covenants and other rights
appurtenant thereto;
(ii) all furniture, furnishings, fixtures, machinery,
equipment, inventory and other tangible personal property, and
replacements thereof, owned by Optionor and now or hereafter affixed to
or located at the Facility or used or useful in connection with the
operation, maintenance or repair of the Facility (the "Personal
Property"); and
(iii) all intangible property now or hereafter owned or held
by Optionor in connection with the Facility, including, without
limitation, (a) all licenses, permits, authorizations, approvals,
certificates of occupancy and all other approvals necessary for the
current use and operation of the Facility, and (b) all right, title and
interest of Optionor in all books and records (including computer
discs, software and similar data), trade names and development rights
related to the Facility, or any part thereof (collectively, the
"Intangible Property") (items (i) through (iii) are hereinafter
referred to collectively as the "Property").
<PAGE>
Notwithstanding the foregoing, the term "Property" shall not be deemed
to include, and Optionor shall not convey to Optionee hereunder, the assets of
Optionor listed on Schedule 1.4 hereof (the assets listed on Schedule 1.4 shall
be known as the "Excluded Assets").
1.5 Purchase Price. The purchase price for the Property (the
"Purchase Price") shall be equal to the Fair Market Value of the Property (as
defined in Section 1.6) as of the date of Optionee's Exercise Notice. At
Closing, Optionee shall pay to Optionor the Purchase Price by wire transfer of
immediately available funds.
1.6 Certain Defined Terms. For purposes of this Agreement, the
following defined terms shall have the following meanings:
"Fair Market Value" shall mean the fair market value
of the Property as determined in accordance with the procedures set forth in
Exhibit F hereto.
"Stabilized Occupancy" shall mean an average monthly
occupancy for the Facility of at least ninety percent (90%) for three (3)
consecutive months.
1.7 No Liabilities to be Assumed by Optionee. Optionee shall
not assume any obligations of Optionor, except obligations arising out of
Permitted Liens (as hereinafter defined).
1.8 Lease of Property to Optionor. At Closing, Optionee and
Genesis Health Ventures, Inc. ("Genesis") or an affiliate of Genesis (the
"Genesis Affiliate") shall enter into a lease agreement (the "Lease Agreement"),
substantially in the form of Exhibit B attached hereto and incorporated herein,
which shall provide for the lease of the Property by Optionee to Genesis or the
Genesis Affiliate, as applicable, upon the terms and subject to the conditions
set forth therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF OPTIONEE
Optionee hereby represents and warrants to Optionor as
follows:
2.1 Organization, Power and Authority, and Qualification.
Optionee is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Optionee has the requisite
power and authority to carry on its business as it is now being conducted and to
engage in the Transaction. Optionee has made available to Optionor complete and
correct copies of the governing documents of Optionee, with all amendments as in
effect on the date of this Agreement. Optionee is qualified to do business and
is in good standing in each jurisdiction where the character of Optionee's
property owned or leased or the nature of Optionee's activities makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the business or financial
condition of Optionee.
<PAGE>
2.2 Authority Relative to this Agreement. All action of
Optionee necessary to authorize the execution, delivery and performance of this
Agreement by Optionee has been taken, and no other proceedings on the part of
Optionee are necessary to authorize the execution and delivery of this Agreement
by Optionee and the consummation by Optionee of the Transaction.
None of the execution and delivery of this Agreement by
Optionee, the consummation by Optionee of the Transaction or compliance by
Optionee with any of the provisions hereof will (i) conflict with or result in
any breach of any provisions of the partnership agreement of Optionee, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Optionee is a party or by which it or
any of Optionee's properties or assets may be bound, or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Optionee or
any of the properties or assets of Optionee.
2.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Optionee to Optionor and constitutes a valid
and binding agreement of Optionee, enforceable against Optionee in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or the rights of creditors of limited partnerships
and to general principles of equity.
2.4 Brokers. Optionee has not employed any broker or finder,
or incurred any liability therefor, in connection with the transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF OPTIONOR
Optionor hereby represents and warrants to Optionee as
follows:
3.1 Organization and Qualification. Optionor is a
_____________________ duly organized, validly existing and in good standing
under the laws of the State of ______________. Optionor has the requisite power
and authority to carry on its business as it is now being conducted and to
engage in the Transaction. Optionor has made available to Optionee complete and
correct copies of the governing documents of Optionor, with all amendments as in
effect on the date of this Agreement. Optionor is qualified to do business and
is in good standing in each jurisdiction where the character of Optionor's
property owned or leased or the nature of Optionor's activities makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the business or financial
condition of Optionor or on the Transaction. Optionor is not a "foreign person"
under Section 1445 of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
<PAGE>
3.2 Authority Relative to this Agreement. All action necessary
to authorize the execution, delivery and performance of this Agreement by
Optionor has been taken, and no other proceedings are necessary to authorize the
execution and delivery by Optionor of this Agreement and the consummation by
Optionor of the Transaction.
None of the execution and delivery of this Agreement by
Optionor, the consummation by Optionor of the Transaction or compliance by
Optionor with any of the provisions hereof will (i) conflict with or result in
any breach of any provisions of the organizational documents of Optionor, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, permit, contract,
agreement, easement, restriction or other instrument or obligation to which
Optionor is a party or by which Optionor or the Property may be bound, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Optionor or the Property, except in the case of (ii) or (iii) for
violations, breaches, or defaults (A) which would not in the aggregate have a
material adverse effect on the business or financial condition of Optionor, the
Transaction or the Property or (B) for which waivers or consents have been
obtained or, as listed on Schedule 3.2, will be obtained prior to the Closing
Date.
3.3 Binding Obligation. This Agreement has been duly and
validly executed and delivered by Optionor to Optionee and constitutes a valid
and binding agreement of Optionor, enforceable against Optionor in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or the rights of creditors of Optionor and to
general principles of equity.
3.4 Brokers. Optionor has not employed any broker or finder,
or incurred any liability therefor, in connection with the transactions
contemplated by this Agreement.
3.5 Title to Property. Optionor has good and valid title to
the Personal Property. To Optionor's knowledge, the Property is not subject to
any imperfections in title, easements, liens, mortgages, encumbrances, pledges,
claims, charges, options, defects, preferential purchase rights or other
encumbrances (collectively referred to herein as "Liens") except for the
following ("Permitted Liens"):
(i) Liens for real property taxes and assessments or for
fire dues, library dues or similar assessments not yet
delinquent;
(ii) Liens that are not material in character, amount, or
extent and do not materially detract from the value,
or interfere with the use of, the Optionor's assets
subject thereto or affected thereby or otherwise
materially impair the business operations being
conducted or proposed to be conducted thereon;
(iii) the Mortgage Debt (as hereinafter defined); and
<PAGE>
(iv) Liens shown on Schedule 3.5 hereto.
3.6 Debt. The Property is encumbered by the mortgage
indebtedness described on Schedule 3.6 hereto (the "Mortgage Debt"). To
Optionor's knowledge, there exists no default, or event which with the passage
of time or notice or both would constitute a default, with respect to the
Mortgage Debt or any other debt of Optionor that has not been cured or that
would have a material adverse effect on the business or financial condition of
Optionor, the Transaction or the Property.
3.7 [INTENTIONALLY DELETED]
3.8 [INTENTIONALLY DELETED]
3.9 Leases. Except as set forth on Schedule 3.9 hereto,
Optionor has not entered into any leases, tenancies or other rights of occupancy
in effect on the date hereof with respect to the Property. Each of the leases
referenced in Schedule 3.9 (the "Leases") has been delivered to or made
available to Optionee and is presently unamended (or with respect to each such
lease that has been amended, all amendments thereto have been delivered or made
available to Optionee) and, to Optionor's knowledge, are in full force and
effect without material default.
3.10 Contracts. To the knowledge of Optionor, Schedule 3.10
hereto sets forth all of the contracts or other understandings, written or oral,
to which Optionor is a party or by which Optionor is bound that relate to the
Property (collectively, the "Contracts", which term shall not be construed to
include any Leases). Each of the Contracts is valid and binding on Optionor and
is in full force and effect in all material respects. Except as set forth in
Schedule 3.10, neither Optionor nor, to Optionor's knowledge, any other party
thereto has breached or defaulted under the terms of any Contract, except for
such breaches or defaults that would not have a material adverse effect on the
business or operations of Optionor or the Property.
3.11 Permits. To the knowledge of Optionor, Optionor has all
such franchises, certificates, licenses, permits and other authorizations from
government political subdivisions, regulatory authorities or any other person or
entity (collectively "Permits") as are necessary for the ownership, use,
operation and licensing of the Property as it is currently being used, except
where the failure to possess such Permits would not have a material adverse
effect on the business or financial condition of Optionor or the Property, and,
to Optionor's knowledge, Optionor is not in violation of any Permit and all
Permits relating to the Property are valid and in full force and effect.
3.12. Litigation. Other than as set forth on Schedule 3.12
attached hereto, there are no claims, actions, suits, proceedings or
investigations pending or, to Optionor's knowledge, threatened against Optionor
or any properties or rights of Optionor, that would have a material adverse
effect on the business or financial condition of Optionor, the Transaction or
the Property before any court or administrative, governmental or regulatory
authority or body, domestic or foreign, or any properties or rights of Optionor.
Neither Optionor nor the Property is subject to any order, judgment, injunction
or decree of any court, tribunal or other governmental authority (other than
generally applicable laws, rules and regulations) that would have a material
adverse effect on the business or financial condition of Optionor or the
Property.
<PAGE>
3.13 Compliance with Laws. Optionor has not received any
written or other actual notice of any material violation of any applicable
zoning regulation or ordinance, or of any employment, environmental, or other
regulatory law, order, regulation or requirement, including applicable
subdivision laws, relating to the Property or the business or operations
thereon, which remains uncured and, to Optionor's knowledge, there are no such
violations which, individually or in the aggregate, would have a material
adverse effect on the business or financial condition of Optionor or the
Property.
3.14 Taxes. Except for such matters as in the aggregate shall
not result in a material adverse effect on the business or financial condition
of Optionor, (i) all tax or information returns required to be filed on or
before the date hereof by or on behalf of Optionor have been filed through the
date hereof or will be filed on or before the Closing Date in accordance with
all applicable laws, (ii) there is no action, suit or proceeding pending
against, or with respect to, Optionor or the Property in respect of any tax nor
is any claim for additional tax asserted by any such authority, and (iii) all
taxes (including related penalties, interest and additional amounts) imposed
upon Optionor and required to be reported on a return required to be filed
(without regard to any applicable extensions) on or before the date hereof have
been paid or will be paid prior to the delinquency thereof.
3.15 Insurance. Optionor currently has in place the public
liability, casualty and other insurance coverage with respect to the Property as
is set forth in Schedule 3.15 attached hereto. To the knowledge of Optionor,
each of Optionor's insurance policies with respect to the Property is in full
force and effect and all premiums due and payable thereunder have been fully
paid when due. Optionor has not received from any insurance company notice of
any material defects or deficiencies affecting the insurability of the Property
or notices of cancellation or intent to cancel any such insurance
3.16 Utilities. To the knowledge of Optionor, usable public
sanitary and storm sewers, public water, and gas and electrical utilities
(collectively, the "Public Utilities"), of adequate capacity for the operation
of the Property, are installed in, and are duly connected to, the Property and
can be used without any charge except the normal and usual metered charges
imposed for such Public Utilities. No amounts due and owing with respect to the
Property in connection with utilities, insurance, assessments or other charges
customarily prorated in real estate transactions have been outstanding more than
thirty (30) days.
3.17 Environmental. For the purpose of this Section 3.17, the
term "Hazardous Substances" shall mean substances defined as a "hazardous
waste," "hazardous substance," or "toxic substance" under any Environmental
Laws, including, without limitation, oil, petroleum, or any petroleum-derived
substance or waste, asbestos or asbestos-containing materials, PCBs, pesticides,
explosives, radioactive materials, dioxins, urea formaldehyde insulation or any
constituent of any such substance, pollutant or waste. As used herein,
"Environmental Laws" shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901, et seq., the Clean Air Act, 42 U.S.C. ss. 7401, et seq., the Clean Water
Act, 33 U.S.C. ss. 1251, et seq., the Toxic Substance Control Act, 15 U.S.C. ss.
2601, et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651, et
seq., as any of the preceding have been amended prior to the date of the
Closing, and any other federal, state or local law, ordinance, regulation, rule,
order, decision or permit relating to the protection of human health from
environmental effects of Hazardous Substances and which are applicable to the
Property.
To Optionor's knowledge and except as may be specifically
identified in the Phase I Environmental Report prepared for the Property by Roy
F. Weston, dated July, 1997, (i) no Hazardous Substances are present in, on or
under the Property that require remediation under Environmental Law or would
have a material adverse affect on the condition (financial or otherwise),
earnings, assets, business affairs or business prospects of the Property,
Optionor or the Transaction, (ii) no liability under or violation of any
Environmental Laws or condition that could give rise to such liability or
violation exists with respect to the Property, except for liabilities that would
not have a material adverse effect on the business or financial condition of
Optionor or the Property, and (iii) Optionor has not caused or allowed any
discharge or disposal of any Hazardous Substances at the Property except in
compliance with Environmental Laws. Optionor has not received any written notice
from any governmental agency or instrumentality having jurisdiction thereof of
any violation of any Environmental Laws which remains uncured or unremediated.
<PAGE>
3.18 [INTENTIONALLY DELETED]
3.19 Pending Assessments and Eminent Domain. Optionor has no
knowledge and has received no notice of any pending proceeding for the
imposition of any special assessment, or the formation of a special assessment
district, or for a condemnation proceeding which would materially affect in any
manner any portion of the Property.
3.20 Compliance with Law; Approvals.
Except as set forth on Schedule 3.20:
(a) Optionor has operated the Property in compliance with all
applicable laws and regulations, including, without limitation, all laws,
regulations, orders and requirements promulgated by any governmental authority
or relating to consumer protection, equal opportunity, health, health care
industry regulation, third-party reimbursement (including, if applicable,
Medicare, Medicaid, fraud and abuse and workers compensation), environmental
protection, fire, zoning and building and occupational safety matters, except
for noncompliance that individually or in the aggregate would not, and in the
future will not, have a material adverse effect on the business or operations of
Optionor or the Property;
(b) Optionor has not received notice of any material violation
(or of any investigation, inspection, audit, or other proceeding by any
governmental authority involving allegations of any violation) of any applicable
law, or is in material default with respect to any applicable law and to the
knowledge of Optionor, no investigation, inspection, audit, or other proceeding
by any governmental authority involving allegations of violation of any
applicable law is threatened or contemplated.
<PAGE>
3.21 Governmental Proceedings. There is no governmental action
or governmental proceeding (zoning or otherwise) or governmental investigation
pending or, to Optionor's knowledge, threatened against or relating to the
Property or the transactions contemplated by this Agreement.
3.22 No Agreements. Except as set forth in the Optionor's
organizational documents or as set forth on Schedule 3.22, other than the
Leases, the Property is not subject to any outstanding agreement of sale or
lease, option to purchase or other right of any third party to acquire any
interest therein.
ARTICLE IV
COVENANTS AND AGREEMENTS OF OPTIONOR
Optionor hereby covenants and agrees with Optionee that prior
to the date of the Closing:
4.1 Actions Affecting Assets. Except in the ordinary course of
business, Optionor shall not sell, assign, pledge, transfer or encumber the
Property or any portion thereof, or enter into any other material consent,
commitment, understanding or other agreement, or incur any material obligation
or liability (contingent or absolute) with respect to the Property. Optionor
shall not merge or consolidate with or into any other entity or enter into any
agreements relating thereto without Optionee's prior consent.
4.2 Access to Property and Records. Upon reasonable notice and
during regular business hours, Optionor shall give Optionee and Optionee's
authorized representatives full access to the Property and Optionor's personnel
and all properties, documents, contracts, facilities, books, equipment and
records of Optionor relating to the Property to conduct Optionee's
investigations, including, without limitation, surveys, site analyses, soil
tests, engineering studies, and other investigations.
4.3 Permits. Optionor shall maintain all Permits in full force
and effect, and will file timely all reports, statements, renewal applications
and other filings, and will pay timely all fees and charges in connection
therewith that are required to keep the Permits in full force and effect.
4.4 Contracts. Optionor will not enter into any new Contracts
with respect to the Property except in the ordinary course of the business of
the operation of the Facility.
4.5 Insurance. Optionor shall maintain in full force and
effect substantially the same public liability and casualty insurance coverage
now in effect with respect to the Property.
<PAGE>
4.6 Taxes and Assessments. Optionor shall pay or discharge
before delinquent all tax liabilities and obligations, including without
limitation those for federal, state or local income, property, unemployment,
withholding, sales, transfer, stamp, documentary, use and other taxes.
4.7 Binding Commitments. Optionor shall not make any
commitments or representations to any applicable government authorities, any
adjoining or surrounding property owners, any civic association, any utility or
any other similar person or entity that would in any manner be binding upon
Optionee or the Property without Optionee's prior consent, except such
agreements that would not have a material adverse effect on the Property.
4.8 Compliance with Law. The operations of Optionor and the
Property will be conducted in compliance with all applicable laws, including,
without limitation, all such laws regulations, orders and requirements
promulgated by any governmental authority or relating to consumer protection,
equal opportunity, health, health care industry regulation, third party
reimbursement (including, if applicable, Medicare, Medicaid, fraud and abuse and
workers compensation), environmental protection, fire, zoning and building and
occupational safety matters, except for noncompliance that individually or in
the aggregate would not and, insofar as may reasonably be foreseen, in the
future will not, have a material adverse effect on the business or operations of
Optionor or the Property.
4.9 Operation of Property. Optionor shall operate and maintain
the Property in the same manner as Optionor has heretofore operated the Property
and consistent with other assisted living facilities operated or managed by
Guarantor of affiliates thereof.
4.10 Occupancy Report; Financial Information. Between the date
of this Agreement and the earlier of (i) the Closing Date and (ii) the
Expiration Date, Optionor agrees to furnish Optionee with the following:
(i) within twenty (20) days following the end of each calendar
month, an occupancy report, in form and substance satisfactory to Optionee, with
respect to the Facility for such period; said occupancy report shall be
accompanied by a calculation of Net Operating Income for the twelve (12) month
period that ended on the last day of said calendar month, together with
supporting documentation.
(ii) within forty-five (45) days following the end of each
calendar quarter, a balance sheet of Optionor as of the close of such calendar
quarter and statements of income and expense, changes in stockholder's equity
and changes in financial position of Optionor for such quarter-fiscal year, as
certified by the chief financial officer of Optionor; and
(iii) within one hundred twenty (120) days following the end
of each calendar year of Optionor, an audited balance sheet of Optionor as of
the close of such calendar year and audited statements of income and expense,
changes in stockholder's equity and changes in financial position of Optionor
for such calendar year, each accompanied by the related report of a nationally
recognized independent accounting firm.
<PAGE>
ARTICLE V
CONDITIONS TO CONSUMMATION OF TRANSACTION BY OPTIONEE
The obligation of Optionee to consummate the Transaction shall
be subject to fulfillment (or waiver) at or prior to the date of the Closing of
the following conditions:
5.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Optionor in this Agreement or
in any document delivered by Optionor pursuant to this Agreement shall be true
and correct in all material respects when made and on and as of the Closing Date
with the same force and effect as though such representations, warranties and
covenants were made on and as of such date. No later than ten (10) days prior to
the Closing Date, Optionor shall deliver to Optionee a certification that sets
forth any changes to the representations and warranties made by Optionor in this
Agreement or in any schedule hereto or in any document delivered by Optionee
since the Closing Date, but the delivery of such Certification shall not be
deemed to remedy any breach of a representation or warranty or covenant.
5.2 Performance of Covenants and Agreements. Optionor shall
have performed all covenants and agreements contained in this Agreement to be
performed or complied with by it on or before the Closing Date.
5.3 No Material Adverse Change. There shall have been no
material adverse change in the value or condition of the Property since the date
hereof, except for changes contemplated by this Agreement and changes in the
ordinary course of business which do not have a material adverse effect on the
business or financial condition of the Property.
5.4 Title Insurance. Commonwealth Land Title Insurance Company
(the "Title Company") shall have issued to Optionee an ALTA owners title
insurance policy effective as of the date of the Closing or an unconditional
commitment therefor insuring fee simple title to the Property to be vested in
Optionee in the full amount of the Purchase Price, subject to no exceptions
other than Permitted Liens, with such endorsements and otherwise in a form
acceptable to Optionee in its sole and absolute discretion.
5.5 No Order or Injunction. The consummation of the
Transaction shall not have been restrained, enjoined or prohibited by any order
or injunction of any court or governmental authority of competent jurisdiction
nor shall there be any pending or threatened condemnation proceeding with
respect to the Property or any portion thereof.
5.6 Optionor Deliverables. Optionee shall have received the
instruments referred to in Section 7.1.
5.7 Consents. All consents listed on Schedule 3.2 or otherwise
necessary for the consummation of the Transaction by Optionor shall have been
obtained.
<PAGE>
ARTICLE VI
CONDITIONS TO CONSUMMATION
OF TRANSACTION BY OPTIONOR
The obligation of Optionor to consummate the Transaction shall
be subject to fulfillment (or waiver) at or prior to the date of the Closing of
the following conditions:
6.1 Representations, Warranties and Covenants. The
representations, warranties and covenants made by Optionee in this Agreement or
in any document delivered by Optionee pursuant to this Agreement shall be true
and correct in all material respects when made and on and as of the date of the
Closing as though such representations, warranties and covenants were made on
and as of such date.
6.2 Consents. All consents necessary for the consummation of
the Transaction by Optionee shall have been obtained.
6.3 Optionee Deliverables. Optionor shall have received the
instruments and other items
referred to in Section 7.2.
ARTICLE VII
THE CLOSING
Subject to the terms and conditions of this Agreement, the
Closing shall take place promptly after satisfaction or waiver of the conditions
set forth in Articles V and VI hereof.
7.1 Closing Deliveries by Optionor. At Closing, Optionor shall
deliver or cause to be delivered the following items, each (if appropriate)
properly executed by Optionor and dated as of the Closing Date:
(a) a special warranty deed conveying good and
marketable fee simple title to the Property (subject only to the
Permitted Liens);
(b) a bill of sale pursuant to which Optionor shall
convey to Optionee good title to all the Personal Property, free and
clear of all liens and encumbrances (other than Permitted Liens);
(c) a certification duly executed by Optionor under
penalty of perjury, setting forth Optionor's address and Federal tax
identification number and certifying that Optionor is not a "foreign
person" in accordance with the provisions of Section 1445 (as may be
amended) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder;
<PAGE>
(d) such assignment agreements as may be deemed
necessary and appropriate by Optionee and Optionor pursuant to which
Optionor shall assign to Optionee other assets (other than the Excluded
Assets) owned by Optionor that comprise the Property, including,
without limitation, the Permits (to the extent assignable), and the
Intangible Property;
(e) a certificate from a duly authorized agent of
Optionor certifying that the representations and warranties of Optionor
set forth herein are true and correct in all material respects as of
the Closing Date;
(f) the Lease Agreement duly executed by Genesis, or
the Genesis Affiliate, as Applicable;
(g) the indemnification agreement and, if applicable,
the guaranty referenced in Section 10.12, duly executed by Genesis; and
(h) such other documents and instruments as Optionee
and Optionor agree are necessary or appropriate.
7.2 Closing Deliveries by Optionee. At Closing, Optionee shall
deliver or cause to be delivered the following items, each (if appropriate)
properly executed by Optionee and dated as of the Closing Date:
(a) the Purchase Price;
(b) a certificate, in form satisfactory to counsel
for Optionee, from a duly authorized officer of Optionee certifying
that the representations and warranties of Optionee set forth herein
are true and correct in all material respects as of the Closing Date;
(c) the assignment agreements referenced in Section
7.1(d) above;
(d) the Lease Agreement, duly executed by Optionee;
and
(e) such other documents and instruments as Optionor
and Optionee agree are necessary or appropriate.
7.3 Closing Costs. Optionee and Optionor shall each pay
one-half (1/2) of the documentary and transfer fees imposed on or in connection
with the Transaction. Optionee agrees to pay all other costs associated with the
Closing, including (i) survey costs, (ii) costs of obtaining a title insurance
policy for the benefit of Optionee, and (iii) all recording fees and charges.
Each party shall pay its own legal fees.
7.4 Adjustments. Optionor and Optionee agree that charges,
credits and adjustments shall be made as of the Closing Date, and a statement
setting forth such adjustments shall be initialed by the parties. The subject
areas of such adjustments shall include:
<PAGE>
(a) Real estate, personal property and similar taxes
and assessments (general and special, ordinary and extraordinary) that
have become or may become a lien on the Property;
(b) Charges for public utilities servicing the
Property, payments under the Contracts, charges under easements and
similar agreements affecting the Property;
(c) Insurance premiums, if any, to the extent
policies are assumed by Optionee;
(d) All other charges and fees customarily prorated
and adjusted in similar transactions.
The parties shall prorate on the best available
information; all adjustments that cannot be determined precisely as of the
Closing Date shall be readjusted as soon as practicable. Optionor shall use its
best efforts to have all utility meters read as of the Closing Date. To the
extent practicable, as Optionor and Optionee agree as appropriate, such
prorations may occur outside the Closing by arrangement with the vendor or
supplier of services (e.g., utilities). Any prorations which are the obligation
of Optionee will be assumed by the lessee under the Lease Agreement.
7.5 Possession. At Closing, Optionor shall deliver possession
of the Property to Optionee (subject to the rights of tenants under the Leases),
the Property to be in the same condition and repair as on the date hereof,
reasonable wear and tear excepted.
ARTICLE VIII
REMEDIES ON DEFAULT
8.1 Optionor's Remedies. Except for any breaches waived in
writing by Optionor, if Optionee fails to consummate the Transaction when
required to do so pursuant to the provisions hereof or has breached any of
Optionee's representations or warranties hereunder, then Optionor shall be
entitled to terminate this Agreement as the exclusive and sole right and remedy
of Optionor, whereupon this Agreement shall terminate and neither party hereto
shall have any further obligations to the other party hereto, and, in addition
thereto, Optionee shall reimburse Optionor for all reasonable costs incurred by
Optionor in connection with the Transaction, provided that the amount to be
reimbursed by Optionee shall not exceed Twenty-Five Thousand Dollars
($25,000.00).
8.2 Optionee's Remedies. Except for any breaches waived in
writing by Optionee, if Optionor has breached any of Optionor's covenants or
obligations under this Agreement or has breached any of Optionor's
representations or warranties hereunder or has failed, refused or is unable to
consummate the Transaction by the date of the Closing when and as required to do
so hereunder, then Optionee shall have the right to bring an action at law or in
equity seeking the specific performance of the obligations of Optionor hereunder
and in addition thereto or in lieu thereof, Optionee may avail itself of any
other remedies available at law or in equity on account of such breach,
provided, however, the amount of money damages that Optionee may recover from
Optionor on account of such breach shall not exceed ten percent (10%) of the
amount of the Purchase Price, except in the case of a breach of a representation
or warranty which shall be governed by Section 10.1.
<PAGE>
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Optionor. Optionor hereby indemnifies
and agrees to defend and hold harmless Optionee, and its officers, directors,
employees, agents and successors and assigns, and its general partners and any
officers, trustees, directors, employees, agents and successors and assigns of
such general partners ("Optionee Indemnitees"), from and against any and all
demands, claims, actions or causes of action, assessments, expenses, costs,
damages, losses and liabilities (including attorneys' fees and other charges)
which may at any time be asserted against or suffered by any Optionee
Indemnitee, the Property, or any part thereof, whether before or after the date
of the Closing, as a result of, on account of or arising from (a) the failure of
Optionor to perform any of Optionor's obligations hereunder or, to the extent
provided in Section 10.1, the breach by Optionor of any of Optionor's
representations and warranties made herein, (b) events, contractual obligations,
acts or omissions of Optionor that occurred in connection with the ownership or
operation of the Property prior to the Closing, (c) damage to property or injury
to or death of any person or any claims for any debts or obligations occurring
on or about or in connection with the Property or any portion thereof or with
respect to the operation of the Property at any time or times prior to the
Closing, or (d) any obligation, claim, suit, liability, contract, agreement,
debt or encumbrance (other than Permitted Liens) created, arising or accruing
prior to the date of the Closing, regardless of when asserted, relating to the
Property or its operation, including, without limitation, any and all
liabilities for federal or state income taxes or other taxes, which shall not
have been set forth or specifically described in this Agreement or the Schedules
and the Exhibits hereto. The obligations of Optionor under this Section 9.1
shall survive the Closing.
9.2 Indemnification by Optionee. Optionee hereby indemnifies
and agrees to defend and hold harmless Optionor, and its officers, directors,
employees, agents and successors and assigns ("Optionor Indemnitees"), from and
against any and all demands, claims, actions or causes of action, assessments,
expenses, costs, damages, losses and liabilities (including attorneys' fees and
other charges) which may at any time be asserted against or suffered by any
Optionor Indemnitee, whether before or after the date of the Closing, as a
result of, on account of or arising from (a) the failure of Optionee to perform
any of Optionee's obligations hereunder or, to the extent provided in Section
10.1, the breach by Optionee of any of Optionee's representations and warranties
made herein, (b) events, contractual obligations, acts or omissions of Optionee
that occurred in connection with the ownership or operation of the Property
subsequent to the Closing, (c) damage to property or injury to or death of any
person or any claims for any debts or obligations occurring on or about or in
connection with the Property or any portion thereof or with respect to the
operation of the Property at any time or times subsequent to the Closing, or (d)
any damage to the Property caused by Optionee in connection with any studies,
investigations or tests conducted by Optionee pursuant to Section 4.2 hereof.
The obligations of Optionor under this Section 9.2 shall survive the Closing.
<PAGE>
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Liability with Respect to Representations and
Warranties. It is the express intention and agreement of the parties that the
representations and warranties of Optionee and Optionor set forth in this
Agreement shall survive the consummation of the Transaction for a period of one
(1) year from the date of the Closing; provided that the representations and
warranties of Optionor set forth in Section 3.17 hereinabove shall survive the
consummation of the Transaction for a period of two (2) years from the date of
the Closing. Such representations and warranties shall expire and be terminated
and extinguished forever at the expiration of such period except where written
notice of a claim for breach shall have been delivered prior to the expiration
of such period. Any written notice given within such period setting forth a
claim must set forth the nature and details of the claim with specificity.
Optionor's liability for a breach of a representation and warranty shall not be
subject to the limitation of liability set forth in Section 8.2 hereof;
provided, however, the maximum amount that Optionee or its assigns may recover
for a breach of a representation or warranty by Optionor hereunder shall not
exceed twenty percent (20%) of the amount of the Purchase Price.
10.2 Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by either
Optionor or Optionee to the other pursuant to this Agreement shall be in writing
and shall be hand delivered or transmitted by certified mail, express overnight
mail or delivery service, telegram, telex or facsimile transmission to the
parties at the following addresses:
If to Optionor: McKerley Health Facilities
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Michael A. Walker
Chairman and Chief Executive Officer
Attention: Law Department - Ira C. Gubernick, Esq.
If to Optionee: ElderTrust Operating Limited Partnership
c/o ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.
President and Chief Executive Officer
or such other address as the addressee may indicate by written notice to the
other party.
<PAGE>
Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the delivery receipt, the affidavit of messenger or (with respect to a telex)
the answerback being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
10.3 Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of the State of New Hampshire (but not
including the choice of law rules thereof).
10.4 Recording. At the option of Optionee, Optionor and
Optionee shall execute a memorandum of this Agreement in recordable form (the
"Memorandum of Option") and shall cause such Memorandum of Option to be recorded
in the public records of Coos County, New Hampshire. In the event the Option is
not exercised by Optionee by the Expiration Date, Optionee shall, at Optionor's
request, execute a termination of option in recordable form.
10.5 Assignment. No party hereto shall assign this Agreement,
in whole or in part, whether by operation of law or otherwise, without the prior
written consent of Optionor (if the assignor is Optionee) or Optionee (if the
assignor is Optionor), which consent shall not be unreasonably withheld, and any
purported assignment contrary to the terms hereof shall be null, void and of no
force and effect; provided, that Optionee may (i) assign this Agreement and
Optionee's rights hereunder, to a corporation, partnership, limited liability
company or other entity of which the entire ownership interest is owned directly
or indirectly by Optionee or its affiliates without the consent of Optionor, or
(ii) contribute the Property, or any portion thereof, to a partnership, limited
liability company or other entity in exchange for 100% of the ownership
interests in such entity, but no such assignment or contribution shall relieve
Optionee of its obligations hereunder.
10.6 Parties in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns as permitted hereunder. No person or entity other than
the parties hereto is or shall be entitled to bring any action to enforce any
provision of this Agreement against any of the parties hereto, and the covenants
and agreements set forth in this Agreement shall be solely for the benefit of,
and shall be enforceable only by, the parties hereto or their respective
successors and assigns as permitted hereunder.
10.7 Severability. If any part of any provision of this
Agreement or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining parts of
such provisions or the remaining provisions of said agreement so long as the
economic and legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party.
10.8 Entire Agreement; Amendment. This Agreement and the
Exhibits and Schedules attached hereto (each of which shall be deemed
incorporated herein and made a part hereof) contain the final and entire
agreement between the parties hereto with respect to the Transaction and are
intended to be an integration of all prior negotiations and understandings.
Optionor and Optionee shall not be bound by any terms, conditions, statements,
warranties or representations, oral or written, not contained or referred to
herein or therein. No amendment, change or modification of this Agreement shall
be valid unless the same is in writing and signed by the parties hereto.
<PAGE>
10.9 No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified
therein.
10.10 Headings. Section and subsection headings contained in
this Agreement have been inserted for convenience of reference only, shall not
be deemed to be a part of this Agreement for any purpose, and shall not in any
way define or affect the meaning, construction or scope of any of the provisions
hereof.
10.11 Risk of Loss. The risk of loss or damage to all or any
part of the Property by fire or other casualty prior to the Closing shall be
borne by Optionor. In the event of such damage to all or part of the Property,
Optionee may, at Optionee's election, (i) terminate this Agreement whereupon
neither party shall have any further liability to the other hereunder or (ii)
consummate the Transaction, in which event Optionor shall assign to Optionee at
Closing all of Optionor's right, title and interest in and to all of the
proceeds of insurance payable by virtue of such casualty.
10.12 Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
10.13 Guaranty. Genesis shall indemnify Optionee for any loss
or damage due to a breach by Optionor of any of Optionor's representations and
warranties as set forth in this Agreement, pursuant to a certain Indemnification
Agreement to be executed and delivered by Genesis at Closing to and for the
benefit of Optionee, which Indemnification Agreement shall be substantially in
the form of Exhibit D attached hereto and made a part hereof. In addition
thereto, provided that the Genesis Affiliate, and not Genesis, enters into the
Lease Agreement, then at Closing Genesis shall execute and deliver for the
benefit of Optionee a guaranty of the obligations of the Genesis Affiliate under
the Lease Agreement, which guaranty shall be substantially in the form of
Exhibit E attached hereto and made a part hereof.
<PAGE>
IN WITNESS WHEREOF, Optionor and Optionee have caused this
Option Agreement to be duly executed on their behalf as of the date first above
written.
OPTIONEE:
ELDERTRUST OPERATING LIMITED PARTNERSHIP
By: ElderTrust Realty Group, Inc.,
general partner
By:
Name:
Title:
OPTIONOR:
By:
Name:
Title:
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A - Legal Description of Real Property
Exhibit B - Form of Lease
Exhibit C - Arbitration Procedures
Exhibit D - Indemnification Agreement
Exhibit E - Guaranty of Lease
Exhibit F - Appraisal Procedure
Schedule 1.4 - Excluded Assets
Schedule 3.2 - Required Consents
Schedule 3.5 - Liens
Schedule 3.9 - Leases
Schedule 3.10 - Contracts
Schedule 3.12 - Litigation
Schedule 3.15 - Insurance
Schedule 3.20 - Non-Compliance
Schedule 3.22 - Agreements
<PAGE>
EXHIBIT A
DESCRIPTION OF THE REAL PROPERTY
<PAGE>
EXHIBIT B
FORM OF LEASE AGREEMENT
<PAGE>
EXHIBIT C
ARBITRATION
Any controversy or dispute or claim relating to the
calculation of Substantial Occupancy hereunder shall be settled exclusively by
arbitration, in Philadelphia, Pennsylvania in accordance with the rules of the
American Arbitration Association then in force (the "Rules"). The party
requesting arbitration shall serve upon the other party to the controversy or
dispute a written demand for arbitration stating the substance of the
controversy or dispute and the contention of the party requesting arbitration
and the name and address of the arbitrator appointed by it. The recipient of
such demand shall within twenty (20) days after such receipt appoint an
arbitrator, and the two arbitrators shall appoint a third. The decision of any
two arbitrators shall be final and binding upon the parties. In the event that
the two arbitrators fail to appoint a third arbitrator within twenty (20) days
of the appointment of the second arbitrator, either arbitrator, or either party
to the arbitration, may apply to a judge of the United States District Court for
the Eastern District of Pennsylvania for the appointment of the third
arbitrator, and the appointment of such arbitrator by such judge on such
application shall have precisely the same force and effect as if such arbitrator
had been appointed by the two arbitrators. If for any reason the third
arbitrator cannot be appointed in the manner prescribed by the preceding
sentence, either regularly appointed arbitrator, or either party to the
arbitration, may apply to the American Arbitration Association for appointment
of the third arbitrator in accordance with the Rules. Should the party upon whom
the demand for arbitration has been served fail or refuse to appoint an
arbitrator within twenty (20) days, the single arbitrator shall have the right
to decide alone, and such arbitrator's decision or award shall be final and
binding upon the parties.
Each arbitrator chosen by a party shall be a fit person, and
the third arbitrator however chosen shall be a fit and impartial person, in each
case having at least ten (10) years experience in litigating, adjudicating or
otherwise administering cases and controversies related to the subject matter of
the controversy, dispute or claim being submitted to arbitration.
<PAGE>
The parties hereto agree to abide by all decisions rendered in
an arbitration proceeding in accordance with the foregoing, and all such
decisions may be filed by the prevailing party with any court having
jurisdiction over the person or property of the other party as a basis for
judgment and the issuance of execution thereon. The fees of each arbitrator and
related expenses of arbitration shall be apportioned among the parties as
determined by the arbitrators. The parties to the arbitration shall bear equally
the fees of each arbitrator and related expenses of arbitration.
Unless otherwise agreed by the parties to the arbitration, all
hearings shall be held, and all submissions shall be made by the parties, within
ten (10) days of the date of the selection of the third arbitrator, and the
decisions of the arbitrators shall be made within thirty (30) days of the later
of the date of the closing of the hearings or the date of the final submissions
by the parties.
The parties consent to the jurisdiction of the Supreme Court
of the Commonwealth of Pennsylvania and of the United States District Court for
the Eastern District of Pennsylvania for all purposes in connection with the
arbitration. The parties consent that any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested, or by
personal service, or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed.
<PAGE>
EXHIBIT D
INDEMNIFICATION AGREEMENT
<PAGE>
EXHIBIT E
GUARANTY OF LEASE
<PAGE>
EXHIBIT F
APPRAISAL PROCESS
If Optionor and Optionee are unable to agree upon the fair
market value of the Property, each shall within ten (10) days after written
demand by the other select one MAI Appraiser (as defined below) to participate
in the determination of fair market value. Within ten (10) days of such
selection, the MAI Appraisers so selected by Optionor and Optionee shall select
a third MAI Appraiser ("Third MAI Appraiser"). The three (3) selected MAI
Appraisers shall each determine the fair market value of the Property within
thirty (30) days of the selection of the third appraiser. To the extent
consistent with sound appraisal practices as then existing at the time of any
such appraisal. The fees and expenses of any MAI Appraiser retained pursuant to
this Exhibit F shall be borne by the party retaining such MAI Appraiser, with
the exception of the Third MAI Appraiser whose fees and expenses shall be borne
by the Optionor and Optionee equally.
In the event either Optionor or Optionee fails to select an
MAI Appraiser within the time period set forth in the foregoing paragraph, the
MAI Appraiser selected by the other party shall alone determine the fair market
value of the Property in accordance with the provisions of this Exhibit F and
the fair market value so determined shall be binding upon Optionor and Optionee.
In the event the MAI Appraisers selected by Optionor and
Optionee are unable to agree upon a third MAI Appraiser within the time period
set forth in the first paragraph of this Exhibit F, either Optionor or Optionee
shall have the right to apply, at the parties' shared expense, to the presiding
judge of the court of original trial jurisdiction in the jurisdiction in which
the Property is located to name the third MAI Appraiser.
Within five (5) days after completion of the third MAI
Appraiser's appraisal, all three MAI Appraisers shall meet and a majority of the
MAI Appraisers shall attempt to determine the fair market value of the Property.
If a majority are unable to determine the fair market value at such meeting, the
three appraisals shall be added together and their total divided by three. The
resulting quotient shall be the fair market value of the Property. If, however,
either or both of the low appraisal or the high appraisal are more than ten
percent (10%) lower or higher than the middle appraisal, any such lower or
higher appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by two,
and the resulting quotient shall be such fair market value. If both the lower
appraisal and higher appraisal are disregarded as provided herein, the middle
appraisal shall be such fair market value. In any event, the result of the
foregoing appraisal process shall be final and binding.
For purposes hereof, "MAI Appraiser" shall mean an appraiser
licensed or otherwise qualified to do business in the State where the Property
is located and who has substantial experience in performing appraisals of
facilities similar to the Property and is certified as a member of the American
Institute of Real Estate Appraisers or certified as a SRPA by the Society of
Real Estate Appraisers, or, if such organizations no longer exist or certify
appraisers, such successor organization or such other organization as is
approved by Optionee.
<PAGE>
================================================================================
LEASE AGREEMENT
[MINIMUM RENT LEASE]
[LANDLORD]
as
Landlord
and
[TENANT]
as
Tenant
Dated as of _________, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE...............................................................1
RECITALS...............................................................1
ARTICLE I..............................................................1
INTERPRETATION AND DEFINITIONS...................................1
ARTICLE II.............................................................11
PROPERTY AND TERM................................................11
2.1 Property............................................11
2.2 Initial Term........................................12
2.3 Extended Terms......................................12
ARTICLE III............................................................13
RENT.............................................................13
3.1 Rent................................................13
3.2 Escalation of Minimum Rent..........................13
3.2.1 Incremental Minimum Rent..................13
3.2.2 Record-keeping............................14
3.2.3 Audits....................................14
3.3 [INTENTIONALLY DELETED].............................14
3.4 Additional Rent.....................................14
3.5 Late Payment of Rent................................15
3.5 Net Lease...........................................15
3.6 Income and Expense Prorations.......................15
3.7 Best Efforts to Maximize Facility Revenues..........15
ARTICLE IV.............................................................16
IMPOSITIONS......................................................16
4.1 Payment of Impositions..............................16
4.2 Information and Reporting...........................16
4.3 Assessment Challenges...............................16
4.4 Prorations; Payment in Installments.................17
4.5 Refunds.............................................17
4.6 Utility Charges.....................................17
4.7 Assessment Districts................................17
ARTICLE V..............................................................17
TENANT WAIVERS...................................................17
5.1 No Termination or Abatement.........................17
5.2 Condition of Leased Property........................18
ARTICLE VI.............................................................19
OWNERSHIP OF PROPERTY............................................19
6.1 Leased Property.....................................19
6.2 Tenant's Personal Property..........................20
6.3 Purchase of Tenant's Personal Property..............20
6.4 Removal of Personal Property........................21
i
<PAGE>
6.5 Landlord's Personal Property........................21
ARTICLE VII............................................................21
USE OF PROPERTY..................................................21
7.1 Permitted Use.......................................21
7.1.1 Primary Intended Use......................21
7.1.2 Necessary Approvals.......................22
7.1.3 Continuous Operation......................22
7.1.4 Lawful Use................................22
7.2 Compliance with Medicaid and Medicare Requirements..23
7.3 Environmental Matters...............................23
7.4 Landlord to Grant Easements.........................24
7.5 Management Agreements...............................24
ARTICLE VIII...........................................................25
SECURITY FOR LEASE OBLIGATIONS...................................25
8.1 Security Deposit....................................25
8.2 Guarantee...........................................25
ARTICLE IX.............................................................26
HAZARDOUS MATERIALS..............................................26
9.1 Remediation.........................................26
9.2 Tenant's Indemnification of Landlord................26
9.3 Survival of Indemnification Obligations.............27
9.4 Environmental Violations at Expiration or
Termination of Lease...............................27
ARTICLE X..............................................................27
MAINTENANCE AND REPAIR...........................................27
10.1 Tenant's Maintenance and Repair Obligation.........27
10.2 Waiver of Statutory Obligations....................28
10.3 Mechanic's Liens...................................28
10.4 Surrender of Property..............................28
10.5 Required Capital Expenditures......................29
10.5.1 Required Years; Required Amounts;
Permitted Expenditures..................29
10.5.2 Payment Provisions.......................29
10.5.3 No Liability of Landlord.................29
ARTICLE XI.............................................................29
TENANT IMPROVEMENTS..............................................29
11.1 Tenant's Right to Construct........................29
11.2 Construction.......................................31
11.3 Scope of Tenant's Right............................32
11.4 Cooperation of Landlord............................32
11.5 Rights in Tenant Improvements......................33
ARTICLE XII............................................................33
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS.....................33
12.1 Liens..............................................33
12.2 Encroachments and Other Title Matters..............34
ii
<PAGE>
ARTICLE XIII.................................................................34
PERMITTED CONTESTS.....................................................34
ARTICLE XIV..................................................................36
INSURANCE..............................................................36
14.1 General Insurance Requirements...........................36
14.1.1 All Risk.......................................36
14.1.2 Liability......................................36
14.1.3 Flood..........................................37
14.1.4 Worker's Compensation..........................37
14.1.5 Business Interruption..........................37
14.1.6 Builder's Risk.................................37
14.1.7 Boiler and Machinery...........................37
14.1.8 Earthquake.....................................37
14.1.9 Environmental Impairment.......................37
14.1.10 Subsidence....................................38
14.1.11 Other Insurance...............................38
14.2 Replacement Cost.........................................38
14.3 Waiver of Subrogation....................................38
14.4 Insurance Company Satisfactory...........................38
14.5 Change in Limits.........................................39
14.6 Blanket Policy...........................................39
ARTICLE XV...................................................................40
APPLICATION OF INSURANCE PROCEEDS......................................40
15.1 Insurance Proceeds.......................................40
15.1.1 Disbursement of Proceeds.......................40
15.1.2 Excess Proceeds................................41
15.2 Reconstruction Covered by Insurance......................42
15.2.1 Destruction Rendering Facility
Unsuitable for its Primary Intended Use.......42
15.2.2 Destruction Not Rendering Facility
Unsuitable for its Primary Intended Use........42
15.2.3 Costs of Repair................................43
15.3 No Abatement of Rent.....................................43
15.4 Waiver...................................................43
15.5 Damage Near End of Term..................................43
ARTICLE XVI..................................................................44
CONDEMNATION...........................................................44
16.1 Total Taking.............................................44
16.2 Partial Taking...........................................44
16.3 Restoration..............................................44
16.4 Award Distribution.......................................44
16.5 Temporary Taking.........................................45
ARTICLE XVII.................................................................45
EVENTS OF DEFAULT......................................................45
17.1 Events of Default........................................45
iii
<PAGE>
17.2 Payment of Costs.........................................47
17.3 Certain Remedies.........................................48
17.4 Damages..................................................48
17.5 Additional Remedies......................................49
17.6 Appointment of Receiver..................................49
17.7 WAIVER...................................................49
17.8 Application of Funds.....................................49
17.9 Impounds.................................................49
ARTICLE XVIII................................................................50
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT..............................50
ARTICLE XIX..................................................................50
LEGAL REQUIREMENTS.....................................................50
ARTICLE XX...................................................................51
HOLDING OVER...........................................................51
ARTICLE XXI..................................................................51
RISK OF LOSS...........................................................51
21.1 Risk of Loss.............................................51
21.2 Unavoidable Events.......................................52
ARTICLE XXII.................................................................52
INDEMNIFICATION........................................................52
22.1 Tenant's Indemnification of Landlord.....................52
22.2 Landlord's Indemnification of Tenant.....................53
22.3 Mechanics of Indemnification.............................53
22.4 Survival of Indemnification Obligations..................54
ARTICLE XXIII................................................................54
SUBLETTING AND ASSIGNMENT..............................................54
23.1 Prohibition Against Subletting and Assignment............54
23.2 Changes of Control.......................................54
23.3 Subleases................................................55
23.3.1 Permitted Subleases............................55
23.3.2 Terms of Sublease..............................55
23.3.3 Copies.........................................56
23.3.4 Assignment of Rights in Subleases..............56
23.3.5 Licenses.......................................56
23.4 Assignment...............................................57
23.4.1 Financial Condition of Assignee................57
23.4.2 Assignment to Affiliate........................57
23.4.3 Assignment in Bankruptcy.......................58
23.4.4 Adequate Assurance of Future Performance.......58
23.4.5 Disaffirmance or Rejection.....................58
23.4.6 Costs..........................................58
23.4.7 No Release of Tenant's Obligation..............59
ARTICLE XXIV.................................................................59
ESTOPPEL CERTIFICATES AND OTHER STATEMENTS.............................59
24.1 Estoppel Certificates....................................59
iv
<PAGE>
24.1.1 Estoppel Certificate of Tenant..................59
24.1.2 Estoppel Certificate of Landlord................60
24.2 Financial Statements of Tenant............................61
24.2.1 Quarterly Financial Statements..................61
24.2.2 Annual Financial Statements.....................61
24.3 Environmental Statements..................................61
24.4 Charges...................................................61
ARTICLE XXV...................................................................62
LANDLORD MORTGAGES......................................................62
25.1 Landlord May Grant Liens..................................62
25.2 Tenant's Non-Disturbance Rights; Attornment...............62
25.3 Breach by Landlord........................................62
25.4 Facility Mortgage Protection..............................63
ARTICLE XXVI..................................................................63
TENANT'S RIGHT OF FIRST REFUSAL.........................................63
26.1 Right of First Refusal....................................63
26.1.1 Landlord's Original Notice......................63
26.1.2 Tenant's Original Offer and Right to Purchase...63
26.1.3 Sale or Lease by Landlord.......................65
ARTICLE XXVII.................................................................65
MISCELLANEOUS...........................................................65
27.1 Landlord's Right to Inspect...............................65
27.2 No Waiver.................................................65
27.3 Remedies Cumulative.......................................66
27.4 Acceptance of Surrender...................................66
27.5 No Merger of Title........................................66
27.6 Conveyance by Landlord....................................66
27.7 Quiet Enjoyment...........................................66
27.8 Notices...................................................67
27.9 Survival of Claims........................................68
27.10 Invalidity of Terms or Provisions........................68
27.11 Prohibition Against Usury................................68
27.12 Amendments to Lease......................................68
27.13 Successors and Assigns...................................68
27.14 Titles...................................................69
27.15 Governing Law............................................69
27.16 Memorandum of Lease......................................69
27.17 Attorneys' Fees..........................................69
27.18 Non-Recourse as to Landlord..............................69
27.19 No Relationship..........................................70
27.20 Signs; Reletting.........................................70
27.21 Facility Names...........................................70
27.22 Further Assurances.......................................70
27.23 Arbitration..............................................71
v
<PAGE>
EXHIBIT A Form of Lease
EXHIBIT B [INTENTIONALLY DELETED]
EXHIBIT C Appraisal Process
EXHIBIT D Form of Guarantee
EXHIBIT E [INTENTIONALLY DELETED]
EXHIBIT F Arbitration
<PAGE>
LEASE AGREEMENT
---------------
PREAMBLE
--------
THIS LEASE AGREEMENT (the "Lease"), dated as of __________,
1998, is made and entered into by and between ____________________
___________________ ("Landlord"), and [TENANT], a ____________________
("Tenant").
RECITALS
--------
WHEREAS, Landlord owns the Leased Property (as defined below);
WHEREAS, Tenant wishes to lease from Landlord the Leased
Property for the purpose of operating the Facility (as defined below) on the
Leased Property;
NOW, THEREFORE, in consideration of the foregoing, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant agree as follows:
ARTICLE I
---------
INTERPRETATION AND DEFINITIONS
------------------------------
For all purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article I shall have the meanings assigned to them in this Article I and include
the plural as well as the singular, (ii) all accounting terms not otherwise
defined herein shall have the meaning assigned to them in accordance with
generally accepted accounting principles consistently applied, (iii) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and subdivisions of this
Lease and (iv) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Lease as a whole and not to any particular Article,
Section or other subdivision.
<PAGE>
Additional Rent: As defined in Section 3.4.
Affiliate: As applied to any Person, means any other Person
directly or indirectly Controlling, Controlled by, or under common Control with,
that Person.
[Affiliated Party Subordination Agreement: That certain
Affiliated Party Subordination Agreement of even date herewith by and among
Tenant, the Guarantor and Landlord.]
Award: Means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
Bankruptcy Code: As defined in Section 23.4.3.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, are
authorized, or obligated, by law or executive order, to close.
Change of Control: As defined in Section 23.2.
Code: Means the Internal Revenue Code of 1986, as amended.
Commencement Date: Means _________________________________.
Condemnation: Means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, and (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
[Condemnation Threshold: Means __________________________.]
Condemnor: Means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
Control: Means (including, with correlative meanings, the
terms "Controlling" and "Controlled by"), as applied to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise.
CPI: Means, as of any date, the current United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index, United
States Average, "All Items" (1982-84=100); provided, however, that if
compilation of the CPI is discontinued or transferred to any other governmental
department or bureau, then the index most nearly the same as the CPI shall be
used as reasonably chosen by Landlord. No delay by Landlord in providing notice
of the CPI applicable at any time shall be deemed a waiver of Landlord's right
to apply the CPI in respect of any Cumulative CPI Adjustment to be made under
this Lease.
2
<PAGE>
Cumulative CPI: Means, for any period, the CPI as of the last
day of such period divided by the CPI as of the first day of such period.
Cumulative CPI Adjustment: Means, with respect to any amount
at the end of any period, such amount multiplied by the Cumulative CPI for such
period.
Date of Taking: Means the date the Condemnor has the right to
possession of the property being condemned.
Earnest Money: As defined in Section 26.1.3.
Environmental Law: Means all applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, common law, orders, demands,
approvals, authorizations and similar items of all governmental agencies,
departments, commissions, boards, bureaus or instrumentalities of the United
States, states and political subdivisions thereof and all applicable judicial,
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment as in effect on the date hereof or
as later amended, including but not limited to those pertaining to reporting,
licensing, permitting, investigation, removal and remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials, into the
air, surface water, ground water or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, including: (x) the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss.ss. 9601 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.), the
Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. ss. 1251 et seq.), the Safe Drinking Water Act (42 U.S.C.
ss.ss. 300f et seq.), the Toxic Substances Control Act (15 U.S.C. ss.ss. 2601 et
seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss.ss.
11001 et seq.), and the regulations implementing these statutes and (y)
analogous state and local provisions.
Environmental Reports: As defined in Section 26.1.2.
Event of Default: As defined in Section 17.1.
Excess Amount: As defined in Section 10.5.2.
Expended Amount: As defined in Section 10.5.2.
3
<PAGE>
Extended Term: As defined in Section 2.3.
Extended Term Commencement Date: As defined in Section 2.3.
Facility: The [assisted living] facility to be operated on the
Leased Property, commonly known as ____________________.
Facility Mortgage: As defined in Section 14.1.
Facility Mortgagee: Means the holder or beneficiary of a
Facility Mortgage, if any, and only to the extent Landlord gives Tenant notice
of the identity and address of the Person.
Facility Revenues: Means, with respect to the Facility, all
revenues (determined in accordance with generally accepted accounting principles
applied on a consistent basis, except as provided below) whether or not directly
or indirectly received or receivable from or by reason of the operation of the
Facility, including, without limitation, all resident or client revenues
received or receivable for the use of or otherwise by reason of all rooms, beds
and other facilities provided, meals served, services performed or provided
(including, without limitation, personal care and nursing when provided by an
employee of Tenant), space or facilities subleased or goods sold at or from the
Facility, or any other use of the Leased Property, including, without
limitation, subleases, licenses or any other arrangements with third parties
relating to the possession or use of any portion of the Facility; provided,
however, that Facility Revenues shall not include:
(a) revenues from professional fees or charges by
physicians and all providers of ancillary services,
including without limitation, physical therapy
services, whether or not such providers are employees
of Tenant;
(b) non-operating revenues such as interest income or
income from the sale of assets not sold in the
ordinary course of business;
(c) federal, state or local excise taxes imposed
upon, and any tax based upon or measured by, such
revenues which is added to or made a part of the
amount billed to the resident, client or other
recipient of such services or goods, whether included
in the billing or stated separately;
(d) contractual allowances (relating to any period
during the Term) for billings not paid by or received
from the appropriate governmental agencies or third
party providers; and
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(e) all proper patient billing credits and
adjustments (including, without limitation,
allowances for uncollectable accounts) according to
generally accepted accounting principles relating to
health care accounting.
Fiscal Quarter: The three-month periods (or applicable
portions thereof) in any Fiscal Year from January 1 through March 31, April 1
through June 30, July 1 through September 30 and October 1 through December 31.
Fiscal Year: Each twelve-month period from October 1 through
September 30.
Fixtures: Means all permanently affixed equipment, machinery,
fixtures, and other items of real or personal property, including all components
thereof, now and hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Leased Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
kitchen equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which, to the greatest extent permitted by law, are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's Personal Property.
Full Replacement Cost: Means the actual replacement cost
thereof from time to time including increased cost of construction endorsement,
less exclusions provided in the normal fire insurance policy.
GAAP: Means generally accepted accounting principles.
Guarantee: Means the Guarantee of even date herewith executed
by Guarantor in favor of Landlord, the form of which is attached hereto as
Exhibit D.
Guarantor: Means Genesis Health Ventures, Inc., a Pennsylvania
corporation, and its successors and assigns.
Hazardous Materials: Means any substances, pollutants,
contaminants, materials or wastes, whether solid, liquid or gaseous in nature
(including, without limitation, any medical waste):
(i) the presence of which requires investigation or
remediation under any federal, state or local
statute, regulation, ordinance, order, action or
policy, administrative request or civil complaint
under any of the foregoing or under common law;
(ii) which is defined as a "hazardous waste,"
"pollutant or contaminant" or "hazardous substance"
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under any federal, state or local statute, regulation
or ordinance or amendments thereto as in effect as of
the Commencement Date, or as thereafter amended,
including the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss.ss. 9601
et seq.) or the Resource Conservation and Recovery
Act (42 U.S.C. ss.ss. 6901 et seq.);
(iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and as of the
Commencement Date, or as thereafter amended, is
regulated by any governmental authority, agency,
department, commission, board, or instrumentality of
the United States, or any state or any political
subdivision thereof having or asserting jurisdiction
over the Leased Property;
(iv) the presence of which on the Leased Property
causes or threatens to cause a nuisance upon the
Leased Property or to other properties or poses a
hazard to the health or safety of persons on or about
the Leased Property;
(v) which, except as contained in building materials,
contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or
friable asbestos or friable asbestos-containing
materials or urea formaldehyde foam insulation; or
(vi) radon gas.
Impartial Appraiser: As defined in Section 14.2.
Impositions: Means collectively:
(a) all taxes (including all real and personal
property, ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or
similar taxes);
(b) assessments and levies (including all assessments
for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and
whether or not to be completed within the Term);
(c) excises;
(d) fees (including license, permit, inspection,
authorization and similar fees); and
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(e) all other governmental charges;
in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property, the business conducted thereon by Tenant or the Rent payable
with respect thereto (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time during or in respect of the
Term hereof may be assessed or imposed on or in respect of or be a lien upon (i)
Landlord or Landlord's interest in the Leased Property; (ii) the Leased Property
or any part thereof or any rent therefrom or any estate, right, title or
interest therein; or (iii) any operation, use or possession of, or sales from or
activity conducted on or in connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof; provided, however, that
Impositions shall not include:
(aa) any tax based on net income (whether denominated
as an income, franchise, capital stock or other tax)
imposed on Landlord or any other Person other than
Tenant;
(bb) any transfer, or net revenue tax of
Landlord or any other Person other than Tenant;
(cc) any tax imposed solely with respect to the sale,
exchange or other disposition by Landlord of the
Leased Property or the proceeds thereof; or
(dd) any tax imposed with respect to any principal or
interest on any indebtedness on the Leased Property.
Impound Charges: As defined in Section 17.9.
Impound Payment: As defined in Section 17.9.
Incremental Facility Revenues: Means, with respect to any
Lease Year, the Facility Revenues for such Lease Year minus the Facility
Revenues for the immediately preceding Lease Year.
Incremental Minimum Rent: Means, with respect to any Lease
Year, the lesser of (i) five percent (5%) times the Incremental Facility
Revenues determined with respect to such Lease Year or (ii) one-half of the
increase in CPI during such Lease Year times the Minimum Rent payable with
respect to such Lease Year.
Initial Term: As defined in Section 2.2.
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Insurance Requirements: All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
Land: As defined in Section 2.1.
Landlord: As defined in the Preamble.
Landlord's Encumbrance: As defined in Section 25.1.
Landlord's Original Notice: As defined in Section 26.1.2.
Landlord's Personal Property: As defined in Section 2.1.
Lease: As defined in the Recitals.
Leased Improvements: As defined in Section 2.1.
Leased Property: As defined in Section 2.1.
Lease Year: Means each period of one (1) year that commences
on the Commencement Date (or anniversary thereof) and ends on the day
immediately prior to the next anniversary of the Commencement Date.
Legal Requirements: All federal, state, county, municipal and
other governmental statutes, laws (including the Americans with Disabilities Act
and any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Tenant (other than
encumbrances created by Landlord without the consent of Tenant), at any time in
force affecting the Leased Property; or (iii) require the cleanup or other
treatment of any Hazardous Material.
MAI Appraiser: As defined in Exhibit C.
Management Agreement: Any agreement, whether written or oral,
between Tenant and any other Person pursuant to which Tenant provides any
payment, fee or other consideration to any other Person to operate or manage the
Facility.
Manager: Means any Person having at least _____ years
experience in the management of _____ living facilities of at least similar size
and quality to the Facility that manages the Facility in accordance with the
terms hereof.
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Memorandum of Lease: As defined in Section 27.16.
Minimum Rent: Means, for any Lease Year, the Minimum Rent
payable with respect to the immediately preceding Lease Year plus the
Incremental Minimum Rent determined with respect to the immediately preceding
Lease Year; provided, however, that the Minimum Rent payable for the first Lease
Year commencing on the Commencement Date and ending on the first anniversary of
the Commencement Date shall be __________ ($_________), and provided further,
however, that the Minimum Rent payable during the second Lease Year shall be ($
) plus the Incremental Minimum Rent, if any, determined with respect to the
first Lease Year.
Occupancy Rate: Means for a given period, the average daily
occupancy rate for beds or units, as applicable, at the Facility during such
period, expressed as a percentage.
Officer's Certificate: A certificate of Tenant signed by an
officer authorized to so sign by the board of directors or bylaws.
Original Lease Terms: As defined in Section 26.1.1.
Original Notice Delivery Date: As defined in Section 26.1.2.
Original Purchase Price: As defined in Section 26.1.1.
Overdue Rate: On any date, a rate equal to the Prime Rate on
such date plus two percent (2%), but in no event greater than the maximum rate
then permitted under applicable law.
Pending Contract: As defined in Section 26.1.3.
Permitted Expenditure: As defined in Section 10.5.1.
Person: Means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
Primary Intended Use: As defined in Section 7.1.1.
Prime Rate: On any date, a rate equal to the annual rate on
such date announced by Citibank, N.A. to be its prime rate or base rate for
ninety (90) day unsecured loans to its corporate borrowers of the highest credit
standing.
Quarter: Means, during each Lease Year, the first three (3)
calendar-month period commencing on the first (1st) day of such Lease Year and
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each subsequent three (3) calendar-month period within such Lease Year;
provided, however, that the last Quarter during the Term may be a period of less
than three (3) calendar months and shall end on the last day of the Term.
Registered Offering: As defined in Section 23.2.
Related Rights: As defined in Section 2.1.
Rent: Collectively, Minimum Rent and Additional Rent, each as
defined in Article III.
Required Amount: Means ____________________.
Required Period: As defined in Section 10.5.2.
Required Year: As defined in Section 10.5.1.
Right of First Refusal Terms: As defined in Section 26.1.2.
Rules: As defined in Exhibit F.
Sale Activity: As defined in Section 26.1.3.
Security Deposit. As defined in Section 8.1.
Simultaneous Leases: Means the Leases set forth on Schedule 3
hereto.
State: The State or Commonwealth in which the Leased Property
is located.
Tenant: As defined in the Preamble.
Tenant Improvement: As defined in Section 11.1.
Tenant-Owned Name: As defined in Section 27.21.
Tenant's Original Offer: As defined in Section 26.1.2.
Tenant's Personal Property: All machinery, equipment, furniture,
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Tenant and used or useful in Tenant's business on the Leased Property,
including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, flatware, lawn mowers and other gardening tools,
and tractors and other motorized vehicles.
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Term: Collectively, the Initial Term and the Extended Terms,
as the context may require, unless earlier terminated pursuant to the provisions
hereof.
Third MAI Appraiser: As defined in Exhibit C.
Title Commitment: That certain Commitment for Owners Title
Insurance No. _______ dated ______________ issued by Commonwealth Land Title
Insurance Company, and any and all amendments and endorsements thereto.
Title Company: As defined in Section 26.1.2.
Title Insurance: As defined in Section 26.1.2.
Unavoidable Delays: Delays due to strikes, lockouts, inability
to procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or other causes beyond
the control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto perform any obligations of such party under this Lease.
Unavoidable Event: As defined in Section 21.2.
Unsuitable For Its Primary Intended Use: A state or condition
of the Facility such that in the good faith judgment of Tenant, reasonably
exercised, the Facility cannot be operated on a commercially practicable basis
for its Primary Intended Use.
ARTICLE II
----------
PROPERTY AND TERM
-----------------
2.1 Property.
Upon and subject to the terms and conditions set forth in this
Lease, Landlord leases to Tenant and Tenant leases from Landlord all of the
following (collectively the "Leased Property"):
(a) that certain tract, piece and parcel of land, as more
particularly described on Schedule 2 hereto (the "Land");
(b) all buildings, structures, Fixtures and other improvements
of every kind now or hereafter located on the Land including,
but not limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land
including any Tenant Improvements (collectively, the "Leased
Improvements");
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(c) all easements, rights and appurtenances relating to the
Land and the Leased Improvements (collectively, the "Related
Rights");
(d) all personal property, if any, owned by Landlord and
located on the Leased Property ("Landlord's Personal
Property"); and
(e) all existing leases of space (including any security
deposits held by Tenant pursuant thereto) in the Leased
Improvements to tenants thereof.
2.2 Initial Term.
The initial term of each Lease shall commence on the
applicable Commencement Date and shall expire on the tenth anniversary of such
Commencement Date (the "Initial Term").
2.3 Extended Terms.
Provided that no (i) Event of Default shall have occurred and
be continuing, (ii) the Lease shall be in full force and effect and (iii) the
tenant under each Simultaneous Lease shall have simultaneously exercised its
option to extend the term of the Simultaneous Lease to which it is a party
(other than Simultaneous Leases that have been terminated in accordance with the
provisions thereof, or by the mutual agreement of landlord and tenant
thereunder, Tenant shall have the right to extend the Term for up to two
consecutive extended terms of five years each (each, an "Extended Term").
Each Extended Term shall commence on the day succeeding the
expiration of the Initial Term or the preceding Extended Term therefor, as the
case may be (any such day, an "Extended Term Commencement Date"), and shall
expire on the day prior to the fifth (5th) anniversary of such Extended Term
Commencement Date. For any Extended Term, the Minimum Rent shall be the fair
market rental value of the Leased Property for such Extended Term determined in
accordance with Exhibit C attached hereto. All of the other terms, conditions,
covenants and provisions of this Lease Document shall apply for such Extended
Term. If Tenant shall elect to exercise any of the aforesaid extensions, Tenant
shall do so by giving Landlord notice therefor not later than twelve (12) months
prior to the expiration of the then current Term, it being agreed that time is
of the essence with respect to the giving of such notice. Tenant may not
exercise this extension right with respect to more than one Extended Term at a
time. If Tenant shall fail to give any such notice, this Lease shall
automatically terminate at the end of the then current Term, and Tenant shall
have no further right to extend the Term of this Lease. If Tenant shall give
such notice, the extension
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of the Lease shall be automatically effected without the execution of any
additional documents; it being understood and agreed, however, that Tenant and
Landlord shall execute such documents and agreements as either party shall
reasonably require to evidence the same.
ARTICLE III
RENT
3.1 Rent.
Tenant shall pay to Landlord, in lawful money of the United
States of America, which shall be legal tender for the payment of public and
private debts, without offset, abatement, demand or reduction, Minimum Rent (as
defined below), and Additional Rent (as defined below) during the Term as
hereinafter provided. Payment of Rent during the Term shall be made at
Landlord's address set forth in Section 27.8 or at such other place or to such
other Person as Landlord from time to time may designate in writing. If any
payment owing hereunder shall otherwise be due on a day that is not a Business
Day, such payment shall be due on the next succeeding Business Day. All payments
to Landlord shall be made by corporate check, certified check, wire transfer of
immediately available funds or by such other method acceptable to Landlord in
its sole discretion.
3.2 Escalation of Minimum Rent.
Minimum Rent shall be payable in twelve equal monthly
installments on or before the fifth (5th) Business Day of each month.
3.2.1 Incremental Minimum Rent.
Within ninety (90) days after the end of each Lease Year,
Tenant shall deliver to Landlord an Officer's Certificate setting forth for the
Facility (i) the Occupancy Rate for such Lease Year, (ii) on an audited basis,
the Facility Revenues for the Lease Year just ended and for the immediately
preceding Lease Year, (iii) the CPI as of the first and last days of such Lease
Year and (iv) the Incremental Minimum Rent with respect to the Lease Year just
ended. If the Incremental Minimum Rent determined with respect to the Lease Year
just ended is greater than zero, Tenant shall immediately pay to Landlord the
excess of the Minimum Rent payable with respect to the current Lease Year up to
and including the date of such Officer's Certificate after giving effect to the
Incremental Minimum Rent with respect to the Lease Year just ended as set forth
in such Officer's Certificate over the amount actually paid as Minimum Rent with
respect to such period as Additional Rent in accordance with the provisions of
Section 3.3.
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3.2.2 Record-keeping.
Tenant shall utilize an accounting system for the Leased
Property in accordance with its usual and customary practices and in accordance
with GAAP (applied on a basis consistent with all of the properties subject to
Simultaneous Leases) which will accurately record all Facility Revenues. Tenant
shall retain reasonably adequate records for each Lease Year conforming to such
accounting system until at least five years after the expiration of such Lease
Year.
3.2.3 Audits.
Landlord, at its own expense except as provided herein, shall
have the right, but not the obligation, from time to time directly or through
its accountants to audit the information set forth in the Officer's Certificate
referred to in Section 3.2.1 and in connection with such audits to examine
Tenant's books and records with respect thereto (including supporting data,
sales tax returns and Tenant's work papers). If any such audit discloses a
deficiency in the payment of Minimum Rent, Tenant shall forthwith pay to
Landlord the amount of the deficiency, as finally agreed or determined, together
with interest at the Overdue Rate from the date when said payment should have
been made to the date of payment thereof. If any such audit discloses that the
Facility Revenues actually received by Tenant for any Lease Year exceeds the
Facility Revenues reported by Tenant by more than four percent (4%), Tenant
shall pay the reasonable cost of such audit and examination.
3.3 [INTENTIONALLY DELETED].
3.4 Additional Rent.
In addition to Minimum Rent, (1) Tenant shall also pay and
discharge when due and payable any amounts owing under Section 3.2.1 above and
all other amounts, liabilities, obligations and Impositions which Tenant assumes
or agrees to pay under this Lease, and (2) in the event of any failure on the
part of Tenant to pay any of those items referred to in clause (1) above, Tenant
shall also pay and discharge every fine, penalty, interest and cost which may be
added for non-payment or late payment of such items (the items referred to in
clauses (1) and (2) above being referred to herein collectively as the
"Additional Rent"). Except for payments of amounts owing under Section 3.2.1
above which are due immediately upon determination thereof, and except as
otherwise provided in this Lease, all Additional Rent shall be due and payable
ten (10) days after either Landlord or the applicable third party who may be
billing Tenant therefor shall deliver an invoice to Tenant therefor or, if
earlier, the due date set forth in such notice. To the extent that Tenant pays
any Additional Rent to Landlord pursuant to any requirement of this Lease,
Tenant shall be relieved of its obligation to pay such Additional Rent to the
entity to which they would otherwise be due.
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3.5 Late Payment of Rent.
Tenant hereby acknowledges that late payment by Tenant to
Landlord of Minimum Rent or Additional Rent will cause Landlord to incur costs
not contemplated under the terms of this Lease, the exact amount of which is
presently anticipated to be extremely difficult to ascertain. Such costs may
include processing and accounting charges and late charges which may be imposed
on Landlord by the terms of any mortgage or deed of trust covering the Leased
Property and other expenses of a similar or dissimilar nature. Accordingly, if
any installment of Minimum Rent or Additional Rent (but only as to those items
of Additional Rent which are payable directly to Landlord) shall not be paid
within five (5) Business Days after its due date, Tenant will pay Landlord on
demand, as Additional Rent, a late charge equal to five percent (5%) of such
installment. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. In addition, if any installment of Minimum Rent or Additional
Rent (but only as to those items of Additional Rent which are payable directly
to Landlord) shall not be paid on its due date, the amount unpaid shall bear
interest, from the due date of such installment to the date of payment thereof,
computed at the Overdue Rate on the amount of such installment, and Tenant will
pay such interest to Landlord on demand, as Additional Rent. The payment of said
late charge or such interest shall not constitute a waiver, nor excuse or cure,
of any default under this Lease, nor prevent Landlord from exercising any other
rights and remedies available to Landlord.
3.5 Net Lease.
The Rent shall be paid absolutely net to Landlord and, except
as expressly provided in Article XV and Article XVI, without notice or demand
and without set-off, counterclaim, recoupment, abatement, suspension, determent,
deduction or defense, so that this Lease shall yield to Landlord the full amount
of the installments of Minimum Rent and Additional Rent throughout the Term, all
as more fully set forth in Article V.
3.6 Income and Expense Prorations.
Income and expense items received or paid with respect to the
period in which the Term terminates shall be adjusted and prorated between
Landlord and Tenant as of the date the Term terminates.
3.7 Best Efforts to Maximize Facility Revenues.
Tenant hereby covenants and agrees that the operation of each
Facility shall be conducted in a manner consistent with the prevailing standards
and practices recognized in the health care industry as those customarily
utilized by first-class business operations. Subject to any applicable Legal
Requirements, Tenant shall use its best efforts to maximize the Facility
Revenues for the Facility, and to that end, (i) Tenant shall maintain or cause
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to be maintained a full staff of employees at the Facility and (ii) a maximum
amount of space in the Facility shall be devoted to revenue producing activities
and only such part thereof shall be devoted for office, storage and non-revenue
producing purposes as shall be reasonably necessary.
ARTICLE IV
----------
IMPOSITIONS
-----------
4.1 Payment of Impositions.
Subject to Section 17.9, Tenant will pay, or cause to be paid,
all Impositions before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing authorities where
feasible. All payments of Impositions shall be subject to Tenant's right of
contest pursuant to the provisions of Article XIII. Tenant shall promptly
furnish to Landlord copies of official receipts, if available, or other
satisfactory proof evidencing such payments, such as canceled checks.
4.2 Information and Reporting.
Landlord shall give prompt notice to Tenant of all Impositions
payable by Tenant hereunder of which Landlord at any time has knowledge, but
Landlord's failure to give any such notice shall in no way diminish Tenant's
obligations hereunder to pay such Impositions. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and reports. In the event any applicable
governmental authorities classify any property covered by this Lease as personal
property, Tenant shall file all personal property tax returns in such
jurisdictions where it must legally so file and shall pay all associated
personal property taxes. Each party, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property.
4.3 Assessment Challenges.
In addition to Tenant's rights under Article XIII but subject
to the requirements thereof, Tenant may, upon notice to Landlord, at Tenant's
option and at Tenant's sole cost and expense, protest, appeal, or institute such
other proceedings as Tenant may deem appropriate to effect a reduction of real
estate or personal property assessments and Landlord, at Tenant's expense as
aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other
action.
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4.4 Prorations; Payment in Installments.
Impositions imposed in respect of the tax-fiscal period during
which the Term terminates shall be adjusted and prorated between Landlord and
Tenant, whether or not such Imposition is imposed before or after such
termination, and Tenant's obligation to pay its prorated share thereof shall
survive such termination. If any Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Tenant may elect to pay in installments, in
which event Tenant shall pay all installments (and any accrued interest on the
unpaid balance of the Imposition) that are due during the Term hereof before any
fine, penalty, premium, further interest or cost may be added thereto.
4.5 Refunds.
If any refund shall be due from any taxing authority in
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default shall
be applied as provided in Article XVII.
4.6 Utility Charges.
Tenant shall pay or cause to be paid prior to delinquency
charges for all utilities and services, including, without limitation,
electricity, telephone, trash disposal, gas, oil, water, sewer, communication
and all other utilities used in the Leased Property during the Term.
4.7 Assessment Districts.
Neither party shall voluntarily consent to or agree in writing
to (i) any special assessment or (ii) the inclusion of any material portion of
any of the Leased Property into a special assessment district or other taxing
jurisdiction unless the other party shall have consented thereto, which consent
shall not be unreasonably withheld.
ARTICLE V
---------
TENANT WAIVERS
--------------
5.1 No Termination or Abatement
Except as otherwise specifically provided in this Lease, to
the extent permitted by law, (i) Tenant shall remain bound by this Lease in
accordance with its terms and shall neither take any action without the consent
of Landlord to modify, surrender or terminate this Lease nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against the
Rent by reason of, and (ii) the respective obligations of Landlord and Tenant
shall not be otherwise affected by reason of:
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(a) any damage to, or destruction of, the Leased Property or
any portion thereof caused primarily by the actions,
omissions, negligence or intentional misconduct of Tenant;
(b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use or occupancy of the Leased Property, or any
portion thereof, caused primarily by the actions, omissions,
negligence or intentional misconduct of Tenant; or
(c) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee
of Landlord.
Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
(i) to modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant under this Lease shall continue to be payable
in all events unless such obligations shall be terminated pursuant to the
express provisions of this Lease or by termination of this Lease other than by
reason of an Event of Default.
5.2 Condition of Leased Property.
Notwithstanding anything contained in this Lease to the
contrary (including without limitation, the provisions of Section 10.4 hereof),
Tenant acknowledges receipt and delivery of possession of the Leased Property
and that Tenant has examined or otherwise has knowledge of the condition of the
Leased Property prior to the execution and delivery of this Lease. Regardless,
however, of any inspection made by Tenant of the Leased Property and whether or
not any patent or latent defect or condition was revealed or discovered thereby,
Tenant is leasing the Leased Property "as is" in its present condition. Tenant
waives and releases any claim or action against Landlord in respect of the
condition of the Leased Property including any defects or adverse conditions
latent or patent, matured or unmatured, known or unknown by Tenant or Landlord
as of the date hereof. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS
LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR
SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS
OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, INCLUDING ANY WARRANTY OR
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REPRESENTATION AS TO (A) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE
OR PURPOSE, (B) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (C) THE
EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (D) VALUE, (E) COMPLIANCE WITH
SPECIFICATIONS, (F) LOCATION, (G) USE, (H) CONDITION, (I) MERCHANTABILITY, (J)
QUALITY, (K) DESCRIPTION, (L) DURABILITY, (M) OPERATION, (N) THE EXISTENCE OF
ANY HAZARDOUS MATERIAL OR (O) COMPLIANCE OF THE LEASED PROPERTY WITH ANY LAW
(INCLUDING ANY ENVIRONMENTAL LAW) OR LEGAL REQUIREMENTS. TENANT ACKNOWLEDGES
THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT
AND THAT TENANT IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR
LANDLORD'S AGENTS OR EMPLOYEES. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN THE
LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS BETWEEN LANDLORD AND
TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT
THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT
LIABILITY IN TORT), IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY
TENANT. THE PROVISIONS OF THIS SECTION 5.2 HAVE BEEN NEGOTIATED, AND ARE
INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD,
EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING
OTHERWISE. To the extent permitted by law, however, Landlord hereby assigns to
Tenant all of Landlord's rights to proceed against any predecessor in title for
breaches of warranties or representations or for latent defects in the Leased
Property. Landlord shall fully cooperate with Tenant in the prosecution of any
such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and
expense. Tenant shall indemnify, defend and hold harmless Landlord from and
against any loss, cost, damage or liability (including reasonable attorneys'
fees and expenses) incurred by Landlord in connection with such cooperation.
ARTICLE VI
----------
OWNERSHIP OF PROPERTY
---------------------
6.1 Leased Property.
Tenant acknowledges that the Leased Property is the property
of Landlord and that Tenant has only the right to the exclusive possession and
use of the Leased Property during the Term of and upon the terms and conditions
of this Lease. Subject to the provisions of Article XXV below, Landlord hereby
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represents and warrants to Tenant that as of the Commencement Date, Landlord has
good and marketable title to the Leased Property free and clear of all liens and
encumbrances, except for those encumbrances referenced on Schedule B to the
Title Commitment or other liens and encumbrances that would not materially
impair the use of the Leased Property for its Primary Intended Use.
6.2 Tenant's Personal Property.
Tenant may (and shall as provided below), at its expense,
install, affix or assemble or place on the Land or in any of the Leased
Improvements, any items of Tenant's Personal Property, and Tenant may, subject
to the conditions set forth in this Lease, remove the same upon the expiration
or any prior termination of the Term. Tenant shall provide and maintain during
the entire Term all such Tenant's Personal Property as shall be necessary in
order to operate the Facility in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use and in
accordance with its past practices.
6.3 Purchase of Tenant's Personal Property.
Upon the expiration or sooner termination of this Lease,
Landlord shall have the right (but not the obligation) to purchase from Tenant
all or any portion of tangible Tenant's Personal Property (which shall not
include software):
(i) if owned by Tenant and not subject to any secured
financing, at the fair market value thereof;
(ii) if owned by Tenant, but subject to a secured financing,
at the greater of the amount of the debt owing under such
financing and the fair market value thereof; and
(iii) if leased by Tenant and the applicable lease provides
for termination of the lease as to such property upon the
payment of a given sum, at the greater of the amount of the
payment so provided, and the fair market value thereof;
provided, that at Landlord's option and if the lessor of such
Tenant's Personal Property will permit Landlord to assume the
obligations under the applicable lease with respect to such
property (separate from the obligations under a master lease
if in effect), Tenant shall, upon the request of Landlord,
assign the applicable lease (or portion thereof) to Landlord.
Landlord may elect to purchase Tenant's Personal Property by
giving notice to Tenant not later than, as the case may be, ninety (90) days
prior to the expiration of this Lease or upon the termination of this Lease
following any Event of Default. Tenant shall transfer title to such property by
a bill of sale without warranty (except as to ownership) upon concurrent payment
in cash by Landlord.
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6.4 Removal of Personal Property.
All items of Tenant's Personal Property not removed by Tenant
within fourteen (14) days following the expiration or earlier termination of
this Lease shall be considered abandoned by Tenant and may, at Landlord's
discretion and without any obligation, be appropriated, sold, destroyed or
otherwise disposed of by Landlord without first giving notice thereof to Tenant
and without any payment to Tenant and without any obligation to account
therefor. Tenant shall, at its expense, restore the Leased Property to the
condition required by Article X, including repair of all damage to the Leased
Property caused by the removal of Tenant's Personal Property, whether effected
by Tenant or Landlord. Landlord shall not be responsible for any loss or damage
to Tenant's Personal Property, or any other property of Tenant, by virtue of
Landlord's removal thereof at any time subsequent to the fourteen (14) day
period provided for herein.
6.5 Landlord's Personal Property.
If Landlord has provided any Landlord's Personal Property with
respect to the Facility, Tenant shall maintain such property in the same manner
as Tenant maintains Tenant's Personal Property. Upon the loss, destruction, or
obsolescence of any of the Landlord's Personal Property, Tenant shall replace
such property with Tenant's Personal Property, which such property shall be
owned by Tenant but which shall nevertheless be deemed to be Landlord's Personal
Property for purposes of this Article VI.
ARTICLE VII
-----------
USE OF PROPERTY
---------------
7.1 Permitted Use.
7.1.1 Primary Intended Use.
Tenant shall, at all times during the Term, and at any other
time Tenant shall be in possession of the Leased Property, continuously use or
cause to be used the Leased Property as an appropriately licensed [assisted
living facility] and for such other uses as may be necessary or incidental
thereto (such use referred to herein as the Leased Property's "Primary Intended
Use"). Tenant shall not use the Leased Property or any portion thereof for any
other use without the prior written consent of Landlord (which consent may be
granted or withheld in Landlord's reasonable discretion). No use shall be made
or permitted to be made of the Leased Property and no acts shall be done thereon
which will cause the cancellation of any insurance policy covering the Leased
Property or any part thereof (unless another adequate policy is available), nor
shall Tenant sell or otherwise provide to residents or clients therein, or
permit to be kept, used or sold in or about the Leased Property any article
which may be prohibited by law or by fire underwriter's regulations. Tenant
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shall, at its sole cost, comply with all of the requirements pertaining to the
Leased Property or other improvements of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Tenant's Personal Property,
including, without limitation, the Insurance Requirements.
7.1.2 Necessary Approvals.
Tenant hereby represents that on or prior to the Commencement
Date, Tenant shall have obtained all approvals necessary to use and operate, for
the Primary Intended Use, the Leased Property and the Facility located at the
Leased Property under applicable local, state and federal law. From and after
the Commencement Date, Tenant shall maintain all approvals necessary to use and
operate, for its Primary Intended Use, the Leased Property and the Facility
located at the Leased Property under applicable local, state and federal law,
and without limiting the foregoing, shall maintain appropriate certifications
for reimbursement and licensure.
7.1.3 Continuous Operation.
Tenant shall continuously operate the Leased Property as a
provider of health care services in accordance with its Primary Intended Use.
Tenant will not take or omit to take any action, the taking or omission of which
may materially impair the value or the usefulness of the Leased Property or any
part thereof for its Primary Intended Use; notwithstanding the foregoing, Tenant
may cease operation of the Facility for a period not to exceed six (6) months.
Any such cessation shall not affect Tenant's obligation to pay Minimum Rent and
Additional Rent hereunder.
7.1.4 Lawful Use.
Tenant shall not use or suffer or permit the use of the Leased
Property and Tenant's Personal Property for any unlawful purpose. Tenant shall
not commit or suffer to be committed any waste on the Leased Property, or in the
Facility, nor shall Tenant cause or permit any nuisance thereon or therein.
Tenant shall neither suffer nor permit the Leased Property or any portion
thereof, including any Tenant Improvement, or Tenant's Personal Property, to be
used in a such a manner as (i) would impair Landlord's (or Tenant's, as the case
may be) title thereto or to any portion thereof, or (ii) may reasonably make
possible a claim or claims for adverse usage or adverse possession by the
public, as such, or of implied dedication of the Leased Property or any portion
thereof.
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7.2 Compliance with Medicaid and Medicare Requirements.
Tenant shall, at its sole cost and expense, make whatever
improvements (capital or ordinary) as are required to conform the Leased
Property to such standards as may, from time to time, be required by Federal
Medicare (Title 18) or Medicaid (Title 19) [assisted living] care programs, if
applicable, or any other applicable programs or legislation or capital
improvements required by any applicable programs or legislation, or capital
improvements required by any other governmental agency having jurisdiction over
the Leased Property as a condition of the continued operation of the Leased
Property for its Primary Intended Use.
7.3 Environmental Matters.
Tenant shall not store, spill upon, dispose of or transfer to
or from the Leased Property any Hazardous Materials, except that Tenant may
store, transfer and dispose of Hazardous Materials in compliance with all
Environmental Laws. Tenant shall maintain the Leased Property at all times free
of any Hazardous Materials (except in compliance with all statues, laws,
ordinances, rules and regulations). Tenant shall, as to the Leased Property,
promptly: (a) notify Landlord in writing of any material change in the nature or
extent of such Hazardous Materials maintained, (b) transmit to Landlord copies
of any citations, orders, notices or other material governmental communications
received with respect thereto, (c) observe and comply with any and all
Environmental Laws and all orders or directions from any official, court or
agency of competent jurisdiction relating to the use or maintenance or requiring
the removal, treatment, containment or other disposition of Hazardous Materials,
and (d) pay or otherwise dispose of any fine, charge or Imposition related
thereto, unless Tenant shall contest the same and the right to use and the value
of the Leased Property is not materially and adversely affected thereby. Tenant
shall, upon demand, pay to Landlord, as Additional Rent, any cost, expense, loss
or damage incurred by Landlord and growing out of a failure of Tenant strictly
to observe and perform the foregoing requirements, (including, without
limitation, reasonable attorneys' fees and expenses), which amounts will bear
interest from the date incurred until paid at the Overdue Rate.
Tenant shall protect, release, defend, indemnify and hold
harmless Landlord and each Facility Mortgagee from and against any and all
liabilities, obligations, claims, damages, penalties, costs and expenses
(including without limitation, reasonable attorneys' fees and expenses) imposed
upon, incurred by or asserted against any of them by reason of any failure by
Tenant or any Person claiming under Tenant to perform or comply with any of the
terms of this Section 7.3. The provisions of this Section 7.3 shall survive the
expiration or sooner termination of this Lease.
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7.4 Landlord to Grant Easements.
Landlord shall, from time to time so long as no Event of
Default has occurred and is continuing, at the request of Tenant and at Tenant's
cost and expense (which cost and expense shall include, without limitation,
Landlord's reasonable attorneys' fees and expenses relating to any action by
Landlord pursuant to this Section 7.4), subject to the approval of Landlord,
which approval shall not be unreasonably withheld or delayed: (i) grant
easements and other rights in the nature of easements; (ii) release existing
easements or other rights in the nature of easements which are for the benefit
of the Leased Property; (iii) dedicate or transfer unimproved portions of the
Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Landlord of an Officer's Certificate, which Officer's
Certificate shall be accompanied by all documents necessary to enable Landlord
to verify the accuracy of such Officer's Certificate and shall state that such
grant, release, dedication, transfer, petition or amendment (i) is not
detrimental to the proper conduct of the business of Tenant on the Leased
Property, (ii) does not reduce its value or usefulness for the Primary Intended
Use and [(iii) is necessary for the operation of the Facility in accordance with
the Primary Intended Use] (and which Certificate, if contested by Landlord,
shall not be binding on Landlord); provided, however, that any withholding of
approval by Landlord to any action pursuant to this Section 7.4 shall be deemed
to be reasonable if Landlord reasonably believes that any such action is not
required in order to operate or continue to operate the Leased Property and
Facility in accordance with its Primary Intended Use. Landlord shall not grant,
release, dedicate or execute any of the foregoing items in this Section 7.4
without obtaining Tenant's approval, which approval shall not be unreasonably
withheld or delayed.
7.5 Management Agreements.
Throughout the Term, Tenant shall not enter into any
Management Agreement except with a Manager that satisfies the definition of
"Manager" herein. Tenant shall provide Landlord with a copy of each Management
Agreement and any other documents relating thereto which Landlord may reasonably
request. Each Management Agreement shall provide that (i) Landlord shall receive
notice of any defaults thereunder and, at Landlord's option, an opportunity to
cure any such defaults, (ii) Landlord shall have the right to terminate the
Management Agreement upon the occurrence of an Event of Default hereunder and
(iii) Manager shall be obligated to perform and be bound by the covenants of
Tenant contained herein. If Landlord shall cure any of Tenant's defaults under
any Management Agreement, the cost of any such cure shall be payable upon demand
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by Landlord to Tenant as Additional Rent. Tenant shall deliver to Landlord any
instrument requested by Landlord to implement the intent of the foregoing
provision. In addition to any other rights and remedies available to Landlord
hereunder, in the event of the occurrence of an Event of Default hereunder,
Landlord shall have the right to terminate any Management Agreement then in
effect and to appoint a manager for the facility acceptable to Landlord in its
sole discretion.
ARTICLE VIII
------------
SECURITY FOR LEASE OBLIGATIONS
------------------------------
8.1 Security Deposit.
On or prior to the Commencement Date, Tenant shall deposit
with Landlord the sum of $____________________________ in cash representing a
security deposit against the faithful performance of the terms and conditions
contained in this Lease (the "Security Deposit"). As long as no Event of Default
has occurred and is then continuing, and as long as no fact or circumstance
currently exists which, with the giving of notice or the passage of time, would
constitute an Event of Default, then interest on any such Security Deposit shall
be paid by Landlord to Tenant on a quarterly basis in arrears at a rate of
interest per annum equal to the 90-day Treasury Bill rate. Upon the expiration
or earlier termination of this Lease, provided that Tenant shall have met all of
its obligations under this Lease, the Security Deposit shall be refunded to
Tenant within thirty (30) days of such expiration or termination.
8.2 Guarantee.
All obligations of Tenant under this Lease shall be
unconditionally and irrevocably guaranteed by Guarantor pursuant to the
Guarantee.
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ARTICLE IX
----------
HAZARDOUS MATERIALS
-------------------
9.1 Remediation.
If Tenant becomes aware of the presence of any Hazardous
Material in a quantity sufficient to require remediation or reporting under any
Environmental Law, or is necessary to prevent the value of the Leased Property
from being materially and adversely affected, in, on or under the Leased
Property or if Tenant, Landlord, or the Leased Property becomes subject to any
order of any court or federal, state or local agency to investigate, remove,
remediate, repair, close, detoxify, decontaminate or otherwise clean up the
Leased Property, Tenant shall, at its sole expense, carry out and complete any
required response, action, investigation, removal, remediation, repair, closure,
detoxification, decontamination or other cleanup of the Leased Property. If
Tenant fails to implement and diligently pursue any such repair, closure,
detoxification, decontamination, response, action or other cleanup of the Leased
Property in a timely manner, Landlord shall have the right (in addition to any
other rights of Landlord under this Lease), but not the obligation, to carry out
such action and to recover all of the reasonable costs and expenses from Tenant
as Additional Rent.
9.2 Tenant's Indemnification of Landlord.
Tenant shall pay, protect, indemnify, save, release, hold
harmless and defend Landlord and any Facility Mortgagee from and against all
liabilities, obligations, claims, damages (including punitive and consequential
damages), penalties, causes of action, demands, judgments, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against
Landlord or the Leased Property by reason of any Environmental Law (irrespective
of whether there has occurred any violation of any Environmental Law) in respect
of the Leased Property howsoever arising, without regard to fault on the part of
Tenant, including (a) liability for response costs and for costs of removal and
remedial action incurred by the United States Government, any state or local
governmental unit or any other Person, or damages from injury to or destruction
or loss of natural resources, including the reasonable costs of assessing such
injury, destruction or loss, incurred pursuant to any Environmental Law, (b)
liability for costs and expenses of abatement, investigation, removal, closure,
remediation, correction or clean-up, fines, damages, response costs or penalties
which arise under the provisions of any Environmental Law, or (c) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity.
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9.3 Survival of Indemnification Obligations.
Tenant's obligations or liability under this Article IX
arising during the Term hereof shall survive any termination of this Lease for a
period of two (2) years following termination.
9.4 Environmental Violations at Expiration or Termination of Lease.
Notwithstanding any other provisions of this Lease, if, at a
time when the Term would otherwise terminate or expire, a violation of any
Environmental Law has been asserted by Landlord and has not been resolved in a
manner reasonably satisfactory to Landlord, or has been acknowledged by Tenant
to exist or has been found to exist at the Leased Property or has been asserted
by any governmental authority and failure to have completed all action required
to correct, abate or remediate such a violation of any Environmental Law
materially impairs the leasability of the Leased Property upon the expiration of
the Term, then, at the option of Landlord, the Term shall be automatically
extended with respect to the Leased Property beyond the date of termination or
expiration and this Lease shall remain in full force and effect under the same
terms and conditions until the completion of all remedial action in accordance
with applicable Environmental Laws; provided, however, that Tenant may, upon any
such extension of the Term, terminate the Term by paying to the Landlord such
amount as is necessary in the reasonable judgment of Landlord to complete or
perform such remedial action, which amount shall be held in escrow for
remediation on terms and conditions reasonably acceptable to Landlord and
Tenant; any amount not required for remediation shall be remitted to Tenant.
ARTICLE X
---------
MAINTENANCE AND REPAIR
----------------------
10.1 Tenant's Maintenance and Repair Obligation.
Tenant, at its expense, will keep the Leased Property and
Tenant's Personal Property in good order, repair and appearance (whether or not
the need for such repairs occurs as a result of Tenant's use, any prior use, the
elements or the age of the Leased Property in accordance with any applicable
Legal Requirements, and, except as otherwise provided in Article XV, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term (concealed
or otherwise).
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10.2 Waiver of Statutory Obligations.
Landlord shall not under any circumstances be required to
build or rebuild any improvements on the Leased Property, or to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to maintain
the Leased Property in any way. Tenant hereby waives, to the extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to any law in
effect as of the Commencement Date or later enacted.
10.3 Mechanic's Liens.
Nothing contained in this Lease and no action or inaction by
Landlord shall be construed as (i) constituting the consent or request of
Landlord expressed or implied, to any contractor, subcontractor, laborer,
materialman or vendor to or for the performance of any labor or services or the
furnishing of any materials or other property for the construction, alteration,
addition, repair or demolition of or to the Leased Property or any part thereof
or (ii) giving Tenant any right, power or permission to contract for or permit
the performance of any labor or services or the furnishing of any materials or
other property, in either case, in such fashion as would permit the making of
any claim against Landlord in respect thereof or to make any agreement that may
create, or in any way be the basis for, any right, title, interest, lien, claim
or other encumbrance upon the estate of Landlord in the Leased Property, or any
portion thereof, and Tenant shall promptly remove, discharge or otherwise
satisfy any such right, title, interest, lien, claim or other encumbrance.
10.4 Surrender of Property.
Unless the Lease shall have been terminated pursuant to the
provisions of Article XV, Tenant shall, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property to Landlord in the
condition in which the Leased Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligation of Tenant to maintain the Leased Property in good
order and repair during the entire Term) and with due consideration being given
to the age of the Leased Property at such time.
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10.5 Required Capital Expenditures.
10.5.1 Required Years; Required Amounts; Permitted
Expenditures.
Notwithstanding anything contained in this Article X or
elsewhere in this Lease to the contrary, for the last four (4) years of the Term
(the "Required Period"), Tenant shall expend an amount at least equal to the
Required Amount for such Required Period for capital expenditures at the
Facility; provided, however, that the Required Amount shall be expended for such
repairs and refurbishments as are required to maintain or restore the applicable
Facility in accordance with the requirements of this Article X (a "Permitted
Expenditure") and in no event shall any expenditures made in respect of a Tenant
Improvement as provided in Article XI hereof be deemed to be a Permitted
Expenditure.
10.5.2 Payment Provisions.
Within thirty (30) days after the end of the Required Period,
Tenant shall deliver to Landlord an Officer's Certificate certifying the amount
expended in respect of Permitted Expenditures during such Required Period (the
"Expended Amount"), and the excess, if any, of the Required Amount for such
Required Period over the Expended Amount for such Required Period (the "Excess
Amount") shall be payable in accordance with Section 3.3 hereof. Said
certificate shall include an itemized list of each expenditure.
10.5.3 No Liability of Landlord.
In no event shall Landlord be liable to Tenant for the amount,
if any, by which the Expended Amount for any Required Period exceeds the
Required Amount for such Required Period.
ARTICLE XI
----------
TENANT IMPROVEMENTS
-------------------
11.1 Tenant's Right to Construct.
During the Term of this Lease, Tenant may make alterations,
additions, changes improvements to the Leased Property (individually, a "Tenant
Improvement," and collectively, "Tenant Improvements"). Except as otherwise
agreed to by Landlord in writing, any such Tenant Improvement shall be made at
Tenant's sole expense and shall become the property of the Landlord upon
termination of this Lease. All Tenant Improvements shall be subject to all of
the following conditions and restrictions:
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(a) Unless made on an emergency basis to prevent injury to
person or property, Tenant may not undertake any nonstructural Tenant
Improvement involving an estimated cost in excess of Fifty Thousand Dollars
($50,000.00) (as estimated by a licensed architect approved by Landlord) without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that Landlord may condition
its consent to any proposed Tenant Improvement on the receipt of a writing in
form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of such proposed Tenant Improvement and
any such condition shall not be deemed to be unreasonable; and provided further,
however, that Tenant shall provide notice to Landlord of any Tenant Improvement
undertaken without its consent as soon as practicable and Landlord may, within
thirty (30) days after receipt of any such notice, demand from Tenant a writing
in form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of any such Tenant Improvement undertaken
without Landlord's consent and Tenant shall, within ten (10) days after receipt
of any such demand from Landlord, provide such a writing to Landlord.
(b) Unless made on an emergency basis to prevent injury to
person or property, no structural alteration shall be undertaken without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that Landlord may condition
its consent to any proposed Tenant Improvement on the receipt of a writing in
form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of such proposed Tenant Improvement and
any such condition shall not be deemed to be unreasonable; and provided further,
however, that Tenant shall provide notice to Landlord of any Tenant Improvement
undertaken without its consent as soon as practicable and Landlord may, within
thirty (30) days after receipt of any such notice, demand from Tenant a writing
in form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of any such emergency Tenant Improvement
and Tenant shall, within ten (10) days after receipt of any such demand from
Landlord, provide such a writing to Landlord.
(c) The written consent of any Facility Mortgagee with respect
to the Facility must be obtained before the commencement of any work hereunder
whenever such consent is known by Tenant to be required by the Facility
Mortgage.
(d) The reasonable cost and expense of Landlord's and the
Facility Mortgagee's review of any plans and specifications required
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to be furnished to Landlord or the Facility Mortgagee pursuant to Section 11.2
hereof shall be paid by Tenant to Landlord as Additional Rent.
(e) The provisions of Section 11.2 hereof shall apply to any
work performed by Tenant pursuant to this Article XI.
11.2 Construction
Tenant agrees that:
(a) Tenant shall diligently seek all governmental approvals
relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently prosecute any such
construction to completion in accordance with applicable
Insurance Requirements and the laws, rules and regulations of
all governmental bodies or agencies having jurisdiction over
the Leased Property;
(c) Landlord shall have the right at any time and from time to
time to post and maintain upon the Leased Property such
notices as may be necessary to protect Landlord's interest
from mechanics' liens, materialmen's liens or liens of a
similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens or
any other claims or demands arising from the work of
construction of any Tenant Improvement to be enforced against
the Leased Property or any part thereof, and Tenant agrees to
hold Landlord and the Leased Property free and harmless from
all liability from any such liens, claims or demands, together
with all costs and expenses in connection therewith;
(e) All work shall be performed in a good and workmanlike
manner and in accordance with any plans and specifications
therefor which shall have been approved by Landlord or the
Facility Mortgagee;
(f) If the Tenant Improvement shall involve (i) more than
Fifty Thousand Dollars ($50,000.00) (as estimated by a
licensed architect approved by Landlord) or requiring Tenant
to obtain a building or other permit prior to the commencement
of any such Tenant Improvement or (ii) any structural repair,
alteration, restoration or other work, then no work on such
Tenant Improvement shall be commenced until detailed plans and
specifications (including layout, architectural, mechanical
and structural drawings), prepared by a licensed architect
reasonably satisfactory to Landlord shall have been submitted
to and approved by Landlord and the Facility Mortgagee;
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(g) No Tenant Improvement costing more than Fifty Thousand
Dollars ($50,000.00) (as estimated by a licensed architect
approved by Landlord) shall be undertaken except under the
supervision of a licensed architect retained at Tenant's
expense reasonably satisfactory to Landlord;
(h) No Tenant Improvement costing more than Fifty Thousand
Dollars ($50,000.00) (as estimated by a licensed architect
approved by Landlord) shall be commenced until Tenant shall
have obtained and delivered to Landlord, at Tenant's expense,
either (i) a performance bond and a labor and materials
payment bond (issued by a corporate surety licensed to do
business in the State in which the Leased Property is located
and reasonably satisfactory to Landlord), each in an amount
equal to the estimated cost of such Tenant Improvement (as
estimated by a licensed architect approved by Landlord) and in
form otherwise reasonably satisfactory to Landlord, or (ii)
such other security or evidence of ability to pay the
estimated cost of such Tenant Improvement as shall be
reasonably satisfactory to Landlord; and
(i) Any Tenant Improvement shall be subject to inspection at
any time and from time to time by Landlord or the applicable
Facility Mortgagee or the duly authorized representatives of
either, and if upon such inspection, Landlord or such Facility
Mortgagee shall reasonably be of the opinion that the Tenant
Improvement is not being constructed in accordance with the
requirements of this Article XI, then Tenant shall promptly
correct any such failure to comply with such requirements.
11.3 Scope of Tenant's Right.
Subject to Section 11.1 and Section 11.2, at Tenant's cost and
expense, Tenant shall have the right to seek any governmental approvals,
including building permits, licenses, conditional use permits and any
certificates of need that Tenant requires to construct any Tenant Improvement.
11.4 Cooperation of Landlord.
Landlord shall cooperate with Tenant and take such actions,
including the execution and delivery to Tenant of any applications or other
documents, reasonably requested by Tenant in order to obtain any governmental
approvals sought by Tenant to construct any Tenant Improvement within fifteen
(15) Business Days following the later of (a) the date Landlord receives
Tenant's request, or (b) the date of delivery of any such application or
document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there if a cost to Landlord, such cost shall be reimbursed by Tenant),
and will not cause Landlord to be in violation of any law, ordinance or
regulation.
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11.5 Rights in Tenant Improvements.
Notwithstanding anything to the contrary in this Lease, all
Tenant Improvements constructed pursuant to this Article XI, and any and all
subsequent additions thereto and alterations and replacements thereof, shall be
the sole and absolute property of Tenant during the Term of this Lease. Upon
the expiration or early termination of this Lease, all such Tenant Improvements
shall become the property of Landlord. Without limiting the generality of the
foregoing, Tenant shall be entitled to all federal and state income tax benefits
associated with any Tenant Improvement during the Term of this Lease.
ARTICLE XII
-----------
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
--------------------------------------------
12.1 Liens.
Subject to the provisions of Article XIII relating to
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of Rent, not including,
however:
(a) his Lease;
(b) the matters, if any, that existed as of the Commencement
Date;
(c) restrictions, liens and other encumbrances which are
consented to in writing by Landlord, or any easements granted
pursuant to the provisions of Section 7.4;
(d) liens for those taxes of Landlord which Tenant is not
required to pay hereunder;
(e) subleases permitted by Article XXIII;
(f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as (1) the same
are not yet payable or are payable without the addition of any
fine or penalty or (2) such liens are in the process of being
contested as permitted by Article XIII;
(g) liens of mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed (provided that such liens are
in the process of being contested as permitted by Article
XIII) or not yet due; and
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(h) any liens which are the responsibility of Landlord
pursuant to the provisions of Article XV.
12.2 Encroachments and Other Title Matters.
Excepting any matters granted or created by Landlord with
respect to the Leased Property and excepting matters that do not have a material
adverse effect on the use of the Leased Property for the Primary Intended Use,
if any of the Leased Improvements shall, at any time, encroach upon any
property, street or right-of-way adjacent to the Leased Property, or shall
violate the agreements or conditions contained in any lawful restrictive
covenant or other agreement affecting the Leased Property, or any easement or
right-of-way to which the Leased Property is subject, or the use of the Leased
Property is impaired, limited or interfered with by reason of the exercise of
the right of surface entry or any other rights under a lease or reservation of
any oil, gas, water or other minerals, then promptly upon the request of
Landlord or at the behest of any Person affected by any such encroachment,
violation or impairment, Tenant, at its sole cost and expense (subject to its
right to contest the existence of any such encroachment, violation or
impairment), shall protect, indemnify, save harmless and defend Landlord from
and against all losses, liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) based on or arising by reason of any such
encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Landlord or
Tenant; or (ii) make such changes in the Leased Improvements, and take such
other actions, as Tenant in the good faith exercise of its judgment deems
reasonably practicable, to remove such encroachment, and to end such violation
or impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation or
encroachment. Tenant's obligations under this Section 12.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Tenant shall be entitled to a credit
for any sums recovered by Landlord under any such policy of title or other
insurance.
ARTICLE XIII
------------
PERMITTED CONTESTS
------------------
Tenant, on its own or on Landlord's behalf (or in Landlord's
name) but at Tenant's expense, may contest, by appropriate legal proceedings
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conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim not otherwise permitted by Section 12.1, provided that:
(a) in the case of an unpaid Imposition, lien, attachment,
levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Leased Property, and
neither the Leased Property nor any Rent therefrom nor any
part thereof or interest therein would be in any danger of
being sold, forfeited, attached or lost pending the outcome of
such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be
subject to criminal or civil liability for failure to comply
therewith pending the outcome of such proceedings. Nothing in
this Section 13(b), however, shall permit Tenant to delay
compliance with any requirement of an Environmental Law to the
extent such non-compliance poses an immediate threat of injury
to any Person or to the public health or safety or of material
damage to any real or personal property;
(c) in the case of a Legal Requirement or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable
security, if any, as may be demanded by Landlord to insure
ultimate payment of the same and to prevent any sale or
forfeiture of the Leased Property or the Rent by reason of
such non-payment or noncompliance, provided, however, the
provisions of this Article XIII shall not be construed to
permit Tenant to contest the payment of Minimum Rent and
Additional Rent payable to Landlord or any other sums payable
by Tenant to Landlord hereunder;
(d) no such contest shall interfere in any material respect
with the use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the coverage
required by Article XIV shall be maintained; and
(f) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Rent due hereunder,
promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the
applicable Legal Requirement or Insurance Requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
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contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save Landlord
harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE XIV
-----------
INSURANCE
---------
14.1 General Insurance Requirements.
During the Term, Tenant shall at all times keep the Leased
Property, and all property located in or on the Leased Property, including all
Tenant's Personal Property and any Tenant Improvements, insured with the kinds
and amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the State in which the Leased
Property is located. The policies must name Landlord as an "Additional Insured."
Losses shall be payable to Landlord or Tenant as provided in Article XV. In
addition, the policies shall name as an additional insured the holder of any
mortgage, deed of trust or other security agreement securing any indebtedness or
any other Landlord's Encumbrance placed on the Leased Property in accordance
with the provisions of Article XXV ("Facility Mortgagee") by way of a standard
form of mortgagee's loss payable endorsement. Any loss adjustment shall require
the written consent of Landlord, Tenant, and each Facility Mortgagee. Evidence
of insurance shall be deposited with Landlord and, if requested, with any
Facility Mortgagee(s). The policies on the Leased Property, including the Leased
Improvements, Fixtures, Tenant's Personal Property and any Tenant Improvements,
shall insure against the following risks:
14.1.1 All Risk.
Loss or damage by all risks perils including but not limited
to, fire, vandalism, malicious mischief and extended coverages, including but
not limited to, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then Full Replacement Cost thereof.
14.1.2 Liability.
Claims for personal injury or property damage under a policy
of comprehensive general liability insurance with amounts not less than Ten
Million Dollars ($10,000,000.00) per occurrence and in the aggregate.
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14.1.3 Flood.
Flood (when the Leased Property is located in whole or in
material part in a designated flood plain area) and such other hazards and in
such amounts as may be customary for comparable properties in the area.
14.1.4 Worker's Compensation.
Adequate worker's compensation insurance coverage for all
Persons employed by Tenant and all of Tenant's agents or contractors on the
Leased Property in accordance with the requirements of applicable federal, state
and local laws.
14.1.5 Business Interruption.
Loss due to business interruption in an amount, for any Lease
Year, not less than the applicable _____________ for the immediately preceding
year.
14.1.6 Builder's Risk.
Loss or damage during times of construction on any portion of
the Leased Property (including, without limitation, any period of construction
pursuant to Article XI hereof) in an amount not less than __________.
14.1.7 Boiler and Machinery.
Loss due to any boiler or machinery (including related
electrical apparatus and components) casualty under a standard comprehensive
form, providing coverage against loss or damage caused by explosion of steam
boilers, pressure vessels or similar vessels, now or hereafter installed at the
Facility, in limits reasonably acceptable to Landlord, but not less than ______.
14.1.8 Earthquake.
Loss due to earthquake (if such coverage is reasonably deemed
necessary by Landlord and reasonably available to Tenant) in limits and with
deductibles reasonably acceptable to Landlord.
14.1.9 Environmental Impairment.
Loss due to environmental impairment liability in limits and
with deductibles reasonably acceptable to Landlord, but only if such insurance
becomes more or less customarily required by prudent landlords of property
similar to the Leased Property or any site assessment report for the Leased
Property indicates that such insurance would be appropriate.
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14.1.10 Subsidence.
Loss due to subsidence (if deemed necessary by Landlord) in
limits reasonably acceptable to Landlord.
14.1.11 Other Insurance.
Such other insurance on or in connection with the Leased
Property as Landlord or any Facility Mortgagee may reasonably require, which at
the time is usual and commonly obtained in connection with properties similar in
type of building size and use to the Leased Property and located in the
geographic area where the Leased Property is located.
14.2 Replacement Cost.
In the event either party believes that the Full Replacement
Cost of the insured property has increased at any time during the Term, it shall
have the right to have such Full Replacement Cost redetermined by the insurance
company which is then carrying the largest amount of hazard insurance carried on
the Leased Property (the "Impartial Appraiser"). The party desiring to have the
Full Replacement Cost so redetermined shall forthwith, on receipt of such
determination by such Impartial Appraiser, give written notice thereof to the
other party hereto. The determination of such Impartial Appraiser shall be final
and binding on the parties hereto, and Tenant shall forthwith increase the
amount of insurance carried pursuant to this Section 14.2, as the case may be,
to the amount so determined by the Impartial Appraiser. Each party shall pay
one-half of the fee, if any, of the Impartial Appraiser.
14.3 Waiver of Subrogation.
Landlord and Tenant waive their respective right of recovery
against the other to the extent damage or liability is insured against under a
policy or policies of insurance. All insurance policies carried by either party
covering the Leased Property including the contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party (including any Facility Mortgagee). The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so.
14.4 Insurance Company Satisfactory.
All of the policies of insurance referred to in Section 14.1
shall be written by an insurance company licensed and in good standing in the
State in which the Leased Property is located and rated not less than A:X by
A.M. Best Co. In addition, all insurance carried by Tenant hereunder shall have
deductible amounts which are reasonably acceptable to Landlord. Tenant shall pay
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all premiums for the policies of insurance referred to in Section 14.1 and shall
deliver certificates thereof to Landlord prior to their effective date (and with
respect to any renewal policy, at least thirty (30) days prior to the expiration
of the existing policy). In the event Tenant fails to satisfy its obligations
under this Section 14.4, Landlord shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon written demand as Additional Rent.
Each insurer mentioned in Section 14.1 shall agree, by endorsement on the policy
or policies issued by it, or by independent instrument furnished to Landlord,
that it will give to Landlord thirty (30) days' written notice before the policy
or policies in question shall be altered, allowed to expire or canceled. Each
such policy shall also provide that any loss otherwise payable thereunder shall
be payable notwithstanding (i) any act or omission of Landlord or Tenant which
might, absent such provision, result in a forfeiture of all or a part of such
insurance payment, (ii) the occupation or use of the Leased Property for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by any Facility
Mortgagee pursuant to any provision of a mortgage, note, assignment or other
document evidencing or securing a loan upon the happening of an event of default
therein or (iv) any change in title to or ownership of the Leased Property.
14.5 Change in Limits.
In the event that Landlord shall at any time reasonably
determine on the basis of prudent industry practice that the liability insurance
carried by Tenant pursuant to Section 14.1.2 is insufficient, the parties shall
endeavor to agree on the proper and reasonable limits for such insurance to be
carried; and such insurance shall thereafter be carried with the limits thus
agreed on until further changed pursuant to the provisions of this Section 14.5.
Notwithstanding the foregoing, the deductibles for such insurance or the amount
of such insurance which is self-retained by Tenant shall be as reasonably
determined by Tenant so long as Tenant can reasonably demonstrate its ability to
satisfy such deductible or amount of such self-retained insurance.
14.6 Blanket Policy.
Notwithstanding anything to the contrary contained in this
Article XIV, Tenant's obligations to carry the insurance provided for herein may
be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all other
requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article XIV are
otherwise satisfied. The amount of the total insurance shall be specified either
(i) in each such "blanket" or umbrella policy or (ii) in a written statement,
which Tenant shall deliver to Landlord and Facility Mortgagee, from the insurer
thereunder. A certificate of each such "blanket" or umbrella policy shall
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promptly be delivered to Landlord and Facility Mortgagee. If requested by
Landlord, Tenant shall provide Landlord with a certified copy of the "blanket"
or umbrella insurance policy.
ARTICLE XV
----------
APPLICATION OF INSURANCE PROCEEDS
---------------------------------
15.1 Insurance Proceeds.
Subject to the requirements of any Facility Mortgage, proceeds
of insurance payable by reason of any loss or damage to the Leased Property, or
any portion thereof, and insured under any policy of insurance required by
Article XIV or under any other insurance carried by Tenant shall (i) if greater
than One Hundred Thousand Dollars ($100,000), be paid to Landlord and held by
Landlord and (ii) if less than such amount, be paid to Tenant and held by
Tenant. All such proceeds shall be held in trust and shall be made available for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof.
15.1.1 Disbursement of Proceeds.
Any proceeds held by Landlord or Tenant shall be paid out by
Landlord or Tenant from time to time for the reasonable costs of such
reconstruction or repair; provided, however, that, subject to the requirements
of any Facility Mortgagee, Landlord shall disburse proceeds subject to the
following requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the
restoration shall have been approved by Landlord, which
approval shall not be unreasonably withheld or delayed and (B)
appropriate waivers of mechanics' and materialmen's liens
shall have been filed;
(ii) at the time of any disbursement, subject to Article XIII,
no mechanics' or materialmen's liens shall have been filed
against the Leased Property and remain undischarged, unless a
satisfactory bond shall have been posted in accordance with
the laws of the State;
(iii) prior to completion of the restoration, Landlord shall
be authorized to holdback, as a reserve against future
disbursements, ten percent (10%) of such proceeds;
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(iv) if Landlord shall reasonably determine that the proceeds
are not sufficient to cover the total cost of the restoration,
Tenant shall be obligated to deposit with Landlord the amount
of such shortfall immediately upon receiving written notice
thereof from Landlord;
(v) disbursements shall be made from time to time in an amount
not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence, of
the stage of completion, the estimated total cost of
completion and performance of the work to date in a good and
workmanlike manner in accordance with the contracts, plans and
specifications, (B) waivers of liens, (C) a satisfactory
bring-down of title insurance and (D) other evidence of cost
and payment so that Landlord and Facility Mortgagee can verify
that the amounts disbursed from time to time are represented
by work that is completed, in place and free and clear of
mechanics' and materialmen's lien claims;
(vi) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by the president or a vice
president of Tenant, describing the work for which payment is
requested, stating the cost incurred in connection therewith,
stating that Tenant has not previously received payment for
such work and, upon completion of the work, also stating that
the work has been fully completed and complies with the
applicable requirements of the Lease;
(vii) to the extent actually held by Landlord and not by a
Facility Mortgagee, (1) the proceeds shall be held in a
separate account and shall not be commingled with Landlord's
other funds, and (2) interest shall accrue on funds so held at
the money market rate of interest and such interest shall
constitute part of the proceeds; and
(viii) such other reasonable conditions as Landlord may
reasonably impose or such other conditions as may be required
by a Facility Mortgagee, including, without limitation,
payment by Tenant of reasonable costs of administration
imposed by or on behalf of Facility Mortgagee should the
proceeds be held by Facility Mortgagee.
15.1.2 Excess Proceeds.
Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property (or in
the event neither Landlord nor Tenant is required or elects to repair and
restore) shall be paid to Tenant, upon completion of any such repair and
restoration except as otherwise specifically provided below in this Article XV.
All salvage resulting from any risk covered by insurance shall belong to
Landlord except to the extent relating to Tenant's Personal Property.
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15.2 Reconstruction Covered by Insurance.
15.2.1 Destruction Rendering Facility Unsuitable for its
Primary Intended Use.
If during the Term the Leased Property is totally or partially
destroyed and the Facility thereby is rendered Unsuitable For Its Primary
Intended Use, Tenant shall diligently restore the Facility to substantially the
same condition as existed immediately before the damage or destruction;
provided, however, if the Facility cannot be fully repaired or restored within a
nine (9) month period from the date of damage or destruction to substantially
the same condition as existed immediately before the damage or destruction, then
Tenant may terminate this Lease by giving Landlord written notice of such
termination within sixty (60) days after the date of such damage or destruction,
and the effective date of such termination shall be thirty (30) days following
such notice of termination; provided, however, that if (i) Landlord notifies
Tenant in writing within fifteen (15) days after Landlord's receipt of Tenant's
notice of termination that Landlord intends to restore the Facility to
substantially the same condition as existed immediately before the damage and
destruction, and (ii) Landlord diligently commences and prosecutes such
restoration and completes such restoration within nine (9) months after the date
of damage or destruction, then Tenant's election to terminate this Lease shall
be deemed rescinded and this Lease shall remain in full force and effect. Upon
any such termination of this Lease by Tenant or upon Landlord's election to
restore the Facility as provided in this section, Landlord shall be entitled to
retain all insurance proceeds, grossed up by Tenant to account for the
deductible or any self-insured retention; provided, further, that Tenant shall
be entitled to retain or receive all insurance proceeds relating to Tenant's
Personal Property and the Tenant Improvements.
15.2.2 Destruction Not Rendering Facility Unsuitable for its
Primary Intended Use.
If during the Term, the Leased Property is totally or
partially destroyed but the Facility is not thereby rendered Unsuitable For Its
Primary Intended Use, Tenant shall diligently restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction; provided, however, Tenant shall not be required to restore Tenant's
Personal Property or any Tenant Improvements if failure to do so does not
adversely affect the amount of Additional Rent payable hereunder. Such damage or
destruction shall not terminate this Lease; provided further, however, if Tenant
and Landlord cannot within nine (9) months after said damage obtain all
necessary governmental approvals, including building permits, licenses,
conditional use permits and any certificates of need, after diligent efforts to
do so in order to be able to perform all required repair and restoration work
and to operate the Facility for its Primary Intended Use in substantially the
same manner as immediately prior to such damage or destruction, Tenant may
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terminate this Lease upon thirty (30) days prior written notice to Landlord;
provided further, however, if (i) Landlord notifies Tenant in writing within
fifteen (15) days after Landlord's receipt of Tenant's notice of termination
that Landlord intends to restore the Facility to substantially the same
condition as existed immediately before the damage and destruction, and (ii)
Landlord diligently commences and prosecutes such restoration and completes such
restoration within nine (9) months after the date of Tenant's notice of
termination, then Tenant's election to terminate this Lease shall be deemed
rescinded and this Lease shall remain in full force and effect. Upon any such
termination of this Lease by Tenant or upon Landlord's election to restore the
Facility as provided in this section, Landlord shall be entitled to retain all
insurance proceeds, grossed up by Tenant to account for the deductible or any
self-insured retention; provided, further, that Tenant shall be entitled to
retain or receive all insurance proceeds relating to Tenant's Personal Property
and the Tenant Improvements.
15.2.3 Costs of Repair.
If Tenant elects to restore the Facility as provided in
Section 15.2.1 or Section 15.2.2 above and the cost of the repair or restoration
exceeds the amount of proceeds received by Landlord or Tenant from the insurance
required under Article XIV, Tenant shall pay for such excess cost of repair or
restoration. If Landlord elects to restore the Facility as provided in Section
15.2.1 or Section 15.2.2 above and the cost of the repair or restoration exceeds
the amount or proceeds received by Landlord as provided in those sections,
Landlord shall pay for such excess cost of repair or restoration.
15.3 No Abatement of Rent.
Except as otherwise provided in Section 15.2.1 or Section
15.2.2 above, this Lease shall remain in full force and effect and Tenant's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the period required for repair and
restoration; provided, however, that if there is no Event of Default, Tenant
shall be entitled to retain any proceeds of rental value or business
interruption insurance coverage.
15.4 Waiver.
Tenant hereby waives any statutory rights of termination which
may arise by reason of any damage or destruction of the Facility which Landlord
or Tenant is obligated to restore or may restore under any of the provisions of
this Lease.
15.5 Damage Near End of Term.
Notwithstanding any other provision to the contrary in this
Article XV, if damage to or destruction of the Leased Property occurs during the
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last twelve (12) months of the Term, and if such damage or destruction cannot
reasonably be expected to be fully repaired or restored prior to the date that
is six (6) months prior to the end of the then-applicable Term, then Landlord
or Tenant shall have the right to terminate this Lease on thirty (30) days'
prior notice to the other party by giving notice thereof to Landlord within
sixty (60) days after the date of such damage or destruction. Upon any such
termination, Landlord shall be entitled to retain all insurance proceeds,
grossed up by Tenant to account for the deductible or any self-insured
retention; provided however, that Tenant shall be entitled to retain or receive
all insurance proceeds relating to Tenant's Personal Property and Tenant
Improvements.
ARTICLE XVI
-----------
CONDEMNATION
------------
16.1 Total Taking.
If at any time during the Term the Leased Property is totally
and permanently taken by Condemnation, this Lease shall terminate on the Date of
Taking and Tenant shall promptly pay all outstanding rent and other charges
through the date of termination.
16.2 Partial Taking.
If a portion of the Leased Property is taken by Condemnation,
this Lease shall remain in effect if the Facility is not thereby rendered
Unsuitable For its Primary Intended Use, but if the Facility is thereby rendered
Unsuitable For Its Primary Intended Use, this Lease shall terminate on the Date
of Taking.
16.3 Restoration.
If there is a partial taking of the Leased Property and the
Lease remains in full force and effect pursuant to Section 16.2, Landlord at its
cost shall accomplish all necessary restoration up to but not exceeding the
amount of the Award payable to Landlord, as provided herein. If Tenant receives
an Award under Section 16.4, Tenant shall repair or restore any Tenant
Improvements up to but not exceeding the amount of the Award payable to Tenant
therefore.
16.4 Award Distribution.
The entire Award attributable to the Leased Property shall
belong to and be paid to Landlord, except that, subject to the rights of the
Facility Mortgagee, Tenant shall be entitled to receive from the Award, if and
to the extent such Award specifically includes such items, a sum attributable to
the value, if any, of Tenant's Personal Property and of any Tenant Improvements.
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16.5 Temporary Taking.
The taking of the Leased Property, or any part thereof, by
military or other public authority shall constitute a taking by Condemnation
only when the use and occupancy by the taking authority has continued for longer
than six (6) months. During any such six (6) month period, which shall be a
temporary taking, all the provisions of this Lease shall remain in full force
and effect with no abatement of rent payable by Tenant hereunder. In the event
of any such temporary taking, the entire amount of any such Award made for such
temporary taking allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Tenant.
ARTICLE XVII
------------
EVENTS OF DEFAULT
-----------------
17.1 Events of Default.
If any one or more of the following events (individually, an
"Event of Default") shall occur:
(a) if Tenant shall fail to make payment of the Rent payable
by Tenant under this Lease when the same becomes due and
payable;
(b) if Tenant shall fail to observe or perform any material
term, covenant or condition of this Lease and such failure is
not cured by Tenant within a period of thirty (30) days after
receipt by Tenant of notice thereof from Landlord, unless such
failure cannot with due diligence be cured within a period of
thirty (30) days, in which case such failure shall not be
deemed to continue if Tenant proceeds promptly and with due
diligence to cure the failure and diligently completes the
curing thereof within ninety (90) days following the
expiration of said thirty (30) day period.
(c) if Tenant shall:
(i) admit in writing its inability to pay its debts
generally as they become due and such failure
continues for a period of five (5) days following
the date such payment is due,
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act,
(iii) make an assignment for the benefit of its
creditors,
(iv) be unable to pay its debts as they mature,
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(v) consent to the appointment of a receiver of
itself or of the whole or any substantial part of
its property, or
(vi) file a petition or answer seeking
reorganization or arrangement under the federal
bankruptcy laws or any other applicable law or
statute of the United States of America or any
state thereof;
(d) if, on a petition in bankruptcy filed against Tenant:
(i) such petition shall not have been dismissed
within sixty (60) days,
(ii) a court of competent jurisdiction shall enter
an order or decree appointing, without the consent
of Tenant, a receiver of Tenant or of the whole or
substantially all of its property, and such
judgment, order or decree shall not be vacated or
set aside or stayed within sixty (60) days from the
date of the entry thereof,
(iii) a court of competent jurisdiction shall enter
an order or decree approving, without the consent
of Tenant, a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the
federal bankruptcy laws or any other applicable law
or statute of the United States of America or any
state thereof, and such judgment, order or decree
shall not be vacated or set aside or stayed within
sixty (60) days from the date of the entry thereof,
or
(iv) Tenant shall be adjudicated as bankrupt;
(e) if Tenant shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(f) if the estate or interest of Tenant in the Leased Property
or any part thereof shall be levied upon or attached in any
proceeding and the same shall not be vacated or discharged
within the later of ninety (90) days after commencement
thereof or thirty (30) days after receipt by Tenant of notice
thereof or from Landlord (unless Tenant shall be contesting
such lien or attachment in accordance with Article XIII);
provided, however, that such notice shall be in lieu of and
not in addition to any notice required under applicable law;
(g) if, except as a result of damage, destruction or a partial
or complete Condemnation or other Unavoidable Delays, Tenant
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voluntarily ceases operations on the Leased Property for a
period in excess of one hundred eighty (180) consecutive days;
(h) if any representation or warranty made by Tenant herein or
in any certification, demand or request made pursuant hereto
proves to be incorrect, now or hereafter, in any material
respect and any adverse effect on Landlord of any such
misrepresentation or breach of warranty has not been corrected
to Landlord's satisfaction within twenty (20) days after
Tenant becomes aware of, or is notified by Landlord of the
fact of, such misrepresentation or breach of warranty;
(i) INTENTIONALLY DELETED
(j) if the Facility's applicable license or third-party
provider reimbursement agreements material to the Facility's
operation for its Primary Intended Use shall at any time be
terminated or revoked or suspended for more than sixty (60)
days (and, in the case of a third party provider, Tenant shall
have failed to replace said third party provider within said
sixty (60) day period) or if the facility is banned from
admitting residents for a period in excess of ninety (90)
days;
(k) if Tenant shall fail to give notice to Landlord not later
than ten (10) days after any notice, claim or demand from any
governmental authority, or any officer acting on behalf
thereof, of any violation of any law, order, ordinance, rule
or regulation with respect to the operation of the Facility;
or
(l) if the tenant under any Simultaneous Lease fails to make
any payment of rent, whether a payment of minimum rent or
percentage rent, as applicable, or fails to pay any real
estate taxes, utility charge or insurance premium when due and
payable, and such failure continues beyond the expiration of
any cure period provided for therein.
THEN, Landlord may terminate this Lease by giving Tenant not
less than ten (10) days' notice (or no notice for clauses (c), (d), (e), (f),
and (j) of such termination and upon the expiration of the time fixed in such
notice, the Term shall terminate and all rights of Tenant under this Lease shall
cease. Notwithstanding anything contained in this Lease to the contrary,
Landlord shall have all rights at law and in equity available to Landlord as a
result of Tenant's breach of this Lease.
17.2 Payment of Costs.
Tenant shall, to the extent permitted by law, pay as
Additional Rent all costs and expenses incurred by or on behalf of Landlord,
including, without limitation, reasonable attorneys' fees and expenses, as a
result of any Event of Default hereunder.
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17.3 Certain Remedies.
If an Event of Default shall have occurred and be continuing,
whether or not this Lease has been terminated pursuant to Section 17.1, Tenant
shall, to the extent permitted by law, if required by Landlord so to do,
immediately surrender to Landlord the Leased Property pursuant to the provisions
of Section 17.1 and quit the same and Landlord may enter upon and repossess the
Leased Property by reasonable force, summary proceedings, ejectment or
otherwise, and may remove Tenant and any and all other Persons and any and all
Tenant's Personal Property from the Leased Property subject to any requirement
of law.
17.4 Damages.
None of (a) the termination of this Lease pursuant to Section
17.1, (b) the repossession of the Leased Property, (c) the failure of Landlord
to relet the Leased Property, (d) the reletting of all or any portion thereof,
nor (e) the failure of Landlord to collect or receive any rentals due upon any
such reletting, shall relieve Tenant of its liability and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. In
the event of any such termination, Tenant shall forthwith pay to Landlord all
Rent due and payable with respect to the Leased Property through and including,
the date of such termination. Thereafter, Tenant shall forthwith pay to
Landlord, at Landlord's option, either:
(a) the sum of:
(i) the worth, at the time of the termination, of the
amount by which the unpaid Rent for the balance of
the Term after the time of such termination exceeds
the amount of such rental loss that Tenant proves
could be reasonably avoided; and
(ii) any other amount necessary to compensate
Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under
this Lease
provided, that in making the above determination, (a) the
worth at the time of the termination shall be determined using
the 90-day Treasury bill rate, (b) the Minimum Rent for the
remainder of the Term shall be deemed to be the same as for
the then current Lease Year, as determined pursuant to Section
3.2, and (c) Additional Rent for the remainder of the Term
shall be deemed to be payable monthly in an amount equal to
one-third (1/3) of the aggregate amount paid by Tenant as
Additional Rent during the Fiscal Quarter immediately
preceding the termination; or
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(b) with or without termination of Tenant's right to
possession of the Leased Property, each installment of said
Rent and other sums payable by Tenant to Landlord under this
Lease as the same become due and payable, which Rent and other
sums shall bear interest at the Overdue Rate from the date
when due until paid, and Landlord may enforce, by action or
otherwise, any other term or covenant of this Lease.
17.5 Additional Remedies.
Landlord may avail itself all other remedies that may be
available to Landlord under applicable law.
17.6 Appointment of Receiver.
Upon the occurrence of an Event of Default, and upon filing of
a suit or other commencement of judicial proceedings to enforce the rights of
Landlord hereunder, Landlord shall be entitled, as a matter of right, to the
appointment of a receiver or receivers acceptable to Landlord of the Leased
Property and the Facility and of the revenues, earnings, income, products and
profits hereof, pending such proceedings, with such powers as the court making
such appointment shall confer.
17.7 WAIVER.
IF THIS LEASE IS TERMINATED PURSUANT TO SECTION 17.1 OR IF
TENANT'S RIGHT TO POSSESSION OF THE LEASED PROPERTY IS OTHERWISE TERMINATED,
TENANT WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) ANY RIGHT OF
REDEMPTION, RE-ENTRY OR REPOSSESSION AND (B) ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF ANY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE XVII.
17.8 Application of Funds.
Any payments received by Landlord under any of the provisions
of this Lease during the existence or continuance of any Event of Default (and
such payment is made to Landlord rather than Tenant due to the existence of an
Event of Default) shall be applied to Tenant's obligations in the order which
Landlord may determine or as may be prescribed by the laws of the State in which
the Leased Property is located.
17.9 Impounds.
Landlord shall have the right during the continuance of an
Event of Default or at any time required by any Facility Mortgagee to require
Tenant to pay to Landlord an additional monthly sum (each an "Impound Payment")
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sufficient to pay the Impound Charges (as hereinafter defined) as they become
due. As used herein, "Impound Charges" shall mean real estate taxes on the
Leased Property or payments in lieu thereof and premiums on any insurance
required by this Lease. Landlord shall determine the amount of the Impound
Charges and of each Impound Payment. The Impound Payments shall be held in a
separate account and shall not be commingled with other funds of Landlord and
interest thereon shall be held for the account of Tenant. Landlord shall apply
the Impound Payments to the payment of the Impound Charges in such order or
priority as Landlord shall determine or as required by law. If at any time the
Impound Payments theretofore paid to Landlord shall be insufficient for the
payment of the Impound Charges, Tenant, within ten (10) days after the
Landlord's demand therefor, shall pay the amount of the deficiency to Landlord
plus interest thereon at the Overdue Rate from the date of such demand until
paid.
ARTICLE XVIII
-------------
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
-----------------------------------------
If Tenant shall fail to make any payment or to perform any act
required to be made or performed under this Lease, and to cure the same within
the relevant time periods provided in Section 17.1, Landlord, after notice to
and demand upon Tenant, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Tenant.
Landlord may, to the extent permitted by law, enter upon the Leased Property for
such purpose and take all such action thereon as, in Landlord's opinion, may be
necessary or appropriate therefore. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, to the extent
permitted by law) so incurred, together with interest thereon at the Overdue
Rate from the date on which such sums or expenses are paid or incurred by
Landlord, shall be paid by Tenant to Landlord on demand. The obligations of
Tenant and rights of Landlord contained in this Article XVIII shall survive the
expiration or earlier termination of this Lease.
ARTICLE XIX
-----------
LEGAL REQUIREMENTS
------------------
Subject to Article XIII regarding permitted contests, Tenant,
at its expense, shall promptly (a) comply with all material Legal Requirements
and Insurance Requirements in respect of the use, operation, maintenance, repair
and restoration of the Leased Property, whether or not compliance therewith
shall require structural changes in any of the Leased Improvements or interfere
with
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the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof. In
addition to and without limiting the generality of the foregoing, Tenant shall
adopt and implement a compliance program adequate to assure such compliance. The
compliance program shall include all material elements of an effective program
to prevent and detect violations of law as identified in Commentary 3(k) of
Section 8A1.2 of the federal Sentencing Guidelines.
ARTICLE XX
----------
HOLDING OVER
------------
If Tenant shall for any reason remain in possession of the
Leased Property after the expiration of the Term or earlier termination of the
Term, such possession shall be as a month-to-month tenant during which time
Tenant shall pay as rental each month, one hundred fifty percent (150%) of the
aggregate of (i) the Minimum Rent payable with respect to the Leased Property
during the last Lease Year of the preceding Term, (ii) one-twelfth (1/12) of the
aggregate Additional Rent payable with respect to the Leased Property during the
last Lease Year of the preceding Term; (iii) all Additional Rent accruing during
the month; and (iv) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Leased Property. During any such
period of month-to-month tenancy, Tenant shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the expiration or
earlier termination of this Lease.
ARTICLE XXI
-----------
RISK OF LOSS
------------
21.1 Risk of Loss.
During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property as a consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than by Landlord and those claiming from, through or under
Landlord) is assumed by Tenant. In the absence of gross negligence, willful
misconduct or breach of this Lease by Landlord pursuant to Section 25.3,
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Landlord shall in no event be answerable or accountable therefor nor shall any
of the events mentioned in this Article XXI entitle Tenant to any abatement of
Rent (except as provided in Section 21.2) or otherwise relieve Tenant of its
obligations hereunder and under each Lease.
21.2 Unavoidable Events.
If at any time during the Term, the Facility is rendered
Unsuitable For Its Primary Intended Use for a period in excess of one hundred
eighty (180) consecutive days by reason of one or more of the following events
(each, an "Unavoidable Event"):
(a) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of the Leased Property or any portion thereof, including
without limitation any such prohibition or restriction resulting from Legal
Requirements enacted after the date hereof (excepting any such prohibition or
restriction caused by the actions, negligence or intentional misconduct of
Tenant); or
(b) declared or undeclared war, sabotage, riot or other acts
of civil disobedience, or the acts or omissions by governmental agencies.
THEN Tenant shall have the right to terminate the Lease by giving Landlord
written notice of such termination. The effective date of such termination shall
be ninety (90) days after Landlord's receipt of said written notice of
termination; provided, however, if Landlord elects to remedy or remove the
restrictions or interference referenced above or otherwise correct or restore
the Facility and within said ninety (90) day period the Facility is made
suitable for its Primary Intended Use, Tenant's election to terminate the Lease
shall be deemed rescinded and the Lease shall remain in full force and effect.
This Article XXI shall not limit or restrict Tenant's rights or obligations
under Article XV of this Lease.
ARTICLE XXII
------------
INDEMNIFICATION
---------------
22.1 Tenant's Indemnification of Landlord.
Except as otherwise provided in Section 22.2 and
notwithstanding the existence of any insurance provided for in Article XIV, and
without regard to the policy limits of any such insurance, Tenant shall protect,
indemnify, save harmless and defend Landlord from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against
Landlord by reason of:
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(a) any accident, injury to or death of Persons or loss of or
damage to property occurring on or about the Leased Property
or adjoining sidewalks during the Term;
(b) any use, misuse, non-use, condition, maintenance or repair
by Tenant of the Leased Property;
(c) any Impositions (which are the obligations of the Tenant
to pay pursuant to the applicable provisions of this Lease);
(d) any failure on the part of Tenant to perform or comply
with any of the terms of this Lease;
(e) the non-performance of any of the terms and provisions of
any and all existing future subleases of the Leased Property
to be performed by Tenant thereunder; and
(f) any liability Landlord may incur or suffer as a result of
any permitted contest by Tenant pursuant to Article XIII.
22.2 Landlord's Indemnification of Tenant.
Landlord shall protect, indemnify, save harmless and defend
Tenant from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees) imposed upon or incurred by or asserted against
Tenant or the Leased Property as a result of Landlord's gross negligence or
willful misconduct.
22.3 Mechanics of Indemnification.
As soon as reasonably practicable after receipt by the
indemnified party of notice of any liability or claim incurred by or asserted
against the indemnified party that is subject to indemnification under this
Article XXII, the indemnified party shall give notice thereof to the
indemnifying party. The indemnified party may at its option demand indemnity
under this Article XXII as soon as a claim has been threatened by a third party,
regardless of whether an actual loss has been suffered, so long as the
indemnified party shall in good faith determine that the indemnified party may
be liable for, or otherwise incur, a loss as a result thereof and shall give
notice of such determination to the indemnifying party. The indemnified party
shall permit the indemnifying party, at its option and expense, to assume the
defense of any such claim by counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party, and to settle or otherwise
dispose of the same; provided, however, that the indemnified party may at all
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times participate in such defense at its expense; and provided further, however,
that the indemnifying party shall not, in defense of any such claim, except with
the prior written consent of the indemnified party, consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff in question to the
indemnified party and its affiliates a release of all liabilities in respect of
such claims, or that does not result only in the payment of money damages by the
indemnifying party. If the indemnifying party shall fail to undertake such
defense within thirty (30) days after such notice, or within such shorter time
as may be reasonable under the circumstances, then the indemnified party shall
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the indemnifying party.
22.4 Survival of Indemnification Obligations.
Tenant's or Landlord's obligation to indemnify under this
Article XXII arising during the Term shall survive any termination of this Lease
for a period of one (1) year following such termination.
ARTICLE XXIII
-------------
SUBLETTING AND ASSIGNMENT
-------------------------
23.1 Prohibition Against Subletting and Assignment.
Except as provided in Section 23.3 or Section 23.4, Tenant
shall not, without the prior written consent of Landlord (which consent Landlord
may grant or withhold in its sole and absolute discretion), assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer (except to an Affiliate of
Tenant) this Lease or any interest in this Lease, all or any part of the Leased
Property or suffer or permit this Lease or the leasehold estate created hereby
or any other rights arising under this Lease to be assigned, transferred,
mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law. For purposes of this Section
23.1, an assignment of this Lease shall be deemed to include any Change of
Control of Tenant, as if such Change of Control were an assignment of this
Lease.
23.2 Changes of Control.
A "Change of Control" requiring the consent of Landlord shall
mean:
(a) the issuance or sale by Tenant or the sale by any
stockholder of Tenant of a Controlling interest in Tenant to a
Person other than an Affiliate of Tenant or Guarantor, other
than, in either case, (x) a distribution to the public
pursuant to an effective registration statement under the
Securities Act of 1933, as amended (a "Registered Offering")
or (y) the sale by any stockholders, either directly or
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indirectly (whether by operation of law or otherwise) of a
controlling interest in Guarantor;
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise), excluding the sale of all or
substantially all of the assets of Guarantor;
(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity owned
and Controlled by an Affiliate of Tenant), and Tenant is not
the surviving entity;
23.3 Subleases.
23.3.1 Permitted Subleases.
(a) Tenant may, with Landlord's prior written consent, which
may not be unreasonably withheld, sublease or license portions of the Leased
Property to concessionaires or licensees to operate any portions (but not the
entirety) of the Leased Property customarily associated with or incidental to
the operation of the Facility; provided, however, that Landlord's consent to any
proposed sublease or license shall not be considered unreasonably withheld if
Landlord believes that (i) the rental or other amounts to be paid by the
proposed sublessee or licensee thereunder would be based, in whole or in part,
on the income or profits derived by such proposed sublessee or licensee from the
Facility or the Leased Property, (ii) the Landlord owns an interest, directly or
indirectly (by applying the constructive ownership rules of Section 856(d)(5) of
the Code) in the proposed sublessee or licensee or (iii) the proposed sublease
or license would cause (x) a portion of the amounts received by Landlord
pursuant to this Lease or any sublease or license to fail to qualify as "rents
from real property" within the meaning of Section 856(d) of the Code, or any
similar successor provision thereto, or (y) any other income of Landlord to fail
to qualify as income described in Section 856(c)(2) of the Code.
(b) Notwithstanding the foregoing, Tenant shall, without
Landlord's prior approval, be permitted to sublease portions of the Leased
Property to residents of the Facility; provided, however, that Tenant shall not
require or accept prepayment for more than three (3) months' use of individual
units or rooms in any Facility. Amounts charged to residents for individual
units or rooms shall not be materially less than fair market value.
23.3.2 Terms of Sublease.
Each sublease of any portion of the Leased Property shall be
subject and subordinate to the provisions of this Lease and shall provide that
Landlord, at its option and without any obligation to do so, may require any
sublessee to attorn to Landlord, in which event Landlord shall undertake the
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obligations of Tenant, as sublessor under such sublease from the time of the
exercise of such option to the termination of such sublease, and in such case,
Landlord shall not be liable (i) for any prepaid rents or security deposit paid
by such sublessee to Tenant unless Landlord actually receives the same from
Tenant or (ii) for any other defaults of Tenant under such sublease. In the
event that Landlord shall not require such attornment with respect to any
sublease, then such sublease shall automatically terminate upon the expiration
or earlier termination of this Lease, including any earlier termination by
mutual consent of Landlord and Tenant. No sublease made as permitted by Section
23.3.1 shall affect or reduce any of the obligations of Tenant hereunder, and
all such obligations shall continue in full force and effect as if no sublease
had been made. No sublease shall impose any additional obligations on Landlord
under this Lease.
23.3.3 Copies.
Tenant shall, within ten (10) days after the execution and
delivery of any sublease permitted by Section 23.3.1, deliver a duplicate
original thereof to Landlord.
23.3.4 Assignment of Rights in Subleases.
As security for performance of its obligations under this
Lease, Tenant hereby grants, conveys and assigns to Landlord all right, title
and interest of Tenant in and to all subleases now in existence or hereinafter
entered into for any or all of the Leased Property, and all extensions,
modifications and renewals thereof and all rents, issues and profits therefrom.
Landlord hereby grants to Tenant a license to collect and enjoy all rents and
other sums of money payable under any sublease of any portion of the Leased
Property; provided, however, that Landlord shall have the absolute right at any
time after the occurrence and continuance of an Event of Default upon notice to
Tenant and any subtenants to revoke said license and to collect such rents and
sums of money and to retain the same. Tenant shall not (i) after the occurrence
and continuance of an Event of Default, consent to, cause or allow any material
modification or alteration of any of the terms, conditions or covenants of any
of the subleases or the termination thereof, without the prior written approval
of Landlord nor (ii) accept any rents (other than customary security deposits)
more than ninety (90) days in advance of the accrual thereof nor permit anything
to be done, the doing of which, nor omit or refrain from doing anything, the
omission of which, will or could be a breach of or default in the terms of any
of the subleases.
23.3.5 Licenses.
For purposes of Section 23.1 and this Section 23.3, subleases
shall be deemed to include any licenses, concession arrangements, or other
arrangements relating to the possession of any part of the Leased Property.
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23.4 Assignment.
Except as expressly provided in this Section 23.4, Tenant may
assign this Lease (including, without limitation, upon a Change of Control of
Tenant as provided in Section 23.2) only upon the written consent of Landlord,
which consent shall not be unreasonably withheld. If Tenant desires at any time
to assign this Lease, it shall first notify Landlord of its desire to do so and
shall submit in writing to Landlord: (i) the name of the proposed assignee; (ii)
the terms and provisions of the proposed assignment; and (iii) such financial
information as Landlord reasonably may request concerning the proposed assignee.
Except as provided in Section 23.4.3 below, any assignment by Tenant of this
Lease shall be solely of Tenant's entire interest in and under this Lease. The
consent by Landlord to any assignment shall not constitute a consent to any
subsequent or successive assignment by the assignee. Any purported assignment or
other transfer of all or any portion of Tenant's interest in this Lease in
contravention of this Section 23.4 shall be void and, at the option of Landlord,
shall terminate this Lease.
23.4.1 Financial Condition of Assignee.
Landlord may, as a condition to granting its consent to any
proposed assignment by Tenant, require that the obligations of any assignee
which is an Affiliate of another Person be guaranteed by its parent or
controlling Person. Furthermore, any assignment agreement entered into by Tenant
shall expressly provide that the assignee shall furnish Landlord with such
financial and operational information as Landlord may request from time to time.
23.4.2 Assignment to Affiliate.
Tenant may, upon notice to Landlord, but without
Landlord's consent, assign this Lease to an Affiliate of Tenant (including,
without limitation, pursuant to a Change of Control of Tenant as provided in
Section 23.2); provided further an assignment pursuant to this Section 23.4.2
shall not be permitted in the event (i) the rental or other amounts to be paid
by the proposed assignee thereunder would be based, in whole or in part, on
the income or profits derived by such proposed assignee from the Facility or
the Leased Property, (ii) the Landlord owns an interest, directly or
indirectly (by applying the constructive ownership rules of Section 856(d)(5)
of the Code) in the proposed assignee or (iii) the proposed assignment would
cause (x) a portion of the amounts received by Landlord pursuant to this Lease
to fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar successor provision thereto, or (y) any
other income of Landlord to fail to qualify as income described in Section
856(c)(2) of the Code. Furthermore, any assignment agreement entered into by
Tenant shall expressly provide that the assignee shall furnish Landlord with
such financial and operational information as Landlord may request from time
to time.
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23.4.3 Assignment in Bankruptcy.
If, pursuant to the provisions of Title 11 of the United
States Code or any statute of similar purpose or nature (the "Bankruptcy Code"),
Tenant assumes this Lease and proposes to assign this Lease to any Person who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment shall be given to
Landlord by Tenant no later than twenty (20) days after receipt of such offer by
Tenant, but in any event no later than ten (10) days prior to the date that
Tenant shall file any application or motion with a court of competent
jurisdiction for authority and approval to enter into such assumption and
assignment. Such notice shall set forth (a) the name and address of the
assignee, (b) all of the terms and conditions of such offer and (c) the proposal
for providing adequate assurance of future performance by such Person under this
Lease, including, without limitation, the assurance referred to in Section 365
of the Bankruptcy Code. Any Person to whom this Lease is assigned pursuant to
the provisions of the Bankruptcy Code shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease from and
after the date of such assignment. Any such assignee shall execute and deliver
to Landlord upon demand an instrument confirming such assumption.
23.4.4 Adequate Assurance of Future Performance.
The term "adequate assurance of future performance" as used in
Section 23.4.3 shall mean the assurances called for in Section 365(f) of the
Bankruptcy Code.
23.4.5 Disaffirmance or Rejection.
If, at any time after Tenant may have assigned Tenant's
interest in this Lease pursuant to this Section 23.4, this Lease shall be
disaffirmed or rejected in any proceeding, or in the event of termination of
this Lease following an Event of Default, Tenant, upon notice of Landlord given
within thirty (30) days next following any such disaffirmance, rejection or
termination (and actual notice thereof to Landlord in the event of a
disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall pay to Landlord all Minimum Rent and Additional Rent due and
owing by the assignee to Landlord under this Lease to and including the date of
such disaffirmance, rejection or termination.
23.4.6 Costs.
Tenant shall reimburse Landlord for Landlord's reasonable
costs and expenses incurred in conjunction with the processing and documentation
of any assignment permitted hereunder, including, without limitation, reasonable
attorneys', architects', engineers' and other consultants' fees and expenses,
whether or not any such assignment is actually consummated.
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23.4.7 No Release of Tenant's Obligation.
No assignment of this Lease shall relieve Tenant of its
obligation to pay Rent and to perform all of the other obligations to be
performed by Tenant hereunder. The liability of Tenant named herein and any
immediate or remote successor in interest of Tenant, and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed,
shall not in any way be discharged, released or impaired by any (i) agreement
which modifies any of the rights or obligations of the parties under this Lease,
(ii) stipulation which extends the time within which an obligation under this
Lease is to be performed, (iii) waiver of the performance of an obligation
required under this Lease or (iv) failure to enforce any of the obligations set
forth in this Lease.
ARTICLE XXIV
------------
ESTOPPEL CERTIFICATES AND OTHER STATEMENTS
------------------------------------------
24.1 Estoppel Certificates.
24.1.1 Estoppel Certificate of Tenant.
At any time, and from time to time within twenty (20) days
after a written request from Landlord, Tenant will furnish to Landlord an
Officer's Certificate certifying:
(a) that this Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as modified
and setting forth the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Tenant, Landlord
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each
such default of which Tenant may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Tenant before or by any court or
administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Tenant;
(e) the current responses to such other questions or
statements of fact as Landlord shall reasonably request.
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Tenant's failure to deliver such statement within such time
shall constitute an acknowledgment by Tenant that this Lease is unmodified and
in full force and effect except as may be represented to the contrary by
Landlord, Landlord is not in default in the performance of any covenant,
agreement or condition contained in this Lease and the other matters set forth
in such request, if any, are true and correct. Any such certificate furnished
pursuant to this Section 24.1.1 may be relied upon by Landlord and any Facility
Mortgagee.
24.1.2 Estoppel Certificate of Landlord.
At any time, and from time to time within twenty (20) days
after a written request from Tenant, Landlord will furnish to Tenant an
Officer's Certificate certifying:
(a) that this Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as modified
and setting forth the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Landlord, Tenant
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each
such default of which Landlord may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Landlord before or by any court or
administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Landlord;
(e) the current responses to such other questions or
statements of fact as Tenant shall reasonably request.
Landlord's failure to deliver such statement within such time
shall constitute an acknowledgment by Landlord that this Lease is unmodified and
in full force and effect except as may be represented to the contrary by Tenant,
Tenant is not in default in the performance of any covenant, agreement or
condition contained in this Lease and the other matters set forth in such
request, if any, are true and correct. Any such certificate furnished pursuant
to this Section 24.1.2 may be relied upon by Tenant.
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24.2 Financial Statements of Tenant.
24.2.1 Quarterly Financial Statements
Tenant will furnish to Lender, as soon as practicable, and in
any event within 60 days after the end of each Fiscal Quarter, an unaudited
consolidated balance sheet of Tenant as at the end of such Fiscal Quarter and
unaudited consolidated statement of income and expense of Tenant for each such
Fiscal Quarter, and for that part of the Fiscal Year to date.
24.2.2 Annual Financial Statements
Tenant will furnish to Landlord, within one hundred twenty
(120) days after the end of Tenant's fiscal year, an audited consolidated
balance sheet of Tenant as at the end of such fiscal year and a consolidated
statement of income and consolidated cash flow of Tenant for such fiscal year,
setting forth in each case, in comparative form, the corresponding figures for
the preceding Fiscal Year, prepared in accordance with GAAP.
24.3 Environmental Statements.
Immediately upon Tenant's learning, or having reasonable cause
to believe, that any Hazardous Material in a quantity sufficient to require
remediation or reporting under applicable law is located in, on or under the
Leased Property or any adjacent property, Tenant shall notify Landlord in
writing of (a) any enforcement, cleanup, removal, or other governmental or
regulatory action instituted, completed or threatened; (b) any claim made or
threatened by any Person against Tenant or the Leased Property relating to
damage, contribution, cost recovery, compensation, loss, or injury resulting
from or claimed to result from any Hazardous Material; and (c) any reports made
to any federal, state or local environmental agency arising out of or in
connection with any Hazardous Material in or removed from the Leased Property,
including any complaints, notices, warnings or asserted violations in connection
therewith.
24.4 Charges.
Tenant acknowledges that the failure to furnish Landlord with
any of the certificates or statements required by this Article XXIV will cause
Landlord to incur costs and expenses not contemplated hereunder, the exact
amount of which is presently anticipated to be extremely difficult to ascertain.
Accordingly, if Tenant shall fail to furnish Landlord with any of the
certificates or statements required by this Article XXIV, Tenant shall pay to
Landlord upon demand $1,000 for each such failure as Additional Rent. The
parties agree that this charge represents a fair and reasonable estimate of the
costs that Landlord will incur by reason of Tenant's failure to furnish Landlord
with such certificates and statements.
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ARTICLE XXV
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LANDLORD MORTGAGES
------------------
25.1 Landlord May Grant Liens.
Without the consent of Tenant, Landlord may, from time to
time, directly or indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement ("Landlord's Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing or other obligation of
Landlord. This Lease is and at all times shall be subject and subordinate to any
ground or underlying leases, mortgages, trust deeds or like encumbrances, which
may now or hereafter affect the Leased Property and to all renewals,
modifications, consolidations, replacements and extensions of any such lease,
mortgage, trust deed or like encumbrance. This clause shall be self-operative
and no further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee or beneficiary, affecting this Lease or
the Leased Property, provided, however, the subordination of this Lease shall be
subject to Tenant's receipt of a non-disturbance agreement reasonably acceptable
to Tenant; provided, however, the subordination of this Lease shall be subject
to Tenant's receipt of a non-disturbance agreement reasonably acceptable to
Tenant. In confirmation of such subordination, Tenant shall execute promptly any
certificate that Landlord may request for such purposes.
25.2 Tenant's Non-Disturbance Rights; Attornment.
So long as no Event of Default by Tenant shall have occurred
and be continuing hereunder, none of Tenant's rights under this Lease shall be
disturbed by the holder of any Landlord's Encumbrance which is created or
otherwise comes into existence after the Commencement Date. Following a
foreclosure of any Facility Mortgage, the applicable Facility Mortgagee or the
purchaser at a foreclosure shall perform all obligations of lessor under this
Lease (but not obligations which accrued before such Facility Mortgagee or
purchaser at foreclosure obtained title to the Leased Property), and Tenant
shall attorn to and recognize such purchaser as its landlord.
25.3 Breach by Landlord.
It shall be a breach of this Lease if Landlord shall fail to
observe or perform any material term, covenant or condition of this Lease on its
part to be performed and such failure shall continue for a period of thirty (30)
days after notice thereof from Tenant, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Landlord, within said thirty (30) day
period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within ninety (90) days following the
expiration of said thirty (30) day period. The time within which Landlord shall
be
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obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay.
25.4 Facility Mortgage Protection.
Tenant agrees that the holder of any Landlord Encumbrance
shall have no duty, liability or obligation to perform any of the obligations of
Landlord under this Lease, but that in the event of Landlord's default with
respect to any such obligation, Tenant will give any such holder whose name and
address have been furnished to Tenant in writing for such purpose notice of
Landlord's default and allow such holder thirty (30) days following receipt of
such notice for the cure of said default before invoking any remedies Tenant may
have by reason thereof.
ARTICLE XXVI
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TENANT'S RIGHT OF FIRST REFUSAL
-------------------------------
26.1 Right of First Refusal.
In the event Landlord ever determines that it desires to sell
or lease the Leased Property during the Term or on or before the date which is
one (1) year following the expiration of the Term, Landlord agrees not to market
or sell the Leased Property without first complying with the provisions of this
Section 26.1.
26.1.1 Landlord's Original Notice.
If Landlord shall desire to sell or lease the Leased Property
during the Term on or before the date which is one (1) year following the
expiration of the Term, Landlord shall deliver a written notice to Tenant
("Landlord's Original Notice") advising Tenant that Landlord desires to sell or
lease the Leased Property and stating the price or rental rate and lease term,
as applicable, at which Landlord desires to sell the Leased Property (the
"Original Purchase Price") or lease the Leased Property (the "Original Lease
Terms"), as applicable.
26.1.2 Tenant's Original Offer and Right to Purchase.
Tenant shall have thirty (30) days from the date the
Landlord's Original Notice is delivered to Tenant (the "Original Notice Delivery
Date") in which to deliver to Landlord a written offer ("Tenant's Original
Offer") to purchase the Leased Property for cash at a purchase price equal to
the Original Purchase Price and upon the Right of First Refusal Terms (as
defined below) or to lease the Leased Property upon the Original Lease Terms set
forth in Landlord's Original Notice, as applicable. Any offer by Tenant to
purchase the Leased Property must include the following terms (the "Right of
First Refusal Terms"): (i) Tenant shall pay all costs related to obtaining any
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environmental assessment reports (collectively, the "Environmental Reports")
related to the Leased Property; (ii) Tenant shall pay all costs of obtaining any
survey of the Leased Property; (iii) Landlord shall pay the base premium for
Form ALTA 1992 Owner Policy of Title Insurance (or local equivalent) for the
Leased Property providing coverage to Tenant comparable to the title insurance
policy (the "Title Insurance") obtained for Landlord in respect to Landlord's
purchase of the Leased Property, and in this regard, Landlord shall be entitled
to select the title insurance agency to close the sale of the Leased Property
and through which the Title Insurance is to be issued (the "Title Company");
(iv) each party shall pay for the attorneys' fees and expenses and other costs
which that party incurs; (v) Tenant and Landlord shall equally share all other
closing costs; (vi) there shall not be any unusual or non-customary
contingencies or conditions whatsoever to Tenant's obligation to purchase the
Leased Property; (vii) Tenant shall pay Landlord the amount of the Original
Purchase Price for the Leased Property in cash at closing; (viii) Tenant shall
deposit cash with the Title Company equal to ten percent (10%) of the Original
Purchase Price as an earnest money deposit (the "Earnest Money"), which Earnest
Money shall be nonrefundable and shall be paid to Landlord in the event Tenant
fails to perform its obligations under Tenant's Original Offer (provided that
such Earnest Money shall be applied towards the purchase price of the Leased
Property if the purchase closes); (ix) the sale of the Leased Property shall be
on an "AS IS, WHERE IS, WITH ALL FAULTS" basis with no representations or
warranties of Landlord whatsoever; (x) the conveyance shall be by special
warranty deed; and (xi) the closing of the sale and purchase of the Leased
Property must occur within one hundred twenty (120) days after the Original
Notice Delivery Date. Any offer by Tenant to lease the Leased Property must
include the following terms: (i) Tenant shall pay rent to Landlord in the amount
and for the lease term described in the Original Lease Terms under the terms and
conditions set forth in Landlord's Original Notice; (ii) Tenant shall lease the
Leased Property on an "AS IS, WHERE IS, WITH ALL FAULTS" basis and Landlord
shall have no obligation to construct any improvements, alterations and
renovations not specifically described in Landlord's Original Notice; (iii) in
the event the proposed lease term is for a period of five (5) years or less,
shall include a right of first refusal provision similar to the provisions of
this Section 26.1; and (iv) all material terms of lease not otherwise specified
in Landlord's Original Notice shall be as set forth in this Lease.
In the event Tenant does not timely deliver a Tenant's
Original Offer to Landlord within such thirty (30) day period, Tenant shall be
conclusively deemed to have forfeited any right to purchase or lease, as
applicable, the Leased Property pursuant to the Landlord's Original Notice; and
Landlord shall become entitled to market and sell or lease the Leased Property
in accordance with the provisions of Section 26.1.3 hereof. In the event Tenant
timely delivers a Tenant's Original Offer to Landlord within such thirty (30)
day period, (i) if Tenant is to purchase the Leased Property, Tenant and
Landlord shall each deliver to the Title Company duplicate signed counterparts
of the Tenant's Original Offer (executed by duly authorized representatives of
Tenant and Landlord, respectively) and Tenant shall pay the Earnest Money to the
Title Company within forty-eight (48) hours of such acceptance, or (ii) if
Tenant is to lease the Leased Property, Tenant and Landlord shall enter into a
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lease agreement on the terms and conditions set forth in Landlord's Original
Notice and as provided above.
26.1.3 Sale or Lease by Landlord.
In the event Landlord becomes entitled to market and sell the
Leased Property pursuant to this Section 26.1.3, Landlord shall be free for a
period of two hundred forty (240) days from the Original Notice Delivery Date to
advertise, list for sale or lease, solicit offers, negotiate contracts for the
sale or lease of, and sell or lease (collectively, the "Sale Activity") the
Leased Property at a sale price or rental rate and lease term, as applicable,
not less than the Original Purchase Price or as set forth in the Original Lease
Terms, as applicable, and in the event the Leased Property is not sold or leased
within such two hundred forty (240) day period but is subject to a Pending
Contract (as defined below), Landlord shall continue to be free to sell or lease
the Leased Property upon the terms set forth in the Pending Contract. For
purposes of this Section 26.1.3, the term "Pending Contract" means a bona fide
written contract which (i) provides for the sale of the Leased Property by
Landlord to a Person other than a Person affiliated with Landlord at a sale
price not less than the Original Purchase Price, (ii) provides for the lease of
the Leased Property by Landlord to a Person other than a Person affiliated with
Landlord at a rental rate and for a lease term as set forth in the Original
Lease Terms and (iii) in the case of a sale, sets a date for the closing of such
sale that is scheduled to occur within ninety (90) days of the date of such
contract.
ARTICLE XXVII
-------------
MISCELLANEOUS
-------------
27.1 Landlord's Right to Inspect.
Tenant shall permit Landlord and its authorized
representatives to inspect the Leased Property during usual business hours
subject to any security, health, safety or confidentiality requirements of
Tenant or any governmental agency or insurance requirement relating to the
Leased Property, or imposed by law or applicable regulations. Landlord shall
indemnify Tenant for all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Tenant by reason of Landlord's inspection pursuant to this Section 27.1.
27.2 No Waiver.
No failure by Landlord to insist upon the strict performance
of any term of this Lease or to exercise any right, power or remedy consequent
upon a breach of this Lease, and no acceptance of full or partial payment of
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Rent during the continuance of any such breach, shall constitute a waiver of any
such breach or of any such term. To the extent permitted by law, no waiver of
any breach shall affect or alter this Lease, each of which shall continue in
full force and effect with respect to any other then existing or subsequent
breach.
27.3 Remedies Cumulative.
To the extent permitted by law, each legal, equitable or
contractual right, power and remedy of Landlord now or hereafter provided in
this Lease or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power and remedy. The exercise or
beginning of the exercise by Landlord of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise by
Landlord of any or all of the such other rights, powers and remedies.
27.4 Acceptance of Surrender.
No surrender to Landlord of this Lease or of the Leased
Property or any part thereof, or of any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Landlord and no act by
Landlord or any representative or agent of Landlord, other than such a written
acceptance by Landlord, shall constitute an acceptance of any such surrender.
27.5 No Merger of Title.
There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly, (a) this Lease or the leasehold estate
created hereby or any interest in this Lease or such leasehold estate and (b)
the fee estate in the Leased Property.
27.6 Conveyance by Landlord.
If Landlord shall convey the Leased Property in accordance
with the terms hereof other than as security for a debt, Landlord shall, upon
the written assumption by the transferee of the Leased Property of all
liabilities and obligations of this Lease be released from all future
liabilities and obligations under this Lease arising or accruing from and after
the date of such conveyance or other transfer as to the Leased Property. All
such future liabilities and obligations shall thereupon be binding upon the new
owner.
27.7 Quiet Enjoyment.
So long as Tenant shall pay all Rent as the same becomes due
and shall fully comply with all of the terms of this Lease and fully perform its
obligations hereunder, Tenant shall peaceably and quietly have,
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hold and enjoy the Leased Property for the Term hereof, free of any claim or
other action by Landlord or anyone claming by, through or under Landlord, but
subject to all liens and encumbrances of record as of the date hereof or any
Landlord's Encumbrances.
27.8 Notices.
All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties at the addresses below:
If to Landlord:
___________________________________________
c/o ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, Pennsylvania 19348
Attention: Edward B. Romanov, Jr.,
President and Chief Executive Officer
Telephone: (610) 925-0808
Telecopy: (610 925-0815;
with a copy to:
_________________________
_________________________
_________________________
_________________________
Telephone: (___) ____-_____
Telecopy: (___) ____-_____.
If to Tenant:
_________________________
_________________________
_________________________
_________________________
Telephone: (___) ____-_____
Telecopy: (___) ____-_____;
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with a copy to:
_________________________
_________________________
_________________________
_________________________
Telephone: (___) ____-_____
Telecopy: (___) ____-_____.
Any notice under this Lease shall be deemed to have been given (a) when
personally delivered; (b) on the next business day after it is delivered to a
reputable overnight commercial carrier (charges prepaid); or (c) on the third
day after it is deposited in any depository regularly maintained by the United
States Postal Service, postage prepaid, certified or registered mail, return
receipt requested. Either Landlord or Tenant may change its address or addresses
for purposes of this Section 27.8 by giving ten (10) days' prior written notice
in accordance with this Section 27.8.
27.9 Survival of Claims.
Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Tenant or Landlord
arising prior to any date of termination of this Lease shall survive such
termination for a period of one (1) year following termination.
27.10 Invalidity of Terms or Provisions.
If any term or provision of this Lease or any application
thereof shall be invalid or unenforceable, the remainder of this Lease and any
other application of such term or provision shall not be affected thereby.
27.11 Prohibition Against Usury.
If any late charges provided for in any provision of this
Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
27.12 Amendments to Lease.
Neither this Lease nor any provision hereof or thereof may be
changed, waived, discharged or terminated except by an instrument in writing and
in recordable form signed by Landlord and Tenant.
27.13 Successors and Assigns.
All the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto. All permitted assignees or
sublessees shall be subject to the terms and provisions of this Lease.
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27.14 Titles.
The headings in this Lease are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof or thereof.
27.15 Governing Law.
This Lease shall be governed by and construed in accordance
with the laws of the [Commonwealth of Pennsylvania] (but not including its
conflict of laws rules).
27.16 Memorandum of Lease.
Landlord and Tenant shall, promptly upon the request of
either, enter into a short form memorandum of this Lease (a "Memorandum of
Lease"), in form and substance satisfactory to Landlord and suitable for
recording under the state in which the Leased Property is located. Tenant shall
pay all costs and expenses of recording such Memorandum of Lease.
27.17 Attorneys' Fees.
In the event of any dispute between the parties hereto
involving the covenants or conditions contained in this Lease or arising out of
the subject matter of this Lease, the prevailing party shall be entitled to
recover against the other party reasonable attorneys' fees and expenses. Any
reference in this Lease (including, without limitation, this Section 27.17)
shall be deemed to include, without limitation, all costs for administrative,
paralegal and support staff and all travel and entertainment expenses.
27.18 Non-Recourse as to Landlord.
Anything contained herein to the contrary notwithstanding, any
claim based on or in respect of any liability of Landlord under this Lease shall
be enforced only against the Leased Property and not against any other assets,
properties or funds of (a) Landlord, (b) any trustee, director, officer, general
partner, limited partner, member, manager, employee or agent of Landlord, or
with respect to any general partner of Landlord, any of their respective general
partners, stockholders, or members (or any legal representative, heir, estate,
successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of Landlord, or any of their
respective general partners, either directly or through either Landlord or their
respective general partners or any predecessor or successor partnership, limited
liability company or corporation or their stockholders, officers, directors,
members, managers, employees or agents (or other entity), or (d) any other
Person affiliated with any of the foregoing, or any trustee, director, officer,
member, manager, employee or agent of any thereof.
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27.19 No Relationship.
Landlord shall in no event be construed for any purpose to be
a partner, joint venturer or associate of Tenant or of any subtenant, operator,
concessionaire or licensee of Tenant with respect to the Leased Property or
otherwise in the conduct of their respective businesses.
27.20 Signs; Reletting.
If Tenant exercises its option not to extend or further extend
the Term under Section 2.3 or if an Event of Default occurs, then Landlord shall
have the right during the remainder of the Term then in effect (i) to advertise
the availability of the Leased Property for sale or reletting and to erect upon
the Leased Property signs indicating such availability and (ii) to show the
Leased Property to prospective purchasers or tenants or their agents at such
reasonable times as Landlord may elect.
27.21 Facility Names.
The Leased Property shall be known by such trade name or
trademark or logo as may from time to time be determined by Tenant. Landlord
recognizes that the name "______________________" and the initials "_____,"
together with any other names, logos or designs owned by Tenant or any of its
Affiliates and used in the management and operation of the Leased Property,
together with appurtenant goodwill, are the exclusive property of Tenant or its
Affiliates (collectively, the "Tenant-Owned Names"). Accordingly, Landlord
agrees that no right or remedy of Landlord for any default on the part of Tenant
under this Lease shall, nor shall any provision of this Lease, confer upon
Landlord or its successors or assigns the right to use Tenant-Owned Names in the
operation of the Leased Property or otherwise. In the event of any breach of
this covenant by Landlord, Tenant, in addition to any remedies available to it
under this Lease or at law or in equity, shall have the right to injunctive
relief.
27.22 Further Assurances.
In addition to the obligations required to be performed under
this Lease by Tenant and Landlord, the parties shall perform, from time to time,
such other acts and shall execute, acknowledge or deliver such other
instruments, documents and other materials as the other party may reasonably
request in order to consummate the transaction contemplated by this Lease,
including, without limitation, executing and delivering any modification,
addendum or amendment required by Landlord, to restructure rent payments so that
income from this Lease will be qualified income in connection with qualification
as a real estate investment trust; provided however, that such modification,
addendum or amendment shall not materially affect either party's economic
position with respect to this Lease.
70
<PAGE>
27.23 Arbitration.
Except with respect to the payment of Minimum Rent as provided
herein, in case any controversy shall arise between the parties hereto as to any
of the requirements of this Lease or the performance of any obligations under
this Lease, which the parties shall be unable to settle by agreement or as
otherwise provided herein, such controversy shall be determined by arbitration
to be initiated and conducted as provided in Exhibit F hereto.
27.24 Licenses.
Upon the expiration or earlier termination of this Lease,
Tenant shall use its best efforts to transfer to Landlord or Landlord's nominee
and shall cooperate with Landlord or Landlord's designee or nominee in
connection with the processing by Landlord or Landlord's designee or nominee of
any applications for all licenses, operating permits and other governmental
authorizations, all contacts, including contracts with governmental or
quasi-governmental entities, business records, data, patient and resident
records, and patient and resident trust accounts, which may be necessary or
useful for the operation of the Facility; provided that the costs and expenses
of any such transfer or the processing of any such application shall be paid by
Landlord or Landlord's designee or nominee. Tenant shall not commit any act or
be remiss in the undertaking of any act that would jeopardize the licensure or
certification of the Facility, and Tenant shall comply with all requests for an
orderly transfer of the same upon the expiration or early termination of the
Term. In addition, upon request, Tenant shall promptly deliver copies of all
books and records relating to the Leased Property and its operation to Landlord
or Landlord's designee or nominee but Tenant shall not be required to deliver
corporate financial records or proprietary materials. Tenant shall indemnify,
defend, protect and hold harmless Landlord from and against any loss, damage,
cost or expense incurred by Landlord or Landlord's designee or nominee in
connection with the correction of any and all deficiencies of a physical nature
identified by any governmental authority responsible for licensing the Leased
Property in the course of any change of ownership inspection and audit and
previously identified during the Term by such governmental authority.
27.25 Counterparts.
To facilitate execution, this Lease may be executed in as many
counterparts as may be required. It shall not be necessary that the signature of
or on behalf of each party appears on each counterpart, but it shall be
sufficient that the signature of or on behalf of each party appears on one or
more of the counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in any proof of this Lease to
produce or account for more than a number of counterparts containing the
respective signatures of or on behalf of all of the parties.
71
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Master Lease Document as of the date first above written.
[LANDLORD]
By: ___________________________________________
Its: ___________________________________________
"Landlord"
[TENANT]
a ___________________
By: _________________________________
Its: _________________________________
"Tenant"
72
<PAGE>
SCHEDULE 1
----------
[TENANT] LEASED PROPERTIES
--------------------------
[COMPLETE]
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF LAND
-------------------------
[COMPLETE]
A-1
<PAGE>
EXHIBIT B
---------
[INTENTIONALLY DELETED]
-----------------------
B-1
<PAGE>
EXHIBIT C
---------
APPRAISAL PROCESS
-----------------
If Landlord and Tenant are unable to agree upon the fair
market value of the Leased Property within any relevant period provided in this
Lease, each shall within ten (10) days after written demand by the other select
one MAI Appraiser (as defined below) to participate in the determination of fair
market value. For all purposes under this Lease, the fair market value of the
Leased Property shall be the fair market value of the Leased Property
unencumbered by this Lease. Within ten (10) days of such selection, the MAI
Appraisers so selected by Landlord and Tenant shall select a third MAI Appraiser
("Third MAI Appraiser"). The three (3) selected MAI Appraisers shall each
determine the fair market value of the Leased Property within thirty (30) days
of the selection of the third appraiser. To the extent consistent with sound
appraisal practices as then existing at the time of any such appraisal, and if
requested by Landlord, such appraisal, shall be made on a basis consistent with
the basis on which the Leased Property was appraised at the time of its
acquisition by Landlord. The fees and expenses of any MAI Appraiser retained
pursuant to this Exhibit C shall be borne by the party retaining such MAI
Appraiser, with the exception of the Third MAI Appraiser whose fees and expenses
shall be borne by the Landlord and Tenant equally.
In the event either Landlord or Tenant fails to select an MAI
Appraiser within the time period set forth in the foregoing paragraph, the MAI
Appraiser selected by the other party shall alone determine the fair market
value of the Leased Property in accordance with the provisions of this Exhibit C
and the fair market value so determined shall be binding upon Landlord and
Tenant.
In the event the MAI Appraisers selected by Landlord and
Tenant are unable to agree upon a third MAI Appraiser within the time period set
forth in the first paragraph of this Exhibit C, either Landlord or Tenant shall
have the right to apply at Tenant's expense to the presiding judge of the court
of original trial jurisdiction in the jurisdiction in which the Leased Property
is located to name the third MAI Appraiser.
Within five (5) days after completion of the third MAI
Appraiser's appraisal, all three MAI Appraisers shall meet and a majority of the
MAI Appraisers shall attempt to determine the fair market value of the Leased
Property. If a majority are unable to determine the fair market value at such
meeting, the three appraisals shall be added together and their total divided by
three. The resulting quotient shall be the fair market value of the Leased
Property. If, however, either or both of the low appraisal or the high appraisal
are more than ten percent (10%) lower or higher than the middle appraisal, any
such lower or higher appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be added together and their
C-1
<PAGE>
total divided by two, and the resulting quotient shall be such fair market
value. If both the lower appraisal and higher appraisal are disregarded as
provided herein, the middle appraisal shall be such fair market value. In any
event, the result of the foregoing appraisal process shall be final and binding.
For purposes hereof, "MAI Appraiser" shall mean an appraiser
licensed or otherwise qualified to do business in the State where the Leased
Property is located and who has substantial experience in performing appraisals
of facilities similar to the Leased Property and is certified as a member of the
American Institute of Real Estate Appraisers or certified as a SRPA by the
Society of Real Estate Appraisers, or, if such organizations no longer exist or
certify appraisers, such successor organization or such other organization as is
approved by Landlord.
C-2
<PAGE>
EXHIBIT D
---------
FORM OF GUARANTEE
-----------------
[COMPLETE]
D-1
<PAGE>
EXHIBIT E
---------
[INTENTIONALLY DELETED]
E-1
<PAGE>
EXHIBIT F
---------
ARBITRATION
-----------
Any controversy, dispute or claim arising out of or relating
to this Lease, any modification or extension hereof or thereof, or any breach
hereof or thereof (including the question whether any particular matter is
subject to arbitration hereunder) shall be settled exclusively by arbitration,
in [Philadelphia, Pennsylvania] in accordance with the rules of the [American
Arbitration Association] then in force (the "Rules"). The party requesting
arbitration shall serve upon the other party to the controversy, dispute or
claim a written demand for arbitration stating the substance of the controversy,
dispute or claim and the contention of the party requesting arbitration and the
name and address of the arbitrator appointed by it. The recipient of such demand
shall within twenty (20) days after such receipt appoint an arbitrator, and the
two arbitrators shall appoint a third. The decision or award of any two
arbitrators shall be final and binding upon the parties. In the event that the
two arbitrators fail to appoint a third arbitrator within twenty (20) days of
the appointment of the second arbitrator, either arbitrator, or either party to
the arbitration, may apply to a judge of the United States District Court for
[the Eastern District of Pennsylvania] for the appointment of the third
arbitrator, and the appointment of such arbitrator by such judge on such
application shall have precisely the same force and effect as if such arbitrator
had been appointed by the two arbitrators. If for any reason the third
arbitrator cannot be appointed in the manner prescribed by the preceding
sentence, either regularly appointed arbitrator, or either party to the
arbitration, may apply to [the American Arbitration Association] for appointment
of the third arbitrator in accordance with the Rules. Should the party upon whom
the demand for arbitration has been served fail or refuse to appoint an
arbitrator within twenty (20) days, the single arbitrator shall have the right
to decide alone, and such arbitrator's decision or award shall be final and
binding upon the parties.]
Each arbitrator chosen by a party shall be a fit person, and
the third arbitrator however chosen shall be a fit and impartial person, in each
case having at least ten (10) years experience in litigating, adjudicating or
otherwise administering cases and controversies related to the subject matter of
the controversy, dispute or claim being submitted to arbitration.
The parties hereto agree to abide by all awards and decisions
rendered in an arbitration proceeding in accordance with the foregoing, and all
such awards and decisions may be filed by the prevailing party with any court
having jurisdiction over the person or property of the other party as a basis
for judgment and the issuance of execution thereon. The fees of each arbitrator
and related expenses of arbitration shall be apportioned among the parties as
determined by the arbitrators. The parties to the arbitration shall bear equally
the fees of each arbitrator and related expenses of arbitration.
F-1
<PAGE>
Unless otherwise agreed by the parties to the arbitration, all
hearings shall be held, and all submissions shall be made by the parties, within
ten (10) days of the date of the selection of the third arbitrator, and the
decisions of the arbitrators shall be made within thirty (30) days of the later
of the date of the closing of the hearings or the date of the final submissions
by the parties.
The parties consent to the jurisdiction of the [Supreme Court
of the Commonwealth of Pennsylvania] and of the United States District Court for
[the Eastern District of Pennsylvania], for all purposes in connection with the
arbitration. The parties consent that any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested, or by
personal service, or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed.
F-2
<PAGE>
================================================================================
L E A S E A G R E E M E N T
[PERCENTAGE RENT LEASE]
[LANDLORD]
as
Landlord
and
[TENANT]
as
Tenant
Dated as of _________, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
ARTICLE I....................................................................1
INTERPRETATION AND DEFINITIONS.........................................1
ARTICLE II...................................................................11
PROPERTY AND TERM......................................................11
2.1 Property..................................................11
2.2 Initial Term..............................................11
2.3 Extended Terms............................................11
ARTICLE III..................................................................12
RENT...................................................................12
3.1 Rent......................................................12
3.2 Percentage Rent...........................................13
3.2.1 Monthly Payment of Estimated Percentage Rent....13
3.2.2 Quarterly Calculation and Reconciliation........13
3.2.3 Annual Reconciliation...........................14
3.2.4 Record-keeping..................................14
3.2.5 Audits..........................................14
3.3 Additional Rent...........................................15
3.4 Late Payment of Rent......................................15
3.5 Net Lease.................................................16
3.6 Income and Expense Prorations.............................16
3.7 Best Efforts to Maximize Facility Revenues................16
ARTICLE IV...................................................................16
IMPOSITIONS............................................................16
4.1 Payment of Impositions....................................16
4.2 Information and Reporting.................................17
4.3 Assessment Challenges.....................................17
4.4 Prorations; Payment in Installments.......................17
4.5 Refunds...................................................17
4.6 Utility Charges...........................................18
4.7 Assessment Districts......................................18
ARTICLE V....................................................................18
TENANT WAIVERS.........................................................18
5.1 No Termination or Abatement...............................18
5.2 Condition of Leased Property..............................19
ARTICLE VI...................................................................20
OWNERSHIP OF PROPERTY..................................................20
6.1 Leased Property...........................................20
6.2 Tenant's Personal Property................................20
6.3 Purchase of Tenant's Personal Property....................21
<PAGE>
6.4 Removal of Personal Property..............................21
6.5 Landlord's Personal Property..............................22
ARTICLE VII..................................................................22
USE OF PROPERTY........................................................22
7.1 Permitted Use.............................................22
7.1.1 Primary Intended Use............................22
7.1.2 Necessary Approvals.............................22
7.1.3 Continuous Operation............................23
7.1.4 Lawful Use......................................23
7.1.5 Determination of Facility Revenues
During Breach..................................23
7.2 Compliance with Applicable Medicaid and
Medicare Requirements....................................24
7.3 Environmental Matters.....................................24
7.4 Landlord to Grant Easements...............................25
7.5 Management Agreements.....................................25
ARTICLE VIII.................................................................26
SECURITY FOR LEASE OBLIGATIONS.........................................26
8.1 Security Deposit..........................................26
8.2 Guarantee.................................................26
ARTICLE IX...................................................................27
HAZARDOUS MATERIALS....................................................27
9.1 Remediation...............................................27
9.2 Tenant's Indemnification of Landlord......................27
9.3 Survival of Indemnification Obligations...................28
9.4 Environmental Violations at Expiration or
Termination of Lease.....................................28
9.4.1 Breach..........................................28
9.4.2 Determination of Facility Revenues
During Breach..................................28
ARTICLE X....................................................................29
MAINTENANCE AND REPAIR.................................................29
10.1 Tenant's Maintenance and Repair Obligation...............29
10.2 Waiver of Statutory Obligations..........................29
10.3 Mechanic's Liens.........................................29
10.4 Surrender of Property....................................30
10.5 Required Capital Expenditures............................30
10.5.1 Required Years; Required Amounts;
Permitted Expenditures........................30
10.5.2 Payment Provisions.............................30
10.5.3 No Liability of Landlord.......................31
ARTICLE XI...................................................................31
TENANT IMPROVEMENTS....................................................31
11.1 Tenant's Right to Construct..............................31
11.2 Construction.............................................32
ii
<PAGE>
11.3 Scope of Tenant's Right..................................34
11.4 Cooperation of Landlord..................................34
11.5 Rights in Tenant Improvements............................34
ARTICLE XII..................................................................34
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS...........................34
12.1 Liens....................................................34
12.2 Encroachments and Other Title Matters....................35
ARTICLE XIII.................................................................36
PERMITTED CONTESTS.....................................................36
ARTICLE XIV..................................................................37
INSURANCE..............................................................37
14.1 General Insurance Requirements...........................37
14.1.1 All Risk.......................................38
14.1.2 Liability......................................38
14.1.3 Flood..........................................38
14.1.4 Worker's Compensation..........................38
14.1.5 Business Interruption..........................38
14.1.6 Builder's Risk.................................38
14.1.7 Boiler and Machinery...........................39
14.1.8 Earthquake.....................................39
14.1.9 Environmental Impairment.......................39
14.1.10 Subsidence....................................39
14.1.11 Other Insurance...............................39
14.2 Replacement Cost.........................................39
14.3 Waiver of Subrogation....................................40
14.4 Insurance Company Satisfactory...........................40
14.5 Change in Limits.........................................41
14.6 Blanket Policy...........................................41
ARTICLE XV...................................................................41
APPLICATION OF INSURANCE PROCEEDS......................................41
15.1 Insurance Proceeds.......................................41
15.1.1 Disbursement of Proceeds.......................42
15.1.2 Excess Proceeds................................43
15.2 Reconstruction Covered by Insurance......................43
15.2.1 Destruction Rendering Facility
Unsuitable for its Primary Intended
Use...........................................43
15.2.2 Destruction Not Rendering Facility
Unsuitable for its Primary
Intended Use..................................44
15.2.3 Costs of Repair................................44
15.3 No Abatement of Rent.....................................45
15.4 Waiver...................................................45
15.5 Damage Near End of Term..................................45
ARTICLE XVI..................................................................45
CONDEMNATION...........................................................45
16.1 Total Taking.............................................45
iii
<PAGE>
16.2 Partial Taking..........................................46
16.3 Restoration.............................................46
16.4 Award Distribution......................................46
16.5 Temporary Taking........................................46
ARTICLE XVII................................................................47
EVENTS OF DEFAULT.....................................................47
17.1 Events of Default.......................................47
17.2 Payment of Costs........................................49
17.3 Certain Remedies........................................49
17.4 Damages.................................................50
17.5 Additional Remedies.....................................51
17.6 Appointment of Receiver.................................51
17.7 Waiver..................................................51
17.8 Application of Funds....................................51
17.9 Impounds................................................51
ARTICLE XVIII...............................................................52
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT.............................52
ARTICLE XIX.................................................................52
LEGAL REQUIREMENTS....................................................52
ARTICLE XX..................................................................53
HOLDING OVER..........................................................53
ARTICLE XXI.................................................................53
RISK OF LOSS..........................................................53
21.1 Risk of Loss............................................53
21.2 Unavoidable Events......................................54
ARTICLE XXII................................................................54
INDEMNIFICATION.......................................................54
22.1 Tenant's Indemnification of Landlord....................54
22.2 Landlord's Indemnification of Tenant....................55
22.3 Mechanics of Indemnification............................55
22.4 Survival of Indemnification Obligations.................56
ARTICLE XXIII...............................................................56
SUBLETTING AND ASSIGNMENT.............................................56
23.1 Prohibition Against Subletting and Assignment...........56
23.2 Changes of Control......................................56
23.3 Subleases...............................................57
23.3.1 Permitted Subleases...........................57
23.3.2 Terms of Sublease.............................57
23.3.3 Copies........................................58
23.3.4 Assignment of Rights in Subleases.............58
23.3.5 Licenses......................................58
23.4 Assignment..............................................59
23.4.1 Financial Condition ofAssignee................59
23.4.2 Assignment to Affiliate.......................59
23.4.3 Assignment in Bankruptcy......................60
iv
<PAGE>
23.4.4 Adequate Assurance of Future Performance.......60
23.4.5 Disaffirmance or Rejection.....................60
23.4.6 Costs..........................................60
23.4.7 No Release of Tenant's Obligation..............61
ARTICLE XXIV.................................................................61
ESTOPPEL CERTIFICATES AND OTHER STATEMENTS.............................61
24.1 Estoppel Certificates....................................61
24.1.1 Estoppel Certificate of Tenant.................61
24.1.2 Estoppel Certificate of Landlord...............62
24.2 Financial Statements of Tenant...........................63
24.2.1 Quarterly Financial Statements.................63
24.2.2 Annual Financial Statements....................63
24.3 Environmental Statements.................................63
24.4 Charges..................................................63
ARTICLE XXV..................................................................64
LANDLORD MORTGAGES.....................................................64
25.1 Landlord May Grant Liens.................................64
25.2 Tenant's Non-Disturbance Rights; Attornment..............64
25.3 Breach by Landlord.......................................64
25.4 Facility Mortgage Protection.............................65
ARTICLE XXVI.................................................................65
TENANT'S RIGHT OF FIRST REFUSAL........................................65
26.1 Right of First Refusal...................................65
26.1.1 Landlord's Original Notice.....................65
26.1.2 Tenant's Original Offer and Right to
Purchase......................................65
26.1.3 Sale or Lease by Landlord......................67
ARTICLE XXVII................................................................67
MISCELLANEOUS..........................................................67
27.1 Landlord's Right to Inspect..............................67
27.2 No Waiver................................................67
27.3 Remedies Cumulative......................................68
27.4 Acceptance of Surrender..................................68
27.5 No Merger of Title.......................................68
27.6 Conveyance by Landlord...................................68
27.7 Quiet Enjoyment..........................................68
27.8 Notices..................................................69
27.9 Survival of Claims.......................................70
27.10 Invalidity of Terms or Provisions.......................70
27.11 Prohibition Against Usury...............................70
27.12 Amendments to Lease.....................................70
27.13 Successors and Assigns..................................70
27.14 Titles..................................................70
27.15 Governing Law...........................................70
27.16 Memorandum of Lease.....................................70
27.17 Attorneys' Fees.........................................71
v
<PAGE>
27.18 Non-Recourse as to Landlord.............................71
27.19 No Relationship.........................................71
27.20 Signs; Reletting........................................71
27.21 Facility Names..........................................72
27.22 Further Assurances......................................72
27.23 Arbitration.............................................72
SCHEDULE 1 Leased Property
SCHEDULE 2 Legal Description of Land
SCHEDULE 3 Simultaneous Leases
EXHIBIT A [RESERVED]
EXHIBIT B [INTENTIONALLY DELETED]
EXHIBIT C Appraisal Process
EXHIBIT D Form of Guarantee
EXHIBIT E Arbitration
vi
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (the "Lease"), dated as of __________,
1998, is made and entered into by and between _________________________________
___________________________________________ ("Landlord"), and [TENANT], a
____________________ ("Tenant").
RECITALS
--------
WHEREAS, Landlord owns the Leased Property (as defined below)
identified on Schedule 1 hereto;
WHEREAS, Tenant wishes to lease from Landlord the Leased
Property for the purpose of operating the Facility (as defined below) on the
Leased Property;
NOW, THEREFORE, in consideration of the foregoing, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant agree as follows:
ARTICLE I
---------
INTERPRETATION AND DEFINITIONS
------------------------------
For all purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article I shall have the meanings assigned to them in this Article I and include
the plural as well as the singular, (ii) all accounting terms not otherwise
defined herein shall have the meaning assigned to them in accordance with
generally accepted accounting principles consistently applied, (iii) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and subdivisions of this
Lease and (iv) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Lease as a whole and not to any particular Article,
Section or other subdivision.
Additional Annual Percentage Rent: As defined in Section
3.2.3.
Additional Quarterly Percentage Rent: As defined in Section
3.2.2.
<PAGE>
Additional Rent: As defined in Section 3.3.
Affiliate: As applied to any Person, means any other Person
directly or indirectly Controlling, Controlled by, or under common Control with,
that Person, and, with respect to Guarantor, shall include The Multicare
Companies, Inc.
Award: Means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
Bankruptcy Code: As defined in Section 23.4.3.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, are
authorized, or obligated, by law or executive order, to close.
Change of Control: As defined in Section 23.2.
Code: Means the Internal Revenue Code of 1986, as amended.
Commencement Date: Means __________________________________..
Condemnation: Means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, and (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
Condemnor: Means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
Control: Means (including, with correlative meanings, the
terms "Controlling" and "Controlled by"), as applied to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise, but shall not include
any powers arising by virtue of a contract to manage property owned by that
Person.
CPI: Means, as of any date, the current United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index, United
States Average, "All Items" (1982-84=100); provided, however, that if
compilation of the CPI is discontinued or transferred to any other governmental
department or bureau, then the index most nearly the same as the CPI shall be
used as reasonably chosen by Landlord. No delay by Landlord in providing notice
of the CPI applicable at any time shall be deemed a waiver of Landlord's right
to apply the CPI in respect of any Cumulative CPI Adjustment to be made under
this Lease.
Cumulative CPI: Means, for any period, the CPI as of the last
day of such period divided by the CPI as of the first day of such period.
2
<PAGE>
Cumulative CPI Adjustment: Means, with respect to any amount
at the end of any period, such amount multiplied by the Cumulative CPI for such
period.
Date of Taking: Means the date the Condemnor has the right to
possession of the property being condemned.
Earnest Money: As defined in Section 26.1.3.
Environmental Law: Means all applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, common law, orders, demands,
approvals, authorizations and similar items of all governmental agencies,
departments, commissions, boards, bureaus or instrumentalities of the United
States, states and political subdivisions thereof and all applicable judicial,
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment as in effect on the date hereof or
as later amended, including but not limited to those pertaining to reporting,
licensing, permitting, investigation, removal and remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials, into the
air, surface water, ground water or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, including: (x) the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss.ss. 9601 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.), the
Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. ss. 1251 et seq.), the Safe Drinking Water Act (42 U.S.C.
ss.ss. 300f et seq.), the Toxic Substances Control Act (15 U.S.C. ss.ss. 2601 et
seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss.ss.
11001 et seq.), and the regulations implementing these statutes and (y)
analogous state and local provisions.
Environmental Reports: As defined in Section 26.1.2.
Estimated Percentage Rent: As defined in Section 3.2.1.
Event of Default: As defined in Section 17.1.
Excess Amount: As defined in Section 10.5.2.
Expended Amount: As defined in Section 10.5.2.
Extended Term: As defined in Section 2.3.
Extended Term Commencement Date: As defined in Section 2.3.
Facility: The assisted living facility to be operated on the
Leased Property commonly known as ____________________.
3
<PAGE>
Facility Mortgage: As defined in Section 14.1.
Facility Mortgagee: Means the holder or beneficiary of a
Facility Mortgage, if any, and only to the extent Landlord gives Tenant notice
of the identity and address of the Person.
Facility Revenues: Means all revenues (determined in
accordance with generally accepted accounting principles applied on a consistent
basis, except as provided below) whether or not directly or indirectly received
or receivable from or by reason of the operation of the Facility, including,
without limitation, all resident or client revenues received or receivable for
the use of or otherwise by reason of all rooms, beds and other facilities
provided, meals served, services performed or provided (including, without
limitation, personal care and nursing services, when provided by an employee of
Tenant), space or facilities subleased or goods sold at or from the Facility, or
any other use of the Leased Property, including, without limitation, subleases,
licenses or any other arrangements with third parties relating to the possession
or use of any portion of the Facility; provided, however, that Facility Revenues
shall not include:
(a) revenues from professional fees or charges by
physicians and all providers of ancillary services,
including without limitation, physical therapy
services, whether or not such providers are employees
of Tenant;
(b) non-operating revenues such as interest income or
income from the sale of assets not sold in the
ordinary course of business;
(c) federal, state or local excise taxes imposed
upon, and any tax based upon or measured by, such
revenues which is added to or made a part of the
amount billed to the resident, client or other
recipient of such services or goods, whether included
in the billing or stated separately;
(d) contractual allowances (relating to any period
during the Term) for billings not paid by or received
from the appropriate governmental agencies or third
party providers; and
(e) all proper patient billing credits and
adjustments (including, without limitation,
allowances for uncollectable accounts) according to
generally accepted accounting principles relating to
health care accounting.
Fiscal Quarter: The three-month periods (or applicable
portions thereof) in any Fiscal Year from January 1 through March 31, April 1
through June 30, July 1 through September 30 and October 1 through December 31.
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Fiscal Year: Each twelve-month period from October 1 through
September 30.
Fixtures: Means all permanently affixed equipment, machinery,
fixtures, and other items of real or personal property, including all components
thereof, now and hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Leased Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
kitchen equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which, to the greatest extent permitted by law, are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's Personal Property.
Full Replacement Cost: Means the actual replacement cost
thereof from time to time including increased cost of construction endorsement,
less exclusions provided in the normal fire insurance policy.
GAAP: Means generally accepted accounting principles.
Guarantee: Means the Guarantee of even date herewith executed
by Guarantor in favor of Landlord, the form of which is attached hereto as
Exhibit D.
Guarantor: Means Genesis Health Ventures, Inc., a Pennsylvania
corporation, and its successors and assigns.
Hazardous Materials: Means any substances, pollutants,
contaminants, materials or wastes, whether solid, liquid or gaseous in nature
(including, without limitation, any medical waste):
(i) the presence of which requires investigation or
remediation under any federal, state or local
statute, regulation, ordinance, order, action or
policy, administrative request or civil complaint
under any of the foregoing or under common law;
(ii) which is defined as a "hazardous waste,"
"pollutant or contaminant" or "hazardous substance"
under any federal, state or local statute, regulation
or ordinance or amendments thereto as in effect as of
the Commencement Date, or as thereafter amended,
including the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss.ss. 9601
et seq.) or the Resource Conservation and Recovery
Act (42 U.S.C. ss.ss. 6901 et seq.);
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(iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and as of the
Commencement Date, or as thereafter amended, is
regulated by any governmental authority, agency,
department, commission, board, or instrumentality of
the United States, or any state or any political
subdivision thereof having or asserting jurisdiction
over the Leased Property;
(iv) the presence of which on the Leased Property
causes or threatens to cause a nuisance upon the
Leased Property or to other properties or poses a
hazard to the health or safety of persons on or about
the Leased Property;
(v) which, except as contained in building materials,
contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or
friable asbestos or friable asbestos-containing
materials or urea formaldehyde foam insulation; or
(vi) radon gas.
Impartial Appraiser: As defined in Section 14.2.
Impositions: Means collectively:
(a) all taxes (including all real and personal
property, ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or
similar taxes);
(b) assessments and levies (including all assessments
for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and
whether or not to be completed within the Term);
(c) excises;
(d) fees (including license, permit, inspection,
authorization and similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property, the business conducted thereon by Tenant or the Rent payable
with respect thereto (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time during or in respect of the
Term hereof may be assessed or imposed on or in respect of or be a lien upon (i)
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Landlord or Landlord's interest in the Leased Property; (ii) the Leased Property
or any part thereof or any rent therefrom or any estate, right, title or
interest therein; or (iii) any operation, use or possession of, or sales from or
activity conducted on or in connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof; provided, however, that
Impositions shall not include:
(aa) any tax based on net income (whether denominated
as an income, franchise, capital stock or other tax)
imposed on Landlord or any other Person other than
Tenant;
(bb) any transfer, or net revenue tax of Landlord or
any other Person other than Tenant;
(cc) any tax imposed solely with respect to the sale,
exchange or other disposition by Landlord of the
Leased Property or the proceeds thereof; or
(dd) any tax imposed with respect to any principal or
interest on any indebtedness on the Leased Property.
Impound Charges: As defined in Section 17.9.
Impound Payment: As defined in Section 17.9.
Initial Term: As defined in Section 2.2.
Insurance Requirements: All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
Land: As defined in Section 2.1.
Landlord: As defined in the Preamble.
Landlord's Encumbrance: As defined in Section 25.1.
Landlord's Original Notice: As defined in Section 26.1.2.
Landlord's Personal Property: As defined in Section 2.1.
Lease: As defined in the Recitals.
Leased Improvements: As defined in Section 2.1.
Leased Property: As defined in Section 2.1.
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Lease Year: Means each period of one (1) year that commences
on the Commencement Date (or anniversary thereof) and ends on the day
immediately prior to the next anniversary of the Commencement Date.
Legal Requirements: All federal, state, county, municipal and
other governmental statutes, laws (including the Americans with Disabilities Act
and any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Tenant (other than
encumbrances created by Landlord without the consent of Tenant), at any time in
force affecting the Leased Property; or (iii) require the cleanup or other
treatment of any Hazardous Material.
MAI Appraiser: As defined in Exhibit C.
Management Agreement: Any agreement, whether written or oral,
between Tenant and any other Person pursuant to which Tenant provides any
payment, fee or other consideration to any other Person to operate or manage the
Facility.
Manager: Means any Person having at least ___ years experience
in the management of ________ living facilities of at least similar size and
quality to the Facility that manages the Facility in accordance with the terms
hereof.
Memorandum of Lease: As defined in Section 27.16.
Occupancy Rate: Means, for a given period, the average daily
occupancy rate for beds or units, as applicable, at the Facility during such
period, expressed as a percentage.
Officer's Certificate: A certificate of Tenant signed by an
officer authorized to so sign by the board of directors or bylaws.
Operating Standards: Means the standards for operating and
maintaining the Facility and the Leased Property set forth in Exhibit B.
Original Lease Terms: As defined in Section 26.1.1.
Original Notice Delivery Date: As defined in Section 26.1.2.
Original Purchase Price: As defined in Section 26.1.1.
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Overdue Rate: On any date, a rate equal to the Prime Rate on
such date plus two percent (2%), but in no event greater than the maximum rate
then permitted under applicable law.
Participating Revenue Percentage: Means ________ percent
(_____%) during the Initial Term and shall be determined in accordance with
Section 2.3 for each Extended Term.
Pending Contract: As defined in Section 26.1.3.
Percentage Rent: As defined in Section 3.2.
Permitted Expenditure: As defined in Section 10.5.1.
Person: Means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
Primary Intended Use: As defined in Section 7.1.1.
Prime Rate: On any date, a rate equal to the annual rate on
such date announced by Citibank, N.A. to be its prime rate or base rate for
ninety (90) day unsecured loans to its corporate borrowers of the highest credit
standing.
Registered Offering: As defined in Section 23.2.
Related Rights: As defined in Section 2.1.
Rent: Collectively, Estimated Percentage Rent and Additional
Rent, each as defined in Article III.
Required Amount: Means $______________ [$3,000 multiplied by
the number of units].
Required Period: As defined in Section 10.5.2.
Required Year: As defined in Section 10.5.1.
Right of First Refusal Terms: As defined in Section 26.1.2.
Rules: As defined in Exhibit E.
Sale Activity: As defined in Section 26.1.3.
Security Deposit. As defined in Section 8.1.
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Simultaneous Leases: Means the Leases set forth on Schedule 3
hereto.
State: Means the State or Commonwealth in which the Leased
Property is located.
Tenant: As defined in the Preamble.
Tenant Improvement: As defined in Section 11.1.
Tenant-Owned Name: As defined in Section 27.21.
Tenant's Original Offer: As defined in Section 26.1.2.
Tenant's Personal Property: All machinery, equipment,
furniture, furnishings, movable walls or partitions, phone system, computers or
trade fixtures or other personal property, and consumable inventory and
supplies, owned by Tenant and used or useful in Tenant's business on the Leased
Property, including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, flatware, lawn mowers and other gardening tools,
and tractors and other motorized vehicles.
Term: Collectively, the Initial Term and the Extended Terms,
as the context may require, unless earlier terminated pursuant to the provisions
hereof.
Third MAI Appraiser: As defined in Exhibit C.
Title Commitment: That certain Commitment for Owner's Title
Insurance No. ______________, dated __________________, issued by Commonwealth
Land Title Insurance Company, and any and all amendments and endorsements
thereto.
Title Company: As defined in Section 26.1.2.
Title Insurance: As defined in Section 26.1.2.
Unavoidable Delays: Delays due to strikes, lockouts, inability
to procure materials, power failure, acts of God, governmental restrictions,
enemy action, civil commotion, fire, unavoidable casualty or other causes beyond
the control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto perform any obligations of such party, under this Lease.
Unavoidable Event: As defined in Section 21.2.
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Unsuitable For Its Primary Intended Use: A state or condition
of the Facility such that in the good faith judgment of Tenant, reasonably
exercised, the Facility cannot be operated on a commercially practicable basis
for its Primary Intended Use.
ARTICLE II
----------
PROPERTY AND TERM
-----------------
2.1 Property.
Upon and subject to the terms and conditions set forth in this
Lease, Landlord leases to Tenant and Tenant leases from Landlord all of the
following (collectively the "Leased Property"):
(a) that certain tract, piece and parcel of land, as more
particularly described on Schedule 2 hereto (the "Land");
(b) all buildings, structures, Fixtures and other improvements
of every kind now or hereafter located on the Land including,
but not limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land
including any Tenant Improvements (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances relating to the
Land and the Leased Improvements (collectively, the "Related
Rights"); and
(d) all personal property, if any, owned by Landlord and
located on the Leased Property ("Landlord's Personal
Property").
2.2 Initial Term.
The initial term of each Lease shall commence on the
Commencement Date and shall expire on the day prior to the tenth anniversary of
the Commencement Date (the "Initial Term").
2.3 Extended Terms.
Provided that (i) no Event of Default shall have occurred and
be continuing, (ii) this Lease shall be in full force and effect and (iii) the
tenant under each Simultaneous Lease shall have simultaneously exercised its
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option to extend the term of the Simultaneous Lease to which it is a party
(other than Simultaneous Leases that have been terminated in accordance with the
provisions thereof, or by the mutual agreement of the landlord and tenant
thereunder). Tenant shall have the right to extend the Term for up to two
consecutive extended terms of five years each (each, an "Extended Term").
Each Extended Term shall commence on the day succeeding the
expiration of the Initial Term or the preceding Extended Term therefor, as the
case may be (any such day, an "Extended Term Commencement Date"), and shall
expire on the day prior to the fifth (5th) anniversary of such Extended Term
Commencement Date. For any Extended Term, the Participating Revenue Percentage
shall be equal to the fair market rate as of the applicable Extended Term
Commencement Date as reasonably determined by Landlord. All of the other terms,
conditions, covenants and provisions of this Lease shall apply for such Extended
Term. If Tenant shall elect to exercise any of the aforesaid extensions, Tenant
shall do so by giving Landlord notice therefor not later than twelve (12) months
prior to the expiration of the then current Term, it being agreed that time is
of the essence with respect to the giving of such notice. Tenant may not
exercise this extension right with respect to more than one Extended Term at a
time. If Tenant shall fail to give any such notice, this Lease shall
automatically terminate at the end of the then current Term, and Tenant shall
have no further right to extend the Term of this Lease. If Tenant shall give
such notice, the extension of the Lease shall be automatically effected without
the execution of any additional documents; it being understood and agreed,
however, that Tenant and Landlord shall execute such documents and agreements as
either party shall reasonably require to evidence the same.
ARTICLE III
-----------
RENT
----
3.1 Rent.
Tenant shall pay to Landlord, in lawful money of the United
States of America, which shall be legal tender for the payment of public and
private debts, without offset, abatement, demand or reduction, Percentage Rent
(as defined below), and Additional Rent (as defined below) during the Term as
hereinafter provided. Payment of Rent during the Term shall be made at
Landlord's address set forth in Section 27.8 or at such other place or to such
other Person as Landlord from time to time may designate in writing. If any
payment owing hereunder shall otherwise be due on a day that is not a Business
Day, such payment shall be due on the next succeeding Business Day. All payments
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to Landlord shall be made by corporate check, certified check, wire transfer of
immediately available funds or by such other method acceptable to Landlord in
its sole discretion.
3.2 Percentage Rent.
Tenant shall pay to Landlord Percentage Rent as provided
below. "Percentage Rent" for a given period shall be equal to the Participating
Revenue Percentage times the Facility Revenues for such period, and shall be
comprised of Estimated Percentage Rent payable during such period plus any
Additional Quarterly Percentage Rent and Additional Annual Percentage Rent
payable with respect to such period.
3.2.1 Monthly Payment of Estimated Percentage Rent.
Tenant shall pay Estimated Percentage Rent for each month in
advance. "Estimated Percentage Rent" for each month in a Fiscal Quarter shall be
equal to one-third (1/3) of the Percentage Rent for the immediately preceding
Fiscal Quarter for which the quarterly calculation and reconciliation of
Percentage Rent has been made as provided in Section 3.2.2. Monthly Estimated
Percentage Rent shall be paid to Landlord on or before the fifth (5th) Business
Day of each month.
3.2.2 Quarterly Calculation and Reconciliation.
Within thirty (30) days after the end of each Fiscal Quarter,
Tenant shall deliver to Landlord an Officer's Certificate setting forth for each
Facility (i) the Occupancy Rate for such Fiscal Quarter, (ii) on an unaudited
basis, the Facility Revenues for the Fiscal Quarter just ended and (iii) a
comparison of the amount of Estimated Percentage Rent paid during such Fiscal
Quarter versus the amount of Percentage Rent owing on the basis of the quarterly
calculation of the Facility Revenues. If the Percentage Rent for such Fiscal
Quarter is greater than the amount paid by Tenant as Estimated Percentage Rent
during such Fiscal Quarter, Tenant shall pay to Landlord such difference plus
the excess of the Estimated Percentage Rent payable with respect to each month
in the current Fiscal Quarter determined in accordance with Section 3.2.1 (after
determination of the Percentage Rent for the immediately preceding Fiscal
Quarter in accordance with this Section 3.2.2) over the amount paid by Tenant as
Estimated Percentage Rent for the first month of the current Fiscal Quarter
(collectively, "Additional Quarterly Percentage Rent"), as Additional Rent (as
defined below) in accordance with the provisions of Section 3.3, together with
the next monthly payment of Estimated Percentage Rent on the date on which the
next monthly payment of Estimated Percentage Date is due and payable. Solely for
purposes of Section 3.2.3, any payment of Additional Quarterly Percentage Rent
shall be deemed to be a payment of Percentage Rent with respect to the Fiscal
Quarter and Fiscal Year for which such Additional Quarterly Percentage Rent was
calculated without regard to when such Additional Quarterly Percentage Rent is
actually paid. If the Percentage Rent for such Fiscal Quarter is less than the
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amount paid by Tenant as Estimated Percentage Rent during such Fiscal Quarter,
Landlord shall, at Landlord's option, either (i) remit to Tenant its check in an
amount equal to such difference, or (ii) grant Tenant a credit against the
payment of Estimated Percentage Rent next coming due.
3.2.3 Annual Reconciliation.
Within ninety (90) days after the end of each Fiscal Year, or
after the expiration or termination of the Lease, Tenant shall deliver to
Landlord an Officer's Certificate setting forth for the Facility (i) the
Occupancy Rate for such Fiscal Year, (ii) on an audited basis, the Facility
Revenues for the Fiscal Year just ended, and (iii) a comparison of the amount of
Percentage Rent actually paid during such Fiscal Year versus the amount of
Percentage Rent actually owing on the basis of the annual calculation of the
Facility Revenues. If the Percentage Rent for such Fiscal Year is greater than
the amount paid by Tenant in respect of Percentage Rent during such Fiscal Year,
Tenant shall immediately pay to Landlord such difference ("Additional Annual
Percentage Rent") as Additional Rent in accordance with the provisions of
Section 3.3. If the Percentage Rent for such Fiscal Year is less than the amount
previously paid by Tenant, Landlord shall, at Landlord's option, either (i)
remit to Tenant its check in an amount equal to such difference, or (ii) grant
Tenant a credit against the payment of Estimated Percentage Rent next coming
due.
3.2.4 Record-keeping.
Tenant shall utilize an accounting system for the Leased
Property in accordance with its usual and customary practices and in accordance
with GAAP (applied on a basis consistent with all of the properties subject to
the Simultaneous Leases) which will accurately record all Facility Revenues.
Tenant shall retain reasonably adequate records for each Fiscal Year conforming
to such accounting system until the later of (i) five years after the expiration
of such Fiscal Year and (ii) until the reconciliation described in Section 3.2.3
above for such Fiscal Year has been made.
3.2.5 Audits.
Landlord, at its own expense except as provided herein, shall
have the right, but not the obligation, from time to time directly or through
its accountants to audit the information set forth in the Officer's Certificate
referred to in Section 3.2.3 and in connection with such audits to examine
Tenant's books and records with respect thereto (including supporting data,
sales tax returns and Tenant's work papers). If any such audit discloses a
deficiency in the payment of Percentage Rent, Tenant shall forthwith pay to
Landlord the amount of the deficiency, as finally agreed or determined, together
with interest at the rate of interest per annum equal to the Prime Rate plus two
percent (2%) from the date when said payment should have been made to the date
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of payment thereof. If any such audit discloses that the Facility Revenues
actually received by Tenant for any Fiscal Year exceeds the Facility Revenues
reported by Tenant by more than four percent (4%), Tenant shall pay the
reasonable cost of such audit and examination.
3.3 Additional Rent.
In addition to Estimated Percentage Rent, (1) Tenant shall
also pay and discharge when due and payable any Additional Quarterly Percentage
Rent, any Additional Annual Percentage Rent and all other amounts, liabilities,
obligations and Impositions which Tenant assumes or agrees to pay under this
Lease, and (2) in the event of any failure on the part of Tenant to pay any of
those items referred to in clause (1) above, Tenant shall also pay and discharge
every fine, penalty, interest and cost which may be added for non-payment or
late payment of such items (the items referred to in clauses (1) and (2) above
being referred to herein collectively as the "Additional Rent"). Except for
payments of Additional Quarterly Percentage Rent and Additional Annual
Percentage Rent which are due immediately upon determination thereof as provided
in Section 3.2.2 and Section 3.2.3, respectively, and except as otherwise
provided in this Lease, all Additional Rent shall be due and payable ten (10)
days after either Landlord or the applicable third party who may be billing
Tenant therefor shall deliver an invoice to Tenant therefor or, if earlier, the
due date set forth in such notice. To the extent that any Additional Rent is
required to be paid to Landlord pursuant to this Lease, Tenant shall be relieved
of its obligation to pay such Additional Rent to the entity to which they would
otherwise be due.
3.4 Late Payment of Rent.
Tenant hereby acknowledges that late payment by Tenant to
Landlord of Estimated Percentage Rent or Additional Rent will cause Landlord to
incur costs not contemplated under the terms of this Lease, the exact amount of
which is presently anticipated to be extremely difficult to ascertain. Such
costs may include processing and accounting charges and late charges which may
be imposed on Landlord by the terms of any mortgage or deed of trust covering
the Leased Property and other expenses of a similar or dissimilar nature.
Accordingly, if any installment of Estimated Percentage Rent or Additional Rent
(but only as to those items of Additional Rent which are payable directly to
Landlord) shall not be paid within five (5) Business Days after its due date,
Tenant will pay Landlord on demand, as Additional Rent, a late charge equal to
five percent (5%) of such installment. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. In addition, if any installment of
Estimated Percentage Rent or Additional Rent (but only as to those items of
Additional Rent which are payable directly to Landlord) shall not be paid on its
due date, the amount unpaid shall bear interest, from the due date of such
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installment to the date of payment thereof, computed at the Overdue Rate on the
amount of such installment, and Tenant will pay such interest to Landlord on
demand, as Additional Rent. The payment of said late charge or such interest
shall not constitute a waiver, nor excuse or cure, of any default under this
Lease, nor prevent Landlord from exercising any other rights and remedies
available to Landlord.
3.5 Net Lease.
The Rent shall be paid absolutely net to Landlord and, except
as expressly provided in Article XV and Article XVI, without notice or demand
and without set-off, counterclaim, recoupment, abatement, suspension, determent,
deduction or defense, so that this Lease shall yield to Landlord the full amount
of the installments of Estimated Percentage Rent and Additional Rent throughout
the Term, all as more fully set forth in Article V.
3.6 Income and Expense Prorations.
Income and expense items received or paid with respect to the
period in which the Term terminates shall be adjusted and prorated between
Landlord and Tenant as of the date the Term terminates.
3.7 Best Efforts to Maximize Facility Revenues.
Tenant hereby covenants and agrees that the operation of each
Facility shall be conducted in a manner consistent with the prevailing standards
and practices recognized in the health care industry as those customarily
utilized by first-class business operations. Subject to any applicable Legal
Requirements, Tenant shall use its best efforts to maximize the Facility
Revenues for the Facility, and to that end, (i) Tenant shall maintain or cause
to be maintained a full staff of employees at the Facility and (ii) a maximum
amount of space in the Facility shall be devoted to revenue producing activities
and only such part thereof shall be devoted for office, storage and non-revenue
producing purposes as shall be reasonably necessary.
ARTICLE IV
----------
IMPOSITIONS
-----------
4.1 Payment of Impositions.
Subject to Section 17.9, Tenant will pay, or cause to be paid,
all Impositions before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing authorities where
feasible. All payments of Impositions shall be subject to Tenant's right of
contest pursuant to the provisions of Article XIII. Tenant shall promptly
furnish to Landlord copies of official receipts, if available, or other
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satisfactory proof evidencing such payments, such as canceled checks.
4.2 Information and Reporting.
Landlord shall give prompt notice to Tenant of all Impositions
payable by Tenant hereunder of which Landlord at any time has knowledge, but
Landlord's failure to give any such notice shall in no way diminish Tenant's
obligations hereunder to pay such Impositions. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be necessary to
prepare any required returns and reports. In the event any applicable
governmental authorities classify any property covered by this Lease as personal
property, Tenant shall file all personal property tax returns in such
jurisdictions where it must legally so file and shall pay all associated
personal property taxes. Each party, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property.
4.3 Assessment Challenges.
In addition to Tenant's rights under Article XIII but subject
to the requirements thereof, Tenant may, upon notice to Landlord, at Tenant's
option and at Tenant's sole cost and expense, protest, appeal, or institute such
other proceedings as Tenant may deem appropriate to effect a reduction of real
estate or personal property assessments and Landlord, at Tenant's expense as
aforesaid, shall fully cooperate with Tenant in such protest, appeal, or other
action.
4.4 Prorations; Payment in Installments.
Impositions imposed in respect of the tax-fiscal period during
which the Term terminates shall be adjusted and prorated between Landlord and
Tenant, whether or not such Imposition is imposed before or after such
termination, and Tenant's obligation to pay its prorated share thereof shall
survive such termination. If any Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Tenant may elect to pay in installments, in
which event Tenant shall pay all installments (and any accrued interest on the
unpaid balance of the Imposition) that are due during the Term hereof before any
fine, penalty, premium, further interest or cost may be added thereto.
4.5 Refunds.
If any refund shall be due from any taxing authority in
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default shall
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be applied as provided in Article XVII.
4.6 Utility Charges.
Tenant shall pay or cause to be paid prior to delinquency
charges for all utilities and services, including, without limitation,
electricity, telephone, trash disposal, gas, oil, water, sewer, communication
and all other utilities used in the Leased Property during the Term.
4.7 Assessment Districts.
Neither party shall voluntarily consent to or agree in writing
to (i) any special assessment or (ii) the inclusion of any material portion of
the Leased Property into a special assessment district or other taxing
jurisdiction unless the other party shall have consented thereto, which consent
shall not be unreasonably withheld.
ARTICLE V
---------
TENANT WAIVERS
--------------
5.1 No Termination or Abatement.
Except as otherwise specifically provided in this Lease, to
the extent permitted by law, (i) Tenant shall remain bound by this Lease in
accordance with its terms and shall neither take any action without the consent
of Landlord to modify, surrender or terminate this Lease, nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against the
Rent by reason of, and (ii) the respective obligations of Landlord and Tenant
shall not be otherwise affected by reason of:
(a) any damage to, or destruction of, the Leased Property or
any portion thereof caused primarily by the actions,
omissions, negligence or intentional misconduct of Tenant;
(b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use or occupancy of the Leased Property, or any
portion thereof, caused primarily by the actions, omissions,
negligence or intentional misconduct of Tenant; or
(c) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee
of Landlord.
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Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
(i) to modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant under this Lease shall continue to be payable
in all events unless such obligations shall be terminated pursuant to the
express provisions of this Lease or by termination of this Lease other than by
reason of an Event of Default.
5.2 Condition of Leased Property.
Notwithstanding anything contained in this Lease to the
contrary (including without limitation, the provisions of Section 10.4 hereof),
Tenant acknowledges receipt and delivery of possession of the Leased Property
and that Tenant has examined or otherwise has knowledge of the condition of the
Leased Property prior to the execution and delivery of this Lease. Regardless,
however, of any inspection made by Tenant of the Leased Property and whether or
not any patent or latent defect or condition was revealed or discovered thereby,
Tenant is leasing the Leased Property "as is" in its present condition. Tenant
waives and releases any claim or action against Landlord in respect of the
condition of the Leased Property including any defects or adverse conditions
latent or patent, matured or unmatured, known or unknown by Tenant or Landlord
as of the date hereof. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS
LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR
SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS
OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, INCLUDING ANY WARRANTY OR
REPRESENTATION AS TO (A) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE
OR PURPOSE, (B) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (C) THE
EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (D) VALUE, (E) COMPLIANCE WITH
SPECIFICATIONS, (F) LOCATION, (G) USE, (H) CONDITION, (I) MERCHANTABILITY, (J)
QUALITY, (K) DESCRIPTION, (L) DURABILITY, (M) OPERATION, (N) THE EXISTENCE OF
ANY HAZARDOUS MATERIAL OR (O) COMPLIANCE OF THE LEASED PROPERTY WITH ANY LAW
(INCLUDING ANY ENVIRONMENTAL LAW) OR LEGAL REQUIREMENTS. TENANT ACKNOWLEDGES
THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT
AND THAT TENANT IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR
LANDLORD'S AGENTS OR EMPLOYEES. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN THE
LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS BETWEEN LANDLORD AND
TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT
THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT
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LIABILITY IN TORT), IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY
TENANT. THE PROVISIONS OF THIS SECTION 5.2 HAVE BEEN NEGOTIATED, AND ARE
INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD,
EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING
OTHERWISE. To the extent permitted by law, however, Landlord hereby assigns to
Tenant all of Landlord's rights to proceed against any predecessor in title for
breaches of warranties or representations or for latent defects in the Leased
Property. Landlord shall fully cooperate with Tenant in the prosecution of any
such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and
expense. Tenant shall indemnify, defend and hold harmless Landlord from and
against any loss, cost, damage or liability (including reasonable attorneys'
fees and expenses) incurred by Landlord in connection with such cooperation.
ARTICLE VI
----------
OWNERSHIP OF PROPERTY
---------------------
6.1 Leased Property.
Tenant acknowledges that the Leased Property is the property
of Landlord and that Tenant has only the right to the exclusive possession and
use of the Leased Property during the Term of and upon the terms and conditions
of this Lease. Subject to the provisions of Article XXV below, Landlord hereby
represents and warrants to Tenant that as of the Commencement Date, Landlord has
good and marketable title to the Leased Property free and clear of all liens and
encumbrances, except for those encumbrances referenced on Schedule B to the
Title Commitment or other liens and encumbrances that would not materially
impair the use of the Leased Property for its Primary Intended Use.
6.2 Tenant's Personal Property.
Tenant may (and shall as provided below), at its expense,
install, affix or assemble or place on the Land or in any of the Leased
Improvements, any items of Tenant's Personal Property, and Tenant may, subject
to the conditions set forth in this Lease, remove the same upon the expiration
or any prior termination of the Term. Tenant shall provide and maintain during
the entire Term all such Tenant's Personal Property as shall be necessary in
order to operate the Facility in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use and in
accordance with its past practices.
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6.3 Purchase of Tenant's Personal Property.
Upon the expiration or sooner termination of this Lease,
Landlord shall have the right (but not the obligation) to purchase from Tenant
all or any portion of tangible Tenant's Personal Property (which shall not
include software):
(i) if owned by Tenant and not subject to any secured
financing, at the fair market value thereof;
(ii) if owned by Tenant, but subject to a secured financing,
at the greater of the amount of the debt owing under such
financing and the fair market value thereof; and
(iii) if leased by Tenant and the applicable lease provides
for termination of the lease as to such property upon the
payment of a given sum, at the greater of the amount of the
payment so provided and the fair market value thereof;
provided, that at Landlord's option and if the lessor of such
Tenant's Personal Property will permit Landlord to assume the
obligations under the applicable lease with respect to such
property (separate from the obligations under a master lease
if in effect), Tenant shall, upon the request of Landlord,
assign the applicable lease (or portion thereof) to Landlord.
Landlord may elect to purchase Tenant's Personal Property by
giving notice to Tenant not later than, as the case may be, ninety (90) days
prior to the expiration of this Lease or upon the termination of this Lease
following any Event of Default. Tenant shall transfer title to such property by
a bill of sale without warranty (except as to ownership) upon concurrent payment
in cash by Landlord.
6.4 Removal of Personal Property.
All items of Tenant's Personal Property not removed by Tenant
within fourteen (14) days following the expiration or earlier termination of
this Lease shall be considered abandoned by Tenant and may, at Landlord's
discretion and without any obligation, be appropriated, sold, destroyed or
otherwise disposed of by Landlord without first giving notice thereof to Tenant
and without any payment to Tenant and without any obligation to account
therefor. Tenant shall, at its expense, restore the Leased Property to the
condition required by Article X, including repair of all damage to the Leased
Property caused by the removal of Tenant's Personal Property, whether effected
by Tenant or Landlord. Landlord shall not be responsible for any loss or damage
to Tenant's Personal Property, or any other property of Tenant, by virtue of
Landlord's removal thereof at any time subsequent to the fourteen (14) day
period provided for herein.
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6.5 Landlord's Personal Property.
If Landlord has provided any Landlord's Personal Property with
respect to the Facility, Tenant shall maintain such property in the same manner
as Tenant maintains Tenant's Personal Property. Upon the loss, destruction, or
obsolescence of any of the Landlord's Personal Property, Tenant shall replace
such property with Tenant's Personal Property, which such property shall be
owned by Tenant but which shall nevertheless be deemed to be Landlord's Personal
Property for purposes of this Article VI.
ARTICLE VII
-----------
USE OF PROPERTY
---------------
7.1 Permitted Use.
7.1.1 Primary Intended Use.
Tenant shall, at all times during the Term, and at any other
time Tenant shall be in possession of the Leased Property, continuously use or
cause to be used the Leased Property as an appropriately licensed assisted
living facility, and for such other uses as may be necessary or incidental
thereto (such use referred to herein as the Leased Property's "Primary Intended
Use"). Tenant shall not use the Leased Property or any portion thereof for any
other use without the prior written consent of Landlord (which consent may be
granted or withheld in Landlord's reasonable discretion). No use shall be made
or permitted to be made of the Leased Property and no acts shall be done thereon
which will cause the cancellation of any insurance policy covering the Leased
Property or any part thereof (unless another adequate policy is available), nor
shall Tenant sell or otherwise provide to residents or clients therein, or
permit to be kept, used or sold in or about the Leased Property any article
which may be prohibited by law or by fire underwriter's regulations. Tenant
shall, at its sole cost, comply with all of the requirements pertaining to the
Leased Property or other improvements of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Tenant's Personal Property,
including, without limitation, the Insurance Requirements.
7.1.2 Necessary Approvals.
Tenant hereby represents that, on or prior to the Commencement
Date, Tenant shall have obtained all approvals necessary to use and operate, for
the Primary Intended Use, the Leased Property and the Facility located at the
Leased Property under applicable local, state and federal law. From and after
the Commencement Date, Tenant shall maintain all approvals necessary to use and
operate, for its Primary Intended Use, the Leased Property and the Facility
located at the Leased Property under applicable local, state and federal law,
and without limiting the foregoing, shall maintain appropriate certifications
for reimbursement and licensure.
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7.1.3 Continuous Operation.
Tenant shall continuously operate the Leased Property as a
provider of health care services in accordance with its Primary Intended Use.
Tenant will not take or omit to take any action, the taking or omission of which
may materially impair the value or the usefulness of the Leased Property or any
part thereof for its Primary Intended Use; notwithstanding the foregoing, Tenant
may cease operation of the Facility for a period not to exceed six (6) months.
During any such period of cessation, Tenant shall pay to
Landlord each month as Rent hereunder, an amount equal to the average monthly
Rent paid by Tenant during the six (6) months immediately prior to such
cessation of operation (the "Minimum Rent"). In addition thereto, following the
conclusion of any such period of cessation, for a period of six (6) months,
Tenant shall pay to Landlord as Rent hereunder, the greater of (i) monthly
Minimum Rent as provided in this Section 7.1.3 or (ii) Percentage Rent as
provided in Section 3.2; following the conclusion of said six (6) month period,
Rent shall be payable only in accordance with Section 3.2 hereof.
7.1.4 Lawful Use.
Tenant shall not use or suffer or permit the use of the Leased
Property and Tenant's Personal Property for any unlawful purpose. Tenant shall
not commit or suffer to be committed any waste on the Leased Property, or in the
Facility, nor shall Tenant cause or permit any nuisance thereon or therein.
Tenant shall neither suffer nor permit the Leased Property or any portion
thereof, including any Tenant Improvement, or Tenant's Personal Property, to be
used in a such a manner as (i) would impair materially Landlord's (or Tenant's,
as the case may be) title thereto or to any portion thereof, or (ii) may
reasonably make possible a claim or claims for adverse usage or adverse
possession by the public, as such, or of implied dedication of the Leased
Property or any portion thereof.
7.1.5 Determination of Facility Revenues During Breach.
Facility Revenues for any period during which Tenant is in
breach or violation of any of the covenants set forth in this Section 7.1 shall
be deemed to be the greater of (i) the Facility Revenues for such period or (ii)
the average Facility Revenues for the corresponding period for the prior three
years, as determined by Landlord as adjusted by the Cumulative CPI Adjustment
over such three year period; provided, however, that during the first three
years of the Term, the average Facility Revenues for a period shall be
determined by reference to the corresponding period for each prior year during
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the Term, as adjusted by the Cumulative CPI over such period.
7.2 Compliance with Applicable Medicaid and Medicare Requirements.
Tenant shall, at its sole cost and expense, make whatever
improvements (capital or ordinary) as are required to conform the Leased
Property to such standards as may, from time to time, be required by federal
Medicare (Title 18) or Medicaid (Title 19) assisted living programs, if
applicable, or any other applicable programs or legislation, or capital
improvements required by any applicable programs or legislation, or capital
improvements required by any other governmental agency having jurisdiction over
the Leased Property as a condition of the continued operation of the Leased
Property for its Primary Intended Use.
7.3 Environmental Matters.
Tenant shall not store, spill upon, dispose of or transfer to
or from the Leased Property any Hazardous Materials, except that Tenant may
store, transfer and dispose of Hazardous Materials in compliance with all
Environmental Laws. Tenant shall maintain the Leased Property at all times free
of any Hazardous Materials (except in compliance with all statues, laws,
ordinances, rules and regulations). Tenant shall, as to the Leased Property,
promptly: (a) notify Landlord in writing of any material change in the nature or
extent of such Hazardous Materials maintained, (b) transmit to Landlord copies
of any citations, orders, notices or other material governmental communications
received with respect thereto, (c) observe and comply with any and all
Environmental Laws and all orders or directions from any official, court or
agency of competent jurisdiction relating to the use or maintenance or requiring
the removal, treatment, containment or other disposition of Hazardous Materials,
and (d) pay or otherwise dispose of any fine, charge or Imposition related
thereto, unless Tenant shall contest the same and the right to use and the value
of the Leased Property is not materially and adversely affected thereby. Tenant
shall, upon demand, pay to Landlord, as Additional Rent, any cost, expense, loss
or damage incurred by Landlord and growing out of the failure of Tenant strictly
to observe and perform the foregoing requirements (including, without
limitation, reasonable attorneys' fees and expenses), which amounts will bear
interest from the date incurred until paid at the Overdue Rate.
Tenant shall protect, release, defend, indemnify and hold
harmless Landlord and each Facility Mortgagee from and against any and all
liabilities, obligations, claims, damages, penalties, costs and expenses
(including without limitation, reasonable attorneys' fees and expenses) imposed
upon, incurred by or asserted against any of them by reason of any failure by
Tenant or any Person claiming under Tenant to perform or comply with any of the
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terms of this Section 7.3. The provisions of this Section 7.3 shall survive the
expiration or sooner termination of this Lease.
7.4 Landlord to Grant Easements.
Landlord shall, from time to time so long as no Event of
Default has occurred and is continuing, at the request of Tenant and at Tenant's
cost and expense (which cost and expense shall include, without limitation,
Landlord's reasonable attorneys' fees and expenses relating to any action by
Landlord pursuant to this Section 7.4), subject to the approval of Landlord,
which approval shall not be unreasonably withheld or delayed: (i) grant
easements and other rights in the nature of easements; (ii) release existing
easements or other rights in the nature of easements which are for the benefit
of the Leased Property; (iii) dedicate or transfer unimproved portions of the
Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Landlord of an Officer's Certificate, which Officer's
Certificate shall be accompanied by all documents necessary to enable Landlord
to verify the accuracy of such Officer's Certificate and shall state that such
grant, release, dedication, transfer, petition or amendment (i) is not
detrimental to the proper conduct of the business of Tenant on the Leased
Property, (ii) does not reduce its value or usefulness for the Primary Intended
Use and (iii) is necessary for the operation of the Facility in accordance with
the Primary Intended Use (and which Certificate, if contested by Landlord,
shall not be binding on Landlord); provided, however, that any withholding of
approval by Landlord to any action pursuant to this Section 7.4 shall be deemed
to be reasonable if Landlord reasonably believes that any such action is not
required in order to operate or continue to operate the Leased Property and
Facility in accordance with its Primary Intended Use. Landlord shall not grant,
release, dedicate or execute any of the foregoing items in this Section 7.4
without obtaining Tenant's approval, which approval shall not be unreasonably
withheld or delayed.
7.5 Management Agreements.
Throughout the Term, Tenant shall not enter into any
Management Agreement except with a Manager that satisfies the definition of
"Manager" herein. Tenant shall provide Landlord with a copy of each Management
Agreement and any other documents relating thereto which Landlord may reasonably
request. Each Management Agreement shall provide that (i) Landlord shall receive
notice of any defaults thereunder and, at Landlord's option, an opportunity to
cure any such defaults, (ii) Landlord shall have the right to terminate the
Management Agreement upon the occurrence of an Event of Default hereunder and
(iii) Manager shall be obligated to perform and be bound by the covenants of
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Tenant contained herein. If Landlord shall cure any of Tenant's defaults under
any Management Agreement, the cost of any such cure shall be payable upon demand
by Landlord to Tenant as Additional Rent. Tenant shall deliver to Landlord any
instrument requested by Landlord to implement the intent of the foregoing
provision. In addition to any other rights and remedies available to Landlord
hereunder, in the event of the occurrence of an Event of Default hereunder,
Landlord shall have the right to terminate any Management Agreement then in
effect and to appoint a manager for the Facility acceptable to Landlord in its
sole discretion.
ARTICLE VIII
------------
SECURITY FOR LEASE OBLIGATIONS
------------------------------
8.1 Security Deposit.
On or prior to the Commencement Date, Tenant shall deposit
with Landlord the sum of $__________________________ in cash representing a
security deposit against the faithful performance of the terms and conditions
contained in this Lease (the "Security Deposit"). As long as no Event of Default
has occurred and is then continuing, and as long as no fact or circumstance
currently exists which, with the giving of notice or the passage of time, would
constitute an Event of Default, then interest on any such Security Deposit shall
be paid by Landlord to Tenant on a quarterly basis in arrears at a rate of
interest per annum equal to the 90 day Treasury bill rate. Upon the expiration
or earlier termination of this Lease, provided that Tenant shall have met all of
its obligations under this Lease, the Security Deposit shall be refunded to
Tenant within thirty (30) days of such expiration or termination.
8.2 Guarantee.
All obligations of Tenant under this Lease shall be
unconditionally and irrevocably guaranteed by Guarantor pursuant to the
Guarantee.
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ARTICLE IX
----------
HAZARDOUS MATERIALS
-------------------
9.1 Remediation.
If Tenant becomes aware of the presence of any Hazardous
Material in a quantity sufficient to require remediation or reporting under any
Environmental Law, or if necessary to prevent the value of the Leased Property
from being materially and adversely affected, in, on or under the Leased
Property or if Tenant, Landlord, or the Leased Property becomes subject to any
order of any court or federal, state or local agency to investigate, remove,
remediate, repair, close, detoxify, decontaminate or otherwise clean up the
Leased Property, Tenant shall, at its sole expense, carry out and complete any
required response, action, investigation, removal, remediation, repair, closure,
detoxification, decontamination or other cleanup of the Leased Property. If
Tenant fails to implement and diligently pursue any such repair, closure,
detoxification, decontamination, response, action or other cleanup of the Leased
Property in a timely manner, Landlord shall have the right (in addition to any
other rights of Landlord under this Lease), but not the obligation, to carry out
such action and to recover all of the reasonable costs and expenses from Tenant
as Additional Rent.
9.2 Tenant's Indemnification of Landlord.
Tenant shall pay, protect, indemnify, save, release, hold
harmless and defend Landlord and any Facility Mortgagee from and against all
liabilities, obligations, claims, damages (including punitive and consequential
damages), penalties, causes of action, demands, judgments, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against
Landlord or the Leased Property by reason of any Environmental Law (irrespective
of whether there has occurred any violation of any Environmental Law) in respect
of the Leased Property howsoever arising, without regard to fault on the part of
Tenant, including (a) liability for response costs and for costs of removal and
remedial action incurred by the United States Government, any state or local
governmental unit or any other Person, or damages from injury to or destruction
or loss of natural resources, including the reasonable costs of assessing such
injury, destruction or loss, incurred pursuant to any Environmental Law, (b)
liability for costs and expenses of abatement, investigation, removal, closure,
remediation, correction or clean-up, fines, damages, response costs or penalties
which arise under the provisions of any Environmental Law, or (c) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity.
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9.3 Survival of Indemnification Obligations.
Tenant's obligations or liability under this Article IX
arising during the Term hereof shall survive any termination of this Lease for a
period of two (2) years following termination.
9.4 Environmental Violations at Expiration or Termination of
Lease.
9.4.1 Breach.
Notwithstanding any other provisions of this Lease, if, at a
time when the Term would otherwise terminate or expire, a violation of any
Environmental Law has been asserted by Landlord and has not been resolved in a
manner reasonably satisfactory to Landlord, or has been acknowledged by Tenant
to exist or has been found to exist at the Leased Property or has been asserted
by any governmental authority and failure to have completed all action required
to correct, abate or remediate such a violation of any Environmental Law
materially impairs the leasability of the Leased Property upon the expiration of
the Term, then, at the option of Landlord, the Term shall be automatically
extended with respect to the Leased Property beyond the date of termination or
expiration and this Lease shall remain in full force and effect under the same
terms and conditions until the completion of all remedial action in accordance
with applicable Environmental Laws; provided, however, that Tenant may, upon any
such extension of the Term, terminate the Term by paying to the Landlord such
amount as is necessary in the reasonable judgment of Landlord to complete or
perform such remedial action, which amount shall be held in escrow for
remediation on terms and conditions reasonably acceptable to Landlord and
Tenant; any amount not required for remediation shall be remitted to Tenant.
9.4.2 Determination of Facility Revenues During Breach.
Facility Revenues for the Facility and the Leased Property for
any period during which Tenant is in breach or violation of any of the covenants
set forth in this Section 9.4 shall be deemed to be the greater of the Facility
Revenues for (i) such period or (ii) the average Facility Revenues for the
corresponding period for the prior three (3) years, as adjusted by the
Cumulative CPI Adjustment over such three-year period; provided, however, that
during the first three years of the Term, the average Facility Revenues for a
period shall be determined by reference to the corresponding period for each
prior year during the Term, as adjusted by the Cumulative CPI Adjustment over
such period.
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ARTICLE X
---------
MAINTENANCE AND REPAIR
----------------------
10.1 Tenant's Maintenance and Repair Obligation.
Tenant, at its expense, will keep the Leased Property and
Tenant's Personal Property in good order, repair and appearance (whether or not
the need for such repairs occurs as a result of Tenant's use, any prior use, the
elements or the age of the Leased Property in accordance with any applicable
Legal Requirements, and, except as otherwise provided in Article XV, with
reasonable promptness, make all necessary and appropriate repairs thereto of
every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term (concealed
or otherwise).
10.2 Waiver of Statutory Obligations.
Landlord shall not under any circumstances be required to
build or rebuild any improvements on the Leased Property, or to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to maintain
the Leased Property in any way. Tenant hereby waives, to the extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to any law in
effect as of the Commencement Date or later enacted.
10.3 Mechanic's Liens.
Nothing contained in this Lease and no action or inaction by
Landlord shall be construed as (i) constituting the consent or request of
Landlord expressed or implied, to any contractor, subcontractor, laborer,
materialman or vendor to or for the performance of any labor or services or the
furnishing of any materials or other property for the construction, alteration,
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addition, repair or demolition of or to the Leased Property or any part thereof
or (ii) giving Tenant any right, power or permission to contract for or permit
the performance of any labor or services or the furnishing of any materials or
other property, in either case, in such fashion as would permit the making of
any claim against Landlord in respect thereof or to make any agreement that may
create, or in any way be the basis for, any right, title, interest, lien, claim
or other encumbrance upon the estate of Landlord in the Leased Property, or any
portion thereof, and Tenant shall promptly remove, discharge or otherwise
satisfy any such right, title, interest, lien, claim or other encumbrance.
10.4 Surrender of Property.
Unless the Lease shall have been terminated pursuant to the
provisions of Article XV, Tenant shall, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property to Landlord in the
condition in which the Leased Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligations of Tenant to maintain the Leased Property in good
order and repair during the entire term) and with due consideration being given
to the age oF the Leased Property at such time.
10.5 Required Capital Expenditures.
10.5.1 Required Years; Required Amounts; Permitted
Expenditures.
Notwithstanding anything contained in this Article X or
elsewhere in this Lease to the contrary, for the last four (4) years of the Term
(the "Required Period"), Tenant shall expend an amount at least equal to the
Required Amount for such Required Period for capital expenditures at the
Facility; provided, however, that the Required Amount shall be expended for such
repairs and refurbishments as are required to maintain or restore the applicable
Facility in accordance with the requirements of this Article X (a "Permitted
Expenditure") and in no event shall any expenditures made in respect of a Tenant
Improvement as provided in Article XI hereof be deemed to be a Permitted
Expenditure.
10.5.2 Payment Provisions.
Within thirty (30) days after the end of the Required Period,
Tenant shall deliver to Landlord an Officer's Certificate certifying the amount
expended in respect of Permitted Expenditures during such Required Period (the
"Expended Amount"), and the excess, if any, of the Required Amount for such
Required Period over the Expended Amount for such Required Period (the "Excess
Amount") shall be payable in accordance with Section 3.3 hereof. Said
certificate shall include an itemized list of each expenditure.
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10.5.3 No Liability of Landlord.
In no event shall Landlord be liable to Tenant for the amount,
if any, by which the Expended Amount for any Required Period exceeds the
Required Amount for such Required Period.
ARTICLE XI
----------
TENANT IMPROVEMENTS
-------------------
11.1 Tenant's Right to Construct.
During the Term of this Lease, Tenant may make alterations,
additions, changes improvements to the Leased Property (individually, a "Tenant
Improvement," and collectively, "Tenant Improvements"). Except as otherwise
agreed to by Landlord in writing, any such Tenant Improvement shall be made at
Tenant's sole expense and shall become the property of the Landlord upon
termination of this Lease. All Tenant Improvements shall be subject to all of
the following conditions and restrictions:
(a) Unless made on an emergency basis to prevent injury to
person or property, Tenant may not undertake any nonstructural Tenant
Improvement involving an estimated cost in excess of Fifty Thousand Dollars
($50,000.00) (as estimated by a licensed architect approved by Landlord) without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that Landlord may condition
its consent to any proposed Tenant Improvement on the receipt of a writing in
form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of such proposed Tenant Improvement and
any such condition shall not be deemed to be unreasonable; and provided further,
however, that Tenant shall provide notice to Landlord of any Tenant Improvement
undertaken without its consent as soon as practicable and Landlord may, within
thirty (30) days after receipt of any such notice, demand from Tenant a writing
in form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of any such Tenant Improvement undertaken
without Landlord's consent and Tenant shall, within ten (10) days after receipt
of any such demand from Landlord, provide such a writing to Landlord.
(b) Unless made on an emergency basis to prevent injury to
person or property, no structural alteration shall be undertaken without
Landlord's prior written consent, which consent shall not be unreasonably
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withheld, conditioned or delayed; provided, however, that Landlord may condition
its consent to any proposed Tenant Improvement on the receipt of a writing in
form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of such proposed Tenant Improvement and
any such condition shall not be deemed to be unreasonable; and provided further,
however, that Tenant shall provide notice to Landlord of any Tenant Improvement
undertaken without its consent as soon as practicable and Landlord may, within
thirty (30) days after receipt of any such notice, demand from Tenant a writing
in form and substance reasonably acceptable to Landlord evidencing Tenant's
covenant to restore the Leased Property to its condition as of the time
immediately prior to the construction of any such emergency Tenant Improvement
and Tenant shall, within ten (10) days after receipt of any such demand from
Landlord, provide such a writing to Landlord.
(c) The written consent of any Facility Mortgagee with respect
to the Facility must be obtained before the commencement of any work hereunder
whenever such consent is known by Tenant to be required by a Facility Mortgage.
(d) The reasonable cost and expense of Landlord's and a
Facility Mortgagee's review of any plans and specifications required to be
furnished to Landlord or a Facility Mortgagee pursuant to Section 11.2 hereof
shall be paid by Tenant to Landlord as Additional Rent.
(e) The provisions of Section 11.2 hereof shall apply to any
work performed by Tenant pursuant to this Article XI.
11.2 Construction
Tenant agrees that:
(a) Tenant shall diligently seek all governmental approvals
relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently prosecute any such
construction to completion in accordance with applicable
Insurance Requirements and the laws, rules and regulations of
all governmental bodies or agencies having jurisdiction over
the Leased Property;
(c) Landlord shall have the right at any time and from time to
time to post and maintain upon the Leased Property such
notices as may be necessary to protect Landlord's interest
from mechanics' liens, materialmen's liens or liens of a
similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens or
any other claims or demands arising from the work of
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construction of any Tenant Improvement to be enforced against
the Leased Property or any part thereof, and Tenant agrees to
hold Landlord and the Leased Property free and harmless from
all liability from any such liens, claims or demands, together
with all costs and expenses in connection therewith;
(e) All work shall be performed in a good and workmanlike
manner and in accordance with any plans and specifications
therefor which shall have been approved by Landlord or the
Facility Mortgagee;
(f) If the Tenant Improvement shall involve (i) more than
Fifty Thousand Dollars ($50,000.00) (as estimated by a
licensed architect approved by Landlord) or requiring Tenant
to obtain a building or other permit prior to the commencement
of any such Tenant Improvement or (ii) any structural repair,
alteration, restoration or other work, then no work on such
Tenant Improvement shall be commenced until detailed plans and
specifications (including layout, architectural, mechanical
and structural drawings), prepared by a licensed architect
reasonably satisfactory to Landlord shall have been submitted
to and approved by Landlord and the Facility Mortgagee;
(g) No Tenant Improvement costing more than Fifty Thousand
Dollars ($50,000.00) (as estimated by a licensed architect
approved by Landlord) shall be undertaken except under the
supervision of a licensed architect retained at Tenant's
expense and reasonably satisfactory to Landlord;
(h) No Tenant Improvement costing more than Fifty Thousand
Dollars ($50,000.00) (as estimated by a licensed architect
approved by Landlord) shall be commenced until Tenant shall
have obtained and delivered to Landlord, at Tenant's expense,
either (i) a performance bond and a labor and materials
payment bond (issued by a corporate surety licensed to do
business in the state in which the Leased Property is located
and reasonably satisfactory to Landlord), each in an amount
equal to the estimated cost of such Tenant Improvement (as
estimated by a licensed architect approved by Landlord) and in
form otherwise reasonably satisfactory to Landlord, or (ii)
such other security or evidence of ability to pay the
estimated cost of such Tenant Improvement as shall be
reasonably satisfactory to Landlord; and
(i) Any Tenant Improvement shall be subject to inspection at
any time and from time to time by Landlord or the applicable
Facility Mortgagee or the duly authorized representatives of
either, and if upon such inspection, Landlord or such Facility
Mortgagee shall reasonably be of the opinion that the Tenant
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Improvement is not being constructed in accordance with the
requirements of this Article XI, then Tenant shall promptly
correct any such failure to comply with such requirements.
11.3 Scope of Tenant's Right.
Subject to Section 11.1 and Section 11.2, at Tenant's cost and
expense, Tenant shall have the right to seek any governmental approvals,
including building permits, licenses, conditional use permits and any
certificates of need that Tenant requires to construct any Tenant Improvement.
11.4 Cooperation of Landlord.
Landlord shall cooperate with Tenant and take such actions,
including the execution and delivery to Tenant of any applications or other
documents, reasonably requested by Tenant in order to obtain any governmental
approvals sought by Tenant to construct any Tenant Improvement within fifteen
(15) Business Days following the later of (a) the date Landlord receives
Tenant's request, or (b) the date of delivery of any such application or
document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there is a cost to Landlord, such cost shall be reimbursed by Tenant),
and will not cause Landlord to be in violation of any law, ordinance or
regulation.
11.5 Rights in Tenant Improvements.
Notwithstanding anything to the contrary in this Lease, all
Tenant Improvements constructed pursuant to this Article XI, and any and all
subsequent additions thereto and alterations and replacements thereof, shall be
the sole and absolute property of Tenant during the Term of this Lease. Upon
the expiration or early termination of this Lease, all such Tenant Improvements
shall become the property of Landlord. Without limiting the generality of the
foregoing, Tenant shall be entitled to all federal and state income tax benefits
associated with any Tenant Improvement during the Term of this Lease.
ARTICLE XII
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LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
--------------------------------------------
12.1 Liens.
Subject to the provisions of Article XIII relating to
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense any lien, encumbrance,
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attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of Rent, not including,
however:
(a) this Lease;
(b) the matters, if any, that existed as of the Commencement
Date;
(c) restrictions, liens and other encumbrances which are
consented to in writing by Landlord, or any easements granted
pursuant to the provisions of Section 7.4;
(d) liens for those taxes of Landlord which Tenant is not
required to pay hereunder;
(e) subleases permitted by Article XXIII;
(f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as (1) the same
are not yet payable or are payable without the addition of any
fine or penalty or (2) such liens are in the process of being
contested as permitted by Article XIII;
(g) liens of mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed (provided that such liens are
in the process of being contested as permitted by Article
XIII) or not yet due; and
(h) any liens which are the responsibility of Landlord
pursuant to the provisions of Article XV.
12.2 Encroachments and Other Title Matters.
Excepting any matters granted or created by Landlord or with
respect to the Leased Property and excepting matters that do not have a material
adverse effect on the use of the Leased Property for the Primary Intended Use,
if any of the Leased Improvements shall, at any time, encroach upon any
property, street or right-of-way adjacent to the Leased Property, or shall
violate the agreements or conditions contained in any lawful restrictive
covenant or other agreement affecting the Leased Property, or any easement or
right-of-way to which the Leased Property is subject, or the use of the Leased
Property is impaired, limited or interfered with by reason of the exercise of
the right of surface entry or any other rights under a lease or reservation of
any oil, gas, water or other minerals, then promptly upon the request of
Landlord or at the behest of any Person affected by any such encroachment,
violation or impairment, Tenant, at its sole cost and expense (subject to its
right to contest the existence of any such encroachment, violation or
impairment), shall protect, indemnify, save harmless and defend Landlord from
and against all losses, liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including, without limitation,
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reasonable attorneys' fees and expenses) based on or arising by reason of any
such encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Landlord or
Tenant; or (ii) make such changes in the Leased Improvements, and take such
other actions, as Tenant in the good faith exercise of its judgment deems
reasonably practicable, to remove such encroachment, and to end such violation
or impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation or
encroachment. Tenant's obligations under this Section 12.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Tenant shall be entitled to a credit
for any sums recovered by Landlord under any such policy of title or other
insurance.
ARTICLE XIII
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PERMITTED CONTESTS
------------------
Tenant, on its own or on Landlord's behalf (or in Landlord's
name) but at Tenant's expense, may contest, by appropriate legal proceedings
conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim not otherwise permitted by Section 12.1, provided that:
(a) in the case of an unpaid Imposition, lien, attachment,
levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Leased Property, and
neither the Leased Property nor any Rent therefrom nor any
part thereof or interest therein would be in any danger of
being sold, forfeited, attached or lost pending the outcome of
such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be
subject to criminal or civil liability for failure to comply
therewith pending the outcome of such proceedings. Nothing in
this Section 13(b), however, shall permit Tenant to delay
compliance with any requirement of an Environmental Law to the
extent such non-compliance poses an immediate threat of injury
to any Person or to the public health or safety or of material
damage to any real or personal property;
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(c) in the case of a Legal Requirement or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable
security, if any, as may be demanded by Landlord to insure
ultimate payment of the same and to prevent any sale or
forfeiture of the Leased Property or the Rent by reason of
such non-payment or noncompliance, provided, however, the
provisions of this Article XIII shall not be construed to
permit Tenant to contest the payment of Estimated Percentage
Rent and Additional Rent payable to Landlord or any other sums
payable by Tenant to Landlord hereunder;
(d) no such contest shall interfere in any material respect
with the use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the coverage
required by Article XIV shall be maintained; and
(f) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Rent due hereunder,
promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the
applicable Legal Requirement or Insurance Requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save Landlord
harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE XIV
-----------
INSURANCE
---------
14.1 General Insurance Requirements.
During the Term, Tenant shall at all times keep the Leased
Property, and all property located in or on the Leased Property, including all
Tenant's Personal Property and any Tenant Improvements, insured with the kinds
and amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the state in which the Leased
Property is located. The policies must name Landlord as an "Additional Insured."
Losses shall be payable to Landlord or Tenant as provided in Article XV. In
addition, the policies shall name as an additional insured the holder of any
mortgage, deed of trust or other security agreement securing any indebtedness or
any other Landlord's Encumbrance placed on the Leased Property in accordance
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with the provisions of Article XXV ("Facility Mortgagee") by way of a standard
form of mortgagee's loss payable endorsement. Any loss adjustment shall require
the written consent of Landlord, Tenant, and each Facility Mortgagee. Evidence
of insurance shall be deposited with Landlord and, if requested, with any
Facility Mortgagee(s). The policies on the Leased Property, including the Leased
Improvements, Fixtures, Tenant's Personal Property and any Tenant Improvements,
shall insure against the following risks:
14.1.1 All Risk.
Loss or damage by all risks perils including but not limited
to, fire, vandalism, malicious mischief and extended coverages, including but
not limited to, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then Full Replacement Cost thereof.
14.1.2 Liability.
Claims for personal injury or property damage under a policy
of comprehensive general liability insurance with amounts not less than Ten
Million Dollars ($10,000,000.00) per occurrence and in the aggregate.
14.1.3 Flood.
Flood (when the Leased Property is located in whole or in
material part in a designated flood plain area) and such other hazards and in
such amounts as may be customary for comparable properties in the area.
14.1.4 Worker's Compensation.
Adequate worker's compensation insurance coverage for all
Persons employed by Tenant and all of Tenant's agents or contractors on the
Leased Property in accordance with the requirements of applicable federal, state
and local laws.
14.1.5 Business Interruption.
Loss due to business interruption in an amount, for any Fiscal
Year, not less than the applicable Facility Revenues for the immediately
preceding year.
14.1.6 Builder's Risk.
Loss or damage during times of construction on any portion of
the Leased Property (including, without limitation, any period of construction
pursuant to Article XI hereof) in an amount not less than .
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14.1.7 Boiler and Machinery.
Loss due to any boiler or machinery (including related
electrical apparatus and components) casualty under a standard comprehensive
form, providing coverage against loss or damage caused by explosion of steam
boilers, pressure vessels or similar vessels, now or hereafter installed at the
Facility, in limits reasonably acceptable to Landlord, but not less than .
14.1.8 Earthquake.
Loss due to earthquake (if such coverage is reasonably deemed
necessary by Landlord and reasonably available to Tenant) in limits and with
deductibles reasonably acceptable to Landlord.
14.1.9 Environmental Impairment.
Loss due to environmental impairment liability in limits and
with deductibles reasonably acceptable to Landlord, but only if such insurance
becomes more or less customarily required by prudent landlords of property
similar to the Leased Property or any site assessment report for the Leased
Property indicates that such insurance would be appropriate.
14.1.10 Subsidence.
Loss due to subsidence (if deemed necessary by Landlord) in
limits reasonably acceptable to Landlord.
14.1.11 Other Insurance.
Such other insurance on or in connection with the Leased
Property as Landlord or any Facility Mortgagee may reasonably require, which at
the time is usual and commonly obtained in connection with properties similar in
type of building size and use to the Leased Property and located in the
geographic area where the Leased Property is located.
14.2 Replacement Cost.
In the event either party believes that the Full Replacement
Cost of the insured property has increased at any time during the Term, it shall
have the right to have such Full Replacement Cost redetermined by the insurance
company which is then carrying the largest amount of hazard insurance carried on
the Leased Property (the "Impartial Appraiser"). The party desiring to have the
Full Replacement Cost so redetermined shall forthwith, on receipt of such
determination by such Impartial Appraiser, give written notice thereof to the
other party hereto. The determination of such Impartial Appraiser shall be final
and binding on the parties hereto, and Tenant shall forthwith increase the
amount of insurance carried pursuant to this Section 14.2, as the case may be,
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to the amount so determined by the Impartial Appraiser. Each party shall pay
one-half of the fee, if any, of the Impartial Appraiser.
14.3 Waiver of Subrogation.
Landlord and Tenant waive their respective right of recovery
against the other to the extent damage or liability is insured against under a
policy or policies of insurance. All insurance policies carried by either party
covering the Leased Property including the contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party (including any Facility Mortgagee). The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so.
14.4 Insurance Company Satisfactory.
All of the policies of insurance referred to in Section 14.1
shall be written by an insurance company licensed and in good standing in the
state in which the Leased Property is located and rated not less than A:X by
A.M. Best Co. In addition, all insurance carried by Tenant hereunder shall have
deductible amounts which are reasonably acceptable to Landlord. Tenant shall pay
all premiums for the policies of insurance referred to in Section 14.1 and shall
deliver certificates thereof to Landlord prior to their effective date (and with
respect to any renewal policy, at least thirty (30) days prior to the expiration
of the existing policy). In the event Tenant fails to satisfy its obligations
under this Section 14.4, Landlord shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon written demand as Additional Rent.
Each insurer mentioned in Section 14.1 shall agree, by endorsement on the policy
or policies issued by it, or by independent instrument furnished to Landlord,
that it will give to Landlord thirty (30) days' written notice before the policy
or policies in question shall be altered, allowed to expire or canceled. Each
such policy shall also provide that any loss otherwise payable thereunder shall
be payable notwithstanding (i) any act or omission of Landlord or Tenant which
might, absent such provision, result in a forfeiture of all or a part of such
insurance payment, (ii) the occupation or use of the Leased Property for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by any Facility
Mortgagee pursuant to any provision of a mortgage, note, assignment or other
document evidencing or securing a loan upon the happening of an event of default
therein or (iv) any change in title to or ownership of the Leased Property.
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14.5 Change in Limits.
In the event that Landlord shall at any time reasonably
determine on the basis of prudent industry practice that the liability insurance
carried by Tenant pursuant to Section 14.1.2 is insufficient, the parties shall
endeavor to agree on the proper and reasonable limits for such insurance to be
carried; and such insurance shall thereafter be carried with the limits thus
agreed on until further changed pursuant to the provisions of this Section 14.5.
Notwithstanding the foregoing, the deductibles for such insurance or the amount
of such insurance which is self-retained by Tenant shall be as reasonably
determined by Tenant so long as Tenant can reasonably demonstrate its ability to
satisfy such deductible or amount of such self-retained insurance.
14.6 Blanket Policy.
Notwithstanding anything to the contrary contained in this
Article XIV, Tenant's obligations to carry the insurance provided for herein may
be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all other
requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article XIV are
otherwise satisfied. The amount of the total insurance shall be specified either
(i) in each such "blanket" or umbrella policy or (ii) in a written statement,
which Tenant shall deliver to Landlord and Facility Mortgagee, from the insurer
thereunder. A certificate of each such "blanket" or umbrella policy shall
promptly be delivered to Landlord and Facility Mortgagee. If requested by
Landlord, Tenant shall provide Landlord with a certified copy of the "blanket"
or umbrella insurance policy.
ARTICLE XV
----------
APPLICATION OF INSURANCE PROCEEDS
---------------------------------
15.1 Insurance Proceeds.
Subject to the requirements of any Facility Mortgage, all
proceeds of insurance payable by reason of any loss or damage to the Leased
Property, or any portion thereof, and insured under any policy of insurance
required by Article XIV or under any other insurance carried by Tenant shall (i)
if greater than One Hundred Thousand Dollars ($100,000), be paid to Landlord and
held by Landlord and (ii) if less than such amount, be paid to Tenant and held
by Tenant. All such proceeds shall be held in trust and shall be made available
for reconstruction or repair, as the case may be, of any damage to or
destruction of the Leased Property, or any portion thereof.
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15.1.1 Disbursement of Proceeds.
Any proceeds held by Landlord or Tenant shall be paid out by
Landlord or Tenant from time to time for the reasonable costs of such
reconstruction or repair; provided, however, that, subject to the requirements
of any Facility Mortgagee, Landlord shall disburse proceeds subject to the
following requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the
restoration shall have been approved by Landlord, which
approval shall not be unreasonably withheld or delayed and (B)
appropriate waivers of mechanics' and materialmen's liens
shall have been filed;
(ii) at the time of any disbursement, subject to Article XIII,
no mechanics' or materialmen's liens shall have been filed
against the Leased Property and remain undischarged, unless a
satisfactory bond shall have been posted in accordance with
the laws of the state in which the Leased Property is located;
(iii) prior to completion of the restoration, Landlord shall
be authorized to holdback, as a reserve against future
disbursements, ten percent (10%) of such proceeds;
(iv) if Landlord shall reasonably determine that the proceeds
are not sufficient to cover the total cost of the restoration,
Tenant shall be obligated to deposit with Landlord the amount
of such shortfall immediately upon receiving written notice
thereof from Landlord;
(v) disbursements shall be made from time to time in an amount
not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence, of
the stage of completion, the estimated total cost of
completion and performance of the work to date in a good and
workmanlike manner in accordance with the contracts, plans and
specifications, (B) waivers of liens, (C) a satisfactory
bring-down of title insurance and (D) other evidence of cost
and payment so that Landlord and Facility Mortgagee can verify
that the amounts disbursed from time to time are represented
by work that is completed, in place and free and clear of
mechanics' and materialmen's lien claims;
(vi) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by the president or a vice
president of Tenant, describing the work for which payment is
requested, stating the cost incurred in connection therewith,
stating that Tenant has not previously received payment for
such work and, upon completion of the work, also stating that
the work has been fully completed and complies with the
applicable requirements of this Lease;
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(vii) to the extent actually held by Landlord and not by a
Facility Mortgagee, (1) the proceeds shall be held in a
separate account and shall not be commingled with Landlord's
other funds, and (2) interest shall accrue on funds so held at
the money market rate of interest and such interest shall
constitute part of the proceeds; and
(viii) such other reasonable conditions as Landlord may
reasonably impose, or such other conditions as may be required
by a Facility Mortgagee, including, without limitation,
payment by Tenant of reasonable costs of administration
imposed by or on behalf of Facility Mortgagee should the
proceeds be held by Facility Mortgagee.
15.1.2 Excess Proceeds.
Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property (or in
the event neither Landlord nor Tenant is required or elects to repair and
restore) shall be paid to Tenant upon completion of any such repair and
restoration except as otherwise specifically provided below in this Article XV.
All salvage resulting from any risk covered by insurance shall belong to
Landlord except to the extent relating to Tenant's Personal Property.
15.2 Reconstruction Covered by Insurance.
15.2.1 Destruction Rendering Facility Unsuitable for its
Primary Intended Use.
If during the Term the Leased Property is totally or partially
destroyed and the Facility thereby is rendered Unsuitable For Its Primary
Intended Use, Tenant shall diligently restore the Facility to substantially the
same condition as existed immediately before the damage or destruction;
provided, however, if the Facility cannot be fully repaired or restored within a
nine (9) month period from the date of damage or destruction to substantially
the same condition as existed immediately before the damage or destruction, then
Tenant may terminate this Lease by giving Landlord written notice of such
termination within sixty (60) days after the date of such damage or destruction,
and the effective date of such termination shall be thirty (30) days following
such notice of termination; provided, however, that if Landlord notifies Tenant
in writing within fifteen (15) days after Landlord's receipt of Tenant's notice
of termination that Landlord intends to restore the Facility to substantially
the same condition as existed immediately before the damage and destruction and
Landlord diligently commences and prosecutes such restoration and completes such
restoration within nine (9) months after the date of damage or destruction,
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then Tenant's election to terminate this Lease shall be deemed rescinded and
Lease shall remain in full force and effect. Upon any such termination of
this Lease by Tenant or upon Landlord's election to restore the Facility as
provided in this section, Landlord shall be entitled to retain all insurance
proceeds, grossed up by Tenant to account for the deductible or any self-insured
retention; provided, further, that Tenant shall be entitled to retain or receive
all insurance proceeds relating to Tenant's Personal Property and the Tenant
Improvements.
15.2.2 Destruction Not Rendering Facility Unsuitable for
its Primary Intended Use.
If during the Term, the Leased Property is totally or
partially destroyed but the Facility is not thereby rendered Unsuitable For Its
Primary Intended Use, Tenant shall diligently restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction; provided, however, Tenant shall not be required to restore Tenant's
Personal Property or any Tenant Improvements if failure to do so does not
adversely affect the amount of Additional Rent payable hereunder. Such damage or
destruction shall not terminate this Lease; provided further, however, if Tenant
and Landlord cannot within nine (9) months after said damage obtain all
necessary governmental approvals, including building permits, licenses,
conditional use permits and any certificates of need, after diligent efforts to
do so in order to be able to perform all required repair and restoration work
and to operate the Facility for its Primary Intended Use in substantially the
same manner as immediately prior to such damage or destruction, Tenant may
terminate this Lease upon thirty (30) days prior written notice to Landlord;
provided further, however, if Landlord notifies Tenant in writing within fifteen
(15) days of Landlord's receipt of Tenant's notice of termination that Landlord
intends to restore the Facility to substantially the same condition as existed
immediately before the damage and destruction and Landlord diligently commences
and prosecutes such restoration and completes such restoration within nine (9)
months after the date of Tenant's notice of termination, then Tenant's
election to terminate the Lease shall be deemed rescinded and this Lease shall
remain in full force and effect. Upon any such termination of the Lease by
Tenant or upon Landlord's election to restore the Facility as provided in this
section, Landlord shall be entitled to retain all insurance proceeds, grossed up
by Tenant to account for the deductible or any self-insured retention; provided,
further, that Tenant shall be entitled to retain or receive all insurance
proceeds relating to Tenant's Personal Property and the Tenant Improvements.
15.2.3 Costs of Repair.
If Tenant elects to restore the Facility as provided in
Section 15.2.1 or Section 15.2.2 above and the cost of the repair or restoration
exceeds the amount of proceeds received by Landlord or Tenant from the insurance
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required under Article XIV, Tenant shall pay for such excess cost of repair or
restoration. If Landlord elects to restore the Facility as provided in Section
15.2.1 or Section 15.2.2 above and the cost of the repair or restoration exceeds
the amount or proceeds received by Landlord as provided in those sections,
Landlord shall pay for such excess cost of repair or restoration.
15.3 No Abatement of Rent.
Except as otherwise provided in Section 15.2 above, this Lease
shall remain in full force and effect and Tenant's obligation to make rental
payments and to pay all other charges required by this Lease shall remain
unabated during the period required for repair and restoration; provided,
however, that if there is no Event of Default, Tenant shall be entitled to
retain any proceeds of rental value or business interruption insurance coverage.
15.4 Waiver.
Tenant hereby waives any statutory rights of termination which
may arise by reason of any damage or destruction of the Facility which Landlord
or Tenant is obligated to restore or may restore under any of the provisions of
this Lease.
15.5 Damage Near End of Term.
Notwithstanding any other provision to the contrary in this
Article XV, if damage to or destruction of the Leased Property occurs during the
last twelve (12) months of the Term, and if such damage or destruction cannot
reasonably be expected to be fully repaired or restored prior to the date that
is six (6) months prior to the end of the then-applicable Term, then Landlord or
Tenant shall have the right to terminate this Lease on thirty (30) days' prior
notice to the other party by giving notice thereof to Landlord within sixty (60)
days after the date of such damage or destruction. Upon any such termination,
Landlord shall be entitled to retain all insurance proceeds, grossed up by
Tenant to account for the deductible or any self-insured retention; provided
however, that Tenant shall be entitled to retain or receive all insurance
proceeds relating to Tenant's Personal Property and Tenant Improvements.
ARTICLE XVI
-----------
CONDEMNATION
------------
16.1 Total Taking.
If at any time during the Term the Leased Property is totally
and permanently taken by Condemnation, this Lease shall terminate on the Date of
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Taking and Tenant shall promptly pay all outstanding rent and other charges
through the date of termination.
16.2 Partial Taking.
If a portion of the Leased Property is taken by Condemnation,
this Lease shall remain in effect if the Facility is not thereby rendered
Unsuitable For its Primary Intended Use, but if the Facility is thereby rendered
Unsuitable For Its Primary Intended Use, this Lease shall terminate on the Date
of Taking.
16.3 Restoration.
If there is a partial taking of the Leased Property and the
Lease remains in full force and effect pursuant to Section 16.2, Landlord at its
cost shall accomplish all necessary restoration up to but not exceeding the
amount of the Award payable to Landlord, as provided herein. If Tenant receives
an Award under Section 16.4, Tenant shall repair or restore any Tenant
Improvements up to but not exceeding the amount of the Award payable to Tenant
therefor.
16.4 Award Distribution.
The entire Award attributable to the Leased Property shall
belong to and be paid to Landlord, except that, subject to the rights of the
Facility Mortgagee, Tenant shall be entitled to receive from the Award, if and
to the extent such Award specifically includes such items, a sum attributable to
the value, if any, of any of Tenant's Personal Property and any Tenant
Improvements
16.5 Temporary Taking.
The taking of the Leased Property, or any part thereof, by
military or other public authority shall constitute a taking by Condemnation
only when the use and occupancy by the taking authority has continued for longer
than six (6) months. During any such six (6) month period, which shall be a
temporary taking, all the provisions of this Lease shall remain in full force
and effect with no abatement of rent payable by Tenant hereunder. In the event
of any such temporary taking, the entire amount of any such Award made for such
temporary taking allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Tenant.
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ARTICLE XVII
------------
EVENTS OF DEFAULT
-----------------
17.1 Events of Default.
If any one or more of the following events (individually, an
"Event of Default") shall occur:
(a) if Tenant shall fail to make payment of the Rent payable
by Tenant under this Lease when the same becomes due and
payable and such failure continues for a period of five (5)
days following the date such payment is due;
(b) if Tenant shall fail to observe or perform any material
term, covenant or condition of this Lease and such failure is
not cured by Tenant within a period of thirty (30) days after
receipt by Tenant of notice thereof from Landlord, unless such
failure cannot with due diligence be cured within a period of
thirty (30) days, in which case such failure shall not be
deemed to continue if Tenant proceeds promptly and with due
diligence to cure the failure and diligently completes the
curing thereof within ninety (90) days following the
expiration of said thirty (30) day period;
(c) if Tenant shall:
(i) admit in writing its inability to pay its debts
generally as they become due,
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act,
(iii) make an assignment for the benefit of its
creditors,
(iv) be unable to pay its debts as they mature,
(v) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property, or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or
any other applicable law or statute of the United
States of America or any state thereof;
(d) if, on a petition in bankruptcy filed against Tenant:
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(i) such petition shall not have been dismissed
within sixty (60) days,
(ii) a court of competent jurisdiction shall enter an
order or decree appointing, without the consent of
Tenant, a receiver of Tenant or of the whole or
substantially all of its property, and such judgment,
order or decree shall not be vacated or set aside or
stayed within sixty (60) days from the date of the
entry thereof,
(iii) a court of competent jurisdiction shall enter
an order or decree approving, without the consent of
Tenant, a petition filed against Tenant seeking
reorganization or arrangement of Tenant, under the
federal bankruptcy laws or any other law or statute
of the United States of America or any state thereof,
and such judgment, order or decree shall not be
vacated or set aside or stayed within sixty (60) days
from the date of the entry thereof, or
(iv) Tenant shall be adjudicated as bankrupt;
(e) if Tenant shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(f) if the estate or interest of Tenant in the Leased Property
or any part thereof shall be levied upon or attached in any
proceeding and the same shall not be vacated or discharged
within the later of ninety (90) days after commencement
thereof or thirty (30) days after receipt by Tenant of notice
thereof or from Landlord (unless Tenant shall be contesting
such lien or attachment in accordance with Article XIII);
provided, however, that such notice shall be in lieu of and
not in addition to any notice required under applicable law;
(g) if, except as a result of damage, destruction or a partial
or complete Condemnation or other Unavoidable Delays, Tenant
voluntarily ceases operations on the Leased Property for a
period in excess of one hundred eighty (180) consecutive days;
(h) if any representation or warranty made by Tenant herein or
in any certification, demand or request made pursuant hereto
proves to be incorrect, now or hereafter, in any material
respect and any adverse effect on Landlord of any such
misrepresentation or breach of warranty has not been corrected
to Landlord's satisfaction within twenty (20) days after
Tenant becomes aware of, or is notified by Landlord of the
fact of, such misrepresentation or breach of warranty;
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(i) if the Occupancy Rate for the Facility shall fall below
seventy-eight percent (78%) for four consecutive Fiscal
Quarters;
(j) if the Facility's applicable license or third-party
provider reimbursement agreements material to the Facility's
operation for its Primary Intended Use shall at any time be
terminated or revoked or suspended for more than sixty (60)
days (and, in the case of a third-party provider, Tenant shall
have failed to replace said third party provider within said
sixty (60) day period or if the Facility is banned from
admitting residents for a period in excess of ninety (90)
days);
(k) if Tenant shall fail to give notice to Landlord not later
than ten (10) days after any notice, claim or demand from any
governmental authority, or any officer acting on behalf
thereof, of any violation of any law, order, ordinance, rule
or regulation with respect to the operation of the Facility;
or
(l) if the tenant under any Simultaneous Lease fails to make
any payment of Minimum Rent or Percentage Rent, as applicable,
when due thereunder or fails to pay any real estate taxes,
utility charge or insurance premium, when due and payable
thereunder, and such failure continues beyond the expiration
of any cure period provided for therein.
THEN, Landlord may terminate this Lease by giving Tenant not
less than ten (10) days' notice (or no notice for clauses (c), (d), (e), (f) and
(j)) of such termination and upon the expiration of the time fixed in such
notice, the Term shall terminate and all rights of Tenant under this Lease shall
cease. Notwithstanding anything contained in this Lease to the contrary,
Landlord shall have all rights at law and in equity available to Landlord as a
result of Tenant's breach of this Lease.
17.2 Payment of Costs.
Tenant shall, to the extent permitted by law, pay as
Additional Rent all reasonable costs and expenses incurred by or on behalf of
Landlord, including, without limitation, reasonable attorneys' fees and
expenses, as a result of any Event of Default hereunder.
17.3 Certain Remedies.
If an Event of Default shall have occurred and be continuing,
whether or not this Lease has been terminated pursuant to Section 17.1, Tenant
shall, to the extent permitted by law, if required by Landlord so to do,
immediately surrender to Landlord the Leased Property pursuant to the provisions
of Section 17.1 and quit the same and Landlord may enter upon and repossess the
Leased Property by reasonable force, summary proceedings, ejectment or
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otherwise, and may remove Tenant and all other Persons and any and all Tenant's
Personal Property from the Leased Property subject to any requirement of law.
17.4 Damages.
None of (a) the termination of this Lease pursuant to Section
17.1, (b) the repossession of the Leased Property, (c) the failure of Landlord
to relet the Leased Property, (d) the reletting of all or any portion thereof,
nor (e) the failure of Landlord to collect or receive any rentals due upon any
such reletting, shall relieve Tenant of its liability and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. In
the event of any such termination, Tenant shall forthwith pay to Landlord all
Rent due and payable with respect to the Leased Property through, and including,
the date of such termination. Thereafter, Tenant shall forthwith pay to
Landlord, at Landlord's option, either:
(a) the sum of:
(i) the worth, at the time of the termination, of the
amount by which the unpaid Rent for the balance of
the Term after the time of such termination exceeds
the amount of such rental loss that Tenant proves
could be reasonably avoided; and
(ii) any other amount necessary to compensate
Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under
this Lease;
provided, that in making the above determination, (a) the
worth at the time of the termination shall be determined using
the ninety (90) day Treasury bill rate, (b) the monthly
Estimated Percentage Rent for the remainder of the Term shall
be deemed to be the same as for the then current Fiscal
Quarter, as determined pursuant to Section 3.2.1, and (c)
Additional Rent for the remainder of the Term shall be deemed
to be payable monthly in an amount equal to one-third (1/3) of
the aggregate amount paid by Tenant as Additional Rent during
the Fiscal Quarter immediately preceding the termination (but
excluding, for purposes of determining such aggregate amount
of Additional Rent pursuant to this Section 17.4 only, any
Additional Quarterly Percentage Rent or Additional Annual
Percentage Rent paid by Tenant during such immediately
preceding Fiscal Quarter); or
(b) with or without termination of Tenant's right to
possession of the Leased Property, each installment of said
Rent and other sums payable by Tenant to Landlord under this
Lease as the same become due and payable, which Rent and other
sums shall bear interest at the Overdue Rate from the date
when due until paid, and Landlord may enforce, by action or
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otherwise, any other term or covenant of this Lease.
17.5 Additional Remedies.
Landlord may avail itself of all other remedies that may be
available to Landlord under applicable law.
17.6 Appointment of Receiver.
Upon the occurrence of an Event of Default, and upon filing of
a suit or other commencement of judicial proceedings to enforce the rights of
Landlord hereunder, Landlord shall be entitled, as a matter of right, to the
appointment of a receiver or receivers acceptable to Landlord of the Leased
Property and the Facility and of the revenues, earnings, income, products and
profits hereof, pending such proceedings, with such powers as the court making
such appointment shall confer.
17.7 Waiver.
IF THIS LEASE IS TERMINATED PURSUANT TO SECTION 17.1 OR IF
TENANT'S RIGHT TO POSSESSION OF THE LEASED PROPERTY IS OTHERWISE TERMINATED,
TENANT WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) ANY RIGHT OF
REDEMPTION, RE-ENTRY OR REPOSSESSION AND (B) ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF ANY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE XVII.
17.8 Application of Funds.
Any payments received by Landlord under any of the provisions
of this Lease during the existence or continuance of any Event of Default (and
such payment is made to Landlord rather than Tenant due to the existence of an
Event of Default) shall be applied to Tenant's obligations in the order which
Landlord may determine or as may be prescribed by the laws of the state in which
the Leased Property is located.
17.9 Impounds.
Landlord shall have the right during the continuance of an
Event of Default or at any time required by any Facility Mortgagee to require
Tenant to pay to Landlord an additional monthly sum (each an "Impound Payment")
sufficient to pay the Impound Charges (as hereinafter defined) as they become
due. As used herein, "Impound Charges" shall mean real estate taxes on the
Leased Property or payments in lieu thereof and premiums on any insurance
required by this Lease. Landlord shall determine the amount of the Impound
Charges and of each Impound Payment. The Impound Payments shall be held in a
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separate account and shall not be commingled with other funds of Landlord and
interest thereon shall be held for the account of Tenant. Landlord shall apply
the Impound Payments to the payment of the Impound Charges in such order or
priority as Landlord shall determine or as required by law. If at any time the
Impound Payments theretofore paid to Landlord shall be insufficient for the
payment of the Impound Charges, Tenant, within ten (10) days after the
Landlord's demand therefor, shall pay the amount of the deficiency to Landlord
plus interest thereon at the Overdue Rate from the date of such demand until
paid.
ARTICLE XVIII
-------------
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
-----------------------------------------
If Tenant shall fail to make any payment or to perform any act
required to be made or performed under this Lease, and to cure the same within
the relevant time periods provided in Section 17.1, Landlord, after notice to
and demand upon Tenant, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Tenant.
Landlord may, to the extent permitted by law, enter upon the Leased Property for
such purpose and take all such action thereon as, in Landlord's opinion, may be
necessary or appropriate therefore. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, to the extent
permitted by law) so incurred, together with interest thereon at the Overdue
Rate from the date on which such sums or expenses are paid or incurred by
Landlord, shall be paid by Tenant to Landlord on demand. The obligations of
Tenant and rights of Landlord contained in this Article XVIII shall survive the
expiration or earlier termination of this Lease.
ARTICLE XIX
-----------
LEGAL REQUIREMENTS
------------------
Subject to Article XIII regarding permitted contests, Tenant,
at its expense, shall promptly (a) comply with all material Legal Requirements
and Insurance Requirements in respect of the use, operation, maintenance, repair
and restoration of the Leased Property, whether or not compliance therewith
shall require structural changes in any of the Leased Improvements or interfere
with the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof. In
addition to and without limiting the generality of the foregoing, Tenant shall
adopt and implement a compliance program adequate to assure such compliance. The
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compliance program shall include all material elements of an effective program
to prevent and detect violations of law as identified in Commentary 3(k) to
Section 8A1.2 of the federal Sentencing Guidelines.
ARTICLE XX
----------
HOLDING OVER
------------
If Tenant shall for any reason remain in possession of the
Leased Property after the expiration of the Term or earlier termination of the
Term, such possession shall be as a month-to-month tenant during which time
Tenant shall pay as rental each month, one hundred fifty percent (150%) of the
aggregate of (i) one-twelfth (1/12) of the aggregate Estimated Percentage Rent
and Additional Rent payable with respect to the Leased Property during the last
Fiscal Year of the preceding Term; (ii) all Additional Rent accruing during the
month; and (iii) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Leased Property. During any such
period of month-to-month tenancy, Tenant shall deliver to Landlord at the end of
each Fiscal Quarter and each Fiscal Year, as applicable, the Officer's
Certificates referred to in Section 3.2.2 and Section 3.2.3, respectively, and
(i) Tenant shall immediately pay to Landlord any Additional Quarterly Percentage
Rent or Additional Annual Percentage Rent as Additional Rent pursuant to Section
3.3. During any such period of month-to-month tenancy, Tenant shall be obligated
to perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the expiration or
earlier termination of this Lease.
ARTICLE XXI
-----------
RISK OF LOSS
------------
21.1 Risk of Loss.
During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property as a consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than by Landlord and those claiming from, through or under
Landlord) is assumed by Tenant. In the absence of gross negligence, willful
misconduct or breach of this Lease by Landlord pursuant to Section 25.3,
Landlord shall in no event be answerable or accountable therefor nor shall any
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of the events mentioned in this Article XXI entitle Tenant to any abatement of
Rent (except as provided in Section 21.2) or otherwise relieve Tenant of its
obligations hereunder and under each Lease.
21.2 Unavoidable Events.
If at any time during the Term, the Facility is rendered
Unsuitable For Its Primary Intended Use for a period in excess of one hundred
eighty (180) consecutive days by reason of one or more of the following events
(each, an "Unavoidable Event"):
(a) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of the Leased Property or any portion thereof, including
without limitation any such prohibition or restriction resulting from Legal
Requirements enacted after the date hereof (excepting any such prohibition or
restriction caused by the actions, negligence or intentional misconduct of
Tenant); or
(b) declared or undeclared war, sabotage, riot or other acts
of civil disobedience, or the acts or omissions by governmental agencies.
THEN Tenant shall have the right to terminate the Lease by giving Landlord
written notice of such termination. The effective date of such termination shall
be ninety (90) days after Landlord's receipt of said written notice of
termination; provided, however, if Landlord elects to remedy or remove the
restrictions or interference referenced above or otherwise correct or restore
the Facility and within said ninety (90) day period the Facility is made
suitable for its Primary Intended Use, Tenant's election to terminate the Lease
shall be deemed rescinded and the Lease shall remain in full force and effect.
This Article XXI shall not limit or restrict Tenant's rights or obligations
under Article XV of this Lease.
ARTICLE XXII
------------
INDEMNIFICATION
---------------
22.1 Tenant's Indemnification of Landlord.
Except as otherwise provided in Section 22.2 and
notwithstanding the existence of any insurance provided for in Article XIV, and
without regard to the policy limits of any such insurance, Tenant shall protect,
indemnify, save harmless and defend Landlord from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against
Landlord by reason of:
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(a) any accident, injury to or death of Persons or loss of or
damage to property occurring on or about the Leased Property
or adjoining sidewalks during the Term;
(b) any use, misuse, non-use, condition, maintenance or repair
by Tenant of the Leased Property;
(c) any Impositions (which are the obligations of the Tenant
to pay pursuant to the applicable provisions of this Lease);
(d) any failure on the part of Tenant to perform or comply
with any of the terms of this Lease;
(e) the non-performance of any of the terms and provisions of
any and all existing future subleases of the Leased Property
to be performed by Tenant thereunder; and
(f) any liability Landlord may incur or suffer as a result of
any permitted contest by Tenant pursuant to Article XIII.
22.2 Landlord's Indemnification of Tenant.
Landlord shall protect, indemnify, save harmless and defend
Tenant from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees) imposed upon or incurred by or asserted against
Tenant or the Leased Property as a result of Landlord's gross negligence or
willful misconduct.
22.3 Mechanics of Indemnification.
As soon as reasonably practicable after receipt by the
indemnified party of notice of any liability or claim incurred by or asserted
against the indemnified party that is subject to indemnification under this
Article XXII, the indemnified party shall give notice thereof to the
indemnifying party. The indemnified party may at its option demand indemnity
under this Article XXII as soon as a claim has been threatened by a third party,
regardless of whether an actual loss has been suffered, so long as the
indemnified party shall in good faith determine that the indemnified party may
be liable for, or otherwise incur, a loss as a result thereof and shall give
notice of such determination to the indemnifying party. The indemnified party
shall permit the indemnifying party, at its option and expense, to assume the
defense of any such claim by counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party, and to settle or otherwise
dispose of the same; provided, however, that the indemnified party may at all
times participate in such defense at its expense; and provided further, however,
that the indemnifying party shall not, in defense of any such claim, except with
the prior written consent of the indemnified party, consent to the entry of any
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judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff in question to the
indemnified party and its affiliates a release of all liabilities in respect of
such claims, or that does not result only in the payment of money damages by the
indemnifying party. If the indemnifying party shall fail to undertake such
defense within thirty (30) days after such notice, or within such shorter time
as may be reasonable under the circumstances, then the indemnified party shall
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the indemnifying party.
22.4 Survival of Indemnification Obligations.
Tenant's or Landlord's obligation to indemnify under this
Article XXII arising during the Term shall survive any termination of this Lease
for a period of one (1) year following such termination.
ARTICLE XXIII
-------------
SUBLETTING AND ASSIGNMENT
-------------------------
23.1 Prohibition Against Subletting and Assignment.
Except as provided in Section 23.3 or Section 23.4, Tenant
shall not, without the prior written consent of Landlord (which consent Landlord
may grant or withhold in its sole and absolute discretion), assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer (except to an Affiliate of
Tenant) this Lease or any interest in this Lease, all or any part of the Leased
Property or suffer or permit this Lease or the leasehold estate created hereby
or any other rights arising under this Lease to be assigned, transferred,
mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law. For purposes of this Section
23.1, an assignment of this Lease shall be deemed to include any Change of
Control of Tenant, as if such Change of Control were an assignment of this
Lease.
23.2 Changes of Control.
A "Change of Control" requiring the consent of Landlord shall
mean:
(a) the issuance or sale by Tenant or the sale by any
stockholder of Tenant of a Controlling interest in Tenant to a
Person other than an Affiliate of Tenant or Guarantor, other
than, in either case, (x) a distribution to the public
pursuant to an effective registration statement under the
Securities Act of 1933, as amended (a "Registered Offering")
or (y) the sale by any stockholders, either directly or
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indirectly (whether by operation of law or otherwise) of a
controlling interest in Guarantor or its successor;
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by
operation of law or otherwise), excluding the sale of all or
substantially all of the assets of Guarantor;
(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity owned
and Controlled by an Affiliate of Tenant), and Tenant is not
the surviving entity.
23.3 Subleases.
23.3.1 Permitted Subleases.
(a) Tenant may, with Landlord's prior written consent, which
may not be unreasonably withheld, sublease or license portions of the Leased
Property to concessionaires or licensees to operate any portions (but not the
entirety) of the Leased Property customarily associated with or incidental to
the operation of the Facility; provided, however, that Landlord's consent to any
proposed sublease or license shall not be considered unreasonably withheld if
Landlord believes that (i) the rental or other amounts to be paid by the
proposed sublessee or licensee thereunder would be based, in whole or in part,
on the income or profits derived by such proposed sublessee or licensee from the
Facility or the Leased Property, (ii) the Landlord owns an interest, directly or
indirectly (by applying the constructive ownership rules of Section 856(d)(5) of
the Code) in the proposed sublessee or licensee or (iii) the proposed sublease
or license would cause (x) a portion of the amounts received by Landlord
pursuant to this Lease or any sublease or license to fail to qualify as "rents
from real property" within the meaning of Section 856(d) of the Code, or any
similar successor provision thereto, or (y) any other income of Landlord to fail
to qualify as income described in Section 856(c)(2) of the Code.
(b) Notwithstanding the foregoing, Tenant shall, without
Landlord's prior approval, be permitted to sublease portions of the Leased
Property to residents of the Facility; provided, however, that Tenant shall not
require or accept prepayment for more than three (3) months' use of individual
units or rooms in any Facility. Amounts charged to residents for individual
units or rooms shall not be materially less than fair market value.
23.3.2 Terms of Sublease.
Each sublease of any portion of the Leased Property shall be
subject and subordinate to the provisions of this Lease and shall provide that
Landlord, at its option and without any obligation to do so, may require any
sublessee to attorn to Landlord, in which event Landlord shall undertake the
obligations of Tenant, as sublessor under such sublease from the time of the
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exercise of such option to the termination of such sublease, and in such case,
Landlord shall not be liable (i) for any prepaid rents or security deposit paid
by such sublessee to Tenant unless Landlord actually receives the same from
Tenant or (ii) for any other defaults of Tenant under such sublease. In the
event that Landlord shall not require such attornment with respect to any
sublease, then such sublease shall automatically terminate upon the expiration
or earlier termination of this Lease, including any earlier termination by
mutual consent of Landlord and Tenant. No sublease made as permitted by Section
23.3.1 shall affect or reduce any of the obligations of Tenant hereunder, and
all such obligations shall continue in full force and effect as if no sublease
had been made. No sublease shall impose any additional obligations on Landlord
under this Lease.
23.3.3 Copies.
Tenant shall, within ten (10) days after the execution and
delivery of any sublease permitted by Section 23.3.1, deliver a duplicate
original thereof to Landlord.
23.3.4 Assignment of Rights in Subleases.
As security for performance of its obligations under this
Lease, Tenant hereby grants, conveys and assigns to Landlord all right, title
and interest of Tenant in and to all subleases now in existence or hereinafter
entered into for any or all of the Leased Property, and all extensions,
modifications and renewals thereof and all rents, issues and profits therefrom.
Landlord hereby grants to Tenant a license to collect and enjoy all rents and
other sums of money payable under any sublease of any portion of the Leased
Property; provided, however, that Landlord shall have the absolute right at any
time after the occurrence and continuance of an Event of Default upon notice to
Tenant and any subtenants to revoke said license and to collect such rents and
sums of money and to retain the same. Tenant shall not (i) after the occurrence
and continuance of an Event of Default, consent to, cause or allow any material
modification or alteration of any of the terms, conditions or covenants of any
of the subleases or the termination thereof, without the prior written approval
of Landlord nor (ii) accept any rents (other than customary security deposits)
more than ninety (90) days in advance of the accrual thereof nor permit anything
to be done, the doing of which, nor omit or refrain from doing anything, the
omission of which, will or could be a breach of or default in the terms of any
of the subleases.
23.3.5 Licenses.
For purposes of Section 23.1 and this Section 23.3, subleases
shall be deemed to include any licenses, concession arrangements, or other
arrangements relating to the possession of any part of the Leased Property.
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23.4 Assignment.
Except as expressly provided in this Section 23.4, Tenant may
assign this Lease (including, without limitation, upon a Change of Control of
Tenant as provided in Section 23.2) only upon the written consent of Landlord,
which consent Landlord may give or withhold in its sole and absolute discretion.
If Tenant desires at any time to assign this Lease, it shall first notify
Landlord of its desire to do so and shall submit in writing to Landlord: (i) the
name of the proposed assignee; (ii) the terms and provisions of the proposed
assignment; and (iii) such financial information as Landlord reasonably may
request concerning the proposed assignee. Except as provided in Section 23.4.3
below, any assignment by Tenant of this Lease shall be solely of Tenant's entire
interest in and under this Lease. The consent by Landlord to any assignment
shall not constitute a consent to any subsequent or successive assignment by the
assignee. Any purported assignment or other transfer of all or any portion of
Tenant's interest in this Lease in contravention of this Section 23.4 shall be
void and, at the option of Landlord, shall terminate this Lease.
23.4.1 Financial Condition of Assignee.
Landlord may, as a condition to granting its consent to any
proposed assignment by Tenant, require that the obligations of any assignee
which is an Affiliate of another Person be guaranteed by its parent or
controlling Person. Furthermore, any assignment agreement entered into by Tenant
shall expressly provide that the assignee shall furnish Landlord with such
financial and operational information as Landlord may request from time to time.
23.4.2 Assignment to Affiliate.
Tenant may, upon notice to Landlord, but without Landlord's
consent, assign this Lease to an Affiliate of Tenant (including, without
limitation, pursuant to a Change of Control of Tenant as provided in Section
23.2); and provided further an assignment pursuant to this Section 23.4.2 shall
not be permitted in the event (i) the rental or other amounts to be paid by the
proposed assignee thereunder would be based, in whole or in part, on the income
or profits derived by such proposed assignee from the Facility or the Leased
Property, (ii) the Landlord owns an interest, directly or indirectly (by
applying the constructive ownership rules of Section 856(d)(5) of the Code) in
the proposed assignee or (iii) the proposed assignment would cause (x) a portion
of the amounts received by Landlord pursuant to this Lease to fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Code, or
any similar successor provision thereto, or (y) any other income of Landlord to
fail to qualify as income described in Section 856(c)(2) of the Code.
Furthermore, any assignment agreement entered into by Tenant shall expressly
provide that the assignee shall furnish Landlord with such financial and
operational information as Landlord may request from time to time.
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23.4.3 Assignment in Bankruptcy.
If, pursuant to the provisions of Title 11 of the United
States Code or any statute of similar purpose or nature (the "Bankruptcy Code"),
Tenant assumes this Lease and proposes to assign this Lease to any Person who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment shall be given to
Landlord by Tenant no later than twenty (20) days after receipt of such offer by
Tenant, but in any event no later than ten (10) days prior to the date that
Tenant shall file any application or motion with a court of competent
jurisdiction for authority and approval to enter into such assumption and
assignment. Such notice shall set forth (a) the name and address of the
assignee, (b) all of the terms and conditions of such offer and (c) the proposal
for providing adequate assurance of future performance by such Person under this
Lease, including, without limitation, the assurance referred to in Section 365
of the Bankruptcy Code. Any Person to whom this Lease is assigned pursuant to
the provisions of the Bankruptcy Code shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease from and
after the date of such assignment. Any such assignee shall execute and deliver
to Landlord upon demand an instrument confirming such assumption.
23.4.4 Adequate Assurance of Future Performance.
The term "adequate assurance of future performance" as used in
Section 23.4.3 shall mean, the assurances called for in Section 365(f) of the
Bankruptcy Code.
23.4.5 Disaffirmance or Rejection.
If, at any time after Tenant may have assigned Tenant's
interest in this Lease pursuant to this Section 23.4, this Lease shall be
disaffirmed or rejected in any proceeding, or in the event of termination of
this Lease following an Event of Default, Tenant, upon notice of Landlord given
within thirty (30) days next following any such disaffirmance, rejection or
termination (and actual notice thereof to Landlord in the event of a
disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall pay to Landlord all Percentage Rent and Additional Rent due and
owing by the assignee to Landlord under this Lease to and including the date of
such disaffirmance, rejection or termination.
23.4.6 Costs.
Tenant shall reimburse Landlord for Landlord's reasonable
costs and expenses incurred in conjunction with the processing and documentation
of any assignment permitted hereunder, including, without limitation, reasonable
attorneys', architects', engineers' and other consultants' fees and expenses,
whether or not any such assignment is actually consummated.
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23.4.7 No Release of Tenant's Obligation.
No assignment of this Lease shall relieve Tenant of its
obligation to pay Rent and to perform all of the other obligations to be
performed by Tenant hereunder. The liability of Tenant named herein and any
immediate or remote successor in interest of Tenant, and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed,
shall not in any way be discharged, released or impaired by any (i) agreement
which modifies any of the rights or obligations of the parties under this Lease,
(ii) stipulation which extends the time within which an obligation under this
Lease is to be performed, (iii) waiver of the performance of an obligation
required under this Lease or (iv) failure to enforce any of the obligations set
forth in this Lease.
ARTICLE XXIV
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ESTOPPEL CERTIFICATES AND OTHER STATEMENTS
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24.1 Estoppel Certificates.
24.1.1 Estoppel Certificate of Tenant.
At any time, and from time to time within twenty (20) days
after a written request from Landlord, Tenant will furnish to Landlord an
Officer's Certificate certifying:
(a) that this Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as modified
and setting forth the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Tenant, Landlord
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each
such default of which Tenant may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Tenant before or by any court or
administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Tenant;
(e) the current responses to such other questions or
statements of fact as Landlord shall reasonably request.
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Tenant's failure to deliver such statement within such time
shall constitute an acknowledgment by Tenant that this Lease is unmodified and
in full force and effect except as may be represented to the contrary by
Landlord, Landlord is not in default in the performance of any covenant,
agreement or condition contained in this Lease and the other matters set forth
in such request, if any, are true and correct. Any such certificate furnished
pursuant to this Section 24.1.1 may be relied upon by Landlord and any Facility
Mortgagee.
24.1.2 Estoppel Certificate of Landlord.
At any time, and from time to time within twenty (20) days
after a written request from Tenant, Landlord will furnish to Tenant an
Officer's Certificate certifying:
(a) that this Lease is unmodified and in full force and effect
(or that this Lease is in full force and effect as modified
and setting forth the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Landlord, Tenant
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each
such default of which Landlord may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Landlord before or by any court or
administrative agency which, if adversely decided, would
materially and adversely affect the financial condition and
operations of Landlord;
(e) the current responses to such other questions or
statements of fact as Tenant shall reasonably request.
Landlord's failure to deliver such statement within such time
shall constitute an acknowledgment by Landlord that this Lease is unmodified and
in full force and effect except as may be represented to the contrary by Tenant,
Tenant is not in default in the performance of any covenant, agreement or
condition contained in this Lease and the other matters set forth in such
request, if any, are true and correct. Any such certificate furnished pursuant
to this Section 24.1.2 may be relied upon by Tenant.
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24.2 Financial Statements of Tenant.
24.2.1 Quarterly Financial Statements
Tenant will furnish to Lender, as soon as practicable, and in
any event within 60 days after the end of each Fiscal Quarter, an unaudited
consolidated balance sheet of Tenant as at the end of such Fiscal Quarter and
unaudited consolidated statement of income and expense of Tenant for each such
Fiscal Quarter, and for that part of the Fiscal Year to date.
24.2.2 Annual Financial Statements
Tenant will furnish to Landlord, within one hundred twenty
(120) days after the end of Tenant's fiscal year, an audited consolidated
balance sheet of Tenant as at the end of such fiscal year and a consolidated
statement of income and consolidated cash flow of Tenant for such fiscal year,
setting forth in each case, in comparative form, the corresponding figures for
the preceding Fiscal Year, prepared in accordance with GAAP.
24.3 Environmental Statements.
Immediately upon Tenant's learning, or having reasonable cause
to believe, that any Hazardous Material in a quantity sufficient to require
remediation or reporting under applicable law is located in, on or under the
Leased Property or any adjacent property, Tenant shall notify Landlord in
writing of (a) any enforcement, cleanup, removal, or other governmental or
regulatory action instituted, completed or threatened; (b) any claim made or
threatened by any Person against Tenant or the Leased Property relating to
damage, contribution, cost recovery, compensation, loss, or injury resulting
from or claimed to result from any Hazardous Material; and (c) any reports made
to any federal, state or local environmental agency arising out of or in
connection with any Hazardous Material in or removed from the Leased Property,
including any complaints, notices, warnings or asserted violations in connection
therewith.
24.4 Charges.
Tenant acknowledges that the failure to furnish Landlord with
any of the certificates or statements required by this Article XXIV will cause
Landlord to incur costs and expenses not contemplated hereunder, the exact
amount of which is presently anticipated to be extremely difficult to ascertain.
Accordingly, if Tenant shall fail to furnish Landlord with any of the
certificates or statements required by this Article XXIV, Tenant shall pay to
Landlord upon demand $1,000 for each such failure as Additional Rent. The
parties agree that this charge represents a fair and reasonable estimate of the
costs that Landlord will incur by reason of Tenant's failure to furnish Landlord
with such certificates and statements.
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ARTICLE XXV
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LANDLORD MORTGAGES
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25.1 Landlord May Grant Liens.
Without the consent of Tenant, Landlord may, from time to
time, directly or indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement ("Landlord's Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing or other obligation of
Landlord. This Lease is and at all times shall be subject and subordinate to any
ground or underlying leases, mortgages, trust deeds or like encumbrances, which
may now or hereafter affect the Leased Property and to all renewals,
modifications, consolidations, replacements and extensions of any such lease,
mortgage, trust deed or like encumbrance. This clause shall be self-operative
and no further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee or beneficiary, affecting this Lease or
the Leased Property, provided, however, the subordination of this Lease shall be
subject to Tenant's receipt of a non-disturbance agreement reasonably acceptable
to Tenant. In confirmation of such subordination, Tenant shall execute promptly
any certificate that Landlord may request for such purposes.
25.2 Tenant's Non-Disturbance Rights; Attornment.
So long as no Event of Default by Tenant hereunder shall have
occurred and be continuing, none of Tenant's rights under this Lease shall be
disturbed by the holder of any Landlord's Encumbrance which is created or
otherwise comes into existence after the Commencement Date. Following a
foreclosure of any Facility Mortgage, the applicable Facility Mortgagee or the
purchaser at a foreclosure shall perform all obligations of lessor under this
Lease (but not obligations which accrued before such Facility Mortgagee or
purchaser at foreclosure obtained title to the Leased Property), and Tenant
shall attorn to and recognize such purchaser as its landlord.
25.3 Breach by Landlord.
It shall be a breach of this Lease if Landlord shall fail to
observe or perform any material term, covenant or condition of this Lease on its
part to be performed and such failure shall continue for a period of thirty (30)
days after notice thereof from Tenant, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Landlord, within said thirty (30) day
period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within ninety (90) days following the
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expiration of said thirty (30) day period. The time within which Landlord shall
be obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay.
25.4 Facility Mortgage Protection.
Tenant agrees that the holder of any Landlord Encumbrance
shall have no duty, liability or obligation to perform any of the obligations of
Landlord under this Lease, but that in the event of Landlord's default with
respect to any such obligation, Tenant will give any such holder whose name and
address have been furnished to Tenant in writing for such purpose notice of
Landlord's default and allow such holder thirty (30) days following receipt of
such notice for the cure of said default before invoking any remedies Tenant may
have by reason thereof.
ARTICLE XXVI
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TENANT'S RIGHT OF FIRST REFUSAL
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26.1 Right of First Refusal.
In the event Landlord ever determines that it desires to sell
or lease the Leased Property during the Term or on or before the date which is
one (1) year following the expiration of the Term, Landlord agrees not to market
or sell the Leased Property without first complying with the provisions of this
Section 26.1.
26.1.1 Landlord's Original Notice.
If Landlord shall desire to sell or lease the Leased Property
during the Term or on or before the date which is one (1) year following the
expiration of the Term, Landlord shall deliver a written notice to Tenant
("Landlord's Original Notice") advising Tenant that Landlord desires to sell or
lease the Leased Property and stating the price or rental rate and lease term,
as applicable, at which Landlord desires to sell the Leased Property (the
"Original Purchase Price") or lease the Leased Property (the "Original Lease
Terms"), as applicable.
26.1.2 Tenant's Original Offer and Right to Purchase.
Tenant shall have thirty (30) days from the date the
Landlord's Original Notice is delivered to Tenant (the "Original Notice Delivery
Date") in which to deliver to Landlord a written offer ("Tenant's Original
Offer") to purchase the Leased Property for cash at a purchase price equal to
the Original Purchase Price and upon the Right of First Refusal Terms (as
defined below), or to lease the Leased Property upon the Original Lease Terms
set forth in Landlord's Original Notice, as applicable. Any offer by Tenant to
purchase the Leased Property must include the following terms (the "Right of
First Refusal Terms"): (i) Tenant shall pay all costs related to obtaining any
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environmental assessment reports (collectively, the "Environmental Reports")
related to the Leased Property; (ii) Tenant shall pay all costs of obtaining any
survey of the Leased Property; (iii) Landlord shall pay the base premium for
Form ALTA 1992 Owner Policy of Title Insurance (or local equivalent) for the
Leased Property providing coverage to Tenant comparable to the title insurance
policy (the "Title Insurance") obtained for Landlord in respect to Landlord's
purchase of the Leased Property, and in this regard, Landlord shall be entitled
to select the title insurance agency to close the sale of the Leased Property
and through which the Title Insurance is to be issued (the "Title Company");
(iv) each party shall pay for the attorneys' fees and expenses and other costs
which that party incurs; (v) Tenant and Landlord shall equally share all other
closing costs; (vi) there shall not be any unusual or non-customary
contingencies or conditions whatsoever to Tenant's obligation to purchase the
Leased Property; (vii) Tenant shall pay Landlord the amount of the Original
Purchase Price for the Leased Property in cash at closing; (viii) Tenant shall
deposit cash with the Title Company equal to ten percent (10%) of the Original
Purchase Price as an earnest money deposit (the "Earnest Money"), which Earnest
Money shall be nonrefundable and shall be paid to Landlord in the event Tenant
fails to perform its obligations under Tenant's Original Offer (provided that
such Earnest Money shall be applied towards the purchase price of the Leased
Property if the purchase closes); (ix) the sale of the Leased Property shall be
on an "AS IS, WHERE IS, WITH ALL FAULTS" basis with no representations or
warranties of Landlord whatsoever; (x) the conveyance shall be by special
warranty deed; and (xi) the closing of the sale and purchase of the Leased
Property must occur within one hundred twenty (120) days after the Original
Notice Delivery Date. Any offer by Tenant to lease the Leased Property must
include the following terms: (i) Tenant shall pay rent to Landlord in the amount
and for the lease term described in the Original Lease Terms under the terms and
conditions set forth in Landlord's Original Notice; (ii) Tenant shall lease the
Leased Property on an "AS IS, WHERE IS, WITH ALL FAULTS" basis and Landlord
shall have no obligation to construct any improvements, alterations and
renovations not specifically described in Landlord's Original Notice; (iii) in
the event the proposed lease term is for a period of five (5) years or less, the
lease shall include a right of first refusal provision similar to the provisions
of this Section 26.1; and (iv) all material terms of lease not otherwise
specified in Landlord's Original Notice shall be as set forth in this Lease.
In the event Tenant does not timely deliver a Tenant's
Original Offer to Landlord within such thirty (30) day period, Tenant shall be
conclusively deemed to have forfeited any right to purchase or lease, as
applicable, the Leased Property pursuant to the Landlord's Original Notice; and
Landlord shall become entitled to market and sell or lease the Leased Property
in accordance with the provisions of Section 26.1.3 hereof. In the event Tenant
timely delivers a Tenant's Original Offer to Landlord within such thirty (30)
day period, (i) if Tenant is to purchase the Leased Property, Tenant and
Landlord shall each deliver to the Title Company duplicate signed counterparts
of the Tenant's Original Offer (executed by duly authorized representatives of
Tenant and Landlord, respectively) and Tenant shall pay the Earnest Money to the
Title Company within forty-eight (48) hours of such acceptance or (ii) if Tenant
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is to lease the Leased Property, Tenant and Landlord shall enter into a lease
agreement on the terms and conditions set forth in Landlord's Original Notice
and as provided above.
26.1.3 Sale or Lease by Landlord.
In the event Landlord becomes entitled to market and sell or
lease the Leased Property pursuant to this Section 26.1.3, Landlord shall be
free for a period of two hundred forty (240) days from the Original Notice
Delivery Date to advertise, list for sale or lease, solicit offers, negotiate
contracts for the sale or lease of, and sell or lease (collectively, the "Sale
Activity") the Leased Property at a sale price or rental rate and lease term, as
applicable, not less than the Original Purchase Price or as set forth in the
Original Lease Terms, as applicable, and in the event the Leased Property is not
sold or leased within such two hundred forty (240) day period but is subject to
a Pending Contract (as defined below), Landlord shall continue to be free to
sell or lease the Leased Property upon the terms set forth in the Pending
Contract. For purposes of this Section 26.1.3, the term "Pending Contract" means
a bona fide written contract which (i) provides for the sale of the Leased
Property by Landlord to a Person other than a Person affiliated with Landlord at
a sale price not less than the Original Purchase Price, (ii) provides for the
lease of the Leased Property by Landlord to a Person other than a Person
affiliated with Landlord at a rental rate and for a lease term as set forth in
the Original Lease Terms and (iii) in the case of a sale, sets a date for the
closing of such sale that is scheduled to occur within ninety (90) days of the
date of such contract.
ARTICLE XXVII
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MISCELLANEOUS
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27.1 Landlord's Right to Inspect.
Tenant shall permit Landlord and its authorized
representatives to inspect the Leased Property during usual business hours
subject to any security, health, safety or confidentiality requirements of
Tenant or any governmental agency or insurance requirement relating to the
Leased Property, or imposed by law or applicable regulations. Landlord shall
indemnify Tenant for all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Tenant by reason of Landlord's inspection pursuant to this Section 27.1.
27.2 No Waiver.
No failure by Landlord to insist upon the strict performance
of any term of this Lease or to exercise any right, power or remedy consequent
upon a breach of this Lease, and no acceptance of full or partial payment of
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Rent during the continuance of any such breach, shall constitute a waiver of any
such breach or of any such term. To the extent permitted by law, no waiver of
any breach shall affect or alter this Lease, each of which shall continue in
full force and effect with respect to any other then existing or subsequent
breach.
27.3 Remedies Cumulative.
To the extent permitted by law, each legal, equitable or
contractual right, power and remedy of Landlord now or hereafter provided in
this Lease or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power and remedy. The exercise or
beginning of the exercise by Landlord of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise by
Landlord of any or all of the such other rights, powers and remedies.
27.4 Acceptance of Surrender.
No surrender to Landlord of this Lease or of the Leased
Property or any part thereof, or of any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Landlord and no act by
Landlord or any representative or agent of Landlord, other than such a written
acceptance by Landlord, shall constitute an acceptance of any such surrender.
27.5 No Merger of Title.
There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly, (a) this Lease or the leasehold estate
created hereby or any interest in this Lease or such leasehold estate and (b)
the fee estate in the Leased Property.
27.6 Conveyance by Landlord.
If Landlord shall convey the Leased Property in accordance
with the terms hereof other than as security for a debt, Landlord shall, upon
the written assumption by the transferee of the Leased Property of all
liabilities and obligations of this Lease be released from all future
liabilities and obligations under this Lease arising or accruing from and after
the date of such conveyance or other transfer as to the Leased Property. All
such future liabilities and obligations shall thereupon be binding upon the new
owner.
27.7 Quiet Enjoyment.
So long as Tenant shall pay all Rent as the same becomes due
and shall fully comply with all of the terms of this Lease and fully perform its
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obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy
the Leased Property for the Term hereof, free of any claim or other action by
Landlord or anyone claming by, through or under Landlord, but subject to all
liens and encumbrances of record as of the date hereof or any Landlord's
Encumbrances.
27.8 Notices.
All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties at the addresses below:
If to Landlord:
__________________________________________
c/o ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, Pennsylvania 19348
ATTN: Edward B. Romanov, Jr., President
and Chief Executive Officer
Telephone: (610) 925-0808
Telecopy: (610) 925-0815.
If to Tenant:
_________________________________
c/o Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attention: Michael R. Walker, Chairman and Chief Operating
Officer
Attention: Law Department: Ira C. Gubernick, Esq.
Telephone: (610) 444-6350
Telecopy: (610) 444-3365.
Any notice under this Lease shall be deemed to have been given (a) when
personally delivered; (b) on the next business day after it is delivered to a
reputable overnight commercial carrier (charges prepaid); or (c) on the third
day after it is deposited in any depository regularly maintained by the United
States Postal Service, postage prepaid, certified or registered mail, return
receipt requested. Either Landlord or Tenant may change its address or addresses
for purposes of this Section 27.8 by giving ten (10) days' prior written notice
in accordance with this Section 27.8.
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27.9 Survival of Claims.
Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Tenant or Landlord
arising prior to any date of termination of this Lease shall survive such
termination for a period of (1) year following termination.
27.10 Invalidity of Terms or Provisions.
If any term or provision of this Lease or any application
thereof shall be invalid or unenforceable, the remainder of this Lease and any
other application of such term or provision shall not be affected thereby.
27.11 Prohibition Against Usury.
If any late charges provided for in any provision of this
Lease are based upon a rate in excess of the maximum rate permitted by
applicable law, the parties agree that such charges shall be fixed at the
maximum permissible rate.
27.12 Amendments to Lease.
Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by an instrument in writing and in
recordable form signed by Landlord and Tenant.
27.13 Successors and Assigns.
All the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto. All permitted assignees or
sublessees shall be subject to the terms and provisions of this Lease.
27.14 Titles.
The headings in this Lease are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof or thereof.
27.15 Governing Law.
This Lease shall be governed by and construed in accordance
with the laws of the [Commonwealth of Pennsylvania] (but not including its
conflict of laws rules).
27.16 Memorandum of Lease.
Landlord and Tenant shall, promptly upon the request of
either, enter into a short form memorandum of this Lease (a "Memorandum of
Lease"), in form and substance satisfactory to Landlord and suitable for
recording in the state in which the Leased Property is located. Tenant shall pay
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all costs and expenses of recording such Memorandum of Lease.
27.17 Attorneys' Fees.
In the event of any dispute between the parties hereto
involving the covenants or conditions contained in this Lease or arising out of
the subject matter of this Lease, the prevailing party shall be entitled to
recover against the other party reasonable attorneys' fees and expenses. Any
reference in this Lease (including, without limitation, this Section 27.17)
shall be deemed to include, without limitation, all costs for administrative,
paralegal and support staff and all travel and entertainment expenses.
27.18 Non-Recourse as to Landlord.
Anything contained herein to the contrary notwithstanding, any
claim based on or in respect of any liability of Landlord under this Lease shall
be enforced only against the Leased Property and not against any other assets,
properties or funds of (a) Landlord, (b) any trustee, director, officer, general
partner, limited partner, member, manager, employee or agent of Landlord, or
with respect to any general partner of Landlord, any of their respective general
partners or stockholders or members (or any legal representative, heir, estate,
successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of Landlord, or any of their
respective general partners, either directly or through either Landlord or their
respective general partners or any predecessor or successor partnership, limited
liability company or corporation or their stockholders, officers, directors,
members, managers employees or agents (or other entity), or (d) any other Person
affiliated with any of the foregoing, or any trustee, director, officer,
employee, member, manager, or agent of any thereof.
27.19 No Relationship.
Landlord shall in no event be construed for any purpose to be
a partner, joint venturer or associate of Tenant or of any subtenant, operator,
concessionaire or licensee of Tenant with respect to the Leased Property or
otherwise in the conduct of their respective businesses.
27.20 Signs; Reletting.
If Tenant exercises its option not to extend or further extend
the Term under Section 2.3 or if an Event of Default occurs, then Landlord shall
have the right during the remainder of the Term then in effect (i) to advertise
the availability of the Leased Property for sale or reletting and to erect upon
the Leased Property signs indicating such availability and (ii) to show the
Leased Property to prospective purchasers or tenants or their agents at such
reasonable times as Landlord may elect.
71
<PAGE>
27.21 Facility Names.
The Leased Property shall be known by such trade name or
trademark or logo as may from time to time be determined by Tenant. Landlord
recognizes that the name "______________________" and the initials "_____,"
together with any other names, logos or designs owned by Tenant or any of its
Affiliates and used in the management and operation of the Leased Property,
together with appurtenant goodwill, are the exclusive property of Tenant or its
Affiliates (collectively, the "Tenant-Owned Names"). Accordingly, Landlord
agrees that no right or remedy of Landlord for any default on the part of Tenant
under this Lease shall, nor shall any provision of this Lease, confer upon
Landlord or its successors or assigns the right to use Tenant-Owned Names in the
operation of the Leased Property or otherwise. In the event of any breach of
this covenant by Landlord, Tenant, in addition to any remedies available to it
under this Lease or at law or in equity, shall have the right to injunctive
relief.
27.22 Further Assurances.
In addition to the obligations required to be performed under
this Lease by Tenant and Landlord, the parties shall perform, from time to time,
such other acts and shall execute, acknowledge or deliver such other
instruments, documents and other materials as the other party may reasonably
request in order to consummate the transaction contemplated by this Lease,
including, without limitation, executing and delivering any modification,
addendum or amendment required by Landlord, to restructure rent payments so that
income from this Lease will be qualified income in connection with qualification
as a real estate investment trust; provided however, that such modification,
addendum or amendment shall not materially affect either party's economic
position with respect to this Lease.
27.23 Arbitration.
Except with respect to the monthly payment of Estimated
Percentage Rent as provided herein, in case any controversy shall arise between
the parties hereto as to any of the requirements of this Lease or the
performance of any obligations under this Lease, which the parties shall be
unable to settle by agreement or as otherwise provided herein, such controversy
shall be determined by arbitration to be initiated and conducted as provided in
Exhibit E hereto.
27.24 Licenses.
Upon the expiration or earlier termination of this Lease,
Tenant shall use its best efforts to transfer to Landlord or Landlord's nominee
and shall cooperate with Landlord or Landlord's designee or nominee in
connection with the processing by Landlord or Landlord's designee or nominee of
any applications for all licenses, operating permits and other governmental
authorizations, all contracts, including contracts with governmental or
quasi-governmental entities, business records, data, patient and resident
records, and patient and resident trust accounts, which may be necessary or
useful for the operation of the Facility; provided that the costs and expenses
of any such transfer or the processing of any such application shall be paid by
Landlord or Landlord's designee or nominee. Tenant shall not commit any act or
be remiss in the undertaking of any act that would jeopardize the licensure or
certification of the Facility, and Tenant shall comply with all requests for an
orderly transfer of the same upon the expiration or early termination of the
Term. In addition, upon request, Tenant shall promptly deliver copies of all
books and records relating to the Leased Property and its operation to Landlord
or Landlord's designee or nominee but Tenant shall not be required to deliver
corporate financial records or proprietary materials. Tenant shall indemnify,
defend, protect and hold harmless Landlord from and against any loss, damage,
cost or expense incurred by Landlord or Landlord's designee or nominee in
connection with the correction of any and all deficiencies of a physical nature
identified by any governmental authority responsible for licensing the Leased
Property in the course of any change of ownership inspection and audit and
previously identified during the Term by such governmental authority.
27.25 Counterparts
To facilitate execution, this Lease may be executed in as many
counterparts as may be required. It shall not be necessary that the signature of
or on behalf of each party appears on each counterpart, but it shall be
sufficient that the signature of or on behalf of each party appears on one or
more of the counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in any proof of this Lease to
produce or account for more than a number of counterparts containing the
respective signatures of or on behalf of all of the parties.
72
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Lease as of the date first above written.
[LANDLORD]
By: ______________________________________________
Its: ______________________________________________
"Landlord"
[TENANT]
a ___________________
By: ______________________________
Its: ______________________________
"Tenant"
73
<PAGE>
SCHEDULE 1
----------
LEASED PROPERTY
---------------
[COMPLETE]
<PAGE>
SCHEDULE 2
----------
LEGAL DESCRIPTION OF LAND
-------------------------
[COMPLETE]
<PAGE>
SCHEDULE 3
----------
SIMULTANEOUS LEASES
-------------------
[COMPLETE]
<PAGE>
EXHIBIT A
---------
[RESERVED]
A-1
<PAGE>
EXHIBIT B
---------
[INTENTIONALLY DELETED]
B-1
<PAGE>
EXHIBIT C
---------
APPRAISAL PROCESS
-----------------
If Landlord and Tenant are unable to agree upon the fair
market value of the Leased Property within any relevant period provided in this
Lease, each shall within ten (10) days after written demand by the other select
one MAI Appraiser (as defined below) to participate in the determination of fair
market value. For all purposes under this Lease, the fair market value of the
Leased Property shall be the fair market value of the Leased Property
unencumbered by this Lease. Within ten (10) days of such selection, the MAI
Appraisers so selected by Landlord and Tenant shall select a third MAI Appraiser
("Third MAI Appraiser"). The three (3) selected MAI Appraisers shall each
determine the fair market value of the Leased Property within thirty (30) days
of the selection of the third appraiser. To the extent consistent with sound
appraisal practices as then existing at the time of any such appraisal, and if
requested by Landlord, such appraisal, shall be made on a basis consistent with
the basis on which the Leased Property was appraised at the time of its
acquisition by Landlord. The fees and expenses of any MAI Appraiser retained
pursuant to this Exhibit C shall be borne by the party retaining such MAI
Appraiser, with the exception of the Third MAI Appraiser whose fees and expenses
shall be borne by the Landlord and Tenant equally.
In the event either Landlord or Tenant fails to select an MAI
Appraiser within the time period set forth in the foregoing paragraph, the MAI
Appraiser selected by the other party shall alone determine the fair market
value of the Leased Property in accordance with the provisions of this Exhibit C
and the fair market value so determined shall be binding upon Landlord and
Tenant.
In the event the MAI Appraisers selected by Landlord and
Tenant are unable to agree upon a third MAI Appraiser within the time period set
forth in the first paragraph of this Exhibit C, either Landlord or Tenant shall
have the right to apply at Tenant's expense to the presiding judge of the court
of original trial jurisdiction in the jurisdiction in which the Leased Property
is located to name the third MAI Appraiser.
Within five (5) days after completion of the third MAI
Appraiser's appraisal, all three MAI Appraisers shall meet and a majority of the
MAI Appraisers shall attempt to determine the fair market value of the Leased
Property. If a majority are unable to determine the fair market value at such
meeting, the three appraisals shall be added together and their total divided by
three. The resulting quotient shall be the fair market value of the Leased
Property. If, however, either or both of the low appraisal or the high appraisal
are more than ten percent (10%) lower or higher than the middle appraisal, any
such lower or higher appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be added together and their
total divided by two, and the resulting quotient shall be such fair market
C-1
<PAGE>
value. If both the lower appraisal and higher appraisal are disregarded as
provided herein, the middle appraisal shall be such fair market value. In any
event, the result of the foregoing appraisal process shall be final and binding.
For purposes hereof, "MAI Appraiser" shall mean an appraiser
licensed or otherwise qualified to do business in the state in which the Leased
Property is located and who has substantial experience in performing appraisals
of facilities similar to the Leased Property and is certified as a member of the
American Institute of Real Estate Appraisers or certified as a SRPA by the
Society of Real Estate Appraisers, or, if such organizations no longer exist or
certify appraisers, such successor organization or such other organization as is
approved by Landlord.
C-2
<PAGE>
EXHIBIT D
---------
FORM OF GUARANTEE
-----------------
[COMPLETE]
D-1
<PAGE>
EXHIBIT E
---------
ARBITRATION
-----------
Any controversy, dispute or claim arising out of or relating to this Lease, any
modification or extension hereof or thereof, or any breach hereof or thereof
(including the question whether any particular matter is subject to arbitration
hereunder) shall be settled exclusively by arbitration, in [Philadelphia,
Pennsylvania] in accordance with the rules of the [American Arbitration
Association] then in force (the "Rules"). The party requesting arbitration shall
serve upon the other party to the controversy, dispute or claim a written demand
for arbitration stating the substance of the controversy, dispute or claim and
the contention of the party requesting arbitration and the name and address of
the arbitrator appointed by it. The recipient of such demand shall within twenty
(20) days after such receipt appoint an arbitrator, and the two arbitrators
shall appoint a third. The decision or award of any two arbitrators shall be
final and binding upon the parties. In the event that the two arbitrators fail
to appoint a third arbitrator within twenty (20) days of the appointment of the
second arbitrator, either arbitrator, or either party to the arbitration, may
apply to a judge of the United States District Court for [the Eastern District
of Pennsylvania] for the appointment of the third arbitrator, and the
appointment of such arbitrator by such judge on such application shall have
precisely the same force and effect as if such arbitrator had been appointed by
the two arbitrators. If for any reason the third arbitrator cannot be appointed
in the manner prescribed by the preceding sentence, either regularly appointed
arbitrator, or either party to the arbitration, may apply to [the American
Arbitration Association] for appointment of the third arbitrator in accordance
with the Rules. Should the party upon whom the demand for arbitration has been
served fail or refuse to appoint an arbitrator within twenty (20) days, the
single arbitrator shall have the right to decide alone, and such arbitrator's
decision or award shall be final and binding upon the parties.]
Each arbitrator chosen by a party shall be a fit person, and
the third arbitrator however chosen shall be a fit and impartial person, in each
case having at least ten (10) years experience in litigating, adjudicating or
otherwise administering cases and controversies related to the subject matter of
the controversy, dispute or claim being submitted to arbitration.
The parties hereto agree to abide by all awards and decisions
rendered in an arbitration proceeding in accordance with the foregoing, and all
such awards and decisions may be filed by the prevailing party with any court
having jurisdiction over the person or property of the other party as a basis
for judgment and the issuance of execution thereon. The fees of each arbitrator
and related expenses of arbitration shall be apportioned among the parties as
determined by the arbitrators. The parties to the arbitration shall bear equally
the fees of each arbitrator and related expenses of arbitration.
E-1
<PAGE>
Unless otherwise agreed by the parties to the arbitration, all
hearings shall be held, and all submissions shall be made by the parties, within
ten (10) days of the date of the selection of the third arbitrator, and the
decisions of the arbitrators shall be made within thirty (30) days of the later
of the date of the closing of the hearings or the date of the final submissions
by the parties.
The parties consent to the jurisdiction of the [Supreme Court
of the Commonwealth of Pennsylvania] and of the United States District Court for
[the Eastern District of Pennsylvania], for all purposes in connection with the
arbitration. The parties consent that any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested, or by
personal service, or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed.
E-2
<PAGE>
[FORM OF FIXED RENT LEASE]
LEASE AGREEMENT
THIS LEASE, made this ____ day of __________1998, by and between
__________________________________ ("Landlord") having its office at 415
McFarlan Road, Kennett Square, PA 19348, and
______________________________________ ("Tenant"), having its office at 148 West
State Street, Kennett Square, PA 19348.
Background
Landlord is the owner of the __________________________, a medical
office building ("Building") located at ________________________________________
having acquired the Building from ____________________________ (the "Prior
Landlord"). Tenant has previously agreed to lease space in the Building pursuant
to that certain Lease Agreement dated _________, [and that certain Lease
Agreement dated ______________] between Tenant and Prior Landlord (the "Existing
Lease(s)"). Prior Landlord has assigned the existing Leases to Landlord.
Landlord and Tenant desire to terminate the Existing Leases and desire to enter
into a new lease for space in the Building. Landlord desires to demise and
lease, and Tenant desires to take and lease the Premises (as defined herein) for
the purpose of conducting a business engaged in offering outpatient
rehabilitation therapy and related products and services, and for no other
purposes, all upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein contained, the parties hereto, intending to legally bound, hereby agree
as follows:
1. Lease of Premises: Landlord hereby leases to Tenant and Tenant
leases from Landlord, _________ square feet of space (the "Premises") in the
Building for the purpose set forth above, for the term of five (5) years (the
"term"), commencing on __________, 1998 (the "Commencement Date") and ending on
__________, 2003. The Premises are leased together with all appurtenances,
including the right to use in common with others, the foyer, public entrances,
public stairways, public elevators and other public portions of the building.
Effective as of the Commencement Date, the Existing Leases shall be terminated
and of no further force and effect.
2. Deposit: There shall be a security deposit required during the term
of the lease in the amount of $________ payable at the request of the Landlord.
3. Rent: The rent for the first year shall be payable in monthly
installments of __________________________________________, on the first day of
each month, commencing on the commencement date, without any set-off or
deduction whatsoever. The rent for the second year and subsequent years of the
lease term shall be increased by four percent (4%) per year. The annual and
monthly rents are as follows:
Period Annual Rent Monthly Rent
- ------ ----------- ------------
(b) Additional Rent. Tenant shall pay to the Landlord
additional rent ("Additional Rent") as set forth this Lease, including an amount
equal to Tenant's pro rata share of any Real Estate Taxes (as hereinafter
defined) and Operating Expenses (as hereinafter defined). Tenant shall, within
thirty (30) days after demand therefore by the Landlord (with respect to each
calendar year during the Term) pay each component of Additional Rent to
Landlord. Notwithstanding the foregoing, Landlord reserves the right, upon
written notice to Tenant, to require Tenant to pay such Additional Rent in
twelve (12) equal monthly installments based upon Landlord's estimates on the
dates and in the manner required for the payment of Tenant's monthly
installments of Initial Rent. The Base Rent and all such Additional Rent are
sometime referred to collectively in this Lease as "Rent."
"Real Estate Taxes" shall mean all taxes,
assessments, water, sewer or other excises, levies, license fees, permit fees,
impact fees, inspection fees and other authorization fees and similar charges,
in each case whether general or special, levied or assessed, ordinary or
extraordinary, foreseen or unforeseen, of every character, which at any time
during or in respect of the term of this Lease, may, by any governmental or
taxing authority, be assessed, levied, confirmed, or imposed on or in respect
of, or be a lien upon, the land and improvements of which the Premises are a
part, together with any other tax imposed on real estate or on owners of real
estate generally, including taxes on the land and improvements of which the
Premises are a part, upon this Lease or any rent reserved or payable hereunder,
upon the revenues or receipts from the land and improvements of which the
Premises are a part, or upon the use or occupancy thereof. In addition, Tenant
shall reimburse Landlord upon demand for any and all taxes required to be paid
by Landlord reasonably attributable to the cost or value of Tenant's personal
property or the cost or value of any leasehold improvements made in or to the
Premises by or for Tenant, and for all taxes required to be paid by Landlord
reasonably attributable to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises to
the extent such taxes are not included in Real Estate Taxes.
<PAGE>
"Operating Expenses" shall mean any and all expenses
of Landlord in connection with the servicing, insuring, operation, maintenance,
replacement and repair of the Building and related interior and exterior
appurtenances of which the Premises are a part, including without limitation,
the cost of all casualty, liability and other insurance maintained by Landlord
with respect to the Building; the costs of trash and snow removal and the costs
of maintenance of interior common areas; the costs of elevator repairs and
maintenance; the cost of any services to achieve a reduction of, or to minimize
the increase in, Operating Expenses or Real Estate Taxes; capital expenditures
and other costs of Landlord for equipment or systems installed to reduce or
minimize increases in Operating Expenses or to comply with any governmental or
quasi-governmental ordinance or requirement. The term "Operating Expenses" shall
not include any of the following, except to the extent that such costs and
expenses are specifically included in Operating Expenses as described above:
capitalized expenditures and depreciation of the Building; painting and
decorating of tenant space; interest and amortization of mortgages; ground rent;
compensation paid to officers or executives of Landlord not employed in the
operation of the Building; taxes as measured by the net income of Landlord from
the operation of the Building; insurance reimbursements of Operating Expenses to
Landlord; and all utility and water charges payable with respect to the
Building.
"Tenant's pro rata share" shall mean _________ percent (___%).
(c) Operating Statements. As soon as practicable after
December 3l of each calendar year or portion thereof which occurs during the
Term, Landlord shall give Tenant a statement (the "Operating Statement") setting
forth: (i) the actual Operating Expenses and Real Estate Taxes for the
immediately preceding calendar year; and (ii) the amount of Tenant's overpayment
or underpayment, if any, of Additional Rent on account of the estimated
Operating Expenses and Real Estate Taxes for the immediately preceding calendar
year. In the event of overpayment by the Tenant of Operating Expenses and Real
Estate Taxes, Landlord shall reimburse Tenant for such overpayment within thirty
(30) days of delivery of the Operating Statement. In the event of underpayment
by the Tenant of Operating Expenses, Tenant shall reimburse Landlord for such
underpayment within thirty (30) days of delivery of the Operating Statement. In
no event shall Landlord recover as Additional Rent an amount which is in excess
of one hundred percent (100%) of the amount of actual Operating Expenses and
Real Estate Taxes for a Lease Year.
4. Late Charge: Any rent not paid within fifteen (15) days of its due
date shall be subject to a ten percent (10%) late charge. Payments, when
received by Landlord, shall be applied first to delinquent rents and then late
charges, if any.
5. Notice of Termination: Notwithstanding any provisions herein to the
contrary, either party may notify the other in writing at least ninety (90) days
prior to the end of the term of its intention to terminate the lease. If neither
party so notifies the other, then at the expiration of the term the Tenant shall
be treated as holding over and the monthly rent will be increased to $__________
until a new lease is negotiated or Tenant vacates the premises or Landlord
terminates said holdover tenancy upon ten (10) days' notice.
6. Condition of Premises: Tenant hereby acknowledges that Tenant has
inspected and examined the Premises, and knows the present condition of the
Premises. Tenant hereby further acknowledges that no representation or warranty
is made as to the Premises or the condition or repair thereof, and Tenant hereby
agrees to accept and lease the Premises in its "AS IS" condition.
7. Affirmative Covenants: Tenant hereby agrees and covenants with
Landlord are as follows:
<PAGE>
7.1 To keep the Premises free from all refuse, make all necessary
repairs to the Premises for upkeep, normal wear and tear excepted, and to
surrender the Premises in good repair and broom clean, normal wear and tear
excepted.
7.2 To comply with all requirements of all public authorities and
insurance carriers.
7.3 To use every reasonable precaution against fire and to give
Landlord immediate written notice of any accident, damage or fire occurring on
the Premises.
7.4 To indemnify and hold Landlord harmless from and against any and
all claims, suits, actions or damages arising out of Tenant's use and occupancy
of the Premises, and from and against all costs, counsel fees, expenses and
liabilities incurred in and about any such claim and from and against any
orders, judgments, and/or decrees that may be entered with respect thereto,
except those due to the substantial negligence or intentional act on the part of
the Landlord. Tenant shall carry throughout any term at its own expense, an
Owner's, Landlord's and Tenant's General Public Liability Policy covering both
the Landlord and Tenant and any mortgagee, and any subsequent owner of the
Premises, with limits of Five Hundred Thousand Dollars ($500,000) (single
person)/One Million Dollars ($1,000,000) (aggregate) for bodily injury and Two
Hundred Fifty Thousand Dollars ($250,000) for property damage.
8. Negative Covenants: During the Term and any extensions and renewal
thereof, Tenant hereby agrees and covenants with Landlord that Tenant will not:
8.1 Assign, mortgage or pledge this Lease, sublet the Premises or any
portion thereof, or permit any other person to occupy the Premises.
8.2 Use or operate any machinery or equipment that is harmful to the
Premises or the Building or disturbing to other tenants in the Building.
8.3 Remove or attempt to remove any of Tenant's property from the
Premises without first paying the Landlord all the rent due pursuant to this
Lease for the purpose of abandonment of the property.
8.4 Make any material or substantial alterations, installations,
additions or improvements to or in the Premises without Landlord's prior
consent, which consent shall not be unreasonably withheld. All such work,
alterations, installations, additions or improvements shall be undertaken at
Tenant's expense.
8.5 During the Term of this Lease, no part of the Premises shall be
used in such manner as to create a nuisance or for any unlawful purpose. Tenant
covenants to operate its business in an orderly and quiet manner consistent with
the nature and character of its business.
9. Subordination: This Lease is subject and subordinate to all the
rights of the owner of the Premises and the Building, as well as any and all
mortgages and other encumbrances now or hereafter placed upon the Premises and
the Building. Tenant hereby agrees to execute upon demand any certificate,
document or instrument evidencing subordination of this Lease to the lien of any
such mortgage or encumbrance.
<PAGE>
10. Operating Zoning: Tenant hereby acknowledges and agrees that this
Lease is a lease of property to be used exclusively for business, commercial,
manufacturer, mercantile or industrial purposes, as distinguished from residence
purposes, as provided in Section 8-110(a) of the Real Property volume of the
Annotated Code of Maryland (1996 Rep. Vol.) and that the provisions of the
foregoing Section relating to redemption are not applicable to this Lease.
Tenant acknowledges that it is satisfied that the existing zoning of the
Premises is satisfactory for its contemplated operations.
11. Property Loss and Damage: Tenant hereby agrees that Landlord or its
agents shall not be liable for any damage to property of Tenant unless caused by
or due to the negligence or intentional act of the Landlord or its agents,
servants or employees. Landlord or its agent shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, water, rain or snow or leaks from any part of said Building or
from the pipes, appliance or plumbing works or from the roof or from any other
place or by dampness or by any other cause of whatsoever nature, unless caused
by or due to the negligence or intentional act of the Landlord or its agents,
servants or employees.
12. Rights of Landlord: Tenant hereby agrees that:
12.1 Landlord or its agents, upon reasonable notice to Tenant and at
all reasonable times, shall have the right to enter upon the Premises and view
the condition of the Premises and buildings.
12.2 At any time and from time to time, Landlord shall have the right
to make such reasonable rules and regulations as shall be necessary in its
judgment for the safety, care and cleanliness of the Premises and for the
preservation of good order therein. Such rules and regulations shall, upon
notice to Tenant, become part of this Lease.
12.3 To discontinue any or all facilities or services now or hereafter
furnished by Landlord which are not covenanted for herein, it being understood
that they constitute no part of the consideration of this Lease.
13. Remedies of Landlord: Tenant hereby agrees that, in the event that:
(a) Tenant is in default of any payments of any rent, or any part thereof, which
default shall not be cured within thirty (30) days, (b) Tenant is in default of
any of the covenants and agreements herein contained, which default shall not be
cured within thirty (30) days after the date of receipt of written notice from
the Landlord, (c) if Tenant's leasehold estate shall be taken on execution, or
(d) if the Tenant shall be declared bankrupt or insolvent according to law, or
shall make an assignment for the benefit of creditors; then, and in any such
case, Landlord may lawfully, immediately or at any time thereafter and without
further notice or demand, (i) declare due and payable and bring appropriate
action to recover all unpaid rent and additional rent for any unexpired term of
the lease, together with all costs and damages (including reasonable attorney's
fees) provided or permitted by law, (ii) without liability for any damage to
Tenant's property enter into and upon the Premises and repossess the same, expel
the Tenant and those claiming under the Tenant, without prejudice to any
remedies which might otherwise be used by the Landlord for arrears of rent or
for any breach of Tenant's covenants herein contained, (iii) declare the Lease
immediately terminated and lease the Premises to any other person with or
without altering the Premises; (iv) avail itself of any other remedies permitted
by law. No assent, expressed or implied, by Landlord, to any breach by Tenant of
any of the clauses, stipulations or covenants of this Lease shall be deemed or
taken to be a waiver of, or assent to, any succeeding breach of the same clause,
or stipulation or covenant or any preceding or succeeding breach of any other
clause, stipulation or covenant.
<PAGE>
14. Casualty Loss and Damage to Building: If the Premises of the
Building is "substantially damaged" (as defined herein), this Lease shall
terminate as of the date of such damage, and the rent shall be canceled for the
balance of the term. For the purposes hereof, "substantial damage" shall mean
that the Premises cannot be repaired and restored within three months. If the
damage is not substantial, then Landlord shall with reasonable diligence repair
and rebuild the Premises, with the Lease to continue, but with rent abated
during the period the Premises are untenantable or a portion thereof. Landlord
shall not be liable for any inconvenience or annoyance arising from the
necessity of repairing any part of the Premises, the interruption in Tenant's
use of the Premises, or the termination of this Lease by reason of substantial
damage.
15. Condemnation:
15.1 If the whole of the Building shall be taken for any public or
quasi-public use under any statute or by right of eminent domain, or by private
purchase in lieu thereof, then this Lease shall automatically terminate as of
the date that title shall be taken. If any part of the Premises shall be so
taken as to render the remainder thereof unusable for the purposes for which the
Premises was leased, then the Landlord and the Tenant shall each have the right
to terminate the Lease on thirty (30) days' notice to the other given within
ninety (90) days after the date of such taking. In the event that this Lease
shall terminate or be terminated pursuant to this Section 15.1, all rent shall,
if and as necessary, be equitably adjusted. Any dispute under the provisions of
this Section 15.1 shall be submitted to arbitration in accordance with the rules
of the American Arbitration Association in the cities of Baltimore or
Washington, D.C. for determination at such time, and such determination shall be
binding upon both parties with no further right of appeal.
15.2 If any part of the Premises shall be so taken and this Lease shall
not terminate or be terminated under the foregoing provisions, then the rent
shall be equitably apportioned according to the space so taken, and Tenant shall
have the option to terminate said Lease. Landlord shall repair the portion of
the Premises to the extent necessary to render it reasonably suitable for the
purposes for which it was leased, and shall make all repairs to the Building in
which the Premises is located to the extent necessary to constitute the Building
a complete architectural unit, provided that such work shall not exceed the
scope of the work required to be done by the Landlord in originally constructing
the Building and the cost thereof shall not exceed the proceeds of its
condemnation award.
<PAGE>
15.3 All compensation awarded or paid upon such a total or partial
taking of the Premises shall belong to and be the property of Landlord without
any participation by Tenant; provided, however, that nothing contained herein
shall be construed to preclude Tenant from prosecuting any claim directly
against the condemning authority in such condemnation proceedings for loss of
business, or depreciation to, damage to, or cost of removal of, or for the value
of stock, trade fixtures, furniture, and other personal property belonging to
the Tenant.
16. Waiver of Subrogation: In the event of any loss or damage upon the
property of either party hereto, such party hereby releases the other to the
extent of such parties insurance indemnities, from any and all liability for
such loss or damage even if such loss or damage shall be caused by the fault or
negligence of such party, his agents or employees; provided, however, that this
release shall only be effective with respect to loss or damage occurring during
such time as the applicable policies of insurance shall contain a clause to the
effect that this release shall not affect said policies or the right of the
insured to recover thereunder. This waiver shall be effective only in accordance
to Maryland State Laws. If any policy does not contain such clause, the insured
party shall, at the written request of the other, undertake to have such clause
added to such policy, if an endorsement so providing is obtainable; provided,
however, that the party so requesting such additional clause shall be liable for
any premium charged in connection with such endorsement.
17. Quiet Enjoyment: Tenant, upon payment of all rent reserved herein,
and performing all of the covenants and conditions hereof, shall, at all times
during the demised Term, peaceably and quietly have, hold and enjoy the
Premises.
18. Successors: The provisions of this Lease shall be binding upon,
apply to and inure to the benefit of the parties hereto, and their respective
heirs, personal representatives, successors and permitted assigns, except as
herein otherwise provided herein.
19. Captions: The captions of this Lease are inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope or intent of this Lease, nor in any way affect this Lease.
20. Entire Agreement: This Lease constitutes the entire agreement
between the parties with respect to the subject matter hereof and shall not be
modified or canceled except in writing signed by both parties. All continuing
covenants shall survive the expiration or early termination of this Lease.
21. Severability: If any term or provision of this Lease or its
application thereof is held to any extent to be invalid or unenforceable, the
remaining terms and provisions shall not be affected thereby and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
<PAGE>
22. Estoppel Certificate. Tenant agrees, at any time and from time to
time, upon not less than five (5) days prior written notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force and effect as
modified and stating the modifications), (ii) stating the dates to which the
Rent and other charges hereunder have been paid by Tenant, (iii) stating whether
or not Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which Tenant may have knowledge, and (iv) setting forth such other matters as
Landlord may reasonably request. Any such statement delivered pursuant hereto
may be relied upon by any owner of the Premises, any prospective purchaser of
the Premises, any mortgagee or prospective mortgagee of the Premises or of
Landlord's interest, or any prospective assignee of any such mortgagee.
23. Non-Recourse. Anything herein to the contrary notwithstanding,
except as limited by applicable law, Landlord shall have no obligation, nor
incur any liability, beyond Landlord's interest in the Building and Tenant shall
look exclusively to such interest in the Building for the payment and discharge
of any obligations imposed upon Landlord hereunder, or otherwise.
<PAGE>
IN WITNESS WHEREOF, the parties have executed the within Lease as of
the day and year first above written.
-------------------------------
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
-------------------------------
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE>
GERMAN AMERICAN CAPITAL CORPORATION
31 West 52nd Street
New York, New York 10019
Tel: (212) 469-6949
Fax: (212) 469-7210
December 10, 1997
Re: Financing for ElderTrust
Gentlemen:
This letter will serve as a commitment (the "Commitment") from German American
Capital Corporation or its affiliates ("GACC") to provide a secured credit line
in the form of a first mortgage financing (the "Credit Facility") and each draw,
a mortgage loan (the "Mortgage Loan"), as described herein, to ElderTrust. The
terms and Commitment are subject to due diligence and the negotiation,
execution, and delivery of definitive documentation with respect to the
facilities, satisfactory to GACC and its counsel in their sole discretion and
the other conditions set forth herein.
Commitment Terms:
Borrower: ElderTrust Operating Limited
Partnership, a subsidiary of
ElderTrust, its subsidiaries or
ElderTrust, a to-be-formed real
estate investment trust listed on
the New York Stock Exchange, formed
exclusively for the purpose of
investing in healthcare-related real
estate and mortgages, acquiring,
owning and operating senior living
properties and prohibited from
engaging in any other business
activities.
Lender: GACC or its assignee.
Commitment Amount: Up to $140,000,000 (the "Commitment
Amount") subject to a 60% (based on
the market value of the financed
property) advance rate or a 80%
advance rate (based on the market
value of the financed property)
subject to a Genesis or Multicare
guarantee. The Commitment Amount
shall be made available in
immediately available funds for
draw-down by Borrower on the Closing
Date (defined below); provided that
all conditions to funding (customary
to transactions of this nature) to
be set forth in the Mortgage Loan
documents are satisfied. GACC shall
have the right to mark-to market on
a daily basis all assets which are
financed in this credit facility and
require additional collateral or a
capital call as necessary.
<PAGE>
Commitment Date: December 10, 1997.
Closing Date: The closing date (the "Closing
Date") agreed to prior to the
Commitment Maturity Date by
ElderTrust and GACC for draw-down of
the Mortgage Loan which shall be a
date on which the conditions
precedent to the making of the
Mortgage Loan have been met.
Collateral: (i) A first mortgage granted by
Borrower, or its subsidiaries, on
fee interest Properties; (ii) a
perfected first lien upon mortgages
upon real estate properties held by
Borrower; (iii) a security agreement
covering the personal property at
each Property; (iv) an assignment of
the Management Agreement (defined
below) for the Properties, and (v)
such other collateral as may be
specified in the Loan Documents
(defined below). The Properties and
related collateral will be
cross-collateralized.
Sale of Participations: GACC shall have the right to sell,
assign or participate the Mortgage
Loan, in whole or in part, without
the consent of the Borrower or
ElderTrust. GACC will consult with
and notify Borrower of its intent to
sell, assign or participate the
Mortgage Loan.
Credit Facility Terms:
Maximum Borrowing Amount: Up to $140,000,000.
Term: 364 days; Extension options may be
granted by Lender with 60 day
notice.
Interest Rate: A floating rate equal to the sum of
(i) one-month LIBOR and (ii) the
applicable spread based on the
following LTV grid:
-2-
<PAGE>
Spread LTV
------ ---
+180bp 70%
+165bp 60%
+150bp 50% or less
Loan to Value: Loan to Value shall be calculated as
the ratio of the outstanding loan
amount to Value. Value shall be
determined as the lesser of purchase
price and appraised value determined
by an appraiser acceptable to GACC.
Amortization: None.
Certain Covenants: At all times, ElderTrust must
maintain the following covenants and
ratios: (i) Minimum Equity Value
(tangible net worth) of $[ ]
million, (ii) Total Leverage/ Book
Value not to exceed 70%, (iii) a
ratio of Combined EBITDA/Interest
Expense, for the prior four
quarters, not less than 2.0 to 1.00,
and (iv) Borrower prohibited from
pledging ownership (equity) interest
in any investment as security for
indebtedness.
Events of Default: The following events constitute
default on behalf of the Borrower
and or ElderTrust: (i) failure to
pay principle and interest when due,
(ii) violation of covenants,
subject, where appropriate, to cure
or grace periods to be negotiated,
(iii) material inaccuracy of any
representation or warranty, (iv)
cross-defaulted obligations in
excess of $10 million, (v)
insolvency or bankruptcy of the
Borrower or a subsidiary to which
more than $25 million of
Capitalization Value is
attributable, (vi) judgment defaults
in excess of $10 million that remain
unremedied, and (vii) failure to
remain a publicly traded, stock
exchange listed company and to
qualify as a real estate investment
trust.
Voluntary Prepayment: Prepayments are permitted in whole
or in part during the term of the
Facility. If a mortgage loan is
refinanced prior to maturity and the
replacement financing is provided by
an entity other than GACC or an
affiliate, a 1 % Exit Fee on the
amount refinanced will be payable to
GACC.
-3-
<PAGE>
Amounts prepaid may be reborrowed
provided that; (i) no Event of
Default exists; (ii) Borrower is in
compliance with all Loan Covenants;
and (iii) all due diligence
requirements are met.
Mandatory Prepayment: Prepayment will be mandatory: (i)
if there is a merger, unless the
Borrower is the surviving entity;
(ii) if there is the sale of any
asset that secures the credit
facility, the Allocated Loan Amount
attributable to such asset must be
repaid; or (iii) a sale of any
assets totaling more than 25% of the
Borrower's Capitalization Value.
Release of Individual Property: Permitted prior to payment of the
Mortgage Loan in full; provided,
that Borrower prepays the Mortgage
Loan in part in an amount equal to
the Allocated Loan Amount of the
individual Property that is the
subject of the release. Each
property will be assigned an
Allocated Loan Amount on each
Closing Date.
Recourse: Recourse to Borrower.
Payment Date: Payments of interest will be due, in
arrears, on the first day of each
month. A grace period of 5 days
shall be permitted. A late fee of
5% is payable on past due amounts.
Interest Payment: Interest will accrue from (and
including) the preceding Payment
Date (or in the case of the first
Payment Date from the Closing Date),
to and including the day preceding
such Payment Date (each such period,
an "Interest Period.). Interest will
accrue on the basis of a 365-day
year and the actual number of days
in the related Interest Period.
Origination Fee: A 10 basis point fee (the
"Origination Fee") applied to the
Commitment Amount shall be due and
payable to GACC upon ElderTrust's
entry into this letter agreement. A
40 basis point fee, calculated
against each draw amount, shall be
payable to GACC by ElderTrust upon
each draw down of the facility. The
maximum fees paid during the term of
this Facility shall not exceed
$700,000.
-4-
<PAGE>
Expenses: Borrower will be obligated to
reimburse GACC for its
out-of-pocket expenses connected
with this financing, including
without limitation, the cost of due
diligence, any third party reports
which GACC may require and the legal
fees and expenses GACC may incur. In
connection with the Mortgage Loan,
Borrower shall pay the costs of all
third party reports, including
without limitation, Appraisals
(defined below), Phase One
environmental reports, any
architectural and engineering
reports, the cost of title insurance
and surveys, and all closing costs,
legal fees and expenses, including
taxes and recording fees and
expenses. All such expenses (i)
shall be payable whether or not the
financing of the Mortgage Loan
closes, and (ii) shall be reimbursed
or paid directly by Borrower
promptly upon demand by GACC.
Additional Indebtedness: No additional secured indebtedness
or liens are permitted without the
prior approval of GACC. Other
indebtedness is allowed in
accordance with the loan covenants.
Debt in place at the time of the
ElderTrust Initial Public Offering
is permitted subject to the leverage
covenants outlined in the Certain
Covenants section.
Net Lease: Certain Properties will be triple
net leased to Genesis, (the
"Operator") subject to a Lease
acceptable to GACC.
Manager: For Properties that are managed by
an independent property manager, the
manager and applicable Management
Agreement must be acceptable to
GACC.
Management Agreement: Manager shall manage the Properties
pursuant to a management agreement
(the "Management Agreement")
acceptable to GACC. Any successor or
other Manager selected by Borrower
shall be acceptable to GACC in its
sole discretion.
Financial Reports: Borrower shall provide to GACC, in a
form and in detail reasonably
acceptable to GACC, (i) monthly
financial statements with respect to
each Property certified by the
Borrower, each report covering such
month and year to date, contrasted
against budget and the prior year,
(ii) audited financial statements
with respect to ElderTrust each
quarter or ElderTrust's 10Q and 10K
reports within 5 days of
availability, and (iii) such other
financial information as GACC may
reasonably request from time to
time.
-5-
<PAGE>
Right of Inspection: Borrower, and Manager shall grant to
GACC and its agents and
representatives access to the
Properties and to management from
time to time as GACC may reasonably
deem appropriate.
Due Diligence: GACC shall satisfy itself in its
sole discretion with respect to (i)
the financial condition and
reputation of Borrower's capital and
corporate structure of each; (ii)
the feasibility, viability and
quality of each Property, including
but not limited to a satisfactory
review of the relevant budgets and
plans, lease agreements, appraisals
(defined below), Phase One
environmental reports, architectural
and engineering reports and/or other
engineering reports, the Management
Agreement, the title report, the
survey, the title insurance policy,
and all other insurance policies;
(iii) the ability of the Properties
to generate the stabilized
cashflows, net operating income and
net operating cashflow; (iv) such
financial information and references
with respect to ElderTrust's,
Operator's, Manager's and Borrower's
operations and its principals, as
GACC deems necessary; GACC shall
have the right to require a
satisfactory appraisal for each
property (an "Appraisal"), to be
conducted by an independent
appraiser acceptable to GACC in its
sole discretion; and (v) other
matters including credit approval as
GACC deems necessary. If the results
of the Due Diligence are not
satisfactory to GACC in its sole
discretion, GACC may elect not to
fund the Mortgage Loan. In such
event, after payment of its costs
and expenses, including, without
limitation, any costs and expenses
incurred in connection with the Due
Diligence and any attorney fees,
GACC shall refund the Commitment Fee
to Borrower.
-6-
<PAGE>
Documentation: Borrower and GACC shall execute
documents with respect to the
Mortgage Loan acceptable to Borrower
and GACC and their respective
counsel ("Mortgage Loan Documents"),
which shall include, without
limitation, (i) a promissory note
(ii) first mortgages with respect to
the fee interest Properties securing
the Mortgage Loan; (iii) an
assignment of leases for each
leasehold Property; (iv) a security
agreement covering personal
property; (v) an assignment of the
Management Agreement; (vi) a loan
agreement including the provisions
specified herein and other
provisions customary for a facility
of this type including conditions
precedent, representations and
warranties, covenants and events of
default; and (vii) such other
documentation (including without
limitation, legal opinions), as GACC
and its counsel may deem
appropriate.
You agree to indemnify and hold harmless us and each of the Lenders and each
director, officer, employee and affiliate thereof (each an "indemnified person")
in connection with any losses, claims, damage, liabilities or other expenses to
which a Lender or such indemnified persons may become subject, insofar as such
losses, claims, damages, liabilities (or actions or other proceedings commenced
or threatened in respect thereof) or other expenses arise out of or in any way
relate to or result from the financing contemplated by this letter, or in anyway
arise from any use or intended use of this letter. You agree to reimburse each
Lender and each indemnified person for any legal or other expenses incurred in
connection with investigating, defending or participating in any such loss,
claim, damage, liability or action or other proceeding (whether or not such
Lender or any such person is a party to any action or proceeding out of which
any such expenses arise), provided that you shall have no obligation hereunder
to indemnify any Lender or indemnified person for any loss, claim, damage,
liability or expense which resulted from the gross negligence or willful
misconduct of such Lender or indemnified person. This letter is furnished for
your benefit, and may not be relied upon by any other person or entity. Neither
us nor any Lender shall be responsible or liable to you or any other person for
consequential damages which may be alleged as a result of this letter.
You agree that until after the Commitment Maturity Date you will not, directly
or indirectly, engage in any discussions or negotiations with any person with
respect to the financing of this transaction. You are not authorized to show or
circulate this letter to any other person or entity (other than your legal and
financial advisors in connection with your evaluation hereof) until such time as
you have accepted this letter as provided in the immediately preceding
paragraph. If this letter is not accepted by you as provided in the immediately
preceding paragraph, you are directed to immediately return this letter (and any
copies hereof) to the undersigned.
-7-
<PAGE>
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof by returning to us executed counterparts of this
letter not later than 5:00 p.m., New York City time, on December 31, 1997. The
Commitment and GACC's undertakings hereunder will expire at such time in the
event GACC has not received such executed counterparts and the Commitment Fee in
accordance with the immediately preceding sentence. The compensation,
reimbursement, and indemnification provisions contained herein shall remain in
full force and effect regardless of whether definitive financing documentation
shall be executed and delivered and notwithstanding the termination of the
Commitments.
The Commitment shall not be assignable by you without the prior written consent
of GACC (and any purported assignment without such consent shall be null and
void) and may not be amended or waived except by an instrument in writing signed
by you and GACC. This letter may be executed in any number of counterparts, each
of which shall be an original and all of which, when taken together, shall
constitute one agreement. This letter agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York,
without regard to any conflict of law provisions thereof.
We are delighted to be able to extend the Commitment to you and look forward to
working with you on this transaction.
Very truly yours,
GERMAN AMERICAN CAPITAL CORPORATION
By: /s/ By: /s/
-------------------------- -----------------------------
Name: Name:
------------------------ ---------------------------
Title: Title:
----------------------- --------------------------
Accepted and Agreed:
By: /s/ By: /s/
-------------------------- -----------------------------
Name: Name:
------------------------ ---------------------------
Title: Title:
----------------------- --------------------------
-8-
<PAGE>
Exhibit 21.1
List of Subsidiaries
--------------------
None.
<PAGE>
ACCOUNTANTS' CONSENT
The Board of Trustees
ElderTrust:
We consent to the use of our report on the balance sheet of ElderTrust as of
September 30, 1997 included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
----------------------------------------
KPMG Peat Marwick LLP
Washington, D.C.
January 14, 1998
<PAGE>
CONSENT OF TRUSTEE NOMINEE
To ElderTrust:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
ElderTrust (the "Company") on Form S-11, and amendments thereto, which indicate
that I have accepted a nomination to become a trustee of the Company subsequent
to the closing of the Company's initial public offering.
/s/ Kent P. Dauten
--------------------------
Kent P. Dauten
Dated: October 1, 1997
<PAGE>
CONSENT OF TRUSTEE NOMINEE
To ElderTrust:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
ElderTrust (the "Company") on Form S-11, and amendments thereto, which indicate
that I have accepted a nomination to become a trustee of the Company subsequent
to the closing of the Company's initial public offering.
/s/ Rodman W. Moorhead, III
---------------------------
Rodman W. Moorhead, III
Dated: October 27, 1997
<PAGE>
CONSENT OF TRUSTEE NOMINEE
To ElderTrust:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
ElderTrust (the "Company") on Form S-11, and amendments thereto, which indicate
that I have accepted a nomination to become a trustee of the Company subsequent
to the closing of the Company's initial public offering.
/s/ Timothy T. Weglicki
--------------------------
Timothy T. Weglicki
Dated: October 15, 1997
