<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
NATIONAL HEALTH REALTY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
MARYLAND 6798 APPLICATION FILED
<S> <C> <C>
(State or other jurisdiction (Primary Standard (I.R.S. Employer Identification No.)
of incorporation or organization) Industrial Classification
Code Number)
</TABLE>
100 VINE STREET, SUITE 1400
MURFREESBORO, TENNESSEE 37130
(615) 890-2020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------------
RICHARD F. LAROCHE, JR.
SENIOR VICE PRESIDENT AND SECRETARY
NATIONAL HEALTH REALTY, INC.
100 VINE STREET, SUITE 1400
MURFREESBORO, TENNESSEE 37130
(615) 890-2020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------
COPY TO:
ERNEST E. HYNE II
HARWELL HOWARD HYNE GABBERT & MANNER, P.C.
1800 FIRST AMERICAN CENTER
NASHVILLE, TENNESSEE 37238
(615) 256-0500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Each Class
of Securities Amount Proposed Maximum Proposed Maximum Amount of
Amount of to be Offering Price Aggregate Offering Registration
to be Registered Registered (1) per Share (2) Price (2) Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share . . . . . . . . . . 10,013,400 shares $13.91 $139,308,060 $42,214.56
====================================================================================================================================
</TABLE>
(1) Based on the maximum number of shares of National Health Realty, Inc.
Common Stock issuable pursuant to the Distribution.
(2) Estimated in accordance with Rule 457(f)(1) solely for the purpose of
calculating the registration fee, based on 30% of the market value of the
outstanding units of National HealthCare L.P. as of September 29, 1997
divided by 10,819,400 then multiplied by 10,013,400.
-----------------------
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.
<PAGE> 2
Dear Limited Partner:
A special meeting of limited partners (the "Special Meeting") of
National HealthCare L.P., a Delaware limited partnership ("NHC"), will be held
on Thursday, November 20, 1997, at 9:00 a.m., Central Standard time, at NHC's
partnership offices, 100 Vine Street, Suite 1400 Murfreesboro, Tennessee 37130.
At the Special Meeting, holders of NHC general and limited partnership
units ("Units") as of October 31, 1997 (the "Record Date") will be asked to
consider and vote upon the following matters:
1. Approval and adoption of a proposed plan of restructure (the
"Plan of Restructure"), pursuant to which NHC will make a
distribution (the "Distribution") of all of the outstanding
shares of common stock (the "REIT Shares") of National Health
Realty, Inc., a newly-formed Maryland corporation which is
intended to qualify as a real estate investment trust under
federal tax laws (the "REIT"), to the holders of NHC general
and limited partnership units and approximately 806,000 units
of limited partnership interest in NHR/OP, L.P., a Delaware
limited partnership (the "Operating Partnership"), to National
Health Corporation, NHC's administrative general partner, in
the manner set forth in the accompanying proxy statement and
NHC will then merge (the "Merger") with National HealthCare
Corporation, a newly-formed Delaware corporation (the
"Corporation"). Prior to the Distribution, but effective on
the date thereof, NHC will transfer to the REIT and the
Operating Partnership (i) the effective ownership (subject to
certain debt thereon) in the land, building and fixtures of 17
licensed nursing homes, six assisted living facilities and one
retirement center, (ii) NHC's interest in certain promissory
notes totaling approximately $92.5 million secured by
mortgages on approximately 23 additional nursing homes which
are owned by third parties and managed by NHC, (iii) certain
other assets having little or no book value on NHC's books and
(iv) certain liabilities.
2. Approval of the possible adjournment of the Special Meeting
for the purpose of soliciting additional votes in favor of
proposal (1) above (the "NHC Adjournment Proposal"); and
3. Such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Partnership approval of the Plan of Restructure is being sought to
ensure that NHC's Managing General Partner has identified and structured a
transaction appropriate for NHC and its Unitholders.
The Board of Directors of the Managing General Partner has unanimously
approved the Plan of Restructure and the transactions contemplated thereby, all
as described in the attached material, and has determined that the Plan of
Restructure and the related transactions are fair to and in the best interests
of NHC and its Unitholders. The Board of Directors of the Managing General
Partner recommends that the Unitholders vote in favor of the Plan of
Restructure. You are urged to consider carefully all aspects of the proposed
Plan of Restructure discussed in the attached Proxy Statement/Prospectus.
In the material accompanying this letter, you will find a Notice of
Special Meeting of NHC Unitholders, a proxy card and a Proxy
Statement/Prospectus relating to, among other things, the actions to be taken by
NHC at the Special Meeting. The Proxy Statement/Prospectus more fully describes
the Plan of Restructure. It also includes information about the REIT and the
Corporation and also serves as a Prospectus for the REIT and the Corporation
with respect to the securities of such entities to be issued upon the
consummation of the Plan of Restructure.
All Unitholders as of the Record Date are cordially invited to attend
the Special Meeting in person. However, whether or not you plan to attend the
Special Meeting, please complete, sign, date and return your proxy in the
enclosed postage paid envelope. If you attend the Special Meeting, you may vote
in person if you wish, even though you have previously returned your proxy. It
is important that your Units be represented and voted at the Special Meeting.
Sincerely,
Richard F. LaRoche, Jr.
Senior Vice President and Secretary
NHC, Inc.
<PAGE> 3
NATIONAL HEALTHCARE L.P.
100 VINE STREET
SUITE 1400
MURFREESBORO, TENNESSEE 37130
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON NOVEMBER 20, 1997
NOTICE IS HEREBY GIVEN that a special meeting of Unitholders (the
"Special Meeting") of National HealthCare L.P., a Delaware limited partnership
("NHC"), will be held on Thursday, November 20, 1997, at 9:00 a.m., Central
Standard time, at NHC's partnership offices, 100 Vine Street, Suite 1400,
Murfreesboro, Tennessee 37130 to consider and vote upon the following matters
more fully described in the accompanying Joint Proxy Statement/Prospectus:
1. Approval and adoption of a plan of restructure, the
("Plan of Restructure"), pursuant to which NHC will make a
distribution (the "Distribution") of all of the outstanding
shares of common stock (the "REIT Shares") of National Health
Realty, Inc., a newly-formed Maryland corporation which is
intended to qualify as a real estate investment trust under
federal income tax laws (the "REIT"), to the holders of NHC
general and limited partnership units and approximately
806,000 units of limited partnership interest in NHR/OP, L.P.,
a Delaware limited partnership (the "Operating Partnership"),
to National Health Corporation, NHC's administrative general
partner, in the manner set forth in the accompanying proxy
statement and NHC will then merge (the "Merger") with National
HealthCare Corporation, a newly-formed Delaware corporation
(the "Corporation"). Prior to the Distribution, but effective
on the date thereof, NHC will transfer to the REIT and the
Operating Partnership (i) the effective ownership (subject to
certain debt thereon) in the land, building and fixtures of 17
licensed nursing homes, six assisted living facilities and one
retirement center, (ii) NHC's interest in certain promissory
notes totaling approximately $92.5 million secured by
mortgages on approximately 23 additional nursing homes which
are owned by third parties and managed by NHC, (iii) certain
other assets having little or no book value on NHC's books and
(iv) certain liabilities.
2. Approval of the possible adjournment of the Special Meeting
for the purpose of soliciting additional votes in favor of
proposal (1) above; and
3. Such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Only Unitholders of record at the close of business on October 31,
1997, are entitled to notice of, and to vote at, the Special Meeting, or at any
adjournment or postponement thereof.
By order of NHC, Inc., the Managing General Partner
-------------------------------------------------------
Richard F. LaRoche, Jr.
Senior Vice President and Secretary
<PAGE> 4
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 CONSTITUE 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 OCTOBER 3, 1997
PROXY STATEMENT
FOR SPECIAL MEETING OF
PARTNERS OF
NATIONAL HEALTHCARE L.P.
JOINT PROSPECTUS OF
NATIONAL HEALTHCARE CORPORATION
AND
NATIONAL HEALTH REALTY, INC.
This Proxy Statement/Prospectus is being furnished by National HealthCare
L.P., a Delaware limited partnership ("NHC"), in connection with the
solicitation of proxies by the Board of Directors of NHC, Inc., the managing
general partner of NHC (the "Managing General Partner"), in connection with a
special meeting (the "Special Meeting") of the holders (the "Unitholders") of
limited partnership interests of NHC to be held on November 20, 1997, and at any
adjournment thereof to approve the proposed restructure of NHC as described in
this Proxy Statement/Prospectus. This Proxy Statement/Prospectus and form of
proxy are being mailed to Unitholders on or about November 1, 1997.
To counteract the governmentally mandated loss of taxation as a partnership
which is effective January 1, 1998, NHC has proposed a restructure whereby NHC
will make a distribution (the "Distribution") of all of the outstanding shares
of common stock (the "REIT Shares") of National Health Realty, Inc., a
newly-formed Maryland corporation which is intended to qualify as a real estate
investment trust under federal tax laws (the "REIT"), to the holders of NHC
general and limited partnership units (the "Units") on a pro rata basis, except
for approximately 806,000 units of limited partnership interests in NHR/OP,
L.P., a Delaware limited partnership (the "Operating Partnership"), which will
be distributed to National Health Corporation, NHC's administrative general
partner ("National") as discussed under "The Plan of Restructure" and NHC will
then merge (the "Merger") with and into National HealthCare Corporation, a
newly-formed Delaware corporation (the "Corporation"). Pursuant to the Merger,
each outstanding Unit of NHC will represent the right to receive one share of
common stock (the "Shares") of the Corporation. Prior to the Distribution, but
effective on the date thereof, NHC will transfer to the REIT and the Operating
Partnership (i) the effective ownership (subject to certain debt thereon) in the
land, building and fixtures of 17 licensed nursing homes, six assisted living
facilities and one retirement center (the "Owned Healthcare Facility or
Facilities"), (ii) NHC's interest in certain promissory notes totaling
approximately $92.5 million secured by mortgages on approximately 23 additional
nursing homes which are owned by third parties and managed by NHC (the "Notes"),
(iii) certain other assets having little or no book value on NHC's books (the
"Other Assets") and (iv) certain liabilities (the "Assumed Liabilities"). See
"Business -- The REIT" for a more complete description of these assets and
liabilities.
This Proxy Statement/Prospectus also constitutes the joint prospectus of:
(i) National HealthCare Corporation filed with the Securities and Exchange
Commission (the "Commission") as a part of a Registration Statement on Form S-4
(the "Corporation Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to up to 10,819,400 shares of
National HealthCare Corporation Common Stock which will be issued in the Merger
or upon the exercise of options or conversion of convertible securities and (ii)
National Health Realty, Inc., filed with the Commission as a part of a
Registration Statement on Form S-4 (the "REIT Registration Statement") under the
Securities Act, with respect to up to 10,013,400 shares of National Health
Realty, Inc. Common Stock which will be issued to NHC Unitholders in the
Distribution or upon the exercise of options or conversion of convertible
securities.
A Unitholder who executes a proxy has the right to revoke the proxy at any
time before it is voted by giving written notice of revocation to the secretary
of the Managing General Partner, by executing a proxy bearing a later date, or
by attending the Special Meeting and voting in person. Proxies will be voted in
accordance with instructions noted on the proxies. Unless otherwise specifically
instructed in the proxies, it is the intention of the persons named in the proxy
to vote all proxies received by them FOR THE PLAN OF RESTRUCTURE. Management
does not know of any other matters that will be presented for action at the
Special Meeting . If any other matter does come before the meeting, however, the
persons appointed in the proxy will vote in accordance with their best judgment
on such matter.
The cost of this proxy solicitation will be borne by NHC. It is
contemplated that proxies will be solicited solely by mail. Banks, brokers and
other custodians will be requested to forward proxy soliciting materials to
their customers where appropriate, and NHC will reimburse such banks, brokers,
and custodians for their reasonable out-of-pocket expenses in sending the proxy
materials to the beneficial Unitholders.
The Merger will be effective at 11:59 p.m. on December 31, 1997 (the
"Effective Time") and the Distribution will be made by NHC to Unitholders of
record immediately prior to the Effective Time. The Unitholders entitled to
receive the REIT Shares in the Distribution will not be required to pay any
consideration or take any action to receive those REIT Shares. Prior to the
Merger and the Distribution there has been no public market for the Shares or
the REIT Shares. Each of the Corporation and the REIT have made application to
list the Shares and REIT Shares, respectively, on the American Stock Exchange.
SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Proxy Statement/Prospectus is ________, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION..................................................................................................... 1
AVAILABLE INFORMATION............................................................................................ 1
SUMMARY OF CERTAIN INFORMATION................................................................................... 2
Summary Historical and Pro Forma Financial Information...................................................... 6
THE PLAN OF RESTRUCTURE.......................................................................................... 7
Background and Reasons for the Plan of Restructure.......................................................... 7
Certain Transactions Preceding the Distribution............................................................. 9
Manner of Effecting the Distribution and Merger............................................................. 9
Conditions to the Plan of Restructure....................................................................... 9
Federal Income Tax Aspects of the Plan of Restructure....................................................... 9
Businesses of the REIT and the Corporation after the Plan of Restructure.................................... 9
NHC's Outstanding Options and Convertible Debentures........................................................10
Effect on NHC Units.........................................................................................10
Listing and Trading of Shares and REIT Shares...............................................................12
Termination.................................................................................................12
RISK FACTORS.....................................................................................................13
Risks Associated With Forward Looking Statements............................................................13
The REIT....................................................................................................13
The Corporation.............................................................................................19
VOTING AND PROXY INFORMATION.....................................................................................25
Voting Procedures...........................................................................................25
Revocation of Proxies.......................................................................................25
Vote Required; Quorum.......................................................................................25
Solicitation of Proxies.....................................................................................25
Independent Auditors........................................................................................25
No Appraisal Rights.........................................................................................25
Other Matters...............................................................................................25
PRICE RANGE OF NHC UNITS.........................................................................................26
DIVIDEND POLICY..................................................................................................27
NHC ........................................................................................................27
The REIT....................................................................................................27
The Corporation.............................................................................................27
BUSINESS.........................................................................................................28
NHC ........................................................................................................28
The REIT....................................................................................................28
The Corporation.............................................................................................31
RELATIONSHIP BETWEEN THE REIT AND THE CORPORATION AFTER THE RESTRUCTURE..........................................46
The Assumed Liabilities.....................................................................................46
The Lease...................................................................................................46
Advisory, Administrative Services and Facilities Agreement..................................................48
PRO FORMA FINANCIAL INFORMATION..................................................................................51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ....................................................................................57
NHC ........................................................................................................57
The Corporation.............................................................................................61
The REIT....................................................................................................62
MANAGEMENT.......................................................................................................63
NHC ........................................................................................................63
The REIT....................................................................................................69
The Corporation.............................................................................................70
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CERTAIN TRANSACTIONS.............................................................................................74
National ...................................................................................................74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................75
NHC ........................................................................................................75
The REIT....................................................................................................76
DESCRIPTION OF SECURITIES........................................................................................77
Shares of the Corporation...................................................................................77
Shares of the REIT..........................................................................................78
Operating Partnership Agreement.............................................................................80
COMPARISON OF STOCKHOLDER/UNITHOLDER RIGHTS......................................................................82
Fiduciary Duties............................................................................................88
FEDERAL INCOME TAX CONSIDERATIONS................................................................................89
Introduction................................................................................................89
Certain Differences Between the Ownership of Units, Shares..................................................89
The REIT....................................................................................................89
Federal Income Taxation of the REIT.........................................................................92
Opinion of REIT Counsel.....................................................................................92
Requirements for Qualification..............................................................................93
Failure to Qualify..........................................................................................95
Taxation of U.S. Stockholders...............................................................................96
Special Tax Considerations for Foreign Stockholders.........................................................97
Information Reporting Requirements and Backup Withholding Tax...............................................98
Other Tax Considerations....................................................................................98
Alternative Minimum Tax.....................................................................................99
ERISA Considerations........................................................................................99
The Corporation............................................................................................100
State and Local Taxes......................................................................................101
Unitholders Should Seek Their Own Tax Advice...............................................................101
LEGAL MATTERS...................................................................................................101
EXPERTS.........................................................................................................101
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
APPENDICES
1. Plan of Restructure...................................................................................A-1
2. Agreement of Merger ..................................................................................B-2
</TABLE>
ii
<PAGE> 7
INTRODUCTION
To counteract the governmentally mandated loss of taxation as a partnership
which is effective January 1, 1998, on August 19 and September 5, 1997, the
Board of Directors of the Managing General Partner of National HealthCare L.P.,
a Delaware limited partnership, unanimously approved in principle (i) the
formation of National Health Realty, Inc., a Maryland corporation, as a wholly
owned subsidiary of NHC and the formation of NHR/OP, L.P., a Delaware limited
partnership with respect to which the REIT would be the general partner and NHC
and the REIT would be the limited partners, (ii) the transfer to the REIT and
the Operating Partnership all of the Owned Healthcare Facilities, the Notes, the
Other Assets and the Assumed Liabilities, (iii) the formation of National
HealthCare Corporation, a Delaware corporation, as a wholly-owned subsidiary of
NHC, (iv) the Distribution of the REIT Shares to NHC's Unitholders and all
of the Operating Partnership's limited partnership units held by NHC to
National, and (v) the Merger of NHC with and into the Corporation (the "Plan of
Restructure"). The Plan of Restructure will have the effect of separating NHC
into two new independent public entities. The Distribution will be payable to
the NHC Unitholders of record immediately prior to the Effective Time, at the
rate of one REIT Share for each NHC Unit outstanding provided, however, National
shall receive either one REIT share or one Operating Partnership Unit ("OP
Unit") for each of its NHC Units. As a result of the Merger, each Unitholder
certificate in NHC will represent the identical number of shares in the
Corporation. The Merger will be effective at 11:59 p.m. on December 31, 1997.
The REIT Shares issued in the Distribution will be mailed to the Unitholders as
soon thereafter as is practicable. See "The Plan of Restructure -- Manner of
Effecting the Distribution and Merger."
Both the Corporation and the REIT were incorporated on September 26, 1997,
each as a wholly-owned subsidiary of NHC for purposes of consummating the Plan
of Restructure described herein. Prior to the Distribution, NHC will transfer to
the REIT and the Operating Partnership the Owned Healthcare Facilities, the
Notes, the Other Assets and the Assumed Liabilities.
Unitholders of NHC who have questions relating to the Plan of Restructure
should contact NHC at its principal corporate offices, 100 Vine Street, Suite
1400, Murfreesboro, Tennessee 37130, telephone (615) 890-2020, Attention:
Investor Relations. After the Effective Time, stockholders of the Corporation
who have questions relating to the Plan of Restructure should contact the
Corporation at its principal corporate offices, 100 Vine Street, Suite 1400,
Murfreesboro, Tennessee 37130, telephone (615) 890-2020, Attention: Investor
Relations and shareholders of the REIT who have questions relating to the
Distribution should contact the REIT at its principal office, 100 Vine Street,
Suite 1400, Murfreesboro, Tennessee 37130 and its telephone number is (615)
890-2020.
AVAILABLE INFORMATION
Each of the Corporation and the REIT have filed a registration statement on
Form S-4 (the "Registration Statements") with the Commission under the
Securities Act with respect to the Shares and the REIT Shares, respectively.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statements and the exhibits and schedules thereto. For
further information, reference is made hereby to the Registration Statements and
such exhibits and schedules. Statements contained herein concerning any
documents are not necessarily complete and, in each instance, reference is made
to the copies of such documents filed as exhibits to either of the Registration
Statements. Each such statement is qualified in its entirety by such reference.
Copies of these documents may be inspected without charge at the principal
office of the Commission at 450 5th Street, N.W., Washington, D.C. 20549, at the
Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of all or any part thereof may
be obtained from the Commission upon payment of the charges prescribed by the
Commission. In addition, such Registration Statements may be electronically
accessed at the Commission's site on the World Wide Web located at
http://www.sec.gov.
Following the Distribution, the Corporation and the REIT will each be
required to comply with the reporting requirements of the Exchange Act and will
file annual, quarterly and other reports with the Commission. The Corporation
and the REIT will also each be subject to the proxy solicitation requirements of
the Exchange Act and, accordingly, will furnish audited financial statements to
their respective stockholders in connection with its annual meetings of
stockholders. Following the listing of the Corporation and the REIT common stock
on the American Stock Exchange ("AMEX"), the Corporation and the REIT will each
be required to file with AMEX copies of such reports, proxy statements and other
information which then can be inspected at the offices of AMEX at 86 Trinity
Place, New York, New York 10006-1881.
NO PERSON IS AUTHORIZED BY NHC, THE CORPORATION OR THE REIT TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON WHOM IT IS NOT
LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES MADE UNDER THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF NHC, THE REIT OR THE CORPORATION SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
<PAGE> 8
SUMMARY OF CERTAIN INFORMATION
This summary is qualified by the more detailed information set forth
elsewhere in this Proxy Statement/Prospectus, which should be read in its
entirety.
<TABLE>
<S> <C>
THE REIT.................................... National Health Realty, Inc., a Maryland corporation, which is
intended to qualify as a real estate investment trust under Section
856 of the Internal Revenue Code of 1986, as amended (the
"Code"). As used in this Proxy Statement/Prospectus, the REIT
means National Health Realty, Inc. and its subsidiaries (including
the Operating Partnership). At the time of the Distribution, the
REIT will own (i) 15 of the Owned Healthcare Facilities and lease
nine of the Owned Healthcare Facilities with a nominal purchase
option, (ii) the Notes, and (iii) Other Assets subject to the
Assumed Liabilities. See "Business -- The REIT."
THE CORPORATION............................. National HealthCare Corporation, a Delaware corporation and its
subsidiaries. At the Effective Time of the Merger, it will acquire
all of the assets, operations and liabilities of NHC, other than the
assets and liabilities transferred to the REIT. See "Business --
The Corporation."
NHC......................................... National HealthCare L.P., a Delaware limited partnership and its
subsidiaries. See "Business -- NHC."
RISK FACTORS................................ After the Effective Time, the REIT and the Corporation will continue
to be subject to a number of risks, including those which were
applicable to the business historically operated by NHC and
litigation to which it was subject, as well as new risks, such as a
significant conflict of interest. See "Risk Factors."
REIT SHARES TO BE DISTRIBUTED............... Approximately 10,013,400 shares of common stock of National
Health Realty, Inc., a Maryland corporation. The actual number of
REIT Shares to be distributed will depend upon the number of
NHC Units outstanding at the Effective Time. Unitholders will not
be required to pay any cash or other consideration or to exchange
their Units for the REIT Shares they receive in the Distribution.
See "The Plan of Restructure -- Manner of Effecting the
Distribution and Merger" and "-- NHC's Outstanding Options and
Convertible Debentures."
SHARES TO BE ISSUED IN THE MERGER .......... Approximately 10,819,400 Shares of common stock of National
HealthCare Corporation, a Delaware corporation. The actual num
ber of Shares to be issued will depend upon the number of NHC
Units outstanding at the Effective Time. Unitholders will receive
one Share of stock for each Unit held at the Effective Time. See
"The Plan of Restructure -- Manner of Effecting the Distribution
and Merger" and "-- NHC's Outstanding Options and Convertible
Debentures."
DISTRIBUTION RATIO.......................... One REIT Share for each outstanding NHC Unit, except for certain
Units held by National Health Corporation, which will receive one
OP Unit in the Operating Partnership for each such NHC Unit.
See "The Plan of Restructure -- Manner of Effecting the
Distribution and Merger", "-- NHC's Outstanding Options and
Convertible Debentures" and "Certain Transactions -- National."
MERGER CONSIDERATION ....................... One Share for each outstanding NHC Unit. See "The Plan of
Restructure -- Manner of Effecting the Distribution and Merger"
and "-- NHC's Outstanding Options and Convertible Debentures."
DISTRIBUTION DATE........................... The distribution of REIT shares to Unitholders shall be effective on
the date of, but prior to, the Effective Time. However, with respect
to the physical delivery of REIT shares, as soon as practical after
the Effective Time, NHC will deliver the REIT Shares to the
distribution agent. The distribution agent will mail stock
certificates representing the REIT Shares as soon thereafter as
practicable. Current Unit certificates will be deemed to represent
shares of the Corporation after the Effective Time. See "The Plan
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
of Restructure -- Manner of Effecting the Distribution and
Merger."
EFFECTIVE TIME ............................. 11:59 p.m. Central Standard time on December 31,1997. As of the
Effective Time, each Unit will represent one share of the
Corporation. See "The Plan of Restructure -- Manner of Effecting
the Distribution and Merger."
REIT'S INITIAL ASSETS AND DEBT.............. The REIT's initial assets will consist of: (i) fee ownership or
capitalized leases on 17 skilled nursing centers, six assisted living
facilities and one retirement center (the "Owned Healthcare
Facilities"), (ii) certain promissory notes secured by mortgages on
approximately 23 additional nursing homes managed by NHC (the
"Notes") and (iii) certain other assets with nominal book value on
the current books of NHC (the "Other Assets"). The transfer of the
Owned Healthcare Facilities, the Notes and the Other Assets will
be subject to (and the REIT will agree to pay and perform) certain
NHC debt of approximately $105.9 (the "Assumed Liabilities").
All of the REIT's assets will be owned by the Operating
Partnership or a subsidiary partnership of the Operating
Partnership. See "Relationship between the REIT and the
Corporation After the Restructure -- Assumed Liabilities."
CORPORATION'S INITIAL ASSETS AND LIABILITIES The Corporation's initial assets and liabilities will consist
of all of the assets and liabilities of NHC, other than those
transferred to the REIT; however, the Corporation will
continue to be contingently liable on debt which the REIT has
agreed to pay. See "Business -- The Corporation."
RELATIONSHIP BETWEEN THE
CORPORATION AND THE REIT
AFTER THE PLAN OF RESTRUCTURE .............. After the Plan of Restructure, the Corporation will continue to be
engaged in the development and operation of nursing homes,
assisted living and retirement centers, home health agencies and
other related services and will lease the Owned Healthcare
Facilities from the REIT. The Corporation will render certain
advice and services to the REIT pursuant to an Advisory,
Administrative Services and Facilities Agreement (the "REIT
Advisory Agreement"), for which it will receive a fee. See
"Relationship Between the REIT and the Corporation After the
Restructure -- Advisory Administrative Services and Facility
Agreement."
REASONS FOR THE PLAN OF RESTRUCTURE ........ NHC is currently a publicly traded limited partnership. Under current
federal tax laws, beginning January 1, 1998, NHC would be taxed
as a corporation and not as a partnership. Management of NHC
believes that by dividing NHC into two entities, one of which will
be taxed as a real estate investment trust and one of which will be
taxed as a corporation, the NHC Unitholders will be able to retain
some benefits of a single federal taxable entity with respect to the
income derived from assets transferred to the REIT. In addition,
there will be a public market for the REIT Shares and the Shares.
NHC intends to transfer only tax qualifying assets to the REIT so
that the REIT will be taxed for federal income tax purposes as a
real estate investment trust and not as a taxable corporation. See
"The Plan of Restructure -- Background and Reasons for the Plan
of Restructure."
TRADING MARKET.............................. Application has been made to list both the REIT Shares and the Shares
on the American Stock Exchange.
FEDERAL TAX CONSEQUENCES.................... The formation of the Corporation and the REIT by NHC and the
contribution of assets to the REIT by NHC are intended to qualify
as tax free transfers under the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to which neither the
Corporation, the REIT nor NHC generally would recognize gain,
except (as to NHC) to the extent that liabilities assumed by the
REIT or subject to assets transferred to the REIT exceed NHC's
adjusted tax basis in such assets immediately prior to such transfer.
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<S> <C>
It is not anticipated that such liabilities will exceed such
bases. See "Federal Income Tax Considerations -- The REIT
-- Formation of the REIT -- Tax Consequences, -- Nonrecognition
Rule of Code Section 351" and "Federal Income Tax
Considerations -- The Corporation -- Formation."
The formation of, and transfer of assets to, the Operating
Partnership are intended to qualify as a tax free contribution
to a partnership under the Code, with respect to which neither
the Operating Partnership, NHC nor the REIT generally would
recognize gain.
The Distribution and Merger will be treated for federal income
tax purposes as a complete termination and liquidation of NHC
in which NHC Unitholders receive Corporation shares and REIT
shares in exchange for Units. The merger of NHC into the
Corporation will be treated as a contribution of NHC's assets
(other than those contributed to the REIT or the Operating
Partnership) to the Corporation, which would generally be tax
free to the Corporation and NHC, except (as to NHC) to the
extent liabilities assumed by the Corporation or subject to
assets transferred to the Corporation exceed NHC's adjusted
tax bases in such assets immediately prior to the transfer. It
is not anticipated that such liabilities will exceed such
bases. See "Federal Income Tax Considerations -- The
Corporation -- The Merger."
The REIT is intended to qualify as a real estate investment
trust under the Code, the applicable provisions of which will
generally allow the REIT to avoid the"double taxation" of
corporate earnings to the extent of distributions made to its
shareholders. REIT shareholders would generally be taxed upon
such distributions as ordinary income to the extent of the
REIT's accumulated and current earnings and profits. See
"Federal Income Tax Considerations -- The REIT -- Taxation as
a Real Estate Investment Trust."
The Corporation will not be a pass-through entity such as NHC
or a quasi pass-through entity like the REIT. Instead, the
Corporation's earnings will be taxed at the corporate level
and, to the extent distributions are made to the Corporation's
shareholders, such distributions will generally be taxed at
the shareholder level (as ordinary income) to the extent of
the Corporation's accumulated and current earnings and
profits. See "Federal Income Tax Considerations -- Certain
Differences Between the Ownership of Units, REIT Shares and
Shares."
INVESTOR BASIS IN SHARES AND REIT SHARES Since the Distribution and Merger will be treated as a
complete termination and liquidation of NHC, a Unitholder's
initial tax basis in the REIT Shares and Shares would in the
aggregate generally be based upon such Unitholder's tax basis
in his Units. See "Federal Income Tax Considerations -- The
REIT -- The Distribution -- Tax Consequences."
INVESTMENT POLICIES........................ The Corporation intends to continue NHC's historical investment
policy of developing and acquiring nursing homes, assisted living
and retirement centers and of managing such types of facilities for
others. See "Business-- The Corporation."
The REIT will lease the Owned Healthcare Facilities to the
Corporation. The REIT may purchase additional properties,
however, the REIT Advisory Agreement provides that the REIT
will only do business with the Corporation so long as both the
REIT Advisory Agreement is in effect and the Corporation
continues to advise National Health Investors, Inc. See
"Business -- The REIT -- Investment and Other Policies."
DIVIDENDS................................... The REIT intends to pay quarterly dividends to its shareholders in an
amount at least sufficient to satisfy the distribution requirements of
a REIT. Such requirements generally necessitate that at least 95%
of the REIT's taxable income (which term does not include net
</TABLE>
4
<PAGE> 11
<TABLE>
<S> <C>
capital gains realized by the REIT) be distributed annually.
See "Federal Income Tax Considerations -- The REIT -- Taxation
as a REIT -- Annual Distribution Requirements." The REIT may
elect to distribute dividends in excess of 95% of its REIT
taxable income. Payment of dividends, however, will always be
at the discretion of the REIT's Board of Directors and will
depend upon such factors as the REIT's financial condition,
its earnings, anticipated investments, bank covenants and
other relevant factors. It may be necessary for the REIT to
borrow or liquidate investments to satisfy its distribution
requirements. The REIT's Board of Directors anticipates paying
a dividend that would initially be at the annual rate of $1.33
per REIT Share. See "Risk Factors -- Risks Associated with
Forward Looking Statements" and "Dividend Policy."
The Corporation may pay dividends at the discretion of the
Corporation's Board of Directors. The Corporation does not
anticipate initially paying dividends.
LEASES....................................... Initially, each of the Owned Healthcare Facilities will be leased to the
Corporation. Each lease (each a "Lease" and collectively the
"Leases") will be a "triple net" lease with (i) an original fixed term
expiring December 31, 2007, (ii) an option of the Corporation to
renew the Lease for two additional periods of 5 years each (on the
same terms as the initial 10 year term, and (iii) a right of first
refusal for NHC to purchase the Owned Healthcare Facilities. See
"Relationship Between the REIT and the Corporation after the
Restructure -- The Leases."
DEBT OF THE REIT............................. The REIT will assume (or take the Owned Healthcare Facilities
subject to and agree to pay and perform) the Assumed Liabilities
amounting to approximately $105.9 million. The REIT expects to
refinance the Assumed Liabilities soon after the Effective Time.
See "Business -- The REIT -- Assumed Liabilities." The
Corporation will remain directly liable on all of the remaining debt
of NHC. Since both the REIT and the Corporation resulted from
NHC, creditors of NHC may be able to reach the assets of both.
See "Risk Factors -- The REIT -- Lack of Consents; Acceleration
of Certain Maturities" and "-- The Corporation -- Lack of
Consents; Acceleration of Certain Maturities."
INTENTION OF THE REIT TO QUALIFY
AS A REAL ESTATE INVESTMENT TRUST.......... The REIT was organized and intends to conduct its operations so as
to qualify for taxation as a real estate investment trust under
Sections 856 through 860 of the Code. The primary advantage to
the REIT if it so qualifies is that it will generally be allowed to
deduct from its taxable income an amount equal to the dividends
paid to its shareholders. This treatment substantially eliminates the
"double taxation" normally imposed on corporate earnings. The
REIT could be subject to state excise taxes in the event a state
recognizes a REIT to be a corporation subject to such state's excise
tax. If the REIT fails to qualify as a REIT at any time, distributions
to shareholders in any such year will not be deductible by the REIT
and the amount of cash available for distribution to shareholders
could accordingly be reduced. As a result, its income subject to
taxation (including the alternative minimum tax) will be greater
than if the REIT continued to qualify as a REIT. See "Federal
Income Tax Considerations -- The REIT -- Taxation as a Real
Estate Investment Trust."
OUTSTANDING OPTIONS AND DEBENTURES........... NHC has certain outstanding unit options (the "Options") and 6% subordinated
convertible debentures (the "6% Debentures"). Any of the Options which are
not exercised, or 6% Debentures which are not converted, into NHC Units
prior to the Plan of Restructure (the payment obligation of which will
remain the obligation of the Corporation) will convert, at the election of
the holder, into the same number of Shares and REIT Shares that it would
have been convertible or exercisable into Units prior to the Plan of
Restructure. Certain covertible notes issued in October 1997 will only be
converted into Shares. See "The Plan of Restructure -- NHC's Outstanding
Options and Covertible Debentures."
</TABLE>
5
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Audited Financial Statements. The following selected financial data of the
Corporation has been derived from the NHC audited financial statements
included elsewhere herein. The selected financial data should be read in
conjunction with NHC's consolidated financial statements and notes thereto.
Pro Forma Financial Data. The following pro forma financial data of the
Corporation and the REIT has been prepared by the Corporation and the REIT
assuming that the transfer of the Owned Healthcare Facilities, the Notes
and the Assumed Liabilities and the execution of the Leases occurred as of
January 1, 1996. The unaudited pro forma data, in the opinion of
management, reflects all adjustments necessary to present fairly the data
set forth therein.
NATIONAL HEALTHCARE CORPORATION, SUCCESSOR TO
NATIONAL HEALTHCARE L.P.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
SIX
YEAR MONTHS
ENDED ENDED
OR AS OF OR AS OF
SIX MONTHS ENDED YEAR ENDED OR DECEMBER 31, JUNE 30,
OR AS OF JUNE 30, AS OF DECEMBER 31, -----------------------
1997 1996 1996 1995 1994 1993 1992 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues......... $212,054 $183,784 $388,660 $350,957 $298,901 $269,858 $216,378 $379,623 $207,188
Income before taxes.. 14,300 11,472 29,286 21,115 15,853 37,562 9,501 15,504 7,655
Net Income........... 14,300 11,472 29,286 21,115 15,853 37,562 9,501 9,382 4,695
Earnings per
Unit/Share........... 1.41 1.18 2.98 2.31 1.80 4.05 1.23 1.02 0.50
BALANCE SHEET DATA:
Working capital...... $24,000 $26,639 $7,291 $30,393 $42,468 $69,493 $37,983 $ 46,168
Total assets......... 462,505 361,106 404,740 355,491 396,133 344,680 304,074 $255,331
Long-term debt....... 144,867 111,291 124,678 100,871 104,243 54,625 49,299 58,009
Partners' Capital.... 137,767 116,073 128,537 108,899 101,006 92,526 67,922 0
Stockholders' Equity. 0 0 0 0 0 0 0 17,451
</TABLE>
NATIONAL HEALTH REALTY, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
SIX
YEAR Months
ENDED Ended
OR AS OF or as of
DECEMBER 31 June 30,
----------- --------
1996 1997
---- ----
<S> <C> <C>
INCOME STATEMENT DATA:
Net Revenues............................................................................ $20,210 $ 11,247
Net Income.............................................................................. 11,893 5,684
Earnings per share...................................................................... 1.23 0.57
BALANCE SHEET DATA:
Total Assets............................................................................ $232,473
Long-term debt.......................................................................... 86,858
Stockholders' Equity.................................................................... 145,615
</TABLE>
6
<PAGE> 13
THE PLAN OF RESTRUCTURE
BACKGROUND AND REASONS FOR THE PLAN OF RESTRUCTURE
In 1986, the predecessor to NHC converted from a corporation to a limited
partnership by forming NHC and transferring all assets to it. At that time, the
limited partnership form offered important tax advantages since there was (i) no
separate taxation of cash distributions to a partner, (ii) no federal income tax
at the partnership level and (iii) personal income tax rates were lower than
corporate tax rates. However, in late 1987, Congress passed the Revenue Act of
1987, one of the provisions of which provided that publicly traded limited
partnerships, which are frequently referred to as master limited partnerships
("MLPs"), with certain exceptions, would be taxed for federal income tax
purposes as corporations. MLPs existing on December 17, 1987 were
"grandfathered" for ten years until December 31, 1997.
For taxable periods beginning after December 31, 1997, the benefit to an
MLP of being treated as a partnership for federal income tax purposes will be
significantly reduced. For such taxable periods, existing MLPs generally have
the option of (i) being taxed as a corporation or (ii) being taxed as a
partnership by electing to be subject to additional tax at the rate of 3.5% on
its gross income. Based on NHC's projected gross income for 1997, the 3.5%
partnership tax (which would be in addition to income tax paid by NHC's
Unitholders) NHC would be required to pay if such provision had been in effect
during 1997 would be approximately $15.6 million.
In considering the best way for NHC to deal with the approaching change in
its taxation, the Board of Directors of the Managing General Partner focused on
NHC's desire to continue to make distributions to its Unitholders in conjunction
with the necessity for retaining earnings needed for NHC to continue its growth
plan. The Board agreed in its analysis of the restructuring consequences that
the first premise would be that NHC retain substantially the same percentage of
its cash flow after the restructure as it presently retains and second, that the
cash flow not retained should be available for distribution to investors to the
greatest extent practicable. With these premises in mind, the Board of Directors
of the Managing General Partner considered various alternatives, including the
following:
1. Remain a limited partnership, delist the Units from the AMEX and cease
being a "publicly traded" entity by restricting the trading in the
Units and granting investors the right to be "cashed out" by selling
their interest to third party investors.
Disadvantages
- Investors would lose the liquidity of the Units.
- Uncertainty as to whether there would be a sufficient number
of third party investors to buy Units of current investors who
wanted out.
Advantages
- NHC would continue as a limited partnership without being
taxed as a corporation because of the restrictions on
transferability.
- NHC would be able to continue to make distributions to its
Unitholders because it would not be subject to double
taxation.
2. Remain a limited partnership, delist the Units from the AMEX and cease
being a "publicly traded" entity by further restricting the trading in
the Units and granting investors the right to be "cashed out" by
selling their interests, one half to third party investors and one half
purchased by the limited partnership.
Disadvantages
- Investors would lose the liquidity of the Units.
- NHC would have to incur new debt to purchase selling
Unitholders' interests, which would likely restrict NHC's
ability to grow.
- NHC's cash balance would likely be adversely impacted by
incurring additional debt and the resulting increase in
interest expense.
- Uncertainty as to whether there would be a sufficient number
of third party investors to buy one half of the Units of
current investors who wanted out.
Advantages
- NHC would continue as a limited partnership without being
taxed as a corporation because of the restrictions on
transferability.
- NHC would be able to continue to make distributions to its
Unitholders because it would not be subject to double
taxation.
- There would not be as big a need for new third party investors
if one half of interests sold by Unitholders were purchased by
NHC
3. Convert NHC to a corporate form, which is what will happen under
current tax law, effective January 1, 1998, if NHC retains its existing
business structure.
Disadvantages
- There would be a significant loss of after tax return to
investors from distributions due to double taxation and NHC's
need to retain sufficient cash to maintain growth.
7
<PAGE> 14
Advantages
- There would likely be an increased market for NHC shares since
they would no longer produce UBIT (unrelated business income
tax), thus attracting institutional investors.
- Since the corporate form of NHC would be a public entity, the
investors would maintain liquidity in their shares.
- This would be the easiest transaction, from a structural
point of view.
4. Split NHC into two companies, one a publicly-traded entity which owns
all current real estate and notes receivables, which leases the real
estate back to NHC which would delist, and impose trading restrictions
to become a private partnership. Again, the private partnership would
offer existing investors the right to "cashout" using third party
investors or purchasing the interests at the partnership level.
Disadvantages
- Investors would lose the liquidity of the Units in the
private partnership.
- NHC would have to incur new debt to purchase at least some of
the selling Unitholders' interests, which would likely
restrict NHC's ability to grow.
- NHC's cash balance would likely be adversely impacted by
incurring additional debt and the resulting increase in
interest expense.
- Uncertainty as to whether there would be a sufficient number
of third party investors to buy at least some portion of the
Units of current investors that wanted out.
- NHC would need to include some restrictions on the
publicly-traded real estate company in order to avoid
conflicting with the objectives of National Health Investors,
Inc. ("NHI").
Advantages
- At least some of the investors liquidity would be preserved
through the publicly-traded real estate entity, which could
also avoid tax at the entity level by meeting the requirements
of an exception to the taxation of MLPs that is available to
publicly-traded partnerships with certain passive income or a
real estate investment trust.
- The operating company would continue as a limited partnership
without being taxed as a corporation because of the
restrictions on transferability.
- The operating company would be able to continue to make
distributions to its Unitholders because it would not be
subject to double taxation.
- There would not be as big a need for new third party investors
if one entity maintained a public market and at least some of
the interests sold by Unitholders were purchased by the
operating entity.
Finally, management considered the Plan of Restructure, pursuant to which
the real estate and certain other qualifying assets are contributed to a real
estate investment trust, and the remaining operating entity is converted into a
corporation. Management believes that the Plan of Restructure has the following
benefits:
- No Double Taxation of the REIT. By transferring assets to the REIT that
will generally enable it to qualify as a real estate investment trust
under the Code, the REIT will be able to continue to make distributions
to its stockholders without incurring the double taxation which would
be incurred by the Corporation.
- Maintain Public Market. The Managing General Partner has made listing
applications to list the common stock of both the Corporation and the
REIT on AMEX, thereby maintaining the public market that currently
exists for the NHC Units.
- Tax Reporting. The Managing General Partner believes that the
complexities of tax reporting associated with partnership investments
are regarded as unduly burdensome for most limited partners under
current conditions.
- Expanded Investor Base. By creating a real estate investment trust and
a corporation, instead of a passive income MLP, the Managing General
Partner believes that both entities will have a broader investor base,
which will include institutional and other investors who do not
typically invest in MLPs, including NHC, because of various tax and
administrative reasons.
Management also recognized and considered the following disadvantages to
the Plan of Restructure:
- No Dividends by the Corporation. The Corporation would likely retain
its earnings in order to maintain its growth plan and would not likely
pay dividends to its shareholders, at least initially. Any distribution
would be subject to double taxation.
- Restrictions on REIT's Business. NHC would need to include some
restrictions on the REIT in order to avoid conflicting with the
objectives of NHI.
After careful analysis of each of the possible structures, the Board of
Directors concluded, based on advice from investment advisors, accountants and
legal counsel, that the Plan of Restructure was the best alternative overall.
8
<PAGE> 15
NHC, the REIT and the Corporation will enter into a Plan of Restructure and
Agreement of Merger which provide for the Plan of Restructure described herein.
The following is a summary of certain provisions of the Plan of Restructure and
Agreement of Merger, however, such summary does not purport to be complete and
is subject to and qualified in its entirety by reference to all provisions of
the Plan of Restructure and Agreement of Merger which are attached hereto as
Annex A and B, respectively, and are incorporated herein by reference.
CERTAIN TRANSACTIONS PRECEDING THE DISTRIBUTION
Immediately prior to the Distribution, NHC will transfer to the REIT and
its subsidiaries, including the Operating Partnership, the Owned Healthcare
Facilities, the Notes, the Other Assets and the Assumed Liabilities in exchange
for a number of REIT Shares equal to the number of NHC Units (except for the OP
Units that will be distributed to National) outstanding immediately prior to the
Effective Time. In addition, the REIT will agree to issue additional REIT Shares
as required to be issued upon the exercise of current NHC options and conversion
of currently outstanding debentures. The REIT will be the sole general partner
of the Operating Partnership, which will then lease the Owned Healthcare
Facilities to the Corporation and the Corporation will enter into the REIT
Advisory Agreement with the REIT.
MANNER OF EFFECTING THE DISTRIBUTION AND MERGER
Subject to the approval of the Plan of Restructure by the Unitholders, the
REIT Shares issued in the Distribution will be mailed to the Unitholders as soon
as practicable after the Effective Time. Promptly after the Effective Time, the
REIT Shares will be delivered to SunTrust Bank, Atlanta which will act as the
distribution agent (the "Distribution Agent"). As soon as practicable
thereafter, the Distribution Agent will mail to each NHC Unitholder of record at
the Effective Time one REIT Share for every Unit.
Holders of NHC Units will not be required to pay any cash or
other consideration or to exchange their Units for the REIT
Shares they receive in the Distribution. The Distribution will
not change the number of NHC Units outstanding.
National Health Corporation, NHC's Administrative General Partner,
("National") will receive approximately 794,000 REIT Shares and 806,000 OP
Units, in connection with approximately 1,600,000 NHC Units in order for the
REIT to meet one of the requirements of a real estate investment trust. See
"Certain Transactions -- National."
At the Effective Time, each outstanding Unit will represent one Share of
the Corporation. New certificates will not be issued for the Shares until the
holder thereof subsequently sells, exchanges or surrenders the certificate to
the Corporation's transfer agent. In the event a Unitholder claims his
certificate representing his Units has been stolen, lost or destroyed, upon the
making of an affidavit of that fact by such Unitholder, the Corporation's Board
of Directors may direct a new certificate representing the Shares to be issued
in the place of such stolen, lost or destroyed certificate representing the
Units. When authorizing such issue of a new certificate, the Corporation's Board
of Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such stolen, lost or destroyed certificate or
legal representative to advertise the same in such manner as it shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise by reason of the issuance of a new
certificate.
CONDITIONS TO THE PLAN OF RESTRUCTURE
Certain lenders to NHC must consent to the transfer of the Owned Healthcare
Facilities, the Notes, the Other Assets and the Assumed Liabilities and the
Merger. Although NHC has no reason to believe that certain lenders will not
consent, and, in fact, have received certain oral indications that consents will
be given, in the event they do not, NHC may terminate the Plan of Restructure,
or NHC may pay down the debt to a level sufficient to obtain, or obviate the
need for, a lender's consent or attempt to find substitute lenders. There can be
no assurances that NHC can obtain the funds to pay down such debt or that there
will not be penalties and other costs associated with such payments.
With respect to certain other lenders from whom NHC will not seek consent,
see "Risk Factors -- The REIT -Lack of Consents; Acceleration of Certain
Maturities."
FEDERAL INCOME TAX ASPECTS OF THE PLAN OF RESTRUCTURE
For a discussion of the income tax aspects of the Plan of Restructure, see
"Federal Income Tax Considerations."
BUSINESSES OF THE REIT AND THE CORPORATION AFTER THE PLAN OF RESTRUCTURE
The Corporation intends to continue NHC's historical business of developing
and acquiring nursing homes, assisted living and retirement centers and also
managing such types of facilities for other owners. The Corporation will also
continue to operate home health agencies and provide related ancillary services
to its patients, residents and third parties. The REIT may from time to time
provide financing to the Corporation by either acquiring facilities and having
the Corporation manage or lease them or by providing first mortgage loans to the
Corporation in order to enable it to acquire, construct or expand facilities. In
such event, a special disinterested committee will be formed by the REIT to
negotiate the terms with the Corporation.
9
<PAGE> 16
While managed by the Corporation the REIT intends to own, but not operate,
healthcare facilities, which shall be solely healthcare facilities operated by
the Corporation. However, the REIT Advisory Agreement provides that for that
period of time equal to the lesser of (i) the term of the REIT Advisory
Agreement and (ii) the Corporation being actively engaged as the investment
advisor for NHI, the REIT will not (without the prior approval of NHI) transact
business with any party, person, company or firm other than the Corporation. It
is the intent of the foregoing restriction that the REIT will not be actively or
passively engaged in the pursuit of additional investment opportunities, but
rather will focus upon its capacities as landlord and note holder of those
certain assets conveyed to it in the Plan of Restructure. The investment
policies of the REIT are explained in "Business -- The REIT -- Investment and
Other Policies of the REIT."
In connection with the REIT's assumption of, or taking property subject to,
the Assumed Liabilities, a Unitholder should be aware that a default by the REIT
under such debt could default certain of the Corporation's debt which the REIT
is not assuming. Similarly, the Corporation's default under certain of its
obligations could default the Assumed Liabilities. Although the REIT has agreed
to indemnify, defend and hold NHC and the Corporation harmless with respect to
all debt assumed by or which the REIT has agreed to pay in accordance with the
Plan of Restructure and agreed, that without the written consent of the
Corporation, the REIT will not cause or suffer any such debt to be defaulted or
otherwise breached, no assurance can be given that the REIT will not default on
such debt or will be able to pay any amounts due as a result of such
indemnification. In addition, although the Corporation has agreed to indemnify,
defend and hold the REIT harmless with respect to all debt and all obligations
of NHC except those specifically assumed by or which the REIT has agreed to pay
in accordance with the Plan of Restructure and the Corporation agreed, that
without the written consent of the REIT, the Corporation will not cause or
suffer any such debt to be defaulted or otherwise breached, no assurance can be
given that the Corporation will not default on such debt or will be able to pay
any amounts due as a result of such indemnification. Thus, either entity could
cause the other to incur substantial obligations or to lose certain of its
facilities through foreclosures. Creditors (whether contingent or absolute
liabilities) of NHC at the Effective Time could make a claim against either or
both the Corporation and the REIT and it is likely that they each would be
liable. Generally, any risk factors that applied to NHC at the time an investor
purchased his Units will continue to apply to the Corporation. For certain risks
associated with the REIT, see "Risk Factors -- The REIT", and for certain risks
associated with the Corporation, see "Risk Factors -- The Corporation."
NHC'S OUTSTANDING OPTIONS AND CONVERTIBLE DEBENTURES
All options and convertible debentures of NHC which grant rights to
subscribe for NHC Units exercisable or convertible after the Effective Time,
shall be deemed to grant the right to acquire an equal number of REIT Shares and
Shares as such right grants in NHC Units, except for the October 1997
convertible notes described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- The Corporation." The exercise
price for such options and receipt thereof shall be divided pro rata between
REIT and Corporation (and the pro rata distribution shall be equal to the ratio
that the closing price on the American Stock Exchange at the close of business
on the first trading day in 1998 of the REIT Shares and the Shares bear to each
other). The interest and principal and all other payments due under or
obligations due as a result of such convertible debentures is to be paid and
performed by the Corporation and if any of such debt is converted then the
Corporation shall provide written notification thereof to the REIT, and the REIT
shall issue REIT Shares equal to the number of Shares issued by Corporation upon
such conversion; and the REIT agrees, at the expense of the Corporation, to
cause to be filed any registration statement relating to REIT Shares required by
agreements binding on the Corporation or needed as determined in the sole
discretion of the Corporation.
EFFECT ON NHC UNITS
Following the Plan of Restructure, an NHC Unitholder will own a number of
REIT Shares and Shares equal to the number of Units of such Unitholder (except
for the OP Units issued to National described in "Certain Transactions
- -- National"). The following is a brief description of certain inherent
differences between NHC Units, REIT Shares and Shares.
CASH DISTRIBUTIONS
NHC Units. NHC presently makes quarterly cash distributions equal to
approximately sixty percent (60%) of its taxable income. If NHC were to remain a
partnership but be taxed as a corporation, its investors' after-tax return on
the dividends would be significantly reduced because of the double tax on
corporate earnings distributed as dividends.
REIT Shares. Distributions are declared from funds legally available
therefor in the discretion of the Board of Directors. To qualify for taxation as
a real estate investment trust, however, the REIT must generally distribute at
least 95% of its taxable income. Initially, it is anticipated that approximately
120% of the REIT's taxable income will be paid as a dividend. See "Risk Factors
- -- Risks Associated with Forward Looking Statements."
Shares. Dividends may be declared from funds legally available therefor
in the discretion of the Board of Directors. At least initially, the Corporation
anticipates retaining its earnings for operation and expansion of its business
and does not anticipate paying dividends.
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LIQUIDITY AND MARKETABILITY
NHC Units. NHC Units are freely transferable and are traded on AMEX.
REIT Shares. The REIT Shares will be freely transferable and
application has been made to list the REIT Shares on AMEX. See "Listing and
Trading of Shares and REIT Shares" below.
Shares. The Shares will be freely transferable, and application has
been made to list the Shares on AMEX. See "Listing and Trading of Shares and
REIT Shares" below.
CONTINUITY OF EXISTENCE
NHC. NHC's Partnership Agreement provides that it will terminate in
2085. However, pursuant to the Plan of Restructure, NHC will merge with and into
the Corporation and thereafter cease to exist as a limited partnership.
REIT. The REIT will have perpetual existence.
Corporation. The Corporation will have perpetual existence.
TAXATION
For a discussion of certain differences in the tax treatment of REIT
Shares and Shares, see "Federal Income Tax Considerations -- Certain Differences
Between the Ownership of Units and REIT Shares."
PERSONAL LIABILITY
NHC Units. A limited partner's liability for the obligations of NHC is
limited to his total agreed upon investment in NHC and his share of NHC's assets
and undistributed profits if he does not participate in the control of NHC's
business.
REIT Shares. REIT Shares of common stock are fully paid and
non-assessable. REIT shareholders generally do not have personal liability for
obligations of the REIT.
Shares. Shares of common stock are fully paid and non-assessable.
Shareholders generally do not have personal liability for obligations of the
Corporation.
VOTING AND LIQUIDATION RIGHTS
NHC Units. Management of NHC is vested in the Managing General Partner,
and Limited Partners have limited voting rights on matters affecting the
partnership. Certain matters require the prior approval of either (i) the
holders of more than 50% of the Units together with the unanimous approval of
the Board of the Managing General Partner or (ii) holders of 70% or more of the
Units. Holders of Units are entitled to share ratably in 99% of the proceeds
resulting from liquidation of partnership assets (subsequent to the payment of
positive capital accounts), or in limited circumstances to receive interests in
those assets, on liquidation of NHC.
REIT Shares. Each REIT Share entitles its holder to cast one vote on
matters as to which voting is permitted or required, including the election of
Directors. Certain matters require the prior approval of either (i) the holders
of more than 50% of the REIT Shares together with the majority approval of the
REIT's disinterested Board of Directors or (ii) the holders of 70% or more of
the REIT Shares. Each REIT Share entitles its holder to share ratably in any
assets available for distribution to holders of REIT Shares on liquidation of
the REIT. A shareholder has a right to inspect the books and records of the
REIT, including stock transfer records, upon notice and during reasonable
business hours.
Shares. Each Share entitles its holder to cast one vote on matters as
to which voting is permitted or required, including the election of Directors.
Certain matters require the prior approval of either (i) the holders of more
than 50% of the Shares together with the unanimous approval of the Corporation's
Board of Directors or (ii) the holders of 70% or more of the Shares. Each Share
entitles its holder to share ratably in any assets available for distribution to
holders of Shares on liquidation of the Corporation. A shareholder has a right
to inspect the books and records of the Corporation including stock transfer
records upon notice and during reasonable business hours. See "Description of
Securities."
REPORTING REQUIREMENTS
NHC Units. NHC is subject to the reporting requirements of the Exchange
Act and files annual and quarterly and other periodic reports thereunder.
REIT Shares. The REIT will also be subject to the reporting
requirements of the Exchange Act and will file quarterly and other periodic
reports thereunder. The REIT will be required to hold annual meetings of its
shareholders.
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Shares. The Corporation will also be subject to the reporting
requirements of the Exchange Act and will file annual and quarterly and other
periodic reports thereunder. The Corporation will be required to hold annual
meetings of its shareholders.
TAX BASIS
NHC Units. A holder's tax basis in each Unit generally will be
allocated between each Share and REIT Share distributed with respect to or in
exchange for, such Unit, which will generally be allocated between the Share
and the REIT Share based upon the relative adjusted bases to NHC of the Share
and the REIT Share.
REIT Shares. The REIT Shares delivered in the Distribution generally
will have an initial tax basis equal to such Unitholder's basis in his Units
minus the tax basis in such shareholder's Shares. This tax basis will be reduced
if and to the extent that the REIT's dividends in any one year exceed the REIT's
current and accumulated earnings and profits. Any reduction in such basis will
be reported on the Form 1099 distributed annually to each REIT Shareholder.
Shares. The Shares issued in the Merger will have an initial tax basis
equal to such shareholder's tax basis in his NHC Unites minus the tax basis in
such holder's REIT Shares. This tax basis will be reduced if and to the extent
that the Corporation's dividends in any one year exceed the Corporation's
current and accumulated earnings and profits. Any reduction in such basis will
be reported on the Form 1099 distributed annually to each Shareholder. See
"Federal Income Tax Consideration -- The REIT -- Other Tax Consequences."
OTHER DIFFERENCES
For a description of certain other differences between NHC, the REIT and
the Corporation which relate to differences between owning a Unit, a REIT Share
and a Share, see "Description of Securities".
LISTING AND TRADING OF SHARES AND REIT SHARES
No trading market for the Shares or the REIT Shares currently exists
because the Corporation and the REIT are wholly-owned subsidiaries of NHC. The
widespread ownership of the Shares and REIT Shares after the Effective Time of
the Plan of Restructure should assist in the establishment of a trading market,
but there can be no assurance as to the extent to which a market for Shares or
REIT Shares will develop or the prices at which Shares or REIT Shares may trade
after the Effective Time of the Plan of Restructure.
The market price and liquidity of Shares may be affected by many factors,
including, among others, the results of the Corporation's operations, the
economic condition and investor perception of the industry in which the
Corporation operates and the Corporation's dividend policy and general economic
and market conditions. Until the Shares are fully distributed and an orderly
market develops, the prices at which trading occurs may fluctuate significantly.
The market price and liquidity of Shares may also be affected by certain
provisions of the Corporation's Articles of Incorporation and By-Laws provided
for under the Delaware General Corporation Law which may also have antitakeover
effects.
The market price and liquidity of REIT Shares may be affected by many
factors, including, among others, the results of the REIT's operations, the
restrictions on the REIT's ability to do business with entities other than the
Corporation, the results of the Corporation's operations, the economic condition
and investor perception of the industry in which the REIT operates, the REIT's
dividend policy and investment policy and general economic and market
conditions. Since the REIT is restricted to doing business only with the
Corporation generally, then the operational stability of the Corporation may
greatly impact the financial stability of the REIT. Until the REIT Shares are
fully distributed and an orderly market develops, the prices at which trading
occurs may fluctuate significantly. The market price and liquidity of REIT
Shares may also be affected by certain provisions of the REIT's Articles of
Incorporation and By-Laws provided for under the Maryland General Corporation
Law or designed to enhance the REIT's ability to meet the requirements of a REIT
but that may also have antitakeover effects.
The Corporation and the REIT have each made application to list the Shares
and the REIT Shares, respectively, on AMEX.
Shares and REIT Shares will be freely transferable, except for Shares or
REIT Shares received by persons who may be deemed to be affiliates of the
Corporation, the REIT or NHC under the Securities Act or as otherwise required
to ensure the REIT satisfies certain ownership tests to maintain its
qualification as a real estate investment trust. Persons who may be deemed to be
affiliates of the Corporation, the REIT or NHC after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with, the Corporation, the REIT or NHC, and may include certain
officers and directors as well as principal stockholders and/or unitholders, if
any, of the Corporation, the REIT or NHC. Persons who are affiliates will be
permitted to sell their Shares or REIT Shares only pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption from
such registration, including, among others, Rule 144 under the Securities Act.
The REIT may also disallow the sale of REIT Shares to a person who, after
acquiring ownership of such REIT Shares, would cause the REIT to be disqualified
as a real estate investment trust. See "Description of Securities -- Shares of
the REIT -- REIT Provisions."
TERMINATION
NHC, Inc., the Managing General Partner of NHC, if in its sole discretion
it deems that it is in the best interest of the Unitholders, may determine not
to proceed with the Plan of Restructure at any time prior to the Effective Time.
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RISK FACTORS
Investment in the Shares and REIT Shares involves various risks. In
addition to general investment risks and those factors set forth elsewhere in
this Proxy Statement/Prospectus, Unitholders should consider the following
factors before making a decision to hold or dispose of the Shares or REIT
Shares.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS.
This Proxy Statement/Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. Those statements
include, but may not be limited to, the discussions of the Corporation's and the
REIT's expectations concerning their future profitability and distributions and
the Corporation's and the REIT's operating and growth strategy, including
possible strategic acquisitions. Investors are cautioned that all
forward-looking statements involve risks and uncertainties including, without
limitation, the factors set forth under the caption "Risk Factors" in this
Prospectus. Although the Corporation and the REIT believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, based
on information available on the date hereof, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Proxy Statement/Prospectus will prove to be
accurate. Factors that could cause actual results to differ materially include,
but are not limited to, the risk factors discussed below as well as changing
economic and market conditions, changes in tax laws, and other factors discussed
in Managements Discussion and Analysis of Results of Operation and Financial
Condition. Moreover, new risk factors may emerge from time to time and it is not
possible for management to predict all such risks factors, nor can it assess the
impact of all such risks on the business of the REIT or the Corporation or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements. In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by NHC, the Corporation, the REIT or any other
person that the objectives and plans of the Corporation and the REIT will be
achieved.
THE REIT
NEWLY ORGANIZED COMPANY
The REIT was recently organized and has no stand-alone operating history.
There has been no market for the REIT Shares and no assurance can be given that
an active trading market will develop.
REIT'S RELIANCE ON THE CORPORATION
The Owned Healthcare Facilities initially consists of 17 skilled nursing
centers, six assisted living facilities and one retirement center each of which
will be leased to the Corporation. Thus, the financial returns to the REIT and
the condition of the REIT are dependent upon the successful operation of the
Owned Healthcare Facilities by the Corporation. Such facilities will be
transferred to the REIT subject to certain debt. In addition, the Notes are
secured by mortgages on additional nursing homes that are managed by the
Corporation and have been pledged as collateral for part of the Assumed
Liabilities. Thus, a default by the Corporation under its debt instruments,
including the Assumed Liabilities, could cause the REIT to lose its assets
through foreclosure or other means or be called upon to pay the same. Such a
loss of assets could also be triggered by the Corporation's failure to fulfill
its obligations in respect of debt, the holders of which may not have consented
to the Plan of Restructure. Accordingly, the holders of such debt may have
rights to the assets of the REIT. The REIT will not have significantly
diversified its investment portfolio to include assets unrelated to the
Corporation's obligations.
Payments of rent under the Leases comprise a substantial portion of the
REIT's net income (interest payments on the Notes and investment income comprise
the remainder of such net income). Certain of the Owned Healthcare Facilities do
not generate sufficient cash flow to the Corporation to pay the entire base rent
due under the Lease of such facilities.
In the event the Corporation voluntarily or involuntarily defaults under
the terms of a Lease, the REIT will not be able to operate the facility and,
therefore, may need to find another healthcare provider willing to lease and
operate the facility, and may have to negotiate new lease terms, including
rentals due, which terms may be less favorable than those of the defaulted
Lease. In addition, NHC is only contributing the real estate to the REIT. All of
the equipment, furnishings and personal property will belong to the Corporation,
and in the event a Lease is terminated for any reason, either the REIT or a new
tenant will have to replace all equipment and furnishings. The REIT has no
healthcare licenses nor any employees and it must have both to operate a health
care facility. Any such default under or termination of a Lease could result in
a reduction in revenue derived from the affected Lease and defaults under
several Leases at the same time could have a material adverse effect on the
REIT's results of operations.
The REIT will be advised by the Corporation, under the supervision of the
REIT's Board of Directors, which is ultimately responsible for the management of
the REIT. The REIT will have no employees and will be managed by the
Corporation. The REIT Advisory Agreement can be terminated within 90 days;
however, the REIT has no other possible managers under consideration. In
addition, all services provided by the Corporation will actually be by
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employees of National since the Corporation has no employees. Investment
decisions of the REIT other transactions, including those with the Corporation,
must be approved by a majority of the Directors.
The Corporation has agreed to indemnify the REIT for certain liabilities
which may be incurred by the REIT in connection with the Owned Healthcare
Facilities, the Notes, and the Assumed Liabilities. Such indemnities relate to
matters including, without limitation, certain financial obligations,
acceleration of debt due to failure to obtain required consents, environmental
liabilities and title matters. There can be no assurance that, at the time the
REIT may seek any such indemnity, the Corporation will be financially able to
meet its indemnity obligations, which obligations are unsecured.
Since the REIT is dependent on the Corporation, all the risk factors
starting on page 19 relating to the Corporation are also applicable to the REIT.
CONFLICTS OF INTEREST
Because all of the initial directors and all of the initial officers of the
REIT occupy positions with the Corporation, there will be conflicts of interest
in their duties to the Corporation's shareholders and the REIT's shareholders.
Although management believes the terms of the Leases and the REIT Advisory
Agreement are fair and reasonable, none of the terms of the Leases or the REIT
Advisory Agreement were negotiated on an arms' length basis. Since the
Corporation will be the REIT's investment advisor, it will have a conflict of
interest in assessing the quality of the management services, determining if the
REIT Advisory Agreement should be terminated, determining the price to be paid
by the REIT for additional assets which may be purchased from the Corporation
and the terms of any leases to be entered into between the REIT and the
Corporation. Further, the REIT is likely to purchase additional equity interests
in real estate from, or make additional mortgage loans to, the Corporation.
Pursuant to the REIT Advisory Agreement, the REIT has agreed to only do
business with the Corporation and not to compete with NHI as long as both the
REIT Advisory Agreement and the NHI Advisory Agreement (as hereinafter defined)
are obligations of the Corporation. Therefore, there may be situations where the
REIT has cash available (such as from prepayments, insurance proceeds or
condemnation settlements or receipt of normal payments on principal) at a time
when the Corporation does not have a need for additional funds. In these
situations, the REIT may not be able to invest such cash in an efficient manner.
All but three of the directors of the REIT, and all of the executive
officers of the REIT are also either directors or executive officers of NHI, a
real estate investment trust that is also advised by the Corporation. The
overlap of directors and executive officers may cause a conflict in the
determination of the long term goals of the REIT, such as whether to terminate
the REIT Advisory Agreement and seek to expand its portfolio beyond the
properties leased to the Corporation, whether the REIT should consider a
potential sale of all or substantially all of its assets or a potential merger
with another real estate investment trust other than NHI. These conflicts could
have an adverse effect on the long term value of the REIT's common stock.
There may from time to time be disputes between the REIT as lessor and the
Corporation as lessee with respect to maintenance, repairs, defaults, and
similar items. However, since all board members of the REIT are also board
members of the Corporation and the Corporation manages the REIT, it is uncertain
whether potential disputes will be recognized as conflicts or that the REIT will
recognize a need for independent persons to determine how to resolve such
disputes. These disputes will be settled by binding arbitration.
Prior to their acquisition by the REIT, the Owned Healthcare Facilities
will have been owned and operated by NHC. The REIT's book and tax basis in the
Owned Healthcare Facilities generally will be the same as NHC's basis in the
properties. The REIT will not obtain independent appraisals of the Owned
Healthcare Facilities.
In connection with the Distribution, National, who is the Administrative
General Partner of NHC, will receive approximately 794,000 REIT Shares and
approximately 806,000 OP Units. The primary reason for the different treatment
of National is to prevent National from receiving Excess Shares and to help
ensure the qualification of the REIT as a real estate investment trust. As a
result, National will be treated differently than all of the other Unitholders.
See "Description of Securities -- Operating Partnership Agreement" for a
description of the rights of the holder of an OP Unit.
Counsel to the REIT also represents the Corporation on certain matters. In
the course of such representation circumstances may arise in which the REIT and
the Corporation have conflicting interests, in which event separate counsel may
be retained to represent one or both of the parties.
LEVERAGING
The REIT will initially have debt representing 42% of its total
capitalization, primarily because NHC's contribution of the Owned Healthcare
Facilities to the REIT will result in the REIT's accounting for the Owned
Healthcare Facilities at the same book value as NHC's depreciated cost, and
because such contribution is subject to the Assumed Liabilities. All of the
REIT's balance sheet debt will be mortgage indebtedness. If the REIT is unable
to meet its obligations under the various mortgage loans and guarantees, and if
there are foreclosures or conveyances in lieu of foreclosure, the REIT could
lose its interest in the Notes and its equity investment in the affected Owned
Healthcare Facilities.
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TITLE MATTERS
NHC intends to transfer some of the Owned Healthcare Facilities to the REIT
by means of "quitclaim" deeds. Such deeds contain no warranties of title,
although NHC has warranted good title to the REIT to the extent described below.
The REIT has not obtained policies insuring title to the Owned Healthcare
Facilities. As a result, in the event of a title dispute, the REIT will have
recourse solely to the Corporation (which after the Merger will be the successor
to the obligations of NHC). With respect to any title problem or dispute, the
Corporation has agreed to indemnify, defend and hold the REIT harmless to the
maximum extent the Corporation has a claim against a predecessor-in-title or a
title insurance company, but not otherwise. The REIT has no title insurance and
could suffer significant losses if a title claim does not give rise to a claim
against the Corporation under its limited indemnity described in the foregoing
sentence. In addition, certain of the Owned Healthcare Facilities will be leased
by NHC to the REIT pursuant to a 50 year lease with the REIT to have a purchase
option for a nominal purchase price.
ENVIRONMENTAL MATTERS
The REIT will become the fee simple owner of fifteen of the Owned
Healthcare Facilities and will have the right to purchase the remaining nine for
a nominal purchase price. Pursuant to the terms of the Leases, the REIT does not
have control over the operational activities of the Corporation, nor does it
monitor the Corporation with respect to environmental matters. Under various
federal, state and local environmental laws, ordinances and regulations, an
owner of real property (such as the REIT) may be liable in certain circumstances
for the costs of removal or remediation of certain hazardous or toxic substances
at, under or disposed of in connection with such property, as well as certain
other potential costs relating to hazardous or toxic substances (including
government fines and injuries to persons and adjacent property). Such laws often
impose such liability without regard to whether the owner knew or, or was
responsible for, the presence or disposal of such substances and may be imposed
on the owner in connection with the activities of an operator of the property.
The cost of any required remediation, removal, fines or personal or property
damages and the owner's liability therefore could exceed the value of the
property and/or the aggregate assets of the owner. In addition, the presence of
such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral which, in turn, would
reduce the REIT's revenues and ability to make distributions. The Plan of
Restructure and the REIT Master Agreement provide that the Corporation will
indemnify the REIT for any environmental matters arising on or after January 1,
1998, but the REIT is liable for any such matters arising before such date.
LACK OF CONSENTS; ACCELERATION OF CERTAIN MATURITIES
The REIT is assuming approximately $105.9 million in Assumed Liabilities.
In addition, the Corporation will retain approximately $112.6 in additional
debt. The consent of such lenders is a requirement to the transfer of the
underlying secured properties from the original obligor thereunder to any
successor obligor, and the transfer of the Owned Healthcare Facilities and Notes
to the REIT. Although NHC, the REIT and the Corporation believe that such
consents can be obtained on reasonable terms in a timely manner with respect to
the transfer of the Assumed Liabilities from NHC to the REIT or the transfer of
the Owned Healthcare Facilities and the Notes to the REIT; no assurance can be
made that such consents will be received. If the lenders were to assert their
rights, that is that the transfer of the Assumed Liabilities or the Owned
Healthcare Facilities from NHC to the REIT constituted a default under the
relevant loan or guarantee documents, then such lenders could demand that the
Corporation and the REIT perform under the loan agreements and pay the full
amount of such debt plus any prepayment penalties and costs. There can be no
assurance that the REIT or the Corporation would be able to repay such debt or
replace such debt on the same or similar terms, if at all. Failing to timely
repay such amounts could cross-default other loans.
In addition, the Plan of Restructure may require the consent of various
third parties in connection with the Notes or the Other Assets, which consents
are not being sought. For example, all of the Notes being transferred to the
REIT are owed by third parties for loans made relating to facilities managed by
NHC. In the event a dispute arises with respect to the management contract, such
third party may cease to make payments under the Notes and attempt to offset any
damages claimed by such third party against NHC against amounts owed to the REIT
pursuant to the Notes. Such offsets may be allowed if the third party has not
consented to the transfer of the Notes. In addition, since the REIT and the
Corporation both resulted from NHC, any existing NHC creditor (whether
contingent or absolute) may be able to reach the assets of the REIT for any
claim such creditor may have against NHC.
OUTSTANDING NHC OPTIONS AND CONVERTIBLE DEBENTURES
NHC currently has outstanding Options and 6% convertible debentures. The
indenture which governs the debentures and the Unit Option Plan do not
contemplate a restructure of NHC such as provided in the Plan of Restructure.
NHC's management has reviewed the indenture and Unit Option Plan and determined
that the indenture and Unit Option Plan provide that the debentures and Options
will be convertible into a number of Shares and REIT Shares equal to the number
of NHC Units, the debentures and Options are convertible into as of the
Effective Time. The indenture and Unit Option Plan may be subject to different
interpretations and there can be no assurance that holders of the debentures or
Options will not claim that they are entitled to different treatment than is
provided in the Plan of Restructure. If such a dispute should arise, there can
be no assurance how a court or other authority would interpret the indenture or
Unit Option Plan.
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INVOLVEMENT WITH FLORIDA CONVALESCENT CENTERS, INC.
NHC has outstanding loans of approximately $75.8 million and has guaranteed
approximately $36.5 million in loans made or letters of credit issued by third
parties to or for the account of Florida Convalescent Centers, Inc., a Florida
corporation ("FCC"), certain of which loans and letters of credit are guaranteed
by such corporation's primary shareholder, James McCarver, a Florida resident.
The REIT will assume NHC's position as lender. The default by such corporation
or individual, or the bankruptcy or other financial difficulty of either of
them, could result in the inability of such corporation or individual to pay its
obligations to the REIT and the Corporation, and could result in the REIT's and
the Corporation's having to make payments under their guarantees. In addition,
NHC and FCC are currently involved in a lawsuit concerning the management
agreements pursuant to which NHC manages the FCC facilities. The FCC management
agreements, as well as the lawsuit, will be maintained by the Corporation.
However, there can be no assurance that FCC will not include the payment of the
Notes in the lawsuit. Although FCC is current on its notes, no assurance can be
given that FCC will not cease making payments and attempt to set off any alleged
damages. See "Business -- The Corporation -- Legal Proceedings," and " -- The
REIT -- The Notes."
REAL ESTATE INVESTMENT RISKS
The Owned Healthcare Facilities and any subsequently acquired properties
will be subject to various real estate related risks. The acquisition of
additional properties may be subject to the ability of the REIT to borrow
amounts sufficient to enable the REIT to pay the purchase price therefor. There
can be no assurance that any such acquisition will not be made on terms less
favorable than the terms for the Owned Healthcare Facilities and the Notes.
Further, there can be no assurance that the value of any property acquired by
the REIT will appreciate or that the value of any property securing the REIT's
mortgage loans will not depreciate.
There can be no assurance that rates payable by the Corporation under the
Leases would be paid by an independent lessee. Therefore, in the event the
Corporation defaults on or terminates a Lease prior to its expiration, or in
the event that a Lease expires, there can be no assurance that a substitute
lessee could be found nor that such a lessee, if found, would pay the same rent
set forth in the relevant Leases.
Additional risks of investing in real estate are the possibilities that the
Leases 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 governmental 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. Due to the illiquid nature of real estate investments, the REIT would
have difficulty in altering its investment portfolio to respond to changes in
such factors.
It is the intention of the REIT to secure, or to require the Corporation to
secure, adequate comprehensive property and liability insurance. Certain risks
may, however, be uninsurable or not economically insurable and there can be no
assurance that the REIT will have adequate funds to cover all contingencies.
Should such an uninsurable loss occur, the REIT could lose both its invested
capital, including its equity interests, and its anticipated profits relating to
such property.
Any lease arrangement, such as the Leases, creates the possibility that a
tenant may either default on the lease or fail to exercise an option to renew
the lease and in such event, the REIT may be unable to lease such property to
another tenant or, even if it could, such lease may be on less favorable terms
than those of the original lease. There can be no assurance, however, that the
Corporation will exercise its options to renew the Leases upon the expiration of
the initial terms or that, if such failure to renew were to occur, the REIT
could lease the property to others on favorable terms. In such an instance, the
REIT would continue to be responsible for payment of any indebtedness it had
incurred with respect to such property.
Certain local real property tax assessors may seek to reassess certain of
the Owned Healthcare Facilities as a result of the Plan of Restructure and the
transfer of interests to occur thereby. Further, there can be no assurance that
local real property tax assessors will not seek to reassess the Owned Healthcare
Facilities in the future. In the event any reassessment would be detrimental to
the REIT, it would vigorously oppose any such reassessment; however, no
assurance can be given that this opposition would succeed.
CERTAIN RESTRICTIONS ON TRANSFER OF REIT SHARES; BUSINESS COMBINATIONS
Provisions of the Articles of Incorporation (the "REIT Charter") of the
REIT, primarily intended to enable the REIT to maintain its status as a real
estate investment trust, authorize the REIT (i) to refuse to transfer REIT
Shares to, or prohibit exercise of rights by, any person who as a result would
beneficially own, directly or indirectly by attribution, REIT Shares in excess
of 9.8% of the outstanding stock of the REIT ("Excess Stock") or any person
whose accumulation of such stock would, in the opinion of the Board of
Directors, jeopardize the status of the REIT as a real estate investment trust
including as a result of a violation of the "related party tenant rules" and
(ii) to redeem Excess Stock, the accumulation of which would jeopardize the
status of the REIT as a real estate investment trust. In addition, the REIT
Charter prevents a shareholder from owning at any time, directly or indirectly
by attribution, more than 9.8%.
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If these transfer or ownership restrictions are declared to be void as a matter
of law or are violated by any person, common stock of the REIT acquired in
excess of these limits shall be deemed to have been acquired by and to be held
on behalf of the REIT and, as the equivalent of treasury shares for such
purpose, shall not be considered to be outstanding for quorum or voting purposes
and shall not be entitled to receive dividends.
The REIT will set forth in its Forms 10-Q and Forms 10-K filed under the
Exchange Act the percentage limitation on share ownership applicable to the
related period.
For the REIT to qualify as a real estate investment trust in any taxable
year (other than the first year for which the REIT elects to be taxed as a
REIT), no more than 50% of its outstanding REIT Shares may be owned, directly or
indirectly by attribution, by five or fewer individuals (which for this purpose
includes pension funds and certain other tax exempt entities) at any time during
the second half of the REIT's taxable year. In addition, the REIT Shares must be
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 short taxable year. Further,
in all taxable years a large percentage (at least 75% and more likely 95%) of
the REIT's income must generally be derived from lessees in which the REIT does
not own, directly or indirectly by attribution, a 10% or greater interest. The
REIT would be generally deemed to own that percentage interest in a lessee
(including the Corporation) owned by a shareholder of the REIT who owned,
directly or indirectly by attribution, 10% or more of the Shares. See "Federal
Income Tax Considerations -- The REIT -- Taxation as a REIT -- Requirements for
Qualification," "-- Tax and Accounting Income May Vary", and " -- Real Estate
Investment Trust -- Income Tests".
The limitations on ownership of REIT Shares set forth in the REIT Charter
are intended to reduce the possibility of the REIT's failing to meet the
percentage ownership requirements for qualification as a real estate investment
trust. However, such provisions may inhibit market activity with respect to the
REIT Shares and the resulting opportunity for Shareholders to receive a premium
for their REIT Shares that might otherwise exist if an individual were
attempting to assemble a block of REIT Shares in excess of the applicable
percentage limitation. Also, there can be no assurance that such provisions will
in fact prevent the REIT from failing to meet such ownership requirements.
Accordingly, the REIT Charter restricts stock ownership of the REIT directly or
indirectly by attribution to 9.8%.
Such provisions would also make the REIT an unsuitable investment for any
person seeking to obtain ownership of more than 9.8% of the outstanding voting
equity of the REIT. Although the REIT does not anticipate that it will redeem or
otherwise reduce the number of outstanding REIT Shares except for Excess Shares,
if such number of REIT Shares were reduced, the percentage limitation might be
exceeded by a shareholder without any action on his part.
In addition, certain provisions of Maryland law regarding business
combinations (as defined therein) require approval of the holders of 80% of the
outstanding voting shares of the REIT. See "Certain Restrictions on Transfer of
REIT Shares; Business Combinations."
FEDERAL INCOME TAX RISKS
The REIT was organized and intends to conduct its operations so as to
qualify for federal income taxation as a real estate investment trust under
Sections 856 through 860 of the Code. See "Federal Income Tax Considerations --
The REIT -- Taxation as a Real Estate Investment Trust." The REIT has not
sought, nor will it seek, a ruling from the Internal Revenue Service (the "IRS")
with respect to its qualification as a real estate investment trust.
ADVERSE CONSEQUENCES OF THE REIT'S FAILURE TO QUALIFY AS A REAL ESTATE
INVESTMENT TRUST
The REIT intends to operate so as to qualify as a real estate investment
trust under the Code, commencing with its taxable year ending December 31, 1998.
Although management believes that the REIT will be organized and will operate in
such a manner, no assurance can be given that the REIT will be organized or will
be able to operate in a manner so as to qualify or remain so qualified.
Qualification as a real estate investment trust involves the satisfaction of
numerous requirements (some on an annual and 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 REIT's
control. For example, in order to qualify as a real estate investment trust, at
least 95% of the REIT's gross income in any year must be derived from qualifying
sources, and the REIT must pay distributions to shareholders aggregating
annually at least 95% of its REIT taxable income (excluding capital gains). The
complexity of these provisions and of the applicable treasury regulations that
have been promulgated under the Code is greater in the case of a real estate
investment trust, such as the REIT, that holds its assets in partnership form.
No assurance can be given that legislation, new regulation administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a real estate investment trust or the federal
income tax consequences of such qualification. The REIT, however, is not aware
of any pending tax legislation that would adversely affect the REIT's ability to
operate as a real estate investment trust.
Goodwin, Proctor & Hoar LLP, as special REIT tax counsel to the REIT, has
rendered an opinion to the effect that the REIT is organized in conformity with
the requirements for qualification as a real estate investment trust and its
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a real estate investment trust. See "Federal
Income Tax Considerations -- The REIT -- Taxation as a Real Estate Investment
Trust." Such legal opinion, however, is based on various assumptions and factual
representations by the REIT regarding the REIT's ability to meet the various
requirements for qualification as a real estate investment trust, and no
assurance can
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be given that actual operating results will meet these requirements. Such legal
opinion is not binding on the IRS or any court. Moreover, the REIT's
qualification and taxation as a real estate investment trust will depend upon
the REIT'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 result of which will not be reviewed by
special REIT tax counsel to the REIT.
If the REIT were to fail to qualify as a real estate investment trust in
any taxable year, the REIT 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 REIT also would be disqualified from treatment as a real estate investment
trust for the four taxable years following the year during which qualification
was lost. This treatment would significantly reduce the net earnings of the REIT
available for investment or distribution to shareholders because of the
additional tax liability to the REIT for the years involved. In addition,
distributions to shareholders would no longer be required to be made. See
"Federal Income Tax Considerations -- The REIT -- Taxation as a Real Estate
Investment Trust."
In the Plan of Restructure, National will receive approximately 794,000
REIT Shares and approximately 806,000 OP Units in order to permit the REIT to
comply with the various stock ownership rules referred to above.
In order to minimize the chances that the REIT will violate certain stock
ownership rules (see "Federal Income Tax Consideration -- The REIT -- Taxation
as a Real Estate Investment Trust -- Asset Test" and " -- Income Tests"), the
Directors of the REIT are given the power to redeem or prohibit the transfer of
REIT Shares and the power to prohibit the distribution of the REIT Shares to any
Unitholder if such transfer or distribution would cause the REIT to violate any
stock ownership or source of income rule. Shareholders are cautioned, however,
that because broad attribution rules are used in determining stock ownership and
a large percentage of NHC Units is held by nominees in "street name," the REIT
may be unaware of a violation of these stock ownership and source of income
rules and therefore the qualification of the REIT as a real estate investment
trust may be inadvertently lost. See also "Certain Considerations -- Certain
Restrictions on the Transfer of Shares; Business Combinations" for a further
discussion of additional requirements imposed by the Board of Directors of the
REIT as a result of such attribution rules.
If the IRS successfully challenged the status of the REIT as the owner of
the Owned Healthcare Facilities and the status of the Leases as true leases, the
REIT would not be entitled to claim depreciation with respect to any of the
Owned Healthcare Facilities. As a result, the REIT's taxable income might
increase and the REIT might fail to meet the 95% Distribution Requirement
necessary to be taxed as a real estate investment trust, or if such requirement
were met, then a larger percentage of distributions from the REIT would
constitute ordinary dividend income, instead of a partial return of capital to
the REIT's shareholders, or the REIT would be subject to an excise tax. REIT
Counsel has rendered an opinion that it is more likely than not that the REIT
will be treated as the owner of the Owned Healthcare Facilities and that the
Leases will be treated as true leases for federal income tax purposes. This
opinion is not binding on the IRS and no assurance can be given that the IRS
will not successfully challenge the status of the REIT as the owner of the Owned
Healthcare Facilities or the status of the Leases as true leases. The REIT has
not sought, and will not seek, a ruling from the IRS with respect to its status
as a real estate investment trust or the status of the Leases. See "Federal
Income Tax Considerations -- Taxation as a Real Estate Investment Trust --
Income Tests."
DEPENDENCE ON MANAGEMENT AND SKILLED PERSONNEL.
The REIT believes it depends substantially on active involvement of its
senior managers, including its executive officers (none of which are employees
of the REIT). See "Relationship Between the REIT and the Corporation After the
Restructure -- Advisory, Administrative Services and Facilities Agreement." The
loss of one or more of such officers could have a material adverse effect on the
REIT's business and future operations. The REIT does not maintain key-man
insurance on the lives of its executive officers. The REIT does not have
employment agreements with its executive officers. See "Management -- The REIT."
The agreement by which such persons are made available to the REIT is between
the Corporation and National and is outside the control of the REIT. This
agreement could be terminated between the Corporation and National without any
involvement of the REIT. See "Certain Transactions -- National."
NO PUBLIC MARKET.
There has been no public market for the REIT Shares and there can be no
assurance that an active trading market will develop or be sustained following
the Plan of Restructure. The REIT has applied for listing the REIT Shares on
AMEX. No assurance can be given as to the liquidity of the trading market for
the REIT Shares or that an active trading market for the REIT Shares will
develop. If an active market does not develop, the market price and liquidity of
the REIT Shares may be adversely affected.
ANTI-TAKEOVER CONSIDERATIONS.
The REIT is authorized to issue up to 10,000,000 shares of preferred stock,
the rights of which may be fixed by the Board of Directors without shareholder
approval. The REIT's Charter provides for the classification of its Board of
Directors into three classes, with each class of directors serving staggered
terms of three years. The REIT's Charter requires the approval of 70% of the
outstanding REIT Shares to approve certain transactions and amend certain
provisions of the REIT Charter. The foregoing matters may have the effect of
discouraging or making more difficult
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an acquisition or change of control of the REIT. See "Description of Securities
- -- Shares of the REIT -- Control Share Acquisitions."
THE CORPORATION
NEWLY ORGANIZED COMPANY
The Corporation was recently organized and has no stand-alone operating
history. There has been no market for the Shares and no assurance can be given
that an active trading market will develop.
CONFLICTS OF INTEREST
Because all but one of the initial directors and all of the initial
officers of the Corporation occupy positions with the REIT, there will be
conflicts of interest in their duties to the Corporation's shareholders and the
REIT's Shareholders. Although NHC's management believes the terms of the Leases
and the REIT Advisory Agreement are fair and reasonable, none of the terms of
the Leases or the REIT Advisory Agreement were negotiated on an arms-length
basis. The Leases provide that all maintenance and repairs, including structural
problems will be provided by the Corporation. Since the Corporation will be the
REIT's investment advisor, it will have a conflict of interest in assessing the
quality of the management services under the REIT Advisory Agreement or in
determining if the REIT Advisory Agreement should be terminated or in
determining the price to be paid by the REIT for additional assets which may be
purchased from the Corporation and the terms of any leases to be entered into
between the REIT and the Corporation. Further, the REIT is likely to purchase
additional equity interests in real estate from, or make additional mortgage
loans to, the Corporation.
The Corporation will not have any employees. All of the personnel services
will be provided by National pursuant to the Employee Services Agreement. The
Employee Services Agreement can be terminated by either party at any time.
Therefore, the Corporation will be dependent upon National to supply an adequate
number of qualified personnel to meet the needs of the Corporation, and no
assurance can be given that National will continue to provide such employees for
any time period.
There may from time to time be disputes between the Corporation as Lessee
and the REIT as Lessor with respect to maintenance, repairs, defaults and
similar items. However, since all but one of the board members of the
Corporation are also board members of the REIT, it is uncertain whether
potential disputes will be recognized as conflicts or that the Corporation will
recognize a need for independent persons to determine how to resolve such
disputes. Recognized disputes between the Corporation and the REIT will be
settled by binding arbitration.
Counsel to the Corporation also represents the REIT on certain matters. In
the course of such representation circumstances may arise in which the
Corporation and the REIT have conflicting interests, in which event separate
counsel may be retained to represent one or both of the parties.
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS.
Substantially all of the Corporation's nursing home revenues, including
management fees, will be directly or indirectly dependent upon reimbursement
from third-party payors, including the Medicare and Medicaid programs, and
private insurers. For the period ended June 30, 1997, approximately 60% of NHC's
net revenues were derived from Medicare and state Medicaid programs. It is not
possible to predict the impact of the Balanced Budget Act of 1997 on the
Corporation's reimbursement rates, and a further reduction in Medicare or
Medicaid rates could have an adverse impact on the Corporation and other
providers of nursing home services. The revenues and profitability of the
Corporation will be affected by the continuing efforts of third-party payors to
contain or reduce the costs of health care by lowering reimbursement rates,
increasing case management review of services and negotiating reduced contract
pricing. Changes in the mix of the Corporation's patients among the Medicaid,
Medicare, and private pay categories, and among different types of private pay
sources, can significantly affect the revenues and the profitability of the
Corporation's operations. There can be no assurance that the Corporation will be
able to maintain a profitable payor or revenue mix. In addition, any changes in
reimbursement levels under Medicaid, Medicare, or private payor programs and any
changes in applicable government regulations could significantly affect the
profitability of the Corporation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- The Corporation
Government Health Care Reimbursement Programs."
In order to receive Medicare and Medicaid reimbursement, the Corporation
must be certified by Medicare and Medicaid. In 1995, the Federal Government
promulgated new survey, certification and enforcement rules governing long-term
care facilities participating in the Medicare and Medicaid programs, which
impose significant new requirements on long-term care facilities. The breadth of
the new rules creates uncertainty over the manner in which the rules will be
implemented, the ability of any long-term care facility to comply with them and
the effect of the new rules on the Corporation. Facilities which are found not
to be in compliance with the new rules are subject to decertification from
participating in the Medicare/Medicaid programs; termination of provider
agreement; temporary management; denial of payment for new admissions; civil
money penalties; closure of the facility or transfer of patients or both; and
on-site state monitoring. In the ordinary course of its business, NHC has
received and the Corporation is likely to receive notices of deficiencies for
failure to comply with various regulatory requirements. The Corporation will
review such notices and take appropriate corrective action. It is anticipated
that in most cases, the Corporation and
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the reviewing agency will agree upon the measures to be taken to bring the
facility into compliance with regulatory requirements. See "Business -- The
Corporation -- Regulation."
IMPACT OF HEALTH CARE REFORM AND LIMITS ON GOVERNMENT REIMBURSEMENT AND
OTHER PAYMENTS.
Government at both the federal and state levels has continued in its
efforts to reduce, or at least limit the growth of, spending for health care
services, including services to be provided by the Corporation. On August 5,
1997, President Clinton signed into law The Balanced Budget Act of 1997 ("BBA"),
which contains numerous Medicare and Medicaid cost-saving measures, as well as
new anti-fraud provisions. The BBA has been projected to save $115 billion in
Medicare spending over the next five years, and $13 billion in the Medicaid
program. Section 4711 of BBA, entitled "Flexibility in Payment Methods for
Hospital, Nursing Facility, ICF/MR, and Home Health Services", repealed the
Boren Amendment, which had required that state Medicaid programs pay to nursing
home providers amounts adequate to enable them to meet government quality and
safety standards; the Boren Amendment was previously the foundation of
litigation by nursing homes seeking rate increases. In place of the Boren
Amendment, the BBA requires only that, for services and items furnished on or
after October 1, 1997, a state Medicaid program must provide for a public
process for determination of Medicaid rates of payment for nursing facility
services, under which proposed rates, the methodologies underlying the
establishment of such rates, and justifications for the proposed rates are
published, and which gives providers, beneficiaries and other concerned state
residents a reasonable opportunity for review and comment on the proposed rates,
methodologies and justifications. Several of the states in which the Corporation
will operate are actively seeking ways to reduce Medicaid spending for nursing
home care by such methods as capitated payments and substantial reductions in
reimbursement rates. The BBA also requires that nursing homes transition to a
prospective payment system under the Medicare program during a three-year
"transition period" commencing with the first cost reporting period beginning on
or after July 1, 1998; home health agencies must also transition from a
cost-based reimbursement system to a prospective payment system beginning in
1999. In addition, the BBA creates a managed care Medicare Program called
"Medicare + Choice", which allows Medicare beneficiaries to participate in
either the original Medicare fee-for-service program or to enroll in a
coordinated care plan such as health maintenance organizations ("HMOs"). Such
coordinated care plans would allow HMOs to enter into risk-based contracts with
the Medicare program, and the HMO's would then contract with providers such as
the Corporation. No assurances can be given that the facilities to be operated
by the Corporation will be successful in negotiating favorable contracts with
Medicare + Choice managed care organizations. The BBA also contains several new
antifraud provisions. Given the recent enactment of the BBA, the Corporation is
unable to predict the impact of the BBA and potential changes in state Medicaid
reimbursement methodologies on its operations; however, any significant
reduction in either Medicare or Medicaid payments could adversely affect the
Corporation. Changes in certification and participation requirements of the
Medicare and Medicaid programs have restricted, and are likely to continue to
restrict further, eligibility for reimbursement under those programs. Failure to
obtain and maintain Medicare and Medicaid certification at the Corporation's
facilities will result in denial of Medicare and Medicaid payments which could
result in a significant loss of revenue to the Corporation. In addition, private
payors, including managed care payors, increasingly are demanding that providers
accept discounted fees or assume all or a portion of the financial risk for the
delivery of health care services. Such measures may include capitated payments
whereby the Corporation is responsible for providing, for a fixed fee, all
services needed by certain patients. Capitated payments can result in
significant losses if patients require expensive treatment not adequately
covered by the capitated rate. Efforts to impose reduced payments, greater
discounts and more stringent cost controls by government and other payors are
expected to continue. For the fiscal year ended December 31, 1996, NHC derived
38% and 33% of its net patient revenues from the Medicare and Medicaid programs,
respectively. Any reforms that significantly limit rates of reimbursement under
the Medicare or Medicaid programs, therefore, could have a material adverse
effect on the Corporation's profitability. The Corporation is unable to predict
what reform proposals or reimbursement limitations will be adopted in the future
or the effect such changes will have on its operations. No assurance can be
given that such reforms will not have a material adverse effect on the
Corporation. See "Business -- The Corporation -- Sources of Revenue."
Nursing homes and home health agencies have recently been the target of
health care reform, from both a fraud and reimbursement perspective. Operation
Restore Trust, a demonstration project which has been conducted by the
Department of Health and Human Services in five states, is expanding to a dozen
more states. "ORT Plus" will continue its focus on fraud in the areas of home
health, nursing home and DME suppliers, as well as adding new anti-fraud and
abuse targets. The Corporation will operate nursing homes and home health
agencies in five ORT Plus states and could be subject to increased scrutiny.
President Clinton recently announced a moratorium on the certification of home
health agencies in an attempt to curb what is perceived to be rampant fraud and
abuse in this area. The Corporation cannot predict what impact this ORT Plus or
moratorium will have on its home care programs. Although NHC's management
believes that its home care and nursing home operations are in compliance with
applicable laws and regulations, there can be no assurance that the Corporation,
its home care and nursing home operations will not be the subject of an
investigation nor that they will be found to be in compliance if investigated.
See "Business -- The Corporation -- Legal Proceedings."
GOVERNMENT REGULATION.
The United States government, and all states in which the Corporation will
operate regulate various aspects of its business. Various federal and state laws
regulate relationships among providers of services, including employment or
service contracts and investment relationships. The operation of long-term care
facilities and the provision of services are also subject to extensive federal,
state, and local laws relating to, among other things, the adequacy of medical
care, distribution of pharmaceuticals, equipment, personnel, operating policies,
environmental compliance, ADA compliance,
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fire prevention and compliance with building codes. Long-term care facilities
are also subject to periodic inspection to assure continued compliance with
various standards and licensing requirements under state law, as well as with
Medicare and Medicaid standards. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect the Corporation's growth
and could prevent it from offering the services currently offered by NHC or any
additional services. In addition, health care is an area of extensive and
frequent regulatory change. Changes in the laws or new interpretations of
existing laws can have a significant effect on methods and costs of doing
business and amounts of payments received from governmental and other payors.
The Corporation's operations could be adversely affected by, among other things,
regulatory developments such as mandatory increases in the scope and quality of
care to be afforded patients and revisions in licensing and certification
standards. The Corporation will at all times attempt to comply with all
applicable laws; however, there can be no assurance that administrative or
judicial interpretation of existing laws or regulations will not have a material
adverse effect on the Corporation's operations or financial condition.
Most states have adopted certificate of need ("CON") or similar laws that
generally require that a state agency approve certain acquisitions and determine
that a need exists for certain new services, the addition of beds and capital
expenditures or other changes. To the extent that CON or other similar approvals
are required for expansion of the Corporation's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in standards applicable to such
approvals and possible delays and expenses associated with obtaining such
approvals. CON laws are also subject to being repealed or modified which could
increase competition by lowering competitors' barriers to enter certain markets.
The sale or transfer of a CON is generally prohibited. If the regulatory
body administering the CON program in a given state determines that the
restructuring is a "transfer," the ability of the REIT or the Corporation to
utilize an unimplemented or partially implemented CON could be restricted or a
new CON could be required. Such a process could be costly and time consuming.
The Corporation currently has four unimplemented CONs and ten partially
implemented CONs.
SELF-REFERRAL AND ANTI-KICKBACK LEGISLATION.
The health care industry is highly regulated at the state and federal
levels. In the United States, various state and federal laws regulate the
relationships between providers of health care services, physicians, and other
clinicians. These laws impose restrictions on physician referrals for designated
health services to entities with which they have financial relationships. These
laws also prohibit the offering, payment, solicitation or receipt of any form of
remuneration in return for the referral of Medicare or state health care program
patients or patient care opportunities in return for the purchase, lease or
order of any item or service that is covered by the Medicare and Medicaid
programs. There can be no assurance the Corporation's operations will not be
subject to review, scrutiny, penalties or enforcement actions under these laws,
or that these laws will not change in the future. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil monetary penalties and exclusion from participation in the
Medicare or Medicaid programs. Such exclusions or penalties, if applied to the
Corporation, could have a material adverse effect on the profitability of the
Corporation.
FLORIDA AUDITS AND LAWSUIT
In October 1996, two managed centers in Florida were audited by
representatives of the regional office of the Office of Inspector General
("OIG") . As part of these audits, the OIG reviewed various records of the
facilities relating to allocation of nursing hours and contracts with suppliers
of outside services. At one center, the OIG indicated during an exit conference
that it had no further questions, but has not yet issued a final report. At the
second facility, which is one of the four named in the Braeuning lawsuit
described below, the OIG determined certain records were insufficient and NHC
supplied the additional requested information.
NHC is also a defendant in a lawsuit styled Braeuning et al vs. National
HealthCare L.P., et al. filed "under seal" in the U.S. District Court of the
Northern District of Florida on April 9, 1996. The court removed the seal from
the complaint - but not the file itself - on March 20, 1997 and service of
process occurred on July 8, 1997, with the government participating as an
intervening plaintiff. The suit alleges that NHC has submitted cost reports and
routine cost limit exception requests containing "fraudulent allocation of
routine nursing services to ancillary service cost centers" and improper
allocation of skilled nursing service hours in four managed centers, all in the
state of Florida. The suit was filed under the Qui Tam provisions of the Federal
False Claims Act, commonly referred to as the "Whistleblower Act". NHC is fully
cooperating and the Corporation intends to fully cooperate with the government
in an attempt to determine dollar amounts involved, and each intends to
aggressively pursue an amicable settlement. The cost report periods under
review include periods from 1991 through 1995.
Florida is one of the states of which governmental officials are conducting
"Operating Restore Trust", a federal/state program aimed at detecting and
eliminating fraud and abuse by providers in the Medicare and Medicaid programs
(the "ORT"). The OIG has increased its investigative actions in Florida (and has
now opened a Tennessee office) as part of ORT and ORT Plus. NHC and the
Corporation will continue to review and monitor the cost reporting process and
their compliance with all government reimbursement standards, but cannot predict
whether the OIG or other government officials will take further action or
request additional information as a result of the Braeuning suit or any other
audit that may be conducted in the future. An adverse determination in the
lawsuit or as the result of an audit could subject the
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Corporation to civil or criminal fines and penalties which could have a material
negative impact on the profitability of the Corporation.
CERTAIN GUARANTEED DEBT
The Corporation will assume loan guarantees of approximately $69.5 million
in loans made or letters of credit issued by third parties to or for the account
of certain unrelated third parties for whom the Corporation will manage a
licensed healthcare center. 53% of these guarantees are on behalf of FCC. A
default by any such corporation or individual, or the bankruptcy or other
financial difficulty of such entities, could result in the inability of such
entity to pay its loan obligations, and could result in the Corporation having
to make payments under its guarantees.
FCC LAWSUIT
FCC, an independent Florida corporation for whom NHC manages sixteen
licensed nursing centers in Florida, and NHC are currently involved in a lawsuit
in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County,
Florida, requesting the court to interpret the parties' rights under their
contractual arrangements. In the summer of 1997, FCC filed a Third Amended and
Supplemental Complaint in the Sarasota County Court action asserting fifteen
separate counts against NHC and its general partners, which are collectively
referred to as NHC in the complaint. Among the claims added in the amended
complaint are claims for breach of all management agreements between the
parties, for a declaration that FCC does not owe any deferred contingent fees to
NHC or in the alternative, a declaration that any such deferred fees constitute
usurious interest, for breach of a 1994 loan agreement between FCC and
defendants related to the construction of a facility in Orlando, for business
libel, and for breach of fiduciary duty arising from defendants' alleged
obstruction of FCC's right to audit, from defendants' alleged failure to
properly manage FCC's facilities, and from defendants' alleged self dealing by
causing FCC and defendants or their affiliates to enter into contracts that are
not customary or usual in the industry. In additional to declaratory relief, FCC
asserts that it is entitled to unspecified damages and to terminate all of the
management agreements between the parties for cause. Defendants, including NHC,
have filed an answer denying all of FCC's claims and asserting a counterclaim
against FCC. No trial date has been set in this matter. To date, FCC has
notified NHC that it currently does not intend to renew five of the sixteen
management contracts, but has agreed that NHC will remain as manager until a
final decision is reached by the Sarasota Court. The balance of the FCC
contracts may be terminated in the years 2001-2003. See "Business -- The
Corporation -- Legal Proceedings."
LACK OF CONSENTS; ACCELERATION OF CERTAIN MATURITIES
The Corporation will retain approximately $112.6 million in debt of NHC. In
addition, the REIT will assume approximately $105.9 million in Assumed
Liabilities. The consent of such lenders is a requirement to the transfer of the
underlying secured properties from the original obligor thereunder to any
successor obligor, and the transfer of the Owned Healthcare Facilities and Notes
to the REIT. NHC, the REIT and the Corporation have obtained the oral consent of
these lenders. Written documentation of such consents may not be obtained on
reasonable terms in a timely manner with respect to the transfer of the Assumed
Liabilities from NHC to the REIT or the transfer of the Owned Healthcare
Facilities and the Notes to the REIT. If the lenders were to assert their
rights, that is that the transfer of the Assumed Liabilities or the Owned
Healthcare Facilities from NHC to the REIT constituted a default under the
relevant loan or guarantee documents, then such lenders could demand that the
Corporation and the REIT perform under the loan agreements and pay the full
amount of such debt plus any prepayment penalties and costs. There can be no
assurance that the REIT or the Corporation would be able to repay such debt or
replace such debt on the same or similar terms, if at all. Failing to timely
repay such amounts could cross-default other loans.
In addition, the Plan of Restructure may require the consent of various
third parties to agreements with NHC which will be assumed by the Corporation in
the Plan of Restructure. NHC and the Corporation have determined not to seek
consents in connection with existing leases, management contracts or other
operating agreements with NHC. As a result, such third parties could claim such
agreements have been breached by NHC, seek to terminate such agreements and sue
NHC, the Corporation and the REIT for damages. In addition, since the REIT and
the Corporation both resulted from NHC, any existing NHC creditor (whether
contingent or absolute) may be able to reach the assets of the Corporation for
any claim such creditor may have against NHC. There can be no assurance that the
number of such agreements terminated, the amount of damages that could be sought
or the claims of any such creditors would not have a material adverse effect on
the Corporation.
RELATIONSHIPS BETWEEN LONG-TERM CARE FACILITIES AND OTHER PROVIDERS.
Relationships between long-term care facilities and other providers such as
providers of physical therapy and other ancillary service providers have
recently come under increased scrutiny by government and private payors. To the
extent that the Corporation, any facility with which it does business, or any of
their owners or directors have a financial relationship with each other or with
other health care entities providing services to long-term care patients, such
relationships could be subject to increased scrutiny. There can be no assurance
that the Corporation's business operations and agreements with other providers
of health care services will not be subject to change, review, penalties or
enforcement actions under state and federal laws regarding self-referrals or
fraud and abuse, or that these laws will not change in the future. See "Business
- -- Government Regulation."
22
<PAGE> 29
THIRD-PARTY INDEBTEDNESS SECURED BY ASSETS LEASED OR MANAGED BY
CORPORATION.
The Corporation, through leases and management agreements, will operate
facilities that secure the indebtedness of the owners of the facilities. As a
result, the Corporation's leases at such facilities are subject to cancellation
upon the default of these third-party owners under their credit agreements. In
addition, the payment of management fees to the Corporation at these facilities
is subordinated to the payment of the owners' debt obligations. To the extent
that the owners of the Corporation's managed facilities experience financial
difficulty or otherwise are unable to meet their obligations, the ability of the
Corporation to receive management fees or continue as manager of such facility
is jeopardized. See "Business -- Description of Management Services and
Agreements."
COMPETITION.
The long-term care industry generally, and the nursing home and assisted
living center businesses particularly, are highly competitive. The Corporation
will face direct competition for the acquisition or management of facilities. In
turn, its facilities face competition for employees, patients and residents.
Some of NHC's present and potential competitors, which will likely be the
Corporation's competitors, are significantly larger and have or may obtain
greater financial and marketing resources than those of NHC or the Corporation.
Some hospitals that provide long-term care services will also be a potential
source of competition to the Corporation. In addition, the Corporation may
encounter substantial competition from new market entrants. Consequently, there
can be no assurance that the Corporation will not encounter increased
competition in the future, which could limit its ability to attract patients or
residents or expand its business, and could materially and adversely affect its
business or decrease its market share. See "Business -- The Corporation --
Relationship with National Health Investors, Inc." and " -- Competition."
LIABILITY AND INSURANCE.
The provision of health care services involves an inherent risk of
liability. In recent years, participants in the long-term care industry have
become subject to an increasing number of lawsuits alleging malpractice or
related legal theories, many of which involve large claims and significant
defense costs. It is expected that the Corporation from time to time will be
subject to such suits as a result of the nature of its business. NHC currently
maintains liability insurance of $1.0 million per claim with additional umbrella
coverage in the amount of $5.0 million in the aggregate per annum, intended to
cover such claims which the Corporation intends to maintain and NHC believes its
insurance coverage is consistent with industry standards. There can be no
assurance, however, that claims in excess of the Corporation's insurance
coverage or claims not covered by the Corporation's insurance coverage (e.g.,
claims for punitive damages) will not arise. A successful claim against the
Corporation in excess of the Corporation's insurance coverage could have a
material adverse effect upon the Corporation and its financial condition. Claims
against the Corporation, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Corporation's ability to attract
patients or residents or expand its business. In addition, the Corporation's
insurance policies must be renewed annually. There can be no assurance that the
Corporation will be able to obtain liability insurance coverage in the future on
acceptable terms, if at all. See "Business -- The Corporation -- Legal
Proceedings."
DEPENDENCE ON MANAGEMENT AND SKILLED PERSONNEL.
The Corporation believes it will depend substantially on active involvement
of its senior managers, including its executive officers. The loss of one or
more of such officers could have a material adverse effect on the Corporation's
business and future operations. The Corporation does not intend to maintain
"key-man" insurance on the lives of its executive officers. The Corporation does
not intend to have employment agreements with executive officers. See
"Management -- The Corporation." In addition, the Corporation will depend upon
skilled personnel such as nurses. In some areas in which the Corporation will
operate there is from time to time a nursing shortage that could have a material
adverse affect upon the Corporation's ability to attract or retain sufficient
numbers of nurses. In addition, although NHC has not yet experienced
unionization efforts, there have been reports of increased unionization within
the senior care business. The Corporation cannot predict whether there will be
successful attempts to organize unions at its facilities, or what effect such
activities might have on its operations.
ABILITY TO ACQUIRE ADDITIONAL LONG-TERM CARE FACILITY OPERATIONS.
The Corporation intends to expand its business through the development and
selective acquisition of additional long-term care facility operations. See
"Business -- The Corporation -- Strategy." The Corporation's prospects for
growth are directly affected by its ability to acquire suitable long-term care
facility operations, which in turn will depend, among other things, upon the
pricing expectations of sellers, the ability to obtain financing, including the
availability of adequate working capital, the ability to obtain government
licenses and approvals, and the competitive environment for acquisitions. The
nature of such licenses and approvals and the timing and likelihood of obtaining
them vary widely from state to state, depending upon the facility or operation
and the type of services proposed. See "Business -- The Corporation --
Regulation." In making acquisitions, the Corporation will compete with other
providers, some of which have greater financial resources than the Corporation.
There can be no assurance that suitable acquisitions will be identified, that
acquisitions can be consummated or that the acquired facility operations can be
integrated successfully into the Corporation's operations. The various risks
associated with the Corporation's acquisition of long-term care facility
operations and uncertainties regarding the profitability of such operations may
affect the Corporation's financial performance in any given period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- The Corporation -- Liquidity, and Capital Resources and Financial
Condition."
23
<PAGE> 30
NO PUBLIC MARKET.
There has been no public market for the Shares and there can be no
assurance that an active trading market will develop or be sustained following
the offering. The Corporation has applied for listing of the Shares on the
American Stock Exchange. No assurance can be given as to the liquidity of the
trading market for the Shares or that an active trading market for the Shares
will develop. If an active market does not develop, the market price and
liquidity of the Shares may be adversely affected. There can be no assurance
that the combined price at which the Shares and REIT Shares may trade in any
market subsequent to the Plan of Restructure will not be lower than the current
trading price of NHC Units.
LACK OF DIVIDENDS
The Corporation's initial policy will be to retain any earnings to finance
the operation and expansion of the Corporation's business and, therefore, to pay
no dividends in the foreseeable future. In addition, the Corporation may be
prohibited from paying dividends under certain debt instruments.
ANTI-TAKEOVER CONSIDERATIONS.
The Corporation is authorized to issue up to 10,000,000 shares of preferred
stock, the rights of which may be fixed by the Board of Directors without
shareholder approval. The Corporation's Certificate of Incorporation (the
"Corporation Certificate") provides for the classification of its Board of
Directors into three classes, with each class of directors serving staggered
terms of three years. The Corporation's Certificate requires the approval of 70%
of the outstanding shares to approve certain actions. Section 203 of the
Delaware General Corporate Law restricts the ability of a Delaware corporation
from engaging in any business combination with an interested stockholder. The
foregoing matters may have the effect of discouraging or making more difficult
an acquisition or change of control of the Corporation. See "Description of
Securities -- Shares of the Corporation."
24
<PAGE> 31
VOTING AND PROXY INFORMATION
VOTING PROCEDURES
Under the Partnership Agreement, a holder of a Unit may vote only if the
holder has been admitted as a general or limited partner of the Partnership on
or before the record date for the Special Meeting. Each Unit entitles the holder
thereof to one vote with respect to matters to be voted on at the Special
Meeting. The Managing General Partner has set the close of business on October
31, 1997 as the record date (the "Record Date") for the determination of general
and limited partners entitled to vote at the Special Meeting.
NHC will accept proxies at any time before the Plan of Restructure is voted
on at the Special Meeting. The enclosed form of proxy, when properly completed
and returned, will constitute a general or limited partner's vote for or
against, or abstention on, the Plan of Restructure. If a general or limited
partner returns a form of proxy duly signed without voting, the general or
limited partner will be deemed to have voted FOR the Plan of Restructure.
REVOCATION OF PROXIES
A general or limited partner may revoke a proxy any time during the
solicitation period before its exercise by (i) delivering written notice of
revocation to NHC, (ii) executing and delivering to NHC a later dated form of
proxy or (iii) voting in person at the Special Meeting. Any such written notice
or later dated proxy should be sent to National HealthCare L.P., 100 Vine
Street, Suite 1400, Murfreesboro, Tennessee 37130, Attention: Richard F.
LaRoche, Jr.
VOTE REQUIRED; QUORUM
Approval of the Plan of Restructure will require the affirmative vote of
general and limited partners holding an aggregate of more than 50% of the
outstanding Units. The presence, in person or by proxy, of general and limited
partners holding an aggregate of more than 50% of the outstanding Units will
constitute a quorum at the Special Meeting. Abstentions and broker non-votes
will be treated as present for the purpose of determining a quorum but will have
the effect of votes against the Plan of Restructure.
The executive officers, directors and other affiliates of the Managing
General Partner own or have the authority to vote approximately 54% of the
outstanding Units. They have advised NHC that they each intend to vote their
Units in favor of the Plan of Restructure and have delivered irrevocable proxies
coupled with an interest to vote in favor of the Plan of Restructure. Therefore,
approval of the Plan of Restructure is assured. For further information
concerning the ownership of Units by the Managing General Partner's affiliates,
executive officers and directors, see "Security Ownership of Certain Beneficial
Owners and Management."
SOLICITATION OF PROXIES
This solicitation is being made by the Managing General Partner on behalf
of NHC. NHC will pay the cost of soliciting proxies. NHC will reimburse
brokerage houses and other nominees for their reasonable expenses of forwarding
proxy materials to beneficial owners of Units.
INDEPENDENT AUDITORS
Representatives of Arthur Andersen LLP, NHC's independent accountants, are
expected to be present at the Special Meeting.
NO APPRAISAL RIGHTS
Unitholders who object to the Plan of Restructure will have no appraisal,
dissenters' or similar rights (i.e., the right, instead of receiving securities
of the REIT and the Corporation, to seek a judicial determination of the "fair
value" of their Units and to compel NHC to purchase their Units for cash in that
amount) under state law or the Partnership Agreement, nor will such rights be
voluntarily accorded to limited partners by NHC. Thus, approval of the Plan of
Restructure by the requisite vote of general and limited partners will bind all
general and limited partners, and objecting general and limited partners will
have no alternative to receipt of securities of the REIT and the Corporation
other than selling their Units (or securities of the REIT and the Corporation)
in the open market.
OTHER MATTERS
The enclosed form of proxy grants discretionary authority to the persons
named to vote on any other matters that may properly come before the Special
Meeting. NHC is not aware of any other proposals planned to be made at the
Special Meeting and has no current intention of making any additional proposals.
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<PAGE> 32
PRICE RANGE OF NHC UNITS
NHC's Units are listed on AMEX under the symbol "NHC." The following table
sets forth, for the periods indicated, the high and low sales prices for the
Units as reported by AMEX.
<TABLE>
<CAPTION>
HIGH Low
<S> <C> <C>
1995
- ----
First Quarter $26.000 $22.875
Second Quarter 28.500 24.375
Third Quarter 31.500 28.000
Fourth Quarter 39.375 29.500
1996
- ----
First Quarter $41.125 $37.125
Second Quarter 41.375 34.875
Third Quarter 39.875 37.000
Fourth Quarter 45.000 37.500
1997
- ----
First Quarter $47.250 $44.250
Second Quarter 46.188 40.750
Third Quarter 59.250 44.375
</TABLE>
On September 30, 1997, the last reported sale price of the Units on AMEX
was $59.25 per Unit. On August 19, 1997, the date immediately preceding NHC's
announcement of the Plan of Restructure, the last reported sale price of the
Units on AMEX was $49.125 per Unit. At September 30, 1997, there were
approximately 4,168 holders of the Units, comprised of 1,982 Unitholders of
record and an additional 2,186 Unitholders indicated by security position
listings.
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<PAGE> 33
DIVIDEND POLICY
NHC
NHC paid cash distributions on its outstanding partnership Units as
follows: 1991, $1.20 per Unit; 1992, $.54 per Unit; 1993, $.88 per Unit; 1994,
$1.35 per Unit; 1995, $1.98 per Unit; and 1996, $2.16 per Unit.
THE REIT
In order to qualify for the quasi pass through tax treatment accorded to a
real estate investment trust, the REIT intends to make quarterly distributions
to holders of its common stock equal on an annual basis to at least 95% of its
real estate investment trust taxable income (excluding net capital gains), as
defined in the Code. Generally, cash available for distribution to the REIT
shareholders will be primarily derived from the distributions made by the
Operating Partnership. The Operating Partnership's cash available for
distribution will be derived primarily from the rental payments under the Leases
and interest payments on the Notes. All distributions will be made by the REIT
at the discretion of the Board of Directors and will depend on the cash flow and
earnings of the REIT, its financial condition, bank covenants and such other
factors as the Board of Directors deems relevant. The REIT's taxable income will
be calculated without reference to its cash flow. Therefore, under certain
circumstances, the REIT may not have available cash sufficient to pay its
required distributions. See "Federal Income Tax Considerations -- Taxation of
the REIT -- 95% Distribution Requirement." The REIT believes that it will have
sufficient available cash to pay its required distributions for 1998 but this is
subject to a number of risk factors. See "Risk Factors -- Risks Associated with
Forward Looking Statements." The Board of Directors has not determined when any
such distributions will be declared or paid.
The REIT's Board of Directors anticipates that, commencing in 1998, the
REIT and the Operating Partnership will pay initial annual dividend to holders
of its common stock and distribution to the OP Units equal to $1.33 per REIT
Share and OP Unit, although no assurances can be given that this will be the
case. See "Risk Factors -- Risks Associated with Forward Looking Statements."
Compensation payable by the REIT to the Corporation under the REIT Advisory
Agreement will be deferred to the extent that the REIT either does not have
Funds from Operations adequate to pay dividends at such annual rate. "Funds from
Operations" is defined in the REIT Advisory Agreement as the net income of the
REIT plus depreciation and amortization, less capital gains (or plus capital
losses) included in such net income.
For a discussion of the tax treatment of distributions to the REIT
stockholders, see "Federal Income Tax Considerations -- The REIT -- The
Distribution -- Tax Consequences."
THE CORPORATION
The Corporation's initial policy will be to retain any earnings to finance
the operations and expansion of the Corporation's business. In addition, the
Corporation may be prohibited from paying dividends under certain debt
instruments.
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<PAGE> 34
BUSINESS
NHC
NHC is a limited partnership organized under the laws of the State of
Delaware which principally operates residential care facilities, long-term
healthcare centers and home healthcare programs in the southeastern United
States. At September 30, 1997, NHC operated 111 long-term healthcare centers
with a total of 13,835 licensed beds in nine states. NHC's health care centers
provide subacute, skilled and intermediate nursing and rehabilitative care. Of
the 111 centers operated, 17 are owned, 40 are leased from NHI and 54 are
managed for other owners. NHC's homecare programs provide rehabilitative care at
a patient's residence. During 1996, NHC operated 33 homecare programs and
provided 754,000 homecare patient visits. NHC also operates 387 retirement
apartments located in one managed and three leased retirement centers.
Additionally, NHC operates 14 assisted living centers at twelve owned or leased
centers and two managed centers. Pursuant to the Plan of Restructure, NHC will
contribute to the REIT through fee ownership or 50 year capitalized leases, the
17 Owned Healthcare Facilities, six assisted living facilities and one
retirement center, certain promissory notes and certain other assets to the
REIT. NHC will then merge with and into the Corporation so that all of NHC's
remaining assets will be owned by the Corporation. The REIT will then lease the
Owned Healthcare Facilities back to the Corporation.
NHC has three general partners:
1. Managing General Partner NHC, Inc., a Tennessee corporation. As of
the Effective Time, W. Andrew Adams, NHC's Chief Executive Officer, President
and a Director of NHC, will own approximately 52% of the voting securities of
NHC, Inc. and Robert G. Adams, Senior Vice President and Chief Operating Officer
of NHC will own approximately 19.3%.
2. Administrative General Partner National Health Corporation, a
Tennessee corporation. All of the authorized, issued and outstanding stock of
National Health Corporation is owned by the National Health Corporation
Leveraged Employee Stock Ownership Plan (the "ESOP"). See "Certain Transactions
- -- National."
3. Individual General Partner W. Andrew Adams. Mr. Adams is the Chief
Executive Officer and President of NHC and will be the Chief Executive Officer,
President and a Director of both the REIT and the Corporation.
The general partners own, in the aggregate, a general partnership interest
in NHC representing a 1% interest in the profits, losses and distributions of
the partnership.
THE REIT
The REIT is a newly-formed Maryland corporation. Prior to the Distribution,
the REIT, through the Operating Partnership will acquire the Owned Healthcare
Facilities and the Notes and Other Assets (subject to the Assumed Liabilities)
and will lease the Owned Healthcare Facilities to the Corporation. The REIT will
also assume certain debt of NHC of approximately $105.9 million. See
"Relationship Between the REIT and the Corporation after the Restructure -- The
Assumed Liabilities." The Leases covering the Owned Healthcare Facilities will
be "triple net" leases. See "Relationship between the REIT and the Corporation
after the Restructure -- The Leases." The REIT will enter into an Advisory,
Administrative Services and Facilities Agreement with the Corporation pursuant
to which the Corporation will provide the REIT with investment advice, office
space and personnel. See "Relationship Between the REIT and the Corporation
after the Restructure -- The Advisory, Administrative Services and Facilities
Agreement."
However, the REIT Advisory Agreement provides that for that period of time
equal to the lesser of (i) the term of the REIT Advisory Agreement and (ii) the
Corporation being actively engaged as the investment advisor for NHI, the REIT
will not (without the prior approval of NHI) transact business with any party,
person, company or firm other than the Corporation. It is the intent of the
foregoing restriction that the REIT will not be actively or passively engaged in
the pursuit of additional investment opportunities, but rather will focus upon
its capacities as landlord and note holder of those certain assets conveyed to
it in the Plan of Restructure.
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<PAGE> 35
OWNED HEALTHCARE FACILITIES
The following table includes certain information regarding the Owned
Healthcare Facilities.
<TABLE>
<CAPTION>
No. Minimum
of Book Annual Total Debt
Name of Facility Location Beds Basis Rent Transferred
---------------- -------------------- ---- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Healthcare Facilities
Adams Place Murfreesboro, TN 40 $6,022,834 $572,129
NHC HealthCare, Naples Naples, FL 60 5,646,872 536,453
NHC HealthCare, Clinton Clinton, SC 131 3,732,339 354,572
NHC HealthCare, Coconut Ft. Lauderdale, FL 120 9,896,567 940,174
Creek(2)
NHC HealthCare, Daytona Beach Daytona Beach, FL 60 6,297,586 598,271
NHC HealthCare, Farragut(2) Farragut, TN 60 5,393,486 512,381
NHC HealthCare, Garden City Murrells Inlet, SC 88 6,133,219 487,656
NHC HealthCare, Greenville Greenville, SC 176 5,429,906 515,841
NHC HealthCare, Lexington Lexington, SC 88 5,353,143 508,549
NHC HealthCare, Mauldin Greenville, SC 120 7,745,945 776,414
NHC HealthCare, Imperial(3) Naples, FL 90 5,311,591 504,601
NHC HealthCare, North Augusta North Augusta, SC 132 5,028,383 477,696
NHC HealthCare, Orlando Orlando, FL 120 8,628,798 819,736
NHC HealthCare, Parklane Columbia, SC 120 8,594,178 816,447
NHC HealthCare, Port Charlotte Port Charlotte, FL 180 8,594,178 816,447
West Plains Health, Care Center West Plains, MO 120 3,801,401 361,133
NHC HealthCare, Franklin(4) Franklin, TN 160 6,638,475 630,655
Assisted Living Facilities
NHC Place/ Vero Beach Vero Beach, FL 84 8,183,504 777,433
NHC Place/Anniston Anniston, AL 68 5,792,107 550,250
Adams Place Murfreesboro, TN 84 6,490,387 616,587
NHC Place/Merritt Island Merritt Island, FL 84 7,144,486 678,726
NHC Place/Stuart Stuart, FL 84 6,808,672 646,824
NHC HealthCare, Farragut(2) Farragut, TN 84 6,741,858 640,477
Retirement Center
Adams Place Murfreesboro, TN 53 14,263,000 1,354,985
Debt Transferred 105,857,629
</TABLE>
- ----------------------
(1) or debt which the property is subject to and being serviced by the
REIT.
(2) currently under construction.
(3) 30 additional beds under construction.
(4) a facility to be constructed. Construction has not began on the date
hereof.
CONVEYANCE OF FACILITIES. Immediately prior to the Plan of Restructure, NHC
will convey its fee ownership of six of the Owned Healthcare Facilities to the
REIT by means of "quitclaim" deeds and nine of the Owned Healthcare Facilities
pursuant to a 50 year capitalized lease with a purchase option at a nominal
purchase price at any time at the election of the REIT. The remaining nine Owned
Healthcare Facilities will be conveyed by warranty or special form deeds. All of
the conveyances and 50 year capitalized leases will include NHC's representation
that it has good and marketable title to the interests being conveyed and NHC
will indemnify the REIT against any title problems. The Corporation will assume
NHC's indemnification obligations to the REIT pursuant to the Merger. Quitclaim
deeds and the 50 year capitalized leases will be used in order to minimize or
eliminate, where possible, the imposition of transfer taxes.
The master capitalized lease ("Master Capitalized Lease") has a 50 year
term expiring December 31, 2048 and grants the REIT the right to purchase the
property at any time upon 90 days notice for $100. Under the Master Capitalized
Lease, the REIT as tenant is responsible for all taxes, utilities, insurance
premium costs, repairs,
29
<PAGE> 36
maintenance (including the structural maintenance and repair of the
improvements) and all other charges and expenses relating to the ownership of
the property covered by the Master Capitalized Lease.
Sources of Rental Payments. The REIT's revenues will be derived primarily
from the Corporation under the Leases. Those payments will be derived primarily
from the Owned Healthcare Facilities operated by the Corporation. See "Business
- -- The Corporation -- Sources of Revenue" for a description of the sources of
revenue generated by the Owned Healthcare Facilities.
THE NOTES.
The REIT will own approximately 50 Notes representing approximately $92.5
million loaned to the owners of approximately 23 nursing homes, all but one of
which are in Florida and managed by NHC. The loans were utilized by the owners
to acquire land, then construct and equip the nursing homes. The Notes are
secured by mortgages on each of the facilities. Forty-three of the Notes
(representing approximately $74.9 million the principal amount) are from FCC and
are personally guaranteed by its sole shareholder. The FCC Notes bear interest
at 10.25 and are payable over 10 years. Most of the FCC Notes are due in 2004.
The 19 nursing homes which are located in Florida are each licensed for
approximately 120 to 180 beds. No defaults have occurred under any of the Notes.
NHC has no reason to suspect any impending defaults under the Notes. In the
event NHC's management agreement for the facilities is not extended by the owner
at the completion of the term, the Note secured by such facility becomes
immediately due and payable.
ASSUMED LIABILITIES.
The REIT will assume or take the Owned Healthcare Facilities subject to
Assumed Liabilities of approximately $105.9 million. The Assumed Liabilities
consist of four loan agreements which are secured by mortgages on certain of the
Owned Healthcare Facilities. The interest rate on the Assumed Liabilities
include fixed rates of 8% to 8.64% and floating rate based on prime rate and
LIBOR plus 1%. The term of the loans range from 2005 through 2015. See
"Relationship between the REIT and the Corporation after the Restructure -- The
Assumed Liabilities."
INVESTMENT AND OTHER POLICIES OF THE REIT.
General. The REIT's investment objectives are: (i) to provide current
income for distribution to stockholders, (ii) to provide the opportunity for
additional returns to investors by participating in any increase in the
operating revenues of its leased properties; (iii) to provide the opportunity to
realize capital growth resulting from appreciation, if any, in the value of its
portfolio properties, and (iv) to preserve and protect stockholder's capital.
There is no assurance that these objectives will be realized. The REIT Advisory
Agreement provides that the REIT will not, without the prior approval of the
Corporation, be actively or passively engaged in the pursuit of additional
investment opportunities until the earlier of the termination of the REIT
Advisory Agreement or such time as the Corporation is no longer actively engaged
as investment advisor to NHI.
Objectives and Policies. The REIT was organized to own the Owned Healthcare
Facilities. Because of the competitive restrictions contained in the REIT
Advisory Agreement, the REIT does not intend to seek further health care-related
investment opportunities or to provide lease or mortgage financing for such
investments. The REIT expects to continue to engage in transactions with the
Corporation, but does not anticipate purchasing from, leasing to or financing
other operations.
The REIT has no present plans to issue securities other than the REIT
Shares distributed in the Plan of Restructure, including senior securities or
(except pursuant to its or NHC's stock option plan or NHC's 6% Debentures) any
additional shares of common stock, although the Board of Directors is authorized
to issue up to 30,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. See "Description of Securities -- Shares of the REIT." The REIT
is authorized to offer shares of its capital stock in exchange for investments
that conform to its standards and to repurchase or otherwise acquire its shares
or other securities, but does not currently intend to do so. The REIT has no
plans to invest in the securities of others for the purpose of exercising
control.
The REIT will not, without the prior approval of a majority of the Board of
Directors, enter into any joint venture relationships with or acquire from or
sell to any director, officer, or employee of the REIT or the Corporation, or
any affiliate thereof, as the case may be, any of the assets or other property
of the REIT.
In addition, see "Federal Income Tax Considerations -- The REIT -- Taxation
as a Real Estate Investment Trust" for a discussion of certain limitations on
investments and other activities of the REIT.
Subject to the REIT Advisory Agreement, the REIT Board of Directors may
alter the REIT's investment policies if they determine in the future that such a
change is in the best interests of the REIT and its stockholders. The methods of
implementing the REIT's investment policies may vary as new investment and
financing techniques are developed or for other reasons.
Borrowing Policies. The REIT is currently negotiating with a lender to
refinance the Assumed Liabilities. See "Relationship between the REIT and the
Corporation after the Restructure -- The Assumed Liabilities." The REIT may
30
<PAGE> 37
incur additional indebtedness in the future to support its current investments
in health care-related facilities when, in the opinion of the REIT Board of
Directors, it is advisable. The REIT may, for short term purposes, negotiate
other lines of credit, or arrange for other short term borrowings from banks or
otherwise. The REIT may arrange for long term borrowerings from institutional
investors or through public offerings. The REIT will own and may in the future
invest in properties subject to existing loans or secured by mortgages, deeds of
trust or similar liens with favorable terms.
THE CORPORATION
GENERAL
The Corporation is a newly formed Delaware corporation which will merge
with NHC at the Effective Time. As a result of the merger, the Corporation will
acquire all of the assets and liabilities of NHC other than those transferred to
the REIT. Thus, the Corporation will primarily operate long-term health care
centers and home health care programs in the southeastern United States. As of
September 30, 1997, NHC operated 111 long-term health care centers with a total
of approximately 13,835 licensed beds. Of these 111 centers operated, 17 will be
leased from the REIT, 40 will be leased from NHI and 54 will be managed for
other owners. As of September 30, 1997, NHC also operated 33 homecare programs,
four retirement centers (one managed and three leased) and 14 assisted living
centers (twelve leased and two managed). In addition, as of September 30, 1997,
NHC operated specialized care units such as Alzheimer's Disease care units (10),
sub-acute nursing units (8) and a number of in house pharmacies. Similar
specialty units are under development or consideration at a number of the
Corporation's centers, as well as free standing projects.
LONG-TERM HEALTH CARE CENTERS
The health care centers to be operated by the Corporation provide
in-patient skilled and intermediate nursing care services and in-patient and
out-patient rehabilitation services. Skilled nursing care consists of 24-hour
nursing service by registered or licensed practical nurses and related medical
services prescribed by the patient's physician. Intermediate nursing care
consists of similar services on a less intensive basis principally provided by
non-licensed personnel. These distinctions are generally found in the long-term
health care industry although for Medicaid reimbursement purposes, some states
in which the Corporation operates have additional classifications, while in
other states the Medicaid rate is the same regardless of patient classification.
Rehabilitative services consist of physical, speech, and occupational therapies,
which are designed to aid the patient's recovery and enable the patient to
resume normal activities.
Each health care center has a licensed administrator responsible for
supervising daily activities, and larger centers have assistant administrators.
All have medical directors, a director of nurses and full-time registered nurse
coverage. All centers provide physical therapy and most have other
rehabilitative programs, such as occupational or speech therapy. Each facility
is located near at least one hospital and is qualified to accept patients
discharged from such hospitals. Each center has a full dining room, kitchen,
treatment and examining room, emergency lighting system, and sprinkler system
where required. NHC's Management believes that all centers are in compliance
with the existing fire and life safety codes.
NHC has developed a quality assurance program which it utilizes and the
Corporation will continue to utilize in each of its health care centers to
verify that high standards of care are maintained. An integral part of the
program is a computerized patient assessment system which aids in placing the
patient in the appropriate section of each center (skilled or intermediate) and
monitors the health care needs of the patient, number and frequency of
medications and other essential medical information. The data derived from this
system is used not only to assure that appropriate care is given to each
individual patient, but also to ascertain the appropriate amount of staffing of
each section of the center. Additionally, NHC requires and the Corporation will
require a patient care survey to be performed at least quarterly by the regional
and home office nursing support team, and a "consumer view" survey by senior
management at least twice a year. NHC developed and promotes a "customer
satisfaction" rating system, using 1993 as a bench mark, and requires
significant improvement in the ratings by each center as a condition of
participation in its overall "Excellence Program". The Corporation intends to
continue this system.
The Corporation will provide centralized management and support services to
the Corporation's health care nursing centers. The management and support
services include operational support through the use of regional vice presidents
and regional nurses, accounting and financial services, cash management, data
processing, legal, consulting and services in the area of rehabilitative care.
All personnel will be employed by National and will be leased to the Corporation
pursuant to an Employee Services Agreement. National will be responsible for
overall services in the area of personnel, loss control, insurance, education
and training. The Corporation will reimburse National by paying all the costs of
personnel employed for the benefit of the Corporation as well as a fee. National
is located in Murfreesboro, Tennessee. See "Certain Transactions -- National."
The Corporation will provide the same management services to centers
operated under management contracts as it will provide to centers leased by the
Corporation. The term of each contract and the amount of the management fee will
be determined on a case-by-case basis. Typically, the Corporation will charge a
minimum of 6% of net revenues. The term of the contracts will range from five
years to twenty years. The Corporation will maintain a right of first refusal
should any owner desire to sell a managed center and, in certain situations,
special termination payments have been negotiated should an owner sell to a
third party or terminate or not renew a management contract.
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<PAGE> 38
All health care centers to be operated by the Corporation are licensed by
the appropriate state and local agencies. All except two are currently certified
as providers for Medicaid patients, and all are currently certified as Medicare
providers. All of the Corporation's centers will be subject to state and federal
licensure and certification surveys. These surveys, from time to time, may
produce statements of deficiencies. In response to such a statement, if any, the
staff at each center will file a plan of correction after consultation with the
Regional Vice President and any alleged deficiencies will be corrected.
Presently, none of NHC's facilities are operating under material statements of
deficiencies which NHC believes would have a material adverse effect on its
operations. The Corporation will have a significant monetary bonus to employees
attached to passing these surveys with few or no deficiencies.
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<PAGE> 39
LONG-TERM HEALTH CARE CENTERS
<TABLE>
<CAPTION>
Total Beds under Development Joined
State City Center Affiliation Beds and Special Care Units NHC
- ----- ---- ------ ----------- ---- ------------------------- -----
<S> <C> <C> <C> <C> <C> <C>
Alabama Anniston NHC HealthCare, Anniston Leased(1) 151 55 bed Alzheimer's unit 1973
Moulton NHC HealthCare, Moulton Leased(1) 136 29 beds under development 1973
Florida Brooksville Brooksville Nursing Manor Managed 180 30 bed Alzheimer's unit 1993
Hudson Bear Creek Nursing Center Managed 120 1993
Crystal River Cypress Cove Care Center Managed 120 1993
Datona Beach NHC HealthCare, Daytona Beach Leased(2) 60 1996
Trenton Ayers Health and Rehabilitation Center Managed 120 30 bed Alzheimer's unit 1993
36 beds under development
Ft. Lauderdale NHC of Ft. Lauderdale Managed 253 1984
New Port Richey Heather Hill Nursing Home Managed 120 1993
Hudson NHC HealthCare, Hudson Leased(1) 180 50 bed subacute care unit 1986
Ft. Lauderdale NHC HealthCare, Coconut Creek Leased(2) 120 1997
Merritt Island NHC HealthCare, Merritt Island Leased(1) 120 22 bed Alzheimer's unit 1990
60 beds under development
Panama City NHC of Panama City Managed 120 1986
Port Charlotte NHC HealthCare, Port Charlotte Leased(2) 180 60 beds subacute care unit 1994
30 bed Alzheimer's unit
Naples NHC HealthCare, Naples Leased(2) 60 1996
Naples NHC HealthCare, Imperial Leased(2) 60 30 beds under development 1994
St. Petersburg NHC HealthCare, St. Petersburg Managed 159 1984
Stuart NHC HealthCare, Stuart Leased(1) 118 24 bed Alzheimer's unit 1989
35 beds under development
Ocoee Ocoee Health Care Center Managed 120 1990
St. Cloud Osceola Health Care Center Managed 120 1991
Palatka Palatka Health Care Center Managed 180 20 bed Alzheimer's unit 1989
Clearwater Palm Garden of Clearwater Managed (3) 120 1987
Gainesville Palm Garden of Gainesville Managed (3) 120 1987
Jacksonville Palm Garden of Jacksonville Managed (3) 120 1990
Largo Palm Garden of Largo Managed (3) 140 1987
N. Miami Beach Palm Garden of N. Miami Beach Managed (3) 120 1988
Ocala Palm Garden of Ocala Managed (3) 120 60 bed subacute care unit 1987
Orlando Palm Garden of Orlando Managed (3) 120 1987
Orlando NHC HealthCare of Orlando Leased (2) 120 30 bed Alzheimer's unit 1997
20 bed subacute care unit
Pensacola Palm Garden of Pensacola Managed (3) 180 1987
Lake City Palm Garden of Lake City Managed (3) 120 28 bed Alzheimer's unit 1992
Largo Palm Garden of Pinellas Managed (3) 120 20 bed subacute care unit 1991
Port St. Lucie Palm Garden of Port St. Lucie Managed (3) 120 1988
Tampa Palm Garden of Tampa Managed (3) 120 1987
Vero Beach Palm Garden of Vero Beach Managed (3) 173 7 beds under development 1987
</TABLE>
33
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
West Palm Beach Palm Garden of West Palm Beach Managed(3) 162 1988
Winter Haven Palm Garden of Winter Haven Managed(3) 120 1987
Plant City NHC HealthCare, Plant City Leased(1) 171 1 bed under development 1985
Dade City Royal Oak Nursing Center Managed 120 1993
Sarasota Sarasota Health Care Center Managed 120 1990
Sun City Palm Garden of Sun City Managed(3) 120 1991
Niceville The Manor at Blue Water Bay Managed 60 1993
Madison Lake Park of Madison Managed 79 23 beds under development 1995
Miami The Nursing Center at Mercy Managed 120 1995
Georgia Fort Oglethorpe NHC HealthCare, Fort Oglethorpe Owned(4) 81 54 beds under development 1989
Rossville NHC HealthCare, Rossville Leased(1) 112 1971
Indiana Brownsburg Brownsburg Health Care Center Managed 178 20 bed Alzheimer's unit 1990
Castleton Castleton Health Care Center Managed 120 18 bed Alzheimer's unit 1990
Evansville Center for Geriatric Nursing Managed 156 1997
Ladoga Ladoga Health Care Center Managed 95 1990
Logansport Camelot Care Center Managed 75 1997
Markle Markle Health Care Managed 66 1997
Plainfield Plainfield Health Care Center Managed 199 22 bed Alzheimer's unit 1990
Westfield Westfield Village Health Care Managed 80 1997
Kentucky Dawson Springs NHC HealthCare, Dawson Springs Leased(1) 80 1973
Glasgow NHC HealthCare, Glasgow Leased(1) 206 1971
Madisonville NHC HealthCare, Madisonville Leased(1) 94 1973
Missouri Desloge NHC HealthCare, Desloge Leased(1) 120 1982
Joplin NHC HealthCare, Joplin Leased(1) 126 1982
Kennett NHC HealthCare, Kennett Leased(1) 160 1982
Macon Macon Health Care Center Managed 120 1982
St. Louis NHC HealthCare, Maryland Heights Leased(1) 220 1987
Osage Beach Osage Beach Health Care Center Managed 120 1982
Springfield Springfield Health Care Center Managed 120 1982
St. Charles NHC HealthCare, St. Charles Leased(1) 120 1982
West Plains West Plains Health Care Center Leased(2) 120 1982
North Carolina Goldsboro Guardian Care Managed 49 1997
South Carolina Anderson NHC HealthCare, Anderson Leased(1) 290 1973
Greenwood NHC HealthCare, Greenwood Leased(1) 152 1973
Sumter NHC HealthCare, Hopewelll Managed 96 1985
Laurens NHC HealthCare, Laurens Leased(1) 176 1973
Aiken Mattie C. Hall Health Care Center Managed 176 44 bed Alzheimer's unit 1982
Clinton NHC HealthCare, Clinton Leased(2) 131 1993
</TABLE>
34
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Murrells Inlet NHC HealthCare, Garden City Leased(2) 88 1992
Greenville NHC HealthCare, Greenville Leased(2) 176 1992
Lexington NHC HealthCare, Lexington Leased(2) 88 12 bed subacute care unit 1994
32 beds under development
Columbia NHC HealthCare, Parklane Leased(2) 120 32 beds under development 1997
30 bed Alzheimer's Unit
____ bed subacute care unit
North Augusta NHC HealthCare, North Augusta Leased(2) 132 1991
Greenville NHC HealthCare, Mauldin Leased(2) 120 1997
Sumter NHC HealthCare, Sumter Managed 120 3 beds under development 1985
Tennessee Murfreesboro Adams Place Leased(2) 40 1997
Carthage Smith County Health Care Center Managed 128 1997
Franklin Franklin Manor Leased(2) 47 1997
Athens NHC HealthCare, Athens Leased(1) 98 1971
Johnson City NHC HealthCare, Johnson City Leased(1) 179 18 bed Alzheimer's unit 1971
Columbia NHC HealthCare, Columbia Leased(1) 120 12 bed subacute care unit 1973
Cookeville NHC HealthCare, Cookeville Managed 96 1975
Franklin NHC HealthCare, Franklin Leased(1) 84 1979
Dickson NHC HealthCare, Dickson Leased(1) 197 1971
Columbia NHC HealthCare, Hillview Leased(1) 98 1971
Knoxville NHC HealthCare, Knoxville Leased(1) 152 1971
Knoxville NHC HealthCare, Fort Sanders Owned(4) 180 12 bed subacute unit 1977
McMinnville NHC HealthCare, McMinnville Leased(1) 150 1971
Lewisburg NHC HealthCare, Lewisburg Leased(1) 95 1971
Murfreesboro NHC HealthCare, Murfreesboro Managed 190 69 bed subacute care unit 1974
Nashville NHC HealthCare, Nashville Leased(1) 133 1975
Hendersonville NHC HealthCare, Hendersonville Leased(1) 117 1987
Lawrenceburg NHC HealthCare, Lawrenceburg Managed 97 1985
Oak Ridge NHC HealthCare, Oak Ridge Managed 130 1977
Lewisburg NHC HealthCare, Oakwood Leased(1) 62 1973
Chattanooga NHC HealthCare, Chattanooga Leased(1) 212 20 bed subacute care 1971
Pulaski NHC HealthCare, Pulaski Leased(1) 104 1971
Milan NHC HealthCare, Milan Leased(1) 129 1971
Lawrenceburg NHC HealthCare, Scott Leased(1) 62 1971
Dunlap NHC HealthCare, Sequatchie Leased(1) 60 60 beds under development 1976
Somerville NHC HealthCare, Somerville Leased(1) 72 1976
Sparta NHC HealthCare, Sparta Leased(1) 150 1975
Springfield NHC HealthCare, Springfield Leased(1) 112 1973
Smithville NHC HealthCare, Smithville Leased(1) 107 1971
Nashville The Health Center of Richland Place Managed 98 1992
Nashville West Meade Place Managed 120 1993
Farragut NHC HealthCare, Farragut Leased(2) 60 1997
Virginia Bristol NHC HealthCare, Bristol Leased(1) 120 1973
</TABLE>
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<PAGE> 42
ASSISTED LIVING UNITS
<TABLE>
<CAPTION>
State City Center
- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Alabama Anniston NHC Place/Anniston (free-standing) Leased(2) 68
Florida Stuart NHC Place, Stuart Leased(2) 84
Merrit Island NHC Place, Merrit Island Leased(2) 84
Naples NHC HealthCare, Imperial Leased(1) 60
Naples NHC HealthCare, Naples Leased(1) 36
Vero Beach NHC Place/Vero Beach (free-standing) Leased(2) 84
West Palm Beach Palm Garden of West Palm Beach Managed(3) 25
Missouri St. Charles Lake St. Charles Retirement Center Leased(1) 25
Tennessee Murfreesboro Adams Place Leased(2) 84
Dickson NHC HealthCare, Dickson Leased(1) 20
Johnson City NHC HealthCare, Johnson City Leased(1) 15
Nashville, Richland Place Managed 32
Somerville NHC HealthCare, Somerville Leased(1) 12
Farragut NHC Place, Farragut Leased(2) 84
RETIREMENT APARTMENTS
Missouri St. Charles Lake St. Charles Retirement Apartments Leased(1) 155 1984
Tennessee Murfreesboro Adams Place Leased (2) 53 1997
Johnson City Colonial Hill Retirement Apartments Leased(1) 63 1987
Chattanooga Parkwood Retirement Apartments Leased(1) 32 1986
Nashville Richland Place Retirement Apartments Managed 137 1993
HOMECARE PROGRAMS
Total Beds under Development Joined
State City Center Affiliation Beds and Special Care Units NHC
- ----- ---- ------ ----------- ---- ---------------------- -----
Florida Blountstown NHC HomeCare of Blountstown Owned 1994
Carrabelle NHC HomeCare of Carrabelle Owned 1994
Chipley NHC HomeCare of Chipley Owned 1994
Crawfordville NHC HomeCare of Crawfordville Owned 1994
Madison NHC HomeCare of Madison Owned 1994
Marianna NHC HomeCare of Marianna Owned 1994
Ocala NHC HomeCare of Ocala Owned 1996
Panama City NHC HomeCare of Panama City Owned 1994
Panama City NHC Private Nursing Owned 1994
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C>
Perry NHC HomeCare of Perry Owned 1994
Port St. Joe NHC HomeCare of Port St. Joe Owned 1994
Quincy NHC HomeCare of Quincy Owned 1994
Stuart NHC HomeCare of Stuart Owned 1996
Tallahassee NHC HomeCare of Tallahassee Owned 1994
Vero Beach NHC HomeCare of Vero Beach Owned 1997
South Carolina Aiken NHC HomeCare of Aiken Owned 1996
Greenwood NHC HomeCare of Greenwood Owned 1996
Laurens NHC HomeCare of Laurens Owned 1996
Tennessee Athens NHC HomeCare of Athens Owned 1984
Johnson City NHC HomeCare of Johnson City Owned 1978
Columbia NHC HomeCare of Columbia Owned 1977
Cookeville NHC HomeCare of Cookeville Owned 1976
Dickson NHC HomeCare of Dickson Owned 1977
Lawrenceburg NHC HomeCare of Lawrenceburg Owned 1977
Lewisburg NHC HomeCare of Lewisburg Owned 1977
McMinnville NHC HomeCare of McMinnville Owned 1976
Murfreesboro NHC HomeCare of Murfreesboro Owned 1976
Knoxville NHC HomeCare of Knoxville Owned 1977
Chattanooga NHC HomeCare of Chattanooga Owned 1985
Pulaski NHC HomeCare of Pulaski Owned 1985
Milan NHC HomeCare of Milan Owned 1977
Somerville NHC HomeCare of Somerville Owned 1983
Sparta NHC HomeCare of Sparta Owned 1984
Springfield NHC HomeCare of Springfield Owned 1984
</TABLE>
- -----------------
(1) Leased from NHI
(2) Leased from REIT
(3) Managed by the NHC for FCC. NHC and FCC are currently involved in
litigation regarding certain of these management agreements. See " -- Legal
Proceedings."
(4) NHC HealthCare, Fort Oglethorpe and NHC HealthCare, Fort Sanders are owned
by two limited partnerships. The Corporation will own approximately 79% of
the partnership interest of the partnership which owns Fort Oglethorpe and
25% of the partnership interest of the partnership which owns Fort Sanders.
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<PAGE> 44
HEALTH CARE CENTERS UNDER CONSTRUCTION
The following table sets forth the long-term health care centers or
additions to existing centers under construction as of June 30, 1997 which the
Corporation will operate:
<TABLE>
<CAPTION>
Projected
Location Number of Beds Leased/ Managed Opening Date
-------- -------------- -------------------------- -------------------
<S> <C> <C> <C>
Ft. Lauderdale, FL 120 Leased October 1997
Greenville, SC 120 Leased October 1997
Farragut, TN 144 Leased May 1998
Palatka, FL 60* Managed July 1997
Dunlap, TN 60* Leased January 1998
Smithville, TN 31* Leased July 1997
Merrit Island, FL 60* Leased October 1997
Ft. Oglethorpe, GA 54* Owned October 1997
Ocala, FL 60* Managed August 1997
Naples, FL 30* Leased December 1997
Vero Beach, FL 7* Managed August 1997
Columbia, SC 32* Leased August 1998
</TABLE>
* Expansion of existing center
OCCUPANCY RATES
The following table shows certain information relating to occupancy rates
for NHC with respect to the Corporation's continuing operated long-term health
care centers:
<TABLE>
<CAPTION>
Six months
Year Ended December 31 ended June 30,
---------------------- --------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Overall census 92.8% 93.0% 93.6% 93.21%
Census excluding
acquisitions and new
openings 94.5% 93.0% 93.8% 94.67%
</TABLE>
Occupancy rates are calculated by dividing the total number of days of
patient care provided by the number of patient days available (which is
determined by multiplying the number of licensed beds by 365 or 366).
HOMECARE PROGRAMS
The Corporation's home health programs (called "homecare" by the
Corporation) will provide nursing and rehabilitative services to individuals in
their residences and are licensed by the Tennessee, South Carolina and Florida
state governments and certified by the federal government for participation in
the Medicare program. Each of NHC's 32 Medicare certified homecare programs and
its one private duty program is managed by a registered nurse, with speech,
occupational and physical therapists either employed by the program or on a
contract basis. Homecare visits increased from 717,000 visits in 1995 to 754,000
visits in 1996. Current projections are for approximately 765,000 visits in
1997.
The Corporation will have homecare programs in Tennessee, Florida, and
South Carolina. NHC opened two new program offices in South Carolina and two in
Florida in 1996. The Corporation's Tennessee homecare programs will be
associated with its long-term health care centers and, historically with NHC,
have been based within the health care center. The Corporation's new homecare
programs in Florida will be separately based in an effort to continually expand
the Corporation's market leadership in these services. NHC's experience in this
field indicates that homecare is not a substitute for institutional care in a
hospital or health care center. Instead, the Corporation's homecare programs
will
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<PAGE> 45
provide an additional level of health care because its centers will be able to
provide services to patients after they have been discharged from the center or
prior to their admission.
ASSISTED LIVING UNITS
As of June 30, 1997, NHC operates 11 assisted living units, eight of which
are located within the physical structure of a long-term health care center or
retirement center and three of which are freestanding and were opened in 1996
and 1997. The Corporation plans to add at least two free standing assisted
living projects each year with the first priority being to serve markets in
which NHC already operates health care centers. Assisted living units provide
basic room and board functions for the elderly with the on-staff availability to
assist in minor medical needs on an as needed basis. Certificates of Need are
generally not necessary to build these projects. NHC has opened one and the
Corporation expects to start construction on two free standing projects in 1998.
RETIREMENT CENTERS
The Corporation's retirement centers will offer specially designed
residential units for the active and ambulatory elderly and provide various
ancillary services for their residents, including restaurants, activity rooms
and social areas. In most cases, retirement centers will also include long-term
health care facilities, either in contiguous or adjacent licensed health care
centers. Charges for services will be paid from private sources without
assistance from governmental programs. Retirement centers may be licensed and
regulated in some states, but do not require the issuance of a Certificate of
Need such as is required for health care centers. Although NHC has developed
retirement centers adjacent to its health care properties with an initial
construction of 57 to 137 units and which are rented by the month, these centers
offer only the expansion of NHC's continuum of care, rather than a separate
profit center. The projects are designed, however, to be expandable if the
demand justifies. Thus, these retirement units offer a positive marketing aspect
of the Corporation's health care centers.
One retirement area which the Corporation will be entering is that of
"continuing care communities", where the resident pays a substantial endowment
fee and a monthly maintenance fee. The resident then receives a full range of
services - including nursing home care - without additional charge.
One such continuing care community, the 137 unit Richland Place Retirement
Center, was opened in Nashville, Tennessee in January, 1993 and is fully
occupied. NHC is currently marketing additional continuing care retirement
communities in Murfreesboro and Knoxville, Tennessee.
ADDITIONAL SERVICES
The Corporation plans to continue to expand its continuum of care for the
elderly by offering a comprehensive and increasing range of services through
related or separately structured health care centers, homecare programs,
specialized care units, pharmacy operations, rehabilitative services, assisted
living centers and retirement centers, as described below:
A. HOMECARE PROGRAMS. The Corporation's policy will be to affiliate each
of its licensed and certified homecare programs with a Corporation
operated health care center. Although NHC's existing programs have
increased their total number of visits from 94,000 in 1989 to 754,184
in 1996, NHC has applied for and received CONs to expand the program
services in both Florida and South Carolina, and the Corporation will
pursue a number of acquisition opportunities. Such acquired or new
programs are not presently planned to be operated out of a health care
center. Additional certificate of need applications will be filed by
the Corporation during 1998.
B. REHABILITATIVE SERVICES. The Corporation will continue to operate an
intensive offering of physical, speech, and occupational therapy
provided by center specific therapists. NHC increased its staff of
professionally licensed therapists from nearly 800 last year to over
1,000 in 1996. Starting in October, 1993, NHC redirected its focus
from center-based therapists to a wider operational format and has
created a separate rehabilitation subsidiary known as National Health
Rehab (NHR), which will become a subsidiary of the Corporation.
Because of NHC's extensive network of health care centers in the
southeastern United States, the Corporation believes it will be better
able to attract, employ, and retain therapists. The Corporation will
also provide contract services to 606 health care centers owned by
third parties. Provision of these services will not be covered under
the Corporation's contracts to manage health care centers and must be
renegotiated annually with the center owner. The Corporation believes
its rates for these services will be competitive with other market
rates.
C. MEDICAL SPECIALTY UNITS. NHC has required all of its centers to
participate in the Medicare program since 1973, which requirement the
Corporation will continue and intends to expand its range of services
by the creation of center-specific medical specialty units such as
NHC's twelve Alzheimer's disease care units and nine subacute nursing
units. The services will be provided not only at each of the
Corporation's operated center, but also at existing specialized care
units.
D. PHARMACY OPERATIONS. The Corporation's policy will continue to be to
have an in-house pharmacy located in each health care center in those
states where licensure permits the operation of an in-house pharmacy.
In
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<PAGE> 46
other states, pharmaceutical services will be provided by third party
contracts. The Corporation will continue to review opportunities for
regional pharmacy operations and NHC now operates three, one in east
Tennessee and two in central Florida. These pharmacy operations will
operate out of a central office and supply (on a separate contractual
basis) pharmaceutical services and supplies which were formerly
purchased by each center from local vendors. NHC's regional pharmacy
operations now have 5,450 nursing home beds under contract.
E. ASSISTED LIVING PROJECTS. NHC presently operates eleven assisted
living projects, eight of which are located within the physical
structure of a long-term health care center or retirement complex. The
Corporation has identified the assisted living market as an expanding
area for the delivery of health care and hospitality services and will
embark upon a market review in its states of operation for the
construction of free-standing assisted living centers. Assisted living
units provide basic room and board functions for the elderly with the
on-staff availability to assist in minor medical needs on an as needed
basis.
F. NUTRITIONAL SUPPORT SERVICES. The Corporation will own a medical
support services business, which will primarily provide nutritional
enteral, parenteral feeding materials, urological and medical supplies
to patients in the Corporation's facilities as well as in other
long-term care or home settings. This company is headquartered in
Knoxville, Tennessee and is known as Nutritional Support Services
("NSS"). Revenues from this subsidiary accounted for from 4% to 6%
NHC's net revenues in 1996, 1995 and 1994.
G. MANAGED CARE CONTRACTS. The Corporation will have seven regional
contract management offices, staffed by experienced case managers who
contract with managed care organizations ("MCOs") and insurance
carriers for the provision of subacute and other medical specialty
services within a regional cluster of centers. Florida, Middle and
East Tennessee, and South Carolina are currently being serviced by
NHC's seven case managers.
RELATIONSHIP WITH NATIONAL HEALTH INVESTORS, INC.
In 1991 NHC formed NHI, as a wholly-owned subsidiary. It then transferred
to NHI certain healthcare facilities then owned by NHC and then distributed the
shares of NHI to NHC's unitholders. The distribution had the effect of
separating NHC and NHI into two independent public companies. As a result of the
distribution, all of the outstanding shares of NHI were distributed to the then
NHC unitholders.
NHI MASTER AGREEMENT TO LEASE. The Master Agreement to Lease (the "NHI
Master Agreement") with NHI covering 40 nursing homes and three retirement
centers, sets forth certain terms and conditions applicable to all leases
entered into by and between NHI and NHC (each an "NHI Lease", and together, the
"NHI Leases"). the NHI Master Lease and all of the NHI Leases will be assumed by
the Corporation pursuant to the Merger. The NHI Leases are for an initial term
expiring on December 31, 2005 with two five-year renewal options at the election
of the Corporation which allow for the renewal of the NHI Leases on an omnibus
basis only unless otherwise specifically agreed in writing by NHI. During the
initial term and the first renewal term (if applicable), the Corporation is
obligated to pay annual base rent for the respective NHI Leased facilities
aggregating $15.2 million plus additional rent described below on the properties
initially sold to NHI. Additionally, $1.4 million in base rent per year as a
result of expansion of three of the facilities. During the second renewal term,
the Corporation is required to pay annual base rent based on the then fair
market rental of the property as negotiated at that time between NHI and the
Corporation. The NHI Master Agreement also obligates the Corporation to pay as
additional rent under each NHI Lease (i) all payments of interest and principal,
(ii) any other payments due under each mortgage to which the conveyance of the
respective health care facility to NHI was subject and (iii) any refinancing of
such mortgage debt that matures or is required to be paid in its entirety during
the term of the NHI Lease. In addition, each year after 1992 (the first full
calendar year of the term of the NHI Master Agreement), the Corporation is
obligated to pay percentage rent to NHI equal to 3% of the amount by which gross
revenues of each NHI Leased facility in such later year exceeds the gross
revenues of such facility in 1992. NHC paid $1.8 million as percentage rent for
1996 and expects to pay $2.3 million in 1997.
The NHI Master Agreement is a "triple net lease", under which the
Corporation will be responsible to pay all taxes, utilities, insurance premium
costs, repairs (including structural portions of the buildings, constituting a
part of the NHI Leased facilities) and other charges relating to the ownership
and operation of the NHI Leased facilities. The Corporation will be obligated at
its expense to keep all improvements and fixtures and other components of the
NHI Leased facilities covered by "all risk" insurance in an amount equal to the
full replacement costs thereof, insurance against boiler explosion and similar
insurance, flood insurance if the land constituting the NHI Leased facility is
located within a designated flood plain area and to maintain specified minimal
personal injury and property damage insurance, protecting NHI as well as the
Corporation at such NHI Leased facility. The Corporation will also be obligated
to indemnify and hold harmless NHI from all claims resulting from the use and
occupancy of each NHI Leased facility by the Corporation or persons claiming
under the Corporation and related activities, as well as to indemnify NHI
against, all costs related to any release, discovery, cleanup and removal of
hazardous substances or materials on, or other environmental responsibility with
respect to, each NHI Leased facility.
NHI ADVISORY AGREEMENT. NHI entered into an Advisory, Administrative
Services and Facilities Agreement (the "NHI Advisory Agreement") on October 15,
1991 with NHC as "Advisor", which agreement will be assumed by the Corporation
pursuant to the Merger. Under the NHI Advisory Agreement, the Corporation will
provide management and advisory services to NHI during the term of the NHI
Advisory Agreement. Under the NHI Advisory Agreement, NHI will engage the
Corporation to use its best efforts (a) to present to NHI a continuing and
suitable investment
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program consistent with the investment policies of NHI adopted by NHI's Board of
Directors from time to time; (b) to manage the day-to-day affairs and operations
of NHI; and (c) to provide administrative services and facilities appropriate
for such management. In performing its obligations under the NHI Advisory
Agreement, the Corporation will be subject to the supervision of and policies
established by NHI's Board of Directors.
The NHI Advisory Agreement was initially for a stated term which expired
December 31, 1996. The NHI Advisory Agreement is now on a year to year term.
Either party may terminate the NHI Advisory Agreement at any time on 90 days
notice, and NHI may terminate the NHI Advisory Agreement for cause at any time.
For its services under the NHI Advisory Agreement, the Corporation will be
entitled to annual compensation in a base amount of $1.625 million. Under the
NHI Advisory Agreement, NHI will reimburse the Corporation for certain out of
pocket expenses including those incurred in connection with borrowed money,
taxes, fees to independent contractors, legal and accounting services and
stockholder distributions and communications. For 1993 and later years the
annual compensation is calculated on a formula which is related to the increase
in fully diluted Funds from Operations per common share (as defined in the NHI
Advisory Agreement). In 1996, the annual compensation under the NHI Advisory
Agreement was $3.1 million and it is expected to be approximately $3.3 million
in 1997.
Pursuant to the NHI Advisory Agreement, the Corporation will manage all of
the day-to-day affairs of NHI and provide all such services through the
Corporation's personnel. The NHI Advisory Agreement provides that without regard
to the amount of compensation received by the Corporation under the NHI Advisory
Agreement, the Corporation shall pay all expenses in performing its obligations
including the employment expenses of the officers and directors and the
Corporation personnel providing services to NHI. The NHI Advisory Agreement
further provides that NHI shall pay the expenses incurred with respect to and
allocable to the prudent operation and business of NHI including any fees,
salaries, and other employment costs, taxes and expenses paid to directors,
officers and employees of NHI who are not also employees of the Corporation.
Currently, other than the NHI directors who are not employees of NHC, NHI does
not have any officers or employees who are not also employees of NHC. NHI's two
executive officers, Mr. Adams and Mr. LaRoche, will be employees of the
Corporation and all of their fees, salaries and employment costs will be paid by
the Corporation.
SOURCES OF REVENUE
The Corporation's revenues will be primarily derived from its health care
centers. The source and amount of the revenues are determined by (i) the
licensed bed capacity of its health care centers, (ii) the occupancy rate of
those centers, (iii) the extent to which the rehabilitative and other skilled
ancillary services provided at each center are utilized by the patients in the
centers, (iv) the mix of private pay, Medicare and Medicaid patients, and (v)
the rates paid by private paying patients and by the Medicare and Medicaid
programs.
The following table sets forth sources of patient revenues to NHC from
health care centers and homecare services for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
Source 1994 1995 1996
- ------ ---- ---- ----
<S> <C> <C> <C>
Private 28% 28% 28%
Medicare 35% 38% 38%
Medicaid/Skilled 11% 9% 9%
Medicaid/Intermediate 25% 24% 24%
VA and Other 1% 1% 1%
--- --- ---
Total 100% 100% 100%
--- --- ---
</TABLE>
GOVERNMENT HEALTH CARE REIMBURSEMENT PROGRAMS
The federal health insurance program for the aged is Medicare, which is
administered by the Department of Health and Human Services. State programs for
medical assistance to the indigent are generally known as Medicaid. All health
care centers to be operated by the Corporation are certified to participate in
Medicare and all but two participate in Medicaid. Eligibility for participation
in these programs depends upon a variety of factors, including, among others,
accommodations, services, equipment, patient care, safety, physical environment
and the implementation and maintenance of cost controls and accounting
procedures. In addition, some of the centers to be operated by the Corproation
have entered into separate contracts with the United States Veterans
Administration which provides reimbursement for care to veterans transferred
from Veterans Administration hospitals.
Generally, government health care reimbursement programs make payments
under a cost based reimbursement system. Although general similarities exist due
to federal mandates, each state operates under its own specific system.
Medicare, however, is uniform nationwide and pays, as defined by the program,
the reasonable direct and indirect cost
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<PAGE> 48
of services furnished to Medicare patients, including depreciation, interest and
overhead. Medicare payments have previously been limited by ceilings which,
pursuant to the 1993 Tax Reform Act, were frozen at their 1993 level for 1994,
1995 and the first nine months of 1996. During 1996 NHC had 48 owned or leased
centers which operated at Medicare costs higher than the ceiling. NHC has filed
"exception requests" with the fiscal intermediary for substantially all of these
centers. Revenues therefrom will not be booked until paid and audited by the
appropriate payors. Private paying patients, private insurance carriers and the
Veterans Administration generally pay on the basis of the center's charges or
specifically negotiated contracts. Average per capita daily room and board
revenue from private paying patients is higher than from Medicare and Medicaid
patients, while the average per capita daily revenue from Medicare patients is
higher than from Medicaid patients. The Corporation will attempt to attract an
increased percentage of private and Medicare patients by providing
rehabilitative services and by NHC increasing its marketing of those services
through market areas and "Managed Care Offices", of which four were open by
December 31, 1996. These services are designed to speed the patient's recovery
and allow the patient to return home as soon as is practical. In addition to
educating physicians and patients to the advantages of the rehabilitative
services, NHC also has implemented incentive programs which provide for the
payment of bonuses to its regional and center personnel if they are able to
obtain private and Medicare goals at their centers, which programs will be
continued by the Corporation.
Items eligible for payment under the Medicare program consist of nursing
care, room and board, social services, physical and speech therapy, drugs and
other supplies, and other necessary services of the type provided by skilled
nursing facilities. Routine service costs for extended care facilities are
subject to certain per diem costs limits. Medicare patients are entitled to have
payment made on their behalf to a skilled nursing facility for up to 100 days
during each calendar year and a prior 3-day hospital stay is required. A patient
must be certified for entitlement under the Medicare program before the skilled
nursing facility is entitled to receive Medicare payments and patients are
required to pay approximately $95.00 per day after the first 20 days of the
covered stay. Under the Medicare program, the federal government pays directly
to the skilled nursing facility the reasonable direct and indirect costs of the
services furnished. The Medicare program only reimburses for skilled nursing
services, which generally afford a more intensive level of care.
Medicaid programs provide funds for payment of medical services obtained by
"medically indigent persons". These programs are operated by state agencies
which adopt their own medical reimbursement formulas and standards, but which
are entitled to receive supplemental funds from the federal government if their
programs comply with certain federal government regulations. In all states in
which the Corporation will initially operate, the Medicaid programs authorize
reimbursement at a fixed rate per day of service. The fixed rate is established
on the basis of a predetermined average cost of operating nursing centers in the
state in which the facility is located or based upon the center's actual cost.
The rate is adjusted annually based upon changes in historical costs and/or
actual costs and a projected cost of living factor.
During the fiscal year, each facility receives payments under the
applicable government reimbursement program. Medicaid payments are generally
"prospective" in that the payment is based upon the prior years actual costs.
Medicare payments are "retrospective" in that current year payments are designed
to reasonably approximate the facility's reimbursable costs during that year.
Payments under Medicare are adjusted to actual allowable costs each year. The
actual costs incurred and reported by the facility under the Medicare program
are subject to audit with respect to proper application of the various payment
formulas. These audits can result in retroactive adjustments of interim payments
received from the program. If, as a result of such audits, it is determined that
overpayment of benefits were made, the excess amount must be repaid to the
government. If, on the other hand, it is determined that an underpayment was
made, the government agency makes an additional payment to the operator. The
Corporation will book as receivables the amounts which it expects to receive
under the Medicare and Medicaid programs and book into profit or loss any
differences in amounts actually received. To date, adjustments have not had a
material adverse effect on NHC. NHC believes that its payment formulas have been
properly applied and that any future adjustments will not be materially adverse
to the Corporation. The current reimbursement system will be modified in
accordance with the BBA. For further discussion of the BBA See "Health Care
Reform."
REGULATION
Health care centers are subject to extensive federal, state and in some
cases, local regulatory, licensing, and inspection requirements. These
requirements relate, among other things, to the adequacy of physical buildings
and equipment, qualifications of administrative personnel and nursing staff,
quality of nursing provided and continued compliance with laws and regulations
relating to the operation of the centers. In all states in which the Corporation
will initially operate, before the facility can make a capital expenditure
exceeding certain specified amounts or construct any new long-term health care
beds, approval of the state health care regulatory agency or agencies must be
obtained and a Certificate of Need issued. Alabama exempts from this review
process any bed additions which are less than 10% of the total existing licensed
beds or 10 beds, whichever is less. The appropriate state health planning agency
must determine that a need for the new beds or expenditure exists before a CON
can be issued. A CON is generally issued for a specific maximum amount of
expenditure and the project must be completed within a specific time period.
There is no advance assurance that the Corporation will be able to obtain a CON
in any particular instance. In some states, approval is also necessary in order
to purchase existing health care beds, although the purchaser is normally
permitted to avoid a full scale CON application procedure by giving advance
written notice of the acquisition and giving written assurance to the state
regulatory agency that the change of ownership will not result in a change in
the number of beds or the services offered at the facility.
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While there are currently no significant legislative proposals to eliminate
CON pending in the states in which the Corporation initially intends to do
business, deregulation in the CON area would likely result in increased
competition among nursing home companies and could adversely affect occupancy
rates and the supply of licensed and certified personnel.
HEALTH CARE REFORM
Government at both the federal and state levels has continued in its
efforts to reduce, or at least limit the growth of, spending for health care
services, including services to be provided by the Corporation. On August 5,
1997, President Clinton signed into law BBA, which contains numerous Medicare
and Medicaid cost-saving measures, as well as new anti-fraud provisions. The BBA
has been projected to save $115 billion in Medicare spending over the next five
years, and $13 billion in the Medicaid program. Section 4711 of BBA, entitled
"Flexibility in Payment Methods for Hospital, Nursing Facility, ICF/MR, and Home
Health Services", repealed the Boren Amendment, which had required that state
Medicaid programs pay to nursing home providers amounts adequate to enable them
to meet government quality and safety standards; the Boren Amendment was
previously the foundation of litigation by nursing homes seeking rate increases.
In place of the Boren Amendment, the BBA requires only that, for services and
items furnished on or after October 1, 1997, a state Medicaid program must
provide for a public process for determination of Medicaid rates of payment for
nursing facility services, under which proposed rates, the methodologies
underlying the establishment of such rates, and justifications for the proposed
rates are published, and which gives providers, beneficiaries and other
concerned state residents a reasonable opportunity for review and comment on the
proposed rates, methodologies and justifications. Several of the states in which
the Corporation will operate are actively seeking ways to reduce Medicaid
spending for nursing home care by such methods as capitated payments and
substantial reductions in reimbursement rates. The BBA also requires that
nursing homes transition to a prospective payment system under the Medicare
program during a three-year "transition period" commencing with the first cost
reporting period beginning on or after July 1, 1998. In addition, the BBA
creates a managed care Medicare Program called "Medicare + Choice", which allows
Medicare beneficiaries to participate in either the original Medicare
fee-for-service program or to enroll in a coordinated care plan such as health
maintenance organizations ("HMOs"). Such coordinated care plans would allow HMOs
to enter into risk-based contracts with the Medicare program, and the HMO's
would then contract with providers such as the Corporation. No assurances can be
given that the facilities to be operated by the Corporation will be successful
in negotiating favorable contracts with Medicare + Choice managed care
organizations. The BBA also contains several new antifraud provisions. Given the
recent enactment of the BBA, the Corporation is unable to predict the impact of
the BBA and potential changes in state Medicaid reimbursement methodologies on
its operations; however, any significant reduction in either Medicare or
Medicaid payments could adversely affect the Corporation. Changes in
certification and participation requirements of the Medicare and Medicaid
programs have restricted, and are likely to continue to restrict further,
eligibility for reimbursement under those programs. Failure to obtain and
maintain Medicare and Medicaid certification at the Corporation's facilities
will result in denial of Medicare and Medicaid payments which could result in a
significant loss of revenue to the Corporation. In addition, private payors,
including managed care payors, increasingly are demanding that providers accept
discounted fees or assume all or a portion of the financial risk for the
delivery of health care services. Such measures may include capitated payments
whereby the Corporation is responsible for providing, for a fixed fee, all
services needed by certain patients. Capitated payments can result in
significant losses if patients require expensive treatment not adequately
covered by the capitated rate. Efforts to impose reduced payments, greater
discounts and more stringent cost controls by government and other payors are
expected to continue. For the fiscal year ended December 31, 1996, NHC derived
38% and 33% of its net patient revenues from the Medicare and Medicaid programs,
respectively. Any reforms that significantly limit rates of reimbursement under
the Medicare or Medicaid programs, therefore, could have a material adverse
effect on the Corporation's profitability. The Corporation is unable to predict
what reform proposals or reimbursement limitations will be adopted in the future
or the effect such changes will have on its operations. No assurance can be
given that such reforms will not have a material adverse effect on the
Corporation. See "Business --The Corporation -- Sources of Revenue"
Nursing homes and home health agencies have recently been the target of
health care reform, from both a fraud and reimbursement perspective. Operation
Restore Trust, a demonstration project which has been conducted by the
Department of Health and Human Services in five states, is expanding to a dozen
more states. "ORT Plus" will continue its focus on fraud in the areas of home
health, nursing home and DME suppliers, as well as adding new anti-fraud and
abuse targets. The Corporation will operate nursing homes and home health
agencies in five ORT Plus states and could be subject to increased scrutiny.
President Clinton recently announced a moratorium on the certification of home
health agencies in an attempt to curb what is perceived to be rampant fraud and
abuse in this area. The Corporation cannot predict what impact ORT Plus or this
moratorium will have on its home care programs. Although NHC's management
believes that its home care and nursing home operations are in compliance with
applicable laws and regulations, there can be no assurance that the Corporation,
its home care and nursing home operations will not be the subject of an
investigation nor that they will be found to be in compliance if investigated.
See "Business -- The Corporation -- Legal Proceedings."
Although it is likely that there will be a substantial reduction in the
growth of governmental revenues for Medicare and Medicaid, the Corporation
believes that loss of governmental revenues can be offset by increased private
paying revenues and the continued expansion of its service component income.
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COMPETITION
In most of the communities in which the health care centers which will be
operated by the Corporation are located, there are other health care centers
with which the Corporation will compete. In competing for patients and staff
with these centers, the Corporation will rely upon referrals from acute care
hospitals, physicians, residential care facilities, church groups and other
community service organizations. The reputation in the community and the
physical appearance of the Corporation's health care centers will also be
important in obtaining patients, since members of the patient's family generally
participate to a greater extent in selecting health care centers than in
selecting an acute care hospital. The Corporation believes that by providing and
emphasizing rehabilitative as well as skilled care services at its centers, it
will be able to broaden its patient base and to differentiate its centers from
competing health care centers.
The Corporation will experience competition in employing and retaining
nurses, technicians, aides and other high quality professional and
non-professional employees. In order to enhance its competitive position, the
Corporation will continue NHC's educational tuition loan program, an American
Dietary Association approved internship program, a specially designed nurse's
aide training class, and make financial scholarship aid available to physical
therapy vocational programs and The Foundation for Geriatric Education. The
Corporation will also continue NHC's "Administrator in Training" course, 24
months in duration, for the professional training of administrators. Presently,
NHC has twelve full-time individuals in this program. Four of NHC's eight
regional vice presidents and 53 of its 110 health care center administrators
have graduated therefrom.
The Corporation's employee benefit package will offer a tuition
reimbursement program. The goal of the program will be to insure a well trained
qualified work force to meet future demands. While the program will be offered
to all disciplines, special emphasis will be placed on supporting students in
nursing and physical therapy programs. Students will be reimbursed at the end of
each semester after presenting tuition receipts and grades to management. The
program has been successful for NHC in providing a means for many bright
students to pursue a formal education.
EMPLOYEES
As of June 30, 1997, NHC's managed centers had approximately 16,000 full
and part time employees, who are called "Partners" by NHC. The Corporation
intends to retain all of these employees although they will be employees of
National and provided to the Corporation pursuant to the Employee Services
Agreement. No employees are presently represented by a bargaining unit. NHC and
National believe their current relations with these employees are good. See
"Certain Transactions -- National."
LEGAL PROCEEDINGS
In March 1996, FCC, an independent Florida corporation for whom NHC manages
sixteen licensed nursing centers in Florida, gave NHC notice of its intent not
to renew one management contract. Pursuant to written agreements between the
parties, NHC valued the center, offering to either purchase the center at the
price so valued or require FCC to pay to NHC certain deferred compensation based
upon that value. FCC responded on March 26, 1996, by filing a Declaratory
Judgment suit in the Circuit Court of the Twelfth Judicial Circuit in and for
Sarasota County, Florida, requesting the court to interpret the parties' rights
under their contractual arrangements. FCC next sued on April 18, 1996 in the
Circuit Court for Columbia County, Florida, removed on May 1, 1996 to the United
States District Court, Middle District, Florida, Jacksonville Division to obtain
possession of the center for which it alleged the management contract had been
terminated. This suit has now been dismissed, and the issue of possession will
be decided by the Sarasota Circuit Court.
In January, 1997, FCC notified NHC that it currently does not intend to
renew an additional four contracts which mature in 1997, but has agreed that NHC
will remain as manager until a final decision is reached by the Sarasota Court.
The balance of the FCC contracts may be terminated in the years 2001-2003. In
the summer of 1997, FCC filed a Third Amended and Supplemental Complaint in the
Sarasota County Court action asserting fifteen separate counts against NHC and
its general partners, which are collectively referred to as NHC in the
complaint. Among the claims added in the amended complaint are claims for breach
of all management agreements between the parties, for a declaration that FCC
does not owe any deferred contingent fees to NHC or in the alternative, a
declaration that any such deferred fees constitute usurious interest, for breach
of a 1994 loan agreement between FCC and defendants related to the construction
of a facility in Orlando, for business libel, and for breach of fiduciary duty
arising from defendants' alleged obstruction of FCC's right to audit, from
defendants' alleged failure to properly manage FCC's facilities, and from
defendants' alleged self dealing by causing FCC and defendants or their
affiliates to enter into contracts that are not customary or usual in the
industry. In additional to declaratory relief, FCC asserts that it is entitled
to unspecified damages and to terminate all of the management agreements between
the parties for cause. Defendants, including NHC, have filed an answer denying
all of FCC's claims and asserting a counterclaim against FCC. No trial date has
been set in this matter.
NHC is also a defendant in a lawsuit styled Braeuning, et al vs. National
HealthCare L.P., et al filed "under seal" in the U.S. District Court of the
Northern District of Florida on April 9, 1996. The court removed the seal from
the complaint - but not the file itself - on March 20, 1997 and service of
process occurred on July 8, 1997, with the government participating as an
intervening plaintiff. The suit alleges that NHC has submitted cost reports and
routine cost limit exception requests containing "fraudulent allocation of
routine nursing services to ancillary service cost centers" and improper
allocation of skilled nursing service hours in four managed centers, all in the
state of Florida.
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The suit was filed under the Qui Tam provisions of the Federal False Claims Act,
commonly referred to as the "Whistleblower Act".
In regard to the allegations contained in the lawsuit, NHC believes that
the cost report information of its centers have been either appropriately filed
or, upon appropriate amendment, will reflect adjustments only for the correction
of unintentional misallocations. Prior to the filing of the suit, NHC had
commenced an in-depth review of the nursing time allocation process at its
owned, leased and managed centers. A significant number of amended cost reports
have been filed and the Corporation will continue to schedule and prepare
revised cost reports and exception requests. It is anticipated that any years in
question will be reviewed prior to there being further action in this matter at
the judicial level. NHC is fully cooperating and the Corporation will fully
cooperate with the government in an attempt to determine dollar amounts
involved, and each intends to aggressively pursue an amicable settlement. The
cost report periods under review include periods from 1991 through 1995.
NHC would be responsible for any settlement related to its owned or leased
facilities and to the extent that managed centers have settlements, NHC's 6%
management fee would be adversely impacted. The Corporation will continue NHC's
revenue policy not reflect routine cost limit exception requests as income until
the process, including cost report audits, is completed. The Corporation cannot
predict at this time the ultimate outcome of the suit but will strongly defend
its actions in this matter.
In October 1996 two managed centers in Florida were audited by
representatives of the regional office of the OIG. As part of these audits, the
OIG reviewed various records of the facilities relating to allocation of nursing
hours and contracts with suppliers of outside services. At one center the OIG
indicated during an exit conference that it had no further questions but has not
yet issued a final report. At the second facility - which is one of four named
in the Braeuning lawsuit - the OIG determined that certain records were
insufficient and NHC supplied the additional requested information. These audits
have been incorporated into the lawsuit.
Florida is one of the states in which governmental officials are conducting
"Operation Restore Trust", a federal/state program aimed at detecting and
eliminating fraud and abuse by providers in the Medicare and Medicaid programs.
The OIG has increased its investigative actions in Florida (and has now opened a
Tennessee office) as part of Operation Restore Trust. The Corporation will
continue to review and monitor the cost reporting process and its compliance
with all government reimbursement standards, but cannot predict whether the OIG
or other government officials will take further action or request additional
information as a result of the Braeuning suit or any other audit that may be
conducted in the future. An adverse determination in the lawsuit or as a result
of an audit could subject the Corporation to civil or criminal fines and
penalties which could have a material negative impact on the profitability of
the Corporation.
NHC is subject to claims and suits in the ordinary course of business,
which will be assumed by the Corporation as a result of the Plan of Restructure.
While there are several worker's compensation and personal liability claims
presently in the court system, management believes that the ultimate resolution
of such pending proceedings other than the legal proceedings described above
will not have any material adverse effect on the Corporation or its operations.
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RELATIONSHIP BETWEEN THE REIT AND THE
CORPORATION AFTER THE RESTRUCTURE
THE ASSUMED LIABILITIES
The REIT will assume or take the Owned Healthcare Facilities subject to
Assumed Liabilities of approximately $105.9 million. The Assumed Liabilities
consist of four loan agreements which are secured by mortgages on certain of the
Owned Healthcare Facilities. The interest rate on the Assumed Liabilities
include fixed rates of 8% to 8.64% and floating rate based on prime rate and
LIBOR plus 1%. The term of the loans range from 2005 through 2015.
Although the REIT is assuming or taking the Owned Healthcare Facilities
subject to the Assumed Liabilities, unless the holder of such debt has
specifically consented, the Corporation will remain liable on such debt. The
REIT has agreed to indemnify NHC and the Corporation in respect of such
continuing liability. In connection with the transfer of the Owned Healthcare
Facilities and the Notes to the REIT, and the assumption by the REIT of the
Assumed Liabilities, NHC, the REIT and the Corporation have obtained oral
consents, subject to the preparation and execution of definitive documentation,
of the lenders of such Assumed Liabilities. Although there can be no assurance,
NHC management has no reason to believe that such documentation will not be
finalized in a timely manner. However, NHC, the REIT and the Corporation have
not obtained consents of the lenders of the remaining principal amount. See
"Risk Factors -- The REIT -- Lack of Consents; Acceleration of Certain
Maturities." In the event that the REIT or the Corporation fails to obtain any
required consent, such failure may be deemed to constitute a default under the
related Assumed Liabilities, the REIT and/or the Corporation may be required to
retire such Assumed Liabilities prior to its stated maturity. A default under
such debt, if not waived or cured, could result in a loss of certain of the
REIT's or the Corporation's assets through foreclosure or other means.
The majority of the Assumed Liabilities is cross-defaulted with other NHC
liabilities which will be assumed by the Corporation. Thus, in the event the
Corporation defaulted on its remaining obligations under its debt package, the
REIT could lose its interest in the Notes or the Owned Healthcare Facilities,
even if its own payments on the Assumed Liabilities were current.
The REIT is in the process of negotiating a new credit agreement (the "New
REIT Credit Agreement") which, if obtained, will be used to replace all but
approximately $14.8 million of the Assumed Liabilities. The REIT is seeking a
$105 million unsecured credit facility. The REIT believes it will be able to
obtain the new credit soon after the Effective Time. The New REIT Credit
Agreement will be the sole obligation of the REIT and once it is in place, the
Corporation will not have any obligations in the event of a default by the REIT.
There can be no assurance that the REIT will be able to successfully negotiate
the New REIT Credit Agreement or what the final terms of any such credit
agreement will be.
In addition, the Corporation is also in the process of negotiating a new
credit agreement (the "New Corporation Credit Agreement") which, if obtained,
will be used to replace a portion of its outstanding debt. The Corporation is
seeking a $35 million credit facility. The Corporation believes it will be able
to obtain the debt soon after the Effective Time. The New Corporation Credit
Agreement will be the sole obligation of the Corporation and once it is in
place, the REIT will not have any obligations in the event of a default by the
Corporation. There can be no assurance that the Corporation will be able to
successfully negotiate the New Corporation Credit Agreement or what the final
terms of any such credit agreement will be.
THE LEASES
Concurrently with NHC's conveyance of the Owned Healthcare Facilities to
the REIT, the REIT as "Landlord" will lease back to the Corporation, as "Tenant"
each of the Owned Healthcare Facilities. Each such facility will be the subject
of a separate Lease Agreement that will incorporate the provisions of a Master
Agreement to Lease between the REIT as Landlord and the Corporation as Tenant
(the "REIT Master Agreement").The Lease of each Owned Healthcare Facility will
include the land, the buildings and structures and other improvements thereon,
easements, rights and similar appurtenances to such land and improvements, and
permanently affixed equipment, machinery and other fixtures relating to the
operation of the Owned Healthcare Facility, but no personal property of the
Corporation that is utilized in the Corporation's operation of the Owned
Healthcare Facility will be the subject of a Lease.
The REIT Master Agreement provides that each Lease will be for an initial
term expiring on December 31, 2007 (the "Initial Term"). Provided that the
Corporation is not then in default and gives at least six months notice, the
Corporation has the option to renew all (but without REIT's consent not less
than all) of the Leases for a further five-year term expiring December 31, 2012
(the "First Renewal Term"); and, provided that the Corporation is not then in
default and gives at least six (6) months notice, the Corporation will have the
option to renew all (but not less than all) of the Leases for a term expiring
December 31, 2017 (the "Second Renewal Term").
During the Initial Term and both Renewal Terms (if applicable), the
Corporation is obligated to pay the REIT annual base rent for the respective
Owned Healthcare Facilities in the respective amounts set forth under "Business
- -The REIT -- Owned Healthcare Facilities", which amounts initially to an
aggregate $15,494,437 increased each year by 3% of the increase in gross
revenues over 1999, the "base year."
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<PAGE> 53
The REIT Master Agreement and the respective Leases will also obligate the
Corporation to pay as "other additional rent" all real estate taxes, utility
charges and other charges imposed by third parties and which, if not paid, might
become a levy or a lien upon the property. In addition to the base rent, and
other additional rent, in each year after 1999 the Corporation must pay
percentage rent to the REIT equal to 3% of the amount by which gross revenues of
each Owned Healthcare Facility in such later year exceeds the Gross Revenues of
such Owned Healthcare Facility in 1999. Base Rent, Other Additional Rent and
Percentage Rent are collectively referred to in the REIT Master Agreement as
"Rent". NHC believes that the rent the Corporation will pay to the REIT under
the various Leases represents the fair rental value for each leased property.
Each Lease of an Owned Healthcare Facility is what is commonly known as a
"triple net lease" or "absolute net lease," under which the Corporation is
responsible to pay all taxes, utilities, insurance premium costs, repairs
(including to structural portions of the buildings constituting a part of the
Owned Healthcare Facilities) and other charges relating to the ownership and
operation of the Owned Healthcare Facilities. The Corporation is obligated at
its expense to keep all improvements and fixtures and other components of the
Owned Healthcare Facilities covered by "all risk" insurance in an amount equal
to at least 100% of the full replacement costs thereof, and insured against
boiler explosion and similar insurance; to provide loss of rent insurance (if
the same is available at a reasonable cost), and flood insurance if the land
constituting the Owned Healthcare Facility is located within a designated flood
plain area; and to maintain specified minimal personal injury and property
damage insurance, protecting the REIT as well as the Corporation at each Owned
Healthcare Facility. The Corporation is also obligated to indemnify and hold
harmless the REIT from all claims resulting from the use and occupancy of each
Owned Healthcare Facility by Corporation or persons claiming under the
Corporation and related activities, as well as to be fully responsible for, and
to indemnify and hold the REIT harmless against, all costs related to any
hazardous substances or materials on, or other environmental responsibility with
respect to, each Owned Healthcare Facility.
Under each Lease, the Corporation's use of the Owned Healthcare Facility is
limited to use as a nursing home, healthcare facility or other purpose for which
the Leased Property is being used at the commencement date of the Lease unless
the REIT's consent to some other use is obtained. The Corporation has
responsibility to obtain and maintain all licenses, certificates and consents
needed to use and operate each Owned Healthcare Facility for such purposes, and
to use and maintain each Owned Healthcare Facility in a careful, safe and proper
manner and in compliance with all local board of health and other applicable
governmental and insurance regulations. Each Lease permits the Corporation to
replace fixtures at each Owned Healthcare Facility and to finance such
replacement (subject to the approval of the REIT in the case of any financing in
excess of $10,000), and to make alterations with respect to any Owned Healthcare
Facility (subject to the REIT's approval for any alteration in excess of
$150,000 at any one Owned Healthcare Facility in any one year), with the title
to any such replacement fixtures and alterations belonging to the REIT.
An "Event of Default" will be deemed to have occurred under the REIT
Master Agreement and any individual Lease if the Corporation fails to pay Rent
within ten business days after notice of nonpayment from the REIT; if the REIT
gives three or more notices of nonpayment of Rent to the Corporation in any
one year (provided however that such will not be an Event of Default if REIT
fails to exercise its remedies within 60 days after the last of such notices);
if the Corporation fails to perform any other covenant and the Corporation
does not diligently undertake to cure the same within 30 days' notice from the
REIT; with respect to a Lease of any particular Owned Healthcare Facility, if
the Corporation ceases operations thereof for more than 180 days other than as a
result of destruction or condemnation; if any bankruptcy proceedings are
instituted by or against the Corporation and, if against the Corporation, they
are not dismissed within 90 days; if a custodian or receiver is appointed for
any Owned Healthcare Facility and not discharged within 60 days or the
Corporation is enjoined or prevented from conducting a substantial part of its
business for more than 60 days; if uncontested liens on any part of the property
of the Corporation are not dismissed or bonded within 60 days; or if the
Corporation or any affiliate of the Corporation defaults on any other material
obligation to the REIT or on any material obligation under any debt associated
with any Owned Healthcare Facility or any debt co-guaranteed by the REIT and the
Corporation.
In the event of any Event of Default, the REIT may evict the Corporation
and either terminate the Lease or re-let the premises in the REIT's name but for
the account of the Corporation. In either event, the Corporation shall remain
responsible for the rental value of the premises for the stated remainder period
of the term in excess of rents received by the REIT from any successor occupant.
In addition the REIT may exercise any other rights that it may have under law.
In the event of any damage or destruction to any Owned Healthcare Facility,
the Corporation has the obligation fully to repair or restore the same at the
Corporation's expense, with the Base Rent, real estate taxes and other
impositions on the particular Owned Healthcare Facility being appropriately
abated during the time of restoration. If any Owned Healthcare Facility is
damaged to such an extent that 50% of the licensed nursing home beds at such
Owned Healthcare Facility are rendered unusable and if the Corporation has fully
complied with the insurance obligations with respect to such Owned Healthcare
Facility (including maintaining insurance against loss of rents), the
Corporation may upon turning over all insurance proceeds with respect to such
Owned Healthcare Facility terminate the Lease of that Owned Healthcare Facility.
In the event of a condemnation or taking of any leased Owned Healthcare
Facility, the Lease terminates as to the portion of the Owned Healthcare
Facility taken, and in the event of a partial taking, the Corporation is
obligated to repair the portion not taken, if the same may still be economically
used, and the Base Rent therefor will abate in proportion to the number of beds
remaining.
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<PAGE> 54
The REIT Master Agreement provides that if during the Lease Term or within
six months after termination of such Term the REIT receives a bona fide third
party offer to purchase any Owned Healthcare Facility, then, prior to accepting
such third party offer, the REIT shall give the Corporation a 15-day right of
first refusal during which the Corporation may elect to purchase such Owned
Healthcare Facility on the same terms and conditions offered by the third party.
The Corporation also is granted a thirty day right of first refusal to lease an
Owned Healthcare Facility expiring six months after the expiration of the Lease
Term, on the same terms and conditions as offered by a third party.
Various other provisions of the REIT Master Agreement with respect to
Leases of the various Owned Healthcare Facilities provide for arbitration in the
event of the REIT and the Corporation's inability to resolve disputes under the
REIT Master Agreement or any Lease. Such Agreement also provides that upon its
termination and the last of the Leases between the REIT and the Corporation, the
REIT will, upon the Corporation's request within 12 months after such
termination, use its best efforts to change its corporate name to a name that
does not include the word "National".
The REIT Master Agreement described above applies only to the 24 Leases of
the Owned Healthcare Facilities. The REIT and the Corporation anticipate that
any future leases of additional healthcare facilities between them will also
become subject to the REIT Master Agreement with appropriate modifications to
fit the specific situation. The foregoing summary of certain of the provisions
of the REIT Master Agreement does not purport to be complete and is subject to
and qualified in its entirety by reference to all provisions of the REIT Master
Agreement.
ADVISORY, ADMINISTRATIVE SERVICES AND FACILITIES AGREEMENT
The REIT intends to enter into an Advisory, Administrative Services and
Facilities Agreement with the Corporation as "Advisor" under which the
Corporation will provide management and advisory services to the REIT during the
term of the REIT Advisory Agreement. The following summary of certain provisions
of the REIT Advisory Agreement does not purport to be complete and is subject to
and qualified in its entirety by reference to all provisions of the REIT
Advisory Agreement.
SERVICES OF ADVISOR
Under the REIT Advisory Agreement, the REIT engages the Corporation and the
Corporation , as Advisor, agrees to use its best efforts (a) to present to the
REIT a continuing and suitable investment program consistent with the investment
policy of the REIT adopted by the Directors from time to time; (b) to manage the
day-to-day affairs and operations of the REIT; and (c) to provide administrative
services and facilities appropriate for such management. In performing its
obligations under the Agreement, the Advisor is subject to the supervision of
and policies established by the REIT's Board of Directors.
The specific duties of the Advisor under the REIT Advisory Agreement
include providing the REIT with economic information and evaluations with
respect to additional investment opportunities, formulating an investment
program and selecting potential investments for the REIT and recommending the
terms thereof; and also evaluating and making recommendations as to the possible
sale or other disposition of the assets of the REIT. The Advisor also is
responsible for recommending selections of tenants, lenders, providers of
professional and specialized services and handling other managerial functions
with respect to the REIT's properties. The Advisor is also obligated to provide
office and clerical facilities adequate for the REIT's operations, and to
provide or obtain others to provide accounting, custodial, funds collection and
payment, stockholder and debentureholder communications, legal and other
services necessary in connection with the REIT's operations. The Advisor also
undertakes to keep the REIT's Directors informed as to developments in the
healthcare and REIT industries useful to the REIT's existing and potential
future business and investments.
The REIT Advisory Agreement also obligates the Advisor to handle or arrange
for the handling of the REIT's financial and other records. The Advisor is also
required to keep its own records with respect to its services under the REIT
Advisory Agreement. Annually, or as more frequently requested by the REIT's
Directors, the Advisor is obligated to report to the Directors its estimated
costs in providing services under the REIT Advisory Agreement and such
information as the Advisor may reasonably obtain concerning the cost to other
REITs specializing in healthcare facility investments of administrative and
advisory services comparable to those provided by the Advisor, in order that the
REIT's Directors may evaluate the performance of the Advisor and the efficiency
of the arrangements provided to the REIT under the Agreement.
RESTRICTIONS ON INVESTMENT ACTIVITIES
The REIT Advisory Agreement provides that prior to the earlier to occur of
that period of time equal to the lesser of (i) the termination, for any reason,
of the REIT Advisory Agreement or (ii) the Corporation ceasing to be actively
engaged as the investment advisor for NHI, the REIT will not (without the prior
approval of NHI) transact business with any party, person, company or firm other
than the Corporation. It is the intent of the foregoing restriction that the
REIT will not be actively or passively engaged in the pursuit of additional
investment opportunities, but rather will focus upon its capacities as landlord
and note holder of those certain assets conveyed to it in the Plan of
Restructure.
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<PAGE> 55
TERM
The REIT Advisory Agreement is for a stated term expiring December 31, 2003
and thereafter from year to year unless earlier terminated. However, either
party may terminate the REIT Advisory Agreement at any time on or after January
1, 2000 on 90 days written notice, and the REIT may terminate the REIT Advisory
Agreement for cause at any time.
Upon termination of the REIT Advisory Agreement for any reason, the Advisor
is obligated to deliver all property of the REIT that the Advisor is holding in
its capacity as Advisor, to render a full accounting to the REIT and to
cooperate with the REIT Directors to provide an orderly management transition.
The REIT is obligated, upon such termination, to pay the Corporation all
compensation for services through the date of termination, including any
compensation the payment of which was deferred during the period the REIT
Advisory Agreement was in effect.
COMPENSATION
For its services under the REIT Advisory Agreement, the Corporation is
entitled to annual compensation of the greater of (i) two percent (2%) of the
REIT's gross consolidated revenues calculated according to generally accepted
accounting principles, or (ii) the actual expenses incurred by the Corporation
as outlined in the REIT Advisory Agreement.
However, the REIT Advisory Agreement conditions payment of such annual
compensation to the Advisor in any year upon the REIT's having Funds From
Operations (as defined in the REIT Advisory Agreement) in such year equal to at
least the product of (i) $1.33 times (ii) the average number of shares of the
REIT outstanding on each dividend record date during such year (the "Dividend
Requirement"). In the event that Funds From Operations is less than the Dividend
Requirement for any year, the compensation payable to the Corporation in respect
of such year shall be reduced by the amount of such shortfall ("Shortfall
Amount"), and the Corporation is obligated to repay any portion of the Shortfall
Amount previously received for such year. The Advisor is entitled to payment of
any Shortfall Amount from a prior year, together with interest at 2% over the
prime lending rate of the Corporation's principal bank in Tennessee, to the
extent that Funds From Operations in a subsequent year exceeds the Dividend
Requirement, and in any event upon the termination of the REIT Advisory
Agreement for any reason.
For purposes of determining the Advisor's compensation, the REIT Advisory
Agreement defines "Funds From Operations" as the consolidated net income of the
REIT computed in accordance with generally accepted accounting principles, plus
depreciation and amortization, less the amount of any capital gains or plus the
amount of any capital losses included in such net income, before applying the
payment of the compensation under the REIT Advisory Agreement. Per share Funds
From Operations, or per share dividends paid, in any year is the amount of the
Funds From Operations, or dividends paid, for that year divided by the average
number of shares of REIT Common Stock outstanding during the year determined in
accordance with generally accepted accounting principles.
PAYMENT OF EXPENSES
The REIT Advisory Agreement provides that the Corporation shall pay all
expenses incurred in performing its obligations thereunder, without regard to
the amount of compensation received under the Agreement. Expenses specifically
listed as expenses to be borne by the Corporation without reimbursement include:
the cost of accounting, statistical or bookkeeping equipment necessary for the
maintenance of the REIT's books and records; employment expenses of the officers
and directors and personnel of the Corporation and all expenses, including
travel expenses, of the Corporation incidental to the investigation and
acquisition of properties for the REIT prior to the time the REIT Directors
definitively decide to acquire the property or to have the Corporation continue
with the acquisition process, whether the property is acquired or not, and after
the REIT Directors definitively decide to dispose of a property; advertising and
promotional expenses incurred in seeking and disposing of investments for the
REIT; rent, telephone, utilities, office furniture and furnishings and other
office expenses incurred by or allocable to the Corporation for its own benefit
and account regardless of whether incurred or used in connection with rendering
the services to the REIT provided for in the REIT Advisory Agreement; all
miscellaneous administrative and other expenses of the Corporation, whether or
not relating to the performance by the Corporation of its functions under the
REIT Advisory Agreement; fees and expenses paid to independent contractors,
appraisers, consultants, attorneys, managers and other agents retained by or on
behalf of the REIT and expenses directly connected with the acquisition,
financing, refinancing, disposition and ownership of real estate interests or of
other property (including insurance premiums, legal services, brokerage and
sales commissions, maintenance, repair and improvement of property); insurance
as required by the REIT Directors (including REIT Directors' liability
insurance); expenses connected with payments of dividends or distributions in
cash or any other form made or caused to be made by the REIT Directors to REIT
shareholders and expenses connected with payments of interest to holders of the
REIT's debentures; all expenses connected with communication to holders of
securities of the REIT and the other bookkeeping and clerical work necessary in
maintaining relations with holders of securities, including the cost of printing
and mailing certificates for securities and proxy solicitation materials and
reports to holders of the REIT's securities; transfer agent's, registrar's,
dividend disbursing agent's, dividend reinvestment plan agent's and indenture
trustee's fees and charges. The REIT Advisory Agreement also confirms that the
Corporation shall pay all costs and expenses which it is obligated to pay as
tenant under any lease of healthcare facilities from the REIT.
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<PAGE> 56
The REIT Advisory Agreement also confirms that the Corporation is
responsible for all legal and auditing fees and expenses of the REIT and legal,
auditing accounting, underwriting, brokerage, listing, registration and other
fees and printing, engraving and other expenses and taxes incurred in connection
with the organization of the REIT, but such expenses incurred after January 1,
1998 for the issuance, distribution, transfer, registration and listing of the
REIT Shares shall remain the REIT's obligation.
The REIT Advisory Agreement provides that, except as the Corporation may
have responsibility for such costs as tenant under the lease of any property
from the REIT, the REIT is responsible to pay its own expenses of the following
types: dividends, the cost of borrowed money; taxes on income and taxes and
assessments on real property and all other taxes applicable to the REIT
including, without limitation, franchise and excise fees; except as assumed by
the Corporation, all ordinary and necessary expenses incurred with respect to
and allocable to the prudent operation and business of the REIT including,
without limitation, any fees, salaries and other employment costs, taxes and
expenses paid to REIT Directors, officers and employees of the REIT who are not
also employees of the Corporation.
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PRO FORMA FINANCIAL INFORMATION
The audited financial statements of NHC for each of the years ended
December 31, 1996, 1995 and 1994 and the unaudited financial statements for the
six months ended June 30, 1997 and 1996 are included in the Proxy
Statement/Prospectus.
The following unaudited pro forma balance sheets as of June 30, 1997 and
statements of income for the year ended December 31, 1996 and the six months
ended June 30, 1997 of National HealthCare Corporation and National Health
Realty, Inc. have been prepared based on the historical statements as adjusted
to reflect the proposed Restructure between NHC, National HealthCare Corporation
and National Health Realty, Inc. and the sale and subsequent conversion of
subordinated convertible debentures by NHC as outlined in the notes to the pro
forma financial statements as if they occurred on June 30, 1997 for the balance
sheets and on January 1, 1996 for the statements of income.
NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
---------------------------
Actual Debit Credit Pro Forma
----------- ----------- ------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Rent income $ -- $ 11,173(a) $ 11,173
Interest -- 9,037(c) 9,037
----------- ------------ ----------------
Net revenues -- 20,210 20,210
----------- ------------ ----------------
Costs and Expenses:
Operating and administrative -- $ 404(e) 404
Provision for depreciation and amortization -- 3,580(b) 3,580
Interest -- 3,142(d) 3,142
----------- ----------- ----------------
Total costs and expenses -- 7,126 7,126
----------- ----------- ----------------
Net Income from Operations -- 7,126 20,210 13,084
Minority Interest in Earnings of Consolidated Subsidiary -- 1,191 (f) 1,191
----------- ----------- ------------ ----------------
Net Income $ -- $ 8,317 $ 20,210 $ 11,893
=========== =========== ============ ================
Earnings Per Share
Primary $ -- $ 1.55
=========== ================
Fully Diluted $ -- $ 1.23
=========== ================
Weighted Average Shares
Primary -- 7,663,483
=========== ================
Fully Diluted -- 9,649,890
=========== ================
</TABLE>
The REIT's anticipated transactions, reflected on a pro forma basis, are as
follows:
(a) To record rent income from the Corporation in accordance with the terms
of lease agreements between the REIT and the Corporation.
(b) To record depreciation expense on fixed assets transferred by NHC based
on the estimated remaining life.
(c) To record interest income on first mortgage notes receivable
transferred by NHC. The interest rate on $79,065 of the notes
receivable is fixed at 10.25%. The interest rate on the balance of
notes receivable is generally at prime plus 2%.
(d) To record interest expense on debt transferred from NHC related to real
property.
(e) To record administrative expenses of the REIT based on expected
operating and administrative miscellaneous expenses.
(f) To record minority interest.
(g) The REIT intends to account for the leases with the Corporation as
operating leases.
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<PAGE> 58
NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
------------------------
Actual Debit Credit Pro Forma
----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rent income $ -- $ 6,381(a) $ 6,381
Interest -- 4,866(c) 4,866
----------- ----------- ----------------
Net revenues -- 11,247 11,247
----------- ----------- ----------------
Costs and Expenses:
Operating and administrative -- $ 225(e) 225
Provision for depreciation and amortization -- 2,566(b) 2,566
Interest -- 2,203(d) 2,203
----------- ---------- ----------------
Total costs and expenses -- 4,994 4,994
----------- ---------- ----------------
Net Income from Operations -- 4,994 11,247 6,253
Minority Interest in Earnings of Consolidated
Subsidiary -- 569(f) 569
----------- ---------- ----------- ----------------
Net Income $ -- $ 5,563 $ 11,247 $ 5,684
=========== ========== =========== ================
Earnings Per Share
Primary $ -- $ 0.71
=========== ================
Fully Diluted $ -- $ 0.57
=========== ================
Weighted Average Shares
Primary -- 8,023,656
=========== ================
Fully Diluted -- 9,921,944
=========== ================
</TABLE>
The REIT's anticipated transactions, reflected on a pro forma basis, are as
follows:
(a) To record rent income from the Corporation in accordance with the terms
of lease agreements between the REIT and the Corporation.
(b) To record depreciation expense on fixed assets transferred by NHC based
on the estimated remaining life.
(c) To record interest income on first mortgage notes receivable
transferred by NHC. The interest rate on $83,371 of the notes
receivable is fixed at 10.25%. The interest rate on the balance of
notes receivable is generally at prime plus 2%.
(d) To record interest expense on debt transferred from NHC related to real
property.
(e) To record administrative expenses of the REIT based on expected
operating and administrative miscellaneous expenses.
(f) To record minority interest.
(g) The REIT intends to account for the leases with the Corporation as
operating leases.
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<PAGE> 59
NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
------------------------------
Actual Debit Credit Pro Forma
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets:
Cash $ -- $ 1,000(a) $ 1,000
Real Estate Properties:
Land -- 19,836(a) 19,836
Fixed Assets -- 114,497(a) 114,497
------------- ------------- -------------
Real Estate Properties, Net -- 134,333 134,333
Mortgage loans receivable -- 97,140(b) 97,140
------------- ------------- -------------
Total Assets $ -- $ 232,473 $ 232,473
============= ============= =============
Liabilities and Stockholders' Equity:
Liabilities:
Long-term notes and bonds payable $ -- $ 86,858(a) $ 86,858
------------- -------------- -------------
Total Liabilities -- 86,858 86,858
Minority interest in consolidated subsidiaries 15,056(c) 15,056
Stockholders' equity -- $ 15,056(c) 48,475(a) 130,559
97,140(b)
------------- ------------- -------------- -------------
Total Liabilities and Stockholders' Equity $ -- $ 15,056 $ 247,529 $ 232,473
============= ============= ============== =============
============= =============
Book value per share $ -- $ 16.27
============= =============
Shares outstanding -- 8,023,656
============= =============
</TABLE>
The REIT's anticipated transactions, reflected on a pro forma basis, are as
follows:
(a) To record the transfer of cash, real property and related debt from NHC
at net book value.
(b) To record the transfer of first mortgage notes receivable from NHC at
net book value.
(c) To record minority interest.
(d) The REIT intends to account for the leases with the Corporation as
operating leases.
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<PAGE> 60
NATIONAL HEALTHCARE CORPORATION AND SUBSIDIARIES,
SUCCESSOR TO NATIONAL HEALTHCARE L.P. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
---------------------------
Actual Debit Credit Pro Forma
--------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Net patient revenues $ 341,818 $ 341,818
Other revenues 46,842 $ 9,037(d) 37,805
--------------- ------------- ---------------
Net revenues 388,660 9,037 379,623
--------------- ------------- ---------------
Costs and Expenses:
Operating and administrative 334,987 11,173(a) 346,454
294(e)
Provision for depreciation and amortization 13,634 $ 3,580(b) 10,054
Interest 10,753 3,142(c) 7,611
--------------- ------------- ----------- ---------------
Total costs and expenses 359,374 11,467 6,722 364,119
--------------- ------------- ----------- ---------------
Net income before taxes 29,286 20,504 6,722 15,504
Provision for income taxes -- 6,122(f) --(g) (6,122)
--------------- ------------- ----------- ---------------
Net Income $ 29,286 $ 26,626 $ 6,722 $ 9,382
=============== ============= =========== ===============
Earnings Per Unit/Share:
Primary $ 3.44 $ 1.04
=============== ===============
Fully Diluted $ 2.98 $ 1.02
=============== ===============
Weighted Average Units/Shares:
Primary 8,496,299 9,051,854
=============== ===============
Fully Diluted 10,455,706 11,011,261
=============== ===============
</TABLE>
The Corporation's anticipated transactions, reflected on a pro forma basis, are
as follows:
(a) To record rent expense in accordance with the Lease terms between the
REIT and the Corporation on assets intended to be transferred to the
REIT and leased by the Corporation.
(b) To remove depreciation expense on assets transferred.
(c) To remove interest expense on debt transferred to the REIT.
(d) To remove interest income on mortgage notes receivable transferred to
the REIT.
(e) To record state franchise taxes based on expected corporate structure.
(f) To record federal and state income taxes.
(g) The Corporation would have recorded non-recurring income tax benefits
of $3,964 related to the change in the Corporation's tax status.
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<PAGE> 61
NATIONAL HEALTHCARE CORPORATION AND SUBSIDIARIES, SUCCESSOR TO
NATIONAL HEALTHCARE L.P. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
---------------------------
Actual Debit Credit Pro Forma
-------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Net patient revenues $ 189,240 $ 189,240
Other revenues 22,814 $ 4,866(d) 17,948
-------------- ------------ ---------------
Net revenues 212,054 4,866 207,188
-------------- ------------ ---------------
Costs and Expenses:
Operating and administrative 183,969 6,381(a) 190,517
167(e)
Provision for depreciation and amortization 7,712 $2,566(b) 5,146
Interest 6,073 2,203(c) 3,870
-------------- ------------ ----------- ---------------
Total costs and expenses 197,754 6,548 4,769 199,533
-------------- ------------ ----------- ---------------
Net income before taxes 14,300 11,414 4,769 7,655
Provision for income taxes -- 2,960(f) --(g) (2,960)
-------------- ------------ ----------- ---------------
Net Income $ 14,300 $ 14,374 $ 4,769 $ 4,695
============== ============ =========== ===============
Earnings Per Unit/Share:
Primary $ 1.62 $ 0.50
============== ===============
Fully Diluted $ 1.41 $ 0.50
============== ===============
Weighted Average Units/Shares:
Primary 8,829,472 9,385,027
============== ===============
Fully Diluted 10,727,760 11,283,315
============== ===============
</TABLE>
The Corporation's anticipated transactions, reflected on a pro forma basis, are
as follows:
(a) To record rent expense in accordance with the Lease terms between the
Corporation and the REIT on assets intended to be transferred to the
REIT and leased by the Corporation.
(b) To remove depreciation expense on assets transferred.
(c) To remove interest expense on debt transferred to the REIT.
(d) To remove interest income on mortgage notes receivable transferred to
the REIT.
(e) To record state franchise taxes based on expected corporate structure.
(f) To record federal and state income taxes.
(g) The Corporation would have recorded non-recurring income tax benefits
of $4,649 related to the change in the Corporation's tax status.
55
<PAGE> 62
NATIONAL HEALTHCARE CORPORATION AND SUBSIDIARIES, SUCCESSOR TO
NATIONAL HEALTHCARE L.P. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
--------------------------------
Actual Debit Credit Pro Forma
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Assets:
Current Assets $ 126,279 $ 2,518(c) $ 148,447
19,650(d)
Property and equipment 201,866 $ 134,333(a) 67,533
Assets held by other parties 21,472 21,472
Other Assets 112,888 2,131(c) 97,140(b) 17,879
-------------- --------------- ------------- --------------
Total Assets $ 462,505 $ 24,299 $ 231,473 $ 255,331
============== =============== ============= ==============
Liabilities and Partners' Capital:
Current liabilities $ 102,279 $ 102,279
Debt serviced by other parties 32,024 32,024
Long-term debt 144,867 $ 86,858(a) 58,009
Subordinated convertible notes 28,839 28,839
Deferred income 15,945 15,945
Minority interest in consolidated subsidiaries 784 784
Partners' capital 137,767 47,475(a) $ 4,649(c) --
97,140(b) 19,650(d)
17,451(e)
Stockholders' Equity -- 17,451(e) 17,451
-------------- --------------- ------------- --------------
Total Liabilities & Stockholders' Equity $ 462,505 $ 248,924 $ 41,750 $ 255,331
============== =============== ============= ==============
Book value per unit/share $ 15.55 $ 1.85
============== ==============
Units/Shares outstanding 8,862,187 9,417,742
============== ==============
</TABLE>
The Corporation's anticipated transactions, reflected on a pro forma basis, are
as follows:
(a) To record the transfer of real property and related debt to the REIT at
net book value.
(b) To record the transfer of first mortgage notes receivable to the REIT
at net book value.
(c) To record deferred income taxes at a 40% rate.
(d) Subsequent to June 30, 1997 but prior to this filing, NHC sold
subordinated convertible debentures of $20,000. The debentures are
convertible into Corporation shares only. Since the debentures
mandatorily convert to equity on January 1, 1998, this amount has been
reflected above as an addition to partners' capital.
(e) To reclassify partners' capital.
(f) The Corporation intends to account for the distribution of assets (and
related debt) to the REIT at net book value and the subsequent leasing
of the real estate assets as operating leases.
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<PAGE> 63
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NHC
OVERVIEW
NHC is a leading provider of long-term health care services. NHC
operates or manages 110 long-term health care centers with 13,775 beds in ten
states. NHC provides nursing care as well as ancillary therapy services to
patients in a variety of settings including long-term nursing centers, managed
care specialty units, subacute care units, Alzheimer's care units, homecare
programs, and facilities for assisted living. NHC also operates retirement
centers.
RESULTS OF OPERATIONS
The following table and discussion sets forth items from the
consolidated statements of income as a percentage of net revenues for the
unaudited periods ended June 30, 1997 and 1996 and audited years ended
December 31, 1996, 1995 and 1994.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
------------------ -----------------------
1997 1996 1996 1995 1994
------ ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Net patient revenues 89.2% 88.0% 87.9% 87.8% 90.2%
Other revenues 10.8 12.0 12.1 12.2 9.8
------ ------- ----- ----- -----
Net revenues 100.0 100.0 100.0 100.0 100.0
------ ------- ----- ----- -----
Costs and expenses:
Salaries, wages and benefits 55.5 55.5 53.9 53.8 52.7
Other operating 31.3 31.5 32.2 31.2 33.0
Depreciation and amortization 3.6 3.4 3.6 4.2 4.6
Interest 2.9 3.4 2.8 4.8 4.4
------ ------- ----- ----- -----
Total costs and expenses 93.3 93.8 92.5 94.0 94.7
------ ------- ----- ----- -----
Net Income 6.7% 6.2% 7.5% 6.0% 5.3%
====== ======= ===== ===== =====
</TABLE>
The following table sets forth the increase in certain items from the
consolidated statements of income as compared to the prior period.
PERIOD TO PERIOD INCREASE (DECREASE)
<TABLE>
<CAPTION>
(Unaudited)
Six Months
Ended
June 30, Year Ended December 31,
---------------------- -----------------------------------------
1997 vs. 1996 1996 vs. 1995 1995 vs. 1994
---------------------- -------------------- -------------------
(dollars in thousands) Amount Percent Amount Percent Amount Percent
-------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient revenues $ 27,555 17.0 $ 33,849 11.0% $38,247 14.2%
Other revenues 715 3.2 3,854 9.0 13,809 47.3
-------- ------- -------- ------ ------- ------
Net revenues 28,270 15.4 37,703 10.7 52,056 17.4
-------- ------- -------- ------ ------- ------
Costs and expenses:
Salaries, wages and benefits 15,623 15.3 20,660 10.9 31,322 19.9
Other operating 8,373 14.4 15,925 14.6 10,664 10.8
Depreciation & amortization 1,542 25.0 (915) (6.3) 967 7.1
Interest (96) (1.6) (6,138) (36.3) 3,841 29.4
-------- ------- -------- ------ ------- ------
Total costs and expenses 25,442 14.8 29,532 9.0 46,794 16.5
-------- ------- -------- ------ ------- ------
Net income $ 2,828 24.7% $ 8,171 38.7% $ 5,262 33.2%
======== ======= ======== ====== ======= ======
</TABLE>
NHC's owned or leased long-term health care centers and contract
therapy services provided 78% of net revenues in 1996, 76% in 1995, and 76% in
1994. Homecare programs provided 13% of net revenues in 1996, 15% in 1995 and
16% in 1994.
The overall census in owned or leased centers for the six months ended
June 30, 1997 and also for the six months ended June 30, 1996 was 93.2%. The
overall census in owned or leased centers for 1996 was 93.6% compared to 93.0%
in 1995 and 92.8% in 1994. The census excluding acquisitions and new openings
was 93.8%, 93.0% and 94.5%, respectively, for the same periods. NHC opened a net
of 190 new owned, leased or managed beds in 1996.
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<PAGE> 64
HEALTH CARE REVENUES
NHC's principal business is operating and managing long-term health
care centers, including the provision of routine and ancillary services.
Approximately 60% of NHC's net revenues in 1996 and 1995 and 61% in 1994 are
from participation in Medicare and Medicaid programs. Amounts paid under these
programs are generally based on a facility's allowable costs or a fixed rate
subject to program cost ceilings. Revenues are recorded at standard billing
rates less allowances and discounts principally for patients covered by
Medicare, Medicaid and other contractual programs. Amounts earned under the
Medicare and Medicaid programs are subject to review by the third party payors
and as disclosed in the notes to the financial statements, by the Office of the
Inspector General. In the opinion of management, adequate provision has been
made for any adjustments that may result from such reviews. (See "Business --
The Corporation -- Legal Proceedings"). However, substantial cash payments may
be required at the time of finalization if material adjustments are made by
auditors.
Any differences between estimated settlements and final determinations
are reflected in operations in the year finalized. NHC has submitted various
requests for exceptions to Medicare routine cost limitations for reimbursement.
NHC has received approval on certain requests, and others are pending approval.
NHC will record revenues associated with the approved requests when such
approvals, including cost report audits, are assured.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996. Results for the six month period ended June 30, 1997 include a 25%
increase over the same period in 1996 in net income, a 19% increase in fully
diluted earnings per unit, and a 15% increase in net revenues.
The increased revenues for the six months ended June 30, 1997 reflect
the continued growth of operations. Compared to the six month period a year ago,
NHC has increased the number of owned, leased, and managed long-term care beds
by 1,025 beds from 12,750 beds to 13,775 beds. The number of homecare locations
has increased from 31 locations to 33 locations. Also contributing to increased
revenues are improvements in both private pay and third party payor rates.
Revenues improved during first six months of 1997 also due to increased
emphasis on rehabilitative and managed care services. NHC has extended its
rehabilitative services into additional geographic areas and to additional
customers.
Revenues from management services, which are included in the Statements
of Income in Other Revenues, increased 4.4% for the six month period in 1997
compared to the same period in 1996 from $16.3 million to $17.0 million due to
the increased number of beds being managed for others and due to increased
management fees. Management fees are generally based upon a percentage of net
revenues of the managed center and therefore tend to increase as a facility
matures and as prices rise in general.
Total costs and expenses for the 1997 six month period increased $25.4
million or 14.8% to $197.8 million from $173.2 million. Salaries, wages and
benefits, the largest operating costs of this service company, increased $15.6
million or 15.3% to $117.6 million from $102.0 million. Other operating expenses
increased $8.4 million or 14.4% to $66.3 million for the 1997 second quarter
compared to $58.0 million in the 1996 period. Depreciation and amortization
increased 25.0% to $7.7 million. Interest costs decreased $0.1 million or 1.6%
to $6.1 million from $6.2 million for last year.
Increases in salaries, wages and benefits are attributable to the
increase in staffing levels due to long-term care bed additions, assisted living
expansions, homecare expansions, and the increased emphasis on rehabilitative
services. Also contributing to higher costs of labor are inflationary increases
for salaries and the associated benefits.
Operating costs have increased due to the increased number of beds in
operation, the opening of three new assisted living projects, the expansion of
homecare services, the expansion of rehabilitative and managed care services,
and the growth in management services provided to others.
Depreciation and amortization increased as a result of NHC's placing of
newly constructed or purchased assets in service and due to capital improvements
at existing properties.
The total census at owned and leased centers for the six months
averaged 93.2% compared to an average of 93.2% for the same six months a year
ago.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
In 1996, NHC achieved record earnings while growing in the variety and quality
of services offered. Results for 1996 included a 39% increase in net income, a
29% increase in primary earnings per unit, and a 11% increase in net revenues.
The growth in revenues in 1996 occurred in long-term care, in
rehabilitative and managed care and in management services.
Improved revenues in long-term care were due in part to increased
numbers of owned beds having been placed in service. In 1996, 130 beds were
opened or acquired in owned and leased centers. Furthermore, 111 long-term care
beds which had been added in 1995 had improved occupancy rates in 1996. Also
contributing to improved revenues in long-term care were increases in types and
levels of services being offered and in private pay and third party payor rates.
Increases in third party payor rates were held down in part by the negative
impact of routine cost limits for Medicare certified nursing homes. During 1996
and 1995, NHC had 48 and 44, respectively, owned or leased centers which
operated at Medicare costs higher than the ceiling.
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<PAGE> 65
Homecare revenues improved due to increased payor rates and number of
visits at NHC's 16 additional Tennessee locations. At all locations, there were
754,000 visits in 1996 compared to 717,000 visits in 1995.
Revenues also improved during 1996 as a result of NHC's increased
emphasis on rehabilitative and managed care services. To boost the ability to
offer physical, speech and occupational therapy to greater numbers of patients,
NHC increased its staff of professionally licensed therapists from nearly 800
last year to over 1,000 in 1996. Over 585 companies, including school systems,
hospitals, home care companies and outpatient clinics contracted for NHC's
rehabilitative services in 1996, which number is up from 420 companies in 1995.
Revenues from management services, which are included in the Statements
of Income in Other Revenues, increased 13% in 1996 from $28,719,000 to
$32,363,000 due to increased management fees and increased interest income from
higher principal amounts on loans to managed centers. In 1996, 60 additional
long-term care beds came under management contract. Management fees are
generally based upon a percentage of net revenues of the managed center and
therefore tend to increase as a facility matures and as prices rise in general.
Increases in salaries, wages and benefits in 1996 were attributable to
the increase in staffing levels due to long-term care bed additions and the
increased emphasis on rehabilitative services. Also contributing to higher costs
of labor were inflationary increases for salaries and the associated benefits.
Operating costs increased due to the increased numbers of beds in
operation, the expansion of rehabilitative and managed care services, the growth
in management services provided to others, and due to the increase in rent
expense as explained below.
Depreciation expense and interest expense both decreased compared to
last year due primarily to capital transactions which occurred in 1995. During
December 1995, NHI prepaid debt on which NHC had also been obligated in the
amount of $20,544,000. In addition, NHC was released from its obligation on
approximately $25,324,000 of debt which had been transferred to NHI in 1991.
Since NHC is no longer obligated on transferred debt in the amount of
$45,868,000, debt serviced by other parties and assets under arrangement with
other parties was reduced by $45,868,000.
The leases with NHI provide that NHC shall continue to make
non-obligated debt service rent payments equal to the debt service including
principal and interest on the obligated debt which was prepaid and from which
NHC has been released as a direct obligor. As a result, other operating expenses
are increased by the amount of the rent payments, depreciation is decreased by
the amount of depreciation formerly charged on assets under arrangement with
other parties and interest expense is decreased by the amount of interest
expense formerly associated with the debt serviced by other parties.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
In 1995, NHC achieved rapid annual growth in earnings, earnings per unit, and
revenues. Net income totaled $21,115,000, a 33% increase over the comparable
prior year amount. Fully diluted earnings per unit totaled $2.31, a 28%
increase. Net revenues totaled $350,957,000, a 17% increase. NHC's net margin
ratio, which is defined as net income divided by net revenues, increased to 6.0%
from 5.3% in 1994 illustrating that in 1995 NHC grew its revenues at a faster
rate than its expenses.
The growth in net patient revenues in 1995 occurred in long-term care,
homecare, and rehabilitative and managed care.
Improved revenues in long-term care were due primarily to increased
types and levels of services being offered and to increases in private pay and
third party billing rates. Also, the total number of owned or leased beds
increased from 6,295 beds at the end of 1994 to 6,406 beds at the end of 1995.
During 1995 and 1994, NHC had 44 and 41, respectively, owned or leased centers
which operated at Medicare costs higher than the routine cost limits, which were
frozen at 1993 levels by the 1993 Tax Reform Act.
Homecare revenues improved due to increased payor rates and increased
numbers of visits at NHC's 28 Florida and Tennessee homecare locations. There
were 717,000 homecare visits in 1995 compared to 674,000 visits in 1994.
Revenues also improved during 1995 due to continued emphasis on
rehabilitative and managed care services. To boost the ability to offer
physical, speech and occupational therapy to greater numbers of patients, NHC
increased its staff of professionally licensed therapists by 19% in 1995 and by
40% in 1994. NHC has also determined to provide high acuity medical services and
has signed managed care contracts with 34 private insurance companies to provide
subacute care to their insurees, offering a less expensive alternative to acute
care and rehabilitative hospitals. NHC also is expanding its network of regional
contract offices which are staffed by experienced case managers and which assure
appropriate placement and payment for subacute patients in the NHC system.
The growth in other revenues in 1995 occurred primarily in the areas of
revenues from management services, advisory fees from NHI, and interest income.
Other revenues are more fully detailed in Note 5 to the financial statements.
Revenues from management services of $28,719,000, which are included in
the Statements of Income in Other Revenues, increased 51% in 1995 due to the
increased number of beds being managed for others, increased amounts
59
<PAGE> 66
and types of management and other support services being offered, and increased
interest income from higher principal amounts on loans to managed centers. In
1995, two long-term care centers and 273 long-term care beds came under new
management contracts. Management fees are generally based upon a percentage of
net revenues of the managed center and therefore tend to increase as a facility
matures and as prices rise in general. NHC's management contracts are generally
long-term (up to ten years) and include equity participation agreements and the
right of first refusal upon the sale of the property.
Revenues from advisory fees received from NHI of $3,265,000 represent a
52% increase over 1994 and are based upon a formula which measures the increase
in NHI's funds from operations over a base year.
Revenues from interest income totaled $6,462,000 and represent a 33%
increase over 1994 and are in part from NHC's investment in loan participation
agreements. Loan participation agreements may generally be sold in the market
should NHC require additional capital.
Increases in salaries, wages and benefits in 1995 are attributable to
the increase in staffing levels due to the increased emphasis on rehabilitative
services, homecare expansions and long-term care bed additions. Also
contributing to higher costs of labor are inflationary increases for salaries
and the associated benefits. Labor costs are the most significant costs of NHC.
Operating costs have increased due to the expansion of rehabilitative
and managed care services, the expansion of homecare services, the growth in
managed services and the increased numbers of beds in operation.
Depreciation and amortization increased as a result of NHC's placing of
newly constructed or purchased assets in service and due to capital improvements
at existing properties.
Interest expense increased due to additional borrowing for newly
constructed long-term care beds and due to increased interest rates on floating
rate debt. Approximately 35% of NHC's long-term debt was at floating rates at
the end of 1995.
GROWTH AND DEVELOPMENT
The Corporation plans to continue to expand NHC's continuum of care to
the elderly by offering a comprehensive range of services through related or
separately structured health care centers, homecare programs, specialized care
units, pharmacy operations, rehabilitative services, assisted living centers and
retirement centers.
During the first six months of 1997, the Company added a net total of
893 licensed long-term care beds, of which 336 are owned or leased and 577 of
which are managed for other parties. Additionally, 252 assisted living units in
three newly constructed projects were opened.
During 1996, NHC grew its long-term health care business by acquiring
or constructing additions totaling 130 licensed beds at owned or leased health
care centers and totaling 60 licensed beds at managed health care centers, all
located in Florida. All in all, 190 owned, leased or managed beds were added in
1996. These additions increased the total number of owned, leased or managed
centers to 100 and the total number of licensed beds to 12,882.
At June 30, 1997, NHC had 871 beds under development at 12 owned or
leased centers and six managed health care centers in various locations. These
beds are either under construction or a Certificate of Need has been received
from the appropriate state agency authorizing the construction of additional
centers or beds.
NHC has identified the assisted living market as an expanding area for
the delivery of health care and hospitality services. Assisted living centers
provide basic room and board functions for the elderly with on-staff
availability to assist in minor medical and living needs on an as needed basis.
NHC currently operates ten assisted living projects, eight of which are located
within the physical structure of a long-term care center or retirement center
and two of which are freestanding. The two freestanding projects opened in 1996.
It is expected that NHC will start
60
<PAGE> 67
construction of four additional assisted living projects in 1997. Certificates
of need are not required to build assisted living projects.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During the first six months of 1997, the Company generated net cash of
$23.7 million from operating activities, $14.1 million from the collection of
long-term notes receivable, $23.2 million debt proceeds, $0.5 million from the
issuance of partnership units, and $5.0 million from the collection of
receivables. Of these funds, $21.4 million was used for additions to and
acquisitions of property and equipment; $18.0 million for investment in
long-term notes receivable and loan participation agreements; $4.6 million for
payments on debt; and $10.4 million for cash distributions to partners. Cash
and cash equivalents increased $10.3 million during the quarter.
During 1996 NHC spent approximately $69,970,000 on construction,
acquisitions and routine capital expenditures, $17,466,000 on cash distributions
to partners, $8,161,000 as principal payments and financing costs on debt, and
$34,798,000 to invest in notes receivable and marketable securities. These and
other cash needs were financed through cash on hand; cash flow from operations
of $51,961,000; the collection of long-term notes receivable, loan participation
agreements, investments and receivables related to stock options of $44,284,000;
the issuance of $29,183,000 of debt and the issuance of partnership units for
$1,378,000.
NHC has guaranteed approximately $69,362,000 of debt of certain health
care centers which NHC manages for others. At June 30, 1997, NHC expects to have
no additional liability as a result of its debt guarantees.
NHC's current cash on hand, marketable securities, short-term notes
receivable, operating cash flows and, as needed, its borrowing capacity are
expected to be adequate to finance NHC's and the Corporation's operating
requirements and growth and development plans for 1997 and into 1998. If
additional capital is necessary, NHC's balance sheet ratios are at commercially
reasonable levels to obtain additional capital. The current ratio is 1.2:1 at
June 30, 1997 and working capital is $24,000,000. The ratio of long-term debt to
equity, as defined in our banking relationships to include both deferred income
and subordinated convertible notes as equity, is 1:1 at June 30, 1997.
For all financial instruments except the subordinated convertible notes,
NHC believes that the financial statement carrying amounts approximate fair
value at June 30, 1997 and at December 31, 1996. The fair value of the
subordinated convertible notes were estimated based on quoted market prices.
NEW ACCOUNTING PRONOUNCEMENTS
In 1996, NHC adopted Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation". The adoption of the provisions of
these accounting pronouncements did not have a material impact on NHC's
financial condition or results of operations.
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
("SFAS 128") has been issued effective for years ending after December 15,
1997. This statement establishes standards for computing and presenting
earnings per share. NHC is required to adopt the provisions of SFAS 128 in the
fourth quarter of 1997 and does not expect adoption thereof to have a material
effect on NHC's financial position or results of operations.
Statement of Financial Accounting Standards No. 129 "Disclosure of
Information About Capital Structure" ("SFAS 129") has been issued effective for
years ending after December 15, 1997. This statement establishes standards for
disclosing information about an entity's capital structure. NHC will be
required to adopt the provisions of SFAS 129 in the fourth quarter of 1997 and
does not expect adoption thereof to have a material impact on NHC's financial
position or results of operations.
CASH DISTRIBUTIONS
NHC management intends to distribute approximately 60% of ordinary
taxable income to unitholders during 1997. Management expects that NHC's cash
distribution will never be lower than the maximum federal tax rate to
individuals unless there is a material change in our present tax rate system.
IMPACT OF INFLATION
Reimbursement rates under the Medicare and Medicaid programs generally
reflect the underlying increases in costs and expenses resulting from inflation.
For this reason, the impact of inflation on profitability has not been
significant.
THE CORPORATION
The Corporation will be the successor to NHC. Management's Discussion
and Analysis of Results of Operations and Financial Condition from NHC's Annual
Report to Partners for the year ended December 31, 1996 is included elsewhere in
this registration statement.
On a pro forma basis at June 30, 1997, the Corporation's working
capital has increased from $24,000,000 to $46,168,000 and its current ratio has
increased from 1.23 to 1.45 primarily as a result of the issuance of $20,000,000
of subordinated convertible debentures. Partners' capital/stockholders' equity
has been reduced from $137,767,000 to $17,451,000 primarily to reflect the
transfer of the equity in the assets transferred to the REIT. The results of
operations on a pro forma basis for the year ended December 31, 1996 and the six
months ended June 30, 1997 reflect reductions in interest income and
depreciation and interest expense based on the transfer of the Notes, Owned
Healthcare Facilities, Assumed Liabilities and Other Assets transferred to the
REIT. Operating and administrative expenses have increased to reflect the
additional lease and other expenses to be incurred based on the terms of the
operating leases with the REIT.
The Corporation believes that available cash and funds generated from
operations will be sufficient to satisfy capital expenditures, working capital,
and debt requirements.
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<PAGE> 68
NHC is currently negotiating the sale of $20 Million in 5.75%
Subordinated Convertible Notes, and prior to November 15, 1997 at the sole
option of NHC, an additional $10 Million 5.75% Subordinated Convertible Notes
(the "1818 Fund Notes"), to The 1818 Fund II, L.P. (the "Fund") pursuant to a
private placement. It is anticipated that the terms of the 1818 Fund Notes will
provide that, upon the completion of the Plan of Restructure, the 1818 Fund
Notes will automatically convert into common stock of the Corporation at $36 per
share. The Fund will therefore become a stockholder of the Corporation, but not
of the REIT. If the Plan of Restructure shall not have taken place prior to
January 5, 1998, the Fund may at its option convert the 1818 Fund Notes into
limited partnership Units of NHC at $53 per Unit. If the Plan of Restructure
then occurs after such conversion, the Fund will become a stockholder in both
the Corporation and the REIT. In addition, the 1818 Fund Notes would also be
granted registration rights which could be requested on or after January 5,
1998 or could be registered incidental to a registration by the Corporation of
its own securities. It is anticipated that the Corporation would also agree to
file a shelf registration with respect to the 1818 Fund Notes pursuant to Rule
415 within 18 months after the sale. The registration rights would survive the
Plan of Restructure and inure to the benefit of any holder of the 1818 Fund
Notes. Finally, the Corporation would have a right after 42 months following the
sale, to prepay or redeem the 1818 Fund Notes in whole (but not in part) at a
price equal to the then outstanding principal and accrued interest.
THE REIT
The REIT is a newly formed entity intended to qualify for federal
income tax purposes as a real estate investment trust and incorporated in
Maryland on September 26, 1997. The REIT originally issued 1,000 shares of
common stock to NHC for $1,000 cash on October 15, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The REIT was organized to maintain the Owned Healthcare Facilities and
Notes transferred to the REIT from NHC. The REIT received the Owned Healthcare
Facilities, Notes, Assumed Liabilities and Other Assets from NHC in exchange for
approximately 8,060,000 shares of the REIT's common stock. The REIT has reserved
an additional 1,896,000 shares of common stock for conversion of subordinated
convertible notes held by the Corporation.
A portion of the Assumed Liabilities is currently cross-defaulted with
other NHC liabilities which will be assumed by the Corporation. In addition, a
majority of the Notes are collateral for part of the Assumed Liabilities and
for certain debt that will be assumed by the Corporation and for certain debt
of National Health Investors, Inc. and National Health Corporation. In the
event that the Corporation, National Health Investors, Inc. or National Health
Corporation defaulted on these debt obligations, the REIT could lose its
interest in the Notes or the Owned Healthcare Facilities.
The REIT has entered into an advisory services agreement with the
Corporation whereby services related to investment activities and day-to-day
management and operations are provided to the REIT by the Corporation. Because
of the competitive restrictions contained in the advisory services agreement,
the REIT does not intend to seek further health care-related investment
opportunities or to provide lease or mortgage financing for such investments.
The REIT expects to continue to engage in transactions with the Corporation but
does not anticipate purchasing from, leasing to, or financing other operations.
The REIT intends to pay quarterly dividends to its stockholders in an
amount at least sufficient to satisfy the distribution requirements of a real
estate investment trust. Such requirements necessitate that at least 95% of the
REIT's taxable income be distributed annually. The primary source for dividends
will be rental and interest income it earns on the Owned Healthcare Facilities
and the Notes transferred to the REIT from NHC.
RESULTS OF OPERATIONS
The REIT's results of operations will depend upon the rental and
interest income it earns on the Owned Healthcare Facilities and Notes
transferred to the REIT from NHC. Because of the competitive restrictions
contained in its advisory services agreement with the Corporation, the REIT does
not intend to seek further health care-related investment opportunities or to
provide lease or mortgage financing for such investments.
PRO FORMA RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On a pro forma basis, the REIT would have had $20,210,000 and
$11,247,000 in revenues for the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively. The increase on an annual basis from 1996 to
1997 is primarily attributable to additional rental and interest income on the
Owned Healthcare Facilities and Notes acquired during late 1996 and early 1997
and to increases in rent under the lease agreements.
On a pro forma basis, the REIT would have had $7,126,000 and $4,994,000
in expenses for the year ended December 31, 1996 and the six months ended June
30, 1997, respectively. The REIT's pro forma depreciation and interest expenses
reflect the book basis and estimated lives of the Owned Healthcare Facilities
received by the REIT and the interest rates and terms on the Assumed
Liabilities. The increase on an annual basis from 1996 to 1997 is primarily
attributable to additional expenses on Owned Healthcare Facilities acquired and
debt assumed during late 1996 and early 1997.
The REIT is in the process of negotiating a new credit agreement to
replace the liabilities assumed from the Corporation. The REIT expects that the
rental and interest income it earns on the health care centers and mortgage
notes receivable will be sufficient to satisfy its capital expenditures, working
capital, and debt requirements.
62
<PAGE> 69
MANAGEMENT
NHC
GENERAL PARTNERS: NHC has three general partners identified in the
Amended and Restated Agreement of Limited Partnership (the "LP Agreement"):
1. Managing General Partner: NHC, Inc., a Tennessee corporation.
The authorized, issued and outstanding stock of NHC, Inc. is
owned by its board of directors and senior management, a total
of 14 individuals. W. Andrew Adams, NHC's President, owns
approximately 52% of the voting securities of NHC, Inc. and
Robert G. Adams, Senior Vice President and Chief Operating
Officer, owns 19.3%. No other person owns in excess of 9.4%.
2. Administrative General Partner: National Health Corporation, a
Tennessee corporation ("National"). National's Board of
Directors is identical to that of NHC, Inc. All of the
authorized, issued and outstanding stock of National Health
Corporation is owned by the National Health Corporation
Leveraged Employee Stock Ownership Plan and Trust. Trustees
are Olin O. Williams, a director of both NHC, Inc. and
National and Richard F. LaRoche, Jr., NHC's Senior Vice
President and General Counsel.
3. Individual General Partner: W. Andrew Adams. Mr. Adams is the
Chairman of the Board and Chief Executive Officer of NHC.
Pursuant to the LP Agreement, the three general partners are
collectively referred to as "General Partners". The General Partners own, in
aggregate, a general partnership interest in NHC representing a 1% interest in
the profits, losses and distributions of NHC.
DIRECTORS AND EXECUTIVE OFFICERS: As a limited partnership, NHC is
managed by the managing general partner, NHC, Inc. NHC, Inc.'s Board of
Directors is divided into three classes. The Directors hold office until the
annual meeting for the year in which their term expires and until their
successor is elected and qualified. As each of their terms expire, the successor
shall be elected to a three-year term. A director may be removed from office for
cause only. Officers serve at the pleasure of the Board of Directors for a term
of one year. The following table sets forth the directors of both the managing
and administrative general partners of NHC, as well as the executive officers of
NHC:
<TABLE>
<CAPTION>
Director of
Managing Officer of
General Managing
Position Partner or Current General
with NHC NHC's Term as Partner or
or Managing Predecessor Director Predecessor
Name Age General Partner Since Expires Since
---- --- --------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
W. Andrew Adams 52 Chairman of the Since
Board/Chief 1995 (CEO)
Executive Officer 1974 (Pres.) 1999 1973
Dr. J. K. Twilla 70 Director 1972 1998 ---
Dr. Olin O. Williams 67 Director 1971 2000 ---
Ernest G. Burgess, III 58 Director 1991 1999 1975
Robert G. Adams 50 Sr. Vice President/
Chief Operating
Officer and
Director 1993 2000 1985
Richard F. LaRoche, Jr. 52 Sr. Vice President
and
General Counsel -- -- 1974
Steven A. Strawn 40 Vice President/
Operations -- -- 1992
Donald K. Daniel 51 Vice President/
Controller -- -- 1977
David L. Lassiter 43 Vice President/
Corporate Affairs -- -- 1995
Charlotte A. Swafford 49 Treasurer -- -- 1985
</TABLE>
63
<PAGE> 70
<TABLE>
<CAPTION>
Director of
Managing Officer of
General Managing
Position Partner or Current General
with NHC NHC's Term as Partner or
or Managing Predecessor Director Predecessor
Name Age General Partner Since Expires Since
---- --- --------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Julia W. Powell 48 Vice President/
Patient Services -- -- 1985
Joanne G. Batey 53 Vice President/
Homecare -- -- 1989
D. Gerald Coggin 46 Vice President/
Government
Affairs and
Rehabilitation
Services -- -- 1991
Kenneth D. DenBesten 45 Vice President/ -- -- 1992
Finance
</TABLE>
Drs. Twilla and Williams each were physicians in private practice in
Tennessee for more than 30 years.
Mr. W. Andrew Adams has been Chairman of the Board and Chief Executive
Officer since 1995. He was president from 1981 until 1983 of the National
Council of Health Centers, the trade association for multi-facility long-term
health care center companies, and served as Chairman of the Multi-facility
Committee of the American Health Care Association from 1992 through 1994. He has
an M.B.A. degree from Middle Tennessee State University. Mr. Adams serves on the
Board of Trust of David Lipscomb University, Nashville, Tennessee, is President
and Chairman of the Board of Directors of National Health Investors, Inc. and
serves on the Board of SunTrust Bank in Nashville, Tennessee.
Mr. Robert Adams (Senior Vice President, Chief Operating Officer and
Director) has served both as Administrator and as Regional Administrator,
holding the last position from 1977 to 1985. He has a B.S. degree from Middle
Tennessee State University. Mr. Robert Adams and Mr. W. Andrew Adams are
brothers.
Mr. Burgess (Director) served as NHC' s Senior Vice President for
Operations from 1975 through 1994. He has an M.S. degree from the University of
Tennessee.
Mr. LaRoche (Senior Vice President) has been Senior Vice President
since 1985, and General Counsel since 1971. He has a law degree from Vanderbilt
University and an A.B. degree from Dartmouth College. His responsibilities
include acquisitions and finance. Mr. LaRoche also serves on the Board of
National Health Investors, Inc.
Mr. Strawn (Vice President/Operations) has been with NHC since 1979. He
trained in NHC's A.I.T. program and then served both as administrator and
Regional Vice president before being appointed to the present position in 1995.
He has a B.S. degree from Middle Tennessee State University.
Mr. Daniel (Vice President and Controller) joined NHC in 1977 as
Controller. He received a B.A. degree from Harding University and an M.B.A. from
the University of Texas. He is a certified public accountant.
Mr. Lassiter (Vice President/Corporate Affairs) joined NHC in 1995.
From 1988 to 1995, he was Executive Vice President, Human Resources and
Administration for Vendell Healthcare. From 1980-1988, he was in human resources
positions with Hospital Corporation of America and HealthTrust Corporation. Mr.
Lassiter has B.S. and M.B.A. degrees from the University of Tennessee.
Ms. Swafford (Treasurer) has been Treasurer of NHC since 1985. She
joined NHC in 1973 and has served as Staff Accountant, Accounting Supervisor and
Assistant Treasurer. She has a B.S. degree from Tennessee Technological
University.
Ms. Powell (Vice President/Patient Services) has been with NHC since
1974. She has served as a nurse consultant and director of patient assessment
computerized services for NHC. Ms. Powell has a bachelor of science in nursing
from the University of Alabama, Birmingham, and a master's of art in sociology
with an emphasis in gerontology from Middle Tennessee State University. She
co-authored Patient Assessment Computerized in 1980 with Dr. Carl Adams, NHC's
founder.
64
<PAGE> 71
Ms. Batey (Vice President/Homecare) has been with NHC since 1976. She
served as homecare coordinator for five years before being named Vice president
in 1989. Prior to that she was director of communication disorders services. Ms.
Batey received her bachelor's and master's degrees in speech pathology from
Purdue University.
Mr. Coggin (Vice President/Government Affairs and Rehabilitation
Services) has been employed by NHC since 1973. He has served as both
Administrator and Regional Vice President before being appointed to the present
position. He received a B.A. degree from David Lipscomb University and a M.P.H.
degree from the University of Tennessee. He is responsible for NHC's
rehabilitation, managed care and legislative activities.
Mr. DenBesten (Vice President/Finance) has served as Vice President of
Finance since 1992. From 1987 to 1992, he was employed by Physicians Health
Care, most recently as Chief Operating Officer. From 1984-1986, he was employed
by Health America Corporation as Treasurer, Vice president of Finance and Chief
Financial Officer. Mr. DenBesten received a B.S. degree in business
administration and an M.S. degree in finance from the University of Arizona.
The above officers serve in identical capacities for NHC and its two
corporate general partners: NHC, Inc., and National Health Corporation.
EXECUTIVE COMPENSATION
INTRODUCTION. Pursuant to Article V of the LP Agreement of NHC, the
General Partners are given the full, exclusive and complete discretion in the
management and control of the business of NHC. Pursuant to Article 5.7, the
General Partners do not receive compensation for serving as general partners. In
compliance with the LP Agreement the General Partners hire and compensate all of
the officers of the partnership and of the corporate general partners. The
General Partners' goals in executive compensation and compensation at all levels
within NHC are derived from the following priorities: First, to encourage the
achievement of the highest levels of quality in its fields of endeavor; and
second, to provide the strongest incentive possible in order to average, over a
five year period, a 20% return on partners equity. With these goals in mind, the
General Partners' executive compensation program is based on employee
performance rewarded as follows: (1) the achievement of a return on investment
for limited partners; (2) returns generated from unit performance based
incentive plans; and (3) from base salary. The following text and tables
describe the various components of this plan as were attained and applied during
1996.
TOTAL COMPENSATION: Table I sets forth certain information concerning
the total compensation paid by the administrative general partner and reimbursed
to it by NHC for the year ended December 31, 1996 to the three executive
officers of NHC.
TABLE I
NATIONAL HEALTHCARE L.P.
SUMMARY COMPENSATION TABLE
1996-1994
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------
Annual Compensation(1) Awards Payouts
- -------------------------------------------------------------------- ------------------------- ------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other annual Restricted Options/ All Other
Name and Compensation Stock Awards SARs LTIP Payouts Compensation
Principal Position Year Salary ($) Bonus ($)(2) ($)(3) ($) (#)(4) ($) ($)
- ------------------ ---- ---------- ---------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Andrew Adams 1996 129,757 451,693 8,147 -0- -0- -0- -0-
CEO 1995 129,964 579,200 121,350 -0- 40,000 -0- -0-
1994 132,349 359,920 78,789 -0- 40,000 -0- -0-
Robert G. Adams 1996 140,279 225,846 8,269 -0- -0- -0- -0-
Senior Vice President 1995 145,647 646,227 6,452 -0- 30,000 -0- -0-
& COO 1994 216,384 383,430 26,828 -0- 25,000 -0- -0-
Richard F. LaRoche, Jr. 1996 135,784 225,846 18,823 -0- -0- -0- -0-
Sr. VP 1995 142,639 380,365 8,453 -0- 30,000 -0- -0-
1994 134,150 190,467 15,637 -0- 25,000 -0- -0-
</TABLE>
(1) Compensation deferred at the election of an executive has been
included in salary column (d).
(2) 1996 Performance Bonus has not yet been determined and is not
included in this table.
(3) Includes (a) life insurance benefit, (b) 401-K matching contribution,
(c) nonqualified deferred compensation matching contribution, (d)
ESOP contribution.
(4) The 1995 awards are NHC Unit Options issued at $31.00 per unit. These
officers also received stock options from National Health Investors,
Inc. in 1993 and 1995, which are disclosed in that company's Form
10-K.
The non-employee Directors of NHC, Inc. (the Managing General Partner
of NHC) are paid $2,500 per meeting attended. There were five board meetings
during 1996 and no board member missed a meeting.
65
<PAGE> 72
OPTION PLANS
At the 1994 annual meeting of the Partners, the 1994 Unit Option Plan
was adopted and approved by the Unitholders. A total of 1,200,000 Units were
reserved for issuance upon exercise of options to be granted by the Board of
Directors of the Managing General Partner.
No options were granted to key employees during 1996, however, pursuant
to the Plan, non-employee directors each receive an option to purchase 5,000
units on the date of the annual partnership meeting and for the closing Unit
price that day. 15,000 Units were granted to the three non-employee Directors at
$38.625 per unit on March 21, 1996.
At December 31, 1996, options to purchase 2,500 Units at $11.25 per
unit are outstanding, an option to purchase 5,000 Units at $24.88 per Unit is
outstanding to one director, options to purchase 6,500 Units at $25.12 per Unit
are outstanding to six employees, options to purchase 15,000 Units are
outstanding at $38.625 per Unit to three directors and options to purchase
361,000 Units at $31.00 per Unit are outstanding to 31 key employees.
Table II shows as to the three executive officers: (i) the number of
Units as to which options have been granted from January 1, 1996 through
December 31, 1996 under the Unit Option Plans; (ii) the percentage of all Units
granted represented by these individuals (iii) the option exercise price per
Unit and the expiration date; and (iv) the potential realizable value of these
options assuming both a five percent and ten percent Unit price appreciation
over the next four years.
TABLE II
NATIONAL HEALTHCARE L.P.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
December 31, 1996
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Unit Price Appreciation for
Option Term(2)
-----------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/SARs
Granted to
Options/SARs Employees in Exercise or Base
Executive Officers Granted (#)(1) Fiscal Year Price ($/Sh) Expiration Date 5%($) 10%($)
- ---------------------------- ------------- -------------- ----------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
W. Andrew Adams, CEO -0- -0- -0- -0- -0- -0-
Robert G. Adams, Sr., VP, -0- -0- -0- -0- -0- -0-
COO
Richard F. LaRoche, Jr., Sr. VP -0- -0- -0- -0- -0- -0-
</TABLE>
(1) No options were awarded during 1996 to executive officers.
(2) Based on remaining option term (if any) and annual compounding
Table III identifies for the same three person group all options
exercised during 1996, the value realized upon exercise, and the unrealized
value of the balance of options outstanding.
TABLE III
NATIONAL HEALTHCARE L.P.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
December 31, 1996
<TABLE>
<CAPTION> Value of Unexercised
In-the Money
Number of Unexercised Options/SARs at
Options/SARs at FY-End (#) FY-End ($)
-------------------------- ----------------
Shares acquired on Exercisable/ Exercisable/
Executive Officer Exercise (#) Value Realized ($)(1) Unexercisable Unexercisable
- ------------------------------- ------------------ --------------------- ------------- -------------
<S> <C> <C> <C> <C>
W. Andrew Adams, CEO -0- -0- 40,000/0 $500,000/0
Robert G. Adams, Sr., VP, COO -0- -0- 30,000/0 375,000/0
Richard F. LaRoche, Jr., Sr. VP -0- -0- 30,000/0 375,000/0
</TABLE>
(1) Market value of underlying securities at exercise date, minus the exercise
or base price.
NHC maintains several non-qualified deferred compensation plans for its
key employees, one of which provides a matching contribution (15%) for all
deferred compensation used to purchase Units of limited partnership interest
held by an independent trustee. The matching contribution is forfeited to NHC
unless the employee achieves eight years of vesting service before withdrawing
funds from the Trustee account. Mr. LaRoche participated in this plan during
1996. Other than as described herein or as identified in Tables I, II and III,
NHC has no other long-term incentive plans for its executive officers.
66
<PAGE> 73
EMPLOYEE STOCK OWNERSHIP PLAN
In 1986 the Administrative General Partner adopted as its Employee
Stock Ownership Plan and Trust ("ESOP") the ESOP previously sponsored by NHC's
corporate predecessor. The ESOP is a qualified pension plan under Section 401(a)
of the Internal Revenue Code. The Administrative General Partner makes
contributions to the ESOP for all employees and is reimbursed for same by NHC.
Employees make no contributions. All contributions are used by the ESOP to
purchase "qualifying employer securities" which is the Common Stock of the
Administrative General Partner. These securities are allocated among
participating employees of the Administrative General Partner who participate in
the ESOP in the ratio of the employee's wages to the total wages of all
participating employees during that fiscal year. Participating employees are all
employees, including officers, who have earned one year of service by working
more than 1,000 hours during the fiscal year.
On January 20, 1988, the Administrative General Partner of NHC formed a
Leveraged Employee Stock Purchase Plan (Leveraged ESOP). During 1988, the
Leveraged ESOP borrowed, in two separate transactions, $88.5 million from four
commercial banks, the proceeds of which were used to purchase additional stock
in the Administrative General Partner. The Administrative General Partner, in
turn, purchased eight (8) health care centers from NHC and contracted with NHC
to manage these centers for a 20-year period. The Administrative General Partner
also loaned $8.5 million to City Center, Ltd. to construct a 15-story office
building in Murfreesboro, Tennessee, approximately 60% of which is occupied by
NHC. In late 1988, the Administrative General Partner entered into a Loan
Agreement with NHC and advanced $50,000,000 to NHC to be used by NHC to pay off
its existing $30,000,000 revolving line of credit, with the balance to be used
for acquisition, development and general working capital needs. In September of
1988, the original ESOP was merged into the Leveraged ESOP so that as of
December 31, 1995, the employees still participated in only one qualified plan.
On December 28, 1990, the Leveraged ESOP borrowed $50,000,000 from three
commercial lenders, the proceeds of which were used as an equity contribution to
the Administrative General Partner, which in turn loaned said proceeds to NHC at
8.48% fixed rate of interest. The proceeds were used for acquisition and new
construction.
The Leveraged ESOP is administered by an Administrative Committee,
currently consisting of Ernest G. Burgess, III (Director), Donald K. Daniel and
Charlotte Swafford (officers of NHC), which is appointed by the Board of
Directors of the administrative general partner. The Trustees of the Leveraged
ESOP are Dr. Olin O. Williams, a director, and Richard F. LaRoche, Jr., NHC's
Senior Vice President and General Counsel.
The amounts contributed to the ESOP in 1996 and allocated to NHC's
executive officers are included in Table I, and total $19,458.
EMPLOYEE UNIT PURCHASE PLAN
NHC has established its Employee Unit Purchase Plan for employees.
Pursuant to the Plan, eligible employees may purchase units through payroll
deductions at the lesser of the closing asked price of the units as reported on
the American Stock Exchange on the first trading or the last trading day of each
year. At the end of each year, funds accumulated in the employee's account will
be used to purchase the maximum number of units at the above price. NHC makes no
contribution to the purchase price. 21,665 units were issued pursuant to the
Plan in January, 1997, with all payroll deductions being made in 1996.
All employees (including officers and directors) may elect to
participate in the Plan if they meet minimum employment requirements. The
maximum payroll deduction is the employee's normal monthly pay. Participating
employee's rights under the plan are nontransferable. Prior to the end of a
year, a participant may elect to withdraw from the Plan and the amount
accumulated as a result of his payroll deductions shall be returned to him
without interest. Any terminated employee immediately ceases to be a participant
and also receives his or her prior contributions.
In no event may a participant in the Plan purchase thereunder during a
calendar year, units having a fair market value more than $25,000.
The units purchased pursuant to the Plan are freely tradeable, except
for any shares held by an "affiliate" of NHC, which would be subject to the
limitations of Rule 144.
Only Mr. LaRoche and Mr. Robert Adams of NHC's executive officers
participated in this Plan during 1996 and the positive spread between the
purchase price and the then fair market price for these individuals is included
in Table I.
1975 PERFORMANCE BONUS PLAN
In 1975 NHC implemented a performance Bonus Plan which was reaffirmed
and readopted by the unitholders in 1994. This plan provides for the Chairman of
the Board to allocate, with the approval of the non-employee directors, the
bonus at the end of each fiscal year. The total amount available for bonuses
under the plan is 20% of NHC's net income (without regard to NHI lease payments
or Advisory fee income) after a 20% return on partners' equity as determined at
the beginning of that fiscal year. Bonuses of $3,093,901 were paid under this
plan to a total of 125 employees for fiscal year 1995.
67
<PAGE> 74
401(K) PLAN
NHC and its affiliates offer a 401(k) Plan for all employees who are
over 18 years of age. The Board of Directors has authorized a matching
contribution to be made for 50% of contributions with contributions being
matched up to 2.5% of quarterly gross wages. No employee may contribute more
than 15% of wages to the Plan, and employees who earn more than $66,000 were
limited to a contribution of no more than $3,500. These matching funds will be
used to purchase Units on the open market, which Units will vest in the
employees account only after the employee has achieved five years of vesting
service. Forfeited units are allocated among remaining participants. A total of
$1,170,000 was contributed to the Plan as matching contributions for 1996.
EMPLOYEE LOAN AND BONUS PROGRAMS
On December 31, 1986, NHC's unitholders adopted an Employee Stock
Financing Plan (the "Financing Plan"). The Plan was designed to enable key
employees of the Corporation to finance the exercise of unit options granted to
them by the Board of Directors and only if authorized by the Board. Under the
Plan, NHC may finance the exercise of any unit options by the acceptance of the
employees' full recourse promissory note bearing interest at a fixed rate equal
to 2.5% below New York prime on the date of the note, with interest payable
quarterly and principal due and payable on ninety days notice, but no longer
than 60 months. The notes are secured by Units having a fair market value equal
to twice the note amount.
The following tables shows, as to each executive officer whose
indebtedness exceeded $60,000, the largest aggregate amount of such indebtedness
since December 31, 1994 and the present outstanding balance.
<TABLE>
<CAPTION>
Financing Plan
-----------------------------------------
Largest Balance out-
Aggregate standing as of
Indebtedness 6/30/97
------------- --------------
<S> <C> <C> <C>
W. Andrew Adams President & Chief $ 4,101,131.00 $3,426,131.00
Executive Officer
Robert G. Adams Sr. Vice President & 2,426,309.00 1,920,059.00
Director
Richard F. LaRoche, Jr. Sr. Vice President & 2,418,076.00 2,136,826.00
Secretary
Ernest G. Burgess Director 1,309,368.00 1,028,118.00
J. K. Twilla Director 169,750.00 -0-
Olin O. Williams Director 679,462.50 595,087.50
-------------- -------------
All Executive Officers $11,104,096.50 $9,106,221.50
& Directors as a Group (6) ============== =============
</TABLE>
Obligations to repay the Financing Plan loans are an asset of NHC (and will
become assets of the Corporation), but are not reflected as increasing
partnership equity (or stockholder equity) until paid. From time to time the
Board has declared a special key employee bonus, directing that the proceeds of
same be used to retire some or all of these financing plan notes. These bonuses
are included in Table I.
68
<PAGE> 75
THE REIT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the REIT will be divided into three classes.
The REIT Directors will hold office until the annual meeting for the year in
which their term expires and until their successor is elected and qualified. As
each of their terms expire, the successor shall be elected to a three-year term.
A director may be removed from office for cause only. Officers serve at the
pleasure of the REIT's Board of Directors for a term of one year. The following
table sets forth the initial directors of the REIT:
<TABLE>
<CAPTION>
Name Officer of
---- Current NHC's Managing
Term as General Partner or
Director Predecessor
Expires Since
-------- ------------------
<S> <C> <C>
J. K. Twilla 2001 ---
Robert G. Adams 2000 1985
Olin O. Williams 2000 ---
W. Andrew Adams 1999 1973
Ernest G. Burgess, III 1999 1975
</TABLE>
Each of the directors of the Corporation are currently directors of NHC
and their biographies are included above.
Outside directors receive $2,500 per meeting attended. In addition, outside
directors will receive a stock option to purchase 5,000 shares of REIT common
stock at a purchase price equal to the closing price of the REIT Shares on the
initial date of trading and will be automatically granted an option to purchase
1,000 shares of REIT common stock at the closing price on the date of the REIT's
annual meeting.
The REIT's day to day operations will be conducted by personnel provided by
the Corporation. The REIT will have two executive officers, W. Andrews Adams as
President and Richard F. LaRoche, Jr., as secretary, both of whom are also
officers of the Corporation. See "Relationship Between the REIT and the
Corporation After the Restructure -- Advisory, Administrative Services and
Facilities Agreement".
The compensation of Mr. Adams and Mr. LaRoche will be set by the Board of
Directors of the Corporation and the obligations of the Corporation pursuant to
the REIT Advisory Agreement. Any compensation paid by the Corporation is
credited against the Advisory fee paid to the Corporation.
STOCK OPTION PLAN
The REIT Board of Directors and the sole shareholder of the REIT have
approved the adoption of the 1997 Stock Option and Stock Appreciation Rights
Plan (the "REIT Stock Option Plan"), under which options to purchase shares of
the REIT's common stock are available for grant to consultants, advisors,
directors and employees of the REIT, providing an equity interest in the REIT
and additional compensation based on appreciation of the value of such stock.
The REIT Stock Option Plan allows for options to purchase in the aggregate
up to 500,000 shares of REIT common stock to be granted by the REIT Board of
Directors. The REIT Board of Directors may, in its discretion grant incentive
stock options ("ISO's"), non-qualified stock options or stock appreciation
rights ("SAR's")
In addition, the REIT Stock Option Plan provides that the non-employee
directors will receive a non-qualified stock option to purchase 5,000 shares of
REIT common stock at a purchase price equal to the closing price of the REIT
Shares on the initial date of trading and will be automatically granted an
option to purchase 5,000 shares of REIT common stock annually on the date of the
REIT's annual meeting with an exercise price equal to the closing price on the
date of such annual meeting.
The REIT Stock Option Plan provides that the exercise price of an ISO
option must not be less than the fair market value of the REIT common stock on
the trading day next preceding the date of the grant. Payment for shares of REIT
common stock to be issued upon exercise of an option may be made either in cash,
REIT common stock or any combination thereof, at the discretion of the option
holder. Options are nontransferable, other than by will, the laws of descent and
distribution or pursuant to certain domestic relations orders. REIT Shares
subject to options granted under the REIT Stock Option Plan that expire,
terminate or are canceled without having been exercised in full become available
again for option grants.
The REIT Stock Option Plan is administered by the REIT Board of Directors,
or, at the discretion of the REIT Board of Directors, a committee of directors.
Subject to certain limitations, the REIT Board and its committee have the
authority to determine the recipients, as well as the exercise prices, exercise
periods, length and other terms of stock
69
<PAGE> 76
options granted pursuant to the REIT Stock Option Plan. In making such
determinations, the REIT Board may take into account the nature of the services
rendered or to be rendered by option recipients, and their past, present or
potential contributions to the REIT.
The number of shares of REIT common stock that may be granted under the
REIT Stock Option Plan or under any outstanding options granted thereunder will
be proportionately adjusted, to the nearest whole share, in the event of any
stock dividend, stock split, share combination or similar recapitalization
involving the REIT common stock or any spin-off, spin-out or other significant
distribution of the REIT's assets to its stockholders for which the REIT
receives no consideration.
Generally, in the event an option holder is terminated as an employee by
reason of disability or death, the holder or his or her representative may
exercise the option for a period of 12 months following such termination unless
the Board of Directors elects, in its sole discretion, to extend the exercise
period. If the employment of an option holder is terminated for "cause," as
defined in the REIT Stock Option Plan, the unexercised options expire. In the
event the option holder is terminated as an employee for any reason other than
disability, death or cause, the holder may exercise his or her option for a
period of three months following termination, unless extended by agreement of
the REIT.
In the event of a dissolution or liquidation of the REIT or a merger or
consolidation or acquisition in which the REIT is not the surviving corporation,
each outstanding option will become fully exercisable and each holder will have
the right, within 60 days prior to such dissolution, liquidation, merger,
consolidation or acquisition, to exercise his or her options, in whole or in
part.
Either non-qualified or incentive stock options may be granted under the
REIT Stock Option Plan. No federal income tax consequences occur to either the
REIT or the optionee upon the REIT's grant or issuance of a non-qualified stock
option. Upon an optionee's exercise of a non-qualified stock option, the
optionee will recognize ordinary income in an amount equal to the difference
between the fair market value of the REIT common stock purchased pursuant to the
exercise of the option and the exercise price of the option. However, if the
REIT common stock purchased upon exercise of the option is not transferable or
is subject to a substantial risk of forfeiture, then the optionee will not
recognize income until the stock becomes transferable or is no longer subject to
such a risk of forfeiture (unless the optionee makes an election under Internal
Revenue Code Section 83(b) to recognize the income in the year of exercise,
which election must be made within 30 days of the option exercise). The REIT
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the optionee in the year in which such income is recognized by the
optionee. Upon a subsequent disposition of the shares of REIT common stock, the
optionee will recognize a capital gain to the extent the sales proceeds exceed
the optionee's cost of the shares plus the previously recognized ordinary
income.
Incentive stock options granted under the REIT Stock Option Plan are
intended to qualify for a favorable tax treatment under Internal Revenue Code
Section 422. No individual may be granted incentive stock options under the REIT
Stock Option Plan exercisable for the first time during any calendar year and
having an aggregate fair market value in excess of $100,000. If the recipient of
an incentive stock option disposes of the underlying shares before the end of
certain holding periods (essentially the later of one year after the exercise
date or two years after the grant date), he or she will generally recognize
ordinary income in the year of disposition in an amount equal to the difference
between his or her purchase price and the fair market value of the REIT common
stock on the exercise date. If a disposition does not occur until after the
expiration of the holding periods, the recipient will generally recognize a
capital gain equal to the excess of the disposition price over the price paid by
the recipient on the exercise date. The REIT generally will not be entitled to a
tax deduction for compensation expense on account of the original sales to
employees, but may be entitled to deduction if a participant disposes of stock
received upon exercise of an incentive stock option under the REIT Stock Option
Plan prior to the expiration of the holding periods.
The only options which the REIT Board of Directors has determined to grant
under the REIT Stock Option Plan to date are the options to purchase 5,000
shares of REIT common stock to be granted to non-employee directors on the first
trading date after the Effective Time.
THE CORPORATION
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Corporation will be divided into three
classes. The Directors will hold office until the annual meeting for the year in
which their term expires and until their successor is elected and qualified. As
each of their terms expire, the successor shall be elected to a three-year term.
A director may be removed from office for cause only. Officers serve at the
pleasure of the Board of Directors for a term of one year. The following table
sets forth the initial directors of the Corporation:
<TABLE>
<CAPTION>
Officer of
Current NHC's Managing
Term as General Partner or
Director Predecessor
Name Expires Since
---- -------- ------------------
<S> <C> <C>
J. K. Twilla 2001 ---
</TABLE>
70
<PAGE> 77
<TABLE>
<CAPTION>
Officer of
Current NHC's Managing
Term as General Partner or
Director Predecessor
Name Expires Since
---- --------- -----------
<S> <C> <C>
Lawrence C. Tucker 2001 ---
Robert G. Adams 2000 1985
Olin O. Williams 2000 ---
W. Andrew Adams 1999 1973
Ernest G. Burgess, III 1999 1975
</TABLE>
Each of the directors of the Corporation are currently directors of NHC
(and their biographical information is set forth above) with the exception of
Mr. Tucker.
Mr. Tucker has been with Brown Brothers Harriman & Co. ("BBH&Co."), a
private banking company, for 31 years and became a general partner in January
1979. Mr. Tucker currently serves as a member of the Steering Committee of
BBH&Co. He is responsible for the corporate finance activities of BBH&Co.,
including management of the 1818 Fund's, private equity investing partnerships
with committed capital exceeding $1 billion. Mr. Tucker is a director of
WorldCom, Inc., Riverwood International Corporation and WellCare Management
Group, Inc. Mr. Tucker has a B.S. degree from Georgia Institute of Technology
and an MBA from the Wharton School of the University of Pennsylvania.
The executive officers of the Corporation will be the same as the
current officers of NHC. See "Management -- NHC." In addition, the employees of
the Corporation will be provided pursuant to the Employee Services Agreement
between the Corporation and National. The Corporation does not have employment
agreements with any of its employees and anticipates that the compensation
received by its executive officers will be in line with the compensation
received by such officers as officers of NHC. See "Management -- NHC --
Executive Compensation."
Outside directors receive $2,500 per meeting attended. In addition,
outside directors will receive a stock option to purchase 10,000 shares of REIT
common stock at a purchase price equal to the closing price of the Corporation
Shares on the initial date of trading and will be automatically granted an
option to purchase 10,000 shares of Corporation common stock at the closing
price on the date of the Corporation's annual meeting.
The Corporation's Board of Directors and the sole shareholder of the
Corporation have approved the adoption of the 1997 Stock Option and Stock
Appreciation Rights Plan (the "Corporation Stock Option Plan"), under which
options to purchase shares of the Corporation's common stock are available for
grant to consultants, advisors, directors and employees of the Corporation,
providing an equity interest in the Corporation and additional compensation
based on appreciation of the value of such stock.
The Corporation Stock Option Plan allows for options to purchase in the
aggregate up to 1,000,000 shares of Corporation common stock to be granted by
the Corporation Board of Directors. The Corporation Board of Directors may, in
its discretion grant incentive stock options ("ISO's"), non-qualified stock
options or stock appreciation rights ("SAR's")
In addition, the Corporation Stock Option Plan provides that the
non-employee directors will receive a non-qualified stock option to purchase
10,000 shares of Corporation common stock at a purchase price equal to the
closing price of the Corporation Shares on the initial date of trading and will
be automatically granted an option to purchase 10,000 shares of Corporation
common stock annually on the date of the Corporation's annual meeting with an
exercise price equal to the closing price on the date of such annual meeting.
The Corporation Stock Option Plan provides that the exercise price of
an ISO option must not be less than the fair market value of the Corporation
common stock on the trading day next preceding the date of the grant. Payment
for shares of Corporation common stock to be issued upon exercise of an option
may be made either in cash, Corporation common stock or any combination thereof,
at the discretion of the option holder. Options are nontransferable, other than
by will, the laws of descent and distribution or pursuant to certain domestic
relations orders. Corporation Shares subject to options granted under the
Corporation Stock Option Plan that expire, terminate or are canceled without
having been exercised in full become available again for option grants.
The Corporation Stock Option Plan is administered by the Corporation
Board of Directors, or, at the discretion of the Corporation Board of Directors,
a committee of directors. Subject to certain limitations, the Corporation Board
and its committee have the authority to determine the recipients, as well as the
exercise prices, exercise periods, length and other terms of stock options
granted pursuant to the Corporation Stock Option Plan. In making such
determinations, the Corporation Board may take into account the nature of the
services rendered or to be rendered by option recipients, and their past,
present or potential contributions to the Corporation.
The number of shares of Corporation common stock that may be granted
under the Corporation Stock Option Plan or under any outstanding options granted
thereunder will be proportionately adjusted, to the nearest whole share, in the
event of any stock dividend, stock split, share combination or similar
recapitalization involving the Corporation common
71
<PAGE> 78
stock or any spin-off, spin-out or other significant distribution of the
Corporation's assets to its stockholders for which the Corporation receives no
consideration.
Generally, in the event an option holder is terminated as an employee by
reason of disability or death, the holder or his or her representative may
exercise the option for a period of 12 months following such termination unless
the Board of Directors elects, in its sole discretion, to extend the exercise
period. If the employment of an option holder is terminated for "cause," as
defined in the Corporation Stock Option Plan, the unexercised options expire. In
the event the option holder is terminated as an employee for any reason other
than disability, death or cause, the holder may exercise his or her option for a
period of three months following termination, unless extended by agreement of
the Corporation.
In the event of a dissolution or liquidation of the Corporation or a merger
or consolidation or acquisition in which the Corporation is not the surviving
corporation, each outstanding option will become fully exercisable and each
holder will have the right, within 60 days prior to such dissolution,
liquidation, merger, consolidation or acquisition, to exercise his or her
options, in whole or in part.
Either non-qualified or incentive stock options may be granted under the
Corporation Stock Option Plan. No federal income tax consequences occur to
either the Corporation or the optionee upon the Corporation's grant or issuance
of a non-qualified stock option. Upon an optionee's exercise of a non-qualified
stock option, the optionee will recognize ordinary income in an amount equal to
the difference between the fair market value of the Corporation common stock
purchased pursuant to the exercise of the option and the exercise price of the
option. However, if the Corporation common stock purchased upon exercise of the
option is not transferable or is subject to a substantial risk of forfeiture,
then the optionee will not recognize income until the stock becomes transferable
or is no longer subject to such a risk of forfeiture (unless the optionee makes
an election under Internal Revenue Code Section 83(b) to recognize the income in
the year of exercise, which election must be made within 30 days of the option
exercise). The Corporation will be entitled to a deduction in an amount equal to
the ordinary income recognized by the optionee in the year in which such income
is recognized by the optionee. Upon a subsequent disposition of the shares of
Corporation common stock, the optionee will recognize a capital gain to the
extent the sales proceeds exceed the optionee's cost of the shares plus the
previously recognized ordinary income.
Incentive stock options granted under the Corporation Stock Option Plan are
intended to qualify for a favorable tax treatment under Internal Revenue Code
Section 422. No individual may be granted incentive stock options under the
Corporation Stock Option Plan exercisable for the first time during any calendar
year and having an aggregate fair market value in excess of $100,000. If the
recipient of an incentive stock option disposes of the underlying shares before
the end of certain holding periods (essentially the later of one year after the
exercise date or two years after the grant date), he or she will generally
recognize ordinary income in the year of disposition in an amount equal to the
difference between his or her purchase price and the fair market value of the
Corporation common stock on the exercise date. If a disposition does not occur
until after the expiration of the holding periods, the recipient will generally
recognize a capital gain equal to the excess of the disposition price over the
price paid by the recipient on the exercise date. The Corporation generally will
not be entitled to a tax deduction for compensation expense on account of the
original sales to employees, but may be entitled to deduction if a participant
disposes of stock received upon exercise of an incentive stock option under the
Corporation Stock Option Plan prior to the expiration of the holding periods.
The only options which the Corporation Board of Directors has determined to
grant under the Corporation Stock Option Plan to date are the options to
purchase 10,000 shares of Corporation common stock to be granted to non-employee
directors on the first trading date after the Effective Time.
The Corporation has also established several non-qualified deferred
compensation plans for its key employees similar to the plans offered by NHC,
one of which provides a matching contribution (15%) for all deferred
compensation used to purchase shares of common stock held by an independent
trustee. The matching contribution is forfeited to the Corporation unless the
employee achieves eight years of vesting service before withdrawing funds from
the Trustee account. The Corporation will grant credit to employees for years of
service with NHC.
EMPLOYEE STOCK PURCHASE PLAN
The Corporation has established its Employee Stock Purchase Plan for
employees. Pursuant to the Plan, eligible employees may purchase shares of
Common Stock through payroll deductions at the lesser of the closing asked price
of the stock as reported on the American Stock Exchange on the first trading or
the last trading day of each plan year. At the end of each plan year, funds
accumulated in the employee's account will be used to purchase the maximum
number of Shares at the above price. The Corporation makes no contribution to
the purchase price.
All employees (including officers and directors) may elect to participate
in the Employee Stock Purchase Plan if they meet minimum employment
requirements. The maximum payroll deduction is the employee's normal monthly
pay. Participating employee's rights under the Plan are nontransferable. Prior
to the end of a year, a participant may elect to withdraw from the Plan and the
amount accumulated as a result of his payroll deductions shall be returned to
him without interest. Any terminated employee immediately ceases to be a
participant and also receives his or her prior contributions.
72
<PAGE> 79
In no event may a participant in the Employee Stock Purchase Plan purchase
thereunder during a calendar year, units having a fair market value more than
$25,000.
The Shares purchased pursuant to the Plan are freely tradeable, except for
any shares held by an "affiliate" of the Corporation, which would be subject to
the limitations of Rule 144.
EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation has adopted as its Employee Stock Ownership Plan and Trust
("ESOP") the ESOP previously sponsored by NHC. The ESOP is a qualified pension
plan under Section 401(a) of the Internal Revenue Code. National Health
Corporation ("National") makes contributions to the ESOP for all employees and
is reimbursed for same by the Corporation. Employees make no contributions. All
contributions are used by the ESOP to purchase "qualifying employer securities"
which is the Common Stock of the Administrative General Partner. These
securities are allocated among participating employees of the Administrative
General Partner who participate in the ESOP in the ratio of the employee's wages
to the total wages of all participating employees during that fiscal year.
Participating employees are all employees, including officers, who have earned
one year of service by working more than 1,000 hours during the fiscal year. The
Corporation's ESOP will assume the debt on NHC's Leveraged ESOP as described
under "Management -- NHC -- Executive Compensation."
The Corporation's ESOP will be administered by an Administrative Committee,
currently consisting of Ernest G. Burgess, III (Director), Donald K. Daniel and
Charlotte Swafford (officers of the Corporation), which is appointed by the
Board of Directors of the Corporation. The Trustees of the ESOP are Dr. Olin 0.
Williams, a director, and Richard F. LaRoche, Jr., the Corporation's Senior Vice
President and General Counsel.
PERFORMANCE BONUS PLAN
The Corporation has adopted a Performance Bonus Plan. This plan provides
for the Chairman of the Board to allocate, with the approval of the non-employee
directors, the bonus at the end of each fiscal year. The total amount available
for bonuses under the plan is 20% of the Corporation's net income (without
regard to NHI lease payments or NHI Advisory fee income or the REIT Lease
payments or REIT Advisory Fee income) after a 20% return on stockholders' equity
as determined at the beginning of that fiscal year.
401(K) PLAN
The Corporation will offer a 401(k) Plan for all employees who are over 18
years of age. The Board of Directors has authorized a matching contribution to
be made for 50% of contributions with contributions being matched up to 2.5% of
quarterly gross wages. No employee may contribute more than 15% of wages to the
Plan, and employees who earn more than $66,000 were limited to a contribution of
no more than $3,500. These matching funds will be used to purchase Shares on the
open market, which Shares will vest in the employees account only after the
employee has achieved five years of vesting service. Forfeited Shares will be
allocated among remaining participants.
EMPLOYEE LOAN AND BONUS PROGRAMS
The Corporation has adopted an Employee Stock Financing Plan (the
"Financing Plan"). The Plan was designed to enable key employees of the
Corporation to finance the exercise of stock options granted to them by the
Board of Directors and only if authorized by the Board. Under the Plan, the
Corporation may finance the exercise of any options by the acceptance of the
employees' full recourse promissory note bearing interest at a fixed rate equal
to 2.5% below New York prime on the date of the note, with interest payable
quarterly and principal due and payable on ninety days notice, but no longer
than 60 months. The notes are secured by Shares having a fair market value equal
to twice the note amount.
Obligations to repay the Financing Plan loans are an asset of the
Corporation, but are not reflected as increasing Equity until paid. From time to
time the Board may declare a special key employee bonus, directing that the
proceeds of same be used to retire some or all of these financing plan notes.
73
<PAGE> 80
CERTAIN TRANSACTIONS
W. ANDREW ADAMS
NHC has successfully developed a continuing care retirement community in
Nashville, Tennessee (Richland Place) and is pursuing similar projects in
Tennessee and Florida. Having identified Murfreesboro, Rutherford County,
Tennessee as a viable market, the Company invited a number of potential
residents to serve as a focus group to assist in the location and design of the
project. After reviewing a number of potential locations, management and the
focus group chose a twenty-two acre tract with extensive frontage on US Highway
231 as the optimum location. This site was owned and occupied by Mr. and Mrs. W.
Andrew Adams, NHC's chief executive officer. After negotiations and appraisal,
the Company acquired in 1993 and 1994 (by exchange of like kind property and
cash) the site from Mr. and Mrs. Adams for a total valuation of $1,500,000,
which the Company believes to be equal to or even less than comparable property
in the market. Mr. and Mrs. Adams are currently renting the residence on the
site on a month to month basis and for a fair market value.
NATIONAL
In January, 1988, NHC sold the assets of eight health care centers (1,121
licensed beds) to National for a total consideration of $40,000,000. The
consideration consisted of $30,000,000 in cash and a $10,000,000 note receivable
due December 31, 2007. The note receivable earns interest at 8.5% per annum. NHC
has agreed to manage the centers under a 20-year management contract for
management fees comparable to those in the industry. NHC has a receivable from
National for management fees of approximately $3.2 million at December 31, 1996.
As of December 31, 1996, National had borrowed $2,153,000 form NHC to finance
the construction of additions at two health care centers. These notes are
unsecured, mature in 1998 and require monthly principal and interest payments,
with interest at the prime rate.
In January, 1988, NHC obtained long-term financing of $8.5 million from
National for its new headquarters building. The note requires quarterly
principal and interest payments with interest at 9%. At December 31, 1996, the
outstanding balance was approximately $5.5 million. The building is owned by a
separate partnership of which NHC is the general partner and the other building
tenants are limited partners. NHC has guaranteed the debt service of the
building partnership (and the Corporation will receive this general partnership
interest). In addition, NHC's bank credit facility and the senior secured notes
were financed through National and National's ESOP. NHC's interest costs,
financing expenses and principal payments are equal to those incurred by
National. In October 1991, NHC borrowed $10.0 million from National. This term
note requires quarterly interest payments at 8.5% with the entire principal due
at maturity in 1998.
The Corporation and National intend to enter into an Employee Services
Agreement (the "Employee Services Agreement") whereby the Corporation will lease
all of its employees from National. Pursuant to the Employee Lease Agreement,
The Corporation will reimburse National for the gross payroll of employees
provided to the Corporation plus a monthly fee equal to one percent of such
month's gross payroll, but in shall such fee be less than the actual cost of
administering the payroll and personnel department. The Employee Services
Agreement may be terminated by either at anytime with or without notice.
National will be responsible for: the employment of all persons necessary
to conduct the business of the Corporation and set all wages and salaries, and
provide all fringe benefits; utilization of any qualified leveraged employee
stock ownership plan; payment of pensions, and establishment or continue and
carry out pension, profit sharing, bonus, purchase, option, savings, thrift and
other incentive and employee benefit plans; purchase and payment of insurance;
the indemnification and purchase of insurance on behalf of any fiduciary of any
employee benefit plans and health insurance on behalf of any fiduciary of such
plans.
In the Employee Services Agreement, the Corporation agrees to indemnify,
defend and hold harmless National from any damages caused by a misrepresentation
by the Corporation, litigation arising from the acts or failure to act of the
Corporation or its agents in accordance with law or the Employee Services
Agreement, any employment matters relating to the employees as a result of gross
negligence or intentional misconduct by the Corporation or the failure of the
Corporation to obtain and/or follow specific advice and direction from National
in matters of employee separation and/or discipline. In addition, National
agrees to indemnify and defend and hold harmless the Corporation from any
damages caused by reason of or resulting from or relating to employee separation
and/or discipline of National employees.
In connection with the Plan of Restructure, with respect to approximately
806,000 of the Units owned by National, instead of receiving REIT Shares,
National will receive approximately 806,000 OP Units. National will receive the
OP Units in order to preserve the ownership restrictions required for the REIT
to qualify as a real estate investment trust. Therefore, after the Effective
Time, National will own approximately 794,000 REIT Shares and 806,000 OP Units.
74
<PAGE> 81
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
NHC
The following table sets forth certain information as to the number of
general and limited partnership Units of NHC beneficially owned as of July 31,
1997 (a) by each person (including any "group" as that term is used in Section
13(d) (3) of the Exchange Act) who is known to NHC to own beneficially 5% or
more of the outstanding Units (8,862,187 Units as of July 31, 1997), (b) by each
director of the Managing or Administrative General Partner, and (c) by all
executive officers and directors of NHC, Managing General Partner and the
Administrative General Partner as a group. Members of management of NHC listed
below are all members of management and/or the Board of Directors of the
Managing and Administrative General Partners, but they disclaim that they are
acting as a "group" and the table below is not reflective of them acting as a
group:
<TABLE>
<CAPTION>
Names and Addresses Number of Units Percentage of
of Beneficial Owner Beneficially Owned (1) Total Units
------------------- ---------------------- -------------
<S> <C> <C>
W. Andrew Adams, President and 1,062,173 12.00%
Individual General Partner
1927 Memorial Blvd.
Murfreesboro, TN 37129
Dr. J. K. Twilla, Director 73,155 .82%
525 Golf Club Lane
Smithville, TN 37166
Dr. Olin O. Williams, Director 99,340 1.12%
2007 Riverview Drive
Murfreesboro, TN 37139
Robert G. Adams, Director & Sr. V.P. 438,073 4.94%
2217 Tomahawk Trace
Murfreesboro, TN 37129
Ernest G. Burgess, Director 178,592 2.02%
2239 Shannon Drive
Murfreesboro, TN 37129
Richard F. LaRoche, Jr., Sr. V.P. 374,685 4.23%
2103 Shannon Drive
Murfreesboro, TN 37130
National Health Corporation, (2) 1,271,058 14.34%
Admin. General Partner
P. O. Box 1398
Murfreesboro, TN 37133
NHC, Inc., Managing General Partner 87,715 .99%
P. O. Box 1398
Murfreesboro, TN 37133
Albert O. Nicholas 443,600 5.00%
6002 North Highway 83
Hartland, WI 53029
All Executive Officers, Directors of the 3,579,988 40.40%
Corporate General Partners and the
Corporate General Partners as a Group
</TABLE>
(1) Assumes exercise of unit options and convertible subordinated
debentures outstanding. See "Management -- NHC -- Option Plans."
(2) Does not include 99,495 Units owned by a revocable trust under NHC's
deferred compensation plan or 239,600 Units owned by National for the
benefit of a third party, of which National may be deemed the
beneficial owner. National disclaims beneficial ownership of such
Units.
75
<PAGE> 82
THE REIT
Since its incorporation, the REIT has been and until the Distribution
occurs will be a wholly-owned subsidiary of NHC. As a result, NHC currently
owns 100% of the outstanding REIT Shares. Immediately following the Effective
Time of the Plan of Restructure, the REIT will be beneficially owned by each
person and with the same percentage ownership as NHC is currently owned except
that National will own approximately 794,000 REIT Shares and 806,000 OP Units
and there will be approximately 806,000 fewer REIT Shares outstanding. See
"Certain Transactions - National."
After applying certain ownership attribution rules of the Code, the two
largest shareholders of the REIT will be (i) W. Andrew Adams and other members
of his family, and (ii) National Health Corporation. See "Federal Income Tax
Considerations - The REIT - Taxation as a Real Estate Investment Trust." The
following table sets forth certain information as to REIT Shares estimated to
be beneficially owned after the Effective Time.
<TABLE>
<CAPTION>
Number of REIT Shares Percentage of
Names and Addresses Beneficially Owned After the Total REIT Shares After the
of Beneficial Owner Restructure (1) Restructure (2)
------------------- ---------------------------- ---------------------------
<S> <C> <C>
W. Andrew Adams, President and 1,062,173 10.61%
Individual General Partner
1927 Memorial Blvd.
Murfreesboro, TN 37129
Dr. J. K. Twilla, Director 73,155 0.73%
525 Golf Club Lane
Smithville, TN 37166
Dr. Olin O. Williams, Director 99,340 0.99%
2007 Riverview Drive
Murfreesboro, TN 37139
Robert G. Adams, Director & Sr. V.P. 438,073 4.37%
2217 Tomahawk Trace
Murfreesboro, TN 37129
Ernest G. Burgess, Director 178,592 1.78%
2239 Shannon Drive
Murfreesboro, TN 37129
Richard F. LaRoche, Jr., Sr. V.P. 374,685 3.74%
2103 Shannon Drive
Murfreesboro, TN 37130
National Health Corporation, 794,000 7.93%
Admin. General Partner
P. O. Box 1398
Murfreesboro, TN 37133
All Executive Officers, Directors of the 2,221,215 22.18%
REIT
</TABLE>
(1) Assumes exercise of options outstanding.
(2) Based on an estimated 10,013,400 to be outstanding immediately after
the Effective Time.
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<PAGE> 83
THE CORPORATION
Since its incorporation, the Corporation has been and until the Merger
occurs will be a wholly-owned subsidiary of NHC. As a result, NHC currently owns
100% of the outstanding Shares. Immediately following the Effective Time of the
Plan of Restructure, the Corporation will be beneficially owned by each person
and with the same percentage ownership as NHC except that the 1818 Notes, if
issued, will immediately be converted into approximatley 555,555 Shares at the
Effective Time. The following table sets forth certain information as to Shares
estimated to be beneficially owned after the Effective Time.
<TABLE>
<CAPTION>
Number of Corporation Shares Percentage of
Names and Addresses Beneficially Owned After the Total Corporation Shares After the
of Beneficial Owner Restructure (1) Restructure (2)
------------------- ---------------------------- ---------------------------
<S> <C> <C>
W. Andrew Adams, Director, CEO 1,062,173 10.61%
1927 Memorial Blvd.
Murfreesboro, TN 37129
Dr. J.K. Twilla, Director 73,155 0.73%
525 Golf Club Lane
Smithville, TN 37166
Dr. Olin O. Williams, Director 99,340 0.99%
2007 Riverview Drive
Murfreesboro, TN 37139
Robert G. Adams, Director & Sr.V.P. 438,073 4.37%
2217 Tomahawk Trace
Murfreesboro, TN 37129
Ernest G. Burgess, Director 178,592 1.78%
2239 Shannon Drive
Murfreesboro, TN 37129
Lawrence C. Tucker, Director (3) 555,555 5.13%
59 Wall Street
New York, NY 10005
Richard F. LaRoche, Jr., Sr.V.P. 374,685 3.74%
2103 Shannon Drive
Murfreesboro, TN 37130
National Health Corporation (4) 1,271,058 11.75%
P.O. Box 1398
Murfreesboro, TN 37133
1818 Fund 555,555 5.13%
59 Wall Street
New York, New York 10005
All Executive Officers, Directors of the 2,776,770 25.66%
Corporation
</TABLE>
(1) Assumes exercise of options outstanding.
(2) Based on an estimated 10,819,400 to be outstanding immediately after
the Effective Time.
(3) Mr. Tucker is a general partner of 1818 Fund and may be deemed to be
the beneficial owner of the Shares owned by the 1881 Fund. Mr. Tucker
disclaims beneficial ownership.
(4) Does not include 99,495 Units owned by a revocable trust under NHC'S
deferred compensation plan or 239,600 Units owned by National for the
benefit of a third party of which National may be deemed the beneficial
owner. National disclaims beneficial ownership of such Shares.
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<PAGE> 84
DESCRIPTION OF SECURITIES
SHARES OF THE CORPORATION
COMMON STOCK
The Corporation is authorized to issue 30,000,000 shares of common stock,
par value $.01 per share and 10,000,000 shares of preferred stock, par value
$.01 per share.
Holders of the Shares are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors. Holders of the Shares are
entitled to receive dividends when, as and if declared by the board of directors
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Corporation, holders of the Shares are entitled
to share ratably in all assets remaining available for distribution to them
after payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the Shares. Holders of the Shares, as
such, have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to the Shares. All of the Shares outstanding
are fully paid and nonassessable.
The Corporation's board of directors is authorized to issue preferred stock
in one or more series and, with respect to each series, to determine the number
of shares constituting any series, and the preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications and terms and conditions of redemption.
The preferred stock and the variety of characteristics available for it
offers the Corporation flexibility in financing and acquisition transactions. An
issuance of preferred stock could dilute the book value or adversely affect the
relative voting power of the Corporation Shares. The issuance of such shares
could be used to discourage unsolicited business combinations, for example, by
providing for class voting rights which would enable the holder to block such a
transaction. Although the Corporation's board of directors is required when
issuing such stock to act based on its judgment as to the best interests of the
stockholders of the Corporation, the board of directors could act in a manner
that would discourage or prevent a transaction some stockholders might believe
is in the Corporation's best interests or in which stockholders could or would
receive a premium for their Corporation Shares over the market price.
The Corporation's board of directors has authority to classify or
reclassify authorized but unissued shares of preferred stock by setting or
changing the preferences, conversion and other rights, voting powers,
restrictions and limitations as to dividends, qualifications, and terms and
conditions of redemption of stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The certificate of incorporation of the Corporation (the "Corporation
Certificate") provides that directors of the Corporation will not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
directors' duty of loyalty to the Corporation or its stockholders, (ii) for acts
of omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL relating to prohibited
dividends or distribution or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit.
The provision does not apply to claims against directors for violations of
certain laws, including federal securities laws. If the DGCL is amended to
authorize further elimination or limitation of director's liability, then the
liability of directors of the Corporation shall automatically be limited to the
fullest extent provided by law. The Corporation Certificate and the bylaws of
the Corporation (the "Corporation Bylaws") also contain provisions to indemnify
the directors, officers, employees or other agents to the fullest extent
permitted by the DGCL. These provisions may have the practical effect in certain
cases of eliminating the ability of stockholders to collect monetary damages
from directors.
BUSINESS COMBINATIONS
Subject to certain exceptions, Section 203 of the DGCL prohibits a public
Delaware corporation from engaging in a business combination (as defined
therein) with an "interested stockholder" (defined generally as any person who
beneficially owns 15% or more of the outstanding voting stock of the corporation
or any person affiliated with such person) for a period of three years following
the date that such stockholder became an interested stockholder, unless (i)
prior to such date the board of directors of the corporation approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
at the time the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares owned (a) by directors who are also
officers of the corporation and (b) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) on or subsequent to such date the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of at least two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder. Section
203 of the DGCL may have the effect of deterring merger proposals, tender offers
or other attempts to effect changes in control of the Corporation that are not
negotiated with and approved by the Corporation's board of directors.
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TRANSFER AGENT AND REGISTRATION
The transfer agent and registrar for the Shares will be SunTrust Bank,
Atlanta.
SHARES OF THE REIT
COMMON STOCK
The REIT is authorized to issue 30,000,000 shares of common stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01
per share.
Each REIT Share is entitled to one vote on each matter submitted to a vote
of stockholders. There is no right of cumulative voting in connection with the
election of directors. Any of the REIT Shares issued and sold hereunder will be
fully paid and nonassessable. Holders of the REIT Shares are entitled to
receive, pro rata, dividends declared by the REIT board of directors out of
funds legally available therefor. In the event of any liquidation, dissolution
or winding up of the REIT, holders of the REIT Shares are entitled to share
ratably in the assets available for distribution to stockholders. There are no
pre-emptive or other subscription rights, conversion rights, or redemption or
sinking fund provisions with respect to the REIT Shares.
PREFERRED STOCK
The REIT's board of directors is authorized to issue preferred stock in one
or more series and, with respect to each series, to determine the number of
shares constituting any series, and the preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications and terms and conditions of redemption.
The preferred stock and the variety of characteristics available for it
offers the REIT flexibility in financing and acquisition transactions. An
issuance of preferred stock could dilute the book value or adversely affect the
relative voting power of the REIT Shares. The issuance of such shares could be
used to discourage unsolicited business combinations, for example, by providing
for class voting rights which would enable the holder to block such a
transaction. Although the REIT board of directors is required when issuing such
stock to act based on its judgment as to the best interests of the stockholders
of the REIT, the board of directors could act in a manner that would discourage
or prevent a transaction some stockholders might believe is in the REIT's best
interests or in which stockholders could or would receive a premium for their
REIT Shares over the market price.
The REIT's board of directors has authority to classify or reclassify
authorized but unissued shares of preferred stock by setting or changing the
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications, and terms and conditions of
redemption of stock.
REIT PROVISIONS
The REIT Charter contains certain limitations on the number of shares of
the REIT's stock that any one stockholder may own, which limitations are
designed to ensure that the REIT maintains its status as a real estate
investment trust.
Upon demand of the REIT, each stockholder must disclose to the REIT such
information with respect to direct and indirect ownership of stock owned (or
deemed to be owned after applying the rules applicable to real estate investment
trusts under the Code) as the REIT board of directors deems reasonably necessary
in order that the REIT may fully comply with the real estate investment trust
provisions of the Code. Proposed transferees of stock must also satisfy the
board, upon demand, that such transferees will not cause the REIT to fall out of
compliance with such provisions.
The Code generally prevents a company from qualifying as a real estate
investment trust if more than 50% in value of its stock is owned, directly or
indirectly, by five or fewer individuals, which includes certain entities
treated as individuals (the "Closely-Held Rule"). The REIT Charter prohibits a
stockholder from owning more than 9.8% of any other class of capital stock of
the REIT. Any shares of common stock in excess of such limit are deemed to be
"Excess Shares". Excess Shares shall be deemed automatically to have been
converted into a class separate and distinct from the class from which converted
and from any other class of Excess Shares, each such class being designated
"Excess Shares of [stockholder's name]" or in the event of excess preferred
stock, "Excess Preferred Stock of [stockholder's name]". No Excess Shares may be
voted, nor considered outstanding for the purpose of determining a quorum at any
meeting of stockholders. Any dividends or other distributions payable upon the
Excess Shares may, in the discretion of the REIT, be paid into a non-interest
bearing account and released to the stockholder only at such time as he or she
ceases to be the holder of Excess Shares. The REIT, upon authorization of the
board of directors, may redeem any or all Excess Shares, and from the date of
the giving of notice of redemption such shares shall cease to be outstanding and
the stockholder shall cease to be entitled to dividends, voting rights and other
benefits with respect to such shares. The redemption price will be based on the
trading prices of the class of stock from which the Excess Shares being redeemed
were converted, and is payable, without interest, only upon the liquidation of
the REIT. However, the REIT Charter contains provisions under which the holder
of Excess Shares may cause the REIT to rescind such redemption by selling (and
notifying the REIT of such sale), within 30 days after notice of the redemption,
a number of the shares held by such holder equal to the number of Excess Shares.
In addition, Excess Shares held by any holder may be converted back into shares
of the original class and series of stock if the holder sells such shares prior
to their being called for redemption.
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<PAGE> 86
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Maryland General Corporate Law (the "MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders from money
damages, excluding liability resulting from (a) actual receipt of an improper
benefit or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The REIT Charter contains such a provision, which eliminates such
liability to the maximum extent permitted by the MGCL.
The REIT Charter obligates the REIT, 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
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, at the request of the REIT,
serves or has served another entity and who is made a party to the proceeding by
reason of his service in that capacity. The MGCL also permits the REIT to
indemnify and advance expenses to any person who served a predecessor of the
REIT in any of the capacities described above and to any employee or agent of
the REIT or a predecessor of the REIT.
The MGCL requires a corporation (unless its charter provides otherwise,
which the REIT Charter does not) to indemnify a director 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 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 tot he 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, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the REIT, as a condition to 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 REIT as authorized by the bylaws and (b) a written undertaking by or in his
behalf to repay the amount paid or reimbursed by the REIT if it shall ultimately
be determined that the standard of conduct was not met. The REIT will indemnify
all of its officers and directors to the fullest extent permitted under Maryland
law.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law (the "MGCL"), certain "Business
Combinations" (including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
voting power of the REIT's outstanding voting stock (an "Interested
Stockholder") must be: (a) recommended by the REIT's board of directors; and (b)
approved by the affirmative vote of at least (i) 80% of the REIT's outstanding
shares entitled to vote and (ii) two-thirds of the outstanding shares entitled
to vote that is not held by the Interested Stockholder with whom the business
combination is to be effected, unless, among other things, the REIT's common
stockholders receive a minimum price (as defined in the statute) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for his shares. In addition, an
Interested Stockholder or any affiliate thereof may not engage in a "Business
Combination" with the REIT for a period of five years following the date he
becomes an Interested Stockholder. These provisions of MGCL do not apply,
however, to Business Combinations that are approved or exempted by the board of
directors prior to a person's becoming an Interested Stockholder. The REIT may
expressly elect not to be governed by these provisions, in whole or in part, by
so providing in its Charter or by adopting a charter amendment.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" may not be voted except to the extent approved
by a vote of two-thirds of the votes entitled to be cast by stockholders
excluding shares owned by the acquirer, officers and directors who are employees
of the REIT. "Control shares" are shares that, if aggregated with all other
shares previously acquired that the person is entitled to vote, would entitle
the acquirer to vote (i) 20% or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority of the outstanding shares.
Control shares do not include shares the acquiring person is entitled to vote
because stockholder approval has previously been obtained. 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 and
who has obtained a definitive financing agreement with a responsible financial
institution providing for any amount of financing not to be provided by the
acquiring person may compel the REIT's board of directors to call a special
meeting of stockholders 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 REIT may
itself present the question at any stockholders' meeting.
Subject to certain conditions and limitations, the REIT 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 voting rights, as of
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<PAGE> 87
the date of the last control shares acquisition or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders'
meeting and the acquirer is entitled to vote a majority of the shares entitled
to vote, all other stockholders 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 in the control shares acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenter's
rights do not apply in the context of control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to the acquisitions approved or excepted by the REIT Charter or
REIT Bylaws prior to a control share acquisition.
The limitation on ownership of stock set forth in the REIT Charter, as well
as Maryland business combination and control share acquisition statutes could
have the effect of discouraging offers to acquire the REIT and of increasing the
difficulty of consummating any such offer.
TRANSFER AGENT AND REGISTRAR
SunTrust Bank in Nashville will act as transfer agent and registrar for the
REIT Shares.
OPERATING PARTNERSHIP AGREEMENT
The following summary of the Operating Partnership Agreement describes the
material provisions of such agreement. This summary 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 organized as a Delaware limited partnership
in October, 1997. The REIT is the sole general partner of, and will hold
approximately 91% of the economic interests in, the Operating Partnership. The
REIT will hold a one percent general partner interest in the Operating
Partnership and the balance will be held as a limited partner interest. The REIT
will conduct substantially all of its business through the Operating Partnership
and its subsidiaries. It is contemplated that National Health Corporation
initially will be the sole limited partner of the Operating Partnership.
Pursuant to the Operating Partnership Agreement, the REIT, as the sole
general partner of the Operating Partnership, generally has full, exclusive and
complete responsibility and discretion in the management, operation and control
of the Operating Partnership, including the ability to cause the Operating
Partnership to enter into certain major transactions, including acquisitions,
developments and dispositions of properties and refinancings of existing
indebtedness. No limited partner may take part in the operation, management or
control of the business of the Operating Partnership by virtue of being a holder
of OP Units.
The limited partners of the Operating Partnership have agreed that in the
event of any conflict in the fiduciary duties owed by the REIT to its
stockholders and by the REIT, as general partner of the Operating Partnership,
to such limited partners, the REIT may act in the best interests of the REIT's
stockholders without violating its fiduciary duties to such limited partners or
being liable for any resulting breach of its duties to the limited partners.
The Operating Partnership Agreement provides that all business activities
of the REIT, including all activities pertaining to the acquisition and
operation of properties, must be conducted through the Operating Partnership,
and that the Operating Partnership must be operated in a manner that will enable
the REIT to satisfy the requirements for being classified as a real estate
investment trust.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Operating Partnership provides that the limited partners may not remove
the REIT as general partner of the Operating Partnership. The REIT may not
transfer any of its interests as general or limited partner in the Operating
Partnership except (i) in connection with a merger or sale of all or
substantially all of its assets pursuant to a transaction for which it has
obtained the requisite approval in accordance with the terms of the Operating
Partnership Agreement (ii) if the limited partners holding at least
three-fourths of the OP Units (excluding OP Units owned by the REIT) consent to
such transfer or (iii) to certain affiliates of the REIT.
AMENDMENTS OF THE OPERATING PARTNERSHIP AGREEMENT
Amendments to the Operating Partnership Agreement may be proposed by the
REIT or by limited partners owning at least 25% of the OP Units.
Generally, the Operating Partnership Agreement may be amended with the
approval of the REIT, as general partner, and limited partners (including the
REIT) holding a majority of the OP Units. Certain amendments that would, among
other things, convert a limited partner's interest into a general partner's
interest, modify the limited liability of a limited partner, alter the interest
of a partner in profits or losses or the right to receive any distributions,
alter or modify the
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redemption right described above, or cause the termination of the Operating
Partnership at a time or on terms inconsistent with those set forth in the
Operating Partnership Agreement must be approved by the REIT and each limited
partner that would be adversely affected by such amendment. Notwithstanding the
foregoing, the REIT, as general partner, will have the power, without the
consent of the limited partners, to amend the Operating Partnership Agreement as
may be required to (1) add to the obligations of the REIT as general partner or
surrender any right or power granted to the REIT as general partner; (2) reflect
the admission, substitution, termination or withdrawal of partners in accordance
with the terms of the Operating Partnership Agreement; (3) establish the rights,
powers, duties and preferences of any additional partnership interests issued in
accordance with the terms of the Operating Partnership Agreement; (4) reflect a
change of an inconsequential nature that does not materially adversely affect
the limited partners, or cure any ambiguity, correct or supplement any
provisions of the Operating Partnership Agreement not inconsistent with law or
with other provisions of the Operating Partnership Agreement, or make other
changes concerning matters under the Operating Partnership Agreement that are
not otherwise inconsistent with the Operating Partnership Agreement or law; or
(5) satisfy any requirements of federal or state law. Certain provisions
affecting the rights and duties of the REIT as general partner (e.g.,
restrictions on the REIT's power to conduct businesses other than owning OP
Units; restrictions relating to the issuance of securities of the REIT and
related capital contributions to the Operating Partnership; restrictions
relating to certain extraordinary transactions involving the REIT or the
Operating Partnership) may not be amended without the approval of a majority or,
in certain instances, a supermajority of the OP Units not held by the REIT.
TRANSFER OF OP UNITS; SUBSTITUTE LIMITED PARTNERS
The Operating Partnership Agreement provides that limited partners
generally may transfer their OP Units without the consent of any other person,
but may substitute a transferee as a limited partner only with the prior written
consent of the REIT as the sole general partner of the Operating Partnership. In
addition, limited partners may not transfer OP Units in violation of certain
regulatory and other restrictions set forth in the Operating Partnership
Agreement.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The REIT is authorized, without the consent of the limited partners, to
cause the Operating Partnership to issue additional OP Units to the REIT, to the
limited partners or to other persons for such consideration and on such terms
and conditions as the REIT deems appropriate. If additional OP Units are issued
to the REIT, then the REIT must (i) issue additional shares of Common Stock and
must contribute to the Operating Partnership the entire proceeds received by the
REIT from such issuance or (ii) issue additional OP Units to all partners in
proportion to their respective interests in the Operating Partnership. In
addition, the REIT may cause the Operating Partnership to issue to the REIT
additional partnership interests in different series or classes, which may be
senior to the OP Units, in conjunction with an offering of securities of the
REIT having substantially similar rights, in which the proceeds thereof are
contributed to the Operating Partnership. Consideration for additional
partnership interests may be cash or other property or assets. No limited
partner has preemptive, preferential or similar rights with respect to
additional capital contributions to the Operating Partnership or the issuance or
sale of any partnership interests therein.
EXTRAORDINARY TRANSACTIONS
The Operating Partnership Agreement provides that the REIT may not
generally engage in any merger, consolidation or other combination with or into
another person or sale of all or substantially all of its assets, or any
reclassification, or any recapitalization or change of outstanding shares of
Common Stock (a "Business Combination"), unless the holders of OP Units will
receive, or have the opportunity to receive, the same consideration per OP Unit
as holders of Common Stock receive per share of Common Stock in the transaction;
the REIT may not engage in such transaction unless limited partners holding at
least 51% of the OP Units held by limited partners vote to approve the Business
Combination.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Operating Partnership Agreement generally provides that the REIT, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the REIT
carried out its duties in good faith. In addition, the REIT is not responsible
for any misconduct or negligence on the part of its agents, provided the REIT
appointed such agents in good faith. The REIT may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors, and any action it takes or omits to take in reliance
upon the opinion of such persons, as to matters that the REIT reasonably
believes to be within their professional or expert competence, shall be
conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
The Operating Partnership Agreement also provides for indemnification of
the REIT, the directors and officers of the REIT, and such other persons as the
REIT may from time to time designate against any judgments, penalties, fines,
settlements and reasonable expenses actually incurred by such person in
connection with the preceding unless it is established that: (1) the act or
omission of the indemnified person was material to the matter giving rise to the
preceding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (2) the indemnified person actually received an improper
personal benefit in money, property or services; or (3) in the case of any
criminal proceeding, the indemnified person had reasonable cause to believe that
the act or omission was unlawful.
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TAX MATTERS
The REIT will be the tax matters partner of the Operating Partnership and,
as such, will have the authority to make tax elections under the Code on behalf
of the Operating Partnership.
TERM
The Operating Partnership will continue in full force and effect until
_______________, or until sooner dissolved pursuant to the terms of the
Operating Partnership Agreement.
COMPARISON OF STOCKHOLDER/UNITHOLDER RIGHTS
NHC is a limited partnership existing under the laws of the State of
Delaware, and the rights of the holders of the Units as such are governed in
part by the Delaware Revised Uniform Limited Partnership Act and the Partnership
Agreement. The Corporation is incorporated in the State of Delaware, and the
rights of the holders of the Shares are governed in part by the DGCL, the
Corporation Certificate and the Corporation Bylaws. The REIT is incorporated
under the laws of the State of Maryland, and the rights of the holders of the
REIT Shares as such are governed in part by the MGCL, the REIT Charter and the
REIT Bylaws.
The following summary compares a number of differences between ownership of
the Units and ownership of the Shares and the REIT Shares and the effects
relating thereto. This summary is not intended to be complete and is qualified
in its entirety by reference to the Delaware Revised Limited Partnership Act,
the DGCL, the MGCL, and the constituent documents of NHC, the Corporation and
the REIT. See also "Description of Securities."
<TABLE>
<CAPTION>
ISSUER
UNITS SHARES REIT SHARES
NHC The Corporation The REIT
TAXATION
UNITS SHARES REIT SHARES
<S> <C> <C>
Under current law, NHC does not The Corporation is a taxable entity The REIT is a taxable entity with
pay tax on its net income. with respect to its income after respect to its income after
However, in order to continue its allowable deductions and credits. allowable deductions and credits.
current operations and remain a Stockholders will have taxable As a REIT, the REIT may
partnership for tax purposes for income from the Corporation's generally deduct from its taxable
periods beginning after December operations only to the extent that income an amount equal to the
31, 1997, it will have to pay tax at a taxable dividends and other dividends paid to its Shareholders.
rate of 3.5% of gross income. distributions are declared and paid Stockholders will have taxable
Otherwise, it will be taxed as a on the Shares. See "Federal Income income from the REIT's
corporation. Each Unitholder Tax Considerations." operations only to the extent that
annually includes the holder's share taxable dividends and other
of the income and gain and, subject distributions are declared and paid
to certain limitations, the losses, on the REIT Shares. See "Federal
deductions and credits of NHC in Income Tax Considerations."
computing taxable income without
regard to any cash distributed to the
limited partner. Generally, cash
distributions to holders of Units are
not taxable, unless such distributions
exceed the limited partner's basis in
the Units. See "Federal Income
Tax Considerations."
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
A tax-exempt limited partner's No portion of the earnings of, or any No portion of the earnings of, or
share of NHC's taxable income dividends received from, the any dividends received from, the
constitutes unrelated business Corporation will generally constitute REIT will generally constitute
taxable income to the tax-exempt unrelated business taxable income to unrelated business taxable income
unitholder. See "Federal Income tax-exempt stockholders, except to to tax-exempt stockholders,
Tax Considerations." the extent their investment in stock except to the extent their
of the Corporation is considered investment in stock of the REIT is
debt-financed. See "Federal Income considered debt-financed. See
Tax Considerations." "Federal Income Tax
Considerations."
DISTRIBUTIONS AND DIVIDENDS
UNITS SHARES REIT SHARES
The Managing General Partner of The board of directors of the The MGCL provides that the
NHC has the discretion under the Corporation has the discretion to Board of Directors of the REIT
Partnership Agreement to make determine whether or not and when has the discretion to determine
distributions of NHC's Cash to declare and pay dividends and the whether or not and when to
Available for Distribution. Cash amount of any dividend. Holders of declare and pay dividends and the
Available for Distribution generally the Shares will have no contractual amount of any dividend.
means NHC's cash less (i) cash right to receive dividends. However, in order to qualify as a
expenses, liabilities and obligations real estate investment trust for
of NHC and (ii) reserves federal tax purposes the REIT
established by the Managing must distribute at least 95% of the
General Partner in its sole REIT's taxable income. See
discretion for capital expenditures, "Federal Income Tax
and other improvements, retirement Considerations-- The REIT--
of indebtedness, operations or Annual Distribution
contingencies and liabilities. Requirements." Holders of REIT
Shares will have no contractual
right to receive dividends.
MANAGEMENT
UNITS SHARES REIT SHARES
The business and affairs of NHC The business and affairs of the The business and affairs of the
are managed by the Managing Corporation are managed by or REIT are managed by or under
General Partner, NHC, Inc. under the direction of the board of the direction of the board of
directors of the Corporation. The directors of the REIT. The
personnel in control of the personnel in control of the REIT
Corporation will be substantially the will be identical to that of NHC.
same as that of NHC.
Subject to the procedure prescribed Holders of the Shares will have the Holders of the REIT Shares will
in the Partnership Agreement, the ability to elect members of the board have the ability to elect members
Managing General Partner may be of directors with a plurality of the of the board of directors with a
removed by vote of (i) 50% or votes cast for such election and to plurality of the votes cast for such
greater of the Units together with remove the board of directors with a election and to remove the board
the unanimous consent of the board majority vote of the common stock of directors with a majority vote
of directors of the Managing outstanding and entitled to vote. of the common stock outstanding
General Partner or (ii) and entitled to vote.
approximately 70% of the Units.
</TABLE>
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<TABLE>
<CAPTION>
VOTING RIGHTS
UNITS SHARES REIT SHARES
<S> <C> <C>
Under Delaware law and the Holders of the Shares will have the Holders of the REIT Shares will
Partnership Agreement, limited right to vote on matters specified by have the right to vote on matters
partners have voting rights with Delaware law affecting the specified by Maryland law
respect to (i) the removal and corporate structure of the affecting the corporate structure
replacement of the Managing Corporation, including election of of the REIT, including election of
General Partner, (ii) the merger of the board of directors. Stockholders the board of directors.
NHC, (iii) the sale of all or of the Corporation will have the Stockholders of the REIT will
substantially all of the assets right to vote on all matters on which have the right to vote on all
owned, directly or indirectly, by stockholders must be permitted to matters on which stockholders
NHC, (iv) the dissolution of NHC, vote including ,as a general matter, must be permitted to vote
and (v) material amendments to the election of directors, fundamental including, as a general matter,
Partnership Agreement, subject to changes in the Corporation, sale of election of directors, fundamental
certain limitations. all or substantially all of the assets changes in the REIT, sale of all or
of the Corporation and amendments substantially all of the assets of
to the Corporation Certificate. the REIT and amendments to the
REIT Charter.
Each Unit entitles the holder Each Share entitles its holder to cast Each REIT Share entitles its
thereof who is admitted as a limited one vote on each matter presented to holder to cast one vote on each
partner to the Partnership to cast the stockholders. matter presented to the
one vote on all matters presented to stockholders.
limited partners.
Approval of any matter submitted Approval of any matter submitted to Approval on any matter submitted
to limited partners generally the stockholders generally requires to the stockholders generally
requires the affirmative vote of the affirmative vote of holders of requires the affirmative vote of
limited partners holding more than more than 50% of the Shares more than 50% of the REIT
50% of the Units then outstanding. outstanding and entitled to vote. Shares outstanding and entitled to
The removal of the Managing Certain matters require the vote. Certain matters require the
General Partner requires the affirmative vote of approximately affirmative vote of approximately
affirmative vote of 70% of the 70% of the outstanding Shares, 70% of the outstanding Shares,
outstanding Units, except that a except that a vote of more than 50% except that a vote of more than
vote of 50% of the outstanding is required for such matters if the 50% is required for such matters
Units is sufficient to remove the board of directors of the if the board of directors of the
Managing General Partner if the Corporation unanimously consents. Corporation unanimously
board of directors of the Managing consents.
General Partner unanimously
consents.
Holders of 10% of the Units held Amendment of the Corporation Amendment of the REIT Charter
by limited partners may propose Certificate or Bylaws requires or the REIT Bylaws requires
amendments to the Partnership approval of a majority of the approval of a majority of the
Agreement. members of the board of directors board of directors and, in certain
and, in certain cases, approval by cases, approval by the
the stockholders. stockholders.
Any action that may be taken at a Stockholders may act by written Stockholders may act by
meeting of limited partners may be consent in lieu of a meeting with a unanimous written consent in lieu
taken by written consent in lieu of a number of votes sufficient for such of a meeting.
meeting executed by limited action.
partners sufficient to authorize such
action at a meeting of limited
partners.
</TABLE>
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<TABLE>
<CAPTION>
SPECIAL MEETINGS
UNITS SHARES REIT SHARES
<S> <C> <C>
Special meetings of the Unitholders Special meetings of stockholders Special meetings of stockholders
may be called by the Managing can only be called by the board of can only be called by the board of
General Partner or by Unitholders directors or president. directors or president.
holding at least 10% of the
outstanding Units.
CONVERSION RIGHTS
UNITS SHARES REIT SHARES
The Units are not convertible into The Shares are not convertible into The REIT Shares are not
any other securities. any other securities. convertible into any other
securities.
REDEMPTION
UNITS SHARES REIT SHARES
The Units are not subject to The Shares are not subject to The REIT Shares are not subject
mandatory or optional redemption. mandatory or optional redemption. to mandatory or optional
redemption.
LIQUIDATION RIGHTS
UNITS SHARES REIT SHARES
In the event of the liquidation of In the event of a liquidation of the In the event of a liquidation of the
NHC the assets of NHC remaining Corporation, the holders of the REIT, the holders of the REIT
after payments to creditors of NHC Shares would be entitled to share Shares would be entitled to share
(except partners of NHC) are ratably in any assets remaining after ratably in any assets remaining
distributed pro rata to the general satisfaction of obligations to after satisfaction of obligations to
partners of NHC to satisfy amounts creditors and any liquidation creditors and any liquidation
due the general partners pursuant to preferences on any series of preferences on any series of
the Partnership Agreement; next preferred stock of the Corporation preferred stock of the REIT that
pro rata to partners of NHC for that may then be outstanding. may then be outstanding.
loans (and other indebtedness)
made by such partners to NHC;
next to partners of NHC in
accordance with their capital
accounts; and finally to the partners
of NHC in accordance with their
ownership interests in NHC.
</TABLE>
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<TABLE>
<CAPTION>
RIGHT TO COMPEL DISSOLUTION
UNITS SHARES REIT SHARES
<S> <C> <C>
Under the Partnership Agreement, Under Delaware law, holders of Stockholders of the REIT may not
limited partners may compel Common Stock may compel unilaterally compel the dissolution
termination of NHC by the dissolution of the Corporation, of the REIT. A majority of the
affirmative vote of the holders of absent prior action by the board of board of directors is required to
70% of the outstanding REIT Units. directors, only if all holders consent adopt a resolution declaring the
in writing. A plan of dissolution advisability of the REIT's
unanimously adopted by the board dissolution and direct that the
of directors must be approved by a proposed plan of dissolution be
majority of the Common Stock submitted to the stockholders,
outstanding and entitled to vote. who must approve the plan by
affirmative vote of two-thirds
of the votes entitled to be cast
on the matter. Stockholders of
the REIT may under certain
circumstances, petition a court
of equity to dissolve the REIT.
LIMITED LIABILITY
UNITS SHARES REIT SHARES
In general, holders of the Units are The Shares, upon receipt by the The REIT Shares, upon receipt by
limited partners in a Delaware Unitholders, will be fully paid and the Unitholders, will be fully paid
limited partnership, and do not have nonassessable. Stockholders and nonassessable. Stockholders
personal liability for obligations of generally will not have personal generally will not have personal
NHC. liability for obligations of the liability for obligations of the
Corporation. REIT.
LIQUIDITY AND MARKETABILITY
UNITS SHARES REIT SHARES
The Units are freely transferable The Shares will be freely The REIT Shares will be freely
and are currently listed and traded transferable and application has transferable and application has
on AMEX. been made for listing the Shares on been made for listing the REIT
AMEX. Shares on AMEX.
CONTINUITY OF EXISTENCE
UNITS SHARES REIT SHARES
The Partnership Agreement The Corporation Certificate The REIT Charter provides for
provides for NHC to continue in provides for perpetual existence, perpetual existence, subject to
existence until December 31, 2085, subject to Delaware law. Maryland law.
unless earlier terminated in
accordance with the Partnership
Agreement.
</TABLE>
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<TABLE>
<CAPTION>
SEC FILINGS
UNITS SHARES REIT SHARES
<S> <C> <C>
NHC is subject to the reporting The Corporation will be subject to The REIT will be subject to the
requirements of the Exchange Act the reporting requirements of the reporting requirements of the
and files annual and quarterly Exchange Act and will file annual Exchange Act and will file annual
reports thereunder. NHC also and quarterly reports thereunder. and quarterly reports thereunder.
provides annual reports to its The Corporation also will provide The REIT will also provide
limited partners. annual reports to its stockholders. annual reports to its stockholders.
CERTAIN LEGAL RIGHTS
UNITS SHARES REIT SHARES
Delaware law allows a limited Delaware law affords stockholders Maryland law affords
partner to institute legal action on of a corporation rights to bring stockholders no similar such right.
behalf of NHC (a partnership stockholder derivative actions when
derivative action) to recover the board of directors has failed to
damages from a third party or a institute an action against third
general partner where the general parties or directors of the
partner has failed to institute the corporation, and class actions to
action. In addition, a limited recover damages from directors for
partner may have rights to institute violations of their fiduciary duties.
legal action on behalf of the limited Stockholders may also have rights to
partner or all other similarly bring actions in federal courts to
situated limited partners (a class enforce federal rights. These rights
action) to recover damages from a are comparable to the rights of the
general partner for violations of limited partners in the Partnership.
fiduciary duties to the limited
partners. Limited partners may also
have rights to bring actions in
federal courts to enforce federal
rights.
</TABLE>
87
<PAGE> 95
<TABLE>
<CAPTION>
RIGHT TO LIST OF HOLDERS; INSPECTION OF BOOK AND RECORDS
UNITS SHARES REIT SHARES
<S> <C> <C>
Upon reasonable demand, at the Under Delaware law, upon written Under Maryland law, a
limited partner's own expense and request, at reasonable times and for stockholder may inspect during
for a purpose reasonably related to a proper purpose reasonably related usual business hours the bylaws,
his interest in NHC, a limited to a stockholder's interest as a minutes of the proceedings of the
partner may have access, at stockholder, any stockholder of stockholders and any voting trust
reasonable times, to certain record shall have the right to agreements on file at the REIT's
information regarding the status of examine and copy the Corporation's principal office. Upon written
the business and financial condition stock ledger, a list of its request, any stockholder may
of NHC, tax returns, governing stockholders and its other books and review a statement showing all
instruments of NHC and a current records. In certain circumstances stock and securities issued by the
list of the partners of NHC, under Delaware law, stockholders REIT during a specified period of
provided that the Managing General may not have the same right to not more than 12 months before
Partner may keep confidential any information regarding the the date of the request. In
trade secrets or any other Corporation that they currently have addition, stockholders owning at
information the disclosure of which with respect to information least 5% of any class of securities
could damage NHC or violate any regarding NHC. of the REIT may, upon written
agreement or applicable law. request, inspect during usual
business hours a statement of the REIT's
assets and liabilities and a list of the
REIT's stockholders. Stockholders of the
REIT will have generally less access to the
records of the REIT than do the Unitholders
with respect to NHC.
SUBORDINATION
UNITS SHARES REIT SHARES
Subordinated to claims of creditors Subordinated to claims of creditors Subordinated to claims of
of NHC. of the Corporation. creditors of the REIT.
</TABLE>
FIDUCIARY DUTIES
Delaware courts have generally held that a general partner of a limited
partnership is liable for a breach of fiduciary duty only when he acts in bad
faith by ignoring the provisions of the partnership agreement. It should be
noted that, with respect to issues or concerns not governed by the express terms
of the limited partnership agreement, general principles of fiduciary duty law
will apply. In those circumstances, a general partner holds a fiduciary duty to
the limited partnership (as do the officers and directors of a corporate general
partner) to exercise the utmost good faith, fairness and loyalty. However,
section 17-403(b) of the Delaware Revised Limited Partnership Act provides that
contractual provisions in the partnership agreement addressing the liability of
a general partner to limited partnership and to other partners may modify the
general fiduciary duties standard.
The Partnership Agreement provides that no General Partner shall have
liability to the Unitholders for the return of their capital contributions or
for any loss, damage, liability or expense arising out of the Partnership
Agreement or the business of NHC except as caused by gross negligence,
misconduct in the performance of his or its fiduciary duties to NHC, violation
of any of the provisions of the Partnership Agreement or as otherwise provided
in the Partnership Agreement. Under the Partnership Agreement, the Partnership
is required to indemnify general partners and the officers, directors, employees
and agents of the general partners against liabilities and expenses incurred by
the general partners or such persons if (i) the general partner or such person
acted in good faith, and in a manner reasonably believed to be in, or not
opposed to, the interests of NHC and, with respect to any criminal proceeding,
had no reason to believe the conduct was unlawful and (ii) the general partner's
or such person's conduct did not constitute actual fraud, gross negligence or
willful misconduct. See "Description of Securities -- Shares of the Corporation
- -- Limitation of Liability and Indemnification Matters" and "-- Shares of the
REIT -- Limitation of Liability and Indemnification Matters" for description of
provisions relating to the liability and indemnification of the directors of the
Corporation and the REIT, respectively.
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<PAGE> 96
FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX CONSIDERATIONS SHOULD BE
READ IN ITS ENTIRETY BY ALL UNITHOLDERS OF NHC. THIS DISCUSSION IS A SUMMARY
ONLY, AND IS NOT INTENDED TO ADDRESS THE SPECIFIC TAX SITUATION OF EACH
UNITHOLDER. EACH UNITHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE FORMATION OF THE REIT AND THE
CORPORATION, THE PLAN OF RESTRUCTURE, THE OWNERSHIP OF SHARES AND REIT SHARES
AND THE TAXATION OF THE REIT AS A REAL ESTATE INVESTMENT TRUST. NO RULING FROM
THE IRS, OR FROM ANY OTHER TAXING AUTHORITY, WILL BE SOUGHT OR OBTAINED AS TO
ANY OF THE FOLLOWING TAX CONSIDERATIONS. MOREOVER, THE IRS IS NOT BOUND BY THE
DISCUSSION OR THE OPINIONS OF SPECIAL REIT OR TAX COUNSEL SET FORTH BELOW.
INTRODUCTION
GENERAL SUMMARY ONLY. The following is a general summary of material
federal income tax consequences of the Plan of Restructure, and the taxation of
the REIT as a real estate investment trust. The discussion is based upon current
interpretations of the Code, applicable U.S. treasury regulations and
administrative interpretations thereunder, and case law, any of which could
change at any time, even on a retroactive basis. Because of the complexity of
tax laws, and the varying tax situations of different taxpayers, each Unitholder
should consult his own tax advisor. This summary of federal income tax
consequences has been prepared by Harwell Howard Hyne Gabbert & Manner, P.C.,
Nashville, Tennessee, special counsel to NHC and the Corporation ("Tax Counsel")
and Goodwin, Proctor & Hoar, LLP, Boston, Massachusetts, special counsel to NHC
and the REIT ("REIT Counsel").
OPINION OF TAX COUNSEL. In the opinion of Tax Counsel, which opinion is
attached hereto and is subject to such qualifications and assumptions contained
therein, the following summary describes in general the material U.S. federal
income tax consequences of the Plan of Restructure.
NO RULINGS. No rulings have been, or will be, sought from the IRS or from
any other taxing authority as to any of the matters described in this Proxy
Statement/Prospectus. In the absence of any such rulings, no assurances can be
given that the IRS will agree with this discussion. Neither Tax Counsel nor REIT
Counsel can offer any assurance that the applicable law will not change
adversely, that the assumptions underlying the following discussion and opinions
will prove to be accurate, or that the courts will agree with the conclusions of
Tax Counsel or REIT Counsel in the event of a challenge by the IRS.
CERTAIN DIFFERENCES BETWEEN THE OWNERSHIP OF UNITS, SHARES AND REIT SHARES
NHC is organized as a limited partnership under the laws of the State of
Delaware. A partnership is not generally subject to federal income taxation.
Instead, a partnership generally acts as a conduit, and the tax consequences of
its operations are reflected in the personal income tax returns of its partners.
In the Plan of Restructure, NHC Unitholders will receive common stock of the
REIT, which intends to qualify and elect to be taxed as a real estate investment
trust, and common stock of the Corporation.
A significant difference between owning Units and owning REIT Shares
involves the treatment and amount of income (or loss) reportable by investors.
As Unitholders, investors must take into account their distributive shares of
all separately reportable items of NHC's income or loss, regardless of the
amount of any distributions of cash to the Unitholders. That information is
supplied to each Unitholder annually on a Form K-1. Under Code Section 469(k),
net income from publicly traded partnerships, such as NHC, constitutes portfolio
income. Under the passive loss rules, portfolio income cannot be offset by
passive losses, but can be offset by net investment interest expense. Moreover,
each partner in a publicly traded partnership must treat loss (if any) from the
partnership as separate from income or loss from any other publicly traded
partnership, and also as separate from any income or loss from passive
activities. As of January 1, 1998, however, a publicly traded limited
partnership will generally be taxed as a corporation.
In contrast, as a shareholder of the REIT, an investor is taxed based on
the amount of distributions received from the REIT. The taxable portion of such
distributions will generally depend on the amount of the REIT's earnings and
profits. Each REIT shareholder will receive a Form 1099 reporting the amount of
taxable and nontaxable distributions paid to him during the preceding year. The
character of this income is not dependent on its character to the REIT, and is
generally ordinary income to the shareholders. Under the passive loss rules,
this income is generally further classified as portfolio income. Furthermore,
while losses incurred by a partnership are reportable to the partners, should
the REIT incur a taxable loss, that amount will not be passed through to its
shareholders.
The Corporation will not be a pass-through entity such as NHC or a quasi
pass-through entity like the REIT. Instead, the Corporation's earnings will be
taxed at the corporate level and, to the extent distributions are made to the
Corporation's shareholders, such distributions will be taxed at the shareholder
level to the extent of the Corporation's accumulated and current earnings and
profits.
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<PAGE> 97
THE REIT
FORMATION OF THE REIT - TAX CONSEQUENCES
NONRECOGNITION RULE OF CODE SECTION 351. Under the general rule of Code
Section 351, no gain or loss is recognized upon the transfer of property to a
corporation by the transferors of such property solely in exchange for stock in
the corporation if immediately thereafter the transferors are in control of the
corporation. Control is defined in Section 368(c) as the ownership of eighty
percent (80%) of the voting stock and eighty percent (80%) of each class of
non-voting stock of a corporation.
In exchange for the Owned Healthcare Facilities, the Notes and the Other
Assets, subject to the Assumed Liabilities, NHC will receive one hundred percent
(100%) of the outstanding stock of the REIT. NHC will then immediately
distribute all of such stock to its Unitholders. As a result of this
distribution, NHC will hold the REIT Shares immediately after its transfer of
assets to the REIT, but it will hold them for only an instant. Whether such a
two-step transaction should be collapsed or integrated for purposes of
determining whether the "immediately after" requirement of Section 351 is
satisfied has frequently been the subject of interpretation by the IRS and
courts.
In the case of a partnership that contributes its assets to a corporation
in exchange for corporate stock and immediately thereafter liquidates by
distributing the stock to its partners "in proportion to their partnership
interests," the IRS has ruled that the "immediately after" requirement of
Section 351 is satisfied. Revenue Ruling 84-111, 1984-2 C.B. 88. This is so even
though the identities of the actual contributor or transferor of property to the
corporation and the ultimate recipient of the corporate stock were not the same.
While this ruling involves a partnership that liquidates as a result of its
distribution of shares in a corporation, the ruling is enlightening because
Section 351 was found to apply despite the short period during which the
partnership held the stock. Although NHC will actually merge into the
Corporation, thereby ceasing to exist as a separate entity, it will be treated
as liquidating for tax purposes.
Similarly, Code Section 351(c) provides that in determining control for
these purposes, the fact that a corporate transferor distributes part or all of
the stock it received in a transaction subject to Section 351 to its
shareholders will not be taken into account. While the Code contains no
analogous provision for such distributions by a partnership, Tax Counsel
believes it is appropriate for the same result to follow, and that the general
nonrecognition rule of Section 351 would apply to NHC's contribution of assets
to the REIT, except as otherwise provided below.
INVESTMENT COMPANY EXCEPTION. An exception to the general rule of
nonrecognition under Code Section 351 is found in subsection 351(e), which
provides that Section 351 shall not apply to a "transfer of property to an
investment company." The Regulations state that a transfer is considered to be
to an investment company if: (i) the transfer is to, inter alia, a real estate
investment trust, and (ii) the transfer results, directly or indirectly, in the
diversification of the transferors' interests. Regulation ss. 1.351 - 1(c) (1).
As described elsewhere in this Proxy Statement/Prospectus, NHC and the REIT
intend that the REIT qualify and be taxed as a real estate investment trust.
In that regard, REIT Counsel has rendered an opinion that the form of
organization of the REIT will permit it to be so classified. Therefore, it is
anticipated that one of the two investment company definitional requirements
will be met.
With respect to the second requirement, a transfer ordinarily results in
the diversification of the transferors' interests if two or more persons
transfer non-identical assets to a corporation in the exchange. Regulation ss.
1.351-1(c) (5). Since NHC is the only transferor, the second requirement of an
investment company is absent, and therefore, the general nonrecognition Rule of
Section 351 should apply to the incorporation of the REIT.
CODE SECTION 357. Code Section 357 generally permits a corporation, in
addition to issuing stock in a Code Section 351 transaction, to assume
liabilities of the transferor, without causing the transferor to recognize gain
or be precluded from obtaining the benefits of Code Section 351. This rule does
not apply, however, if either (i) the principal purpose for the assumption was
tax avoidance (or was not a bona fide business purpose), or (ii) the liabilities
exceeded the transferor's basis in the contributed assets. NHC has represented
that the Assumed Liabilities do not exceed NHC's adjusted tax basis in the Owned
Healthcare Facilities, the Notes and the Other Assets, and that the principal
purpose of the REIT's assumption of the Assumed Liabilities is not the avoidance
of taxes.
OTHER TAX CONSEQUENCES. NHC will have a tax basis in the REIT Shares it
receives generally equal to its basis in the assets it contributes to the REIT,
net of the amount of the NHC liabilities the REIT assumes or acquires in the
transfer. NHC's holding period for the REIT Shares it receives in the exchange
will include its holding period in the capital and Section 1231 assets it
transfers to the REIT. If any of the assets NHC contributes to the REIT are
deemed not to be capital or Section 1231 assets, then NHC's holding period in
the REIT Shares will be bifurcated; the holding period for that portion of the
REIT Shares received in exchange for such other assets would begin on the day
following the date of the exchange.
Pursuant to Code Section 1032, the REIT will not recognize any gain or loss
on the receipt of the NHC assets and assumption of NHC liabilities in exchange
for the issuance of the REIT Shares. The initial tax bases of the assets
received will generally equal their tax basis in the hands of NHC immediately
prior to the exchange. The REIT's holding period for each asset acquired in the
exchange will generally include NHC's holding period for that asset.
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<PAGE> 98
THE DISTRIBUTION - TAX CONSEQUENCES
Code Section 731(b) provides that a partnership will not recognize gain
upon its distribution of property or money to its partners. As to the partners,
Code Section 731(a)(1) generally provides that no gain or loss shall be
recognized by a partner upon a distribution to him of property, other than
money. For purposes of Section 731(a), "marketable securities" are generally
treated as money. Marketable securities are defined to include, in part, (i)
stock that is, as of the date of distribution, actively traded within the
meaning of Code Section 1092(d)(1) and (ii) other equity interests that,
pursuant to their terms or any other arrangement, are readily convertible into,
or exchangeable for, money or marketable securities. Regulations promulgated
under Section 731(c) provide that stock is actively traded if it is of a type
that is, as of the date of distribution, listed on a national securities
exchange. It is anticipated that as of the Effective Time the REIT Shares will
be approved for listing on the American Stock Exchange, although such listing
will not be effective until after the Effective Time. Furthermore, while the
Operating Partnership units will not be listed on an exchange, they will be
convertible into REIT Shares.
However, Section 731(a) does not apply to the distribution of marketable
securities in a "qualified partnership liquidation" if (i) such securities were
received by the partnership in a nonrecognition transaction for substantially
all of the partnership's assets, (ii) such securities are distributed by the
partnership within 90 days after their receipt by the partnership, and (iii) the
partnership is liquidated before the beginning of the partnership's first
taxable year beginning after December 31, 1997. For purposes of this
transitional rule, a "qualified partnership liquidation" is a complete
liquidation of a publicly traded partnership as defined in Code Section 7704(b)
that is an existing partnership as defined in Section 10211(c)(2) of the Revenue
Act of 1987.
NHC is a publicly traded and existing partnership as so defined. The REIT
Shares and the Shares will be issued to NHC in exchange for all of NHC's assets
under the nonrecognition rule of Section 351 and will be issued within 90 days
of their receipt by NHC. As discussed below in The Corporation -- The Merger,
the Distribution and Merger will be treated for federal income tax purposes as
a complete termination and liquidation of NHC, which is to be effective prior
to NHC's first taxable year after December 31, 1997. Accordingly, Tax Counsel
believes it is more likely than not that Code Section 731(c) would not apply
to the Distribution.
Under Code Section 732(b), a Unitholder's aggregate initial tax basis in
his REIT Shares and the Shares will be generally equal to the Unitholder's
adjusted basis in his Units, decreased by the amount of any marketable
securities treated as money and increased by the amount of any gain recognized
as a result thereof, which shall be allocated between the REIT Shares and the
Shares generally based upon the relative adjusted bases to NHC of the REIT
Shares and the Shares.
Each Unitholder may have multiple holding periods for the REIT Shares and
the Shares received, depending upon the holding periods and character of the
various assets transferred by NHC to the REIT and the Corporation. The holding
period of the portion of the REIT Shares and the Shares attributable to capital
assets and Code Section 1231 assets transferred by NHC to the REIT or the
Corporation will include NHC's holding period for those assets. The holding
period for REIT Shares and the Shares attributable to other NHC assets, if any,
will begin on the day following the Effective Time. The period during which
Unitholders have held their Units will have no impact on their holding period in
REIT Shares or the Shares.
TAXATION AS A REAL ESTATE INVESTMENT TRUST
GENERAL PRINCIPLES. The Code provides special tax treatment for
organizations that qualify and elect to be taxed as real estate investment
trusts. If certain conditions are met (see "Requirements for Qualification"
below), entities that primarily invest in real estate or mortgages secured by
real estate and would otherwise be taxed as regular corporations may elect real
estate investment trust status so that they are, with certain limited
exceptions, not taxed at the corporate level on their ordinary net income or
capital gains distributed currently to their shareholders. This treatment
substantially eliminates the "double taxation" (at the corporate and shareholder
levels) that typically results from the use of corporate investment vehicles.
The REIT will elect to be taxed as a real estate investment trust as soon as
practicable after it meets the necessary requirements.
Upon consultation with its advisers, the REIT believes that it is in a
position to qualify for treatment as a real estate investment trust for the year
ending December 31, 1998, upon filing of its election to be taxed as a real
estate investment trust, and intends to operate so as to meet the requirements
under the Code for qualification as a real estate investment trust, commencing
with its taxable year ending December 31, 1998 and thereafter. The REIT also
believes, after consultation with its advisers, that it has been organized, has
operated and will operate in such a manner as to qualify for taxation as a real
estate investment trust under the Code. No assurance can be given, however, that
such requirements have been or will be met.
OPINION OF REIT COUNSEL. In the opinion of REIT Counsel, commencing with
the REIT's taxable year ending December 31, 1998, the REIT will qualify to be
taxed as a real estate investment trust under the Code, provided that (i) the
elections and other procedural steps described in this discussion of "Federal
Income Tax Considerations" are completed in a timely fashion and (ii) the REIT
and the Operating Partnership operate in accordance with various assumptions and
factual representations made by NHC, the REIT and the Operating Partnership
concerning their business, properties and operations. It must be emphasized that
REIT Counsel's opinion is based on various assumptions and is conditioned upon
such assumptions and representations made by NHC, the REIT and the Operating
Partnership concerning their business and properties as set forth in this Proxy
Statement/Prospectus. Such factual assumptions and
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representations are set forth below in this discussion of "Federal Income Tax
Considerations." In addition, REIT Counsel's opinion is based upon the factual
representations of NHC, the REIT and the Operating Partnership concerning its
business and properties as set forth in this Proxy Statement/Prospectus.
Moreover, such qualification and taxation as a real estate investment trust
depends upon the REIT's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Code discussed below, the results of which
will not be reviewed by REIT Counsel. Accordingly, no assurance can be given
that the actual results of the REIT's operations for any one taxable year will
satisfy such requirements. See "Risk Factors -- The REIT -- Adverse Consequences
of the REIT's Failure to Qualify as a Real Estate Investment Trust."
The opinion of REIT Counsel is also based upon existing law as currently
applicable, U.S. treasury regulations, currently published administrative
positions of the IRS and judicial decisions, which are subject to change either
prospectively or retroactively. No assurance can be given that any such changes
would not modify the conclusions expressed in the opinion. Moreover, unlike a
private letter ruling (which will not be sought), an opinion of counsel is not
binding on the IRS, and no assurance can be given that the IRS will not
successfully challenge the status of the REIT as a real estate investment trust.
If the REIT qualifies for taxation as a real estate investment trust, it
generally will not be subject to federal corporate income taxes on that portion
of its ordinary income or capital gain that is currently distributed to its
stockholders. The real estate investment trust provisions of the Code generally
allow a real estate investment trust to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.
FEDERAL INCOME TAXATION OF THE REIT
Upon consultation with its advisers, the REIT believes that it is in a
position to qualify for treatment as a real estate investment trust for the year
ended December 31, 1998, upon filing of its election to be taxed as a real
estate investment trust, and intends to operate so as to meet the requirements
under the Code for qualification as a real estate investment trust, commencing
with its taxable year ended December 31, 1998 and thereafter. The REIT also
believes, after consultation with its advisers, that it has been organized, has
operated and will operate in such a manner as to qualify for taxation as a real
estate investment trust under the Code. No assurance can be given, however, that
such requirements have been or will be met.
OPINION OF REIT COUNSEL
Goodwin, Procter & Hoar LLP has acted as special REIT tax counsel to the
REIT in connection with the formation of the REIT and the REIT's election to be
taxed as a real estate investment trust. In the opinion of Goodwin, Procter &
Hoar LLP, commencing with the REIT's taxable year ended December 31, 1998, the
REIT will qualify to be taxed as a real estate investment trust under the Code,
provided that (i) the elections and other procedural steps described in this
discussion of "Federal Income Tax Considerations" are completed in a timely
fashion and (ii) the REIT and the Operating Partnership operate in accordance
with various assumptions and factual representations made by the REIT concerning
their business, properties and operations. It must be emphasized that Goodwin,
Procter & Hoar LLP's opinion is based on various assumptions and is conditioned
upon such assumptions and representations made by the REIT concerning their
business and properties. Such factual assumptions and representations are set
forth below in this discussion of "Federal Income Tax Considerations." In
addition, Goodwin, Procter & Hoar LLP's opinion is based upon the factual
representations of the REIT and the Operating Partnership concerning its
business and properties. Moreover, such qualification and taxation as a real
estate investment trust depends upon the REIT's ability to meet, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code discussed below, the
results of which will not be reviewed by Goodwin, Procter & Hoar LLP.
Accordingly, no assurance can be given that the actual results of the REIT's
operations for any one taxable year will satisfy such requirements. See "Risk
Factors -- The REIT -- Adverse Consequences of The REIT's Failure to Qualify as
a Real Estate Investment Trust."
The opinion of Goodwin, Procter & Hoar LLP is also based upon existing law
as currently applicable, IRS regulations, currently published administrative
positions of the IRS and judicial decisions, which are subject to change either
prospectively or retroactively. No assurance can be given that any such changes
would not modify the conclusions expressed in the opinion. Moreover, unlike a
private letter ruling (which will not be sought), an opinion of counsel is not
binding on the IRS, and no assurance can be given that the IRS will not
successfully challenge the status of the real estate investment trust as a REIT.
If the REIT qualifies for taxation as a real estate investment trust, it
generally will not be subject to federal corporate income taxes on that portion
of its ordinary income or capital gain that is currently distributed to
stockholders. The real estate investment trust provisions of the Code generally
allow a real estate investment trust to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.
Even if the REIT qualifies for taxation as a real estate investment trust,
however, the REIT will be subject to federal income tax, as follows: First, the
REIT will be taxed at regular corporate rates on its undistributed REIT taxable
income.
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The REIT may elect to retain and pay income tax on its net long-term capital
gains received during the taxable year. Second, under certain circumstances, the
REIT may be subject to the "alternative minimum tax." Third, if the REIT has net
income from the sale or other disposition of "foreclosure property" that is held
primarily for sale to customers in the ordinary course of business or other
non-qualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the REIT has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property other than foreclosure property held primarily for sale
to customers in the ordinary course of business), such income will be subject to
a 100% tax. Fifth, if the REIT should fail to satisfy either the 75% or 95%
gross income test (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 the net income attributable to the greater of
the amount by which the REIT fails the 75% or 95% test, multiplied by a
fraction intended to reflect the REIT's profitability. Sixth, if the REIT fails
to distribute during each 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 (unless the REIT has elected to retain and pay income tax on a portion of
its net long-term capital gain) and (iii) any undistributed taxable income from
prior periods, the REIT will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if the
REIT should acquire any asset from a C corporation (i.e., a corporation
generally subject to full corporate-level tax) in a carryover-basis transaction
and the REIT subsequently recognizes gain on the disposition of such asset
during the ten-year period (the "Recognition Period") beginning on the date on
which the asset was acquired by the REIT, then, to the extent of the excess of
(a) the fair market value of the asset as of the beginning of the applicable
Recognition Period over (b) the REIT's adjusted basis in such asset as of the
beginning of such Recognition Period (the "Built-In Gain"), such gain will be
subject to tax at the highest regular corporate rate, pursuant to guidelines
issued by the IRS (the "Built-In Gain Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a real estate investment trust, the REIT must elect to be so
treated and must meet the requirements, discussed below, relating to the REIT's
organization, sources of income, nature of assets and distributions of income to
stockholders.
ORGANIZATIONAL REQUIREMENTS
The Code defines a real estate investment trust as a corporation, trust or
association: (i) that is managed by one or more directors or trustees, (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 the real estate investment trust requirements,
(iv) that is neither a financial institution nor an insurance real estate
investment trust subject to certain provisions of the Code, (v) the beneficial
ownership of which is held by 100 or more persons, and (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, directly or indirectly through the application of certain
attribution rules, by five or fewer individuals (as defined in the Code to
include certain entities). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (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 12 months, or during a proportionate part of a taxable year
of less than 12 months. Conditions (v) and (vi) (the "100 Stockholder
Requirement" and "Five or Fewer Requirement") will not apply until after the
first taxable year for which an election is made to be taxed as a real estate
investment trust. 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).
In order to protect the REIT from a concentration of ownership of its stock
that would cause the REIT to fail the Five or Fewer Requirement, the REIT's
Certificate provides that stock owned, or deemed to be owned or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into Excess Stock. See "Description of Securities -- Shares of the REIT -- REIT
Provisions." Because of the absence of authority on this issue, however, there
is no assurance that the operation of the Excess Stock or other provisions
contained in the Certificate will, as a matter of law, prevent a concentration
of ownership of stock in excess of the Ownership Limit from causing the REIT to
violate the Five or Fewer Requirement. If there were a concentration of
ownership that would cause the REIT to violate the Five or Fewer Requirement,
and the operation of the Excess Stock or other provisions contained in the
Certificate were not held to cure such violation, the REIT would be disqualified
as a real estate investment trust. In rendering its opinion that the REIT is
organized in a manner that permits the REIT to qualify as a real estate
investment trust, Goodwin, Procter & Hoar LLP is relying on the representation
of the REIT that the ownership of its stock (without regard to the Excess Stock
provisions) satisfies the Five or Fewer Requirement, and Goodwin, Procter & Hoar
LLP expresses no opinion as to whether, as a matter of law, the Excess Stock or
other provisions contained in the Certificate preclude the REIT from failing the
Five or Fewer Requirement.
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. The REIT's taxable year is
the calendar year.
In the case of a real estate investment trust that is a partner in a
partnership, treasury regulations provide that the real estate investment trust
will be deemed to own its proportionate share (based on its interest in
partnership capital) of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the real estate investment trust for
purposes of Section 856 of the Code, including satisfying the gross income tests
and asset tests. Thus, the REIT's proportionate share of the assets, liabilities
and items of income with respect to
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any partnership, including the Operating Partnership, in which it holds an
interest will be treated as assets, liabilities and items of income of the REIT
for purposes of applying the requirements described herein.
INCOME TESTS
To maintain qualification as a real estate investment trust, three gross
income requirements must be satisfied annually.
- First, at least 75% of the REIT's gross income, excluding gross income
from certain dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business ("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" and, in certain
circumstances, interest) or from certain types of temporary
investments. The REIT, however, is permitted under new tax legislation
to receive up to one percent of all amounts received or accrued during
a taxable year with respect to a property from certain impermissible
tenant services.
- Second, at least 95% of the REIT's gross income (excluding gross
income from prohibited transactions) for each taxable year must be
derived from such real property investments described above and from
dividends, interest and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. The REIT, however,
is permitted under new tax legislation to receive up to one percent of
all amounts received or accrued during a taxable year with respect to a
property from certain impermissible tenant services.
Rents received or deemed to be received by the REIT will qualify as "rents
from real property" in satisfying the gross income requirements for a REIT
described above only if several conditions are met.
- First, the amount of rent generally must not be based in whole or in
part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "rents from real
property," however, solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
- Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income
tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party
Tenant") or a subtenant of such tenant (in which case only rent
attributable to the subtenant is disqualified).
- 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 the
personal property will not qualify as "rents from real property."
- Finally, for rents to qualify as "rents from real property" the REIT
must not operate or manage the property or furnish or render
to tenants, other than through an "independent contractor"
who is adequately compensated and from whom the REIT does not derive
any income; provided, however, that a REIT may provide services with
respect to its properties and the income will qualify as "rents from
real property" if the services are "usually or customarily rendered"
in connection with the rental of room or other space for occupancy
only and are not otherwise considered "rendered to the occupant." In
addition, under new tax legislation, a real estate investment trust
can furnish or render otherwise impermissible services to tenants if
the amount treated as received by the REIT from such services does
not exceed one percent of all amounts received or accrued with
respect to the property. The amount treated as received for any such
impermissible service must be at least 150 percent of the direct
cost of the REIT in furnishing or rendering such service or
providing such management or operation.
The REIT does not charge rent 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 or percentages of receipts or sales consistent with the rule
described above). The REIT does not derive, and does not anticipate deriving,
rent attributable to personal property leased in connection with real property
that exceeds 15% of the total rents.
If the REIT 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 that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the REIT's failure to meet these
tests was due to reasonable cause and not due to willful neglect, (ii) the REIT
attaches a schedule of the sources of its income to its federal income tax
return and (iii) any incorrect information on the schedule is not due to fraud
with intent to evade tax. It is not possible, however, to state whether, in all
circumstances, the REIT would be entitled to the benefit of these relief
provisions. For example, if the REIT fails to satisfy the gross income tests
because nonqualifying income that the REIT intentionally incurs exceeds the
limits on such income, the IRS could conclude that the REIT's failure to satisfy
the tests was not due to reasonable cause. As discussed above in "-- Opinion of
REIT Counsel," even if these relief provisions apply, a tax would be imposed
with respect to the excess net income. See "Risk Factors -- The REIT -- Adverse
Consequences of the REIT's Failure to Qualify as a Real Estate Investment
Trust."
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ASSET TESTS
At the close of each quarter of its taxable year, the REIT also must
satisfy three tests relating to the nature and diversification of its assets.
- First, at least 75% of the value of the REIT's total assets
must be represented by real estate assets, cash, cash items
and government securities.
- Second, no more than 25% of the REIT's total assets may be
represented by securities other than those in the 75% asset
class.
- Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the REIT may not
exceed 5% of the value of the REIT's total assets, and the
REIT may not own more than 10% of any one issuer's outstanding
voting securities.
After initially meeting the asset tests at the close of any quarter,
the REIT 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, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. The REIT maintains, and will continue to maintain, adequate
records of the value of its assets to ensure compliance with the asset tests
and will take such other actions within 30 days after the close of any quarter
as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a real estate investment trust, the REIT is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (a) the sum of (i) 95% of the
REIT's "REIT taxable income" (computed without regard to the dividends-paid
deduction and the REIT's capital gain) and (ii) 95% of the net income, if any,
from foreclosure property in excess of the special tax on income from
foreclosure property, minus (b) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the REIT timely files its federal
income tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Even if the REIT satisfies the
foregoing distribution requirements, to the extent that the REIT does not
distribute all of its net capital gain or "REIT taxable income" as adjusted, it
will be subject to tax thereon at regular capital gains or ordinary corporate
tax rates. Furthermore, if the REIT should fail to distribute during each
calendar year at least the sum of (a) 85% of its ordinary income for that year,
(b) 95% of its capital gain net income for that year (unless the REIT has
elected to retain and pay income tax on a portion of its net long-term capital
gain) and (c) any undistributed taxable income from prior periods, the REIT
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. In addition, if the REIT disposes of any
asset subject to the Built-In Gain Rules during the applicable Recognition
Period, the REIT will be required, pursuant to guidance issued by the IRS, to
distribute at least 95% of the Built-In Gain (after tax), if any, recognized
on the disposition of the asset. The REIT intends to make timely distributions
sufficient to satisfy the annual distribution requirements.
It is expected that the REIT'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 REIT anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the 95% distribution requirement. It is possible, however, that the REIT, from
time to time, may not have sufficient cash or other liquid assets to meet the
95% distribution requirement or to distribute such greater amount as may be
necessary to avoid income and excise taxation, as a result of 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 REIT, or as a result of
nondeductible expenses such as principal amortization or capital expenditures
in excess of noncash deductions. In the event that such timing differences
occur, the REIT may find it necessary to arrange for borrowings or, if
possible, pay taxable stock dividends in order to meet the dividend
requirement.
Under certain circumstances, the REIT may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in the REIT's
deduction for dividends paid for the earlier year. Thus, the REIT may be able
to avoid being taxed on amounts distributed as deficiency dividends. The REIT
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the REIT fails to qualify for taxation as a real estate investment
trust in any taxable year and the relief provisions do not apply, the REIT will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in any
year in which the REIT fails to qualify will not be deductible by the REIT nor
will they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income, and subject to certain limitations of
the Code, corporate distributees may be eligible for the dividends-received
deduction. Unless the REIT is entitled to relief under specific statutory
provisions, the REIT 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
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all circumstances the REIT would be entitled to such statutory relief. For
example, if the REIT fails to satisfy the gross income tests because
nonqualifying income that the REIT intentionally incurs exceeds the limit on
such income, the IRS could conclude that the REIT's failure to satisfy the
tests was not due to reasonable cause. See "Risk Factors -- The REIT -- Adverse
Consequences of the REIT's Failure to Qualify as a Real Estate Investment
Trust."
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common
Stock for United States federal income tax purposes who is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate, the income of which is subject
to United States federal income taxation regardless of its source or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust
and (v) is not an entity that has a special status under the Code (such as a
tax-exempt organization or a dealer in securities).
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the REIT's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. These distributions are not eligible for the
dividends-received deduction for corporations. To the extent that the REIT
makes a distribution in excess of its current or accumulated earnings and
profits, the distribution will be treated first as a tax-free return of
capital, reducing the tax basis in the U.S. Stockholder's REIT Shares and the
amount of such distribution in excess of a U.S. Stockholder's tax basis in its
REIT Shares will be taxable as gain realized from the sale of its REIT Shares.
Dividends declared by the REIT in October, November or December of any year
payable to a stockholder of record on a specified date in any such month shall
be treated as both paid by the REIT and received by the stockholder on December
31 of the year, provided that the dividend is actually paid by the REIT during
January of the following calendar year. Stockholders may not include on their
own federal income tax returns any losses of the REIT.
The REIT will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the REIT up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax as discussed
in "-- Opinion of Tax Counsel" above. Moreover, any "deficiency dividend" will
be treated as an ordinary or capital gain dividend, as the case may be,
regardless of the REIT's earnings and profits. As a result, stockholders may be
required to treat certain distributions that would otherwise result in a
tax-free return of capital as taxable dividends.
The REIT may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. For taxable years beginning
after December 31, 1997, if the REIT so elects for a taxable year, the REIT's
shareholders would include in income as long-term capital gains their
proportionate share of such portion of the REIT's undistributed long-term
capital gains for the taxable year as the REIT may designate. A stockholder
would be deemed to have paid his share of the tax paid by the REIT on such
undistributed capital gains, which would be credited or refunded to the
shareholder. The shareholder's basis in his shares of REIT Shares would be
increased by the amount of undistributed long-term capital gains (less the
capital gains tax paid by the REIT) included in the stockholder's long-term
capital gains.
CAPITAL GAIN DIVIDENDS
Subject to the discussion below regarding changes to the capital gains
tax rates, distributions that are designated as capital gain dividends will be
taxed as long-term capital gains (to the extent they do not exceed the REIT 's
actual net capital gain for the taxable year) without regard to the period for
which the shareholder has held his REIT Shares. However, corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as
ordinary income. Capital gain dividends are not eligible for the
dividends-received deduction for corporations.
The Taxpayer Relief Act of 1997 (the "Relief Act") alters the taxation
of capital gain income. Under the Relief Act, individuals, trusts and estates
that hold certain investments for more than 18 months may be taxed at a maximum
long-term capital gain tax of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than 12
months but not more than 18 months may be taxed at a maximum mid-term capital
gain rate of 28% on the sale or exchange of those investments. The Relief Act
also provides a maximum rate of 25% for "unrecaptured section 1250 gain" for
individuals, trusts, and estates, special rules for "qualified 5-year gain," as
well as other changes to prior law. The Relief Act allows the IRS to prescribe
regulations on how the Relief Act's new capital gain rates will apply to sales
of capital assets by "pass-through entities," which include REITs such as the
REIT. To date regulations have not yet been prescribed, and it remains unclear
how the Relief Act's new rates will apply to capital gain dividends or
undistributed capital gains, including, for example the extent, if any, to
which capital gain dividends or undistributed capital gains from the REIT will
be taxed to individuals at the new rates for mid-term capital gains and
unrecaptured section 1250 gain, rather than the long-term capital gain rates.
Investors are urged to consult their own tax advisors with respect to the new
rules contained in the Relief Act.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the REIT and gain from the disposition of REIT
Shares will not be treated as passive activity income, and therefore
stockholders may not be able to apply any "passive losses" against such income.
Dividends from
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the REIT (to the extent they do not constitute a return of capital) will
generally be treated as investment income for purposes of the investment
interest limitation. Capital gains from the disposition of REIT Shares (or
distributions treated as such) will be treated as investment income only if the
shareholder so elects, in which case such capital gains will be taxed at
ordinary income rates.
CERTAIN DISPOSITIONS OF SHARES
In general, any gain or loss realized upon a taxable disposition of
the REIT Shares by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the REIT Shares have been held for
more than one year, (or, in the case of individuals, trusts, and estates,
mid-term capital gain or loss if the shares have been held for more than one
year but not more than 18 months and long-term capital gain or loss if the
shares have been held for more than 18 months) and otherwise as short-term
capital gain or loss. However, any loss upon a sale or exchange of REIT Shares
by a stockholder who has held such stock for six months or less (after applying
certain holding period rules), will be treated as a long-term capital loss to
the extent of distributions from the REIT or undistributed capital gains
required to be treated by such shareholder as long-term capital gain. All or a
portion of any loss realized upon a taxable disposition of REIT Shares may be
disallowed if other REIT Shares are purchased within 30 days before or after
the disposition.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Distributions from the REIT to a tax-exempt employee pension trust or
other domestic tax-exempt stockholder generally, will not constitute "unrelated
business taxable income" ("UBTI") unless the stockholder has borrowed to
acquire or carry its REIT Shares. Qualified trusts that hold more than 10% (by
value) of the shares of certain REITs, however, may be required to treat a
certain percentage of such a REIT's distributions as UBTI. This requirement
will apply only if (i) the REIT would not qualify as such for federal income
tax purposes but for the application of the "look-through" exception to the
Five or Fewer Requirement applicable to shares held by qualified trusts and
(ii) the REIT is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if either (i) a single qualified trust
holds more than 25% by value of the interests in the REIT or (ii) one or more
qualified trusts, each owning more than 10% by value of the interests in the
REIT, hold in the aggregate more than 50% of the interests in the REIT. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (a)
the UBTI earned by the REIT (treating the REIT as if it were a qualified trust
and therefore subject to tax on UBTI) to (b) the total gross income (less
certain associated expenses) of the REIT. A de minimis exception applies where
the ratio set forth in the preceding sentence is less than 5% for any year. For
these purposes, a qualified trust is any trust described in section 401(a) of
the Code and exempt from tax under section 501(a) of the Code. 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 Five or Fewer Requirement
without relying upon the "look-through" exception.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships and foreign
trusts and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of these rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws on an investment in the
REIT, including any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular United
States federal income tax with respect to their investment in the REIT if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct
of a trade or business in the United States. A corporate Non-U.S. Stockholder
that receives income that is (or is treated as) effectively connected with a
U.S. trade or business also may be subject to the branch profits tax under
section 884 of the Code, which is payable in addition to regular United States
federal corporate income tax. The following discussion will apply to Non-U.S.
Stockholders whose investment in the REIT is not so effectively connected.
A distribution by the REIT that is not attributable to gain from the
sale or exchange by the REIT of a United States real property interest and that
is not designated by the REIT as a capital gain dividend will be treated as an
ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
Such a distribution in excess of the REIT's earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Stockholder's
basis in its Common Stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of Common Stock.
Distributions by the REIT that are attributable to gain from the sale
or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of non-resident alien individuals). Distributions
subject to FIRPTA also may be subject to a 30% branch profits tax when made to
a foreign corporate stockholder that is not entitled to treaty exemptions.
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Although tax treaties may reduce the REIT's withholding obligations,
the REIT generally will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, (i) 35% of designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could
be designated as capital gain dividends) and (ii) 30% of ordinary dividends
paid out of earnings and profits. In addition, if the REIT designates prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of the REIT's earnings
and profits will be subject to 30% dividend withholding if at the time of the
distribution it cannot be determined whether the distribution will be in an
amount in excess of the REIT's current or accumulated earnings and profits. If
the amount of tax withheld by the REIT with respect to a distribution to a
Non-U.S. Stockholder exceeds the stockholder's United States tax liability with
respect to such distribution, the Non-U.S. Stockholder may file for a refund of
such excess from the IRS.
Unless the REIT Share constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of REIT Shares by a Non-U.S.
Stockholder generally will not be subject to United States federal income
taxation. The REIT Share will not constitute a United States real property
interest if the REIT 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. Stockholders. It is currently anticipated that the REIT will be a
domestically controlled REIT and therefore that sales of REIT Shares will not
be subject to taxation under FIRPTA. However, because the REIT will be
publicly traded, no assurance can be given that the REIT will continue to be a
domestically controlled REIT. If the REIT were not a domestically controlled
REIT, whether a Non-U.S. Stockholder's sale of REIT Shares would be subject to
tax under FIRPTA as a sale of a United States real property interest would
depend on whether the REIT Shares were "regularly traded" on an established
securities market (such as AMEX on which the REIT will be listed) and on the
size of the selling stockholder's interest in the REIT. If the gain on the sale
of REIT Shares were subject to taxation under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as a U.S. Stockholder with respect to
the gain (subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of non-resident alien individuals). In
addition, distributions that are treated as gain from the disposition of REIT
Shares and are subject to tax under FIRPTA also may be subject to a 30% branch
profit tax when made to a foreign corporate stockholder that is not entitled to
treaty exemptions. In any event, a purchaser of REIT Shares from a Non-U.S.
Stockholder will not be required to withhold under FIRPTA on the purchase price
if the purchased REIT Shares are "regularly traded" on an established
securities market (such as AMEX) or if the REIT is a domestically controlled
REIT. Otherwise, under FIRPTA the purchaser of REIT Shares may be required to
withhold 10% of the purchase price and remit this amount to the IRS. Capital
gains not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if the
Non-U.S. Stockholder is a non-resident alien individual who is present in the
United States for 183 days or more during the taxable year and certain other
conditions apply, in which case the non-resident alien individual will be
subject to a 30% tax on his or her U.S. source capital gains.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to
backup withholding at a rate of 31% on payments made with respect to, or cash
proceeds of a sale or exchange of, REIT Shares. Backup withholding will apply
only if the holder (i) fails to furnish his or her taxpayer identification
number ("TIN") (which, for an individual, would be his or her Social Security
Number), (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he
or she has failed properly to report payments of interest and dividends or is
otherwise subject to backup withholding or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that he or she has furnished a
correct TIN and (a) that he or she has not been notified by the IRS that he or
she is subject to backup withholding for failure to report interest and
dividend payments or (b) that he or she has been notified by the IRS that he or
she is no longer subject to backup withholding. Backup withholding will not
apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding
their qualifications for exemption from backup withholding and the procedure
for obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
U.S. Stockholder will be allowed as a credit against the U.S. Stockholder's
United States federal income tax liability and may entitle the U.S. Stockholder
to a refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should
consult their tax advisors with regard to U.S. information reporting and backup
withholding.
OTHER TAX CONSIDERATIONS
STATE AND LOCAL TAX
The REIT and its operating subsidiaries may be subject to state and
local tax in states and localities in which they do business or own property.
The tax treatment of the REIT and its operating subsidiaries and the holders of
REIT Shares in such jurisdictions may differ from the federal income tax
treatment described above.
As previously noted, the Code requires the use of broad attribution
rules to determine certain direct and indirect stock ownership. Because of the
breadth of these rules, it may not be possible for the REIT to maintain
complete ownership records, as described above, or to know whether a violation
of the 100 Stockholder Requirement or Five or
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Fewer Requirement have occurred. For example, a shareholder of the REIT would
be deemed to own REIT Shares owned by his parents, children, spouse, siblings
and, in certain instances, his proportionate interest of shares owned by
another corporation, partnership, estate or trust in which the shareholder has
an interest. Accordingly, no assurances can be given that the REIT will be able
to satisfy these requirements and at all times qualify as a real estate
investment trust.
TAX AND ACCOUNTING INCOME MAY VARY
Due to differences between accounting rules for federal income tax
purposes and generally accepted accounting principles for financial reporting
purposes, the REIT's taxable income may vary from its net income for financial
reporting purposes. For tax purposes, the REIT will use the accrual method of
accounting.
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP ON QUALIFICATION OF THE
REIT AS A REAL ESTATE INVESTMENT TRUST
Substantially all of the REIT's investments are through the Operating
Partnership. In addition, the Operating Partnership holds interests in
certain Owned Healthcare Facilities through subsidiary partnerships. The REIT's
interest in these partnerships may involve special tax considerations. Such
considerations include (i) the allocations of items of income and expense,
which could affect the computation of taxable income of the REIT, (ii) the
status of the Operating Partnership, and other subsidiary partnerships as
partnerships (as opposed to associations taxable as corporations) for federal
income tax purposes, and (iii) the taking of actions by the Operating
Partnership and subsidiary partnerships that could adversely affect the REIT's
qualification as a real estate investment trust. In the opinion of REIT
Counsel, based on certain representations of the REIT and its subsidiaries,
each of the Operating Partnership and the other subsidiary partnerships in
which the Operating Partnership has an interest will be treated for federal
income tax purposes as a partnership (and not as an association taxable as a
corporation). If any of the Operating Partnership or other subsidiary
partnerships in which the Operating Partnership has an interest were treated as
an association taxable as a corporation, the REIT would fail to qualify as a
real estate investment trust for a number of reasons.
ALTERNATIVE MINIMUM TAX
The REIT's operations could generate items of tax preference under the
alternative minimum tax. For example, the REIT's alternative minimum taxable
income may be adjusted to take into account the difference between depreciation
allowable for regular tax purposes and depreciation allowable for purposes of
the alternative minimum tax. The REIT's shareholders are also subject to the
alternative minimum tax to the extent that it exceeds their regular tax. The
shareholders should therefore consult their own tax advisors as to the possible
application of the alternative minimum tax rules.
ERISA CONSIDERATIONS
The assets of certain pension plans, profit sharing plans and Keogh
Plans (collectively "Qualified Plans") must be valued annually. In addition,
valuation may become necessary in connection with distributions to participants
or beneficiaries, or for other reasons. Each year the trustee or custodian of
an individual retirement account ("IRA") must furnish to the person who has
established the IRA a statement which indicates the value of the IRA at the end
of the preceding calendar year. Otherwise, the assets of an IRA need to be
valued only in rare circumstances. The REIT does not contemplate providing
shareholders with an annual appraisal of its properties. However, it is
anticipated that a public trading market will develop for the REIT Shares, and
this market may provide sufficient data to value the REIT Shares.
Fiduciaries of Qualified Plans subject to the Employee Retirement
Income Securities Act of 1974, as amended ("ERISA"), should also consider
whether (i) under the fiduciary standards of ERISA an investment in the REIT is
prudent because of possible limitations on the marketability of the REIT
Shares, (ii) an investment in the REIT satisfies ERISA's diversification
requirements and (iii) such fiduciaries have authority to hold REIT Shares
under the appropriate governing instrument and Title I of ERISA. Fiduciaries of
an "IRA" should similarly note that an IRA may only make investments that are
authorized by the appropriate governing instrument.
Fiduciaries of Qualified Plans should also consider ERISA's
prohibition on improper delegation of control over or responsibility for "plan
assets." Qualified Plan and IRA fiduciaries should note that the Department of
Labor, which has certain administrative responsibilities over these employee
benefit plans, issued regulations defining "plan assets" on November 13, 1986.
Under the regulations, the assets of an entity in which employee benefit plans
make equity investments will not be treated as plan assets if interests in the
entity are (i) freely transferable, (ii) widely held and (iii) registered
pursuant to the Securities Exchange Act of 1934 or sold to the plan in a public
offering pursuant to a registration statement under the Securities Act of 1933.
It is anticipated that the REIT Shares will be freely transferable, widely
held, and registered pursuant to the Exchange Act.
If the REIT does not satisfy the above-described conditions, the
assets of the REIT could be deemed to be plan assets under ERISA. In such case,
(i) the prudence standards and other provisions of Part 4 of Title I of ERISA
(which impose liability on fiduciaries) would extend to investments made by the
REIT (which could materially impact the operations of the REIT); (ii) the
persons who have investment discretion over the assets of Qualified Plans which
hold REIT Shares could be liable under Part 4 of Title I for investments made
by the REIT which do not conform to such ERISA standards; and (iii) certain
transactions that the REIT might enter into in the ordinary course of its
business and operations might constitute "prohibited transactions" under ERISA.
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Finally, the tax-exempt status of an IRA could be lost if an
investment in the REIT constituted a prohibited transaction under Section
408(e) (2) of the Code by reason of the REIT engaging in a prohibited
transaction with the individual who established the IRA or his beneficiary.
Qualified Plans and IRAs contemplating the retention of REIT Shares
are urged to consult their tax advisors.
THE CORPORATION
FORMATION. The formation of the Corporation by NHC is intended to
qualify as a tax free incorporation under Code Section 351. Under Section 351,
neither the Corporation nor NHC would generally recognize gain upon formation
of the Corporation.
THE MERGER. The Merger (together with the Distribution) will be
treated for federal income tax purposes as a complete termination and
liquidation of NHC in which NHC Unitholders receive shares in the Corporation
and shares in the REIT in exchange for their Units. The merger of NHC into the
Corporation will be treated as a contribution of NHC's assets (other than those
contributed to the REIT or the Operating Partnership) to the Corporation, which
would generally be tax free under Code Section 351. Under the general rule of
Code Section 351, no gain or loss is recognized upon the transfer of property
to a corporation by the transferors of such property solely in exchange for
stock in the corporation if immediately thereafter the transferors are in
control of the corporation. Control is defined in Section 368(c) as the
ownership of eighty percent (80%) of the voting stock and eighty percent (80%)
of each class of non-voting stock of a corporation.
In the case of a partnership that contributes its assets to a
corporation in exchange for corporate stock and immediately thereafter
liquidates by distributing the stock to its partners "in proportion to their
partnership interests," the IRS has ruled that the "immediately after"
requirement of Section 351 is satisfied. Revenue Ruling 84-111, 1984-2 C.B. 88.
This is so even though the identities of the actual contributor or transferor
of property to the corporation and the ultimate recipient of the corporate
stock were not the same. While this ruling involves a partnership that
liquidates as a result of its distribution of shares in a corporation, the
ruling is enlightening because Section 351 was found to apply despite the short
period during which the partnership held the stock. Although NHC will
actually merge into the Corporation, thereby ceasing to exist as a separate
entity, it will be treated as liquidating for tax purposes.
Similarly, Code Section 351(c) provides that in determining control
for these purposes, the fact that a corporate transferor distributes part or
all of the stock it received in a transaction subject to Section 351 to its
shareholders will not be taken into account. While the Code contains no
analogous provision for such distributions by a partnership, Tax Counsel
believes it is appropriate for the same result to follow, and that it is more
likely than not that the general nonrecognition rule of Section 351 would apply
to constructive contribution of assets to the Corporation, except as otherwise
provided below.
Code Section 357 generally permits a corporation, in addition to
issuing stock in a Section 351 transaction, to assume liabilities of the
transferor, without causing the transferor to recognize gain or be precluded
from obtaining the benefits of Code Section 351. This rule does not apply,
however, if either (i) the principal purpose for the assumption was tax
avoidance (or was not a bona fide business purpose), or (ii) the liabilities
exceeded the transferor's basis in the contributed assets. NHC has represented
that the liabilities to be assumed by the Corporation or subject to assets
constructively contributed to the Corporation do not exceed NHC's adjusted tax
bases in the assets constructively contributed to the Corporation, and that the
principal purpose of the Corporation's assumption of such liabilities is not
the avoidance of taxes.
NHC will have a tax basis in the Shares it receives generally equal
to NHC's basis in the assets it constructively contributes to the Corporation,
net of the amount of the NHC liabilities the Corporation assumes or acquires in
the transfer. NHC's holding period for the Shares it receives in the exchange
will include NHC's holding period in the capital and Section 1231 assets it
transfers to the Corporation. If any of the assets NHC contributes to the
Corporation are deemed not to be capital or Section 1231 assets, then NHC's
holding period in the Shares will be bifurcated; the holding period for that
portion of the Shares received in exchange for such other assets would begin on
the day following the date of the exchange.
Pursuant to Code Section 1032, the Corporation will not recognize any
gain or loss on the receipt of the NHC assets and assumption of NHC liabilities
in exchange for the issuance of the Shares. The initial tax bases of the assets
received will generally equal their tax basis in the hands of NHC immediately
prior to the exchange. The Corporation's holding period for each asset acquired
in the exchange will generally include NHC's holding period for that asset.
Generally, under Code Section 731, NHC's Unitholders would not
recognize gain upon the complete liquidation of their limited partnership
interests in NHC in exchange for the Shares and the REIT shares.
Code Section 731(b) provides that a partnership will not recognize
gain upon its distribution of property or money to its partners. As to the
partners, Code Section 731(a)(1) generally provides that no gain or loss shall
be recognized by a partner upon a distribution to him of property, other than
money. For purposes of Section 731(a), "marketable securities" are generally
treated as money. Marketable securities are defined to include, in part, (i)
stock that is, as of the date of distribution, actively traded within the
meaning of Code Section 1092(d)(1) and (ii) other equity interests that,
pursuant to their terms or any other arrangement, are readily convertible into,
or exchangeable for, money or marketable securities. Regulations promulgated
under Section 731(c) provide that stock is actively traded if it is of a
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type that is, as of the date of distribution, listed on a national securities
exchange. It is anticipated that as of the Effective Time the Shares will be
approved for listing on the American Stock Exchange, though such listing will
not be effective until January 2, 1998.
However, Section 731(a) does not apply to the distribution of
marketable securities in a "qualified partnership liquidation" if (i) such
securities were received by the partnership in a nonrecognition transaction for
substantially all of the partnership's assets, (ii) such securities are
distributed by the partnership within 90 days after their receipt by the
partnership, and (iii) the partnership is liquidated before the beginning of
the partnership's first taxable year beginning after December 31, 1997. For
purposes of this transitional rule, a "qualified partnership liquidation" is a
complete liquidation of a publicly traded partnership as defined in Code
Section 7704(b) that is an existing partnership as defined in Section
10211(c)(2) of the Revenue Act of 1987.
NHC is a publicly traded and existing partnership as so defined. The
REIT Shares and the Shares will be issued to NHC in exchange for all of its
assets under the nonrecognition rule of Section 351 and will be issued within
90 days of their receipt by NHC. The Distribution and Merger will be treated
for federal income tax purposes as a complete termination and liquidation of
NHC, which is to be effective prior to NHC's first taxable year after December
31, 1997. Accordingly, Tax Counsel believes it is more likely than not that
Code Section 731(c) would not apply to the Merger.
Under Code Section 732(b), a Unitholder's aggregate initial tax basis
in his REIT Shares and the Shares will be generally equal to the Unitholder's
adjusted basis in his Units, decreased by the amount of any marketable
securities treated as money and increased by the amount of any gain recognized
as a result thereof, which shall be allocated between the REIT Shares and the
Shares generally based upon the relative adjusted bases to NHC of the REIT
Shares and the Shares.
Each Unitholder may have multiple holding periods for the REIT Shares
and the Shares received, depending upon the holding periods and character of
the various assets transferred by NHC to the REIT and the Corporation. The
holding period of the portion of the REIT Shares and the Shares attributable to
capital assets and Code Section 1231 assets transferred by NHC to the REIT or
the Corporation will include NHC's holding period for those assets. The holding
period for REIT Shares and the Shares attributable to other NHC assets, if any,
will begin on the day following the Effective Time. The period during which
Unitholders have held their Units will have no impact on their holding period
in REIT Shares or the Shares.
STATE AND LOCAL TAXES
The REIT, the Corporation, and each of their shareholders may be
subject to state or local taxation in various states or local jurisdictions,
including those in which they transact business or reside. Moreover, the tax
treatment in such jurisdictions may differ from the federal income tax
treatment. For instance, while some states recognize the status of real estate
investment trusts as corporations and permit them to substantially eliminate
corporate-level taxation via deductible distributions, other states may not.
Each Unitholder should therefore consult with his own tax advisor as to the
actual or potential impact of federal, state and local taxation on the Plan of
Restructure and the holding of REIT Shares and Shares.
UNITHOLDERS SHOULD SEEK THEIR OWN TAX ADVICE
The preceding is a brief summary of the tax considerations potentially
affecting NHC, its Unitholders, the REIT and the Corporation and their
respective shareholders. This discussion is based on the current state of the
law, which is subject to legislative, administrative or judicial actions, which
may apply retroactively. Moreover, the discussion does not address
considerations that may adversely affect the treatment of certain Unitholders
(such as corporations, foreign and tax-exempt investors). In these
circumstances, and particularly because the ultimate tax impact may vary
depending upon the personal circumstances of each investor, ALL UNITHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX ASPECTS OF THE
FORMATION OF THE REIT AND THE CORPORATION, THE PLAN OF RESTRUCTURE, AND THE
OWNING AND DISPOSING OF REIT SHARES AND SHARES OF THE CORPORATION.
LEGAL MATTERS
Certain legal matters in connection with the Distribution of the Shares and
the REIT Shares being offered hereby will be passed upon for the REIT by McQuire
Woods Battle & Boothe LLP, Baltimore, Maryland and the Corporation by Harwell
Howard Hyne Gabbert & Manner, P.C., Nashville, Tennessee.
EXPERTS
The consolidated financial statements and schedules of NHC at December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996 and the audited balance sheet of the REIT as of September 26, 1997
which are included in this Proxy Statement/Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
NATIONAL HEALTHCARE L.P.
Report of Independent Public Accountants F-2
Consolidated Statements of Income F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Partners' Capital F-6
Notes to Consolidated Financial Statements F-7
Interim Condensed Consolidated Statements of Income F-18
Interim Condensed Consolidated Balance Sheets F-19
Interim Condensed Consolidated Statements of Cash Flows F-21
Interim Condensed Consolidated Statements of Changes in Partners' Capital F-23
Notes to Interim Condensed Consolidated Financial Statements F-24
NATIONAL HEALTH REALTY, INC.
Report of Independent Public Accountants F-27
Balance Sheet dated October 15, 1997 F-28
Notes to Balance Sheet F-29
</TABLE>
<PAGE> 110
To the Partners of National HealthCare L.P.:
We have audited the accompanying consolidated balance sheets of
National HealthCare L.P. (a Delaware partnership) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
partners' capital and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements are the
responsibility of National HealthCare L.P.'s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
National HealthCare L.P. and subsidiaries as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 3, 1997
F-2
<PAGE> 111
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Revenues:
Net patient revenues $ 341,818 $ 307,969 $ 269,722
Other revenues 46,842 42,988 29,179
------------ ------------ ----------
Net revenues 388,660 350,957 298,901
------------ ------------ ----------
Costs and Expenses:
Salaries, wages and benefits 209,645 188,985 157,663
Other operating 125,342 109,417 98,753
Depreciation and amortization 13,634 14,549 13,582
Interest 10,753 16,891 13,050
------------ ------------ ----------
Total costs and expenses 359,374 329,842 283,048
------------ ------------ ----------
Net Income $ 29,286 $ 21,115 $ 15,853
============ ============ ==========
Earnings Per Unit:
Primary $ 3.44 $ 2.65 $ 2.02
Fully diluted 2.98 2.31 1.80
Weighted Average Units Outstanding:
Primary 8,496,299 7,953,651 7,834,375
Fully diluted 10,455,706 9,971,867 9,807,241
Net Income Allocable to Partners:
General Partners $ 293 $ 211 $ 159
Limited Partners 28,993 20,904 15,694
============ ============ ==========
$ 29,286 $ 21,115 $ 15,853
============ ============ ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-3
<PAGE> 112
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31 1996 1995
- ----------- -------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,881 $ 4,835
Cash held by trustees 2,274 1,721
Marketable securities 17,968 1,514
Accounts receivable, less allowance for doubtful accounts of $4,739 and $4,441, respectively 50,902 47,285
Notes receivable 2,515 2,538
Loan participation agreements --- 27,579
Inventory, at lower of cost (first-in, first-out method) or market 3,572 3,075
Prepaid expenses and other assets 982 893
---------- ---------
Total current assets 80,094 89,440
---------- ---------
Property, Equipment and Assets Under Arrangement With Other Parties:
Property and equipment, at cost 234,934 165,265
Accumulated depreciation and amortization (48,171) (38,265)
Assets under arrangement with other parties, net 22,538 29,921
---------- ---------
Net property, equipment and assets under arrangement with other parties 209,301 156,921
---------- ---------
Other Assets:
Bond reserve funds, mortgage replacement reserves and other deposits 141 1,789
Unamortized financing costs 1,601 1,937
Notes receivable 95,206 86,178
Notes receivable from National 12,153 12,271
Minority equity investments and other 6,244 6,955
---------- ---------
Total other assets 115,345 109,130
---------- ---------
$ 404,740 $ 355,491
========== =========
Liabilities and Partners' Capital
Current Liabilities:
Current portion of long-term debt $ 8,574 $ 8,558
Trade accounts payable 11,835 6,142
Accrued payroll 28,963 23,876
Amount due to third party payors 13,135 9,800
Accrued interest 501 1,822
Other current liabilities 9,795 8,849
---------- ---------
Total current liabilities 72,803 59,047
---------- ---------
Long-term Debt, Less Current Portion 124,678 100,871
Debt Serviced by Other Parties, Less Current Portion 32,857 40,771
Minority Interests in Consolidated Subsidiaries 791 812
Commitments, Contingencies and Guarantees Subordinated Convertible Notes 28,908 30,000
Deferred Income 16,166 15,091
Partners' Capital:
General partners 1,408 1,290
Limited partners, less notes receivable and cumulative unrealized gains and losses on
securities 127,129 107,609
---------- ---------
Total partners' capital 128,537 108,899
---------- ---------
$ 404,740 $ 355,491
========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-4
<PAGE> 113
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,286 $ 21,115 $ 15,853
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 12,453 14,081 13,147
Provision for doubtful accounts receivable 1,654 2,182 2,118
Amortization of intangibles and deferred charges 1,083 1,845 848
Amortization of deferred income (295) (497) (403)
Equity in earnings of unconsolidated investments (313) (347) (450)
Distributions from unconsolidated investments and other 210 236 333
Changes in assets and liabilities:
Increase in accounts receivable (5,271) (1,095) (20,095)
Increase in inventory (497) (123) (19)
(Increase) decrease in prepaid expenses and other assets (89) 680 (1,012)
Increase (decrease) in trade accounts payable 5,693 (10,910) 12,331
Increase in accrued payroll 5,087 5,232 4,663
Increase in amounts due to third party payors 3,335 5,404 769
Increase (decrease) in accrued interest (1,321) (401) 1,235
Increase in other current liabilities 946 2,456 2,057
-------- -------- --------
Net cash provided by operating activities 51,961 39,858 31,375
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to and acquisitions of property and equipment, net (69,970) (29,435) (9,599)
Investments in notes receivable and loan participation agreements (20,170) (30,694) (112,069)
Collections of long-term notes receivable and loan participation agreements 38,862 39,157 80,199
Increase (decrease) in minority equity investments and other (441) 210 (3,984)
(Increase) decrease in marketable securities, net (14,628) 2,361 2,140
Sales of investments 1,900 --- 136
-------- -------- --------
Net cash used in investing activities (64,447) (18,401) (43,177)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance 29,183 2,368 34,225
Increase in cash held by trustees (553) (117) (315)
(Increase) decrease in minority interests in subsidiaries (21) 10 35
Issuance of partnership units 1,378 820 773
Collections of receivables from exercise of options 3,522 795 437
(Increase) decrease in bond reserve funds, mortgage replacement reserves and
other deposits 1,648 (69) (57)
Payments on debt (8,138) (6,767) (4,360)
Cash distributions to partners (17,466) (14,702) (17,639)
Increase in financing costs (21) (402) ---
-------- -------- --------
Net cash provided by (used in) financing activities 9,532 (18,064) 13,099
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,954) 3,393 1,297
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,835 1,442 145
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,881 $ 4,835 $ 1,442
======== ======== ========
<CAPTION>
Year Ended December 31 1996 1995 1994
-------- -------- --------
SUPPLEMENTAL INFORMATION:
Cash payments for interest expense $ 12,074 $ 17,292 $ 11,815
-------- -------- --------
During 1996 and 1995, NHC was released from its liability on debt serviced by
others by the respective lenders.
Debt serviced by other parties $ (5,136) $(45,868) $ ---
======== ======== ========
Assets under arrangement with other parties $ 5,136 $ 45,868 $ ---
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-5
<PAGE> 114
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
Unrealized
Receivables Gains Total
Number from Sale (Losses) on General Limited Partners'
of Units of Units Securities Partner Partners Capital
---------- ------------ ----------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 7,796,433 $ (15,134) $ --- $1,027 $106,633 $ 92,526
--------- --------- ----- ----- ------- -------
Net income --- --- --- 159 15,694 15,853
Collection of receivables --- 437 --- --- --- 437
Units sold 29,732 --- --- --- 773 773
Unrealized gains on securities --- --- 480 --- --- 480
Cash distributions declared
($1.17 per unit) --- --- --- (91) (8,972) (9,063)
--------- ------- ----- ----- ------- -------
BALANCE AT DECEMBER 31, 1994 7,826,165 (14,697) 480 1,095 114,128 101,006
--------- -------- ----- ----- ------- -------
Net income --- --- --- 211 20,904 21,115
Collection of receivables --- 795 --- --- --- 795
Units sold 526,949 (12,294) --- 131 12,983 820
Unrealized losses on securities --- --- (135) --- --- (135)
Cash distributions declared
($1.88 per unit) --- --- --- (147) (14,555) (14,702)
--------- ------- ----- ----- ------- -------
BALANCE AT DECEMBER 31, 1995 8,353,114 (26,196) 345 1,290 133,460 108,899
--------- ------- ----- ----- ------- -------
Net income --- --- --- 293 28,993 29,286
Collection of receivables --- 3,522 --- --- --- 3,522
Units sold 43,035 --- --- --- 1,378 1,378
Units issued in conversion of 71,810 --- --- --- 1,092 1,092
convertible debentures to
partnership units
Unrealized gains on securities --- --- 1,826 --- --- 1,826
Cash distributions declared
($2.08 per unit) --- --- --- (175) (17,291) (17,466)
--------- -------- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1996 8,467,959 $(22,674) $2,171 $1,408 $147,632 $128,537
========= ======== ====== ====== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE> 115
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation--
The consolidated financial statements include the accounts of National
HealthCare L.P. and its subsidiaries (NHC). Investments are accounted for on
either the cost or equity method. All material intercompany balances, profits,
and transactions have been eliminated in consolidation, and minority interests
are reflected in consolidation. Certain reclassifications have been made to
the 1994 and 1995 financial statements to conform to the 1996 presentation.
Use of Estimates--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Health Care Revenues--
NHC's principal business is operating and managing long-term health care
centers, including the provision of routine and ancillary services.
Approximately 60% of NHC's net revenues in 1996 and 1995 and 61% in 1994 are
from participation in Medicare and Medicaid programs. Amounts paid under these
programs are generally based on a facility's allowable costs or a fixed rate
subject to program cost ceilings. Revenues are recorded at standard billing
rates less allowances and discounts principally for patients covered by
Medicare, Medicaid and other contractual programs. These allowances and
discounts were $110,795,000, $103,186,000 and $82,443,000 for 1996, 1995 and
1994, respectively. Amounts earned under the Medicare and Medicaid programs
are subject to review by the third party payors. In the opinion of management,
adequate provision has been made for any adjustments that may result from such
reviews. NHC generally expects final determinations to occur two to three
years subsequent to the year in which amounts are earned. Any differences
between estimated settlements and final determinations are reflected in
operations in the year finalized. NHC has submitted various requests for
exceptions to Medicare routine cost limitations for reimbursement. NHC has
received approval on certain requests, and others are pending approval. NHC
will record revenues associated with the approved requests when such approvals,
including cost report audits, are assured.
Provision for Doubtful Accounts--
Provisions for estimated uncollectible accounts and notes receivable are
included in other operating expenses.
Property, Equipment and Assets Under Arrangement with Other Parties--
NHC uses the straight-line method of depreciation over the expected useful
lives of property and equipment estimated as follows: buildings and
improvements, 20-40 years; equipment and furniture, 3-15 years; and properties
under arrangement with other parties, 10-20 years. The provision for
depreciation includes the amortization of properties under capital leases and
properties under arrangement with National Health Investors, Inc. (NHI) (See
Note 3).
Expenditures for repairs and maintenance are charged against income as
incurred. Betterments are capitalized. NHC removes the costs and related
allowances from the accounts for properties sold or retired, and any resulting
gains or losses are included in income. NHC includes interest costs incurred
during construction periods in the cost of buildings ($1,428,000 in 1996 and
$1,057,000 in 1995).
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" (SFAS 121). NHC
adopted the provisions of SFAS 121 effective January 1, 1996. The effect of
adoption of SFAS 121 is not material to NHC's financial statements. In
accordance with SFAS 121, NHC evaluates the recoverability of the carrying
values of its properties on a property by property basis.
Investments in Marketable Securities--
NHC considers its investments in marketable securities as available for sale
securities and unrealized gains and losses are recorded in partners' capital in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
F-7
<PAGE> 116
Intangible Assets--
Any excess of cost over net assets of companies purchased is amortized
generally over 40 years using the straight-line method. Deferred financing
costs are amortized principally by the interest method over the terms of the
related loans.
Income Taxes--
NHC is not a taxable entity. Accordingly, no provision for income taxes has
been made in the Consolidated Statements of Income.
The earnings of NHC are taxable to the individual partners. Partners are
required to report their distributive share of the income, gain, loss,
deductions and credits of the partnership on their individual income tax
returns.
The Revenue Act of 1987 contains provisions which cause some publicly traded
partnerships to be taxed as corporations. Because NHC was in existence and
publicly traded on December 17, 1987, it will continue to be treated as a
partnership for the 1987 through 1997 taxable years.
NHC adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109) effective January 1, 1993. SFAS 109 generally
requires NHC to record any income tax provisions or income taxes payable based
on the liability method. NHC management believes, based on current
information, that the initial recognition of any income tax assets or
liabilities that would be recorded in 1998, the year that master limited
partnerships become taxable as a corporation, would not be material to NHC's
financial condition or results of operations.
Concentration of Credit Risks--
NHC's credit risks primarily relate to cash and cash equivalents, cash held
by trustees, accounts receivable, marketable securities, notes receivable and
loan participation agreements. Cash and cash equivalents are primarily held in
bank accounts and overnight investments. Cash held by trustees is primarily
invested in commercial paper and certificates of deposit with financial
institutions. Accounts receivable consist primarily of amounts due from
patients (funded approximately 80% through Medicare, Medicaid, and other
contractual programs and approximately 20% through private payors) in the
states of Alabama, Florida, Georgia, Kentucky, Missouri, South Carolina,
Tennessee, and Virginia and from other health care companies for management
services. NHC performs continual credit evaluations of its clients and
maintains allowances for doubtful accounts on these accounts receivable.
Marketable securities are held primarily in two accounts with brokerage
institutions. Notes receivable relate primarily to secured loans with health
care facilities and to secured notes receivable from officers, directors and
supervisory employees as discussed in Notes 13 and 14. NHC also has notes
receivable from National Health Corporation as discussed in Note 4.
NHC's financial instruments, principally its notes receivable (which are
predominantly with Florida Convalescent Centers, Inc.) are subject to the
possibility of loss of the carrying values as a result of either the failure of
other parties to perform according to their contractual obligations or changes
in market prices which may make the instruments less valuable. NHC obtains
various collateral and other protective rights, and continually monitors these
rights, in order to reduce such possibilities of loss. NHC evaluates the need
to provide for reserves for potential losses on its financial instruments based
on management's periodic review of its portfolio on an instrument by instrument
basis. See Notes 13 and 14 for additional information on the notes receivable.
Cash and Cash Equivalents--
Cash equivalents include highly liquid investments with an original maturity
of less than three months.
NOTE 2 - ORGANIZATION OF THE PARTNERSHIP:
The general partners of NHC are as follows: (1) NHC, Inc. (the "Managing
General Partner"), a Tennessee corporation, which is owned by its board of
directors and senior management of NHC; (2) National Health Corporation
("National" and "Administrative General Partner"), a Tennessee corporation,
which is owned by the National Health Corporation Leveraged Employee Stock
Ownership Plan and Trust (the "ESOP"); and (3) W. Andrew Adams, NHC Inc.'s
President (the "Individual General Partner"). The Managing General Partner,
the Administrative General Partner and the Individual General Partner are
collectively called "the General Partners". The General Partners own a general
partnership interest in NHC representing a 1% interest in the profits, losses
and distributions of NHC.
F-8
<PAGE> 117
NOTE 3 - RELATIONSHIP WITH NATIONAL HEALTH INVESTORS, INC.:
Leases--
On October 17, 1991, concurrent with NHC's conveyance of real property to
NHI, NHC leased from NHI the real property of 40 long-term care centers and
three retirement centers. Each lease is for an initial term expiring December
31, 2001, with two additional five-year renewal terms at the option of NHC,
assuming no defaults. NHC accounts for the leases as operating leases.
During the initial term and first renewal term of the leases, NHC is
obligated to pay NHI annual base rent on all 43 facilities of $15,238,000. If
NHC exercises its option to extend the leases for the second renewal term, the
base rent will be the then fair rental value as negotiated by NHC and NHI.
The leases also obligate NHC to pay as debt service rent all payments of
interest and principal due under each mortgage to which the conveyance of the
facilities was subject. The payments are required over the remaining life of
the mortgages as of the conveyance date, but only during the term of the lease.
Payments for debt service rent are being treated by NHC as payments of
principal and interest if NHC remains obligated on the debt ("obligated debt
service rent") and as operating expense payments if NHC has been relieved of
the debt obligation by the lender ("non-obligated debt service rent"). See
"Accounting Treatment of the Transfer" for further discussion.
In addition to base rent and debt service rent, in each year after 1992, NHC
must pay percentage rent to NHI equal to 3% of the amount by which gross
revenues of each facility in such later year exceed the gross revenues of such
facility in 1992. Percentage rent for 1996 and 1995 was approximately
$1,817,000 and $1,237,000, respectively.
Each lease with NHI is a "triple net lease" under which NHC is responsible
for paying all taxes, utilities, insurance premium costs, repairs and other
charges relating to the ownership of the facilities. NHC is obligated at its
expense to maintain adequate insurance on the facilities' assets.
NHC has a right of first refusal with NHI to purchase any of the properties
transferred from NHC should NHI receive an offer from an unrelated party during
the term of the lease or up to 180 days after termination of the related lease.
Base rent expense to NHI was $15,238,000 in 1996, 1995 and 1994 and
non-obligated debt service rent to NHI was $5,048,000 in 1996. At December 31,
1996, the approximate future minimum base rent and non-obligated debt service
rent commitments to be paid by NHC on non-cancelable operating leases with NHI
during the initial term are as follows:
<TABLE>
<S> <C>
1997 20,298,000
1998 20,354,000
1999 20,372,000
2000 20,409,000
2001 20,486,000
Thereafter ---
</TABLE>
Advisory Agreement--
NHC has entered into an Advisory Agreement with NHI whereby services related
to investment activities and day-to-day management and operations are provided
to NHI by NHC as Advisor. The Advisor is subject to the supervision and
policies established by NHI's Board of Directors.
Either party may terminate the Advisory Agreement on 90 days notice at any
time. NHI may terminate the Advisory Agreement for cause at any time.
For its services under the Advisory Agreement, NHC's annual compensation is
calculated to be $3,100,000, $2,827,000, and $2,570,000 in 1996, 1995 and 1994,
respectively. However, the payment of such annual compensation is conditional
upon NHI having sufficient funds from operations to pay annual dividends of
$2.00 per share and upon NHI paying such dividends. NHI met this condition in
1996, 1995 and 1994.
Accounting Treatment of the Transfer--
NHC has accounted for the conveyance in 1991 of assets (and related debt) to
NHI and the subsequent leasing of the real estate assets as a
"financing/leasing" arrangement. Since NHC remains obligated on certain of the
transferred debt, the obligated debt and
F-9
<PAGE> 118
applicable asset balances have been reflected on the Consolidated Balance
Sheets as "assets under arrangement with other parties" and "debt serviced by
other parties". The net book value equity of the assets transferred has been
transferred from NHC to NHI. As NHC utilizes the applicable real estate over
the lease term, its Consolidated Statements of Income will reflect the
continued depreciation of the applicable assets over the lease term, the
continued interest expenses on the obligated debt balances and the additional
base and non-obligated debt service rents (as an operating expense) payable to
NHI each year. NHC has recovery provisions from NHI if NHC is required to
service the debt through a default by NHI.
Release from Debt Serviced by Other Parties--
In 1996 and 1995, NHI prepaid debt on which NHC had also been obligated in
the amounts of $5,136,000 and $20,544,000, respectively. In addition, in 1995,
NHC was released from its obligation on approximately $25,324,000 of the
transferred debt. Since NHC is no longer obligated on this transferred debt,
debt serviced by other parties and assets under arrangement with other parties
have been reduced by $5,136,000 and $45,868,000 in 1996 and 1995, respectively.
The leases with NHI provide that NHC shall continue to make non-obligated debt
service rent payments equal to the debt service including principal and
interest on the obligated debt which was prepaid and from which NHC has been
released.
NOTE 4 - RELATIONSHIP WITH NATIONAL HEALTH CORPORATION:
Sale of Health Care Centers--
On January 20, 1988, NHC sold the assets (inventory, property and equipment)
of eight health care centers (1,121 licensed beds) to National, the
administrative general partner of NHC, for a total consideration of
$40,000,000. The consideration consisted of $30,000,000 in cash and a
$10,000,000 note receivable due December 31, 2007. The note receivable earns
interest at 8.5%. NHC has agreed to manage the centers under a 20-year
management contract for management fees comparable to those in the industry.
NHC has a receivable from National for management fees of approximately
$3,184,000 and $1,864,000 at December 31, 1996 and 1995, respectively.
NHC's basis in the assets sold was approximately $24,255,000. The resulting
profit of $15,745,000 was deferred and will be amortized into income beginning
with the collection of the note receivable (up to $12,000,000) with the balance
($3,745,000) of the profit being amortized into income on a straight-line
basis over the management contract period.
As of December 31, 1996, National had borrowed $2,153,000 from NHC to finance
the construction of additions at two health care centers. The notes require
monthly principal and interest payments. The interest rate is equal to the
prime rate, and the notes mature in 1998.
Financing Activities--
On January 20, 1988, NHC obtained long-term financing of $8,500,000 for its
new headquarters building from National through the National Health Corporation
Leveraged Employee Stock Ownership Plan and Trust. The note requires quarterly
principal and interest payments with interest at 9%. At December 31, 1996 and
1995, the outstanding balance on the note was approximately $5,520,000 and
$5,961,000, respectively. The building is owned by a separate partnership of
which NHC is the general partner and building tenants are limited partners.
NHC has guaranteed the debt service of the building partnership.
In addition, NHC's bank credit facility and the senior secured notes
described in Note 10 were financed through National and National's ESOP. NHC's
interest costs, financing expenses and principal payments are equal to those
incurred by National. In October 1991, NHC borrowed $10,000,000 from National.
The term note payable requires quarterly interest payments at 8.5%. The entire
principal is due at maturity in 1998.
Duties as Administrative General Partner--
The personnel conducting the business of NHC are employees of National, which
provides payroll services, provides employee fringe benefits, and maintains
certain liability insurance. NHC pays to National all the costs of personnel
employed for the benefit of NHC, as well as an administrative fee ($1,820,000
in 1996) equal to 1% of payroll costs.
National maintains and makes contributions to its ESOP for the benefit of
eligible employees.
F-10
<PAGE> 119
NOTE 5 - OTHER REVENUES:
Revenues from management services include management fees, interest income on
notes receivable, and revenues from other services provided to managed
long-term care centers. "Other" revenues include non-health care related
earnings.
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1996 1995 1994
---------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues from managed services $32,363 $28,719 $19,035
Guarantee fees 693 814 936
Advisory fees from NHI 3,100 3,265 2,138
Dividends and other realized gains (losses) on securities 932 450 (47)
Equity in earnings of unconsolidated investments 313 347 450
Interest income 4,386 6,457 4,817
Other 5,055 2,936 1,850
------- ------- -------
$46,842 $42,988 $29,179
======= ======= =======
</TABLE>
NOTE 6 - EARNINGS PER UNIT:
Primary earnings per unit is based on the weighted average number of common
and common equivalent units outstanding. Common equivalent units result from
dilutive unit options computed using the treasury stock method.
Fully diluted earnings per unit assumes, in addition to the above, that the
6% subordinated convertible notes were converted at the date issued with
earnings being increased for interest expense thereon.
The following table summarizes the earnings and the average number of common
units and common equivalent units used in the calculation of primary and fully
diluted earnings per unit.
(dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Primary:
Weighted average common units 8,421,523 7,920,795 7,796,508
Stock options 74,776 32,856 37,867
---------- ---------- ---------
Average common units outstanding 8,496,299 7,953,651 7,834,375
========== ========== =========
Earnings $ 29,286 $ 21,115 $ 15,853
========== ========== =========
Earnings per unit, primary $ 3.44 $ 2.65 $ 2.02
========== ========== =========
Fully Diluted:
Weighted average common units 8,421,523 7,920,795 7,796,508
Stock options 108,045 78,206 37,867
Convertible subordinated notes 1,926,138 1,972,866 1,972,866
---------- ---------- ---------
Assumed average common units
outstanding 10,455,706 9,971,867 9,807,241
========== ========== =========
Earnings $ 31,136 $ 23,007 $ 17,653
========== ========== =========
Earnings per unit, fully diluted $ 2.98 $ 2.31 $ 1.80
========== ========== =========
</TABLE>
F-11
<PAGE> 120
NOTE 7 - PROPERTY, EQUIPMENT AND ASSETS UNDER ARRANGEMENT WITH OTHER PARTIES:
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31 1996 1995
- ----------- ---- ----
<S> <C> <C>
Land $ 20,607 $ 21,117
Buildings and improvements 99,564 67,576
Furniture and equipment 70,947 58,772
Construction in progress 43,816 17,800
-------- --------
$234,934 $165,265
======== ========
</TABLE>
Assets under arrangement with other parties, net of accumulated
depreciation, consist of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31 1996 1995
- ----------- ---- ----
<S> <C> <C>
Land $ 2,313 $ 2,612
Buildings and improvements 15,885 22,625
Fixed equipment 1,664 2,008
Mortgage notes receivable 2,676 2,676
------- --------
$22,538 $ 29,921
======= ========
</TABLE>
NOTE 8 - ACQUISITIONS AND DISPOSITIONS:
In July 1996, NHC purchased, for total consideration of approximately
$4,680,000, a 120 bed long-term health care center located in West Plains,
Missouri. NHC had managed the health care center since its opening in 1982.
Also in July 1996, NHC purchased, for total consideration of approximately
$6,500,000, a long-term health care center with assisted living apartments
located in Naples, Florida. There are 60 long-term health care beds and 36
assisted living apartments.
The purchase prices for the acquisitions above were allocated to the
underlying assets based on their relative fair market values. The Consolidated
Statement of Income for 1996 includes the results of operations from the
respective dates of acquisition.
NOTE 9 - INVESTMENTS IN MARKETABLE SECURITIES:
NHC considers its investments in marketable securities as available
for sale securities and unrealized gains and losses are recorded in partners'
capital in accordance with SFAS 115.
The adoption of SFAS 115 did not have a material effect on NHC's
financial position or results of operations.
Proceeds from the sale of investments in debt and equity securities
during the years ended December 31, 1996 and 1995 were $1,669,000 and
$2,696,000 respectively. Gross investment gains of $92,000 and $335,000 were
realized on these sales during the years ended December 31, 1996 and 1995.
Gross investment losses of $41,000 were realized on these sales during the year
ended December 31, 1996. Realized gains and losses from securities sales are
determined on the specific identification of the securities.
F-12
<PAGE> 121
NOTE 10 - DEBT AND LEASE COMMITMENTS:
Long-Term Debt--
Long-term debt and debt serviced by other parties consist of the
following:
<TABLE>
<CAPTION>
Weighted Average Final Debt Service by
Interest Rate Maturities Other Parties Long-Term Debt
-------------------- ---------- ------------- --------------
(in thousands)
December 31 1996 1995 1996 1995
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Bank revolving credit facility, interest
payable periodically, principal due at
maturity variable, 6.7% 1999 $ --- $ --- $ 28,000 $ ---
Bank credit facility, principal and
interest payable quarterly variable, 6.0 2009 --- --- 14,831 15,518
Senior secured notes, principal and
interest payable semiannually 8.4 2005 17,567 19,462 24,397 27,860
First mortgage notes, principal and
interest payable quarterly variable, 6.8 2002 --- --- 22,106 22,612
Notes and other obligations, principal and
interest payable in periodic installments 6.4 1997-2019 4,443 9,822 30,679 30,065
First mortgage revenue bonds, principal
payable in periodic installments,
interest payable monthly variable, 4.5 2000-2010 14,086 14,861 --- ---
Unsecured term note payable to National,
interest payable quarterly, principal
payable at maturity 8.5 1998 --- --- 10,000 10,000
------- -------- -------- --------
36,096 44,145 130,013 106,055
Less current portion (3,239) (3,374) (5,335) (5,184)
------- -------- -------- --------
$32,857 $ 40,771 $124,678 $100,871
======= ======== ======== ========
</TABLE>
The bank credit facility and the senior secured notes were borrowed through
NHC's administrative partner, National. NHC granted certain credits and
interest rate concessions related to its management fees from National in
obtaining these loans.
The debt identified above as senior secured notes is cross-defaulted with
other NHC and NHI liabilities and is cross-collateralized to the extent of
approximately $24,397,000 of other debt.
To obtain the consent of various lenders to the transfer of assets, NHI
guaranteed certain NHC debt which was not transferred to NHI. A default by NHI
under its obligations would default the debt or guarantees of NHC.
The aggregate maturities of long-term debt and debt serviced by others for
the five years subsequent to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Long-term Debt Serviced
Debt By Others Total
--------- ------------- ----------
<S> <C> <C> <C>
1997 $ 5,335,000 $3,239,000 $ 8,574,000
1998 6,450,000 2,496,000 8,946,000
1999 32,931,000 3,995,000 36,926,000
2000 34,414,000 3,895,000 38,309,000
2001 6,293,000 3,284,000 9,577,000
</TABLE>
Certain property and equipment of NHC and NHI are pledged as
collateral on long-term debt or capital lease obligations. Other property and
assets are available for use as collateral as needed.
F-13
<PAGE> 122
Certain loan agreements require maintenance of specified operating
ratios as well as specified levels of cash held in escrow, working capital and
partners' capital by NHC and NHI. All such covenants have been met by NHC, and
management believes that NHI is in compliance with the loan covenants.
Lease Commitments--
Operating expenses for the years ended December 31, 1996, 1995, and
1994 include expenses for leased premises and equipment under operating leases
of $25,036,000, $18,820,000, and $16,692,000, respectively. See Note 3 for the
approximate future minimum base rent and non-obligated debt service rent
commitments on non-cancelable operating leases with NHI.
Construction and Financing Commitments--
NHC is committed to spend approximately $25,217,000 for ongoing
construction contracts and to provide financing to managed facilities in the
amount of $3,423,000 for ongoing construction contracts in 1997. NHC's cash on
hand, marketable securities, short-term notes receivable, operating cash flow
and, as needed, its borrowing capacity are expected to be adequate to fund
these commitments.
NOTE 11 - SUBORDINATED CONVERTIBLE NOTES:
At December 31, 1996, $28,908,000 of 6% subordinated convertible notes
("the notes") remain outstanding. The notes mature July 1, 2000. Interest is
payable quarterly. The notes are convertible at the option of the holder at
any time into units of NHC at a price of $15.2063 per unit, subject to
adjustment for certain changes in the number of units outstanding. The notes
may be redeemed at the option of NHC, but only if NHC has elected to be taxed
as a corporation and only if the market price of NHC's units is such as to
guarantee certain specified returns to the holders of the notes. During 1996,
$1,092,000 of the notes were converted into 71,810 units. NHC has reserved an
additional 1,901,057 units for conversion of the notes.
NOTE 12 - CONTINGENCIES AND GUARANTEES:
Litigation--
There is certain litigation incidental to NHC's business, none of
which, in management's opinion, would be material to the financial position or
results of operations of NHC.
In March 1996, Florida Convalescent Centers, Inc. (FCC), an
independent Florida corporation for whom NHC manages sixteen licensed nursing
centers in Florida, gave NHC notice of its intent not to renew one management
contract. Pursuant to written agreements between the parties, NHC valued the
center, offering to either purchase the center at the price so valued or
require FCC to pay to NHC certain deferred compensation based upon that value.
FCC responded by requesting the court to interpret the parties' rights under
their contractual arrangements. FCC also sued to obtain possession of the
center for which it alleged the management contract had been terminated. This
suit has now been dismissed, and the issue of possession will be decided in
connection with the original suit. The remaining suit is still in the
preliminary stages and no hearing date has been scheduled.
In January 1997, FCC notified NHC that it will not renew the four
contracts which mature in 1997 but has agreed that NHC will remain as manager
until a final decision is reached in the remaining suit. The balance of the
contracts may be terminated in the years 1998-2002.
Third Party Reviews--
Amounts earned under Medicare, Medicaid and other governmental
programs are subject to review by third party payors. NHC has recently been
notified that audits or reviews by the Office of the Inspector General have
commenced at certain long-term care centers. NHC intends to continually
monitor the progress of these audits and reviews.
Professional Liability and Other Insurance--
NHC carries a professional liability insurance policy ($1,000,000 per
claim with additional umbrella coverage in the amount of $5,000,000 in the
aggregate per annum) for coverage from liability claims and losses incurred in
its health care business. The policy is a fixed premium and occurrence form
policy and has no provisions for a retrospective refund or assessment due to
actual loss experience. In the opinion of management, NHC's insurance coverage
is adequate to cover settlement of outstanding claims against NHC.
F-14
<PAGE> 123
NHC has assumed certain risks related to health insurance and workers
compensation insurance claims of the employees of National and the managed
facilities. The liability for reported claims and estimates for incurred but
unreported claims of the managed facilities is $5,078,000 and $4,433,000 at
December 31, 1996 and December 31, 1995, respectively. The liability is
included in other current liabilities in the Consolidated Balance Sheets. NHC
remits for the claims with regards to National's employees utilized by NHC on a
monthly basis. The amounts are subject to adjustment for actual claims
incurred.
Guarantees and Related Events--
In order to obtain management agreements and to facilitate
construction or acquisition of certain health care centers which NHC manages
for others, NHC has guaranteed some or all of the centers' first mortgage bond
debt (principal and interest). For this service, NHC charges an annual
guarantee fee of 1% to 2% of the outstanding principal balance guaranteed,
which fee is in addition to NHC's management fee. The principal amount
outstanding under the guarantees is approximately $72,919,000 (net of available
debt service reserves) at variable and fixed interest rates with a weighted
average rate of 5.1% at December 31, 1996.
In management's opinion, these guarantee fees approximate fees that
NHC would currently charge to enter into similar guarantees.
All of the guaranteed indebtedness is secured by first mortgages,
pledges of personal property, accounts receivable and, in certain instances, by
the personal guarantees of the owners of the facilities. The borrower has
granted second mortgages over the relevant properties in favor of NHC. Such
rights may be enforced if NHC is required to pay under its guarantees.
NHI has guaranteed certain of the debts of NHC. NHC has agreed to
indemnify and hold harmless NHI against any and all loss, liability or harm
incurred by NHI as a result of having to perform under its guarantee of any or
all of the guaranteed debt.
NHC has entered into an interest rate cap arrangement with a managed
entity under which NHC has guaranteed that the entity's weighted average
interest rate on its first and second mortgage debt will not exceed 9.0%. The
entity's first mortgage debt is tax-exempt, floating-rate bonds and its second
mortgage debt is owed to NHC. The bond debt outstanding under the arrangement
is $16,100,000 and the weighted average rate of both debts is 6.7% at December
31, 1996. NHC is obligated under the agreement only for the term of its
management contract, as extended, and only so long as the tax-exempt bonds are
outstanding. At December 31, 1996, NHC expects to have no additional liability
as a result of this interest rate cap arrangement.
NOTE 13 - NOTES RECEIVABLE:
Notes receivable generally consist of loans and accrued interest to
managed health care centers (predominantly FCC) and retirement centers for
construction costs, development costs incurred during construction and working
capital during initial operating periods. The notes generally require monthly
payments with maturities ranging from five to twenty-five years. The majority
of the notes mature in 2004. Interest on the notes is generally at prime plus
2% or at a fixed rate of 10.25%, payable monthly. The collateral for the notes
consists of first and second mortgages, certificates of need, personal
guarantees and stock pledges.
F-15
<PAGE> 124
NOTE 14 - PARTNERS' CAPITAL:
NHC has Incentive Option Plans which provide for the granting of
options to key employees and directors to purchase units at no less than market
value on the date of grant. The options may be exercised immediately, but NHC
may purchase the units at the grant price if employment is terminated prior to
six years from the date of grant. The maximum term of the options is five
years. The following table summarizes option activity:
<TABLE>
<CAPTION>
Number of Weighted Average
Units Exercise Price
<S> <C> <C>
Options outstanding December 31, 1993 5,000 $11.25
Options granted 485,500 25.15
Options exercised --- ---
Options outstanding December 31, 1994 490,500 25.00
Options granted 376,000 30.76
Options exercised 489,000 25.14
------- -----
Options outstanding December 31, 1995 377,500 30.56
Options granted 15,000 38.63
Options exercised 2,500 11.25
------- -----
Options outstanding December 31, 1996 390,000 $30.99
</TABLE>
At December 31, 1996, all options outstanding are exercisable.
Exercise prices on the exercisable options range from $11.25 to $38.63. The
weighted average remaining contractual life of options outstanding at December
31, 1996 is 2.9 years.
Additionally, NHC has an employee unit purchase plan which allows
employees to purchase ownership units of NHC through payroll deductions. The
plan allows employees to terminate participation at any time.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 establishes new financial
accounting and reporting standards for stock-based compensation plans. NHC has
adopted the disclosure-only provisions of SFAS 123. As a result, no
compensation cost has been recognized for NHC's stock-based compensation plans.
Management believes that any compensation cost attributable to stock-based
compensation plans is immaterial.
In connection with the exercise of certain stock options, NHC has
received interest-bearing (ranging from 3.5% to 6.25%), full recourse notes in
the amount of $22,674,000 at December 31, 1996. The notes are secured by units
of NHC or shares of NHI having a fair market value of not less than 150% of the
amount of the note. The principal balances of the notes are reflected as a
reduction of partners' capital in the consolidated financial statements.
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical to
estimate that value:
Cash and cash equivalents; Cash held by trustees; Bond reserve funds, mortgage
replacement reserves and other deposits; Loan participation agreements; and
Accrued interest--
The fair value approximates the carrying amount because of the short
maturity or the nature of these instruments.
Marketable securities--
The fair value is estimated based on quoted market prices and is the
same as the carrying amount.
Notes receivable--
The fair value of NHC's notes receivable is estimated based on the
current rates offered by NHC or comparable parties for the same or similar type
of notes receivable of the same or similar maturities and is approximately the
same as the carrying amount.
F-16
<PAGE> 125
Long-term debt and Debt serviced by other parties--
The fair value is estimated based on the current rates offered to NHC
for similar debt of the same maturities and is approximately the same as the
carrying amounts.
Subordinated convertible notes--
The fair values are estimated based on quoted market prices and
approximate $82,995,000 and $76,942,000 at December 31, 1996 and December 31,
1995, respectively, as compared to carrying values of $28,908,000 and
$30,000,000 at December 31, 1996 and December 31, 1995, respectively.
F-17
<PAGE> 126
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
(in thousands (in thousands
except unit amounts) except unit amounts)
<S> <C> <C> <C> <C>
REVENUES:
Net patient revenues $ 94,657 $ 81,078 $ 189,240 $ 161,685
Other revenues 11,534 10,551 22,814 22,099
---------- ---------- ---------- ----------
Net revenues 106,191 91,629 212,054 183,784
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Salaries, wages and benefits 58,414 50,137 117,629 102,006
Other operating 33,214 29,653 66,340 57,967
Depreciation and amortization 3,977 3,135 7,712 6,170
Interest 3,244 2,697 6,073 6,169
---------- ---------- ---------- ----------
Total costs and expenses 98,849 85,622 197,754 172,312
---------- ---------- ---------- ----------
NET INCOME $ 7,342 $ 6,007 $ 14,300 $ 11,472
========== ========== ========== ==========
EARNINGS PER UNIT:
Primary $ .83 $ .70 $ 1.62 $ 1.34
========== ========== ========== ==========
Fully diluted $ .72 $ .62 $ 1.41 $ 1.18
========== ========== ========== ==========
WEIGHTED AVERAGE UNITS OUTSTANDING:
Primary 8,861,960 8,586,893 8,829,472 8,578,654
Fully diluted 10,759,346 10,518,688 10,727,760 10,527,339
CASH DISTRIBUTIONS PAID PER UNIT $ .60 $ .52 $ 1.20 $ 1.04
========== ========== ========== ==========
NET INCOME ALLOCABLE TO PARTNERS:
General Partners $ 73 $ 60 $ 143 $ 115
Limited Partners 7,269 5,947 14,157 11,357
---------- ---------- ---------- ----------
$ 7,342 $ 6,007 $ 14,300 $ 11,472
========== ========== ========== ==========
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
F-18
<PAGE> 127
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,193 $ 1,881
Cash held by trustees 3,752 2,274
Marketable securities 17,298 17,968
Accounts receivable, less allowance for doubtful accounts of $5,472
and $4,079 78,586 50,902
Notes receivable 9,189 2,515
Inventory at lower of cost (first-in, first-out method) or market 4,077 3,572
Prepaid expenses and other assets 1,184 982
-------- --------
Total current assets 126,279 80,094
-------- --------
PROPERTY AND EQUIPMENT AND ASSETS UNDER
ARRANGEMENT WITH OTHER PARTIES:
Property and equipment at cost 256,345 234,934
Less accumulated depreciation and amortization (54,479) (48,171)
Assets under arrangement with other parties 21,472 22,538
-------- --------
Net property, equipment and assets under arrangement with other parties 223,338 209,301
-------- --------
OTHER ASSETS:
Bond reserve funds, mortgage replacement reserves and other deposits 282 141
Unamortized financing costs 1,505 1,601
Notes receivable 93,980 95,206
Notes receivable from National 10,647 12,153
Minority equity investments and other 6,474 6,244
-------- --------
Total other assets 112,888 115,345
-------- --------
$462,505 $404,740
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-19
<PAGE> 128
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------------ ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,865 $ 8,574
Trade accounts payable 29,361 11,835
Accrued payroll 30,259 28,963
Amount due to third-party payors 21,725 13,135
Accrued interest 1,067 501
Other current liabilities 12,002 9,795
-------- ---------
Total current liabilities 102,279 72,803
-------- ---------
LONG-TERM DEBT, less current portion 144,867 124,678
DEBT SERVICED BY OTHER PARTIES, LESS
CURRENT PORTION 32,024 32,857
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 784 791
COMMITMENTS, CONTINGENCIES AND GUARANTEES
SUBORDINATED CONVERTIBLE NOTES 28,839 28,908
DEFERRED INCOME 15,945 16,166
PARTNERS' CAPITAL:
General partners 1,447 1,408
Limited partners 136,320 127,129
-------- ---------
Total partners' capital 137,767 128,537
-------- ---------
$462,505 $ 404,740
======== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-20
<PAGE> 129
NATIONAL HEALTHCARE L.P. INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 14,300 $ 11,472
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 7,342 5,785
Provision for doubtful accounts 1,253 1,140
Amortization of intangibles and deferred charges 418 638
Amortization of deferred income (221) (130)
Equity in earnings of unconsolidated investments (40) (107)
Distributions from unconsolidated investments 154 180
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable (28,937) 1,362
Increase in inventory (505) (504)
Increase in prepaid expenses and other assets (202) (84)
Increase in trade accounts payable 17,527 3,355
Increase (Decrease) in accrued payroll 1,296 (3,753)
Increase (Decrease) in amounts due to third party payors 8,590 (6,130)
Increase (Decrease) in accrued interest payable 566 (746)
Increase in other current liabilities 2,206 172
---------- ----------
23,747 12,650
---------- ----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to and acquisitions of property and equipment, net (21,379) (11,592)
Investment in long-term notes receivable and loan participation agreements (18,022) (15,132)
Collection of long-term notes receivable and loan participation agreements 14,080 24,654
Increase in minority equity investments and other (574) (2,850)
(Increase) Decrease in debt and equity securities 362 (15,395)
----------- ----------
(25,533) (20,315)
----------- ----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt issuance 23,166 13,311
Increase in cash held by trustee (1,478) (1,358)
Decrease in minority interest in subsidiaries (7) (3)
Increase (Decrease) in bond reserve funds, mortgage replacement reserves
and other deposits (141) 1,081
Issuance of partnership units 539 571
Collection of receivables 5,014 3,340
Payments on debt (4,601) (3,639)
Cash distributions to partners (10,384) (8,708)
Increase in financing costs (10) (94)
----------- -----------
12,098 4,501
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,312 (3,164)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,881 4,835
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,193 $ 1,671
=========== ==========
Supplemental Information:
Cash payments for interest expense $ 6,920 $ 6,920
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-21
<PAGE> 130
NATIONAL HEALTHCARE L.P.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
During the six months ended June 30, 1996, NHC was released from its liability
on debt serviced by others by the respective lenders
Debt serviced by other parties $ (3,841) $(3,841)
Assets under arrangement with other parties 3,841 3,841
During the six months ended June 30, 1997 and June 30, 1996, respectively
$69,000 and $686,000 of convertible subordinated debentures were converted
into 4,534 and 45,112 units of NHC's partnership units:
Convertible subordinated debentures (69) (686)
Financing costs 1 1
Accrued interest (1) (5)
Partner's capital 69 690
</TABLE>
F-22
<PAGE> 131
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RECEIVABLES UNREALIZED TOTAL
NUMBER OF FROM SALE OF GAINS(LOSSES) GENERAL LIMITED PARTNERS'
UNITS UNITS ON SECURITIES PARTNERS PARTNERS CAPITAL
----- ----- ------------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT 12/31/96 8,467,959 $(22,674) $2,171 $1,408 $147,632 $128,537
Net income -- -- -- 143 14,157 14,300
Collection of
receivables -- 5,014 -- -- -- 5,014
Units sold 389,694 (11,577) -- -- 12,116 539
Units in conversion of
convertible debentures
to partnership units 4,534 -- -- -- 69 69
Unrealized losses on
securities -- -- (308) -- -- (308)
Cash distributions
($1.20 per unit) -- -- -- (104) (10,280) (10,384)
--------- -------- ------ ------ -------- --------
BALANCE AT 6/30/97 8,862,187 $(29,237) $1,863 $1,447 $163,694 $137,767
========= ======= ====== ====== ======== ========
BALANCE AT 12/31/95 8,353,114 $(26,196) $ 345 $1,290 $133,460 $108,899
Net income -- -- -- 115 11,357 11,472
Collection of
receivables -- 3,340 -- -- -- 3,340
Units sold 24,270 -- -- -- 571 571
Units in conversion of
convertible debentures
to partnership units 45,112 -- -- -- 690 690
Unrealized losses on
securities -- -- (191) -- -- (191)
Cash distributions
($1.04 per unit) -- -- -- (87) (8,621) (8,708)
--------- -------- ------ ------ -------- -------
BALANCE AT 6/30/96 8,422,496 $(22,856) $ 154 $1,318 $137,457 $116,073
========= ======== ====== ====== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-23
<PAGE> 132
NATIONAL HEALTHCARE L.P.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1 - CONSOLIDATED FINANCIAL STATEMENTS:
The financial statements for the six months ended June 30, 1997 and
1996, which have not been examined by independent public accountants, reflect,
in the opinion of management, all adjustments necessary to present fairly the
data for such periods. The results of the operations for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the entire fiscal year ended December 31, 1997. The interim
condensed balance sheet at December 31, 1996 is taken from the audited
financial statements at that date. The interim condensed financial statements
should be read in conjunction with the consolidated financial statements,
including the notes thereto, for the periods ended December 31, 1996, December
31, 1995, and December 31, 1994.
Note 2 - OTHER REVENUES:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenue from managed centers $ 8,713 $ 7,943 $16,995 $16,284
Guarantee fees 150 185 312 365
Advisory fee from NHI 776 797 1,551 1,594
Earnings on securities 370 64 891 125
Equity in earnings of unconsolidated investments 24 (59) 24 101
Interest income 968 1,133 1,949 2,722
Other 533 488 1,092 908
------- ------- ------- -------
$11,534 $10,551 $22,814 $22,099
======= ======= ======= =======
</TABLE>
Revenues from managed centers include management fees and interest
income on notes receivable from the managed centers. "Other" revenues include
non-health care related earnings.
Note 3 - INVESTMENT IN MARKETABLE SECURITIES:
NHC considers its investments in marketable securities as available
for sale securities and unrealized gains and losses are recorded in partners'
capital in accordance with SFAS 115.
The adoption of SFAS 115 did not have a material effect on NHC's
financial position or results of operations.
Proceeds from the sale of investments in debt and equity securities
for the period ended June 30, 1996 was $511,000. Gross investment gains of
$149,000 were realized on these sales during the period ended June 30, 1997.
Realized gains and losses from securities sales are determined on the specific
identification of the securities.
F-24
<PAGE> 133
Note 4 - GUARANTEES:
In order to obtain management agreements and to facilitate the
construction or acquisition of certain health care centers which NHC manages
for others, NHC has guaranteed some or all of the debt (principal and interest)
on those centers. For this service NHC charges an annual guarantee fee of 1%
to 2% of the outstanding principal balance guaranteed, which fee is in addition
to NHC's management fee. The principal amounts outstanding under the
guarantees is approximately $69,362,000 (net of available debt service
reserves) at variable and fixed interest rates with a weighted average of 4.7%
at June 30, 1997.
NHC has entered into an interest rate cap arrangement with a managed
entity under which NHC has guaranteed that the entity's weighted average
interest rate on its first and second mortgage debt will not exceed 9.0%. The
entity's first mortgage debt is tax-exempt, floating-rate bonds and its second
mortgage debt is owed to NHC. The bond debt outstanding under the arrangement
is $15,600,000 and the weighted average rate of both debts is 6.9% at June 30,
1997. NHC is obligated under the agreement only for the term of its management
contract, as extended, and only so long as the tax-exempt bonds are
outstanding. At June 30, 1997, NHC expects to have no additional liability as
a result of this interest rate cap arrangement.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure," ("SFAS
129"), SFAS 129 establishes standards for disclosing information about an
entity's capital structure. NHC will be required to adopt SFAS 129 in the
fourth quarter of 1997. Management does not expect the adoption to have a
material impact on NHC's financial position results of operations or cash
flows.
Statement of Financial Accounting Standards No. 128,"Earnings per
Share," ("SFAS 128") has been issued effective for fiscal periods ending after
December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share. NHC is required to adopt the provisions of SFAS
No. 128 in the fourth quarter of 1997. Under the standards established by SFAS
128, earnings per share is measured at two levels: basic earnings per share and
diluted earnings per share. Basic earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares after considering the additional
dilution related to preferred stock, convertible debt, options and warrants.
Management does not expect the adoption to have a material impact on NHC's
financial position, results of operations or cash flows.
Note 6 - LEGAL PROCEEDINGS:
In March 1996, Florida Convalescent Centers, Inc. (FCC), an
independent Florida corporation for whom the company manages sixteen licensed
nursing centers in Florida, gave NHC notice of its intent not to renew a
management contract at one of the centers. Pursuant to written agreements
between the parties, NHC valued the center, offering to either purchase the
center at the price so valued or require FCC to pay to NHC certain deferred
compensation based upon that value. FCC responded on March 26, 1996, by filing
a Declaratory Judgment suit in the Circuit Court of the Twelfth Judicial
Circuit in and for Sarasota County, Florida, requesting the court to interpret
the parties' rights under their contractual arrangements. Since that time, FCC
has amended the suit to allege, among other items, that NHC has "self-dealt"
with or mismanaged the centers, that the deferred compensation creates a
usurious rate of interest, and that the recorded mortgages securing FCC's debt
to NHC do not secure the payment of the deferred compensation. NHC has denied
all allegations and conclusions. The suit is still in the preliminary stages
and no trial date has been scheduled.
F-25
<PAGE> 134
In January, 1997, NHC was notified that FCC currently does not intend
to renew an additional four contracts which mature in 1997, but FCC agreed that
NHC will remain as manager until a final decision is reached by the Sarasota
Court. The balance of the FCC contracts may be terminated in the years
2001-2003.
NHC is also a defendant in a lawsuit styled Braeuning et al vs.
National HealthCare L.P. et al filed "under seal" in the U. S. District Court
of the Northern district of Florida on April 9, 1996. The court removed the
seal from the complaint - but not the file itself - on March 20, 1997 and
service of process occurred on July 8, 1997 with the government participating
as an intervening plaintiff. The suit alleges that NHC has submitted cost
reports and routine cost limit exception requests containing "fraudulent
allocation of routine nursing services to ancillary service cost centers" and
improper allocation of skilled nursing service hours in four managed centers,
all in the state of Florida. The suit was filed under the Qui Tam provisions
of the Federal False Claims Act, commonly referred to as the "Whistleblower
Act".
In regard to the allegations contained in the lawsuit, NHC believes
that the cost report information of its centers have been either appropriately
filed or, upon appropriate amendment, will reflect adjustments only for the
correction of unintentional misallocations. Prior to the filing of the suit,
the Company had commenced an in-depth review of the nursing time allocation
process at its owned, leased and managed centers. A significant number of
amended cost reports have been filed and the Company continues to schedule and
prepare revised cost reports and exception requests. It is anticipated that
any years in question will be reviewed prior to there being further action in
this matter at the judicial level. The Company is fully cooperating with the
government in an attempt to determine dollar amounts involved, and intends to
aggressively pursue an amicable settlement of this matter. The cost report
periods under review include periods from 1991 through 1995.
NHC would be responsible for any settlement related to its owned
facilities and to the extent that managed centers have settlements, NHC's 6%
management fee would be impacted. NHC's revenue policy is to not reflect
routine cost limit exception requests as income until the process, including
cost report audits, is completed. NHC cannot predict at this time the ultimate
outcome of the suit but will strongly defend its actions in this matter.
As reported in NHC's 1996 10-K, in October 1996 two managed centers in
Florida were audited by representatives of the regional office of the Office of
the Inspector General ("OIG"). As part of these audits, the OIG reviewed
various records of the facilities relating to allocation of nursing hours and
contracts with suppliers of outside services. At one center the OIG indicated
during an exit conference that it had no further questions but has not yet
issued a final report. At the second facility - which is one of four named in
the Braeuning lawsuit - the OIG determined that certain records were
insufficient and NHC supplied the additional requested information. These
audits have been incorporated into the lawsuit.
Florida is one of the states in which governmental officials are
conducting "Operation Restore Trust", a federal/state program aimed at
detecting and eliminating fraud and abuse by providers in the Medicare and
Medicaid programs. The OIG has increased its investigative actions in Florida
(and has now opened a Tennessee office) as part of Operation Restore Trust.
NHC will continue to review and monitor the cost reporting process and its
compliance with all government reimbursement standards, but cannot predict
whether the OIG or other government officials will take further action or
request additional information as a result of the Braeuning suit or any other
audit that may be conducted in the future.
Note 7 - SUBSEQUENT EVENTS
The Board of Directors of the Managing General Partner of NHC has
unanimously approved in principle the following effective December 31, 1997:
(i) the formation of National Health Realty, Inc. (the "REIT" and a
wholly-owned subsidiary of NHC) and the formation of NHR/OP, L.P. (the
"Operating Partnership" and a subsidiary of the REIT), (ii) the transfer to the
Operating Partnership 17 licensed nursing homes, six assisted living centers,
one retirement center (the "Owned Healthcare Facilities"), certain promissory
notes (the "Notes"), certain other assets (the "Other Assets") and certain debt
(the "Assumed Liabilities"), (iii) the formation of National HealthCare
Corporation (the "Corporation" and a wholly-owned subsidiary of NHC), (iv) the
distribution of REIT Shares to NHC's unitholders and (v) the merger of NHC with
and into the Corporation. The Operating Partnership is expected to lease the
Owned Healthcare Facilities to the Corporation. Each lease will be a "triple
net" lease with (i) an initial fixed term expiring December 31, 2007, (ii) an
option for NHC to renew for two additional five-year periods on identical terms
as the initial period, and (iii) a right of first refusal for NHC to purchase
the Owned Healthcare Facilities.
The Corporation Board of Directors and the sole shareholder of the
Corporation have approved the 1997 Stock Appreciation Rights Plan (the
"Corporation Stock Option Plan"). The Corporation Stock Option Plan
allows for options to purchase up to 1,000,000 shares of Corporation common
stock to be granted by the Corporation Board of Directors. The Corporation
Board of Directors may grant incentive stock options ("ISO's"), non-qualified
stock options or stock appreciation rights. The Corporation Stock Option Plan
provides that the exercise price of an ISO must not be less than the fair
market value of the Corporation stock.
F-26
<PAGE> 135
After the initial capitalization of National Health Realty, Inc. as discussed
in Note 1 to National Health Realty, Inc.'s financial statement is effected, we
expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
October 15, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To National Health Realty, Inc.:
We have audited the accompanying balance sheet of NATIONAL HEALTH REALTY, INC.
(a Maryland corporation and a wholly owned subsidiary of National HealthCare
L.P.) as of October 15, 1997 (date of capitalization). This financial statement
is the responsibility of management. Our responsibility is to express an
opinion on this financial statement based on 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 financial statement
presentation. We believe that our audit 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 National Health Realty, Inc. as of
October 15, 1997 in conformity with generally accepted accounting principles.
F-27
<PAGE> 136
NATIONAL HEALTH REALTY, INC.
BALANCE SHEET
OCTOBER 15, 1997
<TABLE>
<S> <C> <C>
ASSETS
Cash and temporary investments $ 1,000
================
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none outstanding $ -
Common stock, $.01 par value; 30,000,000 shares authorized;
1,000 shares issued and outstanding 10
Additional paid-in capital 990
----------------
$ 1,000
================
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-28
<PAGE> 137
NATIONAL HEALTH REALTY, INC.
NOTES TO BALANCE SHEET
OCTOBER 15, 1997
1. ORGANIZATION
National Health Realty, Inc. (the "REIT" and a wholly owned
subsidiary of National HealthCare L.P) was incorporated on
September 26, 1997. The REIT has had no operations to date but
issued 1,000 shares of common stock to National HealthCare
L.P ("NHC") on October 15, 1997 for consideration of $1,000.
2. FEDERAL INCOME TAXES
At the earliest possible date, after the spinoff from NHC, the
REIT intends to qualify as a real estate investment trust
under the Internal Revenue Code and, accordingly, will not be
subject to federal income taxes on amounts distributed to
stockholders providing it distributes at least 95% of its real
estate investment trust taxable income and meets certain other
conditions.
3. PREFERRED STOCK
No shares of preferred stock are outstanding. Preferred stock
may be issued from time to time without stockholder approval
with terms and conditions established by the Board of
Directors of the REIT.
4. Events subsequent to Date of Balance Sheet
NHC has announced its intentions to distribute shares of the
REIT to its unitholders. NHC expects to form NHR/OP,
L.P. (the "Operating Partnership" and a subsidiary of the
REIT) and, immediately prior to the distribution of shares,
will transfer to the Operating Partnership 17 licensed nursing
homes, six assisted living centers, one retirement center (the
"Owned Healthcare Facilities") and certain promissory notes
(the "Notes") secured by mortgages on 23 nursing homes. NHC
will convey its ownership in 15 of the Owned Healthcare
Facilities. The remaining nine Owned Healthcare Facilities
will be transferred pursuant to a 50-year capitalized lease.
The transfer will be subject to certain assumed debts (the
"Assumed Liabilities").
The Operating Partnership is expected to lease the Owned
Healthcare Facilities to NHC pursuant to operating leases.
Each operating lease will be a "triple net" lease with (i) an
initial fixed term expiring December 31, 2007, (ii) an option
for NHC to renew for two additional five-year periods on
identical terms as the initial period, and (iii) a right of
first refusal for NHC to purchase the Owned Healthcare
Facilities.
NHC will retain all of the equipment, furnishings and personal
property in the Owned Healthcare Facilities. In the event that
a lease with NHC is terminated for any reason, either the
Operating Partnership or a new tenant will have to replace all
of the equipment and furnishings. Because the Operating
Partnership has neither licenses nor employees to operate the
Owned Healthcare Facilities, the termination of a lease or
leases with NHC could have a material adverse effect on the
REIT's results of operations.
NHC will advise the REIT under the supervision of the REIT's
Board of Directors. The REIT's Board of Directors is
ultimately responsible for the management of the REIT.
The Notes are secured by mortgages on additional nursing homes
managed by NHC and have been pledged as collateral for part of
the Assumed Liabilities. In addition, parties to certain of
the Assumed Liabilities may not have consented to the transfer
of the Assumed Liabilities. Thus, a default by NHC under its
debt obligations could cause the Operating Partnership to lose
its assets through foreclosure or other means.
A significant portion of the Notes transferred to the Operating
Partnership is due from one company for which NHC manages 16
nursing homes. Although the Notes have been guaranteed by that
company's primary shareholder, the default, bankruptcy, or
other financial difficulty by the company or the guarantor
could have a material adverse effect on the Operating
Partnership's results of operations. NHC and the company are
currently involved in a lawsuit regarding the management
agreements of the 16 nursing homes.
The REIT does not intend to seek further healthcare-related
investment opportunities or to provide lease or mortgage
financing for such investments; consequently, the REIT's
results of operations and financial condition are dependent
upon the successful operation of the Owned Healthcare
Facilities and the realizability of the Notes.
The REIT's Board of Directors has approved the adoption of the
1997 Stock Option and Stock Appreciation Rights Plan (the "REIT
Stock Option Plan"). The REIT Stock Option Plan allows for
options to purchase in the aggregate 500,000 shares of REIT
common stock to be granted by the REIT's Board of Directors.
The REIT's Board of Directors may, in its discretion, grant
incentive stock options, non-qualified stock options, or stock
appreciation rights.
F-29
<PAGE> 138
APPENDIX A
PLAN OF RESTRUCTURE OF NATIONAL HEALTH CARE L.P.
NATIONAL HEALTHCARE L.P. ("NHC"), and its two wholly owned
subsidiaries, NATIONAL HEALTHCARE CORPORATION (the "Corporation"), and NATIONAL
HEALTH REALTY, INC. (the "REIT") hereby adopt a plan of restructure (the
"Plan") pursuant to and in accordance with the provisions of Sections
5.2(a)(xxvii) and 6.4(a) of the Amended and Restated Agreement of Limited
Partnership of NHC, Section 17-211 of the Delaware Revised Uniform Limited
Partnership Act and Section 263 of the Delaware General Corporation Law and
other applicable sections of the foregoing.
4. Purpose of the Plan. The purpose of this Plan is to set forth
the effective date and other terms of the restructure of NHC into the
Corporation and REIT, as soon as the Plan is consummated. NHC has recently
formed the Corporation and REIT as wholly owned subsidiaries. Upon adoption of
the Plan and the effectiveness as set forth herein, the stock of the REIT will
be distributed to the holders of the outstanding units (the "Units") of NHC in
proportion to their ownership of outstanding Units (except with respect to
Excess Stock, as later defined, the holder thereof shall be entitled to receive
the consideration described in Paragraph 6 hereof); and NHC shall merge with
and into the Corporation with the Corporation being the survivor thereof.
5. Unitholder Approval. A resolution approving the Plan shall be
submitted to the Unitholders of NHC for action on the resolution at a Special
Meeting to be held at the offices of NHC no later than November 20, 1997.
Consummation of the Plan shall be subject to: (i) adoption of the Plan by the
affirmative vote of at least a majority of the Units outstanding on the Record
Date for the meeting, and (ii) such rights to terminate or amend the Plan as
are set forth herein. If the Plan is so adopted, then the directors and
officers of the managing general partner of NHC shall cause this Plan to be
implemented in accordance with the following terms, all of which must be
accomplished on or before 12:00:01 a.m. central time on January 1, 1998.
6. Contribution to REIT's Operating Partnership of Qualifying
Assets and Assumption by REIT of Certain Liabilities. NHC has formed the REIT
under the Maryland General Corporation Law and REIT has formed NHR/OP, L.P., a
Delaware limited partnership (the "Operating Partnership"). NHC shall
contribute to Operating Partnership the specified assets, subject to certain
specified liabilities, effective at 4:00 p.m. central time on December 31, 1997
pursuant to the Contribution Agreement (the "Contribution Agreement") attached
hereto as Exhibit A pursuant to which: (a) real estate located in Florida owned
by NHC shall be leased to the Operating Partnership pursuant to a long term
capitalized lease (the "Capitalized Lease"), (b) substantially all other real
estate owned by NHC shall be conveyed by deed (the "Deeds") to the Operating
Partnership pursuant to deed forms selected by officers of the managing general
partner of NHC, (c) debt described in the Contribution Agreement secured by the
real property located in South Carolina shall be paid by, but not assumed by,
the Operating Partnership, (d) other debt of NHC described in the Contribution
Agreement shall be assumed by the Operating Partnership, (e) the notes and
related security including mortgages owned by NHC, as lender, specified in the
Contribution Agreement shall be conveyed to the Operating Partnership, and (f)
certain other assets having little or no book value on NHC's books, as
specified in the Contribution Agreement, shall be conveyed to the Operating
Partnership.
7. Agreements Between REIT and Corporation. Immediately after
the effectiveness of the matters described in paragraph 3 above, the following
shall occur: (a) the Operating Partnership shall lease to the Corporation, and
the Corporation shall lease from the Operating Partnership, pursuant to the
Operating Lease (the "Operating Lease"), attached hereto as Exhibit B all real
estate subject to the Contribution Agreement and, (b) the REIT, Operating
Partnership and Corporation shall enter into the Advisory Agreement, attached
hereto as Exhibit C. In the event of a title problem or dispute involving the
real property subject to the Capitalized Lease or conveyed pursuant to the
Deeds, to the maximum extent that NHC (or the Corporation, as successor to NHC
after the Merger) has a claim against a predecessor-in-title or a title
insurance company, NHC (or the Corporation as successor to NHC after the
Merger) shall
<PAGE> 139
indemnify, defend and hold REIT harmless from all damages, but not otherwise.
REIT and Operating Partnership, jointly and severally, shall indemnify, defend
and hold NHC and Corporation harmless with respect to all debt assumed by or
which REIT or Operating Partnership has agreed to pay in accordance with the
foregoing. REIT and Operating Partnership agree, without the written consent
of the Corporation, not to cause or suffer any such debt to be defaulted or
otherwise breached. Corporation shall indemnify, defend and hold REIT and
Operating Partnership harmless with respect to all debt and all obligations of
NHC except those specifically assumed by or which REIT or Operating Partnership
have agreed to pay in accordance with the foregoing. Corporation agrees,
without the written consent of REIT and Operating Partnership, not to cause or
suffer any such debt to be defaulted or otherwise breached. The Corporation
shall use its best efforts to provide to REIT and Operating Partnership
financial statements of the Corporation, and any predecessor, and the
unqualified opinion from a nationally recognized independent accounting firm
with respect to such annual financial statements, and consents of auditors to
the inclusion of such financial statements in any registration statements,
private placement memoranda, filings on any exchange or with any regulatory
body, if any, necessary or appropriate in order to enable REIT and Operating
Partnership to comply with applicable registration and reporting requirements
of federal and state securities laws or exchange requirements; and expenses
relating to the foregoing shall be borne by the Corporation (including
obtaining audits if required by the foregoing even if the Corporation does not
otherwise need to obtain them) as long as the Corporation is the investment
advisor of the REIT (whether pursuant to the Advisory Agreement attached
hereto, any amendment thereof, or a replacement thereto) and for such period of
time after such advisory relationship ends until such time as REIT and
Operating Partnership no longer are legally required to include such financial
statements in its SEC filings; the Corporation shall indemnify, defend and hold
REIT and Operating Partnership harmless with respect to any damages caused by
any errors or misstatements in such financial statements.
8. Contingent Liabilities. The Corporation, by reason of the
merger described below, shall assume and agree to pay (to the extent that NHC
is liable therefor, subject to all of the defenses and offsets which are
available to NHC) all absolute and contingent liabilities of NHC, except as
follows, each of which shall be assumed by the REIT and Operating Partnership,
jointly and severally, effective with the effectiveness of the Contribution
Agreement: (a) the absolute liabilities described in paragraph 3 above and
described more fully in the Contribution Agreement, and (b) environmental and
hazardous material liabilities relating to the land or improvements thereon
which are subject to either the Capitalized Lease or the Operating Leases,
described above, except those created from and after January 1, 1998 by the
Corporation or its tenants, subcontractors, agents or employees.
9. Issuance of REIT Shares to NHC; Distribution to Unitholders.
In consideration for the Contribution Agreement REIT shall issue to NHC that
number of shares of REIT common stock which is equal to the number of Units
outstanding on the date of the Contribution Agreement; provided, however, the
Excess Stock, as defined in the REIT Charter, which would have been issued to
National Health Corporation ("National") shall, instead, entitle National to
receive one Unit in the Operating Partnership ("OP Units") for each share of
Excess Stock. NHC shall immediately thereafter distribute or cause to be
distributed to each Unitholder of record immediately prior to the Effective
Time, as later defined, one (1) share of REIT common stock for each Unit owned
by the Unitholder subject to the proviso in the immediately preceding sentence.
Such actions shall result in the spin out of the REIT, without the necessity of
the surrender of unit certificates. All such actions shall be effective for
all purposes on or before 11:59 p.m. central time, December 31, 1997; provided,
however, the physical delivery of the certificates representing the REIT shares
and OP Units shall take place as soon as practical thereafter. REIT and
Corporation agree that all options and convertible debentures of NHC which
grant rights to subscribe for NHC Units exercisable or convertible after
December 31, 1997, shall be deemed to grant the right to acquire an equal
number of shares of REIT shares and an equal number of Corporation shares as
such right grants in Units of NHC. The exercise price for such options and
receipt thereof shall be divided pro rata between REIT and Corporation (and the
pro rata distribution shall be equal to the ratio that the closing price on the
American Stock Exchange at the close of business on the first trading day in
1998 of REIT shares and Corporation shares bear to each other). The interest
and principal and all other payments due under or obligations due as a result
of such convertible debentures is to be paid and performed by the Corporation
and if the conversion rights of any of such debt is exercised then the
Corporation shall provide written notification thereof to REIT, and the REIT
shall issue (upon payment of cash by Corporation to REIT in the amount of the
par value for such REIT shares) REIT shares equal to the number of shares
issued by Corporation upon such conversion; and REIT agrees, at the expense of
A-2
<PAGE> 140
Corporation, to cause to be filed any registration statement relating to REIT
shares required by agreements binding on Corporation or needed as determined in
the sole discretion of Corporation. Notwithstanding the foregoing in this
paragraph 6, the Convertible Debentures issued pursuant to the Note Purchase
Agreement dated in October 1997 shall be convertible solely into Corporation
shares and all obligations of NHC pursuant to such agreement (as well as the
related Note and Registration Rights Agreement) shall be solely those of the
Corporation.
10. Merger. Effective as of 11:59 p.m., central time, December
31, 1997 (the "Effective Time") NHC shall merge with and into the Corporation
pursuant to the Merger Agreement attached hereto as Exhibit D.
11. Amendment or Abandonment of Plan. The Board of Directors of
the managing general partner of NHC may modify or amend the Plan at any time
prior to Unitholder approval. Such Board of Directors may abandon the Plan
without Unitholder approval at any time prior to 11:59 p.m., central time,
December 31, 1997 (either before or after Unitholder adoption) in its sole and
absolute discretion if it deems such abandonment in the best interest of
Unitholders.
If the Plan is not implemented because it does not receive the
requisite Unitholder vote or the other conditions specified herein are not met,
or because the Board of Directors determines for some other reason that it is
advisable to abandon the Plan, the business and legal structure of NHC will
continue substantially in the present manner.
12. Miscellaneous.
(a) In connection with the Plan, the unit option plans of
NHC will be terminated and the unit options outstanding thereunder as of
December 31, 1997 to the extent not then exercised, will be cancelled to the
maximum extent permitted contractually and by law.
(b) All other employee benefit plans of NHC which are not
described in the Registration Statement on Form S-4 as employee benefits of the
Corporation shall be cancelled on December 31, 1997.
(c) The Board of Directors of the managing general
partner of NHC and the officers of NHC shall have the power to adopt all
resolutions, and the officers of NHC shall have the power to execute, deliver,
and file all instruments, documents and certificates in the offices of the
Secretaries of State of the State of Tennessee, Delaware and Maryland or other
offices, and to publish and give such notices, and to do any and all other or
additional things (including the setting of record dates and the closing of
stock transfer books), as are required by the laws of the State of Tennessee,
Delaware and Maryland or other applicable laws, or as such Board of Directors
or other officers may deem necessary, desirable or appropriate to carry out the
provisions of this Plan.
(d) This Plan is attached to and is part of a
Registration Statement on Form S-4 filed by the Corporation with the Securities
and Exchange Commission, reference to which is hereby made for any and all
purposes.
A-3
<PAGE> 141
Executed as of the _____ day of ________________, 1997.
NATIONAL HEALTHCARE L.P.
By its Managing General Partner NHC, Inc.
By:
------------------------------------
W. Andrew Adams, President
NATIONAL HEALTHCARE CORPORATION
By:
------------------------------------
W. Andrew Adams, President
NATIONAL HEALTH REALTY, INC.
By:
------------------------------------
W. Andrew Adams, President
NHR/OP, L.P.
By: National Health Realty, Inc.,
its general partner
By:
------------------------------------
W. Andrew Adams, President
A-4
<PAGE> 142
EXHIBIT INDEX
Exhibit A Contribution Agreement
Exhibit B Operating Lease Agreement
Exhibit C Advisory Agreement
Exhibit D Merger Agreement
A-5
<PAGE> 143
APPENDIX B
AGREEMENT OF MERGER
OF
NATIONAL HEALTHCARE L.P.
(A DELAWARE LIMITED PARTNERSHIP)
AND
NATIONAL HEALTHCARE CORPORATION
(A DELAWARE CORPORATION)
THIS AGREEMENT OF MERGER is made and entered into this ___ day of
_________________, 1997 by and between NATIONAL HEALTHCARE L.P., a Delaware
limited partnership ("NHC"), and NATIONAL HEALTHCARE CORPORATION, a Delaware
corporation ("CORPORATION").
WHEREAS, National HealthCare L.P. is a business limited partnership of
the State of Delaware with its registered office therein located at 1013 Centre
Road, City of Wilmington, County of New Castle; and
WHEREAS, National HealthCare Corporation is a business corporation of
the State of Delaware with its registered office therein located at 9 East
Loockerman Street, City of Dover, County of Kent; and
WHEREAS, Section 263 of the Delaware General Corporation Law and
Section 17-211 of the Delaware Revised Uniform Limited Partnership Act permit
the merger of a corporation and limited partnership; and
WHEREAS, the Board of Directors of the Corporation and the Board of
Directors of NHC, Inc., the Managing General Partner of NHC, deem it is
advisable and to the advantage, welfare and best interests of said entities and
their respective stockholders and unitholders to merge NHC with and into the
Corporation pursuant to and in accordance with the provisions of Section 263 of
the General Corporation Law of the State of Delaware, Section 17-211 of the
Delaware Revised Uniform Limited Partnership Act and Section 6.4(a) of the
Amended and Restated Agreement of Limited Partnership of NHC, upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly approved and adopted by
the general partners and a majority of the limited partners of NHC and by the
Board of Directors and stockholders of the Corporation, the parties agree as
follows:
1. Terms and Conditions of Merger; Method of Effecting Merger.
Upon the Effective Time (as defined herein), NHC shall merge with and into the
Corporation and the separate partnership existence of NHC shall cease, and the
Corporation shall continue as the surviving corporation (sometimes hereinafter
referred to as the "SURVIVING CORPORATION"). The merger shall be effected by
the filing of a Certificate of Merger with the Delaware Secretary of State.
2. Effective Time. The effective date and time of the merger
shall be 11:59 p.m., central time, December 31, 1997 (the "EFFECTIVE TIME").
3. Manner of Converting Shares and Partnership Interests. Each
issued and outstanding unit of limited partnership interest ("UNIT") of NHC
shall, at the Effective Time, represent one share of common stock of the
Corporation. New certificates will not be issued for the shares of the
Corporation until the holder thereof subsequently sells, exchanges or
surrenders the certificate to the Corporation's transfer agent. The shares of
the Corporation issued
<PAGE> 144
prior to the merger shall not be converted or exchanged in any manner, but each
said share which is issued as of the Effective Time shall be canceled without
any action on the holder's part.
4. Assumption of Rights and Liabilities by Corporation. At the
Effective Time, NHC shall be merged into the Corporation which shall continue
as the Surviving Corporation, and the Surviving Corporation shall become the
owner, without transfer, of all rights, powers, assets, qualifications and
property of NHC, and the Surviving Corporation shall become subject to all
debts and liabilities of NHC in the same manner as if the Surviving Corporation
had itself incurred them.
5. Name. The Corporation shall continue its existence as the
Surviving Corporation under its present name.
6. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of the Corporation, as now in force and effect,
shall continue to be the Certificate of Incorporation of said Surviving
Corporation until amended and changed in the manner prescribed by the
provisions of the General Corporation Law of the State of Delaware.
7. Bylaws of Surviving Corporation. The present Bylaws of the
Corporation, as now in force and effect, shall continue to be the Bylaws of
said Surviving Corporation until changed, altered or amended as therein
provided and in the manner prescribed by the provisions of the General
Corporation Law of the State of Delaware.
8. Directors and Officers of Surviving Corporation. The
directors and officers in office of the Corporation at the Effective Time shall
be the members of the Board of Directors of and the officers of said Surviving
Corporation, all of whom shall hold their directorships and offices until the
election and qualification of their respective successors or until their tenure
is otherwise terminated in accordance with the Bylaws of the Surviving
Corporation.
9. Amendment or Abandonment of Agreement of Merger. The Board of
Directors of NHC, Inc., the Managing General Partner of NHC, may modify or
amend this Agreement of Merger at any time prior to approval by the holders of
the Units (the "UNITHOLDERS"). Such Board of Directors may abandon the
Agreement of Merger without Unitholder approval at any time prior to 11:59
p.m., central time, December 31, 1997 (either before or after Unitholder
adoption) in its sole and absolute discretion if it deems such abandonment in
the best interest of Unitholders. If the Agreement of Merger is not
implemented because it does not receive the requisite Unitholder vote or the
other conditions specified herein are not met, or because the Board of
Directors of NHC, Inc. determines for some other reason that it is advisable to
abandon the Agreement of Merger, the business and legal structure of NHC will
continue substantially in the present manner.
10. General Authorization. The Board of Directors and the proper
officers of NHC, Inc. and of the Corporation and Surviving Corporation are
hereby authorized, empowered and directed to do any and all acts and things,
and to make, execute, deliver, file and record any and all instruments, papers
and documents which shall be or become necessary, proper or convenient to carry
out or put into effect any of the provisions of this Agreement of Merger or of
the merger provided for herein.
B-2
<PAGE> 145
IN WITNESS WHEREOF, the undersigned have executed this Agreement of
Merger as of the ____ day of ______________, 1997.
NHC:
NATIONAL HEALTHCARE L.P.
By: NHC, Inc., its Managing General Partner
By:
------------------------------------------
Printed Name:
--------------------------------
Title of Authorized Officer:
----------------
CORPORATION:
NATIONAL HEALTHCARE CORPORATION
By:
------------------------------------------
Printed Name:
--------------------------------
Title of Authorized Officer:
-----------------
B-3
<PAGE> 146
CERTIFICATE OF SECRETARY OF
NATIONAL HEALTHCARE CORPORATION
(a Delaware corporation)
The undersigned, being the Secretary of National HealthCare
Corporation, a Delaware corporation, does hereby certify that the holders of
all of the outstanding stock of said corporation dispensed with a meeting and
vote of shareholders, and all of the shareholders entitled to vote consented in
writing, pursuant to the provisions of Section 228 of the General Corporation
Law of the State of Delaware, to the adoption of the foregoing Agreement of
Merger.
Executed on this ____ day of _________________, 1997.
NATIONAL HEALTHCARE CORPORATION
By:
-------------------------------
Richard F. LaRoche, Jr.
Secretary
B-4
<PAGE> 147
CERTIFICATE OF SECRETARY OF
THE MANAGING GENERAL PARTNER
OF
NATIONAL HEALTHCARE L.P.
(a Delaware limited partnership)
The undersigned, being the Secretary of NHC, Inc., a Tennessee
corporation and the Managing General Partner of National HealthCare L.P., does
hereby certify that the foregoing Agreement of Merger was submitted to the
Unitholders of National HealthCare L.P. entitled to vote at a special meeting
thereof for the purpose of acting on the Agreement of Merger. Due notice of
the time, place, and purpose of said meeting was mailed to each Unitholder of
said limited partnership at least 20 days prior to the date of the meeting. At
said meeting, the Agreement of Merger was considered by the Unitholders
entitled to vote and, a vote having been taken for the adoption or rejection by
them of the Agreement of Merger, at least a majority of the outstanding units
entitled to vote of the limited partnership was voted in favor of the adoption
of the Agreement of Merger.
Executed on this ____ day of _________________, 1997.
NHC, INC., Managing General Partner of
NATIONAL HEALTHCARE L.P.
By:
-----------------------------
Richard F. LaRoche, Jr.
Secretary
B-5
<PAGE> 148
APPENDIX C
PROXY PROXY
NATIONAL HEALTHCARE L.P.
SPECIAL MEETING OF PARTNERS, NOVEMBER 20, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
THE MANAGING GENERAL PARTNER
The undersigned hereby appoints W. Andrew Adams and Richard F.
LaRoche, or either of them, as proxies, with power of substitution, to vote all
Units of the undersigned at the Special Meeting of Limited Partners of National
HealthCare L.P. to be held on Thursday, November 20, 1997, at 9:00 a.m. Central
Standard Time, at the Managing General Partners's Offices located at 100 Vine
Street, Murfreesboro, Tennessee, and at any adjournments or postponements
thereof, in accordance with the following instructions:
(1) APPROVAL AND ADOPTION OF A PLAN OF RESTRUCTURE, PURSUANT TO WHICH NHC
WILL MAKE A DISTRIBUTION OF ALL OF THE OUTSTANDING SHARES OF COMMON
STOCK OF NATIONAL HEALTH REALTY, INC. TO THE HOLDERS OF NHC GENERAL AND
LIMITED PARTNERSHIP UNITS IN THE MANNER SET FORTH IN THE ACCOMPANYING
PROXY STATEMENT AND NHC WILL THEN MERGE WITH AND INTO NATIONAL
HEALTHCARE CORPORATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) APPROVAL OF THE POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING FOR THE
PURPOSE OF SOLICITING ADDITIONAL VOTES IN FAVOR OF PROPOSAL (1) ABOVE;
AND
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR
ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
(CONTINUED FROM OTHER SIDE)
THE UNITS REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE UNITS WILL BE VOTED FOR THE PLAN OF RESTRUCTURE AND
IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.
DATED: , 1997
--------------------
--------------------------------
DATED: , 1997
--------------------
--------------------------------
Signature(s) of Unitholder(s)
should correspond exactly with
the name(s) printed hereon.
Joint owners should each sign
personally. Executors,
administrators, trustees, etc.,
should give full title and
authority.
<PAGE> 149
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. Statutory Provisions.
Section 2-418 of the Maryland General Corporation Law provides as
follows:
(a) DEFINITIONS. In this section the following words have the
meanings indicated.
(1) "Director" means any person who is or was a director
of a corporation and any person who, while a director of a corporation, is or
was serving at the request of the corporation 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.
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger, consolidation, or other
transaction in which the predecessor's existence ceased upon consummation of
the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of
director in the corporation; and
(ii) When used with respect to a person other than a
director as contemplated in subsection (j), the elective or appointive office
in the corporation held by the officer, or the employment or agency
relationship undertaken by the employee or agent in behalf of the corporation.
(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.
(b) PERMITTED INDEMNIFICATION OF DIRECTOR.
(1) A corporation may indemnify any director made a party
to any proceeding by reason of service in that capacity if the director:
(i) Acted in good faith;
(ii) Reasonably believed:
1. In the case of conduct in the director's
official capacity with the corporation, that the conduct was in the best
interests of the corporation; and
<PAGE> 150
2. In all other cases, that the conduct was at
least not opposed to the best interests of the corporation; and
(iii) In the case of any criminal proceeding, had no
reasonable cause to believe that the conduct was unlawful.
(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses actually incurred by the
director in connection with the proceeding.
(ii) However, if the proceeding was one by or in the right
of the corporation, indemnification may be made only against reasonable
expenses and may not be made in respect of any proceeding in which the director
shall have been adjudged to be liable to the corporation.
(3) The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
creates a rebuttable presumption that the director did not meet the requisite
standard of conduct set forth in this subsection.
(c) NO INDEMNIFICATION OF DIRECTOR LIABLE FOR IMPROPER PERSONAL
BENEFIT. A director may not be indemnified under subsection (b) of this
section in respect of any proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director was adjudged to be liable on the basis that personal
benefit was improperly received.
(d) REQUIRED INDEMNIFICATION AGAINST EXPENSES INCURRED IN
SUCCESSFUL DEFENSE. -- Unless limited by the charter:
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in subsection (b) of
this section shall be indemnified against reasonable expenses incurred by the
director in connection with the proceeding.
(2) A court of appropriate jurisdiction, upon application
of a director and such notice as the court shall require, may order
indemnification in the following circumstances:
(i) If it determines a director is entitled to
reimbursement under paragraph (1) of this subsection, the court shall order
indemnification, in which case the director shall be entitled to recover the
expenses of securing such reimbursement; or
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director has met the standards of conduct set
forth in subsection (b) of this section or has been adjudged liable under the
circumstances described in subsection (c) of this section, the court may order
such indemnification as the court shall deem proper. However, indemnification
with respect to any proceeding by or in the right of the corporation or in
which liability shall have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same
court in which the proceeding involving the director's liability took place.
(e) DETERMINATION THAT INDEMNIFICATION IS PROPER.
(1) Indemnification under subsection (b) of this section may
not be made by the corporation unless authorized in the specific case after a
determination has been made that indemnification of the director is permissible
in the circumstances because the director has met the standard of conduct set
forth in subsection (b) of this section.
II-2
<PAGE> 151
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a
quorum consisting of directors 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 directors not, at the time, parties
to such proceeding and who were duly designated to act in the matter by a
majority vote of the full board in which the designated directors who are
parties may participate;
(ii) By special legal counsel selected by the board of
directors 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 directors who are parties may participate; or
(iii) By the stockholders.
(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 special legal
counsel, authorization of indemnification and determination as to
reasonableness of expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection for selection of such
counsel.
(4) Shares held by directors who are parties to the
proceeding may not be voted on the subject matter under this subsection.
(f) PAYMENT OF EXPENSES IN ADVANCE OF FINAL DISPOSITION OF ACTION.
(1) Reasonable expenses incurred by a director who is a
party to a proceeding may be paid or reimbursed by the corporation in advance
of the final disposition of the proceeding, after a determination that the
facts then known to those making the determination would not preclude
indemnification under this section, upon receipt by the corporation of:
(i) A written affirmation by the director of the
director's good faith belief that the standard of conduct necessary for
indemnification by the corporation as authorized in this section has been met;
and
(ii) A written undertaking by or on behalf of the director
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 subsection shall be an unlimited general obligation of
the director but need not be secured and may be accepted without reference to
financial ability to make the repayment.
(3) Determinations and authorizations of payments under
this subsection shall be in the manner specified in subsection (e) of this
section.
(g) VALIDITY OF INDEMNIFICATION PROVISION. A provision for the
corporation to indemnify a director who is made a party to a proceeding,
whether contained in the charter, the bylaws, a resolution of stockholders or
directors, an agreement or otherwise, except as contemplated by subsection (k)
of this section, is not valid unless consistent with this section or, to the
extent that indemnity under this section is limited by the charter, consistent
with the charter.
(h) REIMBURSEMENT OF DIRECTOR'S EXPENSES INCURRED WHILE APPEARING
AS 'WITNESS. This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in
II-3
<PAGE> 152
connection with an appearance as a witness in a proceeding at a time when the
director has not been made a named defendant or respondent in the proceeding.
(i) DIRECTOR'S SERVICE TO EMPLOYEE BENEFIT PLAN. For purposes of
this section:
(1) The corporation shall be deemed to have requested a
director to serve an employee benefit plan where the performance of the
director's duties to the corporation also imposes duties on, or otherwise
involves services by, the director to the plan or participants or beneficiaries
of the plan;
(2) Excise taxes assessed on a director with respect to
an employee benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the director with respect
to an employee benefit plan in the performance of the director's duties for a
purpose reasonably believed by the director 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 interests of the corporation.
(j) OFFICER, EMPLOYEE OR AGENT. Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as
and to the extent provided in subsection (d) of this section for a director and
shall be entitled, to the same extent as a director, to seek indemnification
pursuant to the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to
an officer, employee, or agent of the corporation to the same extent that it
may indemnify directors under this section; and
(3) A corporation, in addition, may indemnify and advance
expenses to an officer, employee, or agent who is not a director to such
further extent, consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors, or contract.
(k) INSURANCE. A corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent
of the corporation, or who, while a director, officer, employee, or agent of
the corporation, is or was serving at the request of the corporation 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 corporation would have the power to indemnify against
liability under the provisions of this section.
(l) REPORT OF INDEMNIFICATION TO STOCKHOLDERS. Any
indemnification of, or advance of expenses to, a director in accordance with
this section, if arising out of a proceeding by or in the right of the
corporation, shall be reported in writing to the stockholders with the notice
of the next stockholders' meeting or prior to the meeting.
II-4
<PAGE> 153
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of the Registration Statement.
The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the SEC upon request.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Plan of Restructure
2.2 Agreement of Merger
3.1 * Articles of Incorporation of National Health Realty, Inc.
3.2 * Bylaws of National Health Realty, Inc.
3.3 Limited Partnership Agreement of NHR/OP, L.P.
4 Indenture of Trust and Security Agreement dated as of December 1, 1990 by and among
National Health Corporation Leveraged Employee Stock Ownership Trust, National Health
Corporation, and National HealthCorp L.P. to State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee and Barnett Banks Trust Company,
National Association, as Florida Co-Indenture Trustee
5 * Legal Opinion of McGuire, Woods, Battle and Boothe, counsel to the Registrant, as to the
due formation of the REIT
8 Form of Legal Opinion of Goodwin Procter & Hoar, counsel to the Registrant, as to the tax
effect to security holders
10.1 Master Agreement of Lease effective as of January 1, 1998 by and among National Health
Realty, Inc., NHR/OP, L.P. and National HealthCare Corporation.
10.2 Advisory, Administrative Services and Facilities Agreement effective as of January 1, 1998
between National Health Realty, Inc., NHR/OP, L.P. and National HealthCare Corporation.
10.3.1 * Form of National Health Realty, Inc. 1997 Employee Stock Purchase Plan
10.3.2 Form of National Health Realty, Inc. 1997 Stock Option and Stock Appreciation Rights Plan
10.4 Loan Agreement dated as of April 21, 1995 by and between National HealthCare L.P. and First
American National Bank
10.5 Credit Agreement dated as of December 31, 1996 by and among National HealthCare L.P., The
Banks, and SunTrust Bank, Nashville, N.A., as Agent
10.6 Reimbursement and Letter of Credit Agreement dated as of June 1, 1989 among West Plains
Manor, National HealthCare L.P. and The Bank of Tokyo, Ltd. New York Agency
10.7 Guaranty Agreement dated as of June 1, 1989 by and between National HealthCare L.P. and The
Bank of Tokyo, Ltd., New York Agency
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP, independent public accountants
24 Power of Attorney (included on the signature page hereto)
</TABLE>
* To be filed by amendment.
(b) The Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been omitted.
II-5
<PAGE> 154
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement 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.
2. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
3. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment 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.
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
Securities 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
Securities Act and will be governed by the final adjudication of such issue.
5. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
6. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became Effective.
II-6
<PAGE> 155
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Murfreesboro, State
of Tennessee on the 3rd day of October, 1997.
NATIONAL HEALTH REALTY, INC.
By: /s/ W. Andrew Adams
-------------------------------------
W. Andrew Adams
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints W. Andrew Adams and Richard F. LaRoche, Jr., and each of them,
as his attorneys-in-fact to execute in the name and on behalf of any such
person, individually and in the capacity stated below, and to file all
amendments and post-effective amendments to this Registration Statement, which
amendment or amendments may make such changes and additions in this
Registration Statement as such attorneys-in-fact may deem necessary or
appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the dates indicated by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Andrew Adams Chairman, Chief Executive October 3, 1997
- -------------------------------------------- Officer and Director (Chief
W. Andrew Adams Executive Officer)
/s/ Donald K. Daniel Vice President, Controller, October 3, 1997
- -------------------------------------------- (Chief Financial Officer and
Donald K. Daniel Chief Accounting Officer)
/s/ J. K. Twilla Director October 3, 1997
- ---------------------------------------------
J. K. Twilla
Director October ___, 1997
- ---------------------------------------------
Olin O. Williams
/s/ Robert G. Adams Director October 3, 1997
- ---------------------------------------------
Robert G. Adams
/s/ Ernest G. Burgess Director October 3, 1997
- --------------------------------------------
Ernest G. Burgess
</TABLE>
II-7
<PAGE> 1
Exhibit 2.1
PLAN OF RESTRUCTURE OF NATIONAL HEALTHCARE L.P.
NATIONAL HEALTHCARE L.P. ("NHC"), and its two wholly owned
subsidiaries, NATIONAL HEALTHCARE CORPORATION (the "Corporation"), and NATIONAL
HEALTH REALTY, INC. (the "REIT") hereby adopt a plan of restructure (the "Plan")
pursuant to and in accordance with the provisions of Sections 5.2(a)(xxvii) and
6.4(a) of the Amended and Restated Agreement of Limited Partnership of NHC,
Section 17-211 of the Delaware Revised Uniform Limited Partnership Act and
Section 263 of the Delaware General Corporation Law and other applicable
sections of the foregoing.
1. Purpose of the Plan. The purpose of this Plan is to set forth the
effective date and other terms of the restructure of NHC into the Corporation
and REIT, as soon as the Plan is consummated. NHC has recently formed the
Corporation and REIT as wholly owned subsidiaries. Upon adoption of the Plan and
the effectiveness as set forth herein, the stock of the REIT will be distributed
to the holders of the outstanding units (the "Units") of NHC in proportion to
their ownership of outstanding Units (except with respect to Excess Stock, as
later defined, the holder thereof shall be entitled to receive the consideration
described in Paragraph 6 hereof); and NHC shall merge with and into the
Corporation with the Corporation being the survivor thereof.
2. Unitholder Approval. A resolution approving the Plan shall be
submitted to the Unitholders of NHC for action on the resolution at a Special
Meeting to be held at the offices of NHC no later than November 20, 1997.
Consummation of the Plan shall be subject to: (i) adoption of the Plan by the
affirmative vote of at least a majority of the Units outstanding on the Record
Date for the meeting, and (ii) such rights to terminate or amend the Plan as are
set forth herein. If the Plan is so adopted, then the directors and officers of
the managing general partner of NHC shall cause this Plan to be implemented in
accordance with the following terms, all of which must be accomplished on or
before 12:00:01 a.m. central time on January 1, 1998.
3. Contribution to REIT's Operating Partnership of Qualifying Assets
and Assumption by REIT of Certain Liabilities. NHC has formed the REIT under the
Maryland General Corporation Law and REIT has formed NHR/OP, L.P., a Delaware
limited partnership (the "Operating Partnership"). NHC shall contribute to
Operating Partnership the specified assets, subject to certain specified
liabilities, effective at 4:00 p.m. central time on December 31, 1997 pursuant
to the Contribution Agreement (the "Contribution Agreement") attached hereto as
Exhibit A pursuant to which: (a) real estate located in Florida owned by NHC
shall be leased to the Operating Partnership pursuant to a long term capitalized
lease (the "Capitalized Lease"), (b) substantially all other real estate owned
by NHC shall be conveyed by deed (the "Deeds") to the Operating Partnership
pursuant to deed forms selected by officers of the managing general partner of
NHC, (c) debt described in the Contribution Agreement secured by the real
property located
<PAGE> 2
in South Carolina shall be paid by, but not assumed by, the Operating
Partnership, (d) other debt of NHC described in the Contribution Agreement shall
be assumed by the Operating Partnership, (e) the notes and related security
including mortgages owned by NHC, as lender, specified in the Contribution
Agreement shall be conveyed to the Operating Partnership, and (f) certain other
assets having little or no book value on NHC's books, as specified in the
Contribution Agreement, shall be conveyed to the Operating Partnership.
4. Agreements Between REIT and Corporation. Immediately after the
effectiveness of the matters described in paragraph 3 above, the following shall
occur: (a) the Operating Partnership shall lease to the Corporation, and the
Corporation shall lease from the Operating Partnership, pursuant to the
Operating Lease (the "Operating Lease"), attached hereto as Exhibit B all real
estate subject to the Contribution Agreement and, (b) the REIT, Operating
Partnership and Corporation shall enter into the Advisory Agreement, attached
hereto as Exhibit C. In the event of a title problem or dispute involving the
real property subject to the Capitalized Lease or conveyed pursuant to the
Deeds, to the maximum extent that NHC (or the Corporation, as successor to NHC
after the Merger) has a claim against a predecessor-in-title or a title
insurance company, NHC (or the Corporation as successor to NHC after the Merger)
shall indemnify, defend and hold REIT harmless from all damages, but not
otherwise. REIT and Operating Partnership, jointly and severally, shall
indemnify, defend and hold NHC and Corporation harmless with respect to all debt
assumed by or which REIT or Operating Partnership has agreed to pay in
accordance with the foregoing. REIT and Operating Partnership agree, without the
written consent of the Corporation, not to cause or suffer any such debt to be
defaulted or otherwise breached. Corporation shall indemnify, defend and hold
REIT and Operating Partnership harmless with respect to all debt and all
obligations of NHC except those specifically assumed by or which REIT or
Operating Partnership have agreed to pay in accordance with the foregoing.
Corporation agrees, without the written consent of REIT and Operating
Partnership, not to cause or suffer any such debt to be defaulted or otherwise
breached. The Corporation shall use its best efforts to provide to REIT and
Operating Partnership financial statements of the Corporation, and any
predecessor, and the unqualified opinion from a nationally recognized
independent accounting firm with respect to such annual financial statements,
and consents of auditors to the inclusion of such financial statements in any
registration statements, private placement memoranda, filings on any exchange or
with any regulatory body, if any, necessary or appropriate in order to enable
REIT and Operating Partnership to comply with applicable registration and
reporting requirements of federal and state securities laws or exchange
requirements; and expenses relating to the foregoing shall be borne by the
Corporation (including obtaining audits if required by the foregoing even if the
Corporation does not otherwise need to obtain them) as long as the Corporation
is the investment advisor of the REIT (whether pursuant to the Advisory
Agreement attached hereto, any amendment thereof, or a replacement thereto) and
for such period of time after such advisory relationship ends until such time as
REIT and Operating Partnership no longer are legally required to include such
financial statements in its SEC filings; the Corporation shall indemnify, defend
and hold REIT and Operating Partnership harmless with respect to any damages
caused by any errors or misstatements in such financial statements.
2
<PAGE> 3
5. Contingent Liabilities. The Corporation, by reason of the merger
described below, shall assume and agree to pay (to the extent that NHC is liable
therefor, subject to all of the defenses and offsets which are available to NHC)
all absolute and contingent liabilities of NHC, except as follows, each of which
shall be assumed by the REIT and Operating Partnership, jointly and severally,
effective with the effectiveness of the Contribution Agreement: (a) the absolute
liabilities described in paragraph 3 above and described more fully in the
Contribution Agreement, and (b) environmental and hazardous material liabilities
relating to the land or improvements thereon which are subject to either the
Capitalized Lease or the Operating Leases, described above, except those created
from and after January 1, 1998 by the Corporation or its tenants,
subcontractors, agents or employees.
6. Issuance of REIT Shares to NHC; Distribution to Unitholders. In
consideration for the Contribution Agreement REIT shall issue to NHC that number
of shares of REIT common stock which is equal to the number of Units outstanding
on the date of the Contribution Agreement; provided, however, the Excess Stock,
as defined in the REIT Charter, which would have been issued to National Health
Corporation ("National") shall, instead, entitle National to receive one Unit in
the Operating Partnership ("OP Units") for each share of Excess Stock. NHC shall
immediately thereafter distribute or cause to be distributed to each Unitholder
of record immediately prior to the Effective Time, as later defined, one (1)
share of REIT common stock for each Unit owned by the Unitholder subject to the
proviso in the immediately preceding sentence. Such actions shall result in the
spin out of the REIT, without the necessity of the surrender of unit
certificates. All such actions shall be effective for all purposes on or before
11:59 p.m. central time, December 31, 1997; provided, however, the physical
delivery of the certificates representing the REIT shares and OP Units shall
take place as soon as practical thereafter. REIT and Corporation agree that all
options and convertible debentures of NHC which grant rights to subscribe for
NHC Units exercisable or convertible after December 31, 1997, shall be deemed to
grant the right to acquire an equal number of shares of REIT shares and an equal
number of Corporation shares as such right grants in Units of NHC. The exercise
price for such options and receipt thereof shall be divided pro rata between
REIT and Corporation (and the pro rata distribution shall be equal to the ratio
that the closing price on the American Stock Exchange at the close of business
on the first trading day in 1998 of REIT shares and Corporation shares bear to
each other). The interest and principal and all other payments due under or
obligations due as a result of such convertible debentures is to be paid and
performed by the Corporation and if the conversion rights of any of such debt is
exercised then the Corporation shall provide written notification thereof to
REIT, and the REIT shall issue (upon payment of cash by Corporation to REIT in
the amount of the par value for such REIT shares) REIT shares equal to the
number of shares issued by Corporation upon such conversion; and REIT agrees, at
the expense of Corporation, to cause to be filed any registration statement
relating to REIT shares required by agreements binding on Corporation or needed
as determined in the sole discretion of Corporation. Notwithstanding the
foregoing in this paragraph 6, the Convertible Debentures issued pursuant to the
Note Purchase Agreement dated in October 1997 shall be convertible solely into
Corporation shares and all obligations of NHC pursuant to such agreement (as
well as the related Note and Registration Rights Agreement) shall be solely
those of the Corporation.
3
<PAGE> 4
7. Merger. Effective as of 11:59 p.m., central time, December 31, 1997
(the "Effective Time") NHC shall merge with and into the Corporation pursuant to
the Merger Agreement attached hereto as Exhibit D.
8. Amendment or Abandonment of Plan. The Board of Directors of the
managing general partner of NHC may modify or amend the Plan at any time prior
to Unitholder approval. Such Board of Directors may abandon the Plan without
Unitholder approval at any time prior to 11:59 p.m., central time, December 31,
1997 (either before or after Unitholder adoption) in its sole and absolute
discretion if it deems such abandonment in the best interest of Unitholders.
If the Plan is not implemented because it does not receive the
requisite Unitholder vote or the other conditions specified herein are not met,
or because the Board of Directors determines for some other reason that it is
advisable to abandon the Plan, the business and legal structure of NHC will
continue substantially in the present manner.
9. Miscellaneous.
(a) In connection with the Plan, the unit option plans of NHC
will be terminated and the unit options outstanding thereunder as of December
31, 1997 to the extent not then exercised, will be cancelled to the maximum
extent permitted contractually and by law.
(b) All other employee benefit plans of NHC which are not
described in the Registration Statement on Form S-4 as employee benefits of the
Corporation shall be cancelled on December 31, 1997.
(c) The Board of Directors of the managing general partner of
NHC and the officers of NHC shall have the power to adopt all resolutions, and
the officers of NHC shall have the power to execute, deliver, and file all
instruments, documents and certificates in the offices of the Secretaries of
State of the State of Tennessee, Delaware and Maryland or other offices, and to
publish and give such notices, and to do any and all other or additional things
(including the setting of record dates and the closing of stock transfer books),
as are required by the laws of the State of Tennessee, Delaware and Maryland or
other applicable laws, or as such Board of Directors or other officers may deem
necessary, desirable or appropriate to carry out the provisions of this Plan.
(d) This Plan is attached to and is part of a Registration
Statement on Form S-4 filed by the Corporation with the Securities and Exchange
Commission, reference to which is hereby made for any and all purposes.
4
<PAGE> 5
Executed as of the _____ day of ________________, 1997.
NATIONAL HEALTHCARE L.P.
By its Managing General Partner NHC, Inc.
By: _____________________________________
W. Andrew Adams, President
NATIONAL HEALTHCARE CORPORATION
By: _____________________________________
W. Andrew Adams, President
NATIONAL HEALTH REALTY, INC.
By: _____________________________________
W. Andrew Adams, President
NHR/OP, L.P.
By: National Health Realty, Inc., its general partner
By:
_____________________________________
W. Andrew Adams, President
5
<PAGE> 6
EXHIBIT INDEX
Exhibit A Contribution Agreement
Exhibit B Operating Lease Agreement
Exhibit C Advisory Agreement
Exhibit D Merger Agreement
6
<PAGE> 1
Exhibit 2.2
AGREEMENT OF MERGER
OF
NATIONAL HEALTHCARE L.P.
(a Delaware limited partnership)
AND
NATIONAL HEALTHCARE CORPORATION
(a Delaware corporation)
THIS AGREEMENT OF MERGER is made and entered into this ___ day of
_________________, 1997 by and between NATIONAL HEALTHCARE L.P., a Delaware
limited partnership ("NHC"), and NATIONAL HEALTHCARE CORPORATION, a Delaware
corporation ("CORPORATION").
WHEREAS, National HealthCare L.P. is a business limited partnership of
the State of Delaware with its registered office therein located at 1013 Centre
Road, City of Wilmington, County of New Castle; and
WHEREAS, National HealthCare Corporation is a business corporation of
the State of Delaware with its registered office therein located at 9 East
Loockerman Street, City of Dover, County of Kent; and
WHEREAS, Section 263 of the Delaware General Corporation Law and
Section 17-211 of the Delaware Revised Uniform Limited Partnership Act permit
the merger of a corporation and limited partnership; and
WHEREAS, the Board of Directors of the Corporation and the Board of
Directors of NHC, Inc., the Managing General Partner of NHC, deem it is
advisable and to the advantage, welfare and best interests of said entities and
their respective stockholders and unitholders to merge NHC with and into the
Corporation pursuant to and in accordance with the provisions of Section 263 of
the General Corporation Law of the State of Delaware, Section 17-211 of the
Delaware Revised Uniform Limited Partnership Act and Section 6.4(a) of the
Amended and Restated Agreement of Limited Partnership of NHC, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly approved and adopted by
the general partners and a majority of the limited partners of NHC and by the
Board of Directors and stockholders of the Corporation, the parties agree as
follows:
<PAGE> 2
1. Terms and Conditions of Merger; Method of Effecting Merger. Upon the
Effective Time (as defined herein), NHC shall merge with and into the
Corporation and the separate partnership existence of NHC shall cease, and the
Corporation shall continue as the surviving corporation (sometimes hereinafter
referred to as the "SURVIVING CORPORATION"). The merger shall be effected by the
filing of a Certificate of Merger with the Delaware Secretary of State.
2. Effective Time. The effective date and time of the merger shall be
11:59 p.m., central time, December 31, 1997 (the "EFFECTIVE TIME").
3. Manner of Converting Shares and Partnership Interests. Each issued
and outstanding unit of limited partnership interest ("UNIT") of NHC shall, at
the Effective Time, represent one share of common stock of the Corporation. New
certificates will not be issued for the shares of the Corporation until the
holder thereof subsequently sells, exchanges or surrenders the certificate to
the Corporation's transfer agent. The shares of the Corporation issued prior to
the merger shall not be converted or exchanged in any manner, but each said
share which is issued as of the Effective Time shall be canceled without any
action on the holder's part.
4. Assumption of Rights and Liabilities by Corporation. At the
Effective Time, NHC shall be merged into the Corporation which shall continue as
the Surviving Corporation, and the Surviving Corporation shall become the owner,
without transfer, of all rights, powers, assets, qualifications and property of
NHC, and the Surviving Corporation shall become subject to all debts and
liabilities of NHC in the same manner as if the Surviving Corporation had itself
incurred them.
5. Name. The Corporation shall continue its existence as the Surviving
Corporation under its present name.
6. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of the Corporation, as now in force and effect,
shall continue to be the Certificate of Incorporation of said Surviving
Corporation until amended and changed in the manner prescribed by the provisions
of the General Corporation Law of the State of Delaware.
7. Bylaws of Surviving Corporation. The present Bylaws of the
Corporation, as now in force and effect, shall continue to be the Bylaws of said
Surviving Corporation until changed, altered or amended as therein provided and
in the manner prescribed by the provisions of the General Corporation Law of the
State of Delaware.
8. Directors and Officers of Surviving Corporation. The directors and
officers in office of the Corporation at the Effective Time shall be the members
of the Board of Directors of and the officers of said Surviving Corporation, all
of whom shall hold their directorships and offices until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the Bylaws of the Surviving Corporation.
<PAGE> 3
9. Amendment or Abandonment of Agreement of Merger. The Board of
Directors of NHC, Inc., the Managing General Partner of NHC, may modify or amend
this Agreement of Merger at any time prior to approval by the holders of the
Units (the "UNITHOLDERS"). Such Board of Directors may abandon the Agreement of
Merger without Unitholder approval at any time prior to 11:59 p.m., central
time, December 31, 1997 (either before or after Unitholder adoption) in its sole
and absolute discretion if it deems such abandonment in the best interest of
Unitholders. If the Agreement of Merger is not implemented because it does not
receive the requisite Unitholder vote or the other conditions specified herein
are not met, or because the Board of Directors of NHC, Inc. determines for some
other reason that it is advisable to abandon the Agreement of Merger, the
business and legal structure of NHC will continue substantially in the present
manner.
10. General Authorization. The Board of Directors and the proper
officers of NHC, Inc. and of the Corporation and Surviving Corporation are
hereby authorized, empowered and directed to do any and all acts and things, and
to make, execute, deliver, file and record any and all instruments, papers and
documents which shall be or become necessary, proper or convenient to carry out
or put into effect any of the provisions of this Agreement of Merger or of the
merger provided for herein.
IN WITNESS WHEREOF, the undersigned have executed this Agreement of
Merger as of the ____ day of ______________, 1997.
NHC:
NATIONAL HEALTHCARE L.P.
By: NHC, Inc., its Managing General Partner
By:_________________________________________
Printed Name:_______________________________
Title of Authorized Officer:________________
CORPORATION:
NATIONAL HEALTHCARE CORPORATION
By:_________________________________________
Printed Name:_______________________________
Title of Authorized Officer:________________
<PAGE> 4
CERTIFICATE OF SECRETARY OF
NATIONAL HEALTHCARE CORPORATION
(a Delaware corporation)
The undersigned, being the Secretary of National HealthCare
Corporation, a Delaware corporation, does hereby certify that the holders of all
of the outstanding stock of said corporation dispensed with a meeting and vote
of shareholders, and all of the shareholders entitled to vote consented in
writing, pursuant to the provisions of Section 228 of the General Corporation
Law of the State of Delaware, to the adoption of the foregoing Agreement of
Merger.
Executed on this ____ day of _________________, 1997.
NATIONAL HEALTHCARE CORPORATION
By: ________________________________
Richard F. LaRoche, Jr.
Secretary
<PAGE> 5
CERTIFICATE OF SECRETARY OF
THE MANAGING GENERAL PARTNER
OF
NATIONAL HEALTHCARE L.P.
(a Delaware limited partnership)
The undersigned, being the Secretary of NHC, Inc., a Tennessee
corporation and the Managing General Partner of National HealthCare L.P., does
hereby certify that the foregoing Agreement of Merger was submitted to the
Unitholders of National HealthCare L.P. entitled to vote at a special meeting
thereof for the purpose of acting on the Agreement of Merger. Due notice of the
time, place, and purpose of said meeting was mailed to each Unitholder of said
limited partnership at least 20 days prior to the date of the meeting. At said
meeting, the Agreement of Merger was considered by the Unitholders entitled to
vote and, a vote having been taken for the adoption or rejection by them of the
Agreement of Merger, at least a majority of the outstanding units entitled to
vote of the limited partnership was voted in favor of the adoption of the
Agreement of Merger.
Executed on this ____ day of _________________, 1997.
NHC, INC., Managing General Partner of
NATIONAL HEALTHCARE L.P.
By: ________________________________
Richard F. LaRoche, Jr.
Secretary
<PAGE> 1
EXHIBIT 3.3
AGREEMENT OF LIMITED PARTNERSHIP
OF
NHR/OP, L.P.
Dated as of _________, 199_
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I - DEFINED TERMS....................................................1
ARTICLE II - ORGANIZATIONAL MATTERS.........................................14
Section 2.1 Organization..........................................14
Section 2.2 Name..................................................14
Section 2.3 Registered Office and Agent; Principal Office.........14
Section 2.4 Term..................................................14
ARTICLE III - PURPOSE.......................................................14
Section 3.1 Purpose and Business..................................14
Section 3.2 Powers................................................15
ARTICLE IV - CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP
INTERESTS..........................................................15
Section 4.1 Capital Contributions of the Partners.................15
Section 4.2 Issuances of Partnership Interests....................16
Section 4.3 No Preemptive Rights..................................17
Section 4.4 Other Contribution Provisions.........................17
Section 4.5 No Interest on Capital................................18
ARTICLE V - DISTRIBUTIONS...................................................18
Section 5.1 Requirement and Characterization of
Distributions.........................................18
Section 5.2 Amounts Withheld......................................20
Section 5.3 Distributions Upon Liquidation........................20
Section 5.4 Revisions to Reflect Issuance of
Partnership Interests.................................20
ARTICLE VI - ALLOCATIONS....................................................21
Section 6.1 Allocations for Capital Account Purposes..............21
Section 6.2 Revisions to Allocations to Reflect Issuance of
Partnership Interests.................................22
ARTICLE VII - MANAGEMENT AND OPERATIONS OF BUSINESS.........................22
Section 7.1 Management............................................22
Section 7.2 Certificate of Limited Partnership....................27
Section 7.3 Title to Partnership Assets...........................27
Section 7.4 Reimbursement of the General Partner..................27
Section 7.5 Outside Activities of the General Partner;
Relationship of REIT Shares To Partnership
Units; Funding Debt...................................29
Section 7.6 Transactions with Affiliates..........................31
Section 7.7 Indemnification.......................................32
(i)
<PAGE> 3
Section 7.8 Liability of the General Partner......................34
Section 7.9 Other Matters Concerning the General Partner..........35
Section 7.10 Reliance By Third Parties............................36
Section 7.11 Restrictions on General Partner's Authority..........36
Section 7.12 Loans By Third Parties...............................36
ARTICLE VIII - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS...................37
Section 8.1 Limitation of Liability...............................37
Section 8.2 Management of Business................................37
Section 8.3 Outside Activities of Limited Partners................37
Section 8.4 Return of Capital.....................................37
Section 8.5 Rights of Limited Partners Relating to
the Partnership.......................................38
Section 8.6 Redemption Right......................................39
ARTICLE IX - BOOKS, RECORDS, ACCOUNTING AND REPORTS.........................42
Section 9.1 Records and Accounting................................42
Section 9.2 Fiscal Year...........................................42
ARTICLE X - TAX MATTERS.....................................................43
Section 10.1 Preparation of Tax Returns...........................43
Section 10.2 Tax Elections........................................43
Section 10.3 Tax Matters Partner..................................43
Section 10.4 Organizational Expenses..............................45
Section 10.5 Withholding..........................................45
ARTICLE XI - TRANSFERS AND WITHDRAWALS......................................46
Section 11.1 Transfer.............................................46
Section 11.2 Transfers of Partnership Interests of
General Partner......................................46
Section 11.3 Limited Partners' Rights to Transfer.................47
Section 11.4 Substituted Limited Partner..........................48
Section 11.5 Assignees............................................49
Section 11.6 General Provisions...................................49
ARTICLE XII - ADMISSION OF PARTNERS.........................................51
Section 12.1 Admission of a Successor General Partner.............51
Section 12.2 Admission of Additional Limited Partners.............52
Section 12.3 Amendment of Agreement and Certificate of
Limited Partnership..................................52
ARTICLE XIII - DISSOLUTION AND LIQUIDATION..................................53
Section 13.1 Dissolution..........................................53
Section 13.2 Winding Up...........................................54
Section 13.3 Compliance With Timing Requirements of
Regulations..........................................55
Section 13.4 Deemed Distribution and Recontribution...............55
Section 13.5 Rights of Limited Partners...........................56
(ii)
<PAGE> 4
Section 13.6 Notice of Dissolution................................56
Section 13.7 Cancellation of Certificate of Limited
Partnership..........................................56
Section 13.8 Reasonable Time for Winding Up.......................56
Section 13.9 Waiver of Partition..................................56
Section 13.10 Liability of Liquidator.............................56
ARTICLE XIV - AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..................56
Section 14.1 Amendments...........................................56
Section 14.2 Meetings of the Partners.............................58
ARTICLE XV - GENERAL PROVISIONS............................................59
Section 15.1 Addresses and Notice.................................59
Section 15.2 Titles and Captions..................................59
Section 15.3 Pronouns and Plurals.................................59
Section 15.4 Further Action.......................................59
Section 15.5 Binding Effect.......................................59
Section 15.6 Creditors............................................60
Section 15.7 Waiver...............................................60
Section 15.8 Counterparts.........................................60
Section 15.9 Applicable Law.......................................60
Section 15.10 Invalidity of Provisions............................60
Section 15.11 Power of Attorney...................................60
Section 15.12 Entire Agreement....................................62
Section 15.13 No Rights as REIT Shareholders......................62
Section 15.14 Limitation to Preserve Reit Status..................62
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
(iii)
<PAGE> 5
AGREEMENT OF LIMITED PARTNERSHIP
OF
NHR/OP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of _______________,
199__, is entered into by and among National Health Realty, Inc., a Maryland
corporation, as the General Partner, and the Persons whose names are set forth
on Exhibit A as Limited Partners, together with any other Persons who become
Partners in the Partnership as provided herein.
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 agree to
form 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.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.2 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.
<PAGE> 6
"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, 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
(ii) 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.
The aggregate Agreed Value of the Contributed Property contributed or deemed
contributed by each Partner as of the date hereof is set forth in Exhibit A.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Articles" means the Articles of Incorporation or other organizational
document governing the General Partner, as amended or restated from time to
time.
"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):
2
<PAGE> 7
(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 Tennessee are authorized or required by law to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B.
"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
3
<PAGE> 8
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 REIT 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 REIT 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 REIT 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.
"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 other 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 (including deemed
contributions to the Partnership on termination and reconstitution thereof
pursuant to Section 708 of the Code). Once the Carrying Value of a
4
<PAGE> 9
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 REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT 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 REIT 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 REIT Share of the
Successor Entity, determined as of that same date. (For purposes of the second
proviso 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 REIT 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 REIT 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 REIT 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.
"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
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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.
"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 stock (or other
comparable equity interests) of the General Partner Entity are Publicly Traded
(i) the total number of shares of stock (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 stock (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.
"Depreciation" means, for each taxable 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
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 set forth at the beginning of this
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means an "employee benefit plan" as that term is defined
in 29 U.S.C. Section 1002(3), and which is not exempt from regulation under
ERISA by virtue of 29 U.S.C.
Section 1003(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"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 National Health Realty, Inc. in its capacity as
the General Partner of the Partnership or its successor as general partner of
the Partnership.
"General Partner Entity" means the General Partner; provided, however,
that if (i) the common stock (or other comparable equity interests) of the
General Partner are at any time not Publicly Traded and (ii) the common stock
(or other comparable equity interests) of an entity that owns, directly or
indirectly, fifty percent (50%) or more of the common stock (or other comparable
equity interests) of the General Partner are Publicly Traded, the term "General
Partner Entity" shall refer to such entity whose common stock (or other
comparable equity securities) is 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 Partnership Interest" means a Partnership Interest held by a
General Partner that is a general partnership interest. A General Partnership
Interest may be expressed as a number of Partnership Units.
"General Partner Payment" has the meaning set forth in Section 15.14
hereof.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"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,
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<PAGE> 12
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 or liquidator has not
been vacated or stayed within ninety (90) days of such appointment; or (h) an
appointment referred to in clause (g) which has been stayed and 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 (including the General Partner)
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 of the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
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.
"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
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<PAGE> 13
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.
"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 and
pursuant to this Agreement as it may be amended and/or restated, and any
successor thereto.
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"Partnership Interest" means a Limited Partnership Interest or a
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.
"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.
"Predecessor Entity" has the meaning set forth in the definition of
"Conversion Factor" herein.
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"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 National Market, or any
successor to any of the foregoing.
"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.
"Redemption Amount" means either the Cash Amount or the REIT Shares
Amount, as determined by the General Partner, in its sole and absolute
discretion; provided that if the REIT 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 REIT 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 REIT 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.
"REIT Share" means a share of the capital stock of the General Partner
Entity. REIT Shares may be issued in one or more classes or series in accordance
with the terms of the Articles (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 REIT Shares, the term "REIT Shares"
shall, as the context requires, be deemed to refer to the class or series of
REIT Shares that correspond to the class or series of Partnership Interests for
which the reference to REIT Shares is made. When used with reference to Class A
Units, the term "REIT Shares" refers to shares of common stock (or other
comparable equity interest) of the General Partner Entity.
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"REIT Shares Amount" means a number of REIT 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 REIT Shares rights, options, warrants or convertible or
exchangeable securities entitling such holders to subscribe for or purchase REIT
Shares or any other securities or property (collectively, the "rights"), then
the REIT Shares Amount shall also include such rights that a holder of that
number of REIT Shares would be entitled to receive.
"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.
"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 REIT
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.
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"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.
"Value" means, with respect to any outstanding REIT 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 REIT Shares of the General Partner Entity are
Publicly Traded and the REIT Shares Amount includes rights that a holder of REIT
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 REIT Shares of the General Partner Entity are not Publicly
Traded, the Value of the REIT 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
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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 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.
Section 2.2 Name. The name of the Partnership is NHR/OP, L.P. 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 100
Vine Street, Suite 1400, Murfreesboro, Tennessee 37130, 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 shall commence on
__________, 199__ and shall continue until __________________, 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 permit the
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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.
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. At the time of the
execution of this Agreement, the Partners shall make or shall have made the
Capital Contributions as set forth in Exhibit A. 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 is acquiring any 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. The number of Partnership Units
held by the General Partner equal to one percent (1%) of all outstanding
Partnership Units (as of the closing date of the Effective Date) shall be deemed
to be the General Partner Partnership Units and shall be the General Partnership
Interest of the General
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Partner. All other Partnership Units held by the General Partner 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). 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 REIT Shares or other equity interests in
the General Partner having designations, preferences and other rights such that
the economic interests attributable to such REIT 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.
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
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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 the General Partner will be deemed to equal the cash contributed by the
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 REIT 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 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.
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) the
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.
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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 REIT 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
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 Partner 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") thereunder; 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).
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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 REIT 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 REIT Share") determined by
multiplying the amount of Available Cash by the following
fraction:
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 REIT 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
REIT Share for which such Class A Unit has been redeemed or exchanged. The Class
B REIT 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
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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)
(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.
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.
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
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<PAGE> 25
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
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 Limited Partner pursuant
to this Section 6.1.B to the extent that such allocation would cause such
Limited 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 Partners.
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<PAGE> 26
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:
(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 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
22
<PAGE> 27
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 the
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 General
Partner, its Subsidiaries and 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;
(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,
23
<PAGE> 28
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
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
24
<PAGE> 29
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,
arbitration 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;
(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
25
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the General Partner for the accomplishment
of any of the powers of the General Partner
enumerated in this Agreement; and
(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; and
(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.
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.
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; (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 appropriate and reasonable.
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 Section
13.
E. No Obligations 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
26
<PAGE> 31
Partner) of any action taken (or not taken) by it. 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
warrants 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 the General Partner for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably practicable
if failure to so vest such title would have a material adverse effect on the
Partnership. 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.
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.
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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, REIT 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.
D. Purchases of REIT Shares by the General Partner. If the
General Partner exercises its rights under the Articles to purchase REIT Shares
or otherwise elects to purchase from its shareholders REIT Shares in connection
with a share repurchase or similar program or for the purpose of delivering such
REIT 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 REIT 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 REIT 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 REIT Shares (provided that a transfer
of REIT Shares
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for Partnership Units pursuant to Section 8.6 would not be considered a sale for
such purposes); and (ii) if such REIT 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 REIT 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
REIT 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 REIT 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
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 REIT Shares. If the General Partner exercises
its rights under the Articles to purchase REIT Shares or otherwise elects to
purchase from its shareholders REIT 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
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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 REIT 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 REIT Shares.
C. Forfeiture of REIT Shares. If the Partnership or the
General Partner acquires REIT Shares as a result of the forfeiture of such REIT
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 REIT Shares so acquired, and, if the Partnership acquired such REIT
Shares, it shall transfer such REIT Shares to the General Partner for
cancellation.
D. Issuances of REIT Shares. The General Partner shall not
grant, award, or issue any additional REIT Shares (other than REIT Shares issued
pursuant to Section 8.6 hereof or pursuant to a dividend or distribution
(including any share split) of REIT 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 REIT
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 REIT 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 REIT 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 REIT
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
(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 REIT Shares and corresponding Partnership
Units pursuant to a share purchase plan providing for purchases of REIT 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 REIT 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 REIT Shares pursuant to any Share Option Plan, the General
Partner shall transfer the net proceeds of the sale of such REIT Shares to the
Partnership as an additional Capital
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Contribution in exchange for an amount of additional Partnership Units equal to
the number of REIT 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 REIT
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. Transfers of Funds. The Partnership may lend or contribute
funds or other assets to its Subsidiaries or other Persons in which it has an
equity investment and such Persons may borrow funds from the Partnership, on
terms and conditions established in the sole and absolute discretion of the
General Partner. The foregoing authority shall not create any right or benefit
in favor of any Subsidiary or any other Person.
B. Transfers of Assets. Except as provided in Section 7.5, the
Partnership may transfer assets to joint ventures, other partnerships,
corporations or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with this
Agreement and applicable law as the General Partner, in its sole and absolute
discretion, believes are advisable.
C. Transfers of Property. Except as expressly permitted by
this Agreement, neither the General Partner nor any of its Affiliates shall
sell, transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
determined by the General Partner in good faith to be fair and reasonable.
D. 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 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.
E. 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
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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.
F. 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 in respect of services performed, directly or
indirectly, for the benefit of the Partnership, the General Partner, or any
Subsidiaries of the General Partner.
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 guaranty
(except a guaranty by a limited partner of nonrecourse indebtedness of the
Partnership or as otherwise provided in any such loan guaranty), 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 by
an Indemnitee, or an entry of an order of probation against an Indemnitee prior
to judgment, creates a rebuttable presumption that such 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 Partners and any
Indemnitee, and neither the General Partner nor any Limited Partner
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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.
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, but shall not be obligated
to, 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,
the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an ERISA Plan whenever the performance by it of its duties to the
Partnership also imposes duties on, or otherwise involves services by, it to
such ERISA Plan or participants or beneficiaries of such ERISA Plan. Excise
taxes assessed on an Indemnitee, of for which the Indemnitee is otherwise found
liable, with respect to an ERISA Plan pursuant to applicable law shall
constitute fines within the meaning of this Section 7.7, and actions taken or
omitted by the Indemnitee with respect to an ERISA Plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of such ERISA Plan 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
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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.
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 and its officers and directors 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 that 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 REIT 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.
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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 and its officers' and directors'
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.
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.
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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.
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
Partners), 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 other than the General Partner upon such terms as
the General Partner determines appropriate.
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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, 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 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.__] [conflict avoidance provision] hereof and to any other agreements
entered into by a Limited Partner or its Affiliates with the Partnership or any
of its Subsidiaries, 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 (other than the General
Partner) 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 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.
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Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. General. In addition to the 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:
(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
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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.
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
the first anniversary date of the issuance of a Partnership
Unit to a Limited Partner pursuant to Article IV hereof (which
one-year period shall commence upon the issuance of such
Partnership Unit regardless of whether such Partnership Unit
is designated upon issuance as a Class A Unit, a Class B Unit
or otherwise and shall include the period of time from the
date such Partnership Unit is issued to such Limited Partner
as other than a Class A Unit until the date such Partnership
Unit is converted automatically to a Class A Unit pursuant to
Section 4.2.C hereof), or on or after such date prior to the
expiration of such one-year period as the General Partner, in
its sole and absolute discretion, designates with respect to
any or all Class A Units then outstanding, 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
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that is 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.
(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 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.
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 REIT Shares set forth in the Articles), elect to
assume directly and satisfy a Redemption Right by paying to
the Redeeming Partner either the Cash Amount or the REIT
Shares Amount, as the General Partner determines in its sole
and absolute discretion (provided that payment of the
Redemption Amount in the form of REIT Shares shall be in REIT
Shares registered for resale under Section 12 of the Exchange
Act and listed for trading on the exchange or national market
on which the REIT Shares are Publicly Traded, and provided
further that, if the REIT Shares are not Publicly Traded at
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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 REIT 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 8.6B 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.
(ii) If the General Partner determines to pay the
Redeeming Partner the Redemption Amount in the form of REIT
Shares, the total number of REIT Shares to be paid to the
Redeeming Partner in exchange for the Redeeming Partner's
Partnership Units shall be the applicable REIT Shares Amount.
If this amount is not a whole number of REIT Shares, the
Redeeming Partner shall be paid (i) that number of REIT 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 REIT 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 REIT 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 REIT Shares to such Partner on the Specified Redemption Date (i)
would be prohibited under the Articles or (ii) would be prohibited under
applicable federal or state securities laws or regulations (in each case
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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 those records and
documents required to be maintained by the Act and other books deemed by the
General Partner to be appropriate 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 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
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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.
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. The General Partner shall have
the right to seek to revoke any such election (including, without limitation,
the election under Section 754 of the Code) 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
6230(e) 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
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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) in the event that 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;
(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.
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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 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 State
of Illinois) 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 in order to
perfect or enforce the security interest created hereunder.
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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 the 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 or consented to by the General Partner.
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.
Section 11.2 Transfers of Partnership Interests of General Partner.
A. Except for transfers of Partnership Units to the
Partnership as provided in Section 7.5 or Section 8.6, 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 the
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 (other than a combination in which the General Partner is the
surviving entity), sale of all or substantially all of its assets or any
reclassification, recapitalization or change of outstanding REIT 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 Partners) 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 REIT Shares corresponding to such
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Partnership Unit in consideration of one such REIT 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 REIT 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 REIT 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. Subject to the provisions of Sections 11.3.C,
11.3.D, 11.3.E, 11.4 and 11.6, a Limited Partner (other than the General
Partner) may transfer, with or without the consent of the General Partner, all
or any portion of its Partnership Interest, or any of such Limited Partner's
economic rights as a Limited Partner.
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 of 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 his or its interest in the Partnership. The Incapacity of a Limited
Partner, in and of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner
may prohibit any transfer by a Limited Partner of its Partnership Units if, in
the opinion of legal counsel to the Partnership, such transfer would require
filing of a registration statement under the Securities Act of 1933 or would
otherwise violate any federal or state securities laws or regulations applicable
to the Partnership or the Partnership Units.
D. No Transfers Affecting the Tax Status of the Partnership.
No transfer by a Limited Partner of its Partnership Units 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; [(ii) it is made within one year after the consummation of the
initial public offering of the Company;] (iii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" with the meaning of Section 7704 of the Code;
(iv) such transfer would cause the Partnership to become, with respect to any
ERISA Plan, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(c) of the Code); (v) such
transfer would, in the opinion of legal counsel for the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any ERISA Plan
pursuant to Department of Labor Regulations Section 2510.2-101; or (vi) such
transfer would subject the Partnership to be regulated under the
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Investment Company Act of 1940, the Investment Advisors Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended.
E. No Transfers to Holders of Nonrecourse Liabilities. No
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 redeem for the Cash 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 Partner.
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. The General Partner hereby grants its consent to
the admission as a Substituted Limited Partner to any bona fide financial
institution that loans money or otherwise extends credit to a holder of Units
and thereafter becomes the owner of such Units pursuant to the exercise by such
financial institution of its rights under a Pledge of such Units granted in
connection with such loan or extension of credit.
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.
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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.
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 on the first day of a fiscal quarter of the Partnership, 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
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to adopt a daily, weekly, 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 REIT 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 REIT
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 Section 7.9.E., 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 a "disqualified person" (as defined in Section 4975(c) 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 employee benefit plan pursuant to Department of Labor Regulations
Section 2510.1-101; (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 to regulation under the Investment Company Act of 1940,
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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.
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 the
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. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
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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
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 of the Partners and Assignees, including such
Additional Limited Partner; provided, however, that the General Partner may
adopt such other conventions relating to Allocations to Additional Limited
Partners as it determines are necessary or appropriate. 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 of 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.
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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") :
(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
such event of 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 successor General Partner;
(iii) through December 31, _____, 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
Partners);
(iv) an election to dissolve the Partnership made by the
General Partner, in its sole and absolute discretion
after December 31, _____;
(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.
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As used herein, a "majority in interest" shall refer to Partners
(excluding the General Partners) who hold more than fifty percent (50%) of the
outstanding Percentage Interests not held by the General Partners.
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, in the event there
is no General Partner, any Person elected by a majority in interest of the
Limited Partners (the General Partner of such other person being referred to
herein as 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
Partner, include equity or other securities of the General Partner or any other
entity) shall be applied and distributed in the following order:
(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 Partner;
(3) Third, to the payment and discharge of all
of the Partnership's debts and liabilities
to the Limited Partner; 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 Partners 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) and/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
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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).
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 Liquidator, 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 considered
"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 Partners 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 Partners
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.
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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. In the event 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).
Section 13.7 Cancellation of Certificate of Limited Partnership. Upon
the completion of the liquidation of the Partnership's assets 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
the 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
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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 Partners 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 Partners).
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 Partners 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 of 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 and 14.1.B, without the
Consent of the Outside
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Limited Partners, the General Partner shall not amend Section 4.2.A, 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 Partners), the last sentence of Section
11.4 (provided that no such amendment shall in any event adversely affect the
rights of any lender who made a loan or who extended credit and received in
connection therewith a Pledge of Units prior to the date such amendment is
adopted unless, and only to the extent such lender consents thereto), 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
partner's interest; (ii) modify the limited liability of a Limited Partner in a
manner adverse to such 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.
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 the Partners is permitted or required under this Agreement,
such vote or Consent may be given at a meeting of the 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.
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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
(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 deems appropriate. Without limiting the foregoing,
meetings of Partners may be conducted in the same manner as meetings of the
shareholders of the General Partner and may be held at the same time, and as
part of, meetings of the shareholders of the General Partner.
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 shall to any extent be held void or unenforceable (as to duration,
scope, activity, subject or otherwise) by a court of competent jurisdiction,
such provision shall be deemed to be modified so as to constitute a provision
conforming as nearly as possible to the original provision while still remaining
valid and enforceable. In such event, the remainder of this Agreement (or the
application of such provision to persons or circumstances other than those in
respect of which it is deemed to be void or unenforceable) shall not be affected
thereby. Each other provision of this Agreement, unless specifically conditioned
upon the voided aspect of such provision, shall remain valid and enforceable to
the fullest extent permitted by law; any other provisions of this Agreement that
are specifically conditioned on the voided aspect of such invalid provision
shall also be deemed to be modified so as to constitute a provision conforming
as nearly as possible to the original provision while still remaining valid and
enforceable to the fullest extent permitted by law.
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
Certificate and all amendments or
restatements thereof) that the
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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
Assignee hereby waives
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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 REIT 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,
including, without limitation, any right to receive dividends or other
distributions made to shareholders of the General Partner or to vote or to
consent or receive notice as shareholders in respect to any meeting of
shareholders for the election of Directors of the General Partner 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
National Health Realty, Inc.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
LIMITED PARTNER:
National HealthCare, L.P.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
63
<PAGE> 68
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Name and Address of Class A Agreed Initial
Partner Partnership Class B Partnership Capital Account Percentage Interest
- ------- ----------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
National Health Realty, Inc.
LIMITED PARTNER:
National HealthCare, L.P.
TOTAL
=========== ========== ========= ==========
</TABLE>
64
<PAGE> 69
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
1.704-1(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 1.704-1(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)(1)(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
65
<PAGE> 70
date of disposition were equal in amount to the Partnership's Carrying Value
with respect to such property as of such date.
(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 1.704-1(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.
(3) In accordance with Regulations Section 1.704-
1(b)(2)(iv)(e), the Carrying Value of Partnership assets distributed in kind
shall be adjusted upward or downward to
66
<PAGE> 71
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
1.704-1(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.
67
<PAGE> 72
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 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(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
68
<PAGE> 73
(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
1.704-1(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.
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<PAGE> 74
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.
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<PAGE> 75
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems _________ Partnership
Units in ___________________ Limited Partnership in accordance with the terms of
the Agreement of Limited Partnership of ______________________ 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 REIT Shares Amount (as determined by the
General Partner) deliverable upon exercise of the Redemption Right be delivered
to the address specified below, and if REIT Shares are to be delivered, such
REIT 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:
71
<PAGE> 76
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
UNDERLYING PROPERTY 704(C) VALUE AGREED VALUE
72
<PAGE> 1
Exhibit 4
INDENTURE OF TRUST AND SECURITY AGREEMENT
THIS INDENTURE OF TRUST AND SECURITY AGREEMENT (this "Indenture"),
dated as of December 1, 1990, by and among NATIONAL HEALTH CORPORATION
LEVERAGED STOCK OWNERSHIP TRUST, a trust organized under the laws of the State
of Tennessee (the "Issuer"), NATIONAL HEALTH CORPORATION, a Tennessee
corporation ("National"), NATIONAL HEALTHCORP L.P., a Delaware limited
partnership ("NHLP"), and STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee (the
"Indenture Trustee") having a corporate trust office at 100 Constitution Plaza,
Hartford, Connecticut 06103, Attention: Corporate Trust Department and BARNETT
BANKS TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as
Florida Co-Indenture Trustee (the "Florida Co-Trustee") having a corporate
office at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256,
Attention: Corporate Trust Department.
RECITAL:
A. The Trust has entered into separate Note Purchase Agreements dated
as of December 1, 1990 (the "Note Purchase Agreements") with the Note Purchaser
named therein (the "Note Purchaser") providing for the issuance and sale of
$20,000,000 aggregate principal amount of the Series A Senior Secured ESOP
Notes due June 1, 2003 (the "Series A Notes") and $30,000,000 aggregate
principal amount of the Series B Senior Secured ESOP Notes due December 1, 2005
(the "Series B Notes" and collectively with the Senior A Notes, the "Notes") of
the Trust to the Note Purchasers.
B. The Notes will be secured by the Common Stock and by contributions
made by National to the Issuer to enable it to meet its obligations on the
Notes. The Notes will be further secured by the Mortgages, the Note and
Mortgage Assignments and the Construction Related Agreements and by the NHLP
Note.
C. Payment of the principal of and interest and premium, if any, on the
Notes will be unconditionally guaranteed on a joint and several basis by NHLP,
National and NHC, Inc. ("NHC"), a Tennessee corporation pursuant to a Guaranty
Agreement dated as of December 1, 1990 (the "Guaranty Agreement"),
substantially in the form of the Guaranty Agreement attached hereto as Exhibit
B.
D. NHLP and National expect to benefit from such purchase by the Note
Purchasers and wish to induce the Note Purchasers to purchase the Notes under
the Note Purchase Agreements.
E. The Notes and the principal thereof and interest and premium thereon
and all additional amounts and other sums at any time due and owing from or
required to be paid by the Issuer, NHLP or National, as the case may be, under
the terms of the Notes, this Indenture, the Mortgages, the Note and Mortgage
Assignments
<PAGE> 2
or the Note Purchase Agreement are hereinafter sometimes referred to as
"indebtedness hereby secured".
F. The terms which are capitalized herein shall have the meanings set
forth in Section 1 hereof unless the context shall otherwise require.
G. All of the requirements of law have been fully complied with and all
other acts and things necessary to make this Indenture a valid, binding and
legal instrument for the security of the indebtedness hereby secured have been
done and performed.
NOW, THEREFORE, in consideration of the premises, the acceptance by the
Indenture Trustee of the trusts created hereby, the purchase and acceptance of
Notes by the purchasers thereof, and other good and valuable consideration, the
receipt of which is hereby acknowledged, and in order to secure the payment of
the Notes according to the terms thereof and to secure the payment of all other
indebtedness hereby secured and the performance and observance of all the
covenants and conditions to be performed or complied with by the Issuer, NHLP
or National, as the case may be, in the Notes and in this Indenture and in the
Mortgages, the Note and Mortgage Assignments and the Note Purchase Agreement
contained and to declare the terms and conditions upon and subject to which the
Notes are to be secured, NHLP, National and the Issuer have executed and
delivered this Indenture and certain of the other agreements referred to herein
to which they are a party, and do hereby mortgage, assign, pledge and
hypothecate unto the Indenture Trustee, its successors in trust and assigns,
forever, and grant to the Indenture Trustee, its successors in trust and
assigns, forever a security interest in all of NHLP's, National's and the
Issuer's estate, right, title and interest in, to and under any and all of the
following described Property (but, with respect to the Issuer, only its estate,
right, title and interest in, to and under any and all of the Property
described in Granting Clause First and Granting Clause Seventh) (including,
without limitation, any and all extensions and modifications thereof, any and
all rights to make claim for, collect, receive and receipt for any and all
income, revenues, issues, profits, security and other moneys payable or
receivable thereunder or with respect thereto, to bring proceedings thereunder
or for the specific or other enforcement thereof or with respect thereto, in
the name of NHLP, National or the Issuer or otherwise, and the right to make
all waivers and agreements, to grant or refuse requests, to give or withhold
notices, and to execute and deliver, in the name and on behalf of NHLP,
National or the Issuer, as agent and attorney-in-fact, any and all instruments
in connection therewith, including deeds or other appropriate instruments of
conveyance, and to do any and all things which NHLP, National or the Issuer is
or may be entitled to do thereunder; provided that no obligation of NHLP,
National or the Issuer under the provisions thereof or with respect thereto
shall be impaired or diminished by virtue hereof, nor any such obligation be
imposed upon the Indenture Trustee), all of which Property has been delivered
to the Indenture Trustee on the date of the execution and delivery hereof:
-2-
<PAGE> 3
GRANTING CLAUSE FIRST
The Common Stock, including without limitation, all proceeds, monies,
income, and benefits arising by virtue of the Issuer's ownership of the Common
Stock and all dividends, redemption proceeds, and other distributions on or
with respect to the Common Stock, payable in cash, stock or other Property, and
all subscription and other rights in connection therewith, which Pledge is
confirmed by the Stock Pledge Agreement, but only to the extent that the January
1988 Lenders, the December 1988 Lenders or any other Person that shall make a
loan to the Issuer have been or will be effectively conveyed a security
interest in proceeds, monies, income and benefits arising by virtue of the
Issuer's ownership of common stock of National and dividends, redemption
proceeds and other distributions on or with respect to such common stock of
National, payable in cash, stock or other Property, and subscription and other
rights in connection therewith.
GRANTING CLAUSE SECOND
The Guaranty Agreement, and any amendments, modifications, supplements
or renewals thereof.
GRANTING CLAUSE THIRD
The Myrtle Beach Facility, which Pledge is confirmed by the Myrtle
Beach Mortgage, the Greenville Facility, which Pledge is confirmed by the
Greenville Mortgage, the North Augusta Facility, which Pledge is confirmed by
the North Augusta Mortgage, the Stuart Facility, which Pledge is confirmed by
the Stuart Mortgage, the Merritt Island Facility, which Pledge is confirmed by
the Merritt Island Mortgage, the Greenwood Facility, which Pledge is confirmed
by the Greenwood Mortgage, the Knoxville Facility, which Pledge is confirmed by
the Knoxville Mortgage, the Pinellas Facility, which Pledge is confirmed by the
Pinellas Mortgage and the Pinellas Assignment, the Sun City Facility, which
Pledge is confirmed by the Sun City Mortgage and the Sun City Assignment, the
Sarasota Facility, which Pledge is confirmed by the Sarasota Mortgage and the
Sarasota Assignment and the Ocoee Facility, which Pledge is confirmed by the
Ocoee Mortgage and the Ocoee Assignment.
GRANTING CLAUSE FOURTH
The Construction Related Agreements.
GRANTING CLAUSE FIFTH
The NHLP Note, which Pledge is confirmed by the Assignment of NHLP
Note.
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GRANTING CLAUSE SIXTH
All right, title and interest to and in any and all moneys, and other
Property at any time pledged or deposited with, or held by, the Indenture
Trustee pursuant to Section 7 or Section 9 of this Indenture, and any and all
moneys or Property of the type described in Granting Clauses First through
Fifth hereof or other security of whatsoever nature which may from time to time
become subject to the lien hereof or which may come into the possession or be
subject to the control of the Indenture Trustee pursuant to this Indenture, the
Mortgages or the Note and Mortgage Assignments or any instrument included in
the Trust Estate, it being the intention of NHLP, National and the Issuer and
it being hereby agreed that all Property hereafter acquired by NHLP, National
or, subject to any applicable limitations contained in the Code or in ERISA,
the Issuer and required to be subjected to the lien of this Indenture or the
Mortgages or the Note and Mortgage Assignments or intended so to be shall
forthwith upon the acquisition thereof by NHLP, National or the Issuer be
subject to the lien of this Indenture as if such Property were now owned by
NHLP, National or the Issuer and were specifically described in this Indenture
and pledged hereby or pursuant hereto; and the Indenture Trustee is hereby
authorized to receive any and all such Property as and for additional security
for the payment of the Notes and all other indebtedness hereby secured or
intended to be secured hereby.
GRANTING CLAUSE SEVENTH
All contributions relating to the Notes made by National to the Plan,
and all earnings on such amounts, but only to the extent that the January 1988
Lenders, the December 1988 Lenders or any other Person that shall make a loan
to the Issuer have been or will be effectively conveyed a security interest in
contributions relating to any such loan made by National to the Plan, and
earnings on such amounts.
TO HAVE AND TO HOLD all and singular the Mortgaged Property whether now
owned or held or hereafter acquired, unto the Indenture Trustee, its successors
in trust and assigns forever;
IN TRUST, NEVERTHELESS, for the equal and ratable benefit and security
of the Notes from time to time outstanding hereunder, without preference,
priority or distinction of any thereof over any other by reason of difference
in time of issuance, sale, authentication, delivery, series or otherwise, for
the enforcement of the payment of the principal of, premium, if any, and
interest on the Notes in accordance with their terms, and all other sums
payable under this Indenture or on the Notes, and the observance and
performance of the provisions of this Indenture, all as herein provided. The
Property subject to the Mortgages and the Note and Mortgage Assignments is
hereinafter called the "Mortgaged Property." The Mortgaged Property together
with the Construction Related Agreements, the Guaranty Agreement, the Common
Stock, the NHLP Note, the above-mentioned monies amounts and any other security
held by the Indenture Trustee pursuant to the foregoing provisions are
hereinafter collectively called the "Trust Estate".
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IT IS HEREBY COVENANTED, DECLARED AND AGREED, that the Indenture
Trustee will hold, as such Indenture Trustee, in trust, all right, title and
interest in and to the Mortgages and the Note and Mortgage Assignments to be
executed and delivered by NHLP to the Indenture Trustee, as mortgagee or as
assignee, as the case may be, and that the Notes are to be issued,
authenticated, delivered and secured, and that the Mortgaged Property is to be
held, dealt with and disposed of by the Indenture Trustee, upon and subject to
the provisions of this Indenture.
AND IT IS HEREBY COVENANTED AND DECLARED that all the Notes are to be
authenticated and delivered and the Trust Estate is to be held and applied by
the Indenture Trustee, subject to the further covenants, conditions and trusts
hereinafter set forth, and NHLP, National and the Issuer each does hereby
covenant and agree to and with the Indenture Trustee, for the equal and
proportionate benefit of all Noteholders of the Notes as follows:
SECTION 1. INTERPRETATION OF INDENTURE; DEFINITIONS.
1.1. Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and
the following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Acquired Facility" shall mean each of the Stuart Facility, Merritt
Island Facility, Greenwood Facility, Knoxville Facility, Sarasota Facility and
Ocoee Facility.
"Acquisition Account" is defined in Section 9.1.
"Acquisition Payment Certificate" shall mean a certificate of NHLP in
the form attached hereto as Exhibit AA.
"Administrative General Partner" shall mean National Health
Corporation, a Tennessee corporation, and its successors as administrative
general partner of NHLP.
"Affiliate" shall mean a Person (other than a Subsidiary of NHLP,
National or NHC, as the case may be) (1) which, directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, NHLP, National or NHC, as the case may be, (2) which beneficially
owns or holds 5% or more of the Voting Equity Interest of NHLP, National or
NHC, as the case may be, or (3) 5% or more of the Voting Equity Interest of
which is beneficially owned or held by NHLP, National or NHC, as the case may
be, or a Subsidiary. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
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"Americare Southeast" shall mean Americare Southeast, Inc., a South
Carolina corporation and a wholly-owned subsidiary of NHLP.
"Appraiser" shall mean an individual or firm selected by NHLP and
approved by the holders of not less than 64% in aggregate principal amount of
the Notes outstanding which is (1) experienced in the appraisal of property
substantially similar to the Financed Facility being appraised and (2) an
M.A.I. designated member of the American Institute of Real Estate Appraisers.
"Architect" shall mean Johnson & Bailey Architects, P.C.
"Assignment of NHLP Note" shall mean the Assignment of NHLP Note dated
as of December 1, 1990 from National to the Indenture Trustee.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in the city in which the Indenture Trustee receives and
disburses funds are required or authorized to be closed.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a balance sheet of the
lessee in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination the amount at which the aggregate Rentals due and to become due
under all Capitalized Leases under which such Person is a lessee would be
reflected as a liability on a consolidated balance sheet of such Person.
"Cash Flow" shall mean (a) the sum of the following amounts for the
immediately preceding 12 month period (all as determined without giving effect
to the proposed incurrence of additional Funded Debt) (i) Consolidated Net
Income, (ii) consolidated depreciation and amortization of assets of NHLP and
its Restricted Subsidiaries, (iii) Interest Charges of NHLP and its Restricted
Subsidiaries, (b) minus distributions paid to holders of Limited Partnership
Interests within the immediately preceding 12 month period.
"Change Order" shall mean any amendment or modification to the Plans,
the General Contracts or the Architect's Agreements with respect to any
Constructed Facility, including any acceptance or approval of any extra cost
alternative or option.
"Closing Date" shall mean the date on which the Senior Secured ESOP
Notes are originally issued.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral Assignment of Management Agreement Fees" shall mean an
agreement in the form attached hereto as Exhibit BB, between NHLP and the
Indenture Trustee relating to the assignment of the earned but unpaid fees
payable under the Management Agreement for each Managed Facility.
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"Common Stock" shall mean shares of common stock of National purchased
by the Issuer pursuant to the Stock Purchase Agreement with the proceeds of the
Notes, provided that Common Stock shall not include Common Stock that has been
released pursuant to Section 8 of the Stock Pledge Agreement.
"Consolidated Adjusted Net Worth" shall mean, as of the date of any
determination thereof, total equity of NHLP and its Restricted Subsidiaries
plus Subordinated Funded Debt and plus Consolidated Deferred Income and minus
Minority Interests on a consolidated basis.
"Consolidated Current Assets" and "Consolidated Current Liabilities"
shall mean such assets and liabilities of NHLP and its Restricted Subsidiaries
as shall be determined in accordance with GAAP to constitute current assets and
current liabilities, respectively.
"Consolidated Current Debt" shall mean all Current Debt of NHLP and its
Restricted Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Deferred Income" shall mean deferred income of NHLP and
its Restricted Subsidiaries as shall be determined in accordance with GAAP and
as reflected as such on the balance sheets of NHLP.
"Consolidated Funded Debt" shall mean all Funded Debt of NHLP and its
Restricted Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Investment Net Worth" shall mean, as of the date of any
determination thereof, (i) total equity of NHLP and its Restricted Subsidiaries
plus (ii) Convertible Subordinated Funded Debt plus (iii) Consolidated Deferred
Income and minus (iv) Minority Interests on a consolidated basis.
"Consolidated Net Income" for any period shall mean the gross revenues
of NHLP and its Restricted Subsidiaries for such period less all expenses and
other proper charges (including taxes on income), determined on a consolidated
basis after eliminating earnings or losses attributable to outstanding Minority
Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of investments
or fixed or capital assets, and any taxes on such excluded gains and any tax
deductions or credits on account of any such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Restricted Subsidiary accrued prior
to the date it became a Restricted Subsidiary;
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(d) net earnings and losses of any corporation (other than a Restricted
Subsidiary), substantially all the assets of which have been acquired in any
manner by NHLP or any Restricted Subsidiary, realized by such corporation
prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a Restricted
Subsidiary) with which NHLP or a Restricted Subsidiary shall have
consolidated or which shall have merged into or with NHLP or a Restricted
Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a Restricted
Subsidiary) in which NHLP or any Restricted Subsidiary has an ownership
interest unless either (i) the total net earnings from all of such business
entities do not exceed 10% of Consolidated Net Income for the period for
which Consolidated Net Income is being determined or (ii) such net earnings
shall have actually been received by NHLP or such Restricted Subsidiary in
the form of cash distributions;
(g) any portion of the net earnings of any Restricted Subsidiary which
for any reason is unavailable for payment of dividends to NHLP or any other
Restricted Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or writeup of
assets;
(i) any deferred or other credit representing any excess of the equity
in any Subsidiary at the date of acquisition thereof over the amount
invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities of NHLP or
any Restricted Subsidiary; and
(k) any establishment or reversal of any contingency reserve, except
to the extent that provision for such contingency reserve shall have been
made from income arising during such period.
"Consolidated Net Worth" shall mean as of the date of any determination
thereof, total equity of NHLP and its Restricted Subsidiaries plus Subordinated
Funded Debt and minus Minority Interests on a consolidated basis.
"Consolidated Total Assets" shall mean as of the date of any
determination thereof, the total amount of all assets of NHLP and its
Restricted Subsidiaries (less depreciation, depletion, and other properly
deductible valuation reserves).
"Constructed Facility" shall mean each of the Myrtle Beach Facility,
the Greenville Facility, the North Augusta Facility, the Pinellas Facility and
the Sun City Facility.
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"Construction Account" is defined in Section 9.1.
"Construction Cost" with respect to any Constructed Facility shall mean
the costs of all labor and materials necessary to complete the physical
construction of such Constructed Facility in accordance with the Construction
Plans and any Change Orders permitted hereunder.
"Construction Payment Certificate" shall mean a certificate of NHLP in
the form attached as Exhibit B to the Construction Consultant Agreement.
"Construction Plans" shall mean the final plans and specifications for
the construction of the Constructed Facilities prepared by the Architect and
approved as required herein and all amendments and modifications thereof made
in accordance with this Indenture.
"Construction Related Agreements" shall mean each Construction
Contract, Collateral Assignment of General Contract, Architect's Agreement,
Collateral Assignment of Architect's Agreement and Plans and Specifications.
"Consultant" shall mean, with respect to the Myrtle Beach Facility, the
Greenville Facility and the North Augusta Facility, Clemons, Rutherford and
Associates, Inc., and with respect to the Pinellas Facility and the Sun City
Facility, Piedmont Olsen, Inc.
"Controlling General Partnership Interest" shall mean a General
Partnership Interest that permits the owner of such General Partnership
Interest to direct the management or administration of a general partnership or
a limited partnership.
"Convertible Subordinated Funded Debt" shall mean all unsecured Funded
Debt of NHLP which contains or has applicable thereto subordination provisions
substantially in the form set forth in Exhibit Z attached hereto (or such other
provisions as may be approved by the holders of at least 64% of the aggregate
principal amount of the Notes (evidenced by a written consent of such holders))
providing for the subordination thereof to other Funded Debt of NHLP, including
in Funded Debt, without limitation, the Guaranty Agreement, and which entitles
the holder thereof to convert the principal amount of such debt into an Equity
Interest of NHLP.
"Covenant Funded Debt" shall mean the sum of Senior Funded Debt plus
Non-Convertible Subordinated Funded Debt.
"Current Debt" of any Person as of the date of determination thereof
shall mean (i) all Indebtedness of such Person for money borrowed other than
Funded Debt of such Person and (ii) Guaranties by such Person of Current Debt
of others.
"Debt Service" of NHLP shall mean for the immediately preceding
12-month period the sum of (i) Interest Charges on all Indebtedness of NHLP
and its Restricted Subsidiaries plus (ii) Operating Lease payments of NHLP and
its Restricted
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Subsidiaries and plus (iii) current maturities of Funded Debt of NHLP and its
Restricted Subsidiaries.
"December 1988 Lenders" shall mean Third National Bank in Nashville,
Irving Trust Company, Sovran Bank/Central South and SouthTrust Bank of Alabama,
National Association, pursuant to that certain Loan and Security Agreement made
and centered into as of the 16th day of December, 1988 by and between the
Issuer, NHLP, National and such institutions, and their successor and assigns.
"Default" has the meaning set forth in the definition below of "Event
of Default".
"Disbursement Fund" is defined in Section 9.1.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any corporation, trade or business that is,
along with NHLP, National or NHC, as the case may be, a member of a controlled
group of corporations or a controlled group of trades or businesses, as
described in Section 414(b) and 414(c), respectively, of the Code or Section
4001 of ERISA.
"Environmental Audit" shall have the meaning given thereto in Section
9.4.
"Estimated Total Cost of Completion" shall mean as of any given date,
the then total unpaid cost of completing acquisition and construction of any
Constructed Facility pursuant to the Project Budget and the Construction Plans
and Change Orders with respect thereto, all as determined by the Consultant
therefor in good faith.
"Equity Interest" shall mean, in the case of a corporation, stock of
any class, and in the case of a partnership or a limited partnership, a General
Partnership Interest or a Limited Partnership Interest.
"Equity Subsidiary" means any Subsidiary of NHLP that is accounted for
on the financial statements of NHLP using the equity method of accounting as
required by GAAP.
"Event of Default" shall mean any of the events specified in Section 8
hereof, provided that there has been satisfied any requirement in connection
with such event for the giving of notice, or the lapse of time, or the
happening of any further condition, event or act, and "Default" shall mean any
of such events, whether or not any such requirement has been satisfied.
"Event of Loss" is defined in Section 7.1.
"Financed Facility" shall mean each nursing home described in Exhibit G
through Q hereof and any Substitute Financed Facility.
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"Fiscal Quarter" shall mean a quarter annual fiscal period of NHLP,
National or the Issuer, as the case may be, for each calendar year, which shall
be the periods commencing January 1 and ending March 31, beginning April 1 and
ending June 30, beginning July 1 and ending September 30 and beginning October 1
and ending December 31, provided that if NHLP, National or the Issuer shall at
any time change the beginning date of its Fiscal Year, the term "Fiscal Quarter"
shall (with respect to the intervening fiscal period, hereinafter referred to as
the "Interim Fiscal Quarter", commencing with the first day after the end of the
last full quarter annual period of the Company which began on a previously
designated quarter annual beginning date and ending on the last day prior to the
newly designated Fiscal Year beginning date) be deemed to refer to such Interim
Fiscal Quarter, provided, further, that any stated or determinable amount
expressed as a limitation with respect to any action or forbearance by the
Company for or during any fiscal quarter of the Company shall, with respect to
the application of such limitation to any Interim Fiscal Quarter, be deemed to
be the product of such so stated or determinable amount multiplied by a fraction
whose numerator shall be the number of days contained in such Interim Fiscal
Quarter and whose denominator shall be the figure 90 and provided further, that
NHLP or National, as the case may be, shall deliver financial statements as
described in Section 4.21(a) and Section 6.12(a), respectively, with respect to
the Interim Fiscal Quarter.
"Fiscal Year" shall mean the fiscal year of NHLP, National or the
Issuer, as the case may be, which shall be a period commencing January 1 of each
calendar year and ending December 31 of each calendar year, or, upon 60 days
prior written notice to the holders of the Notes, any other successive twelve
(12) month period designated by NHLP, National or the Issuer and used as such by
NHLP, National or the Issuer, as the case may be, for accounting purposes,
provided that in the event NHLP, National or the Issuer shall at any time change
the beginning date of its fiscal year, the term "Fiscal Year" shall, with
respect to the intervening fiscal period (hereinafter referred to as the
"Interim Fiscal Period") commencing with the first day after the end of the last
full twelve (12) month fiscal period of NHLP, National or the Issuer, as the
case may be, which began on the previously designated beginning date (such
previously designated beginning date, as of the Closing Date, being January 1)
and ending on the last day prior to the newly designated beginning date, be
deemed to refer to such Interim Fiscal Period, provided further, that any stated
or determinable amount expressed as a limitation with respect to any action or
forbearance by NHLP, National or the Issuer, as the case may be, for or during
any Fiscal Year of NHLP, National or the Issuer, as the case may be, shall, with
respect to the application of such limitation to any Interim Fiscal Period, be
deemed to be the product of such so stated or determinable amount multiplied by
a fraction whose numerator shall be the number of months contained in such
Interim Fiscal Period and whose denominator shall be the figure 12 and provided
further, that NHLP or National, as the case may be, shall deliver financial
statements as described in Section 4.21(a) and Section 6.12(a), respectively,
with respect to the Interim Fiscal Period.
"Florida Co-Indenture Trustee" shall mean Barnett Banks Trust Company,
National Association, a national banking association, or any successor under
this Indenture.
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"Four-Quarter Period" shall mean a period of four full consecutive
quarter annual fiscal periods, taken together as one accounting period.
"Funded Debt" of any Person shall mean (i) all Indebtedness for
borrowed money or which has been incurred in connection with the acquisition of
assets in each case having a final maturity of one or more than one year from
the date of origin thereof (or which is renewable or extendible at the option
of the obligor for a period or periods more than one year from the date of
origin), including all payments in respect thereof that are required to be made
within one year from the date of any determination of Funded Debt, whether or
not the obligations to make such payments shall constitute a current liability
of the obligor under GAAP, (ii) all Capitalized Rentals of such Person, and
(iii) all Guaranties by such Person of Funded Debt of others.
"GAAP" shall mean generally accepted accounting principles at the time.
"General Contractor" shall mean with respect to the Myrtle Beach
Facility, the contractor selected by NHLP, with respect to the Greenville
Facility, Triangle Construction Co., Inc., P.O. Box 6266, 2624 Laurens Road,
Greenville, SC 29607, with respect to the North Augusta Facility, A.L. Adams
Construction, P.O. Box 1179, Columbia, SC 29202, with respect to the Pinellas
Facility, G.H. Johnson Construction Company, 5300 W. Cypress Street, Suite 261,
Tampa, Florida 33607 and with respect to the Sun City Facility, G.H. Johnson
Construction Company, 5300 W. Cypress Street, Suite 261, Tampa, Florida 33607.
"General Partners" shall mean National, NHC and any other general
partner of NHLP pursuant to the Limited Partnership Agreement.
"General Partnership Interest" shall mean the interest of a general
partner in a general partnership and the interest of a general partner in a
limited partnership.
"Greenville Architect's Agreement" shall mean that certain agreement
between NHLP and the Architect dated April 2, 1990, together with all permitted
amendments, extensions and renewals thereof and all architectural drawings,
plans and specifications prepared in connection therewith.
"Greenville Collateral Assignment of Architect's Agreement" shall mean
that certain Collateral Assignment of Architect's Agreement substantially in
the form attached hereto as Exhibit X, between NHLP and the Indenture Trustee
relating to the Greenville Architect's Agreement.
"Greenville Collateral Assignment of General Contract" shall mean that
certain Collateral Assignment of General Contract substantially in the form
attached hereto as Exhibit W, between NHLP and the Indenture Trustee relating
to the Greenville Construction Contract.
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"Greenville Construction Consultant Agreement" shall mean that certain
Construction Consultant Agreement substantially in the form attached hereto as
Exhibit F, by and among the Consultant, Indenture Trustee and NHLP.
"Greenville Facility" shall mean the nursing home facility and real-
estate parcels described in Exhibit H hereto.
"Greenville General Contract" shall mean that certain Standard Form of
Agreement Between Owner and Contractor (A1A Document A101) between NHLP and
General Contractor, for construction of the Greenville Facility dated as of
September 5, 1990, together with all permitted amendments, extensions and
renewals thereof.
"Greenville Mortgage" shall mean a mortgage with respect to the
Greenville Facility in substantially the form of Exhibit C-2 hereto.
"Greenville Sub-Account" is defined in Section 9.5.
"Greenwood Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit L hereto.
"Greenwood Mortgage" shall mean a mortgage with respect to the
Greenwood Facility in substantially the form of Exhibit C-1 hereto.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing
any Indebtedness, dividend or other obligation, of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent
or otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any Property constituting security therefor, (ii) to advance or supply funds
(y) for the purchase or payment of such Indebtedness or obligation or (z) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such
Indebtedness or obligation, or (iii) to lease Property or to purchase
Securities or other Property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to
assure the owner of the Indebtedness or obligation of the primary obligor
against loss in respect thereof. For the purposes of all computations made
under this Indenture, a Guaranty Agreement in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the principal amount
of such Indebtedness for borrowed money which has been guaranteed, and a
Guaranty Agreement in respect of any other obligation or liability or any
dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
"Guarantors" shall mean NHLP, National and NHC as guarantors under the
Guaranty Agreement.
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"Guaranty Agreement" is defined in paragraph C of the Recitals.
"Hazardous Substance" shall mean any hazardous or toxic material,
substance or waste pollutant or contaminant which is regulated as such under any
statute, law, ordinance, rule or regulation of any Federal, state, local or
regional authority having jurisdiction over the Mortgaged Property or its use,
including but not limited to any material, substance or waste which is: (a)
defined as a hazardous substance under Section 311 of the Federal Water
Pollution Control Act (33 U.S.C. Section 1317) as amended; (b) regulated as a
hazardous waste under Section 1004 of the Federal Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.) as amended; (c) defined as a
hazardous substance under Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, (42 U.S.C. Section 9601 et seq.) as
amended, or (d) defined or regulated as a hazardous substance or hazardous waste
under any rules or regulations promulgated under any of the foregoing statutes.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any event shall
include without duplication all (i) obligations of such Person for borrowed
money or which has been incurred in connection with the acquisition of property
or assets, (ii) obligations secured by any Lien upon property or assets owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations, (iii) obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, and (iv) Capitalized Rentals under
any Capitalized Lease and Guaranties of Indebtedness of others (including,
without limitation, Guaranties by NHLP, NHC or National of amounts payable
pursuant to any loans or advances described in Section 4.19(d)).
"Indenture" shall mean this instrument as amended and supplemented from
time to time in accordance with the provisions hereof.
"Indenture Trustee" shall mean State Street Bank and Trust Company of
Connecticut, National Association, a national banking association, or any
successor under this Indenture.
"Institutional Holder" shall mean a Note Purchaser and any other holder
of a Note which is a bank, savings institution, trust company, national banking
association, charitable foundation, insurance company, a pension, retirement or
profit sharing trust or fund for which any bank, trust company, national
banking association or investment advisor registered under the Investment
Advisors Act of 1940, as amended or is acting as trustee or agent or any
investment company, as defined in the Investment Company Act of 1940, as
amended.
"Interest Charges" for any period shall mean all interest and
amortization of debt discount and expense on any particular Indebtedness for
which such calculations are being made.
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"Interest Payment Date" means June 1, 1991 and each June 1 and December
1 thereafter to and including, with respect to the Series A Notes, June 1, 2003
and with respect to the Series B Notes, December 1, 2005.
"Investments" shall mean all investments, in cash or by delivery of
Property, made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or security or by
loan, advance, capital, contribution or otherwise, provided, however, that
"Investments" shall not mean or include routine investments in Property to be
used or consumed in the ordinary course of business or investments in accounts
receivable arising in the ordinary course of business.
"January 1988 Lenders" shall mean Sovran Bank/Central South, a
Tennessee banking corporation, pursuant to that certain Loan and Security
Agreement made and entered into as of the 20th day of January, 1988 by and
between the Issuer and such institution, and its successor and assigns.
"Joint Venture Investments" shall mean Investments in any Person by
Nutritional Support Services, L.P. for the providing of services by such person
of the type provided by Nutritional Support Services, L.P. on the date of this
Indenture.
"Knoxville Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit M hereto.
"Knoxville Mortgage" shall mean a deed of trust and security agreement
with respect to the Knoxville Facility in substantially the form of Exhibit D
hereto.
"Land Acquisition Costs" with respect to any Financed Facility shall
mean the cost of the real estate parcels with respect to such Financed
Facility, including the cost of title insurance policies, environmental audits
and other normal closing expenses related to the acquisitions of the real
estate parcels with respect to any Financed Facility.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute, lease or other contract, and
including but not limited to the security interest lien arising from a
mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. For the purposes of this
Indenture, NHLP or a Subsidiary of NHLP shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale
agreement, financing lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
"Limited Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of National HealthCorp L.P., dated as of the
31st day of October, 1986, as amended as of the date hereof.
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<PAGE> 16
"Limited Partnership Interest" shall mean the interest of a limited
partner in a limited partnership.
"Loan Value" of any Financed Facility shall be an amount determined by
multiplying the aggregate unpaid principal amount of the Notes immediately
prior to the date on which the Loan Value is to be paid by a fraction in which
the numerator is the Total Cost of the Financed Facility and the denominator is
the Total Cost of all Financed Facilities subject to the lien of the Indenture
and the Mortgages.
"Long Term Lease" shall mean any lease of real or personal property
(other than a Capitalized Lease) which provides for an original term (including
any period for which the lease may be renewed or extended at the option of the
lessor) of more than three years.
"Loss Payment" is defined in Section 7.1.
"Loss Payment Notice Period" is defined in Section 7.1.
"Make-Whole Premium Amount" as at any date a payment thereof is due
(the "payment date") in connection with a payment or prepayment in respect of
the Notes shall mean the excess of (i) the present value as at the payment date
of the Prepaid Cash Flows, discounted semiannually at an annual rate which is
equal to the Treasury Rate plus 0.50% over (ii) the aggregate principal amount
of the Notes then to be paid or prepaid. To the extent that the Treasury Rate
plus 0.50% at the time of determination of the Make-Whole Premium Amount is
equal to or higher than, with respect to a payment or prepayment of the Series
A Notes, 10.69% and with respect to a payment or prepayment of the Series B
Notes, 10.87%, the Make-Whole Premium Amount shall be zero. For purposes of any
determination of the Make-Whole Premium Amount:
(a) "Prepaid Cash Flows" shall mean, for each date on which a payment of
principal or interest, or both, is scheduled to become due on the Notes, an
amount determined by subtracting (i) the amount of such payment scheduled to
become due on such date after giving effect to any prepayment pursuant to
Section 3.2 on the date as to which the determination is being made and the
application of such prepayment in accordance with the provisions of Section 3.1
from (ii) the amount of such payment which would have become due on such date
but for such prepayment, in each case assuming that the interest rate borne by
the Series A Notes is 10.69% and the interest rate borne by the Series B Notes
is 10.87%.
(b) The applicable "Treasury Rate" means the arithmetic mean of the
yields under the respective headings "This Week" and "Last Week" published in
the Statistical Release under the caption "Treasury Constant Maturities" for
the maturity (rounded to the nearest month) corresponding to the Weighted
Average Life to Maturity of the Prepaid Cash Flows. If no maturity exactly
corresponds to such Weighted Average Life to Maturity, yields for the two
published maturities most closely corresponding to such
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<PAGE> 17
Weighted Average Life to Maturity shall be calculated pursuant to the
immediately preceding sentence and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purposes of calculating the
Treasury Rate, the most recent Statistical Release published prior to the date
of determination of the Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve System and which establishes yields on
actively traded U.S. Government Securities adjusted to constant maturities or,
if such statistical release is not published at the time of any determination
hereunder, then such other reasonably comparable index which shall be designated
by the holders of 64% in aggregate principal amount of the Notes outstanding.
(c) "Weighted Average Life to Maturity" with respect to the Prepaid Cash
Flows means, as at the payment date, the number of years obtained by dividing
the then Remaining Dollar-years of the Prepaid Cash Flows by the principal
amount of the prepayment. The term "Remaining Dollar-years" of the Prepaid Cash
Flows means the product obtained by (i) multiplying (A) the principal portion of
each Prepaid Cash Flow (including payment at final maturity), by (B) the number
of years (calculated to the nearest one-twelfth) between the time of
determination and the date of such Prepaid Cash Flow, and (ii) totaling all the
products obtained in the computations described in clause (i).
"Managed Facility" shall mean each of the Pinellas Facility, the Sun
City Facility, the Sarasota Facility and the Ocoee Facility, and each Financed
Facility substituted therefor in accordance with Section 10.
"Managed Facility Note" shall mean a note from the owner of a Managed
Facility to NHLP and secured by the Mortgage with respect to such Managed
Facility, which note (i) shall be in a principal amount not less than 111% of
the Total Cost of such Managed Facility, (ii) shall at all times have an
outstanding principal balance due (not taking into account any optional
prepayment in whole thereof) of not less than the Loan Value of the Managed
Facility to which it relates, and (iii) shall contain a provision prohibiting
any partial optional prepayments of principal thereof.
"Management Agreement" shall mean an agreement between NHLP and the
owner of a Managed Facility in substantially the form of Exhibit Y attached
hereto or otherwise (including, without limitation, with respect to the Ocoee
Facility and the Sarasota Facility) as agreed to by the holders of at least 64%
in aggregate principal amount of the Notes outstanding, providing for the
management and operation of such Managed Facility by NHLP.
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"Managing General Partner" shall mean NHC, inc., a Tennessee
corporation, and its successors as managing general partner of NHLP.
"Merritt island Facility" shall mean the nursing home facility and
real estate parcels described in Exhibit K hereto.
"Merritt Island Mortgage" shall mean a mortgage with respect to the
Merritt Island Facility in substantially the form of Exhibit C-1 hereto.
"Minority Interests" shall mean any Equity Interest of any class of a
Restricted Subsidiary (other than directors' qualifying shares as required by
law) that is not owned by NHLP and/or one or more of its Restricted
Subsidiaries. Minority Interests shall be valued by valuing Minority Interests
constituting preferred stock at the voluntary or involuntary liquidating value
of such preferred stock, whichever is greater, and by valuing Minority
Interests constituting common stock at the book value of capital and surplus
applicable thereto adjusted, if necessary, to reflect any changes from the book
value of such common stock required by the foregoing method of valuing Minority
Interests in preferred stock.
"Mortgaged Property" shall have the meaning set forth on page 4 hereof.
"Mortgages" shall mean the mortgages and deeds of trust with respect
to the Financed Facilities.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Myrtle Beach Architect's Agreement" shall mean that certain agreement
between NHLP and the Architect dated April 2, 1990, together with all permitted
amendments, extensions and renewals thereof and all architectural drawings,
plans and specifications prepared in connection therewith.
"Myrtle Beach Collateral Assignment of Architect's Agreement" shall
mean that certain Collateral Assignment of Architect's Agreement in
substantially the form attached hereto as Exhibit X, between NHLP and the
Indenture Trustee relating to the Myrtle Beach Architect's Agreement.
"Myrtle Beach Collateral Assignment of General Contract" shall mean
that certain Collateral Assignment of Construction Contract in substantially
the form attached hereto as Exhibit W, between NHLP and the Indenture Trustee
relating to the Myrtle Beach Construction Contract.
"Myrtle Beach Construction Consultant Agreement" shall mean that
certain Construction Consultant Agreement in substantially the form attached
hereto as Exhibit F by and among the Consultant, Indenture Trustee and NHLP.
"Myrtle Beach General Contract" shall mean that certain Standard Form
of Agreement Between Owner and Contractor (A1A Document A101) between NHLP
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<PAGE> 19
and the General Contractor for construction of the Myrtle Beach Facility to be
entered into, together with all permitted amendments, extension and renewals
thereof.
"Myrtle Beach Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit G hereto.
"Myrtle Beach Mortgage" shall mean a mortgage with respect to the
Myrtle Beach Facility in substantially the form of Exhibit C-2 hereto.
"Myrtle Beach Sub-Account" is defined in Section 9.5.
"NHC" is defined in paragraph B of the Recitals.
"NHLP" is defined in paragraph B of the Recitals.
"NHLP Loan Agreement" shall mean the Loan Agreement dated as of
December 1, 1990 by and between NHLP, as borrower, and National, as lender.
"NHLP Note" shall mean, collectively, the Series A Note and the Series
B Note executed by NHLP to National pursuant to the NHLP Loan Agreement.
"National" is defined in paragraph B of the Recitals.
"NHC" shall mean NHC, Inc., a Tennessee corporation, the Managing
General Partner of NHLP.
"Non-Convertible Subordinated Funded Debt" shall mean 75% of unsecured
Funded Debt of NHLP which contains or has applicable thereto subordination
provisions substantially in the form set forth in Exhibit Z attached hereto (or
such other provisions as may be approved by the holders of at least 64% of the
aggregate unpaid principal amount of the Notes (evidenced by a written consent
of such holders)) providing for the subordination thereof to other Funded Debt
of NHLP, including, without limitation, the Guaranty Agreement, and which does
not entitle the holder thereof to convert the principal amount of such debt
into an Equity Interest of NHLP.
"North Augusta Architect's Agreement" shall mean that certain
agreement between NHLP and the Architect dated April 2, 1990, together with all
permitted amendments, extensions and renewals thereof and all architectural
drawings, plans and specifications prepared in connection therewith.
"North Augusta Collateral Assignment of Architect's Agreement" shall
mean that certain Collateral Assignment of Architect's Agreement in
substantially the form attached hereto as Exhibit X between NHLP and the
Indenture Trustee relating to the North Augusta Architect's Agreement.
"North Augusta Collateral Assignment of General Contract" shall mean
that certain Collateral Assignment of Construction Contract in substantially
the form
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<PAGE> 20
attached hereto as Exhibit W between NHLP and the Indenture Trustee relating to
the North Augusta Construction Contract.
"North Augusta Construction Consultant Agreement" shall mean that
certain Construction Consultant Agreement in substantially the form attached
hereto as Exhibit F by and among the Consultant, the Indenture Trustee and
NHLP.
"North Augusta Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit I hereto.
"North Augusta General Contract" shall mean that certain Standard Form
of Agreement Between Owner and Contractor (A1A Document 101) between NHLP and
the General Contractor, for construction of the North-Augusta Facility dated
as of August 1, 1990, together with all permitted amendments, extension and
renewals thereof.
"North Augusta Mortgage" shall mean a mortgage with respect to the
North Augusta Facility in substantially the form of Exhibit C-2 hereto.
"North Augusta Sub-Account" is defined in Section 9.5.
"Note" or "Notes" shall mean any Note or Notes, as the case may be,
authenticated and delivered under this Indenture.
"Noteholders" or "Holders of the Notes" or "Holders" or "holders"
shall mean the registered owners of the Notes.
"Note and Mortgage Assignment" shall mean an assignment from NHLP to
the Indenture Trustee of the Managed Facility Note and Mortgage with respect to
a Managed Facility, in substantially the form of Exhibit E attached hereto.
"Note Purchase Agreement" shall mean collectively, the separate Note
Purchase Agreements dated as of December 1, 1990 between the Issuer and the
Note Purchasers.
"Note Purchasers" shall mean the Persons named as purchasers of the
Series A Senior Secured ESOP Notes or Series B Senior Secured ESOP Notes under
the Note Purchase Agreement.
"Ocoee Assignment" shall mean an Assignment of Note and Mortgage
relating to the Ocoee Facility, in substantially the form of Exhibit E hereto.
"Ocoee Facility" shall mean the nursing home facility and real estate
parcels described in Exhibit Q hereto.
"Ocoee Mortgage" shall mean a mortgage and security agreement with
respect to the Ocoee Facility in substantially the form of Exhibit C-3 hereto.
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<PAGE> 21
"Offering Memorandum" shall mean the Offering Memorandum dated June
15, 1990, including appendices, prepared by SunTrust Corporate Finance.
"Officers, Certificate" shall mean a certificate, with respect to
National or NHC, signed by the President, a Vice President or Chief Financial
Officer of National or NHC, as the case may be, and with respect to NHLP,
signed on behalf of NHLP by the President, a Vice President or Chief Financial
Officer of the Administrative General Partner and the Managing General Partner.
"Operative Agreements" shall mean this Indenture, the Note Purchase
Agreements, the Mortgages, the Note and Mortgage Assignments, the Stock
Purchase Agreement, the Stock Pledge Agreement, the Assignment of NHLP Note,
the NHLP Loan Agreement, the Guaranty Agreement and the Construction Related
Agreements.
"Operating Lease" shall mean with respect to any Person any lease
which is not a Capitalized Lease pursuant to which such Person shall lease real
or personal property.
"Opinion of Counsel" shall mean an opinion of counsel reasonably
acceptable to the Indenture Trustee which opinion is in form, scope and content
reasonably satisfactory to the Indenture Trustee.
"Other Project Costs" shall mean and include all of the costs to be
incurred in connection with the construction of each of the Constructed
Facilities and which are identified with dollar amounts appearing opposite them
on the Project Budget, other than entries thereon identified as Construction
Costs.
"Outstanding" or "outstanding", when used with respect to Notes, shall
mean as of any particular time all Notes theretofore authenticated and
delivered under this Indenture, except:
(a) Notes theretofore cancelled by the Indenture Trustee or delivered
to the Indenture Trustee for cancellation;
(b) Notes in lieu of and in substitution for which other Notes shall
have been authenticated and delivered pursuant to the terms of Section 2.6; and
(c) Notes held or acquired by NHLP, National, NHC or the Issuer or
any of their Affiliates.
"Overdue Rate" shall mean a rate per annum equal to the rate of
interest then borne by the Series A Notes or the Series B Notes plus 2%.
"Owned Facility" shall mean each of the Myrtle Beach Facility, the
Greenville Facility, the North Augusta Facility, the Stuart Facility, the
Merritt Island Facility, the Greenwood Facility and the Knoxville Facility, and
each Financed Facility substituted therefor in accordance with Section 10.
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<PAGE> 22
"Permitted Encumbrances" shall have the meaning given thereto in the
Mortgages.
"Partnership Interests" shall mean Limited Partnership Interests and
General Partnership Interests.
"Pension Plan" means a "pension plan", as defined in ERISA.
"Permitted Investments" shall mean:
(a) Investments in commercial paper or time deposits maturing in 270
days or less from the date of issuance and issued by or deposited with
banks, the commercial paper of which, at the time of acquisition by NHLP or
any Restricted Subsidiary thereof, are rated A-1 or higher by Standard &
Poor's Corporation and/or P-1 or higher by Moody's Investors Services,
Inc.;
(b) Investments in direct obligations of the United States of America,
or any agency thereof which are backed by the full faith and credit of the
United States, maturing in twelve months or less from the date of
acquisition thereof; and
(c) Investments in certificates of deposit maturing within one year
from the date or origin, issued by a bank or trust company organized under
the laws of the United States or any state thereof, having capital, surplus
and undivided profits aggregating at least $250,000,000 and the long-term
certificates of deposit of which are rated AA or higher by Standard &
Poor's and/or Moody's Investors Services, Inc.
"Person" shall mean an individual, a corporation, a partnership, a
joint venture, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or
instrumentality thereof.
"Pinellas Assignment" shall mean an Assignment of Note and Mortgage
relating to the Pinellas Facility, in substantially the form of Exhibit E
hereto.
"Pinellas Collateral Assignment of General Contract" shall mean that
certain Collateral Assignment of General Contract dated as of December 1, 1990
between Florida Convalescent Centers, Inc. and the Indenture Trustee relating
to the Pinellas Construction Contract.
"Pinellas Construction Consultant Agreement" shall mean that certain
Construction Consultant Agreement in substantially the form attached hereto as
Exhibit F by and among the Consultant, the Indenture Trustee and NHLP.
"Pinellas Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit N hereto.
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<PAGE> 23
"Pinellas General Contract" shall mean that certain Standard Form of
Agreement Between Owner and Design/Builder (A1A Document A191) between Florida
Convalescent Centers, Inc. and the General Contractor, as design/builder, for
design and construction of the Pinellas Facility dated as of May 2, 1990,
together with all permitted amendments, extension and renewals thereof.
"Pinellas Mortgage" shall mean a mortgage and security agreement with
respect to the Pinellas Facility in substantially the form of Exhibit C-4
hereto.
"Pinellas Sub Account" is defined in Section 9.5.
"Plan" shall mean the National Health Corporation Leveraged Employee
Stock Ownership Plan.
"Plan Trustee" shall mean Marine Midland Bank, N.A., a national
banking association, and any successor trustee under the Trust Agreement.
"Pledge" shall mean to create a security interest in, mortgage,
warrant, bargain, sell, release, convey, assign, transfer, pledge and
hypothecate.
"Project Budget" for each of the Myrtle Beach Property, Greenville
Property, North Augusta Property, Pinellas Property and Sun City Property shall
mean the budget for the construction of each of such facilities, attached to
this Indenture as Exhibits R through V, as each may be amended from time to
time in accordance with the terms hereof.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Rentals" shall mean and include all fixed rents (including as such
all payments which the lessee is obligated to make to the lessor on termination
of the lease or surrender of the property) payable by NHLP and its Restricted
Subsidiaries, as lessee or sublessee under a lease of real or personal
property, but shall be exclusive of any amounts required to be paid by NHLP and
its Restricted Subsidiaries (whether or not designated as rents or additional
rents) on account of maintenance, repairs, insurance, taxes and similar
charges. Fixed rents under any so-called, "percentage leases" shall be computed
solely on the basis of the minimum rents, if any, required to be paid by the
lessee regardless of sales volume, gross revenues or any other similar method
specified therein.
"Reportable Event" shall have the same meaning as in ERISA.
"Responsible Officer" (i) of National or NHC, shall mean the
President, any Vice-President or the Chief Financial Officer thereof and (ii)
of NHLP, shall mean a President, any Vice-President or the Chief Financial
Officer of NHC.
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<PAGE> 24
"Restricted Subsidiary" shall mean any Subsidiary (i) which is
organized under the laws of the United States or any State thereof; (ii) which
conducts substantially all of its business and has substantially all of its
assets within the United States; and (iii) which is more than 50% owned by
NHLP, National or NHC, as the context shall require, and/or one or more
Restricted Subsidiaries of NHLP, National or NHC, as the ease may be.
"Sarasota Assignment" shall mean an Assignment of Note and Mortgage
relating to the Sarasota Facility, in substantially the form of Exhibit E
hereto.
"Sarasota Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit P hereto.
"Sarasota Mortgage" shall mean a mortgage and security agreement with
respect to the Sarasota Facility in substantially the form of Exhibit C-3
hereto.
"Section 1.2D Documents" shall mean the documents described in Section
1.2D of the Construction Consultant Agreement.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Senior Funded Debt" shall mean all Consolidated Funded Debt, other
than Subordinated Funded Debt.
"Series A Fixed Payment Date" has the meaning given thereto in Section
3.1 hereof.
"Series B Fixed Payment Date" has the meaning given thereto in Section
3.1. hereof.
"Stock Pledge Agreement" shall mean the Stock Pledge Agreement dated
as of December 1, 1990 between the Issuer and the Indenture Trustee.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of December 1, 1990 by and among National, the Issuer and NHLP.
"Stuart Facility" shall mean the nursing home facility described in
Exhibit J hereto.
"Stuart Mortgage" shall mean a mortgage with respect to the Stuart
Facility in substantially the form of Exhibit C-1 hereto.
"Subordinated Funded Debt" shall mean the sum of Convertible
Subordinated Funded Debt plus Non-Convertible Subordinated Funded Debt.
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<PAGE> 25
The term "subsidiary" shall mean, as to any particular parent business
entity, any business entity of which such parent business entity and/or one or
more business entities that are themselves subsidiaries of such parent business
entity, (i) in the case of any corporation, own more than 20% (by number of
votes) of the Voting Stock, or (ii) in the case of any partnership, own a
Controlling General Partnership Interest or is entitled to more than 20% of the
net income and proceeds of distribution upon liquidation of such partnership,
or (iii) in the case of any limited partnership, own more than 20% of the
Limited Partnership Interests. The term "Subsidiary" shall mean a subsidiary of
NHLP, National or NHC, as the context shall require.
"Substitute Financed Facility" shall mean one or more nursing homes
owned or managed by NHLP and having a "fair market value" equal to the greater
of the "fair market value" or the Loan Value of a Financed Facility, and
substituted for such Financed Facility pursuant to Section 10. The term "fair
market value" shall mean (a) in the ease of any Substitute Financed Facility
the construction of which has not been completed or was completed less than
twelve months prior to the date the same is to be substituted for the Financed
Facility, the actual construction cost of the Substitute Financed Facility,
including the cost of land and buildings and architectural and engineering fees
and the cost of any improvements (including without limitation, all furniture,
fixtures and equipment) made thereto, and (b) in the case of the Financed
Facility for which such substitution is being made and any Substitute Financed
Facility the construction of which was completed more than twelve months prior
to such date the same is to be substituted for the Financed Facility, the
appraised value thereof as determined by an Appraiser.
"Sun City Assignment" shall mean an Assignment of Note and Mortgage
relating to the Sun City Facility, in substantially the form of Exhibit E
hereto.
"Sun City Collateral Assignment of General Contract" shall mean that
certain Collateral Assignment of General Contract in the form attached hereto
as Exhibit W. between Florida Convalescent Centers, Inc. and the Indenture
Trustee relating to the Sun City General Contract.
"Sun City Construction Consultant Agreement" shall mean that certain
Construction Consultant Agreement in the form attached hereto as Exhibit F by
and among the Consultant, Indenture Trustee and NHLP.
"Sun City Facility" shall mean the nursing home facility and real
estate parcels described in Exhibit O hereto.
"Sun City General Contract" shall mean that certain Standard Form of
Agreement Between Owner and Design/Builder (A1A Document A191) between Florida
Convalescent Centers, Inc. and the General Contractor, as design/builder, for
design and construction of the Sun City Facility dated as of October 16, 1990,
together with all permitted amendments, extension and renewals thereof.
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<PAGE> 26
"Sun City Mortgage" shall mean a mortgage and security agreement with
respect to the Sun City Facility in substantially the form of Exhibit C-4
hereto.
"Sun City Sub-Account" is defined in Section 9.5.
"Supplemental Indenture" or "Indenture Supplement" shall mean any
Indenture hereafter duly authorized and entered into in accordance with the
provisions of this Indenture.
"Total Cost" with respect to any Financed Facility shall mean not
greater than 90% of the cost to NHLP or the Owner of a Managed Facility of
acquiring or constructing such Financed Facility, and with respect to the
Myrtle Beach Facility is $5,042,310, with respect to the Greenville Facility is
$5,223,933, with respect to the North Augusta Facility is $4,008,337, with
respect to the Pinellas Facility is $4,437,497, with respect to the Sun City
Facility is $4,432,063, with respect to the Stuart Facility is $5,140,470, with
respect to the Merritt island Facility is $4,309,408, with respect to the
Greenwood Facility is $4,061,782, with respect to the Knoxville Facility is
$4,061,782, with respect to the Sarasota Facility is $4,828,710, and with
respect to the Ocoee Facility is $4,453,708.
"Trust Agreement" shall mean the NHESOP, Inc. Leveraged Employee Stock
Ownership Trust Agreement made and entered into effective January 20, 1988 by
and between NHESOP, Inc. (the predecessor of National) and the Plan Trustee, as
amended on April 1, 1988 by the First Amendment thereto, as the same may from
time to time be amended or modified.
"Trust Estate" shall have the meaning set forth on page 4 hereof.
"Unrestricted Subsidiary" shall mean any Subsidiary which is not a
Restricted Subsidiary.
"Voting Stock" shall mean Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean
(i) in the case of any corporation, a Subsidiary of which all of the issued and
outstanding shares of stock (except shares required as directors' qualifying
shares) and all Funded Debt and Current Debt shall be owned by NHLP, National
or NHC and/or one or more of their Wholly-owned Subsidiaries, as the case may
be, and (ii) in the case of any partnership, shall mean a Subsidiary of which
all of the outstanding Partnership Interests and all Funded Debt and Current
Debt shall be owned by NHLP, National or NHC and/or one or more of their
Wholly-owned Subsidiaries, as the case may be.
"Working Capital" shall mean the remainder of (i) Current Assets, less
(ii) Current Liabilities.
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<PAGE> 27
1.2. Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Indenture; the same shall be done in accordance with GAAP, to
the extent applicable, except where such principles are inconsistent with the
requirements of this Indenture.
1.3. Directly or Indirectly. Where any provision in this Indenture
refers to action to be taken by any Person, or action which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
SECTION 2. TERMS OF THE NOTES.
2.1. Issuance in Two Series; Limitation of Principal Amount. (a) The
Notes shall be issuable in two series; one series entitled Series A Senior
Secured ESOP Notes due June 1, 2003 and limited to $20,000,000 in aggregate
principal amount (exclusive of Notes issued pursuant to Section 2.6 hereof) and
one series entitled Series B Senior Secured ESOP Notes due December 1, 2005 and
limited to $30,000,000 in aggregate principal amount (exclusive of Notes issued
pursuant to Section 2.6 hereof). All Notes shall be issuable as fully
registered Notes. The Series A Notes shall be substantially in the form
attached hereto as Exhibit A-1 and the Series B Notes shall be substantially in
the form attached hereto as Exhibit A-2 and shall be subject to required and
optional prepayment as provided in Section 3.
(b) The Indenture Trustee's Certificate of Authentication to be
borne by the Notes shall be substantially of the tenor and purport as set forth
in Exhibit A-1 and Exhibit A-2 hereto. The Notes may have such letters, numbers
or other marks of identification or designation and such legends or
endorsements thereon as the Issuer may deem appropriate and as are not
inconsistent with the provisions of this Indenture, or as may be required to
comply with any law or any rule or regulation made pursuant thereto, and in any
such event as are acceptable to the original Note Purchaser.
2.2. Denominations; Execution of Notes; Certificate of Authentication.
Each Note shall be in the denomination of $500,000 or any multiple of $1,000 in
excess of $500,000, except as may be necessary to reflect any principal amount
not evenly divisible by $1,000. The Notes shall be signed on behalf of the
Issuer by the Plan Trustee. In case any officer of the Plan Trustee who shall
have signed any Note shall cease to be such officer before such Note shall have
been authenticated by the Indenture Trustee or delivered by the Issuer, such
Notes may nevertheless be executed and delivered with the same force and effect
as though the Person or Persons who signed such Note had not ceased to be such
officer of the Plan Trustee; and any Note may be signed on behalf of the Plan
Trustee by a Person who, at the actual date of execution of such Note, shall be
a proper officer of the Plan Trustee, although at the date of such Note, such
Person was not then such officer of the Plan Trustee. Only such Notes as shall
bear thereon a certificate of authentication substantially in the
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form set forth in Exhibit A-1 or Exhibit A-2, hereto, as the case may be, shall
be entitled to the benefits of this Indenture or be valid or obligatory for any
purpose. SUCH certificate by the Indenture Trustee upon any Note executed by
the Plan Trustee shall be conclusive evidence that the Note so authenticated
has been duly authenticated and delivered hereunder and that the holder is
entitled to the benefits of this Indenture. The authentication by the Indenture
Trustee of any Note issued hereunder shall not be construed as a representation
or warranty by the Indenture Trustee as to the validity or security of this
Indenture or of such Note, and the Indenture Trustee shall in no respect be
liable or answerable for the use made of such Note or the proceeds thereof.
2.3. Payment of the Notes. (a) The principal of, premium, if any, and
interest on the Notes shall be payable at the principal office of the Indenture
Trustee, or such other office of the Indenture Trustee as the Indenture Trustee
may specify in writing to the holders of the Notes, in lawful money of the
United States of America. Payment of principal, premium, if any, and interest
on the Notes shall be made only upon presentation of such Notes to the
Indenture Trustee for notation thereon of the amount of such payment. Any
payment or prepayment of amounts due on the Notes in accordance with the terms
thereof and hereof which is due on a date which is not a Business Day shall be
payable on the next following Business Day without penalty or interest.
(b) Notwithstanding the provisions of the preceding paragraph (a),
if any Note is held by an Institutional Holder or its nominee and if such
Institutional Holder shall furnish written notice to the Indenture Trustee
requesting that the provisions of this Section 2.3(b) apply (and Section 6 of
the Note Purchase Agreement shall constitute such written request in the case of
the original Note Purchaser), the Indenture Trustee will cause all payments and
prepayments of the principal of, and interest and premium, if any, on the Notes
held by such Institutional Holder or its nominee to be made when due without
surrender or presentation of such Note and without any notation of such payment
or prepayment being made thereon, either (i) directly to such Holder by check,
duly mailed, by first-class mail, postage prepaid, at its address appearing on
the Note Register (defined in Section 2.4) or (ii) if a bank account in any bank
in the continental United States shall be specified in such notice and if such
notice shall have been given at least 15 days prior to the payment or prepayment
date, by wire transfer of immediately available Federal Reserve funds to such
bank account, on each such date such payment or prepayment is due, provided that
such bank has facilities for the receipt of a wire transfer. The Indenture
Trustee will deliver instructions for any such wire transfer from its office not
later than 12:00 noon, Hartford, Connecticut time on each SUCH DATE payment or
prepayment is due provided that no later than 10:00 a.m., Hartford, Connecticut
time on the date such payment or prepayment is due either (i) the Issuer has
deposited sufficient funds with the Indenture Trustee, or (ii) the Indenture
Trustee has received the Issuer's check in clearing house funds in a sufficient
amount. If the Issuer's funds are not received in a timely manner as above
described, Indenture Trustee shall wire transfer payments promptly following
receipt of the Issuer's funds. The Holder of any Notes to which this Section
2.3(b) applies agrees that (i) it will, before selling, transferring or
otherwise disposing of such Note, present such Note to the Indenture Trustee for
transfer and notation as provided in Sections 2.5 and 2.6 and (ii) it will,
within a
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reasonable period of time after the Note has been paid in full, surrender the
Note to the Indenture Trustee for cancellation and until any such Note is
presented for transfer hereunder, the Indenture Trustee shall assume that the
holder of such Note in the Note Register is, in fact, the holder thereof.
2.4. The Note Register. The Issuer shall cause to be kept at the
principal office of the Indenture Trustee a register for the registration and
transfer of Notes (herein called the "Note Register"). The names and addresses
of the holders of the Notes, the transfers of the Notes and the names and
addresses of the transferees of all Notes shall be registered in the Note
Register.
2.5. Transfers and Exchanges of Notes; Lost or Mutilated Notes. (a)
The holder of any Note may transfer such Note in compliance with applicable
security laws upon the surrender thereof at the principal office of the
Indenture Trustee. Thereupon, the Issuer shall execute in the name of the
transferee a new Note or Notes in aggregate principal amount equal to the
aggregate unpaid principal amount of the Note so surrendered, and the Indenture
Trustee shall authenticate and deliver such new Note or Notes to such
transferee.
(b) The holder of any Note may at any time surrender such Note at
the principal office of the Indenture Trustee in exchange for an equal
aggregate principal amount of Notes in any authorized denominations.
(c) All Notes presented or surrendered for exchange or transfer
shall be accompanied by a written instrument or instruments of assignment or
transfer, in form satisfactory to the Indenture Trustee, duly executed by the
holder or by his attorney duly authorized in writing. The Issuer and the
Indenture Trustee shall not be required to make a transfer or an exchange of
any Note for a period of ten days preceding any payment date with respect
thereto.
(d) In case any Note shall become mutilated or be destroyed, lost or
stolen, the Issuer, upon the written request of the holder thereof, shall
execute, and the Indenture Trustee shall authenticate and deliver, a new Note
in exchange and substitution for the mutilated Note, or in lieu of and
substitution for the Note so destroyed, lost or stolen. In every case the
applicant for a substituted Note shall furnish to the Issuer and to the
Indenture Trustee such security or indemnity as may be required by them to save
each of them harmless from all risks resulting from the authentication and
delivery of the substitute Note, and the applicant shall also furnish to the
Issuer and to the Indenture Trustee evidence to their satisfaction of the
mutilation, destruction, loss or theft of the applicant's Note and of the
ownership thereof. If an original Note Purchaser, or another Institutional
Holder, or either's nominee, is the owner of any mutilated, destroyed, lost or
stolen Note, then the affidavit of an authorized officer of the Note Purchaser
or such Institutional Holder, as the case may be, in form reasonably
satisfactory to the Issuer and the Indenture Trustee setting forth the fact of
mutilation, destruction, loss or theft and such holder's ownership of the Note
at the time of such mutilation, destruction, loss or theft shall be accepted as
satisfactory evidence thereof, and no indemnity shall be required as a
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condition to execution and delivery of a new Note other than the written
agreement of such Note Purchaser or Institutional Holder, as the case may be,
to indemnify the Issuer and the Indenture Trustee.
(e) No notarial acts shall be necessary for the transfer or exchange
of any Note pursuant to this Section 2.5, and the holder of any Note issued as
provided in this Section 2.5 shall be entitled to any and all rights and
privileges granted under this Indenture to a holder of the Note.
2.6. The New Notes. (a) Each new Note (herein in this Section 2.6
called a "New Note") issued pursuant to Section 2.5 in exchange for or in
substitution or in lieu of an outstanding Note (herein in this Section 2.6
called an "Old Note") shall be dated the date of such Old Note. The Indenture
Trustee shall mark on each New Note (i) the date to which interest and
principal have been paid on such Old Note, and (ii) all payments and
prepayments of principal previously made on such Old Note which are allocable
to such New Note. Interest shall be deemed to have been paid or earned, as the
case may be, on such New Note to the date on which interest shall have been
paid or earned, as the case may be, on such Old Note, and all payments and
prepayments of principal marked on such New Note, as provided in clause (ii)
above, shall be deemed to have been made thereon.
(b) Upon the issuance of a New Note pursuant to Section 2.5, the
Issuer may require the payment of a sum to reimburse it for, or to provide it
with funds for, the payment of any tax or other governmental charge connected
therewith but no other charge shall be made in connection with the transfer or
exchange.
(c) All New Notes issued pursuant to Section 2.5 in exchange for, in
substitution for or in lieu of Old Notes shall be valid obligations of the
Issuer evidencing the same outstanding debt as the Old Notes and shall be
entitled to the benefits and security of this Indenture to the same extent as
the Old Notes.
2.7. Cancellation of Notes. All Notes surrendered for the purpose of
payment, redemption, transfer or exchange shall be delivered to the Indenture
Trustee for cancellation or, if surrendered to the Indenture Trustee, shall be
cancelled by it, and no Notes shall be issued in lieu thereof except as
expressly required or permitted by any of the provisions of this Indenture. The
Indenture Trustee shall destroy such cancelled Notes and shall deliver a
certificate to the Issuer specifying that such destruction has been made. If
the Issuer shall acquire any of the Notes, however, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Notes unless and until the same are surrendered to the Indenture Trustee for
cancellation.
2.8. Indenture Trustee as Agent. Subject to the provisions of Section
11, the Indenture Trustee is hereby irrevocably appointed the agent of the
Issuer for the payment, registration, transfer and exchange of Notes. Subject
to the provisions of Section 2.3, Notes may be presented for payment at, and
notices or demands with respect to the Notes or this Indenture may be served or
made at, the principal office of
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the Indenture Trustee, provided that copies of all such notices or demands
shall be delivered to the Issuer.
2.9. Ownership. The Person in whose name any Note shall be registered
shall be deemed and treated as the owner thereof for all purposes of this
Indenture and, subject to Section 2.5 hereof, neither the Issuer nor the
Indenture Trustee shall be affected by any notice to the contrary. Payment of
or on account of the principal of, premium, if any, and interest, as the case
may be, on such Note shall be made only to or upon the order in writing of such
registered owner. For the purpose of any request, direction or consent
hereunder, the Issuer and the Indenture Trustee may deem and treat the
registered owner of any Note as the sole owner thereof without production of
such Note.
2.10. Interest Rate Adjustment; Taxability.
(a) Interest Rate Adjustment. In the event that at any time after
the date hereof there is for any reason a change in the Federal Tax Rate or the
Inclusion Rate (each as defined in this Section 2.10(a)), then in that event,
the interest rate on the Notes shall be automatically adjusted (but not higher
than the interest rate specified in Section 2.10(d) hereof), effective as of the
effective date of change for each such change, to the rate per annum determined
by multiplying the original interest rate on the Notes by the Adjustment
Fraction. Any Noteholder shall determine the adjusted interest rate on the Notes
held by it in accordance with the foregoing (which determination shall be
conclusive and binding on the Issuer absent manifest error). The Issuer agrees
to promptly notify the Indenture Trustee of such adjusted interest rate and
unconditionally promises to pay interest on such Notes from the date of each
such change at the rate as so adjusted from time to time. If for any reason
(e.g., a retroactive effective date) the effective date of change for any such
change is prior to one or more payment dates for which payments were due and
payable on the Notes, and such change results in an increase in the interest
rate for such prior periods, additional payments shall be due under this Section
2.10(a) and the Issuer (or, to the extent the Issuer cannot pay, the Guarantors)
shall promptly upon demand (but in no event more than 10 days after demand) by
any Noteholder pay to such Noteholder the amount by which interest computed at
such rate or rates exceeds the amount of interest actually theretofore paid by
the Issuer (excluding additional interest, if any, paid on overdue principal or
interest) on the Notes held by such Noteholder. If for any reason (e.g., a
retroactive effective date) the effective date of change for any such change is
prior to one or more payment dates for which payments were due and payable on
the Notes, and such change results in a decrease in the interest rate for such
prior periods, each Noteholder shall promptly (but in no event more than 10 days
after demand by the Issuer) pay to the Issuer the amount by which interest
computed at such rate or rates is less than the amount of interest actually
theretofore paid by the Issuer (excluding additional interest, if any, paid on
overdue principal or interest) on the Notes held by such Noteholder.
For the purposes of this Section 2.10, the following terms shall have
the meanings ascribed to them below:
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"Adjustment Fraction" shall mean the following fraction:
(l-XF)(l-Fn)/(l-F)(l-XnFn)
where Fn and Xn are the new Federal Tax Rate and Inclusion Rate, respectively,
expressed as a decimal (in the case of any change in only one such factor then
only such factor shall be changed and the remaining factor shall be the factor
then in effect) and where F and X are the original Federal Tax Rate and
Inclusion Rate, respectively, expressed as a decimal. The Adjustment Fraction
will be rounded to three decimal places with rounding up if the fourth decimal
place is .0005 or higher, and rounding down otherwise.
"Federal Tax Rate" shall mean, (i) in the case of a life insurance
company, the maximum incremental percentage rate from time to time applicable
to the taxable income of such company as determined under Section 801 of the
Code, or any successor thereto, (ii) in the case of any other insurance
company, the maximum incremental percentage rate from time to time applicable
to the taxable income of such company as determined under Section 831 of the
Code, or any successor thereto, and (iii) in the case of any other person, the
maximum incremental percentage rate from time to time applicable to the taxable
income of any ordinary business corporation imposed under Section 11 of the
Code, or any successor thereto. For purposes of calculations hereunder, the
original Federal Tax Rate expressed as a decimal is .34.
"Inclusion Rate" shall mean the percentage of interest income received
by the Noteholder on securities acquisition loans which is not excluded from
its gross income for Federal income tax purposes pursuant to Section 133 of the
Code, or any successor thereto. For purposes of calculations hereunder, the
original Inclusion Rate expressed as a decimal is .50.
(b) Tax Disallowances. In the event that at any time (whether before
or after payment of the Notes) a Change of Law (as defined below in this
Section 2.10) shall occur which, in the reasonable opinion of any Noteholder,
results in any Tax Disallowance (as defined below in this Section 2.10), the
Issuer shall pay to such Noteholder (at the time or times specified by the
Noteholder, which times may be specified by the Noteholder in a single written
notice from such Noteholder which shall identify specific dates on which
payment shall be made) in immediately available funds amounts that shall be
equal to the sum of (i) any tax, alternative minimum tax, levy or other cost,
including, but not limited to, penalties, additions to taxes or interest
related to any of the foregoing, related to the acquisition, purchase,
ownership, or disposition of any Note held by such Noteholder that arises
directly or indirectly, in whole or in part, as a result of such Change of Law
(all such taxes to be calculated assuming that such Noteholder is subject to
the maximum statutory rate in effect for the tax year or years in which the Tax
Disallowance occurs), plus (ii) an amount representing the time value of money
for the period commencing on the date such Noteholder paid any such tax, levy
or other cost (or the date a refund with respect to such tax, levy or other
cost is denied) listed in (i) above and ending on the date payment hereunder is
received by such Noteholder (using a factor of, with respect to the Series A
Notes, 10.69% per annum
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and, with respect to the Series B Notes, 10.87% per annum), plus (iii) an
amount which, after giving effect to all taxes attributable to the inclusion of
the amount specified in (i) above in the taxable income of such Noteholder for
federal, state and local tax purposes, shall equal all taxes due on the
payments set forth in (i). Except as provided in Section 2.10(c). The
determination of all amounts hereunder by such Noteholder shall be conclusive
and binding on the Issuer absent manifest error.
(c) Independent Verification. In the event that the Issuer objects
to the amount of any indemnification or amounts due calculated by any
Noteholder pursuant to Section 2.10(b), the Issuer, within 30 days after its
receipt of a notice under Section 2.10(b), shall notify such Noteholder in
writing of such objection and the reasonable basis therefor Thereafter, if the
Issuer and such Noteholder shall not have agreed upon the amount of such
indemnification, the Issuer, within 30 days after its delivery of its notice
under this Section 2.10(c) may request that the amount of such indemnification
be verified by a firm of independent public accountants of nationally
recognized standing (who may be such Noteholder's regular auditors) selected by
such Noteholder. Such firm of independent public accountants shall be requested
to either (i) confirm that the calculations of such Noteholder are correct and
in conformity with the provisions of this Indenture, or (ii) revise the amount
of the indemnification payable to such Noteholder in accordance with the
provisions of this Indenture and set forth in reasonable detail the basis for
such adjustment. The Issuer and such Noteholder agree that the determinations
made by such Noteholder and verified or adjusted by such accounting firm in
conformity with the provisions of this Indenture shall be conclusive and
binding on such Noteholder and the Issuer. In the event that the Issuer shall
seek verification pursuant to this Section 2.10(c) then notwithstanding the due
dates for payments set forth in Section 2.10(b) the Issuer shall pay to such
Noteholder the amount of the indemnity determined hereunder within 10 days
after such determination.
All expenses incurred in connection with any verification requested by
the Issuer pursuant to this Section 2.10(c) shall be borne by NHLP. As used in
this Section 2.10(c) "the amount of any indemnification" shall not include a
determination of the occurrence of any event which gives rise to (i)
indemnification pursuant to Section 2.10(b), or (ii) an obligation to make any
payment pursuant to Section 2.10(b) or Section 2.10(d).
For purposes of this Section 2.10, the following terms shall have the
meanings ascribed to them as follows:
"Change of Law" shall mean any amendment to the Code or other statute
enacted by the Congress of the United States of America, or any temporary,
proposed or final regulation or rule promulgated by any agency or department of
the United States government, or any official or judicial interpretation of any
of the foregoing or any change in official or judicial interpretation of
present law after the date of this Indenture, and for purposes hereof shall
include, but not limited to, any law or temporary, proposed or final regulation
enacted after the date of this Indenture, but having an effective date prior
thereto, except that a Change of Law shall not include (x) any change in the
Federal Tax Rate or the Inclusion Rate as defined in Section 2.10(a) or (y) any
event that would entitle any Noteholder to make a determination of taxability
under Section 2.10(d).
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"Tax Disallowance" shall mean (i) the reduction, directly or
indirectly, of any deduction (including, but not limited to, any deduction
under Section 265 of the Code), exclusion (including, but not limited to, the
exclusion provided in Section 812(g) of the Code), credit or other allowance
that would, but for the Change in Law, have been allowable in computing any
Noteholder's liability for any Federal tax, whether currently in existence or
not, including, but not limited to, the tax imposed under Section 11 of the
Code, or any successor thereto, (ii) the imposition of any Federal tax or levy
of any nature (including, but not limited to, preference, excise or alternative
minimum taxes), (iii) the increase in any rate of Federal tax (other than an
increase in the Federal Tax Rate), rate of inclusion (other than an increase in
the Inclusion Rate) of any item of adjustment to the alternative minimum
taxable income of the Noteholder or levy upon any Noteholder (including, but
not limited to, preference, excise or alternative minimum taxes) on some or all
of the payments on the Notes, or (iv) any reduction in the after-tax yield on
any Note to any Noteholder, based upon with respect to the Series A Notes, a
10.69% fully taxable Note, and with respect to the Series B Notes, a 10.87%
fully taxable Note using the then current Federal Tax Rate and Inclusion Rate
in Section 2.10(a).).
(d) Taxability. In the event that any Noteholder shall reasonably
determine that, for any reason whatsoever (other than the failure of such
Noteholder, solely and directly as a result of an act by such Noteholder, to be
a qualified lender under Section 133(a) of the Code or any successor thereto),
regardless of whether such cause or event occurred before, on or after the date
hereof or whether before or after payment of the Notes, the interest on any
Note is not entitled to the benefits of Section 133 or any successor thereto,
then, in that event, the Issuer agrees, anything contained in the Notes or
herein to the contrary notwithstanding, that the interest rate applicable to
the Notes held by such Noteholder shall be adjusted, retroactive to the Closing
Date (or if any Note was originally entitled to the benefits of Section 133 but
ceased to be so entitled, then retroactive to the date such Note ceased to be
entitled to the benefits of Section 133 or any successor thereto), to, in the
case of the Series A Notes, 10.69% per annum and in the case of the Series B
Notes, 10.87% per annum or, if applicable for either the Series A Notes or the
Series B Notes, the Overdue Rate after the maturity of any payment, and the
Issuer shall pay to such Noteholder, within 30 days following the receipt of
written notice from the Noteholder (i) the amount by which interest computed at
such rate or rates exceeds the amount of interest actually theretofore paid by
the Issuer (excluding additional interest, if any, paid on overdue principal or
interest) on the Notes from the date of issuance (or, if any Note was
originally entitled to the benefits of Section 133 but ceased to be so
entitled, then retroactive to the date such Note ceased to be entitled to the
benefits of Section 133 or any successor thereto), plus (ii) an amount
representing the excess, if any, of the Federal income tax liability of such
Noteholder resulting from the inclusion of the payments set forth in (i) in the
gross income of the Noteholder at the then current Federal Tax Rate over the
Federal income tax liability of such Noteholder that would have resulted from
the inclusion of the payments set forth in (i) using the Federal Tax Rate
applicable to the period to which such payments relate, plus (iii) all
penalties, additions to taxes, interest attributable to any deficiencies in the
Federal, state and local tax liability of such Noteholder, or other costs
resulting from the Note not being entitled to the benefits of
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Section 133 or any successor thereto, plus (iv) an amount representing the time
value of money for the period commencing on the date such Noteholder shall have
paid any amount set forth in (i), (ii) or (iii) above (or commencing on the date
a refund otherwise payable to the Noteholder with respect to other matters in an
amount equal to all or any portion of a payment set forth in (i), (ii) or (iii)
is denied) and ending with respect to each amount set forth in (i), (ii) or
(iii) hereof on the date each such payment is received by such Noteholder (using
a factor equal to with respect to the Series A Notes, 10.69% per annum and with
respect to the Series B Notes 10.87% per annum), plus (v) an amount which, after
giving effect to all taxes attributable to the inclusion of any amount set forth
in (ii) and (iii) above in the taxable income of the Noteholder for Federal,
state and local tax purposes, shall equal all taxes due on the payments set
forth in (ii) and (iii) above.
(e) Successors and Assigns. All parties at any time holding any Note
and any party purchasing any Note from any Noteholder shall be entitled to the
benefits of Section 2.10(a), 2.10(b), 2.10(c) and 2.10(d), other than a
subsequent holder of any Note which is not a qualified lender under Section
133(a) of the Code or any successor thereto without regard to any Change of Law
as of or after the date hereof. In the event that any Noteholder transfers any
Note, such Noteholder shall continue to have the benefits of the provisions of
Section 2.10(a), 2.10(b), 2.10(c) and 2.10(d), for the period during which such
Noteholder was the holder of a Note and each subsequent holder thereof shall
have all of the rights afforded the Noteholders hereunder with the same force
and effect as though the name of such holder were substituted for the name of
the Noteholders herein.
SECTION 3. PREPAYMENT AND PURCHASE OF NOTES.
Except to the extent provided for in this ss.3, the Notes shall not
be subject to prepayment or redemption in whole or in part at the option of the
Issuer prior to the expressed maturity dates thereof.
3.1. Required Prepayments. (a) The Issuer agrees that on the first
day of June and December in each year, commencing December 1, 1995 and ending
December 1, 2002, both inclusive (the "Series A Fixed Payment Dates"), it will
prepay and apply and there shall become due and payable $1,250,000 principal
amount of Series A Notes.
(b) The Issuer agrees that on the first day of June and December in
each year, commencing December 1, 1995 and ending June 1, 2005, both inclusive
(the "Series B Fixed Payment Dates"), it will prepay and apply and there shall
become due and payable $1,428,571 principal amount of Series B Notes.
(c) No premium shall be payable in connection with any required
prepayment made pursuant to this ss.3.1. For purposes of this Section 3.1, any
prepayment of less than all of the Notes pursuant to (i) Section 3.2 or Section
3.3 shall be deemed to be applied first, to the amount of principal scheduled to
remain unpaid on June 1, 2003 (with respect to
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the Series A Notes) and December 1, 2005 (with respect to the Series B Notes)
and then, to the remaining scheduled principal payments in inverse chronological
order, and (ii) ss.3.4 shall be applied to the payment in full of the Notes
held by the holders providing a Declaration Notice (as defined in ss.3.4).
3.2. Optional Prepayments at Make-Whole Premium Amount. In addition
to the prepayments required by ss.3.1 and upon compliance with ss.3.5, the
Issuer shall have the privilege at any time and from time to time of prepaying
the outstanding Notes either in whole or in part (but if in part then in units
in excess of $1,000,000) by payment of the principal amount of the Notes, or
portion thereof to be prepaid, and accrued interest thereon to the date of such
prepayment, together with a premium equal to the Make-Whole Premium Amount.
3.3. Prepayment in the Event of Casualty or Condemnation of a
Financed Facility or Prepayment in Whole of a Managed Facility Note. The Notes
shall be prepaid prior to maturity, in whole or in part, through the application
of moneys received by the indenture Trustee pursuant to the provisions of ss.7.2
ss.7.3, ss.7.4 and ss.7.5 hereof by payment of the principal amount of the Notes
to be so prepaid, together with accrued interest thereon to the date of such
prepayment, together with a premium equal to the Make-Whole Premium Amount.
3.4. Notice of Optional Prepayments. The Issuer will give notice of
any prepayment of the Notes (other than the prepayments required by ss.3.1) to
NHLP, National, the Indenture Trustee and to each holder thereof not less than
30 days nor more than 60 days before the date fixed for such optional prepayment
(the "Optional Prepayment Date") specifying (a) such date, (b) the Section of
this Indenture under which the prepayment is to be made, (c) the principal
amount of the holders' Notes to be prepaid on such Optional Prepayment Date, (d)
that a Make-Whole Premium Amount may be payable, (e) the date when such
Make-Whole Premium Amount will be calculated, (f) the estimated Make-Whole
Premium Amount and (g) the accrued interest applicable to the prepayment. Such
notice of prepayment shall also certify all facts which are conditions precedent
to any such prepayment. Notice of prepayment having been so given, the aggregate
principal amount of the Notes specified in such notice, together with the
premium, if any, and accrued interest thereon shall become due and payable on
the Optional Prepayment Date. Not more than two Business Days prior to the
Optional Prepayment Date specified in such notice, the Issuer shall provide each
holder of a Note written notice of the Make-Whole Premium Amount payable in
connection with such prepayment, whether or not any Make-Whole Premium Amount is
payable, together with a reasonably detailed computation thereof.
3.5. Allocation of Prepayments. All partial prepayments shall be
applied on all outstanding Notes ratably in accordance with the unpaid principal
amounts thereof.
3.6. Purchase in the Event of a Change of Control. In the event NHLP
has knowledge of a Change of Control or an impending Change of Control, NHLP
will give written notice (herein called a "Control Change Notice") of such fact
to all holders
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of the Notes then outstanding. Said Control Change Notice shall be delivered at
least 60 days prior to the occurrence of such Change of Control; provided,
however, that if NHLP shall not then have knowledge of such fact, such Control
Change Notice shall be delivered promptly upon receipt of such knowledge by
NHLP. In addition to notifying the holders of the Notes of a Change of Control
or a proposed Change of Control, the Control Change Notice shall state that the
occurrence of such Change of Control entitles said holders to tender the Notes
held thereby to NHLP for purchase pursuant to this ss.3.6 and the date by which
said holders must respond to such Control Change Notice pursuant to this ss.3.6
in order to make such election.
As used herein, the term "Change of Control" shall mean the
occurrence of (i) any event which results in any Person other than NHC acting as
Managing General Partner of NHLP, or (ii) any event which results in any Person,
or any group of Persons acting in concert, other than the Original Management
Group, beneficially owning or controlling, directly or indirectly, more than 50%
(by number of votes) of the Voting Stock of NHC or (ii) replacement or
elimination (in either case other than as a result of death or disability) of
more than half of the Current Directors of NHC, within a six-month period.
The term "Original Management Group shall mean Carl E. Adams, W.
Andrew Adams, Robert G. Adams, Ernest G. Burgess, Richard F. LaRoche, Jr., S.C.
Garrison, J.K. Twilla and Olin O. Williams, their respective spouses and
descendants and any executor, administrator, conservator, trustee or other
fiduciary holding Partnership Interests or shares of Voting Stock of NHLP for
the benefit of any of said Persons.
The term "Current Directors" shall mean Carl E. Adams, W. Andrew
Adams, S.C. Garrison, J.K. Twilla and Olin O. Williams.
Upon the receipt of such Control Change Notice or, if no Control
Change Notice is given, upon the occurrence of a Change of Control, the holder
or holders of any Notes shall have the privilege, upon written notice (the
"Tender Notice") to NHLP, of tendering all Notes held by such holder or holders
serving such Tender Notice to NHLP for purchase and thereupon NHLP shall be
obligated to purchase such Notes on such date (the "Payment Date") as NHLP shall
specify in a written notice delivered to such holder or holders, which notice
shall be delivered by NHLP to such holder or holders not later than 20 days
prior to the Payment Date. The Payment Date shall be not later than 20 days
after the consummation of such Change of Control, in the event that such Tender
Notice is served on or prior to the date of the consummation of such Change of
Control or 20 days after the date such Tender Notice is served, if such Tender
Notice is not served on or prior to the date of such Change of Control, and NHLP
covenants and agrees to purchase or cause to be purchased on the Payment Date
all Notes held by such holder or holders serving such Declaration Notice to
NHLP; provided, however, that in the event that a Control Change Notice has in
fact been given as hereinabove contemplated, such Tender Notice shall be served
prior to 60 days after receipt of such Control Change Notice. In the event that
a Control Change Notice is given and a holder of the Notes fails to provide a
Tender Notice within the time period set forth above, NHLP shall not be
obligated to purchase the Notes held by
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such holder as a result of such Change of Control. Any such declaration shall be
contingent upon completion of such Change of Control and, notwithstanding any of
the other provisions of this ss.3.6, NHLP shall not be required to purchase
any Notes pursuant to this ss.3.6 unless and until such Change of Control
shall be consummated.
In the event that any holder or holders of the Notes shall have
elected to tender for purchase all of the Notes held thereby pursuant to this
ss.3.6, then NHLP shall promptly, but in any event within 15 days after the
receipt of the Tender Notice, deliver written notice of such election to tender
to each other holder of the Notes and, notwithstanding the provisions of the
immediately preceding paragraph, the right of each such other holder to tender
for purchase all of the Notes held thereby pursuant to this ss.3.6 shall remain
in effect until the later to occur of (i) 60 days after receipt by such holders
of the Control Change Notice and (ii) 30 days after receipt by such holders of
the notice required to be delivered pursuant to this paragraph; provided,
however, that the provisions of this clause (ii) shall only apply with respect
to notices required to be delivered pursuant to this paragraph to the extent
that such notices relate to election to tender Notes made by holders of the
Notes prior to the expiration of the periods specified in the immediately
preceding paragraph.
All purchases of the Notes pursuant to this ss.3.6 shall be made by
NHLP by the payment of the aggregate principal amount remaining unpaid on such
Notes and accrued interest thereon to the date of such prepayment, but without
premium or Make-Whole Premium Amount. Any purchases of less than all of the
outstanding Notes made pursuant to this ss.3.6 shall be applied to the payment
in full of the Notes held by the holders providing a Tender Notice. The amounts
of the scheduled prepayments on all Notes shall be unchanged by such purchase.
SECTION 4. COVENANTS OF NHLP.
NHLP covenants, represents and warrants with the Indenture Trustee
for the benefit of the Indenture Trustee and the holders of the Notes as
follows:
4.1. Warranty of Title. NHLP has or will have good and marketable
title to, and is lawfully possessed of, all the Property constituting the
Acquired Facilities to be acquired on the Closing Date free of all liens,
charges and encumbrances other than Permitted Encumbrances. NHLP has full power
and lawful authority to pledge the Acquired Facilities to be acquired on the
Closing Date, and the Indenture Trustee has a valid and enforceable first and
prior lien and security interest therein. NHLP will at all times preserve,
warrant and defend the Indenture Trustee's title and right in and to the
Financed Facilities against the claims of all Persons.
4.2. NHLP Existence. NHLP will preserve and keep in full force and
effect and will cause each Restricted Subsidiary to preserve and keep in full
force and effect its legal existence as a limited partnership, general
partnership or corporation, as the case may be, and all licenses and permits
necessary to the proper conduct of its business, provided that the foregoing
provisions of this ss.4.2 shall not prevent any
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transaction permitted by ss.4.10 and provided further, that NHLP may cease its
existence as a limited partnership and commence doing business as a corporation
by giving 60 days prior written notice to the holders of the Notes outstanding,
which written notice shall contain (i) pro-forma financial statements as at the
end of the current (as of the date of such notice) Fiscal Year of NHLP, if the
date on which NHLP shall commence doing business as a corporation is on or prior
to the last day of the current (as of the date of such notice) Fiscal Year, or
(ii) pro-forma financial statements as at the end of the immediately succeeding
Fiscal Year of NHLP, if the date on which NHLP shall commence doing business as
a corporation is after the last day of the current (as of the date of such
notice) Fiscal Year and without taking into account any change in the
designation of the Fiscal Year of NHLP subsequent to the date of notice referred
to herein (in either case setting forth the information specified in ss.4.21(b)
for NHLP and its Restricted Subsidiaries) and, in the case of both clauses (i)
and (ii) above, (y) assuming NHLP would have maintained its existence as a
limited partnership through the end of such Fiscal Year, and (z) assuming NHLP
and its Restricted Subsidiaries had done business as corporation throughout such
Fiscal Year and which pro forma financial statements, in the case of both
clauses (i) and (ii) above, shall show that if NHLP would continue its existence
as a limited partnership through the period for which such pro-forma financial
statements are prepared, no Default or Event of Default would exist.
4.3. Performance of Operative Agreements; Further Assurances. NHLP
covenants and agrees, within its power and authority, to cause the Issuer to
perform, abide by and to be governed and restricted by each and all of the
terms, provisions, restrictions, covenants and agreements set forth in each
Operative Agreement to which it is a party, and NHLP covenants and agrees to
perform, abide by and to be governed and restricted by each and all of the
terms, provisions, restrictions, covenants and agreements set forth in each
Operative Agreement to which it is a party, and in each and every supplement
thereto or amendment thereof which may at any time or from time to time be
executed and delivered by the parties thereto or their successors and assigns,
to the same extent as though each and all of said terms, provisions,
restrictions, covenants and agreements were fully set out herein and as though
any amendments or supplements to each of such Operative Agreements were fully
set out in an amendment or supplement to this Indenture.
NHLP will at any time and from time to time, at its own expense, do,
execute, acknowledge and deliver to the Noteholders and/or the Indenture Trustee
such further act, deed, conveyance, transfer, instrument, document and assurance
and take such further action, if the Noteholders and/or the Indenture Trustee
may from time to time reasonably request, in order to further carry out the
intent and purpose of this Indenture and the Note Purchase Agreement and to
establish and protect the rights, intentions and remedies created, or intended
to be created, in favor of the Noteholders, including, without limitation, the
execution, delivery and recordation and filing of Mortgages, security agreements
and financing statements and continuation statements under the Uniform
Commercial Code required by applicable law to be so recorded or filed so as to
make effective of record the lien intended to be created thereby.
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4.4. Insurance. NHLP will maintain, and will cause each Restricted
Subsidiary to maintain insurance coverage by financially sound and reputable
insurers accorded a rating by A.M. Best Company, Inc. at the time of issuance of
any policy of in the case of professional liability and property insurance,
A:VII or higher, in the case of property insurance on boilers and machinery,
A:IX or higher, and in the case of all other policies, A:XII or higher, such
insurance coverage to be in such forms and amounts and against such risks as are
customary for business entities of established reputation engaged in the same or
a similar business and owning and operating similar properties; provided, that
NHLP will, on the date of renewal of any such policy, obtain such insurance
policy from a financially sound and reputable insurer accorded a rating by A.M.
Best Company, Inc. of A: XII or higher at the time of issuance of such policy.
4.5. Taxes, Claims for Labor and Materials, Compliance with Laws.
NHLP will promptly pay and discharge, and will cause each Restricted Subsidiary
promptly to pay and discharge, all lawful taxes, assessments and governmental
charges or levies imposed upon NHLP or such Restricted Subsidiary, respectively,
or upon or in respect of all or any part of the Property or business of NHLP or
such Restricted Subsidiary, all trade accounts payable in accordance with usual
and customary business terms, and all claims for work, labor or materials, which
if unpaid might become a Lien upon any property of NHLP or such Restricted
Subsidiary; provided NHLP or such Restricted Subsidiary shall not be required to
pay any such tax, assessment, charge, levy, account payable or claim if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale of
any Property of NHLP or such Restricted Subsidiary or any material interference
with the use thereof by NHLP or such Restricted Subsidiary, and (ii) NHLP or
such Restricted Subsidiary shall set aside on its books, reserves deemed by it
to be adequate with respect thereto. NHLP will promptly comply and will cause
each Subsidiary to comply with all laws, ordinances or governmental rules and
regulations to which it is subject, the violation of which could materially and
adversely affect the properties, business, prospects, profits or condition of
NHLP or NHLP and its Restricted Subsidiaries taken as a whole or would result in
any Lien except:
(a) Liens for property taxes and assessments or governmental charges
or levies and Liens securing claims or demands of mechanics and
materialmen, provided that payment thereof is not at the time required by
this ss.4.5;
(b) Liens of or resulting from any judgment or award, the time for
the appeal or petition for rehearing of which shall not have expired, or
in respect of which NHLP or a Restricted Subsidiary thereof shall at any
time in good faith be prosecuting an appeal or proceeding for a review and
in respect of which a stay of execution pending such appeal or proceeding
for review shall have been secured;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehouse-
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men's and attorneys' liens and statutory landlords' liens) and Liens to
secure the performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other liens of like
general nature incurred in the ordinary course of business and not in
connection with the borrowing of money, provided in each case, the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings; and
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of NHLP
and its Restricted Subsidiaries or which customarily exist on properties
of corporations engaged in similar activities and similarly situated and
which do not in any event materially impair their use in the operation of
the business of NHLP and its Restricted Subsidiaries.
4.6. Maintenance. NHLP, and each of its Restricted Subsidiaries,
will:
(a) maintain, preserve and keep, and will cause each Restricted
Subsidiary to maintain, preserve and keep, its properties which are used
or useful in the conduct of its business (whether owned in fee or a
leasehold interest) in good repair and working order and from time to time
will make all necessary repairs, replacements, renewals and additions so
that at all times the efficiency thereof shall be maintained; and
(b) without limiting the requirements set forth in clause (a),
maintain the Financed Facilities (i) in accordance with the Mortgages and
the Note and Mortgage Assignments, (ii) in compliance with all
requirements (other than the requirement of having a provider contract in
existence) necessary to allow the Financed Facilities to qualify at all
times as eligible providers for "Medicare" and "Medicaid" and, (iii) as
eligible providers of "Medicare" and maintain its other Property in good
condition, reasonable wear and tear excepted, and make all necessary
renewals, replacements, additions, betterments and improvements thereto
all in accordance with customary industry standards, provided that if NHLP
shall determine, as evidenced by a resolution of its Board of Directors,
that continued compliance with all requirements of "Medicare" and
"Medicaid" or continued participation as a "Medicare" provider is not in
the best interests of NHLP, the Financed Facilities shall not be required
to be so maintained.
4.7. Nature of Business. Neither NHLP nor any Restricted Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by NHLP and its
Restricted Subsidiaries would be substantially changed from the general nature
of the business engaged in by NHLP and its Restricted Subsidiaries on the date
of this Indenture.
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4.8. Compliance with Environmental Laws. (a) NHLP shall carry on the
business and operations at its Properties and all Properties managed by it to
comply in all material respects, and will comply in all material respects with
all applicable Federal, state, regional, county or local laws, statutes, rules,
regulations or ordinances, concerning public health, safety or the environment
including without limitation, any such applicable law, statute, rule, regulation
or ordinance relating to releases, discharges or emissions of Hazardous
Substances to air, water, land or groundwater, to the withdrawal or use of
groundwater, to the use and handling of polychlorinated biphenyls or asbestos,
to the disposal, treatment, storage or management of hazardous or solid waste,
or Hazardous Substances or crude oil, fractious petroleum, petroleum derivatives
or by-products, or to exposure to toxic or hazardous materials, to the handling,
transportation, discharge or release of gaseous or liquid Hazardous Substances
and any regulation, order, notice or demand issued pursuant to such law, statute
or ordinance, in each case applicable to the property of NHLP and its
Subsidiaries and General Partners or the operation, construction or modification
of any thereof including, but not limited to the following, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.9601 et
seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of
1984, 42 U.S.C. ss.6901 et seq., the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, 33 U.S.C. ss.1251 et seq., the Toxic
Substances Control Act of 1976, 15 U.S.C. ss.2601 et seq., the Emergency
Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.11001 et seq.,
the Clean Air Act of 1966, as amended, 42 U.S.C. ss.7401 et seq., the National
Environmental Policy Act of 1975, 42 U.S.C. ss.4321, the Rivers and Harbours Act
of 1899, 33 U.S.C. ss.401 et seq., the Endangered Species Act of 1973, as
amended, 16 U.S.C. ss.1531, et seq., the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C. ss.651 et seq., the Safe Drinking Water Act of 1974,
as amended, 42 U.S.C. ss.300(f) et seq., ss.2601, et seq.); and all rules,
regulations and guidance documents promulgated or published thereunder.
(b) NHLP shall prevent the imposition of any liens or encumbrances
against the Properties for the costs of any response, removal, or remedial
action or clean up of Hazardous Substances.
4.9. Maintenance of Principal Office. NHLP will give advance written
notice to the Indenture Trustee of any proposed change in NHLP's name or
location of its principal office and will execute and deliver to the Indenture
Trustee at least 60 days prior to the occurrence of any such change, all
additional financing statements, as the Indenture Trustee may require, or as may
be required by law in order to publish notice of and to continue the lien and
security interest of this Indenture on and in respect of the Mortgaged Property.
4.10. Merger, Consolidation, Sale of Assets. (a) NHLP will not, and
will not permit any Restricted Subsidiary to consolidate with or be a party to a
merger with any other Person (other than a transaction in accordance with the
provisions of ss.4.2), provided, however, that:
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(1) any Restricted Subsidiary may merge or consolidate with or into
NHLP or another Wholly-owned Restricted Subsidiary so long as in any
merger or consolidation involving NHLP, NHLP shall be the surviving or
continuing entity; and
(2) NHLP may consolidate or merge with any other Person if: (i) NHLP
shall be the surviving or continuing entity; (ii) at the time of such
consolidation or merger, and after giving effect thereto no Default or
Event of Default shall have occurred and be continuing, and (iii) after
giving effect to such consolidation or merger, NHLP would be permitted by
the provisions of ss.4.11(a) to incur at least $1.00 of additional Funded
Debt.
(b) NHLP will not sell, lease, transfer, abandon or otherwise
dispose of, all or any substantial part of the assets of NHLP and its Restricted
Subsidiaries (other than in connection with a transaction in accordance with the
provisions of ss.4.2); provided that the foregoing restrictions do not apply to:
(1) the sale, lease, transfer or other disposition of assets of a
Restricted Subsidiary to NHLP or another Restricted Subsidiary; or
(2) the sale, lease or other disposition of any or all of the Owned
Facilities; provided that either (i) the Indenture Trustee retains a first
mortgage on such assets and NHLP continues to manage any Owned Facility so
transferred pursuant to a Management Agreement in accordance with the
provisions of ss.4.22 or (ii) NHLP provides a Substitute Financed Facility
pursuant to ss.10 with respect to each Owned Facility so transferred.
(c) NHLP will not permit any Restricted Subsidiary to issue or sell
any Equity Interest (including as "Equity Interest" for the purposes of this
ss.4.10, any warrants, rights or options to purchase or otherwise acquire any
Equity Interest or other Securities exchangeable for or convertible into any
Equity Interest) of such Restricted Subsidiary to any Person other than NHLP or
a Wholly-owned Restricted Subsidiary if (i) (if at the time of such issuance or
sale NHLP shall continue to be organized as a limited partnership) at the time
of such issuance or sale and after giving effect thereto the percentage of
Equity Interests of such Restricted Subsidiary beneficially owned, directly or
indirectly, by NHLP, shall be less than 51% or (ii) (if at the time of such
issuance or sale NHLP shall be organized as a corporation) at the time of such
issuance or sale and after giving effect thereto the percentage of Voting Stock
of such Restricted Subsidiary beneficially owned, directly or indirectly, by
NHLP, shall be less than 80% (by number of votes) of the outstanding Voting
Stock of such Restricted Subsidiary, except (A) for the purpose of qualifying
directors, or (B) in satisfaction of the validly pre-existing preemptive rights
of minority shareholders in connection with the simultaneous issuance of stock
to NHLP and/or a Restricted Subsidiary whereby NHLP and/or such Restricted
Subsidiary maintain their same proportionate interest in such Restricted
Subsidiary.
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(d) NHLP will not sell, transfer or otherwise dispose of any Equity
Interest in any Restricted Subsidiary (except to qualify directors), and will
not permit any Restricted Subsidiary to sell, transfer or otherwise dispose of
(except to NHLP or a Wholly-owned Restricted Subsidiary) any Equity Interest of
any other Restricted Subsidiary, unless:
(1) either (i) at the time of such sale, transfer or other
disposition and giving effect thereto, the Restricted Subsidiary whose
Equity Interest is being disposed of or any other Restricted Subsidiary in
which such Restricted Subsidiary directly or indirectly holds any Equity
Interest remains a Restricted Subsidiary or (ii) simultaneously with such
sale, transfer, or disposition, all Equity Interest of such Restricted
Subsidiary at the time owned by NHLP and by every other Restricted
Subsidiary shall be sold, transferred or disposed of as an entirety,
provided that notwithstanding the foregoing clauses (i) and (ii), NHLP may
not dispose of any Equity Interest in Americare Southeast,
(2) the Board of Directors of NHLP shall have determined, as
evidenced by a resolution thereof, that the proposed sale, transfer or
disposition of such Equity Interest is in the best interests of NHLP;
(3) such Equity Interest is sold, transferred or otherwise disposed
of to a Person, for a cash consideration and on terms reasonably deemed by
the Board of Directors of each of National and NHC to be adequate and
satisfactory;
(4) if all Equity Interests of such Restricted Subsidiary at the
time owned by NHLP and by every other Restricted Subsidiary are being
sold, transferred or disposed of, the Restricted Subsidiary being disposed
of shall not have any continuing investment in NHLP or any other
Restricted Subsidiary not being simultaneously disposed of; and
(5) such sale or other disposition does not involve a substantial
part (as hereinafter defined) of the assets of NHLP and its Restricted
Subsidiaries.
As used in this ss.4.10, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of NHLP and its
Restricted Subsidiaries only if the the book value of such assets when added to
the book value of all other assets sold, leased or otherwise disposed of by NHLP
and its Restricted Subsidiaries during the immediately preceding Four-Quarter
Period of NHLP, exceeds 15% of Consolidated Total Assets determined as of the
end of the immediately preceding Fiscal Quarter.
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4.11. Limitations on Indebtedness. NHLP will not permit at any time
either:
(a) the ratio of Covenant Funded Debt to Consolidated Adjusted Net
Worth to exceed 3.5:1, provided that the ratio of Covenant Funded Debt to
Consolidated Adjusted Net Worth may increase to not more than 4.0:1 for
any number of nonconsecutive Four Quarter Periods; or
(b) the ratio of Consolidated Current Debt to Consolidated Adjusted
Net Worth to exceed 1.0:1.0.
For purposes of ss.4.11(b), Consolidated Current Debt shall not
include current maturities of Funded Debt.
4.12. Ratio of Cash Flow to Debt Service. NHLP will at all times
keep and maintain the ratio of Cash Flow to Debt Service at 1.30 to 1.00 or
greater.
4.13. Consolidated Net Worth. NHLP will at all times keep and
maintain Consolidated Net Worth at not less than the Minimum Net Worth.
For purposes of this ss.4.13, "Minimum Net Worth" shall mean, (i)
for the period from the Closing Date through December 31, 1990, $40,000,000,
(ii) for the period from January 1, 1991 through March 30, 1991, $41,400,000,
and (iii) for the period from the beginning of each subsequent Fiscal Quarter of
NHLP through the last day of such Fiscal Quarter, the Minimum Net Worth for the
immediately preceding Fiscal Quarter, plus $1,400,000.
4.14. Current Ratio. NHLP will at all times keep and maintain the
ratio of Consolidated Current Assets to Consolidated Current Liabilities at not
less than 1.5 to 1.0.
4.15. Indemnity. NHLP covenants and agrees to indemnify and hold
harmless the holders of the Notes (hereinafter collectively referred to as the
"indemnified parties") against any loss, liability, claim, damage or expense
(including, but not limited to, the reasonable cost of investigating and
defending against any such claim and reasonable counsel fees in connection
therewith) to which any indemnified party may become subject (including for this
purpose any subpoena duces tecum, subpoena for deposition or other similar writ
served upon any indemnified party in connection with any action brought by
holders of Equity Interests in NHLP involving NHLP or by shareholders of
National and involving National or such indemnified party) under any statute,
rule or regulation (including, without limitation, the Federal or state
securities laws) or under the common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the creation of the Issuer or the Plan by National or the purposes for
which the Plan or the Issuer were established by National or the Common Stock
was sold to the Issuer.
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4.16. Guaranties. The NHLP will not, and will not permit any
Restricted Subsidiary to, become or be liable in respect of any Guaranty except
the Guaranty Agreement and Guaranties of NHLP which are limited in amount to a
stated principal amount of Indebtedness thereby guaranteed and provided that the
Indebtedness represented thereby shall have been incurred within the applicable
limitations provided in ss.4.11.
4.17. Purchase of Notes by NHLP. Neither NHLP nor any Subsidiary or
Affiliate, directly or indirectly, may purchase or make any offer to purchase
any Notes unless an offer has been made to purchase Notes, pro rata, from all
holders of the Notes at the same time and upon the same terms. In case NHLP
purchases any Notes, such Notes shall thereafter be cancelled and no Notes shall
be issued in substitution therefor. Notwithstanding the foregoing, NHLP may
purchase and make offers to purchase Notes in accordance with ss.3.6 hereof and
any Notes so purchased shall not be required to be cancelled and new Notes may
be issued in substitution therefor.
4.18. Transactions with Affiliates. NHLP will not, and will not
permit any Restricted Subsidiary to, enter into or be a party to any transaction
or arrangement with any Affiliate or Subsidiary (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate or Subsidiary), except in the ordinary course
of and pursuant to the reasonable requirements of NHLP's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
NHLP or such Restricted Subsidiary than would obtain in a comparable
arm's-length transaction with a Person other than an Affiliate or a Subsidiary.
4.19. Investments. NHLP will not, and will not permit any Restricted
Subsidiary to, make any investments in or loans, advances or extensions of
credit to any Person, except:
(a) Investments, loans and advances by NHLP and its Restricted
Subsidiaries in and to Restricted Subsidiaries and Equity Subsidiaries,
including any investment in a corporation which, after giving effect to
such investment, will become a Restricted Subsidiary or an Equity
Subsidiary;
(b) loans or advances in the usual and ordinary course of business
to officers, directors and employees for expenses (including moving
expenses related to a transfer) incidental to carrying on the business of
NHLP or any Restricted Subsidiary and loans to officers, directors and
employees in connection with participation by such persons in the National
HealthCorp L.P. Unit Option Plan, as in existence on the date hereof or as
extended (which extension shall not amend any of the substantive
provisions thereof other than the termination date) by the vote of unit
holders thereunder pursuant to the terms thereof;
(c) receivables arising from the sale of services in the ordinary
course of business of NHLP and its Restricted Subsidiaries;
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(d) Loans or advances to third parties for construction or
acquisition financing or working capital requirements of nursing home
facilities that are managed by NHLP pursuant to Management Agreements,
provided that all such loans and advances shall be secured by liens on
such nursing home facilities and provided further that the aggregate
principal amount of such loans and advances shall not exceed 200% of
Consolidated Investment Net Worth;
(e) Investments in commercial paper or time deposits maturing in 270
days or less from the date of issuance, in each case issued by or
deposited with banks, the commercial paper of which, at the time of
acquisition by NHLP or any Restricted Subsidiary thereof, is rated at
least A-1 by Standard & Poor's Corporation ("S & P") and at least P-1 by
Moody's Investors Services, Inc. ("Moody's");
(f) Investments in direct obligations of the United States of
America, or obligations of any agency thereof which are backed by the
fully faith and credit of the United States, maturing in twelve months or
less from the date of acquisition thereof;
(g) Investments in certificates of deposit maturing within one year
from the date of origin, or in demand deposits, in each case issued by a
bank or trust company organized under the laws of the United States or any
state thereof, having capital, surplus and undivided profits aggregating
at least $100,000,000 and the long-term certificates of deposit of which
shall be rated at least A-1 by S & P and A+ by Moody's;
(h) Investments in equity securities that are traded on the New York
Stock Exchange or the American Stock Exchange;
(i) Investments in overnight repurchase agreements which are fully
secured by direct obligations of the United States of America (or
obligations of any agency thereof which are backed by the full faith and
credit of the United States) or overnight Eurodollar deposits, in each
case issued by a bank or trust company organized under the laws of the
United States or any state thereof, having capital, surplus and undivided
profits aggregating at least $100,000,000 and the long-term certificates
of deposit of which shall be rated at least A-1 by S & P and A+ by
Moody's, provided that amounts invested pursuant to this paragraph (i)
shall not at any time exceed 25% of Consolidated Investment Net Worth;
(j) Investments in demand deposits issued by any bank or trust
company organized under the laws of the United States or any state thereof
and located in any city or county in which NHLP shall own or manage a
nursing home, provided that amounts invested pursuant to this paragraph
(j) shall not at any time exceed 25% of Consolidated Investment Net Worth
in
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the aggregate and 5% of Consolidated Investment Net Worth in any one such
bank or trust company; and
(k) Joint Venture Investments, provided that amounts invested
pursuant to this paragraph (k) shall not at any time exceed 20% of
Consolidated Investment Net Worth.
In valuing any investments for the purpose of applying the
limitations set forth in this Agreement, such investments, loans and advances
shall be taken at the original cost thereof, without allowance for any
subsequent write-offs or appreciation or depreciation therein, but less any
amount repaid or recovered on account of capital or principal.
For purposes of this Indenture, at any time when any business entity
becomes a Restricted Subsidiary, all investments of such business entity at such
time shall be deemed to have been made by such business entity, as a Restricted
Subsidiary, at such time, provided that NHLP shall be deemed not to be in
violation of the provisions of this ss.4.19 solely by virtue of any entity
becoming a Restricted Subsidiary for a period of 90 days after such entity
becomes a Restricted Subsidiary.
4.20. ERISA Compliance.
(a) NHLP will not, and will not permit any Restricted Subsidiary to,
permit any Pension Plans at any time maintained by NHLP or any Restricted
Subsidiary to have any Unfunded Vested Pension Liabilities. As used herein
"Unfunded Vested Pension Liability" shall mean an excess of the actuarial
present value of accumulated vested Pension Plan benefits as at the end of the
immediately preceding Pension Plan year of such Pension Plans (or as of any more
recent valuation date) over the net assets allocated to such Pension Plans which
are available for benefits, all as determined and disclosed in the most recent
actuarial valuation report for such Pension Plans.
(b) All assumptions and methods used to determine the actuarial
valuation of vested employee benefits under all Pension Plans at any time
maintained by NHLP or any Restricted Subsidiary and the present value of assets
of such Pension Plans shall be reasonable in the good faith judgment of NHLP and
shall comply with all requirements of law.
(c) NHLP will not, and will not permit any Restricted Subsidiary to,
cause any Pension Plan which it maintains or in which it participates at any
time to:
(1) engage in any non-exempt, "prohibited transaction" (as such term
is defined in ERISA);
(2) incur any "accumulated funding deficiency" (as such term is
defined in ERISA), whether or not waived; or
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(3) terminate any such Pension Plan in a manner which could result
in the imposition of a lien on any property of the Company or any of its
Restricted Subsidiaries pursuant to ERISA.
(d) NHLP will not, and will not permit any Restricted Subsidiary to,
permit any condition to exist in connection with any Pension Plan which might
constitute grounds for the PBGC to institute proceedings to have such Pension
Plan terminated or a trustee appointed to administer such Pension Plan.
(e) NHLP will not, and will not permit any Restricted Subsidiary to,
withdraw from any Multiemployer Plan if such withdrawal shall subject NHLP or
any Restricted Subsidiary to withdrawal liability (as described under Part 1 of
Subtitle E of Title IV of ERISA).
4.21. Reports and Rights of Inspection. NHLP will keep, and will
cause each Restricted Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of NHLP or such Restricted
Subsidiary, in accordance with GAAP consistently applied (except for changes
disclosed in the financial statements furnished to you pursuant to this ss.4.21
and concurred in by the independent public accountants referred to in ss.4.21(b)
hereof), and will furnish to the Indenture Trustee and each Institutional Holder
of the then outstanding Notes (in duplicate if so specified below or otherwise
requested):
(a) Quarterly Statements. As soon as available and in any event
within 45 days after the end of each Fiscal Quarter (except the last) of
each Fiscal Year, copies of:
(1) consolidated and consolidating balance sheets of NHLP and
its Restricted Subsidiaries as of the close of such Fiscal Quarter,
setting forth in comparative form the consolidated figures for the
Fiscal Year then most recently ended,
(2) consolidated and consolidating statements of operations of
NHLP and its Restricted Subsidiaries for such Fiscal Quarter and for
the portion of the Fiscal Year ending with such period, in each case
setting forth in comparative form the consolidated figures for the
corresponding periods of the preceding Fiscal Year, and
(3) consolidated and consolidating statements of cash flows of
NHLP and its Restricted Subsidiaries for the portion of the Fiscal
Year ending with such Fiscal Quarter, setting forth in comparative
form the consolidated figures for the corresponding period of the
preceding Fiscal Year,
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all in reasonable detail and certified as complete and correct by an
authorized financial officer of NHLP;
(b) Annual Statements. As soon as available and in any event within
90 days after the close of each Fiscal Year of NHLP, copies of:
(1) consolidated and consolidating balance sheets of NHLP and
its Restricted Subsidiaries as of the close of such Fiscal Year, and
(2) consolidated and consolidating statements of income and
retained earnings and cash flows of NHLP and its Restricted
Subsidiaries for such Fiscal Year,
in each case setting forth in comparative form the consolidated figures
for the preceding Fiscal Year, all in reasonable detail and accompanied by
a report thereon of a firm of independent public accountants of recognized
national standing selected by NHLP to the effect that the consolidated
financial statements have been prepared in conformity with GAAP and
present fairly, in all material respects, the financial condition of NHLP
and its Restricted Subsidiaries and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of
NHLP or any Restricted Subsidiary and any management letter received from
such accountants;
(d) SEC and Other Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement
sent by NHLP to public holders of Limited Partnership Interests generally
and of each regular or periodic report, and any registration statement or
prospectus filed by NHLP or any Subsidiary with any securities exchange or
the Securities and Exchange Commission or any successor agency, and copies
of any orders in any proceedings to which NHLP or any of its Subsidiaries
is a party, issued by any governmental agency, Federal or state, having
jurisdiction over NHLP or any of its Subsidiaries (other than routine
health care notices issued by federal or state agencies administering the
Medicare or Medicaid programs);
(e) ERISA Reports. Promptly upon the occurrence thereof, written
notice of (i) a Reportable Event with respect to any Pension Plan
described in Section 4043 of ERISA and the regulations issued thereunder
(other than a Reportable Event not subject to the provision for a 30-day
notice to the PBGC under such regulations); (ii) the institution of any
steps by NHLP, any ERISA Affiliate, the PBGC or any other person to
terminate
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any Pension Plan, which steps would subject NHLP to any liability to the
PBGC; (iii) the institution of any steps by NHLP or any ERISA Affiliate to
withdraw from any Pension Plan, which steps would subject NHLP or any
ERISA Affiliate to any withdrawal liability; (iv) a "prohibited
transaction" within the meaning of Section 406 of ERISA in connection with
any Pension Plan; (v) any material increase in the contingent liability of
NHLP or any Restricted Subsidiary with respect to any post-retirement
welfare liability; or (vi) the taking of any action by, or the threatening
of the taking of any action by, the Internal Revenue Service, the
Department of Labor or the PBGC with respect to any of the foregoing;
(f) Officers' Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial
officer of NHLP stating that such officer has reviewed the provisions of
this Agreement and setting forth: (i) the information and computations (in
sufficient detail) required in order to establish whether NHLP was in
compliance with the requirements of ss.4.11 through ss.4.14 at the end of
the period covered by the financial statements then being furnished, and
(ii) whether there existed as of the date of such financial statements and
whether, to the best of such officer's knowledge, there exists on the date
of the certificate or existed at any time during the period covered by
such financial statements any Default or Event of Default and, if any such
condition or event exists on the date of the certificate, specifying the
nature and period of existence thereof and the action NHLP is taking and
proposes to take with respect thereto;
(g) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an
opinion with respect to such financial statements, stating that they have
reviewed this Indenture and stating further whether, in making their
audit, such accountants have become aware of any Default or Event of
Default under any of the terms or provisions of this Indenture insofar as
any such terms or provisions pertain to or involve accounting matters or
determinations, and if any such condition or event then exists, specifying
the nature and period of existence thereof;
(h) Within the respective periods provided in paragraph (b) above,
financial statements of the character and for the dates and periods as in
said paragraph (b) provided covering each Unrestricted Subsidiary that is
also a consolidated Subsidiary; and
(i) Requested Information. With reasonable promptness, such other
data and information as any Institutional Holder may reasonably request.
Without limiting the foregoing, NHLP will permit each Institutional Holder of
the then outstanding Notes (or such Persons as such Institutional Holder may
designate), to visit
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and inspect, under the NHLP's guidance, any of the properties of NHLP or any
Restricted Subsidiary, to examine all of their books of account, records,
reports and other papers, to make copies and extracts therefrom and to discuss
their respective affairs, finances and accounts with their respective officers,
employees, and independent public accountants (and by this provision NHLP
authorizes said accountants to discuss with each Institutional Holder the
finances and affairs of NHLP and its Restricted Subsidiaries) all at such
reasonable times and as often as may be reasonably requested. NHLP shall not be
required to pay or reimburse any such holder for expenses which any such holder
may incur in connection with any such visitation or inspection, provided that if
such visitation or inspection is made during any period when a Default or an
Event of Default shall have occurred and be continuing, NHLP agrees to reimburse
such holder for all such expenses promptly on demand.
4.22. Management Agreements. NHLP will at all times keep in force
and effect a Management Agreement with respect to each of the Managed
Facilities.
4.23. Covenants With Respect to Constructed Facilities. With respect
to the Constructed Facilities, NHLP will:
(a) Subcontractors. Submit or cause the General Contractor to submit
the names of any or all proposed subcontractors, subcontracts and
contracts with Persons who are to perform services or furnish labor and
materials or other items included in the Project Budget for the
Constructed Facilities, in any case having a value in excess of $100,000,
to the appropriate Consultant for its approval. The Consultant shall have
ten business days following receipt of (i) the contract or subcontract for
which approval is being requested and (ii) financial statements of the
proposed contractor or subcontractor (or, if additional information or
documentation is required by the Consultant in order to make such
determination, from the receipt by the Consultant of the last of such
requested information or documents) to grant or deny its approval. Such
grant or denial may be in writing or may be telephonically communicated to
NHLP. Failure of the Consultant to deny its approval within such ten
business day period shall be deemed to be approval by the Consultant.
(b) Diligent Prosecution of Construction. Cause the construction of
each Constructed Facility to be prosecuted with diligence and continuity
to completion on or before (i) with respect to the Myrtle Beach Facility,
December 31, 1991, (ii) with respect to the North Augusta Facility,
November 30, 1991, (iii) with respect to the Greenville Facility, December
31, 1991, (iv) with respect to the Pinellas Facility, December 31, 1991
and (v) with respect to the Sun City Facility, November 30, 1991, subject
to extensions for unavoidable delays which do not extend beyond 120 days
in the aggregate, free and clear of all Liens or claims for Liens, subject
to its right to contest the same in accordance with the provisions of the
Mortgages.
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(c) Change Orders. Not execute or authorize or permit the execution
of any Change Order for additional costs equal to or greater than $25,000
without the prior written approval of the Consultant; provided, that any
such Change Order may be made without such prior written consent if such
change (i) does not violate the terms of any contract previously approved
by the Consultant and (ii) will not result in a change in the size,
appearance or usefulness of any Constructed Facility for its intended
purposes or reduce the quality of any Constructed Facility or reduce the
net area of any Constructed Facility; and further provided that no Change
Order for additional costs in excess of $25,000 shall be executed without
the prior written approval of the Consultant. The authorization of any
such Change Order by or on behalf of NHLP shall constitute a
representation from NHLP to the Indenture Trustee and the holders of the
Notes that the foregoing conditions have been satisfied. The Consultant
shall have the right at any time to require receipt of evidence
satisfactory to it showing compliance with the conditions precedent to
Change Orders permitted by this ss.4.23(c) as a condition precedent to
making any such Change Order.
(d) Correction of Defects in Construction. Upon demand by any
Consultant, the Indenture Trustee or the holders of not less than 64% in
aggregate principal amount of the Notes then outstanding, pursue the
correction of any structural defect in any Constructed Facility or any
departure from the Plans not approved by the Consultant for any such
Constructed Facility or authorized by any other provisions of this
Indenture. The disbursement of funds under ss.9 shall not constitute a
waiver of the right of the Indenture Trustee or the holders of the Notes
to require compliance with this covenant with respect to any such defects
or departures from the Plans not previously objected to by such
Consultant.
(e) Other Contracts. With respect to any Constructed Facility if the
Consultant for such Facility so requests, provide such Consultant with
copies of any and all contracts and agreements for the performance of
work included within the Project Budget and not covered by the related
General Contract and will not enter into any contracts or agreements for
the performance of any such work if the contract price therefor would
cause the total cost for such work to exceed the amount budgeted therefor
in the Project Budget unless the amount of such excess shall have been
deposited in the Construction Fund Sub-Account.
(f) Myrtle Beach Facility. With respect to the Myrtle Beach
Facility, within 90 days after the final disbursement for such Facility is
made from the Myrtle Beach Facility Sub-Account (i) cause NHLP to acquire
Americare Southeast and cause American Southeast to cease to exist, and
(ii) cause the certificate of need, Medicare provider contract and all
licenses and permits necessary to operate the Myrtle Beach Facility to be
transferred to NHLP.
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4.24. Officers Certificate Regarding Managed Facilities. With
respect to each Managed Facility, NHLP will deliver to the Indenture Trustee, on
or before March 1 of each year after the year 1990, (i) an Officers' Certificate
setting forth, with respect to transactions during the preceding calendar year
pursuant to ss.3.2(a) of each of the Mortgages on the Managed Facilities, the
aggregate fair value at the date or dates of disposition of, the aggregate
amount realized from, and a general description of, any property disposed of
pursuant to ss.3.2(a) of each of the Mortgages on the Managed Facilities (and
stating that such property had become obsolete or unfit for use or no longer
useful, necessary or profitable in the conduct of the business of the owner
thereof) and the aggregate fair value of, the cost of, and a general description
of, any property acquired in substitution for such property sold or disposed of,
(ii) such supplemental mortgages, financing statements or other instruments as
may be necessary for the purpose of effectually subjecting such acquired
property to the lien of such Mortgage and (iii) an Opinion of Counsel that such
supplemental mortgages, financing statements, lease assignments or other
instruments have been duly executed and are sufficient for such purpose or that
no such supplemental mortgages, financing statements, lease assignments or
instruments are necessary.
SECTION 5. COVENANTS OF THE ISSUER.
The Issuer covenants, represents and warrants with the Indenture
Trustee for the benefit of the Indenture Trustee and the holders of the Notes as
follows:
5.1. Taxes, Compliance with Laws. The Issuer will promptly pay and
discharge all material taxes, assessments and governmental charges or levies
imposed upon the Issuer or upon or in respect of all or any part of the property
of the Issuer; provided the Issuer shall not be required to pay any such tax,
assessment, charge, levy, account payable or claim if the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any material
property of the Issuer or any material interference with the use thereof by the
Issuer. The Issuer will promptly comply with all laws, ordinances or
governmental rules and regulations to which it is subject, the violation of
which could materially and adversely affect its properties, prospects or
condition.
5.2. Purchase of Notes by the Issuer. The Issuer will not, directly
or indirectly, purchase or make any offer to purchase any Notes unless the offer
has been made to purchase Notes, pro rata, from all holders of the Notes at the
same time and upon the same terms. In ease the Issuer purchases any Notes, such
Notes shall thereafter be cancelled and no Notes shall be issued in substitution
therefor.
5.3. ERISA Covenants.
(a) Maintenance of Plan and Compliance. The Issuer will agree to any
amendments to the Trust Agreement requested by National so that (i) the Plan
will at all times remain qualified under Section 401(a) of the Code, (ii) the
Issuer will remain exempt from Federal taxes under Section 501(a) of the Code,
and (iii) the Plan's status
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as a qualified employee stock ownership plan which complies with the
requirements of Section 4975(e)(7) of the Code and the rules and regulations
promulgated thereunder will be maintained. Notwithstanding the foregoing, at all
times the Issuer will comply in all material respects with all requirements of
the Plan, the Code, ERISA and any other law, rule or regulation applicable to
the Issuer. In addition, upon the direction of National, the Issuer will comply
with any conditions imposed by the Internal Revenue Service to obtain a
favorable determination letter with respect to it, including any changes in the
Trust Agreement that may be required for the issuance of said determination
letter.
(b) Amendments of the Trust Agreement. The Issuer will not agree to
any amendment of the Trust Agreement which materially and adversely affects the
rights of the holders of the Notes unless such amendment, in the Opinion of
Counsel to the Issuer, is required for compliance with ERISA and/or the Plan to
remain qualified under Section 401(a) or Section 4975(e)(7) of the Code. The
Issuer will in any event give the Noteholders not less than 30 days prior
written notice of any amendment to the Trust Agreement which would materially
and adversely affect the rights of the holders of the Notes.
5.4. Reports and Rights of Inspection. The Issuer will keep proper
books of record and account in which full and correct entries will be made of
all dealings or transactions of or in relation to the business and affairs of
the Issuer, in accordance with GAAP consistently applied and will furnish to the
Indenture Trustee and to each Institutional Holder of the then outstanding
Notes, with reasonable promptness, such data and information regarding the
Issuer within the Issuer's possession (including a copy of any amendment to the
Plan or any determination letter with respect to the Issuer) as any
Institutional Holder may reasonably request, except to the extent disclosure of
such information by the Issuer to such Institutional Holder would be prohibited
by ERISA.
Without limiting the foregoing and except to the extent prohibited
by ERISA, the Issuer will permit each Institutional Holder of the outstanding
Notes (or such persons as such Institutional Holder may designate) to visit the
Plan Trustee and inspect, under the Plan Trustee's guidance, any of the
properties of the Issuer, and to discuss the affairs, finances and accounts of
the Issuer with officers and employees of the Plan Trustee and the independent
public accountants of the Issuer (and by this provision the Issuer authorizes
said accountants to discuss with you the finances and affairs of the Issuer) all
at such reasonable times and as often as may be reasonably requested. In
addition, the Issuer will permit each Institutional Holder, except to the extent
prohibited by ERISA, to examine all of their books of account, records, reports
and other papers, to make copies and extracts therefrom all at such reasonable
times and as often as may be reasonably requested. The Issuer shall not be
required to pay or reimburse any such holder for expenses which any such holder
may incur in connection with any such visitation or inspection, provided that if
such visitation or inspection is made during any period when a Default or an
Event of Default shall have occurred and be continuing, the Issuer agrees to
reimburse such holder for all such expenses promptly upon demand.
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5.5. Performance of Operative Agreements; Payment of Notes; Further
Assurances. Except to the extent prohibited by ERISA, the Issuer will perform,
abide by and to be governed and restricted by each and all of the terms,
provisions, restrictions, covenants and agreements applicable to it which are
set forth in each Operative Agreement to which it is a party, and, except to the
extent prohibited by ERISA, the Issuer covenants and agrees to perform, abide by
and to be governed and restricted by each and all of the terms, provisions,
restrictions, covenants and agreements applicable to it which are set forth in
each Operative Agreement to which it is a party, and in each and every
supplement thereto or amendment thereof which may at any time or from time to
time be executed and delivered by the parties thereto or their successors and
assigns, to the same extent as though each and all of said terms, provisions,
restrictions, covenants and agreements were fully set out herein and as though
any amendments or supplements to each of such Operative Agreements were fully
set out in an amendment or supplement to this Indenture.
The Issuer will, by 10:00 a.m., Hartford, Connecticut time, on the
due date for any payment of principal, premium or interest on any Note, deposit
or cause to be deposited with the Indenture Trustee in immediately available
funds a sum sufficient to pay the principal, premium, if any, or interest due on
such date, such sum to be held in trust for the benefit of the holder of such
Note.
The Issuer will at any time and from time to time, at NHLP's
expense, do, execute, acknowledge and deliver to the Noteholders and/or the
Indenture Trustee such further act, deed, conveyance, transfer, instrument,
document and assurance and take such further action, if the Noteholders and/or
the Indenture Trustee may from time to time reasonably request, in order to
further carry out the intent and purpose of this Indenture and the Note Purchase
Agreement and to establish and protect the rights, intentions and remedies
created, or intended to be created, in favor of the Noteholders, including,
without limitation, the execution, delivery and recordation and filing of
Mortgages, security agreements and financing statements and continuation
statements under the Uniform Commercial Code required by applicable law to be so
recorded or filed so as to make effective of record the lien intended to be
created thereby.
5.6. Use of Proceeds. The Issuer will use the proceeds from the sale
of the Notes exclusively for the purchase of shares of Common Stock of National
in accordance with the provisions of Section 133 of the Code and the Stock
Purchase Agreement.
SECTION 6. COVENANTS OF NATIONAL.
National covenants, represents and warrants with the Indenture
Trustee for the benefit of the Indenture Trustee and the holders of the Notes as
follows:
6.1. National Existence. National will preserve and keep in full
force and effect and will cause each Restricted Subsidiary to preserve and keep
in full force
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and effect, its corporate existence and all licenses and permits necessary to
the proper conduct of its business and National will at all times be and remain
the Administrative General Partner of NHLP provided that National shall not be
required to maintain its corporate existence or remain the Administrative
General Partner of NHLP if NHLP shall cease its existence as a limited
partnership in accordance with the provisions of ss.4.2.
6.2. Insurance. National will maintain and will cause each
Restricted Subsidiary to maintain, insurance coverage by financial sound and
reputable insurers accorded a rating by A.M. Best Company, Inc. at the time of
issuance of any policy of in the case of professional liability and property
insurance, A:VII or higher, in the case of property insurance on boilers and
machinery, A:IX or higher, and in the case of all other policies, A:XII or
higher, such insurance coverage to be in such forms and amounts and against such
risks as are customary for corporations of established reputation engaged in the
same or a similar business and owning and operating similar properties;
provided, that National will, on the date of renewal of any such policy, obtain
such insurance policy from a financially sound and reputable insurer accorded a
rating by A.M. Best Company, Inc. of A: XII or higher at the time of issuance of
such policy.
6.3. Takes, Claims for Labor and Materials, Compliance with Laws.
National will promptly pay and discharge and will cause each Restricted
Subsidiary to pay and discharge, all lawful taxes, assessments and governmental
charges or levies imposed upon National or such Restricted Subsidiary,
respectively, or upon or in respect of all or any part of the Property or
business of National or such Restricted Subsidiary, all trade accounts payable
in accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of
National or such Restricted Subsidiary; provided National shall not be required
to pay any such tax, assessment, charge, levy, account payable or claim if (i)
the validity, applicability or amount thereof is being contested in good faith
by appropriate actions or proceedings which will prevent the forfeiture or sale
of any Property of National or such Restricted Subsidiary or any material
interference with the use thereof by National or such Restricted Subsidiary, and
(ii) National or such Restricted Subsidiary shall set aside on its books,
reserves deemed by it to be adequate with respect thereto. National will
promptly comply with all laws, ordinances or governmental rules and regulations
to which it is subject, the violation of which could materially and adversely
affect the properties, business, prospects, profits or condition of National or
National and its Restricted Subsidiaries taken as a whole or would result in any
Lien except:
(a) Liens for property taxes and assessments or governmental charges
or levies and Liens securing claims or demands of mechanics and
materialmen, provided that payment thereof is not at the time required by
this ss.6.3;
(b) Liens of or resulting from any judgment or award, the time for
the appeal or petition for rehearing of which shall not have expired, or
in respect of which National or a Restricted Subsidiary thereof shall at
any
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time in good faith be prosecuting an appeal or proceeding for a review and
in respect of which a stay of execution pending such appeal or proceeding
for review shall have been secured;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's
and attorneys' liens and statutory landlords' liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other liens of like
general nature incurred in the ordinary course of business and not in
connection with the borrowing of money, provided in each case, the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings; and
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of
National and its Restricted Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and similarly
situated and which do not in any event materially impair their use in the
operation of the business of National and its Restricted Subsidiaries.
6.4. Maintenance. National and each of its Restricted Subsidiaries,
will maintain, preserve and keep and will cause each Restricted Subsidiary to
maintain, preserve and keep, its properties which are used or useful in the
conduct of its business (whether owned in fee or a leasehold interest) in good
repair and working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency thereof
shall be maintained.
6.5. Nature of Business. Neither National nor any Restricted
Subsidiary will engage in any business if, as a result, the general nature of
the business which would then be engaged in by National taken on a consolidated
basis, would be substantially changed from the general nature of the business
engaged in by National and its Restricted Subsidiaries on the date of this
Indenture.
6.6. Compliance with Environmental Laws. (i) National shall carry on
the business and operations at its Properties and all Properties managed by it
to comply in all material respects, and will comply in all material respects
with all applicable Federal, state, regional, county or local laws, statutes,
rules, regulations or ordinances, concerning public health, safety or the
environment including without limitation, any such applicable law, statute,
rule, regulation or ordinance relating to releases, discharges or emissions of
Hazardous Substances to air, water, land or groundwater, to the withdrawal or
use of groundwater, to the use and handling of polychlorinated biphenyls or
asbestos, to the disposal, treatment, storage or management of hazardous or
solid waste, or Hazardous Substances or crude oil, fractious petroleum,
petroleum
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derivatives or by-products, or to exposure to toxic or hazardous materials, to
the handling, transportation, discharge or release of gaseous or liquid
Hazardous Substances and any regulation, order, notice or demand issued pursuant
to such law, statute or ordinance, in each case applicable to the property of
National and its Subsidiaries or the operation, construction or modification of
any thereof, including, but not limited to the following, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.9601 et
seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of
1984, 42 U.S.C. ss.6901 et seq., the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, 33 U.S.C. ss.1251 et seq., the Toxic
Substances Control Act of 1976, 15 U.S.C. ss.2601 et seq., the Emergency
Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.11001 et seq.,
the Clean Air Act of 1966, as amended, 42 U.S.C. ss.7401 et seq., the National
Environmental Policy Act of 1975, 42 U.S.C. ss.4321, the Rivers and Harbours Act
of 1899, 33 U.S.C. ss.401 et seq., the Endangered Species Act of 1973, as
amended, 16 U.S.C. ss.1531, et seq., the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C. ss.651 et seq., the Safe Drinking Water Act of 1974,
as amended, 42 U.S.C. ss.300(f) et seq., ss.2601, et seq.); and all rules,
regulations and guidance documents promulgated or published thereunder.
(ii) National shall prevent the imposition of any liens or
encumbrances against the Properties for the costs of any response, removal, or
remedial action or clean up of Hazardous Substances.
6.7. Guaranties. National will not, and will not permit any
Restricted Subsidiary to, become or be liable in respect of any guaranty except
the Guaranty Agreement and except Guaranties of National of Indebtedness of the
Issuer which are limited in amount to a stated principal amount of Indebtedness
thereby guaranteed.
6.8. Purchase of Notes. Neither National nor any Subsidiary or any
Affiliate, directly or indirectly, may repurchase or make any offer to
repurchase any Notes unless an offer has been made to purchase Notes, pro rata,
from all holders of the Notes at the same time and upon the same terms. In case
National purchases any Notes, such Notes shall thereafter be cancelled and no
Notes shall be issued in substitution therefor.
6.9. Transactions with Affiliates. National will not and will not
permit any Restricted Subsidiary to, enter into or be a party to any transaction
or arrangement with any Affiliate or Subsidiary (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate or Subsidiary), except in the ordinary course
of and pursuant to the reasonable requirements of National's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable to
National or such Restricted Subsidiary than would obtain in a comparable
arm's-length transaction with a Person other than an Affiliate or Subsidiary.
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6.10. ERISA Compliance.
(a) Maintenance of Plan and Compliance. National will at all times
(i) cause the Plan to remain qualified under Section 401(a) of the Code, (ii)
cause the Issuer to remain exempt from Federal taxes under Section 501(a) of the
Code and (iii) maintain the status of the Plan as a qualified employee stock
ownership plan which complies with the requirements of Section 4975(e)(7) of the
Code and the rules and regulations promulgated thereunder. At all times National
will, and will cause the Issuer and the Plan to, comply in all material respects
with all requirements of the Code, ERISA and any other law, rule or regulation
applicable to the Issuer or the Plan. In addition, National will comply with any
conditions imposed by the Internal Revenue Service to obtain a favorable
determination letter regarding the Plan and the Trust Agreement, including any
changes in the Plan or the Trust Agreement that may be required for the issuance
of such determination letter.
(b) Amendments of the Plan. National will not agree to any amendment
of the Plan or the Trust Agreement which materially and adversely affects the
rights of the holders of the Notes unless such amendment, in the Opinion of
Counsel to the Issuer, is required for compliance with ERISA and/or the Plan to
remain qualified under Section 401(a) or Section 4975(e)(7) of the Code.
National will in any event give the Noteholders not less than 30 days prior
written notice of any amendment of the Plan or the Trust Agreement which would
materially and adversely affect the rights of the holders of the Notes.
(c) Determination Letters. As soon as the Internal Revenue Service
begins accepting applications for determination letters for employee stock
ownership plans with respect to the Tax Reform Act of 1986 and other applicable
laws, National will promptly apply for and use its best efforts to obtain a
determination letter from the Internal Revenue Service to the effect that the
Plan and the Issuer meet the requirements for qualification under Sections
401(a) and 4975(e)(7) of the Code and that the Issuer meets the requirements for
tax exemption under Section 501(a) of the Code.
(d) National will not, and will not permit any Restricted Subsidiary
to, cause any Pension Plan which it maintains or in which it participates at any
time to:
(i) engage in any non-exempt, "prohibited transaction" (as such
term is defined in ERISA);
(ii) incur any "accumulated funding deficiency" (as such term is
defined in ERISA), whether or not waived; or
(iii) terminate any such Pension Plan in a manner which could result
in the imposition of a lien on any property of the Company or any of its
Restricted Subsidiaries pursuant to ERISA.
(e) National will not, and will not permit any Restricted Subsidiary
to, permit any condition to exist in connection with any Pension Plan which
might
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constitute grounds for the PBGC to institute proceedings to have such Pension
Plan terminated or a trustee appointed to administer such Pension Plan.
(f) National will not, and will not permit any Restricted Subsidiary
to, withdraw from any Multiemployer Plan if such withdrawal shall subject
National or any Restricted Subsidiary to withdrawal liability (as described
under Part 1 of Subtitle E of Title IV of ERISA).
6.11. Contributions to the Issuer. National covenants that it will
and will cause its Subsidiaries to make contributions to the Issuer in amounts
sufficient to enable the Issuer to make payments of principal, premium, if any,
and interest on the Notes when due.
6.12. Reports and Rights of Inspection. National will keep, and will
cause each Restricted Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of National or such Restricted
Subsidiary, in accordance with GAAP consistently applied (except for changes
disclosed in the financial statements furnished to you pursuant to this ss.6.12
and concurred in by the independent public accountants referred to in ss.6.12(b)
hereof), and will furnish to the Indenture Trustee and each Institutional Holder
of the then outstanding Notes (in duplicate if so specified below or otherwise
requested):
(a) Quarterly Statements. As soon as available and in any event
within 45 days after the end of each Fiscal Quarter (except the last) of
each Fiscal Year, copies of:
(1) consolidated and consolidating balance sheets of National
and its Restricted Subsidiaries as of the close of such Fiscal
Quarter setting forth in comparative form the consolidated figures
for the fiscal year then most recently ended,
(2) consolidated and consolidating statements of operations of
National and its Restricted Subsidiaries for such Fiscal Quarter and
for the portion of the Fiscal Year ending with such period, in each
case setting forth in comparative form the consolidated figures for
the corresponding periods of the preceding Fiscal Year, and
(3) consolidated and consolidating statements of cash flows of
National and its Restricted Subsidiaries for the portion of the
Fiscal Year ending with such Fiscal Quarter, setting forth in
comparative form the consolidated figures for the corresponding
period of the preceding Fiscal Year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of National;
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(b) Annual Statements. As soon as available and in any event
within 90 days after the close of each Fiscal Year of National,
copies of:
(1) consolidated and consolidating balance sheets of
National and its Restricted Subsidiaries as of the close of
such Fiscal Year, and
(2) consolidated and consolidating statements of income
and retained earnings and cash flows of National and its
Restricted Subsidiaries for such Fiscal Year,
in each case setting forth in comparative form the consolidated
figures for the preceding Fiscal Year, all in reasonable detail and
accompanied by a report thereon of a firm of independent public
accountants of recognized national standing selected by National to
the effect that the consolidated financial statements have been
prepared in conformity with GAAP and present fairly, in all material
respects, the financial condition of National and its Restricted
Subsidiaries and that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the
books of National or any Restricted Subsidiary and any management
letter received from such accountants;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by National to stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by National or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency, and copies of any orders in any proceedings to which
National or any of its Subsidiaries is a party, issued by any
governmental agency, Federal or state, having jurisdiction over
National or any of its Subsidiaries (other than routine health care
notices issued by federal or state agencies administering the
Medicare or Medicaid programs);
(e) ERISA Reports. Promptly upon the occurrence thereof,
written notice of (i) a Reportable Event with respect to any Pension
Plan which requires notice to be given to the PBGC; (ii) the
institution of any steps by National, any ERISA Affiliate, the PBGC
or any other person to terminate any Pension Plan, which steps would
subject NHLP to any liability to the PBGC; (iii) the institution of
any steps by National or any ERISA Affiliate to withdraw from any
Pension Plan, which steps would subject NHLP or any ERISA Affiliate
to any withdrawal liability; (iv) a "prohibited
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transaction" within the meaning of Section 406 of ERISA in
connection with any Pension Plan; (v) any material increase in the
contingent liability of National or any Restricted Subsidiary with
respect to any post-retirement welfare liability; or (vi) the taking
of any action by, or the threatening of the taking of any action by,
the Internal Revenue Service, the Department of Labor or the PBGC
with respect to any of the foregoing;
(f) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an
opinion with respect to such financial statements, stating that they
have reviewed this Indenture and stating further whether, in making
their audit, such accountants have become aware of any Default or
Event of Default under any of the terms or provisions of this
Indenture insofar as any such terms or provisions pertain to or
involve accounting matters or determinations, and if any such
condition or event then exists, specifying the nature and period of
existence thereof;
(g) Trust Agreement, Plan. Not more than 30 days after the
close of each Fiscal Year of the Issuer, a copy of any amendment or
modification to the Trust Agreement or the Plan made during such
Fiscal Year;
(h) Annual Report. Not more than 15 days after the filing
thereof, a copy of the Federal return/report (IRS Form 5500) of the
Issuer for each Fiscal Year;
(i) Copies of Determination Letters. As soon as available and
in any event within ten days after receipt thereof, a copy of (i)
the determination letter received from the Internal Revenue Service
in accordance with the requirements of ss.6.10(c) and (ii) each
other determination letter received from the Internal Revenue
Service with respect to the Plan or the Issuer; and
(j) Requested Information. With reasonable promptness, such
other data and information as any such Institutional Holder may
reasonably request.
Without limiting the foregoing, National will permit each Institutional Holder
of the then outstanding Notes (or such Persons as such Institutional Holder may
designate), to visit and inspect, under National's guidance, any of the
properties of National or any Restricted Subsidiary, to examine all of their
books of account, records, reports and other papers, to make copies and extracts
therefrom and to discuss their respective affairs, finances and accounts with
their respective officers, employees, and independent public accountants (and by
this provision National authorizes said accountants to discuss with each
Institutional Holder the finances and affairs of National and its Restricted
Subsidiaries) all at such reasonable times and as often as may be reasonably
requested. National shall not be required to pay or reimburse any such holder
for expenses which any such holder may incur in connection with any such
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visitation or inspection, provided that if such visitation or inspection is made
during any period when a Default or an Event of Default shall have occurred and
be continuing, National agrees to reimburse such holder for all such expenses
promptly on demand.
SECTION 7. APPLICATION OF CERTAIN MONEYS RECEIVED BY THE INDENTURE TRUSTEE,
SUBSTITUTION OF COLLATERAL, AND RELEASE OF MORTGAGED PROPERTY.
7.1. Application of Moneys. All amounts from time to time received
by the Indenture Trustee constituting (i) contributions relating to the Notes
which have been made by National to the Plan, (ii) payments of principal of,
premium, if any, and interest on the NHLP Note and (iii) any other amount
received with respect to regularly scheduled payments or prepayments of
principal of, premium, if any, and interest on the Notes shall be applied to the
payments and prepayments of principal of, premium, if any, and interest on the
Notes which have become due and payable or will become due and payable on or
before the date of receipt of any of the foregoing payments, and second, the
balance, if any, of any amounts received pursuant to clauses (i) and (ii) shall
be paid to or upon the order of National and the balance, if any, of any amounts
received pursuant to clause (iii) shall be paid to or upon the order of the
party to whom such amount is due.
7.2. Application of Insurance Proceeds-Owned Facility. (a) So long
as no Event of Default has occurred and is continuing, if the Indenture Trustee,
pursuant to the terms of any Mortgage relating to an Owned Facility, receives
insurance proceeds on account of the loss of any Owned Facility or other
proceeds from condemnation proceedings in respect of any Owned Facility by any
governmental authority ("Event of Loss") (the aggregate amount of payments of
any such proceeds received on any date by the Indenture Trustee being a "Loss
Payment") (except in cases where the Loss Payment is less than $250,000 and no
Default or Event of Default shall have occurred and be continuing, in which case
the Loss Payment may be received by NHLP, and if received by the Indenture
Trustee shall be paid over by the Indenture Trustee to NHLP for use by NHLP in
paying for replacement or repairs of or substitutes for the damaged or destroyed
property) the Loss Payment shall be held by the Indenture Trustee as part of the
Mortgaged Property during the period (the "Loss Payment Notice Period")
beginning on the date of the Indenture Trustee's receipt of such Loss Payment
and ending on and including the fifth day next following the date on which NHLP
shall have received written notice from the Indenture Trustee thereof and shall
be applied by the Indenture Trustee as follows: at the election of NHLP either
to the prepayment of the Notes in accordance with clause (i) of this ss.7.2(a)
or to the cost of repairing or replacing that part of the Financed Facility
which was the subject of such Event of Loss in accordance with clause (ii) of
this ss.7.2(a).
(i) In the event NHLP elects to prepay the Notes, such
proceeds, award or compensation, as the case may be, shall be
applied in payment and satisfaction of the Loan Value of the Owned
Facility with respect to which such proceeds, award or compensation
shall apply together with interest
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National Health Corporation Indenture of Trust and Security Agreement
accrued thereon to the date of payment and the Make-Whole Premium
Amount with respect thereto, upon the terms and in the manner provided
in Section 3.3 hereof and the balance, if any, of any such proceeds,
award or compensation shall be released to or upon the order of NHLP.
If for any reason such proceeds, award or compensation are less than
the Loan Value of the Owned Facility together with interest accrued
thereon to the date of payment and the Make-Whole Premium Amount with
respect thereto, NHLP or the Issuer shall promptly pay the difference
between such proceeds, award or compensation and the Loan Value plus
such interest and the Make-Whole Premium Amount to the Indenture
Trustee for application in accordance herewith. As a condition to the
payment or application of such proceeds, award or compensation under
this Section 7.1(a)(i), the Owned Facility with respect to which such
proceeds, award or compensation shall apply shall be released from the
mortgage and/or lien under this Indenture or the related Mortgage upon
receipt by the Indenture Trustee of an amount equal to the Loan Value
of the subject Owned Facility plus interest accrued thereon to the
date of payment and the Make-Whole Premium Amount with respect
thereto.
(ii) In the event NHLP elects to repair or replace the Owned
Facility, such proceeds, award or compensation shall be paid to NHLP
from time to time upon a written application signed by a Responsible
Officer of NHLP for the purpose of paying, or reimbursing NHLP for the
payment of, the reasonable cost, as shown by such certificate, of
repairing or replacing that part or all of the Owned Facility damaged
or destroyed, which application shall be accompanied by an approving
certificate of an architect or engineer selected by NHLP and approved
by the Indenture Trustee, as directed by the holders of not less than
64% in aggregate principal amount of the Notes then outstanding,
demonstrating that the portion of such proceeds, award or compensation
remaining on deposit with the Indenture Trustee, together with any
additional funds irrevocably allocated or otherwise provided for in a
manner satisfactory to the Indenture Trustee, as directed by the
holders of not less than 64% in aggregate principal amount of the Notes
then outstanding, for such purpose, shall be sufficient to complete
such repairs or replacements and restore the Owned Facility as nearly
as possible to the market value, utility and condition which existed
immediately prior to the Event of Loss, free from liens or encumbrances
except the related Mortgage and Permitted Encumbrances, and the
balance, if any, of any such proceeds, award or compensation shall be
released to or upon the order of NHLP. Every such application for the
payment of such proceeds, award or compensation shall state that no
Default or Event of Default has occurred and is continuing. NHLP shall
promptly complete such repairs or replacements in accordance with the
terms and provisions of Section 2.4 of the related Mortgage. The
Indenture Trustee shall receive a supplement hereto and to the related
Mortgage sufficient, as shown by an opinion of counsel, to grant a
valid first lien in any additions to or substitutions for the mortgaged
property to the Indenture Trustee, which
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National Health Corporation Indenture of Trust and Security Agreement
opinion shall also cover the filing and/or recording of such
supplements (or a financing statement or similar notice thereof if and
to the extent permitted or required by applicable law) so as to perfect
the lien and security interest in such additions or substitutions, or
in the alternative an opinion that no such supplement is required for
such purpose.
(b) Any appraisal or adjustment of such loss, or any
settlement or payment of indemnity therefor, shall be agreed upon between NHLP,
the relevant insurance company and (unless the loss being adjusted is $250,000
or less) the Indenture Trustee.
7.3. Mortgage Title Insurance. Any moneys received by the
mortgagees or beneficiaries under a Mortgage relating to an Owned Facility as
payment for any loss under any policy of mortgage title insurance which was
delivered by NHLP shall become part of the Mortgaged Property and shall be paid
and applied in the same manner contemplated by Section 3.3 hereof.
7.4. Application of Optional Prepayment in Whole of a Managed
Facility Note. Upon the receipt by the Indenture Trustee of any amount in
respect of an optional prepayment in whole of the outstanding principal amount
of any Managed Facility Note (the "Prepaid Amount") and the release of the
Mortgage on the Managed Facility to which such Managed Facility Note relates,
the Indenture Trustee shall hold the Prepaid Amount in a segregated account on
behalf of the holders of the Notes until such time as NHLP shall have
substituted a Substitute Financed Facility for the Financed Facility to which
the Managed Facility Note relates, but in any event for not longer than 180 days
after receipt thereof. Upon substitution of a Substitute Financed Facility for
such Financed Facility in accordance with Section 10, the Indenture Trustee
shall, without further notice or direction, pay over the Prepaid Amount to or
on the order of NHLP. If on such 180th day NHLP shall not have substituted a
Substitute Financed Facility for such Financed Facility, the Indenture Trustee
shall apply such moneys to the prepayment of Notes in an amount equal to the
Loan Value of the Financed Facility relating to such Managed Facility Note,
together with accrued interest thereon to the date of payment and the
Make-Whole Premium Amount with respect thereto, upon the terms and in the
manner provided in Section 3.3 hereof and the balance, if any, shall be
released to or upon the order of NHLP.
7.5. Application of Insurance Proceeds - Managed Facility. So
long as no Event of Default has occurred and is continuing, if the Indenture
Trustee receives insurance proceeds on account of the loss of any Managed
Facility or other proceeds from condemnation proceedings in respect of any
Managed Facility pursuant to the provisions of the Assignment of Note and
Mortgage and Section 4.l(a) of the Mortgage relating to such Managed Facility,
the Indenture Trustee shall apply such moneys to the prepayment of Notes in an
amount equal to the Loan Value of the Managed Facility, together with accrued
interest thereon to the date of payment and the Make-Whole Premium Amount with
respect thereto, upon the terms and in the manner provided in Section 3.3
hereof and the balance, if any, shall be released to or upon the order of NHLP.
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National Health Corporation Indenture of Trust and Security Agreement
7.6. Investment of Insurance Proceeds, Condemnation Awards or
Compensation; Prepaid Note Amounts. All insurance proceeds, condemnation awards
or compensation received by the Indenture Trustee as payment for any Event of
Loss under any policy of insurance or as an award or compensation for the taking
in condemnation or other eminent domain proceedings relating to any Owned
Facility or any Managed Facility or any part thereof and any amounts in respect
of the prepayment in whole of a Managed Facility Note shall, at the written
direction of NHLP, be invested or reinvested by the Indenture Trustee in
Permitted Investments, as specified in such written request. Upon a written
direction of NHLP in accordance with the terms of this Section 7, or at any time
when the Indenture Trustee shall determine that cash is required pursuant to
Section 7.2, 7.4 or 7.5 hereof, the Indenture Trustee shall sell all or any
designated part of such investments at the then market price therefor and shall
pay and apply the proceeds in accordance with the terms of said Section 7.2,
7.4 or 7.5, as the case may be.
7.7. Other Proceeds. Any other moneys received by the
Indenture Trustee in connection with a release of property shall be held by the
Indenture Trustee as part of the Mortgaged Property and shall be applied by the
Indenture Trustee upon the terms and in the manner provided in Section 3.2
hereof.
7.8. Application if Event of Default Exists. If an Event of
Default has occurred and is continuing to the knowledge of the Indenture
Trustee, all amounts received by the Indenture Trustee under this Section 7
(including any interest income on such amounts) shall be applied in the manner
provided for in Section 8.11 hereof in respect of proceeds and avails of the
Mortgaged Property.
7.9. interest Income. Upon receipt of any interest income
earned from Permitted Investments or earned from any other funds held by the
Indenture Trustee pursuant to this Section 7, and provided that no Event of
Default has occurred and is continuing to the knowledge of the Indenture
Trustee, the Indenture Trustee shall forthwith deliver such interest income to
NHLP provided further, that upon the liquidation of any Permitted Investments,
the Issuer shall make up any loss thereon prior to receiving any interest
income.
SECTION 8. DEFAULTS AND OTHER PROVISIONS.
8.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as the term is used herein:
(a) Default shall occur in the payment of interest on any Note
when the same shall have become due and such default shall continue for
more than five days; or
(b) Default shall occur in the making of any required
prepayment on any of the Notes when the same shall have become due as
provided in Section 3.1; or
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National Health Corporation Indenture of Trust and Security Agreement
(c) Default shall occur in the making of any other payment of
the principal of any Note or the premium thereon at the expressed or
any accelerated maturity date or at any date fixed for prepayment on
the date any such payment shall have become due; or
(d) Default shall occur in the making of any payment required
to be made by the Issuer pursuant to Section 2.10 hereof and such
default shall continue for more than five days after notice thereof is
received by the Issuer from the holder of any Note; or
(e) Default shall be made in the payment of interest on the
NHLP Note when the same shall have become due and such default shall
continue for more than five days, or default shall occur in the making
of any other required payment on the NHLP Note when the same shall have
become due; or
(f) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of
the principal of or interest on any Funded Debt or Current Debt in
excess of $100,000 in aggregate principal amount (other than the Funded
Debt evidenced by the Notes) of the Issuer, NHLP or National or any
Restricted Subsidiary of NHLP or National and such default shall
continue beyond the period of grace, if any, allowed with respect
thereto; or
(g) Default or the happening of any event shall occur under
any indenture, agreement, or other instrument under which Funded Debt
or Current Debt in excess of $100,000 in aggregate principal amount of
the Issuer, NHLP or National or any Restricted Subsidiary of NHLP or
National may be issued and such default or event shall continue for a
period of time sufficient to permit the acceleration of the maturity of
any Funded Debt or Current Debt of the Issuer, NHLP or National or any
Restricted Subsidiary of NHLP or National outstanding thereunder; or
(h) Default shall occur in the observance or performance of
any other provision of this Indenture and such default shall continue
for more than 30 days; or
(i) Default shall occur in the observance or performance of
any covenant or agreement contained in the Guaranty Agreement, the
Stock Purchase Agreement, the Stock Pledge Agreement, the NHLP Loan
Agreement or the Assignment of NHLP Note and such default shall
continue for more than 30 days; or
(j) If any representation or warranty made by the Issuer or
NHLP herein, or made by the Issuer in any written statement or
certificate furnished by the Issuer in connection with the consummation
of the issuance and delivery of the Notes or furnished by the Issuer
pursuant
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National Health Corporation Indenture of Trust and Security Agreement
thereto or hereto, is untrue in any material respect as of the date of
the issuance or making thereof; or
(k) If any representation or warranty made by National, NHLP
or NHC in the Guaranty Agreement, or in any written statement or
certificate furnished by National, NHLP or NHC pursuant thereto or
hereto, is untrue in any material respect as of the date of the
issuance or making thereof; or
(l) NHLP shall fail to comply in any respect with the
provisions of one or more Mortgages or the Note and Mortgage
Assignments and such failure continues for more than a period of 30
days; or
(m) The owner of any of the Managed Facilities shall fail to
comply in any respect with the Mortgage with respect to such Managed
Facility and such failure continues for more than a period of 30 days
or default shall occur in the payment of any required payment of
principal or interest or premium on the Managed Facility Note with
respect to such Managed Facility; or
(n) This Indenture, any Note Purchase Agreement or the
Guaranty Agreement shall cease to be in full force and effect for any
reason whatsoever, including, without limitation, a final
non-appealable determination by any governmental body or court of
competent jurisdiction that such agreement is invalid, void or
unenforceable or National shall contest or deny in writing the validity
or enforceability of any of its obligations under the Guaranty
Agreement; or
(o) Final judgment or judgments of a court or courts of
competent jurisdiction for the payment of money aggregating in excess
of $1,000,000 is or are outstanding against National, NHLP, NHC, Inc.
or the Issuer, as the case may be, or against any property or assets of
any thereof and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of
90 days from the date of its entry; or
(p) A custodian, trustee or receiver is appointed for the
Issuer (excluding the appointment of a successor Plan Trustee or a
custodian in accordance with the terms of the Trust Agreement),
National, NHLP or NHC or for any material part of the property of any
of them and is not discharged within 30 days after such appointment; or
(q) The Issuer, National, NHLP or NHC becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes
an assignment for the benefit of creditors, or the Issuer, National,
NHLP or NHC causes an order for relief to be entered with respect to it
under applicable Federal bankruptcy law or applies for or consents to
the
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National Health Corporation Indenture of Trust and Security Agreement
appointment of a custodian, trustee or receiver for the Issuer,
National, NHLP or NHC or for any material part of the property of any
of them; or
(r) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Issuer, National, NHLP or NHC and, if instituted against
the Issuer, National, NHLP or NHC are not dismissed within 60 days
after such institution or are consented to.
8.2. Notice to Holders. When any Event of Default described in the
foregoing 8.1 has occurred, or if the holder of any Note or of any other
evidence of Indebtedness of the Issuer gives the Issuer any notice or takes any
other action with respect to a claimed default, the Issuer agrees to give notice
of such event, notice or action, as the case may be, to all holders of the Notes
then outstanding within three Business Days of such event, notice or action, as
the case may be, such notice to be in writing and sent in the manner provided in
Section 13.3 hereof.
8.3. Acceleration of Maturities. (a) When any Event of Default
described in paragraph (a), (b), (c), (d) or (n) of Section 8.1 has happened
and is continuing, any holder of any Note may, and when any Event of Default
described in paragraphs (e) through (m) and (o) through (p) has happened and is
continuing, the holder or holders of 25% or more of the principal amount of the
Notes at the time outstanding may, by notice in writing sent in the manner
provided in Section 14.3 hereof to the Issuer, declare the entire principal and
all interest accrued on all of the Notes to be, and all such Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived
by the Issuer to the extent permitted by law. When any Event of Default
described in paragraphs (q) or (r) of Section 8.1 has occurred, then all
outstanding Notes shall immediately become due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Issuer to the extent permitted by law. Upon any Note becoming due and
payable as a result of any Event of Default as aforesaid, the Issuer will
forthwith pay to the holders of the Notes which have become due and payable the
entire principal and interest accrued on the Notes together with, to the extent
permitted by law, liquidated damages for the loss of the bargain evidenced
hereby (and not as a penalty) in an amount equal to the Make-Whole Premium
Amount which would be payable if the Issuer then had elected to prepay (and was
permitted to prepay) the Notes with the Make-Whole Premium Amount pursuant to
Section 3.2 (determined as of the date of declaration of an acceleration or, in
the case of an Event of Default described in paragraph (q) or (r) of Section
8.1, the date of acceleration). No course of dealing on the part of the holder
or holders of any Notes nor any delay or failure on the part of any Noteholder
to exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Issuer further agrees,
to the extent permitted by law, to pay to the holder or holders of the Notes
all costs and expenses incurred by them in the collection of any Notes upon any
default hereunder or thereon, including reasonable compensation to such
holder's or holders' attorneys for all services rendered in connection
therewith. No course of dealing on the
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part of any Noteholder nor any delay or failure on the part of any holders of
Notes to exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Issuer further agrees,
to the extent permitted by law, to pay to the holder or holders of the Notes all
reasonable costs and expenses incurred by them in the collection of any Notes
upon any default hereunder or thereon or in any enforcement of this Indenture,
including reasonable compensation to such holder's or holders' attorneys for all
services rendered in connection therewith including, but not limited to,
reasonable attorneys fees at trial and on any appeal.
8.4. Completed Default; Acceleration of Maturity. Upon any acceleration
of maturity of the Notes in accordance with Section 8.3 (unless rescinded or
annulled pursuant to Section 8.15), then the Issuer shall pay to the Indenture
Trustee for the benefit of the holders of the Notes then outstanding, the
whole amount which then shall have become due on all such Notes for principal or
interest, as the case may be, together with, to the extent permitted by law, any
applicable Make-Whole Premium Amount. In case the Issuer shall fail to pay the
same forthwith, the Indenture Trustee, in their own names and as Indenture
Trustee of an express trust, shall be entitled to recover judgment for the whole
amount so due and unpaid against the Issuer and/or any other obliger on the
Notes. The right of the Indenture Trustee to recover such judgment shall not be
affected by the exercise of any other right, power or remedy for the enforcement
of the provisions of this Indenture. The Indenture Trustee in its discretion may
exercise in addition all other rights and powers described herein as it may deem
best for the protection and enforcement of the interest and rights of the
Indenture Trustee and of the holders of the Notes then outstanding.
8.5. Suits for Enforcement; Power of Sale. In case of the happening of
an Event of Default as defined in Section 8.1, the Indenture Trustee from time
to time in its discretion may exercise, in addition to all other rights and
powers described herein or permitted under applicable law, all or any of the
following powers as it may deem best for the protection and enforcement of the
interests and rights of the Indenture Trustee and of the holders of the Notes
then outstanding, subject to Section 8.21:
(a) the Indenture Trustee may in its own name and as trustee
of an express trust protect and enforce its rights and the rights of
the holders of the Notes by bringing such actions, at law or in equity
or before any administrative tribunal, as the Indenture Trustee, being
advised by counsel, shall deem appropriate, including, without
limitation, actions for the specific performance of any covenant
hereof, or of the Notes, and for the foreclosure of any one or all of
the Mortgages; and the Indenture Trustee shall be entitled, in its own
name and as trustee of an express trust, to recover judgment for any
and all sums then, or during any Default becoming due and payable by
the Issuer under any provisions hereof or of the Notes or the
Mortgages, including, without limitation, any deficiency in the payment
of all amounts due under the provisions hereof or of the Notes or the
Mortgages remaining after any sale of the Trust Estate in foreclosure
proceedings or by virtue of the Indenture Trustee's power of sale or
otherwise, and, in addition thereto, such amounts as shall be
sufficient to cover the costs
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and expenses of collection, including attorneys' fees, and of other
proceedings hereunder, and to collect out of the Property of the Issuer
in any manner provided by law all amounts adjudged or decreed to be
payable;
(b) the Indenture Trustee as a matter of contract right and
not as a penalty shall be entitled to the appointment of a receiver of,
or may enter upon and take possession of, all or any part of the Trust
Estate and such receiver or the Indenture Trustee shall thereupon be
entitled to operate all or any part of the Trust Estate and to make all
expenditures and to take all actions necessary or desirable therefor,
and to collect and retain all income and earnings arising from such
Property or business;
(c) the Indenture Trustee may, with or without entry as
aforesaid, sell all or any part of the Trust Estate at public or
private sale, upon such notice, in such manner, at such time or times,
and upon such terms consistent with the applicable laws of the
respective states wherein any portion of the Trust Estate is located,
as the Indenture Trustee may determine;
(d) the Indenture Trustee shall have any and all rights and
remedies provided for in the Mortgages; and
(e) the Indenture Trustee shall have any and all rights and
remedies provided to a secured party by the Uniform Commercial Code
with respect to all parts of the Trust Estate which are or which are
deemed to be governed by the Uniform Commercial Code.
Neither the Issuer, NHLP or National, to the extent permitted by law,
shall claim any rights under any stay, valuation, exemption or extension law,
and each such entity hereby waives any right of redemption which it may have in
respect of the Trust Estate.
8.6. Foreclosure and Sale of Trust Estate. In the event of any sale
made under or by virtue of this Indenture, whether made under the power of sale
herein granted or under or by virtue of judicial proceedings or decree of
foreclosure and sale, the whole of the Trust Estate may be sold in one parcel
and as an entirety, or in separate parcels or lots, as the Indenture Trustee may
reasonably determine, or as they may be directed by the written direction of the
holders of not less than a majority in principal amount of the Notes then
outstanding.
8.7. Adjournment of Sale. The Indenture Trustee may adjourn from time
to time any sale by them to be made under the provisions of this Indenture, by
announcement at the time and place appointed for such sale or for such adjourned
sale or sales; and, except as otherwise provided by law, the Indenture Trustee,
without further notice or publication, may make such sale at the time and place
to which the same shall be so adjourned.
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National Health Corporation Indenture of Trust and Security Agreement
8.8. Indenture Trustee May Execute Conveyances and Deliver Possession;
Sale a Bar. Upon the completion of any sale or sales made under or by virtue of
this Indenture, the Indenture Trustee shall execute and deliver to the accepted
purchaser or purchasers a good and sufficient deed, or good and sufficient
deeds, and other instruments conveying, assigning and transferring all their
estate, right, title and interest in and to the properties, privileges and
rights so sold. The Indenture Trustee is hereby irrevocably appointed the true
and lawful attorney-in-fact of the Issuer at all times when an Event of Default
shall be continuing hereunder, in its name and stead or in the name of the
Indenture Trustee, to make all necessary conveyances, assignments, transfers
and deliveries of the premises and the Trust Estate, privileges and rights so
sold and for that purpose the Indenture Trustee may execute all necessary deeds
and instruments of assignment and transfer, and may substitute one or more
Persons with like power, the Issuer hereby ratifying and confirming all that
its said attorneys or such substitute or substitutes shall lawfully do by
virtue hereof. Nevertheless, the Issuer, if so requested in writing by the
Indenture Trustee, shall ratify and confirm any such sale or sales by executing
and delivering to the Indenture Trustee or to such purchaser or purchasers all
such instruments as may be advisable, in the judgment of the Indenture Trustee,
for the purpose and as may be designated in such request.
Any such sale or sales made under or by virtue of this Indenture,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, shall
operate to divest all estate, right, title, interest, claim or demand
whatsoever, whether at law or in equity, of the Issuer, in and to the premises,
property, privileges and rights so sold, and shall be a perpetual bar both at
law and in equity against the Issuer, its successors and assigns, and against
any and all Persons claiming or who may claim the same, or any part thereof
from, through or under the Issuer, its successors or assigns.
8.9. Receipt Sufficient Discharge for Purchaser. The receipt of the
Indenture Trustee or of the court officer conducting any such sale for the
purchase money paid at any such sale shall be a sufficient discharge therefor to
any purchaser of the Trust Estate, or any part thereof, sold as aforesaid; and
no such purchaser or his representatives, grantees or assigns, after paying such
purchase money and receiving such receipt, shall be bound to see the application
of such purchase money upon or for any trust or purpose of this Indenture, or
shall be answerable in any manner whatsoever for any loss, misapplication or
non-application of any such purchase money or any part thereof, nor shall any
such purchaser be bound to inquire as to the necessity or expediency of any such
sale.
8.10. Sale to Accelerate Notes. In the event of any sale made under or
by virtue of this Indenture, whether made under the power of sale herein granted
or under or by virtue of judicial proceedings or of a valid judgment or decree
of foreclosure and sale, the principal of the Notes, if not previously due,
immediately thereupon, to the extent permitted by law, shall become due and
payable, anything in the Notes or in this Indenture to the contrary
notwithstanding.
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8.11. Application of Proceeds of Sale. The purchase money proceeds or
avails of any such sale, together with any other sums which then may be held by
the Indenture Trustee under this Indenture as part of the Trust Estate or the
proceeds thereof, whether under the provisions of this Section 8 or otherwise,
shall be applied as follows:
First: To the payment pro rata of the costs and expenses of
foreclosure or suit, if any, and of such sale, and to the extent
permitted by applicable law, the reasonable compensation of the
Indenture Trustee, its agents, attorneys and counsel, and of all proper
expenses, liability and advances incurred or made hereunder by the
Indenture Trustee, and of all taxes, assessments or liens superior to
the lien of these presents, except any taxes, assessments or other
superior lien subject to which said sale may have been made;
Second: To the amount then owing or unpaid on the Notes for
principal, premium, if any, and interest; and in case such proceeds
shall be insufficient to pay in full the whole amount so due, owing or
unpaid upon the Notes, then ratably according to the aggregate of such
principal and the accrued and unpaid interest and premium, if any, with
application on each Note to be made, first, to the unpaid premium, if
any, thereon, second, to unpaid interest, thereon, and third, to unpaid
principal thereof;
Third: To the payment of any other sums required to be paid by
the Issuer, NHLP, National or NHC pursuant to any provision of this
Indenture, the Mortgages, the Guaranty Agreement, the Notes or any
other instrument given to secure the Notes; and
Fourth: To the payment of the surplus, if any, to the Issuer,
National, NHC or NHLP, as appropriate, its successors or assigns, upon
the written request of NHLP, the Issuer, National, NHC, as the case may
be, or to whomsoever may be lawfully entitled to receive the same.
8.12. Purchase of Trust Estate. Upon any sale made under or by virtue
of this Indenture, whether made under the power of sale herein granted or under
or by virtue of judicial proceedings or of a judgment or decree of foreclosure
and sale, the Indenture Trustee or any holder of an outstanding Note may bid for
and purchase the Trust Estate being sold, and upon compliance with the terms of
sale, may hold, retain and possess and dispose of such Property in his or their
own absolute right without further accountability; and any purchaser at any such
sale may, in paying the purchase price, turn in any of the Notes in lieu of cash
to the amount which shall, upon distribution of the net proceeds of such sale,
be payable thereon. Said Notes, in case the amounts so payable thereon shall be
less than the amount due thereon, shall be returned to the holders thereof after
a notation of such partial payment shall have been made thereon.
8.13. Indenture Trustee Entitled to Appointment of Receiver. The Issuer
further covenants that upon the happening of any Event of Default and thereafter
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during the continuance of such Event of Default unless the same shall have been
waived as hereinafter provided, the Indenture Trustee shall be entitled, as a
matter of right, if it shall so elect, (a) forthwith and without declaring the
principal of the Notes to be due and payable, or (b) after declaring the same to
be due and payable, or (c) upon the filing of a bill in equity to foreclose this
Indenture or to enforce the specific performance hereof or in aid thereof or
upon the commencement of any other judicial proceeding to enforce any right of
the Indenture Trustee or of the holders of the Notes, to the appointment of a
receiver or receivers of the Trust Estate and of all the earnings, revenues
rents, issues, profits and income thereof, with such powers as the court making
such appointment shall confer, which may comprise any or all of the powers which
the Indenture Trustee is authorized to exercise by the provisions of Section
8.4. The Issuer, if requested so to do by the Indenture Trustee, will consent to
the appointment of any such receiver as aforesaid.
8.14. Indenture Trustee May Enforce Rights Without Notes. All rights of
action under this Indenture or under any of the Notes may be enforced by the
Indenture Trustee without the possession of any of the Notes and without the
production thereof at any trial or other proceedings relative thereto. Any such
suit or proceedings instituted by the Indenture Trustee shall be brought in its
own name or as Indenture Trustee, and any recovery of judgment shall be, subject
to the rights of the Indenture Trustee, for the ratable benefit of the holders
of the Notes outstanding.
8.15. Notice of Event of Default; Waiver. The Indenture Trustee shall
promptly after obtaining actual knowledge of any Event of Default give notice
thereof by mail, first-class postage prepaid, to the holders of all Notes at the
time outstanding. The holders of at least 64% in principal amount of the Notes
at the time outstanding hereunder may (i) waive any Default or Event of Default
hereunder and its consequences which result from the failure of the Issuer, NHLP
or National to comply with any provisions of this Indenture, compliance with
which can be waived by such holders pursuant to Section 13 and (ii) by written
instrument filed with the Issuer, rescind and annul a declaration of
acceleration declared pursuant to Section 8.3; provided, however, that a Default
in the payment of principal of or premium, if any, on any Notes called for
prepayment or interest on the Notes may be so waived and any acceleration may be
so rescinded and annulled only if, prior to such waiver or rescission and
annulment, as the case may be, all arrears of principal, premium, if any, and
interest, and all expenses of the Indenture Trustee and of the holders of the
Notes shall be paid or shall be provided for by deposit with the Indenture
Trustee of a sum sufficient to pay the same and if no other Default or Event of
Default shall have occurred and then be continuing. In case of any such waiver,
or in case any proceedings taken on account of any such Default or Event of
Default shall be discontinued or abandoned or determined adversely to the
Indenture Trustee, then and in every such case, the Issuer, the Indenture
Trustee and the holders of the Notes shall be restored to their former positions
and rights hereunder respectively. No such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.
8.16. Limitation on Noteholders' Right to Sue. No holder of any Note
shall have any right to institute any suit, action or proceeding at law or in
equity
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National Health Corporation Indenture of Trust and Security Agreement
growing out of any provision of this Indenture, or for the foreclosure or
enforcement of this Indenture, unless and until an Event of Default shall have
happened and unless and until such holder shall have previously given to the
Indenture Trustee written notice of the happening of such Event of Default and
of the continuance thereof as hereinbefore provided, and also (except as
hereinafter provided) unless and until the holders of at least 25% in principal
amount of the Notes then outstanding shall have made written request upon the
Indenture Trustee and shall have afforded to it a reasonable opportunity to
institute such action, suit or proceeding in their own names, and unless also
the Indenture Trustee shall have been offered security and indemnity
satisfactory to it against the costs, expenses and liabilities to be incurred
therein or thereby, and the Indenture Trustee shall have neglected or refused to
institute any such action, suit or proceeding within a reasonable time after
receipt of such notification, request and offer of indemnity; and such
notification, request, offer of indemnity and refusal or neglect are hereby
declared in every such case to be conditions precedent to the institution by
such holder of the Notes of any such action, suit or proceeding; it being
understood and intended and being expressly covenanted by the holder of every
Note with every other holder and with the Indenture Trustee that no one or more
holders of the Notes shall be entitled to take any action or institute any such
suit to enforce the payment of his Notes if and to the extent that the taking of
such action or the institution or prosecution of any such suit or the entry of
judgment therein would under applicable law result in a surrender, impairment,
waiver or loss of the lien of this Indenture upon the Trust Estate, or any part
thereof, as security for Notes held by any other holder of the Notes, or shall
have any right in any manner whatever to affect, disturb or prejudice the rights
of the holders of any other of the Notes, or to enforce any right hereunder,
except in the manner herein provided, and for the equal, ratable and common
benefit of all holders of the Notes. Nothing in this Section 8 or elsewhere in
this Indenture or in the Notes contained, however, shall affect or impair the
obligation of the Issuer, which is unconditional and absolute, to pay the
principal of, and premium, if any, and the interest on, the Notes to the
respective holders of the Notes, in the manner and at the time and places
therein respectively expressed, nor shall it affect or impair the right of the
respective holders of the Notes, by an action at law upon the promises to pay
therein contained, to enforce such payment.
8.17. Remedies Cumulative. No remedy herein conferred upon or reserved
to the Indenture Trustee or to the holders of the Notes is intended to be
exclusive of any other remedy or remedies, and each and every such remedy shall
be cumulative, and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute.
8.18. Delay or Omission Not a Waiver. No delay or omission of the
Indenture Trustee, or of any holder of the Notes, to exercise any right or power
accruing upon any Default or Event of Default, shall impair any such right or
power, or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein; and every power and remedy given by this
Indenture to the Indenture Trustee or to the holders of the Notes may be
exercised from time to time and as often as may be deemed expedient by the
Indenture Trustee or by the holders of the Notes.
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8.19. Waiver of Extension, Appraisement, Stay, Laws. Neither the
Issuer, NHLP or National will at any time insist upon, or plead, or in any
manner whatever claim or take any benefit or advantage of, any stay or extension
law wherever enacted, now or at any time hereafter in force, which may affect
the covenants and terms of performance of this Indenture; nor claim, take or
insist upon any benefit or advantage of any law now or hereafter in force
providing for the valuation or appraisement of the Trust Estate, or any part
thereof, prior to any sale or sales thereof which may be made pursuant to any
provision herein contained, or pursuant to the decree, judgment or order of any
court of competent jurisdiction; nor after any such sale or sales, claim or
exercise any right under any statute heretofore or hereafter enacted by the
United States of America or by any state or territory, or otherwise, to redeem
the Property so sold or any part thereof; and the Issuer hereby expressly waives
all benefits or advantage of any such law or laws, and covenants not to hinder,
delay or impede the execution of any power herein granted or delegated to the
Indenture Trustee, but to suffer and permit the execution of every power as
though no such law or laws had been made or enacted.
8.20. Restoration of Positions. If the Indenture Trustee or any holder
of the Notes has instituted any proceeding to enforce any right or remedy under
this Indenture by foreclosure, entry or otherwise and such proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee or to such holder of the Notes, then and in every such case
the Issuer, the Indenture Trustee and the holders of the Notes shall, subject to
any determination in such proceeding, be restored to their former positions
hereunder, and thereafter all rights and remedies of the Indenture Trustee and
the holders of the Notes shall continue as though no such proceeding had been
instituted.
8.21. Control of Remedies by Noteholders. Notwithstanding any other
provision of this Section 8, the holders of at least 64% in principal amount of
the Notes from time to time outstanding shall have the right, by an instrument
in writing delivered to the Indenture Trustee, to determine which of the
remedies herein set forth shall be adopted and to direct the time, method and
place of conducting all proceedings to be taken under the provisions of this
Indenture for the enforcement thereof or of the Notes; provided, however, that
the Indenture Trustee shall have the right to decline to follow any such
direction if the Indenture Trustee shall be advised by counsel that the action
or proceeding so directed may not lawfully be taken or would be unjustly
prejudicial to holders of Notes not parties to such direction.
8.22. Indenture Trustee May File Proofs of Claims. The Indenture
Trustee is hereby appointed, and each and every holder of the Notes, by
receiving and holding the same, shall be conclusively deemed to have appointed
the Indenture Trustee the true and lawful attorney-in-fact of such holder, with
authority to make or file, in their own names as trustee of an express trust or
otherwise as they shall deem advisable, in any receivership, insolvency,
liquidation, bankruptcy, arrangement, reorganization or other judicial
proceedings relative to the Issuer or any other obligor upon the Notes or to
their respective creditors or Property, any and all claims, proofs of debt,
petitions, consents, other documents and amendments of any thereof, as may
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be necessary or advisable in order to have the claims of the Indenture Trustee
and of the holders of the Notes allowed in any such proceeding, and to collect
and receive any moneys or other Property payable or deliverable on any such
claim, proof of debt, petition or other document and to distribute the same
after the deduction of the charges and expenses of the Indenture Trustee, and to
execute and deliver any and all other papers and documents and to do and perform
any and all other acts and things, as they may deem necessary or advisable in
order to enforce in any such proceedings any of the claims of the Indenture
Trustee and of any such holders in respect of any of the Notes; and any
receiver, assignee, trustee or debtor in any such proceedings is hereby
authorized, and each and every holder of the Notes, by receiving and holding the
same, shall be deemed to have authorized any such receiver, assignee, trustee or
debtor, to make any such payment or delivery to or on the order of the Indenture
Trustee, and in the event that the Indenture Trustee shall consent to the making
of such payments or deliveries directly to the holders of the Notes to pay to
the Indenture Trustee any amount due them for compensation and expenses,
including counsel fees, incurred by them down to the date of such payment or
delivery; provided, however, that nothing herein contained shall be deemed to
authorize or empower the Indenture Trustee to consent to or accept or adopt, on
behalf of any holder of Notes, any plan of reorganization or readjustment of the
Issuer affecting the Notes or the rights of any holder thereof, or to authorize
or empower the Indenture Trustee to vote in respect of the claim of any holder
of any Note in any such proceedings.
8.23. Right to Cure. Notwithstanding any other provision of this
Section 8 to the contrary, upon the occurrence of an Event of Default pursuant
to Section 8.1(m) and for the period ending on the date that is 180 days after
the occurrence of such Event of Default, the Indenture Trustee may not, solely
as a result of such Event of Default, exercise any remedy or remedies under this
Section 8 or under the Mortgage pursuant to which the owner of a Managed
Facility shall have defaulted, in either case involving the foreclosure of such
Mortgage, provided that if NHLP shall not have provided a Substitute Financed
Facility in accordance with the provisions of Section 10 on or prior to such
180th day, then on any date on or after such 180th day the Indenture Trustee may
exercise any and all remedies provided in this Section 8 and in such Mortgage.
Nothing in this Section 8.23 shall prohibit or limit the ability of the
Indenture Trustee to pursue any other remedies hereunder as a result of an Event
of Default (other than pursuant to Section 8.1(m)) that shall have occurred and
be continuing, or that shall occur during such 180 day period.
8.24. Remedies Subject to Provisions of Law. All rights, remedies and
powers provided by this Section 8 may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law in the
premises, and all the provisions of this Section 8 are intended to be subject to
all applicable mandatory provisions of law which may be controlling in the
premises and to be limited to the extent necessary so that they will not render
this Indenture invalid or unenforceable under the provisions of any applicable
law.
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National Health Corporation Indenture of Trust and Security Agreement
SECTION 9. CREATION OF DISBURSEMENT FUND AND ACQUISITION AND CONSTRUCTION
ACCOUNTS, DEPOSIT OF MONEYS; DISBURSEMENT OF MONEYS.
9.1. Creation of Disbursement Fund. There is hereby created and
established with the Indenture Trustee a trust fund for the benefit of the
holders of the Notes to be designated the "National HealthCorp L.P. Disbursement
Fund" (the "Disbursement Fund"). There is hereby created and established within
the Disbursement Fund two accounts, the "National HealthCorp L.P. Acquisition
Account" (the "Acquisition Account") and the National HealthCorp L.P.
Construction Account (the Construction Account").
9.2. Deposit to Acquisition Account. On the Closing Date, the Indenture
Trustee shall deposit $26,855,860 in the Acquisition Account.
9.3. Disbursement from Acquisition Account. The Indenture Trustee, once
with respect to each Acquired Facility, will disburse moneys not in excess of
the Total Cost for such Acquired Facility from the Acquisition Account upon
satisfaction of the conditions specified in Section 9.4. NHLP covenants that the
Total Cost for each Acquired Facility (other than the Greenwood Facility and the
Knoxville Facility) (i) will be used by NHLP solely to pay for, or to reimburse
itself for the cost of, each Acquired Facility, and (ii) is not greater than 90%
of the actual amount then due or previously paid by NHLP to the seller of each
such Acquired Facility.
9.4. Conditions Precedent to Disbursement of Total Cost for Each
Acquired Facility. With respect to any request for payment or reimbursement by
NHLP for the Total Cost of any Acquired Facility, NHLP shall deliver or cause to
be delivered to the Indenture Trustee and special counsel for the Noteholders:
(a) At least 15 Business Days prior to the date of the request for
payment or reimbursement with respect to any Acquired Facility:
(i) a survey of each parcel of real estate upon which such
Acquired Facility is located, made by a registered civil engineer or
surveyor licensed in the state where such Acquired Facility is located
showing in reasonable detail the locations and dimensions of the site
on which such Acquired Facility is located, showing the location of the
improvements on such parcel of real estate and showing no encroachments
not approved by the holders of not less than 64% in aggregate principal
amount of the Notes outstanding upon such real estate parcels by
adjoining buildings or structures and no encroachments not approved by
the holders of not less than 64% in aggregate principal amount of the
Notes outstanding on adjoining premises by the building or improvements
created thereon. Each survey shall be prepared in accordance with the
standard detail requirements for land surveys adopted by the
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National Health Corporation Indenture of Trust and Security Agreement
American Land Title Association ("ALTA") and the American Congress on
Surveying and Mapping, as revised and in effect on the date of delivery
of such survey, and shall be certified to the Indenture Trustee and to
the title company issuing the title insurance policy with respect to
such Acquired Facility;
(ii) a title commitment with respect to such Acquired
Facility, issued in each case by a title insurance company qualified to
do business in the state in which the Acquired Facility for which such
commitment is being issued is located, designated by NHLP and not
objected to by any Noteholder, stating that it is prepared to issue its
standard form of ALTA Mortgagee Title Policy which will provide for
mortgage title insurance, in an amount not less than 100% of the Total
Cost of such Acquired Facility, covering the Acquired Facility for
which such commitment is being issued, showing marketable record title
thereto to be vested in NHLP, or, if the Acquired Facility is a Managed
Facility, showing NHLP as the holder of a first mortgage lien thereon
as the case may be, subject only to:
(A) the Liens, if any permitted by the related
Mortgage; and
(B) such other exceptions as shall be satisfactory to
the holders of not less than 64% in aggregate principal amount
of the Notes outstanding; and
insuring the Indenture Trustee and the holders of the Notes against
loss or damage sustained by reason of such Mortgage not being a first
and paramount Lien upon the Acquired Facility for which such title
insurance is being issued, subject only to the exceptions referred to
in the foregoing clauses (A) and (B) and containing all endorsements
required by the holders of not less than 64% in aggregate principal
amount of the Notes outstanding, including without limitation, a
comprehensive endorsement, a contiguity endorsement (if the holders of
not less than 64% in aggregate principal amount of the Notes
outstanding so require as a result of the nature of the legal
descriptions), a location endorsement, an ALTA 116 endorsement, an ALTA
116.1 endorsement and an ALTA 3.1 zoning endorsement and the title
insurance policy may contain a tie-in endorsement providing that loss
paid thereunder shall reduce the loss payable under any title insurance
policy for the other Financed Facilities; and
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National Health Corporation Indenture of Trust and Security Agreement
(iii) a written report of a site assessment and environmental
audit with respect to the Acquired Facility for which such disbursement
is being requested, in scope, form and substance, and prepared by an
environmental consultant, satisfactory to the holders of not less than
64% in aggregate amount of the Notes outstanding (the "Environmental
Audit"), and dated not more than one hundred and eighty (180) days
prior to the date of such requested disbursement, provided that if such
Environmental Audit is dated more than 60 days prior to the date of
such requested disbursement, there shall be delivered therewith a
certificate of the environmental consultant stating that there has been
no change in the nature or character of the subject site or the use
thereof since the date of such Environmental Audit;
(b) At least 5 Business Days prior to the date of the request for
payment or reimbursement for any Acquired Facility:
(i) the report of insurance brokers regarding insurance
which is required by the provisions of Section 2.5 of the Mortgage for
such Acquired Facility;
(ii) a certificate of need issued by the state health care
regulatory agency for the state in which such Acquired Facility is
located, together with copies of all licenses and permits necessary to
operate such Acquired Facility as a nursing home, and an Officer's
Certificate of NHLP stating that the certificate of need and all
necessary licenses relating to the operation and use of such Acquired
Facility are held in the name of NHLP or, if the Acquired Facility is a
Managed Facility, in the name of the owner thereof, are in full force
and effect and that no further material licenses or permits are
required under any local, state or Federal law, ordinance, rule or
regulation in order to conduct the business of NHLP or, if the Acquired
Facility is a Managed Facility, the owner, at such Acquired Facility
and stating further that such Acquired Facility is an eligible provider
for "Medicare" and stating whether or not such Acquired Facility is an
eligible provider for "Medicaid"; and
(iii) with respect to the Greenwood Facility and the
Knoxville Facility, respectively, an appraisal from an Appraiser in
form and substance reasonably satisfactory to the holders of not less
than 64% in aggregate principal amount of the Notes outstanding
showing the fair market value of the Greenwood Facility to be at least
$4,560,000 and showing the fair market value of the Knoxville Facility
to be at least $4,560,000;
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National Health Corporation Indenture of Trust and Security Agreement
(c) On the date of the request for payment or reimbursement for any
Acquired Facility:
(i) with respect to the Stuart Facility, the Stuart
Mortgage, with respect to the Merritt Island Facility, the Merritt
Island Mortgage, with respect to the Greenwood Facility, the Greenwood
Mortgage, with respect to the Knoxville Facility, the Knoxville
Mortgage and financing statements with respect to each such Acquired
Facility and the equipment located thereon, which Mortgage and
financing statements shall be recorded or filed for record in each
public office in which such recording or filing is deemed necessary or
appropriate by the Note Purchasers or their special counsel to perfect
the liens thereof as against creditors of or purchasers from NHLP;
(ii) with respect to the Sarasota Facility, the Sarasota
Mortgage and a Managed Facility Note, a Note and Mortgage Assignment
(and a consent thereto), a Management Agreement and a Collateral
Assignment of Management Agreement Fees, each with respect to such
Facility, and with respect to the Ocoee Facility, the Ocoee Mortgage
and a Managed Facility Note, a Note and Mortgage Assignment (and a
consent thereto), a Management Agreement and a Collateral Assignment of
Management Agreement Fees, each with respect to such Facility, and
assignments of the financing statements with respect to each such
Acquired Facility and the equipment located thereon, which Mortgages
and financing statements and Note and Mortgage Assignment shall be
recorded or filed for record in each public office in which such
recording or filing is deemed necessary or appropriate by the Note
Purchasers or their special counsel to perfect the liens thereof as
against creditors of or purchasers from NHLP;
(iii) for any Acquired Facility which is also an Owned
Facility, an Opinion of Counsel for NHLP to the effect that: the
Mortgage with respect to such Acquired Facility has been duly
authorized, executed and delivered by NHLP and constitutes a legal,
valid and binding instrument enforceable in accordance with its terms,
subject to bankruptcy and equitable principles; any limitations on the
remedies provided for in the Mortgage will not materially interfere
with the practical realization of the security provided by such
Mortgage; no approval, consent or withholding of objection on the part
of, or filing registration or qualification with any governmental body,
Federal, state or local, is necessary in connection with the execution
and delivery by NHLP of such Mortgage or the
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National Health Corporation Indenture of Trust and Security Agreement
performance by NHLP of any of the matters required of NHLP thereunder;
and compliance by NHLP with all of the provisions of such Mortgage will
not conflict with or result in any breach of any of the provisions of
or constitute a default under or result in the creation or imposition
of any lien or encumbrances on any property of NHLP pursuant to the
provisions of the Limited Partnership Agreement or By-laws of NHLP or
any other agreement or instrument known to such counsel to which NHLP
is a party or by which NHLP may be bound and further to the effect that
the certificate of need, Medicare provider contract and all licenses
relating to the operation and use of such Acquired Facility are in full
force and effect in the name of NHLP and that no further licenses or
permits are required under any local, state or Federal law, ordinance,
rule or regulation in order to conduct the business of NHLP at such
Acquired Facility;
(iv) for any Acquired Facility which is also a Managed
Facility for which such first advance is being requested, (i) an
Opinion of Counsel for the owner thereof to the effect that: the
Mortgage, the Management Agreement, the Managed Facility Note and the
consent to the Note and Mortgage Assignment with respect to such
Acquired Facility have each been duly authorized, executed and
delivered by the owner thereof and each constitutes a legal, valid and
binding instrument enforceable in accordance with its terms, subject to
bankruptcy and equitable principles; any limitations on the remedies
provided for in the Mortgage will not materially interfere with the
practical realization of the security provided by such Mortgage; no
approval, consent or withholding of objection on the part of, or filing
registration or qualification with any governmental body, Federal,
state or local, is necessary in connection with the execution and
delivery by the owner thereof of such Mortgage, Management Agreement,
Managed Facility Note and consent to the Note and Mortgage Assignment
or the performance by the owner thereof of any of the matters required
of the owner thereof; and compliance by the owner thereof with all of
the provisions of such Mortgage, Management Agreement, Managed Facility
Note and consent to the Note and Mortgage Assignment will not conflict
with or result in any breach of any of the provisions of or constitute
a default under or result in the creation or imposition of any lien or
encumbrances on any property of the owner thereof pursuant to the
provisions of the organizational documents or By-laws of the owner
thereof or any other agreement or instrument known to such counsel to
which the owner thereof is a party or by which the owner thereof may be
bound, and (ii) an
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National Health Corporation Indenture of Trust and Security Agreement
Opinion of Counsel for NHLP to the effect that: the Note and Mortgage
Assignment and Management Agreement with respect to such Acquired
Facility have each been duly authorized, executed and delivered by NHLP
and each constitutes a legal, valid and binding instrument enforceable
in accordance with its terms subject to bankruptcy and equitable
principles; no approval, consent or withholding of objection on the
part of, or filing registration or qualification with any governmental
body, Federal, state or local, is necessary in connection with the
execution and delivery by NHLP of such Note and Mortgage Assignment and
Management Agreement or the performance by NHLP of any of the matters
required of NHLP thereunder; and compliance by NHLP with all of the
provisions of such Note and Mortgage Assignment and Management
Agreement will not conflict with or result in any breach of any of the
provisions of or constitute a default under or result in the creation
or imposition of any lien or encumbrances on any property of NHLP
pursuant to the provisions of the Limited Partnership Agreement or
By-laws of NHLP or any other agreement or instrument known to such
counsel to which NHLP is a party or by which NHLP may be bound and
further to the effect that the certificate of need, Medicare provider
contract and all licenses relating to the operation and use of such
Acquired Facility are in full force and effect in the name of the owner
of such Facility and that no further licenses or permits are required
under any local, state or Federal law, ordinance, rule or regulation in
order to conduct the business of the owner at such Acquired Facility;
(v) the title insurance policy or policies contemplated by
the title insurance commitment for such Acquired Facility in form and
substance satisfactory to the Indenture Trustee;
(vi) an Acquisition Payment Certificate with respect to the
Total Cost for such Acquired Facility for which payment or
reimbursement is then belong subject; and
(vii) for any Acquired Facility which is also a Managed
Facility for which such advance is being requested, copies of any
agreements between NHLP and the owner of such Managed Facility pursuant
to which NHLP shall have agreed to indemnify the owner in connection
with a default under the Mortgage for such Managed Facility caused by
an Event of Default hereunder, which indemnification shall be limited
to the owner's equity in such Managed Facility at the time of such
default;
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National Health Corporation Indenture of Trust and Security Agreement
(d) NHLP hereby covenants and agrees that if (i) the appraisal
for the Greenwood Facility reflects a fair market value therefor of
less than $4,560,000, it will prepay a principal amount of the Notes
pursuant to Section 3.2 equal to the difference between $4,560,000 and
the appraised fair market value of the Greenwood Facility, and (ii) the
appraisal for the Knoxville Facility reflects a fair market value
therefor of less than $4,560,000, it will prepay a principal amount of
the Notes pursuant to Section 3.2 equal to the difference between
$4,560,000 and the appraised fair market value of the Knoxville
Facility. Pending such prepayment, no funds shall be disbursed from the
Acquisition Account with respect to the Greenwood Facility or Knoxville
Facility, as the case may be. Upon such prepayment, and subject to the
satisfaction of the other applicable conditions specified in this
Section 9.4, the Total Cost of the Greenwood Facility and the Knoxville
Facility may be disbursed from the Acquisition Account to acquire the
Greenwood Facility or the Knoxville Facility, as the case may be, and
any amount in excess of the amount actually needed to acquire such
facility may be used for any business purpose of NHLP.
9.5. Creation of Construction Account and Sub Accounts. There
is hereby created and established with the Indenture Trustee a trust fund for
the benefit of the holders of the Notes to be designated the "National
HealthCorp L.P. Construction Account" (the "Construction Account").
On the Closing Date, the Indenture Trustee shall deposit (i)
in the Myrtle Beach Facility Sub-Account, the Total Cost with respect to such
Facility (ii) in the Greenville Facility Sub-Account, the Total Cost with
respect to such Facility, (iii) in the North Augusta Facility Sub-Account, the
Total Cost with respect to such Facility, (iv) in the Pinellas Facility
Sub-Account, the Total Cost with respect to such Facility and (v) in the Sun
City Facility Sub-Account, the Total Cost with respect to such Facility.
9.6. Amount of Advances. The Indenture Trustee will from time
to time (but not more often than twice per month for each Constructed Facility),
disburse moneys to pay Land Acquisition Costs, Construction Costs and Other
Project Costs of the Myrtle Beach Facility, Greenville Facility, North Augusta
Facility, Pinellas Facility and Sun City Facility in accordance with the Project
Budget for each such Facility and from the Construction Fund Sub-Account with
respect to such Facility, upon compliance with the terms and conditions set
forth in the Construction Consultant Agreement for such Constructed Facility.
NHLP covenants that (a) each disbursement to pay Land
Acquisition Costs of such Constructed Facility shall be in an amount not
exceeding the amount then due or previously paid the seller of the real estate,
(b) each disbursement to pay Construction Costs of such Constructed Facility
shall be in an amount not exceeding the amount then due contractors for work
completed and in place plus materials stored on site in which the Indenture
Trustee has a perfected first security interest (subject to
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National Health Corporation Indenture of Trust and Security Agreement
the conditions set forth below), less a 10% retainage, which retainage shall not
be paid until completion of all work by the contractor responsible therefor, (c)
the amount of each disbursement for Other Project Costs with respect to any such
Facility shall in no event exceed the amount of Other Project Costs with respect
to such Constructed Facility then due and unpaid, and (d) no disbursement for
any Construction Cost or other Project Cost item shall be made which will cause
the total disbursements for that item to exceed the amount shown therefor on the
Project Budget (together with any Change Orders) for such Constructed Facility.
9.7. Insufficient Moneys to Complete. If at any time on or
after the first request for payment or reimbursement of Construction Costs with
respect to any Constructed Facility, the Consultant reasonably determines, and
shall have notified the Indenture Trustee in writing, that the then Estimated
Total Cost of Completion with respect to such Constructed Facility is more than
the sum of the undisbursed portion of the Total Cost then on deposit in the
Construction Sub-Account with respect to such Facility plus (ii) the amount of
any funds of NHLP then on deposit in such Construction Sub-Account, or that the
then cost of completing any item in the Project Budget with respect to any
Constructed Facility is greater than the undisbursed amount remaining therefor
in the Construction Sub-Account with respect to such Facility, the Indenture
Trustee shall not, without the prior written consent of the holders of at least
64% of the Notes outstanding, make any further disbursements hereunder until and
unless NHLP deposits or causes to be deposited in such Construction Sub-Account
an amount equal to the deficiency. All amounts so deposited in such Construction
Sub-Account shall be disbursed for the payment of costs for which disbursement
may be requested under this Section 9.7 prior to the disbursement of any
additional portion of such Total Cost.
NHLP covenants that it shall pay to the Indenture Trustee for
deposit in the appropriate Construction Sub-Account amounts equal to any
deficiency therein within five days following the mailing of written notice by
the Indenture Trustee of the existence of such deficiency.
9.8. Conditions Precedent to First Advance of Total Cost for
Each Constructed Facility. (a) With respect to the first request for payment or
reimbursement of Construction Costs or other Project Costs of any Constructed
Facility, NHLP shall deliver or cause to be delivered to the Indenture Trustee
and special counsel for the Noteholders:
(i) At least 15 Business Days prior to the date of the first
request for payment or reimbursement for any Constructed Facility:
(A) a physical survey of such Constructed Facility
for which such first advance is being requested complying with
the requirements of Section 9.4(a)(i) but with respect to the
Constructed Facility and also certified to the title insurance
company issuing the title insurance policy with respect to
such Constructed Facility;
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National Health Corporation Indenture of Trust and Security Agreement
(B) a title commitment with respect to such
Constructed Facility, issued in each case by a title insurance
company qualified to do business in the state in which the
Constructed Facility for which such first advance is being
requested is located, designated by NHLP and not objected to
by any Noteholder, stating that it is prepared to issue its
standard form of ALTA Mortgagee Title Policy which will
provide for mortgage title insurance in an amount not less
than 100% of the Total Cost of such Constructed Facility,
covering the Constructed Facility for which such first advance
is being requested and showing marketable record title thereto
to be vested in NHLP, or showing NHLP as the holder of a first
mortgage lien thereon, as the case may be, subject only to:
(i) the Liens, if any, permitted by the
related Mortgage; and
(ii) such other exceptions as shall be
satisfactory to the holders of not less than 64% in
aggregate principal amount of the Notes outstanding;
and
insuring the Indenture Trustees and the holders of the Notes
against loss or damage sustained by reason of such Mortgage
not being a first Lien upon such Facility for which such first
advance is being requested, subject only to the exceptions
referred to in the foregoing clauses (i) and (ii) and
containing all endorsements required by the holders of the
Notes outstanding, including without limitation, a
comprehensive endorsement, a contiguity endorsement (if the
holders of not less than 64% in aggregate principal amount of
the Notes outstanding so require as a result of the legal
descriptions), an ALTA 116 endorsement, an ALTA 116.1
endorsement and an ALTA 3.0 endorsement, together with a
statement by the title insurance company that it has reviewed
the Construction Plans for such Constructed Facility and that
upon construction of such Constructed Facility in accordance
with such Construction Plans, it will issue its 3.1 zoning
endorsement, and the title insurance policy may contain a
tie-in endorsement providing that loss paid thereunder shall
reduce the loss payable under any title insurance policy for
the other Financed Facilities; and
(C) an Environmental Audit for the real property upon
which such Constructed Facility is to be built dated as
provided in and otherwise complying with the requirements of
Section 9.4(a)(iii);
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National Health Corporation Indenture of Trust and Security Agreement
(ii) At least 10 Business Days prior to the date of the first
request for payment or reimbursement for any Constructed Facility:
(A) an executed counterpart of a contract by and
among the Indenture Trustee, NHLP and the Consultant for such
Constructed Facility substantially in the form of Exhibit F
attached to this Indenture, together with an insurance
broker's certificate showing liability insurance coverage for
the Consultant reasonably satisfactory to the Indenture
Trustee;
(B) one copy of the Construction Plans and any Change
Orders for such Constructed Facility executed prior to the
date of such disbursement (certified by the Architect that the
Construction Plans conform to all applicable building and
zoning laws and with the requirements of any covenants,
conditions or restrictions of record);
(C) an executed copy of the General Contract, and the
Architect's Agreement for such Constructed Facility;
(D) a soil test report and a certification of the
Architect or a registered land surveyor that the portion of
such Constructed Facility on which any of the improvements
consisting of buildings or deck parking structures are to be
situated (or which are so close to such improvements as to
imperil them, in the Consultant's determination) are not in a
flood plain or designated as flood prone by any Governmental
Body or, alternatively, evidence of appropriate flood
insurance; and
(E) a report from the Consultant as to the general
viability of such Constructed Facility and the accuracy of the
Project Budget and project schedule;
(iii) At least 5 Business Days prior to the date of the first
request for payment or reimbursement for any Constructed Facility:
(A) a certificate of insurance complying with the
requirements of Section 2.5 of the Mortgage for such
Constructed Facility or a builder's risk policy provided by
the contractor for such construction showing that the same
coverage as is required in Section 2.5 of the Mortgage for
such Constructed Facility is being carried by such contractor
and adequately protects the interests of the Indenture
Trustees, as Mortgagee, NHLP and the holders of the Notes with
respect to such Facility and a certificate of insurance with
respect to the Construction
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National Health Corporation Indenture of Trust and Security Agreement
Consultant for such Constructed Facility, showing insurance as
required by the Construction Consultant Agreement;
(B) for such Constructed Facility, an Officers'
Certificate to the effect that:
(1) The Construction Plans for such
Constructed Facility have been approved to the extent
required by applicable law or any restrictive
covenant on such Constructed Facility, by all
governmental bodies exercising jurisdiction over such
Constructed Facility, construction thereon, the use
of improvements thereon (a "Governmental Body") and
the beneficiary of any such covenant, respectively;
(2) All construction, if any, performed on
such Constructed Facility prior to the date of such
Officer's Certificate has been performed in a fit and
workmanlike manner and in accordance with the Plans,
all such construction is free from structural defects
and no violation of any law, ordinance, order, rule
or regulation of any Governmental Body (a
"Governmental Requirement") exists with respect
thereto;
(3) The construction of such Constructed
Facility in accordance with the Plans and such
Constructed Facility itself when so constructed will
not violate any Governmental Requirement with respect
thereto and the anticipated use of such Constructed
Facility complies with all applicable ordinances,
regulations and restrictive covenants affecting the
real property on which such Constructed Facility is
located and all requirements of such use which can be
satisfied prior to completion of construction have
been satisfied;
(4) All permits, consents, approvals or
authorizations by, or registrations, declarations,
withholdings of objection or filings with any
Governmental Body necessary in connection with the
valid execution, delivery and performance of the
Mortgage and the Mortgage Assignment (if a Managed
Facility), and the Construction Related Agreements or
presently necessary for such
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National Health Corporation Indenture of Trust and Security Agreement
Constructed Facility have been obtained, are valid,
adequate and in full force and effect;
(5) All utility services necessary for
construction and for the operation of such
Constructed Facility for its intended purpose are
available at the boundaries of the real property on
which such Constructed Facility is located which abut
on a public way, including water supply, storm and
sanitary sewer facilities, gas and/or electric and
telephone facilities; and the providing of all such
utility services necessary for the construction and
operation of such Constructed Facility are not
subject to the consent or withholding of objection of
any Governmental Body or, if so subject, all such
consents or withholdings of objection have been
obtained; and
(6) All roads, easements and other necessary
modes of ingress or egress to such Constructed
Facility necessary for the construction and the full
use of such Constructed Facility for its intended
purpose have been completed or obtained or the
necessary rights of way therefor have been acquired
and all necessary steps have been taken by NHLP or
the appropriate Governmental Body to insure the
complete construction and installation thereof; and
(iv) on the date of the first request for payment or
reimbursement:
(A) with respect to the Myrtle Beach Facility, the
Myrtle Beach Mortgage, with respect to the Greenville
Facility, the Greenville Mortgage, with respect to the North
Augusta Facility, the North Augusta Mortgage, and financing
statements with respect to each such Constructed Facility and
the equipment located thereon, which Mortgage and financing
statements shall be recorded or filed for record in each
public office in which such recording or filing is deemed
necessary or appropriate by the Note Purchasers or their
special counsel to perfect the liens thereof as against
creditors of or purchasers from NHLP;
(B) with respect to the Pinellas Facility, (x)
evidence satisfactory to the Note Holders or their special
counsel that the Mortgage between Florida Convalescent
Centers, Inc.
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National Health Corporation Indenture of Trust and Security Agreement
("FCC") and NHLP made on October 16, 1990 and recorded in Book
6111 at Page 389 of the Official Records of Hillsborough
County, Florida shall be released and terminated of record and
that the mortgage note from FCC to NHLP in the principal
amount of $5,250,000 shall be satisfied in full and released
and discharged by NHLP and (y) the Pinellas Mortgage and a
Managed Facility Note, a Note and Mortgage Assignment (and a
consent thereto), a Management Agreement and a Collateral
Assignment of Management Agreement Fees, each with respect to
such Facility; and with respect to the Sun City Facility, (x)
evidence satisfactory to the Note Holders or their special
counsel that the Mortgage between FCC and NHLP made on
November 1, 1990 and recorded in Book 7418 at Page 1120 of the
Official Records of Pinellas County, Florida shall be
satisfied in full and released and terminated of record and
that the mortgage note from FCC to NHLP in the principal
amount of $5,500,000 shall be released and discharged by NHLP
and (y) the Sun City Mortgage and a Managed Facility Note, a
Note and Mortgage Assignment (and a consent thereto), a
Management Agreement and a Collateral Assignment of Management
Agreement Fees, each with respect to such Facility, and
assignments of the financing statements with respect to each
such Constructed Facility and the equipment located thereon,
which Mortgage and financing statements and Note and Mortgage
Assignment shall be recorded or filed for record in each
public office in which such recording or filing is deemed
necessary or appropriate by the Note Purchasers or their
special counsel to perfect the liens thereof as against
creditors of or purchasers from NHLP;
(C) for any Constructed Facility which is also an
Owned Facility, an Opinion of Counsel for NHLP to the effect
that: the Mortgage for such Constructed Facility has been duly
authorized, executed and delivered by NHLP and, in the case of
the Myrtle Beach Mortgage, by Americare Southeast and
constitutes a legal, valid and binding instrument enforceable
in accordance with its terms subject to bankruptcy and
equitable principles; any limitations on the remedies provided
for in the Mortgage will not materially interfere with the
practical realization of the security provided by such
Mortgage; no approval, consent or withholding of objection on
the part of, or filing registration or qualification with any
governmental body, Federal, state or local, is necessary in
connection with the execution and delivery by NHLP and, in the
case of the Myrtle Beach Mortgage, by Americare Southeast of
such Mortgage or the performance by NHLP and, in the case of
the Myrtle Beach Mortgage, by Americare Southeast of
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National Health Corporation Indenture of Trust and Security Agreement
any of the matters required of NHLP and, in the case of the
Myrtle Beach Mortgage, by Americare Southeast thereunder; and
compliance by NHLP and, in the case of the Myrtle Beach
Mortgage, by Americare Southeast, with all of the provisions
of such Mortgage will not conflict with or result in any
breach of any of the provisions of or constitute a default
under or result in the creation or imposition of any lien or
encumbrances on any property of NHLP pursuant to the
provisions of the Limited Partnership Agreement or By-laws of
NHLP or any other agreement or instrument known to such
counsel to which NHLP is a party or by which NHLP may be bound
Americare Southeast pursuant to the provisions of the Articles
of Incorporation or By-laws of Americare Southeast or any
other agreement or instrument known to such counsel to which
Americare Southeast is a party or by which Americare Southeast
may be bound;
(D) for any Constructed Facility which is also a
Managed Facility for which such first advance is being
requested, (i) an Opinion of Counsel for the owner thereof to
the effect that: the Mortgage, the Management Agreement, the
Managed Facility Note and the consent to the Note and Mortgage
Assignment for such Constructed Facility have each been duly
authorized, executed and delivered by the owner thereof and
each constitutes a legal, valid and binding instrument
enforceable in accordance with its terms subject to bankruptcy
and equitable principles; any limitations on the remedies
provided for in the Mortgage will not materially interfere
with the practical realization of the security provided by
such Mortgage; no approval, consent or withholding of
objection on the part of, or filing registration or
qualification with any governmental body, Federal, state or
local, is necessary in connection with the execution and
delivery by the owner thereof of such Mortgage, Management
Agreement, Managed Facility Note and consent to Note and
Mortgage Assignment or the performance by the owner thereof of
any of the matters required of the owner thereof; and
compliance by the owner thereof with all of the provisions of
such Mortgage, Management Agreement, Managed Facility Note and
consent to Note and Mortgage Assignment will not conflict with
or result in any breach of any of the provisions of or
constitute a default under or result in the creation or
imposition of any lien or encumbrances on any property of the
owner thereof pursuant to the provisions of the organizational
documents or By-laws of the owner thereof or any other
agreement or instrument known to such counsel to which the
owner thereof is a party or by which the owner thereof may be
bound,
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National Health Corporation Indenture of Trust and Security Agreement
and (ii) an Opinion of Counsel for NHLP to the effect that:
the Note and Mortgage Assignment and Management Agreement for
such Constructed Facility have each been duly authorized,
executed and delivered by NHLP and each constitutes a legal,
valid and binding instrument enforceable in accordance with
its terms subject to bankruptcy and equitable principles; no
approval, consent or withholding of objection on the part of,
or filing registration or qualification with any governmental
body, Federal, state or local, is necessary in connection with
the execution and delivery by NHLP of such Note and Mortgage
Assignment or the performance by NHLP of any of the matters
required of NHLP thereunder; and compliance by NHLP with all
of the provisions of such Note and Mortgage Assignment will
not conflict with or result in any breach of any of the
provisions of or constitute a default under or result in the
creation or imposition of any lien or encumbrances on any
property of NHLP pursuant to the provisions of the Limited
Partnership Agreement or By-laws of NHLP or any other
agreement or instrument known to such counsel to which NHLP is
a party or by which NHLP may be bound;
(E) for any Constructed Facility, the title insurance
policy or policies contemplated by the title insurance
commitment for such Constructed Facility, in form and
substance satisfactory to the Indenture Trustee;
(F) for any Constructed Facility, executed
counterparts of an assignment of all construction related
licenses, permits and approvals; an assignment of the
Construction Plans; the Collateral Assignment of the
Architect's Contract (and a consent to such assignment
executed by the Architect) and the Collateral Assignment of
General Contract (and a consent to such assignment executed by
the General Contractor) for such Constructed Facility, each
naming the Indenture Trustee as assignee and reasonably
satisfactory in form and substance to the holders of not less
than 64% in aggregate principal amount of the Notes
outstanding and the Indenture Trustee;
(G) a Construction Payment Certificate with respect
to the Construction Cost or Other Project Cost for which
payment or reimbursement is then being sought;
(H) for any Constructed Facility which is also a
Managed Facility for which such first advance is being
requested, copies of any agreements between NHLP and the owner
of such Managed Facility pursuant to which NHLP shall
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National Health Corporation Indenture of Trust and Security Agreement
have agreed to indemnify the owner in connection with a
default under the Mortgage for such Managed Facility caused by
an Event of Default hereunder, which indemnification shall be
limited to the owner's equity in such Managed Facility at the
time of such default; and
(I) such other opinions, certificates and other
instruments as the Indenture Trustee or the holders of not
less than 64% in aggregate principal amount of the Notes
outstanding may reasonably request.
(b) With respect to the first request for payment or
reimbursement of Construction Costs or other Project Costs of any
Constructed Facility, the Trustee shall receive:
(i) from the Consultant an executed counterpart of
each of the Section 1.2D Documents, together with a
certificate of the Consultant stating that such documents
comply with and satisfy the requirements of Section 1.2D of
the Construction Consultant Agreement with respect to such
Constructed Facility;
(ii) the written notice from the Title Company
required by Section 1.2F of the Construction Consultant
Agreement with respect to such Constructed Facility;
(iii) from NHLP (A) a certificate complying with the
requirements of the second paragraph of Section 9.6 and (B) an
opinion of counsel that all conditions precedent to the
disbursement of funds specified in this Section 9.8 have been
met and that the documents furnished to the Indenture Trustee
properly authorize the Indenture Trustee to make the first
disbursement from the appropriate Construction Sub-Account.
9.9. Conditions Precedent to Subsequent Advances.
(a) Concurrently with each subsequent request for
payment or reimbursement for any Constructed Facility, the Indenture
Trustee shall receive with respect to such Constructed Facility:
(i) an executed counterpart of each of the
applicable Section 1.2D Documents, together with a
certificate of the Consultant stating that such documents
comply with and satisfy the requirements of Section 1.2D of
the Construction Consultant Agreement;
(ii) a monthly compliance inspection report
substantially as described in Section 1.2A of the Construction
Consultant Agreement (the "Monthly Compliance Report") and a
payment verification report as described in Section 1.2E of
the Construction Consultant Agreement (the
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National Health Corporation Indenture of Trust and Security Agreement
"Payment Verifications") from the Consultant covering the
matters described in Section 1.2A of the Construction
Consultant Agreement; and
(iii) an endorsement to the title insurance policy
furnished pursuant to Section 9.8(a)(iv)(B) issued by the
title insurance company insuring that there has been no change
in the state of title and no defects, liens, encumbrances or
survey exceptions not appearing on such Title Policy which
shall have the effect of increasing the amount of the Mortgage
Title Policy by the amount of the payment then being made.
(b) Concurrently with the final request for payment
or reimbursement for any Constructed Facility, the Indenture Trustee
shall receive with respect to such Constructed Facility together with a
certificate of the Consultant stating that each item (except for item
(vi)) complies with and satisfies the requirements of this Section
9.9(b):
(i) each of the items described in Section 9.9(a);
(ii) an Officer's Certificate which shall contain all
statements required to be made in a Construction Payment Certificate
and in addition shall state that such Certificate is the final
Construction Payment Certificate and shall indicate the total advances
made from the related Construction Sub-Account, including the amount
being requested in such final request for payment (the "Final Payment
Certificate");
(iii) an "as-built" physical survey of the real property upon
which such Facility is built complying with the requirements of Section
9.4(a)(i);
(iv) a certificate of need issued by the state health care
regulatory agency for the state in which such Facility is located,
together with copies of all licenses necessary to operate such Facility
as a nursing home, and an Officer's Certificate in accordance with
Section 9.4(b)(ii) but with respect to the Constructed Facility;
(v) a certificate of insurance with respect to the Facility
complying with the requirements of Section 2.5 of the Mortgage with
respect to such Constructed Facility; provided that such certificate
of insurance shall not be required if a certificate of insurance
complying with the requirements of Section 9.8(a)(iii)(B) was
furnished at or prior to the initial request for payment under Section
9.8(a)(iii)(B);
(vi) for any Constructed Facility which is also an Owned
Facility, an Opinion of Counsel for NHLP to the effect that the
certificate of need, Medicare provider contract and all licenses
relating to the operation and use of such Constructed Facility are in
full force and effect in the name of NHLP (other than with respect to
the Myrtle Beach Facility, for which the certificate of need, Medicare
provider contract and all licenses relating to the operation and use of
such Constructed Facility may be in the name of
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Americare Southeast) and that no further licenses or permits are
required under any local, state or Federal law, ordinance, rule or
regulation in order to conduct the business of NHLP at such Constructed
Facility; and
(vii) for any Constructed Facility which is also a Managed
Facility, an Opinion of Counsel for NHLP to the effect that the
certificate of need, Medicare provider contract and all licenses
relating to the operation and use of such Constructed Facility are in
full force and effect in the name of the owner of such Constructed
Facility and that no further licenses or permits are required under any
local, state or Federal law, ordinance, rule or regulation in order to
conduct the business of the owner at such Constructed Facility.
(c) The Indenture Trustee shall not be required to disburse any
Construction Fund amounts prior to three business days after it shall have
received all items required as a condition to any disbursement.
9.10. Removal of Consultant. The holders of at least 64% in
principle amount of the Notes outstanding, by notice in writing to the
Consultant, the Indenture Trustee and to NHLP may terminate all of the rights
and obligations of the Consultant under this Indenture and the Construction
Consultant Agreement. On and after the giving of such written notice, all
authority and power of the Consultant under this Indenture and the Construction
Consultant Agreement shall cease. A successor Consultant shall be appointed by
(a) NHLP and approved by the holders of at least 64% in principal amount of the
Notes outstanding or, (b) if an Event of Default shall have occurred and be
continuing, by the the holders of at least 64% in principal amount of the Notes
outstanding.
9.11. Application of Urgent Moneys. (a) At the option of NHLP
and subject to paragraph (b) below, any moneys in the Acquisition Account or in
any sub-account of the Construction Account not disbursed after the final
disbursement request from such sub-account has been honored shall be (i)
transferred to such other subaccounts of the Acquisition Account or
Construction Account for Financed Facilities for which the final disbursement
request has not been made or (ii) applied to the prepayment of Notes in
accordance with the provisions of ss3.2.
(b) Any moneys in the Acquisition Account not disbursed prior
to December 1, 1991 and any moneys in any sub-account of the Construction
Account not disbursed prior to the date that is 120 days after the date
specified in ss4.23(b) with respect to the Constructed Facility related to such
sub-account shall be applied to the prepayment of the Notes in accordance with
the provisions of ss3.2.
9.12. Investment of Disbursement Fund Moneys. Any moneys held
in the Disbursement Fund shall be invested or reinvested by the Indenture
Trustee at the direction of NHLP expressed in an Officer's Certificate in
Permitted Investments selected by NHLP so long as no Default or Event of
Default shall exist hereunder and the interest earned on monies on deposit in
the Disbursement fund shall be disbursed to
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or upon the order of NHLP provided that upon the liquidation of any Permitted
Investments, NHLP shall make up any loss thereon prior to receiving any
interest earnings. So long as any Default or Event of Default shall have
occurred and shall be continuing hereunder, all such interest shall be retained
by the Trustee and applied in accordance with the provisions of ss9.13.
9.13. Application of Moneys Upon Event of Default. Upon
declaration by the Indenture Trustee or the holders of the Notes of the
acceleration of maturity of the Notes in accordance with ss98.3 (unless
rescinded or annulled pursuant to ss98.9) then the Indenture Trustee shall
immediately apply all amounts in the Construction Fund to the payment of the
principal of and interest on all Notes then outstanding.
9.14. Indenture Trustee's Limited Role. The Indenture Trustee
shall have no obligation to examine the contents, form or sufficiency of any
item required to be furnished to it in accordance with the provisions of ss9.4,
ss9.8 or ss9.9 (other than the duty to examine the forms of certificates of the
Consultant and the form of Officer's Certificate described therein) and the
Indenture Trustee shall be entitled to conclusively rely on the certificate of
the Consultant as to the sufficiency thereof. The receipt of the documents
described in ss9.4, ss9.8 or ss9.9, together with the certificate of NHLP
described in ss9.8(b)(iii) shall constitute sufficient authorization to the
Indenture Trustee to disburse the amounts set forth in such request for
payment. The Indenture Trustee shall not have any duty to perform any of the
duties of the Consultant, to remove the Consultant or to find or appoint a
successor to the Consultant nor shall the Indenture Trustee be required to
perform any duty or take any action which requires, contemplates or is
dependent upon receipt of prior certification, cooperation or other action by
the Consultant where the Consultant has failed to provide such certification,
render such cooperation or take such action.
SECTION 10. SUBSTITUTION OF FINANCED FACILITY.
(a) At its option, upon compliance with the provisions of this
Section 10, NHLP may substitute a Substitute Financed Facility for any Financed
Facility, provided that only a Substitute Financed Facility that is owned by
NHLP may be substituted for an Owned Facility.
(b) NHLP shall give the Indenture Trustee and the holders of
the Notes, not less than 120 days prior to the date on which (i) NHLP proposes
to transfer an Owned Facility, which transfer, except for the proviso in clause
(ii) of paragraph (b)(2) of ss4.10, would be prohibited by ss4.10 and (ii) the
owner of any Managed Facility proposes to transfer such Managed Facility,
written notice of any such proposed transfer and of its election to substitute
a Substitute Financed Facility for such Financed Facility. Unless a Default or
Event of Default has occurred and is continuing, the Indenture Trustee shall
execute a release in respect of the Financed Facility on the date of
substitution upon compliance by NHLP with the requirements of paragraph (c)
hereof.
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(c) In the event that NHLP has elected to substitute a
Substitute Financed Facility for a Financed Facility pursuant to paragraph (a)
hereof, then in such event, prior to any release of such Financed Facility, the
Indenture Trustee shall have received the following:
(1) If such Substitute Financed Facility is an Owned Facility
or a Managed Facility, a mortgage or deed of trust with respect to the
Substitute Financed Facility substantially in the form of the mortgage
or deed of trust for the Financed Facility (except that the Loan Value
of the Substitute Financed Facility shall be the Loan Value of the
Mortgaged Facility) duly executed, acknowledged and delivered by NHLP
(if such Substitute Financed Facility is an Owned Facility) or by the
owner of such Substitute Financed Facility (if such Substitute Financed
Facility is a Managed Facility), in either case in full force and
effect and recorded or filed for record, together with all necessary
financing statements and similar notices if and to the extent permitted
or required by applicable law, in each public office wherein such
recording or filing is deemed necessary or appropriate by the Indenture
Trustee and its counsel to perfect the lien thereof as a valid first
mortgage lien on the Substitute Financed Facility as against creditors
of or purchasers from NHLP and, in addition, if such Substitute
Financed Facility is a Managed Facility, a Management Agreement with
respect thereto and a Note Assignment with respect thereto, each duly
executed, acknowledged and delivered by the parties thereto and, in the
case of the Management Agreement, such Management Agreement (or a
memorandum thereof) shall have been recorded in each public office
wherein such recording is deemed necessary by the Indenture Trustee and
its counsel to preserve and protect such Management Agreement as an
agreement running with the land;
(2) A survey, a mortgage title insurance policy, a report of
insurance brokers, an Environmental Audit, a report of insurance
brokers, a list of licenses and permits, an appraisal, in each such
case in the form and to the effect contemplated by SS9.4(a)(ii),
9.4(c)(v), 9.4(a)(iii), 9.4(b)(i), 9.4(f), 9.4(b)(ii) and 9.4(b)(iii),
respectively, but with respect to the Substitute Financed Facility;
(3) A certificate dated the date of the release of the Financed
Facility, executed by a Responsible Officer of NHLP, the truth and
accuracy of which shall be a condition to the release of the Financed
Facility, to the effect that: no Default or Event of Default has
occurred and is continuing; the date on which construction of the
Substitute Financed Facility was completed and the appraised value of
the Substitute Financed Facility is equal to or greater than the
greater of the Loan Value and the fair market value of the Financed
Facility;
(4) If the Substitute Financed Facility is owned by NHLP, an
opinion in form and substance as described in ss9.4(c)(iii), but with respect
to such Substitute Financed Facility, and if the Substitute Financed
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Facility is managed by NHLP, opinions in form and substance as described in
ss9.4(c)(iv), but with respect to such Substitute Finance Facility; and
(5) Such other opinions, certificates, and other instruments as
the Indenture Trustee or the holders of not less than 64% in aggregate
principal amount of the Notes outstanding may reasonably request.
NHLP shall pay all reasonable costs, charges and expenses in any way relating
to or incurred in connection with the mortgage of the Substitute Financed
Facility, including reasonable attorneys' fees and expenses, recording fees,
premiums covering title insurance and all applicable taxes which may be
incurred or imposed by reason of such transactions. Anything herein to the
contrary notwithstanding, this Indenture shall remain in full force and effect
until such time as the substitution of a Substitute Financed Facility and
execution and delivery of a new mortgage or deed of trust is consummated as
contemplated by this ss10.
SECTION 11. THE INDENTURE TRUSTEE; FLORIDA CO-INDENTURE TRUSTEE.
11.1. Acceptance of Trust. The Indenture Trustee hereby accepts the
trusts of the Indenture and agrees to perform the same upon the terms and
conditions hereof.
11.2. Eligibility of Indenture Trustee. The Indenture Trustee shall at
all times be a bank or trust company in good standing, organized under the laws
of the United States of America or of any State, having a capital, surplus and
undivided profits aggregating at least $250,000,000 and the long-term
certificates of deposit of which shall have a credit rating of A (without
regard to any gradations within such rating) by Standard & Poor's Corporation
and/or Moody's Investors Services, Inc.; provided, that such minimum capital,
surplus and undivided profits and rating requirement need not be met if the
obligations of any Indenture Trustee shall be fully and unconditionally
guaranteed pursuant to a guaranty agreement (in form and substance satisfactory
to the holders of not less than 64% of the principal amount of the Notes then
outstanding) by any Person that meets such minimum capital, surplus and
undivided profits and rating requirement and that owns, directly or indirectly,
100% of the capital stock of such Indenture Trustee.
11.3. Rights and Duties of Indenture Trustee. (a) Except as to recital
by the Indenture Trustee relating to the Indenture Trustee, the Indenture
Trustee shall not be responsible for the correctness of the recitals in this
Indenture, the Mortgages or in the Notes, all of which recitals are statements
made by the Issuer.
(b) The Indenture Trustee shall not be responsible as to the validity,
execution or sufficiency of this Indenture, the Mortgages or the Notes, for the
title of NHLP to the Mortgaged Property, or for the security afforded by the
Mortgages or this Indenture or for any representations or warranties as to the
value or condition of the Mortgaged Property.
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(c) During the continuance of any Event of Default of which the
Indenture Trustee shall have actual knowledge, the Indenture Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(d) Except during the continuance of an Event of Default, the
Indenture Trustee shall perform such duties and only such duties as are
specifically set forth in this indenture or as it may be requested to perform
pursuant to the terms hereof or at the request of 64% or more in aggregate
principal amount of the Notes at the time outstanding, subject to the
provisions of subsection (J) of this Section and within the rights and powers
vested in it by this Indenture, and no implied duties or obligations shall be
read into this Indenture against the Indenture Trustee.
(e) The Indenture Trustee shall not be personally liable for any
action taken or omitted to be taken except for its own negligent action, its
own negligent failure to act or its own willful misconduct; provided that:
(i) In the absence of bad faith on the part of the Indenture
Trustee, the Indenture Trustee may conclusively rely upon certificates
or opinions as to the truth of the statements and the correctness of
the opinions expressed therein, provided that any such certificate or
opinion shall conform to all express provisions of this Indenture
applicable thereto;
(ii) The Indenture Trustee shall not be liable for any error of
judgment made in good faith by the Indenture Trustee unless it shall be
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) The Indenture Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of holders of Notes with which the
Indenture Trustee is authorized to comply by the terms of this
Indenture and the Indenture Trustee shall be deemed to be authorized if
the holders of 64% or more in the aggregate principal amount of the
Notes at the time outstanding so request or direct.
(f) The Indenture Trustee shall be under a duty to examine
certificates and opinions required by this Indenture to be furnished to it to
determine whether or not they conform to the express requirements of this
Indenture applicable thereto.
(g) In the absence of bad faith on the part of the Indenture
Trustee, the Indenture Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, opinion, notice,
request, consent, order, appraisal, report, bond or other paper or document
believed by it to be genuine, to have been signed by the proper party or
parties and to be in conformity with the provisions of
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this Indenture, provided that, any of the foregoing instruments shall conform
to all express provisions of this Indenture applicable thereto.
(h) The Indenture Trustee may consult with counsel and the
advice or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken or suffered by it hereunder in good
faith and in accordance with such an opinion.
(i) Whenever it is provided that the Indenture Trustee shall
take any action or refrain from taking any action upon the happening or
continuation of a specified event (including an Event of Default) or upon the
fulfillment of any condition or upon the request of the Issuer or of the
holders of the Notes, the Indenture Trustee (1) shall have no liability for
failure to take such action or for failure to refrain from taking such action
unless and until an officer of the Indenture Trustee has actual knowledge of
such event or continuation thereof or the fulfillment of such condition or
shall have received such request, and (2) in taking such action shall have full
power to give any and all notices and to do any and all acts and things
incidental to such action.
(j) The Indenture Trustee shall not be under any obligation to
exercise any of the trusts or powers hereof at the request, order or direction
of one or more holders of the Notes, unless such holders shall have offered to
the Indenture Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities to be incurred thereby.
(k) None of the provisions of this Indenture shall require the
Indenture Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers if there is reasonable ground for believing that
the repayment of such funds or the liability is not assured to it.
(l) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct so affecting the liability
of or affording protection to the Indenture Trustee shall be subject to the
provisions of this Section.
(m) Subject to subsection (c) of this Section, the Indenture
Trustee shall not be bound to make any investigation into the facts or matters
stated in any statement, instrument, notice, request, direction or other paper
or document referred to in subsection (g) above.
(n) The Indenture Trustee may exercise any of the duties or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys.
(o) The Indenture Trustee shall not be liable for any action
taken or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture.
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11.4. Compensation of Indenture Trustee. NHLP shall (i) pay
reasonable compensation to the Indenture Trustee (which shall not be limited by
any provision of law in regard to the compensation of the Indenture Trustee of
an expressed trust) and reimburse it for its reasonable expenses and
disbursements (including fees and disbursements of its counsel and of all other
persons employed or consulted by it in connection with the subject matter of
this Indenture but who are not regularly in the employ of the Indenture
Trustee), and (ii) indemnify the Indenture Trustee, its directors, officers,
employees and agents for, and hold it and them harmless against, any loss,
liability or expense which it or they may incur or suffer in acting or failing
to act in connection with this Indenture or the Mortgages, including the cost
and expense of defending itself or themselves against any claim of liability in
connection herewith, except to the extent that any such loss, liability or
expense is caused by the negligence or bad faith of the Indenture Trustee or
its directors, officers, employees or agents, as the case may be. To the extent
not paid by NHLP, the Indenture Trustee shall have a lien prior to the Notes on
all moneys held by the Indenture Trustee hereunder. The obligations of the
Issuer under this ss11.4 shall survive termination and discharge of this
Indenture.
11.5. Resignation and Removal of indenture Trustee. (a) The
Indenture Trustee may at any time resign, by giving written notice, by
first-class mail postage prepaid, to the Issuer and all holders of the Notes at
the time outstanding, specifying a date (not earlier than 60 days after the
date of such notice) when such resignation shall take effect (subject to
paragraph (c) below).
(b) The Indenture Trustee may at any time be removed by written
notice to the Indenture Trustee and the Issuer by the holders of a majority in
aggregate principal amount of the outstanding Notes.
(c) Any resignation or removal of the Indenture Trustee shall
be effective only upon appointment of a successor Indenture Trustee and the
latter's acceptance.
11.6. Appointment of Successor Indenture Trustee. If the
Indenture Trustee shall have given notice of Designation to the Issuer and all
holders of the Notes pursuant to ss11.5(a) or if notice of removal shall have
been given to the Indenture Trustee and the Issuer pursuant to ss11.5(b) (the
date such notice shall be given shall be the "Indenture Trustee Termination
Notice Date"), a successor Indenture Trustee shall be appointed within 30 days
after such indenture Trustee Termination Notice Date by the holders of at least
51% in aggregate principal amount of the Notes then outstanding by an
instrument or instruments in writing executed by such holders and delivered to
such successor Indenture Trustee and the Issuer. If such successor Indenture
Trustee shall not have been so appointed or shall not have accepted such
appointment within the time limits provided in the preceding sentence, such
successor Indenture Trustee may be appointed by the Issuer, the holder of any
outstanding Note or, upon application of the retiring Indenture Trustee, by any
court of competent jurisdiction, provided that such Indenture Trustee shall
continue to act only until such time as a successor Indenture Trustee shall
have been appointed pursuant to the preceding sentence. In any event, the
Indenture Trustee shall continue to act until such time as a successor
Indenture Trustee shall have accepted the position of Indenture Trustee.
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11.7. Effect of Appointment of Successor Indenture Trustee.
Upon written appointment and acceptance as Indenture Trustee, each successor
Indenture Trustee shall forthwith, without further act or deed, succeed to all
the estate, property, rights and duties of its predecessor in trust under this
Indenture. Such predecessor shall promptly deliver to such successor Indenture
Trustee all property and sums held hereunder, together with all records and
other documents necessary or appropriate in connection with the performance of
the duties of the successor Indenture Trustee hereunder. Upon the written
request of the successor Indenture Trustee, the Issuer and upon payment of all
amounts due to such predecessor under this Indenture, such predecessor shall
transfer, deliver, assign and confirm to the successor Indenture Trustee,
without recourse, all its estate, property and rights hereunder by executing
and delivering from time to time to the successor Indenture Trustee such
further instruments and by taking such other action as may reasonably be deemed
by such successor Indenture Trustee or the Issuer to be necessary or
appropriate in connection therewith.
11.8. Merger or Consolidation of Indenture Trustee. In the
event of any merger or consolidation of the Indenture Trustee with or into any
other corporation or in the event of the sale of all or substantially all the
Indenture Trustee's corporate trust business, the corporation resulting from
such merger or consolidation, or the transferee in the case of any such sale,
shall take all action necessary as a consequence of such merger, consolidation
or sale to preserve the lien of the Mortgages unimpaired and shall forthwith
notify the Issuer and, subject to ss11.2 hereof, shall be the Indenture Trustee
under the Indenture without further act or deed.
11.9. Status of Moneys Received. All moneys received by the
Indenture Trustee shall, until used or applied as herein provided, be held in
trust for the purposes for which they were received, and, if required pursuant
to the provisions hereof, shall be held in the Acquisition Account and in the
appropriate sub-account of the Construction Account, but otherwise need not be
segregated in any manner from any other moneys, except to the extent required
by law, and may be deposited by the Indenture Trustee under such general
conditions as may be prescribed by law at the Indenture Trustee, and the
Indenture Trustee shall be under no liability for interest on any moneys
received by it hereunder. The Indenture Trustee and any affiliated corporation
may become the owner of any Note secured hereby and be interested in any
financial transaction with the Issuer or any affiliated corporation, or the
Indenture Trustee may act as depositary or otherwise in respect to other
Securities of the Issuer or any affiliated corporation, all with the same
rights which it would have if not the Indenture Trustee.
11.10. Florida Co-Indenture Trustee. (a) Notwithstanding
anything herein to the contrary, the Indenture Trustee agrees not to exercise
any power or take any action that is required under the laws of the State of
Florida to be exercised or taken only by a bank or trust company having trust
powers and located in the State of Florida (hereinafter referred to as "Florida
Trustee Action"). In the event that the Indenture Trustee receives an Opinion
of Counsel or otherwise receives notice that Florida Trustee Action is
necessary or required under this Indenture or the Construction Related
Agreements, it shall immediately notify the Florida Co-Indenture Trustee
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which, after receipt of such notice and assurances of compensation as provided
for the Indenture Trustee in ss11.4 and satisfactory to the Florida Co-Indenture
Trustee, shall at the written direction of the Indenture Trustee take such
Florida Trustee Action. In the event that the Florida Co-Indenture Trustee is
required to undertake Florida Trustee Action hereunder, each and every
indemnity, remedy, power, right, claim, demand, cause of action, immunity,
estate, title, interest and lien expressed or intended by this Indenture or
the Construction Related Agreements to be exercised by or vested in or conveyed
to the Indenture Trustee with respect thereto shall be ipso facto exercisable
by and vest in and be conveyed to the Florida Co-Indenture Trustee, but only to
the extent necessary to enable the Florida Co-Indenture Trustee, to exercise
such powers, rights and remedies, and every covenant and obligation necessary
to undertake or take such Florida Trustee Action. Except as is specifically
required under the laws of the State of Florida, any duty or required action
under this Indenture shall be the responsibility of, and shall be undertaken by
the Indenture Trustee. The Indenture Trustee shall execute such assignments or
other documents as may be necessary for the Co-Indenture Trustee to perform its
duties, exercise its powers and take any actions under this Indenture.
(b) Resignation and Removal of Florida Co-Indenture Trustee.
The Florida Co-Indenture Trustee may at any time and for any reason resign or
be removed as provided in ss11.5 with respect to the Indenture Trustee.
(c) Appointment of Successor Florida Co-Indenture Trustee. In
case at any time the Florida Co-Indenture Trustee shall resign or shall be
removed, a successor Florida Co-Indenture Trustee shall be appointed as
provided in ss11.6 with respect to the Indenture Trustee.
(d) Resignation; Removal; Appointment of Successor Co-Indenture
Trustee. No resignation or removal of the Florida Co-Indenture Trustee and no
appointment of a successor Florida Co-Indenture Trustee pursuant to this Section
11 shall become effective until the acceptance of appointment by the successor
Florida Co-Indenture Trustee as provided in ss11.6 with respect to a successor
Indenture Trustee.
11.11. Co-trustees and Separate Indenture Trustees. At any time
or times, for the purpose of meeting the legal requirements of any jurisdiction
in which any of the Mortgaged Property may at the time be located, the
Indenture Trustee upon the direction of the holders of not less than 64% in the
aggregate principal amount of the Notes shall have power to appoint, and the
Issuer shall for such purpose join with the Indenture Trustee in the execution,
delivery and performance of all instruments and agreements necessary or proper
to appoint, one or more Persons approved by the Indenture Trustee and the
holders of 64% in the aggregate principal amount of the Notes than outstanding
either to act as co-trustee, jointly with the Indenture Trustee, of all or any
part of such Mortgaged Property, or to act as separate trustee of any such
Property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any Property, title, right or power deemed necessary or desirable,
subject to the other provisions of this ss11.11.
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<PAGE> 105
Should any written instrument from the Issuer be required by
any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such Property, title, right or power, any
and all such instruments shall, on request, be executed, acknowledged and
delivered by the Issuer.
Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the
following terms, namely:
(a) the Notes shall be authenticated and delivered and all
rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal Property held by, or
required to be deposited or pledged with, the Indenture Trustee
hereunder, shall be exercised solely by the Indenture Trustee;
(b) the rights, powers, duties and obligations hereby conferred
or imposed upon the Indenture Trustee in respect of any Property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee or by the Indenture
Trustee and such co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or separate
trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Indenture Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee;
(c) the Indenture Trustee at any time, by an instrument in
writing executed by it, may accept the resignation of or remove any
co-trustee or separate trustee appointed under this ss11.11. Upon the
written request of the Indenture Trustee, the Issuer shall join with
the Indenture Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate
trustee that has resigned or been removed may be appointed in the
manner provided in this Section;
(d) no co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Indenture
Trustee, or any other such trustee hereunder nor shall the Indenture
Trustee be liable by reason of any act or omission of any co-trustee or
separate trustee hereunder; and
(e) any written direction of the Noteholders delivered to the
Indenture Trustee shall be deemed to have been delivered to each
co-trustee and separate trustee.
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<PAGE> 106
SECTION 12. NOTIFICATION OF PAYMENT; DISCHARGE OF INDENTURE.
The Indenture Trustee shall release this Indenture and the lien
granted hereby by proper instrument or instruments upon presentation of
satisfactory evidence that all indebtedness hereby secured has been fully paid
or discharged.
SECTION 13. SUPPLEMENTAL MORTGAGES AND INDENTURES; WAIVERS.
Any term, covenant or agreement of this Indenture or the
Mortgages may, with the consent of the Issuer and the holders of not less than
64% in aggregate principal amount of the Notes at the time outstanding, be
amended or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively) and, if the
Issuer shall have obtained such consents and filed or caused the same to be
filed with the Indenture Trustee, the Indenture Trustee may from time to time
and at any time execute and deliver a waiver or consent or enter into a
supplemental mortgage or supplemental indenture which in each case shall be
binding upon all holders of the Notes, for the purpose of modifying, altering,
amending, deleting, waiving, consenting to or adding to, in any particular, any
of the terms or provisions contained in the Mortgages or this Indenture or in
any supplemental indenture or instrument or in the Notes; provided, however,
that no such waiver, consent, modification, alteration, amendment, deletion or
addition shall be made which would (a) affect the obligations of the Issuer to
pay the principal of and interest and premium, if any, on the Notes as and when
set forth therein and as provided herein and in the Mortgages, which
obligations are unconditional and absolute, without the consent of the holder
of each Note so affected, or (b) permit the creation by the Issuer of any lien
on the property subjected to the lien of this Indenture or the Mortgages prior
to or on a parity with the lien of this Indenture or the Mortgages without the
consent of the holder or holders of all of the Notes, or (c) release any of the
Mortgaged Property except pursuant to the terms which govern the release
thereof in the Mortgages, or (d) affect any of the rights or duties of the
Indenture Trustee without its written assent thereto; provided farther,
however, that this ss13 may not be amended and that the aforesaid percentage
shall not be reduced without the consent of the holders of all Notes then
outstanding. Such consent and approval may be evidenced by any number of
instruments of similar tenor executed by the holders of the Notes, in person or
by agent or proxy appointed in writing. For the purpose of calculating the
percentage of outstanding Notes which have consented to any amendment of this
Indenture or waived any provision hereof and for the purpose of calculating
whether the holders of the requisite percentage of the outstanding Notes have
requested any action hereunder or undertaken any other-action with respect to
this Indenture or the Notes, Notes held by National, NHLP, NHC or the Issuer
shall be excluded.
SECTION 14. MISCELLANEOUS.
14.1. Successors and Assigns. Whenever any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
assigns of
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<PAGE> 107
such party; and all the covenants, premises and agreements in this Indenture
contained by or on behalf of the Issuer or by or on behalf of the Indenture
Trustee, shall bind and inure to the benefit of the respective successors and
assigns of such parties whether so expressed or not.
14.2. Severability. In case any one or more of the provisions
contained in this Indenture or the Notes shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
effected or impaired thereby.
14.3. Notices. All communications provided for herein shall be
in writing and shall be deemed to have been given (unless otherwise required by
the specific provisions hereof in respect of any matter) when delivered
personally or when deposited in the United States mail, registered, postage
prepaid or when delivered to an overnight courier, addressed as follows,
provided that the failure of the Indenture Trustee or the holder of any Note to
send a copy of any notice duly sent to NHLP or National to such partys' counsel
as indicated below shall not, in and of itself, constitute a failure to give
proper notice to such party:
If to NHLP or National: National HealthCorp L.P.
City Center
100 Vine Street
Murfreesboro, Tennessee 37130
Attention: Senior Vice President/
General Counsel
with a copy to: Keck, Mahin & Cate
8300 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6589
Attention: Jared Kaplan
If the Issuer: Marine Midland Bank, N.A.
Employee Benefit Trust Services
250 Park Avenue
New York, New York 10177
Attention: Stephen J. Hartman, Jr.
If to the Indenture Trustee: State Street Bank and Trust Company
of Connecticut, National Association
100 Constitution Plaza
Hartford, Connecticut 06103
Attention: Corporate Trust Department
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<PAGE> 108
If to the Florida Barnett Banks Trust Company,
Co-Indenture Trustee: National Association
9000 Southside Boulevard
Building 100
Jacksonville, Florida 32256
Attention: Corporate Trust Department
If to a Note Purchaser: To such Note Purchaser at its address
appearing on Schedule I of the Note
Purchase Agreement
or to the Issuer, the Indenture Trustee or the Note Purchaser at such other
address as the Issuer, the Indenture Trustee or the Note Purchaser may
designate by notice duly given in accordance with this Section.
If any subsequent holder of any Note shall have presented the
same to the Indenture Trustee for inspection accompanied by a written
designation of the address to which notice in respect of such Note is to be
given, then wherever herein it is provided that notice shall be given to the
holder or holders of the Notes, the notice shall be addressed to such holder at
the address so given but unless and until such subsequent holder or holders
shall so present a Note to the Indenture Trustee and designate such address,
all communications herein provided to be made or given to the holder or holders
of the Notes shall be sufficiently given if addressed to the holders at their
last known respective addresses.
14.4. Counterparts. This Indenture may be executed,
acknowledged and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one instrument.
14.5. Environmental Indemnity. NHLP agrees to indemnify and
hold harmless the Indenture Trustee and each holder of the Notes, each Person
claiming by, through, under or on account of any of the foregoing and the
respective directors, officers, counsel and employees of each of the foregoing
Persons (the "Indemnified Parties") from and against any and all losses,
claims, damages and liabilities to which any such Indemnified Party may become
subject under any law, statute, regulation or ordinance referred to in ss4.8
applicable to NHLP or any of the Financed Facilities, including without
limitation those losses, claims, damages and liabilities resulting from the
treatment or disposal of Hazardous Substances on any of the Financed
Facilities, or as a result of the breach of or non-compliance by NHLP with ss4.8
with respect to any of the Financed Facilities. The provisions of this ss14.5
shall survive the foreclosure by the Indenture Trustee on any one or all of the
Financed Facilities under this Indenture or the Mortgages.
14.6. Law Governing. This Indenture and the Notes shall be
construed in accordance with, and governed by, the laws of the State of
Illinois.
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<PAGE> 109
14.7. Concerning the Plan Trustee. The term "Issuer" as used
herein shall mean and include the trustees of the Issuer and their successors
in trust not individually but solely as Trustees under the Trust Agreement, and
this Agreement shall be binding upon the trustees of the Issuer and their
successors and assigns and upon the trust and the trust estate. Marine Midland
Bank, N.A., and any successor trustee under the Trust Agreement shall not
assume and shall have no personal liability or responsibility for payment of
the indebtedness evidenced by the Notes or for observance or performance of the
covenants and agreements herein contained or for the truthfulness of the
representations and warranties herein contained (except for the representations
and warranties set forth in paragraphs 6(a) and 11(c) of Exhibit B to the Note
Purchase Agreements, the Plan Trustee having executed this Indenture and the
Notes not individually but solely as Trustee under the Trust Agreement to bind
the Issuer and the trust estate.
14.8. Limited Liability. Anything contained herein or in the
Notes to the contrary notwithstanding, each holder of the Notes agrees that the
Notes are without recourse to the Issuer and that the payment of the
obligations of the Issuer hereunder and under the Notes shall be made solely
from the Trust Estate. In addition to the foregoing, each holder of the Notes
acknowledges that payment on the Notes by the Issuer during any year shall not
exceed an amount equal to the sum of contributions to the Issuer and earnings
and dividends on the Issuer's property for that year and all prior years
reduced by the amount of all prior payments on the Notes and that, without
limiting the foregoing, during any period during which such holder shall be a
"disqualified person" (as defined in Section 4975(e)(2) of the Code), assets of
the Issuer, upon the occurrence of an Event of Default, may be transferred to
such holder only upon and to the extent of the failure of the Issuer to make
regularly scheduled payments of principal and interest on the Notes. The
foregoing limitations shall not affect the rights of any holders of the Notes,
which are unconditional and absolute, to declare the indebtedness evidenced by
the Notes to be immediately due and payable upon the occurrence of any Event of
Default as provided in ss8.3, or to proceed against NHLP, National or NHC under
the Guaranty Agreement as therein provided or to foreclose or pursue any other
remedies with respect to the Financed Facilities under the NHLP Mortgages or
the Note and Mortgage Assignments or to proceed against NHLP under the NHLP
Loan Agreement or on the NHLP Note. As more fully provided in ss14.7, anything
contained or in the Notes to the contrary notwithstanding, the Plan Trustee
shall have no personal liability in connection with the Notes or the
transactions contemplated hereby. Subject to the provisions of this ss14.8, the
obligations of the Issuer for the payment of principal, interest and premium,
if any, on the Notes shall at all times rank pari passu with all other senior
obligations of the Issuer.
14.9. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the NHLP agrees to pay
all expenses relating to the subject matter of this Indenture, including but
not limited to:
(a) the cost of reproducing this Indenture, the Note Purchase
Agreements, the Notes, the Guaranty Agreement, the Mortgages, the Note
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<PAGE> 110
and Mortgage Assignments, all other Operative Agreements and all other
documents required or contemplated hereunder;
(b) the reasonable fees and disbursements of Chapman and
Cutler, special counsel to the Note Purchasers (including but not
limited to reasonable fees and disbursements in connection with
disbursements from the Disbursement Fund after the Closing Date) and
Keck, Mahin & Cate, counsel to the Issuer;
(c) the reasonable out-of-pocket expenses of the Note
Purchasers;
(d) the cost of delivering to the home office of the Note
Purchasers, insured to your satisfaction, the Notes purchased by you on
the Closing Date;
(e) all initial and ongoing fees, costs and other expenses
(including but not limited to reasonable attorney's fees) of the
Indenture Trustee and the Florida Co-Indenture Trustee hereunder and
under the Construction Consultant Agreements, including fees and
expenses incurred in connection with the enforcement of the obligations
of the Issuer, NHLP and National hereunder;
(f) all recording, filing fees and stamp taxes in connection
with the recordation or filing and rerecordation or refiling of this
Indenture, the Mortgages, the Note and Mortgage Assignments, the
Management Agreements and any related documents and other notices
thereof;
(g) all expenses (including but not limited to reasonable
attorney's fees, which shall include but not be limited to the
allocable costs and expenses incurred by in-house counsel to each of
the Note Purchasers) in connection with any amendments, waivers or
consents requested by any party in connection with any of the Operative
Agreements (whether or not the same are actually executed and
delivered); and
(h) the cost of obtaining a private placement number for the
Notes from Standard & Poor's Corporation.
The obligations of NHLP under this ss14.9 shall survive the payment or
prepayment of the Notes and the termination of this Indenture.
14.10. Application of ERISA. Notwithstanding anything herein to the
contrary, the parties to this Indenture agree that any security granted
hereunder shall only be enforceable to the extent permitted under ERISA and the
Code, including without limitation, ss 408(b)(3) of ERISA and Section
4975(d)(3) of the Code, together with the applicable regulations thereunder.
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<PAGE> 111
IN WITNESS WHEREOF, NHLP, National and the Issuer have each
caused this Indenture to be executed, and State Street Bank and Trust Company
of Connecticut, National Association, as Indenture Trustee, in evidence of its
acceptance of the trusts hereby created, and Barnett Banks Trust Company,
National Association, as Florida Co-Indenture Trustee has caused this
Indenture to be executed, all as of the day and year first above written.
NATIONAL HEALTHCORP L.P.
By NHC, Inc.,
Its Managing General Partner
By /s/
---------------------------------
Its President
------------------------------
By National Health Corporation,
Its Administrative General Partner
By /s/
---------------------------------
Its Senior Vice President
--------------------------
NATIONAL HEALTH CORPORATION
By /s/
--------------------------------------
Its Senior Vice President
-----------------------------------
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<PAGE> 112
NATIONAL HEALTH CORPORATION
LEVERAGED EMPLOYEE MOCK
OWNERSHIP TRUST
By Marine Midland Bank, N.A., not
in its individual or corporate
capacity but solely as Trustee
under the Trust Agreement made and
entered into effective January 20,
1988 by and between National Health
Corporation, a Tennessee
corporation, and Marine Midland
Bank, N.A., as trustee, as amended
on April 1, 1988 by a First
Amendment thereto, as the same may
from time to time be amended or
modified.
By /s/
-------------------------------------
Its Director
----------------------------------
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION,
as Indenture Trustee
By /s/
-------------------------------------
Its Vice President
----------------------------------
BARNETT BANKS TRUST COMPANY,
NATIONAL ASSOCIATION, as Florida
Co-Indenture Trustee
By /s/
-------------------------------------
Its Assistant Vice President
----------------------------------
<PAGE> 1
EXHIBIT 8
September , 1997
National Health Realty, Inc.
100 Vine Street, Suite 1400
Murfreesboro, TN 37130
RE: Certain Federal Income Tax Matters
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as special REIT tax
counsel to National Health Realty, Inc. (the "Company") in connection with the
Company's joint registration statement on Form S-4 (the "Registration
Statement") filed by the Company and by National HealthCare Corporation ("NHC")
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, relating to an indeterminate amount of (i) shares of common stock
of NHC and (ii) shares of common stock of the Company. This opinion relates to
the Company's qualification for federal income tax purposes as a real estate
investment trust ("REIT") under the Internal Revenue Code for 1986, as amended
(the "Code").
In rendering the following opinion, we have examined the Registration
Statement, the Articles of Incorporation and Bylaws of the Company, and such
other records, certificates and documents as we have deemed necessary or
appropriate for purposes of rendering the opinion set forth herein. We also have
relied upon the representations of the Company and National HealthCare, L.P.
(the "Operating Partnership") regarding the manner in which the Company has been
and will continue to be owned and operated. We have neither independently
investigated nor verified such representations, and we assume that such
representations are true, correct and complete and that all representations made
"to the best of the knowledge and belief" of any person(s) or party(ies) or with
similar qualification are and will be true, correct and complete as if made
without such qualification. We assume that the Company has been and will be
operated in accordance with applicable laws and the terms and conditions of
applicable documents. In addition, we have relied on certain additional facts
and assumptions described below.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the
conformity to the original documents of all documents submitted to us as
copies, (iv) the conformity of final documents to all documents submitted to us
as drafts, (v) the authority and capacity of the individual or individuals who
executed any such documents on behalf of any person, (vi) the accuracy and
completeness of all records made available to us, and (vii) the factual accuracy
of all representations, warranties and the statements made by all parties. We
also have assumed, without investigation, that all documents, certificates,
warranties and covenants on which we have relied in rendering the opinion set
forth below and that were given or dated earlier
<PAGE> 2
than the date of this letter continue to remain accurate, insofar as relevant
to the opinion set forth herein, from such earlier date through and including
the date of this letter.
The discussion and conclusions set forth below are based upon the Code,
the Income Tax Regulations and Procedure and Administration Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all of which are subject to change. No assurance can therefore be
given that the federal income tax consequences described below will not be
altered in the future.
Based upon and subject to the foregoing, and provided that the Company
continues to meet the applicable asset composition, source of income,
shareholder diversification, distribution, record keeping and other
requirements of the Code necessary for a corporation to qualify as a REIT, we
are of the opinion that:
Commencing with the Company's first taxable year ended December 31,
1998, the Company has been organized in conformity with the requirements for
qualification as a "real estate investment trust" under the Code, and the
Company's proposed method of operation, as described in the representations
referred to above, will enable it to continue to meet the requirements for
qualification and taxation as a "real estate investment trust" under the Code.
We express no opinion with respect to the transactions described in the
Registration Statement other than those expressly set forth herein. You should
recognize that our opinion is not binding on the Internal Revenue Service (the
"IRS") and that the IRS may disagree with the opinion contained herein.
Although we believe that our opinion will be sustained if challenged, there can
be no assurance that this will be the case. The opinion expressed herein is
based upon the law as it currently exists. Consequently, future changes in the
law may cause the federal income tax treatment of the transactions described
herein to be materially and adversely different from that described above.
We consent to being named as special REIT tax counsel to the Company in
the Registration Statement, to the references in the Registration Statement to
our firm and to the inclusion of a copy of this opinion letter as an exhibit to
the Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
2
<PAGE> 1
EXHIBIT 10.1
MASTER OPERATING LEASE
between
NHR/OP, L.P., LANDLORD
and
NATIONAL HEALTHCARE CORPORATION, TENANT
Dated: October 1, 1997
Effective: 12:01 AM, January 1, 1998
<PAGE> 2
Table of Contents
Page
ARTICLE I: SEPARATE LEASE AGREEMENTS; PREMISES AND TERM............ 1
1.01 Separate Lease Agreements............................... 1
1.02 Leased Property......................................... 1
1.03 Term.................................................... 2
1.04 Holding Over............................................ 2
1.05 Surrender............................................... 2
ARTICLE II: RENT ................................................... 3
2.01 Base Rent............................................... 3
2.02 Additional Rent......................................... 3
2.03 Place(s) of Payment of Rent; Direct Payment of
AdditionaL Rent ........................................ 3
2.04 Net Lease............................................... 3
2.05 No Termination, Abatement, Etc.......................... 4
2.06 Percentage Rent......................................... 4
ARTICLE III: IMPOSITIONS AND UTILITIES............................... 6
3.01 Payment of Impositions.................................. 6
3.02 Definition of Impositions............................... 7
3.03 Escrow of Impositions................................... 8
3.04 Utilities............................................... 8
3.05 Discontinuance of Utilities............................. 9
ARTICLE IV: INSURANCE .............................................. 9
4.01 Property Insurance...................................... 9
4.02 Liability Insurance..................................... 10
4.03 Insurance Requirements.................................. 10
4.04 Replacement Cost........................................ 11
4.05 Blanket Policy.......................................... 11
4.06 No Separate Insurance................................... 11
4.07 Waiver of Subrogation................................... 11
4.08 Mortgages............................................... 12
4.09 Escrows................................................. 12
ARTICLE V: INDEMNITY; HAZARDOUS SUBSTANCES......................... 12
5.01 Tenant's Indemnification................................ 12
5.02 Hazardous Substances or Materials....................... 13
5.03 Limitation of Landlord's Liability...................... 13
i
<PAGE> 3
ARTICLE VI: USE AND ACCEPTANCE OF PREMISES.......................... 14
6.01 Use of Leased Property.................................. 14
6.02 Acceptance of Leased Property........................... 14
6.03 Conditions of Use and Occupancy......................... 14
6.04 Financial Statements.................................... 14
ARTICLE VII: REPAIRS, COMPLIANCE WITH LAWS,
AND MECHANICS' LIENS.................................... 15
7.01 Maintenance............................................. 15
7.02 Compliance With Laws.................................... 15
7.03 Required Alterations.................................... 15
7.04 Mechanic's Liens........................................ 16
7.05 Replacements of Fixtures................................ 16
ARTICLE VIII: ALTERATIONS AND SIGNS................................... 16
8.01 Prohibition on Alterations and Improvements............. 16
8.02 Requirements for Permitted Alterations.................. 17
8.03 Ownership and Removal of Permitted Alterations.......... 18
8.04 Signs................................................... 18
ARTICLE IX: DEFAULTS AND REMEDIES................................... 18
9.01 Events of Default....................................... 18
9.02 Remedies................................................ 20
9.03 Right of Set-Off........................................ 22
9.04 Performance of Tenant's Covenants....................... 22
9.05 Late Charge............................................. 22
9.06 Litigation; Attorneys' Fees............................. 22
9.07 Remedies Cumulative..................................... 23
9.08 Escrows and Application of Payments..................... 23
9.09 Power of Attorney....................................... 23
ARTICLE X: DAMAGE AND DESTRUCTION.................................. 24
10.01 General................................................. 24
10.02 Landlord's Inspection................................... 24
10.03 Landlord's Costs........................................ 25
10.04 Rent Abatement.......................................... 25
10.05 Substantial Damage During Lease Term.................... 25
ARTICLE XI: CONDEMNATION ........................................... 26
11.01 Total Taking............................................ 26
11.02 Partial Taking.......................................... 26
ARTICLE XII: TENANT'S PROPERTY ...................................... 26
ii
<PAGE> 4
12.01 Tenant's Property....................................... 27
12.02 Requirements for Tenant's Property...................... 27
ARTICLE XIII: TENANT'S RIGHTS OF FIRST REFUSAL........................ 28
13.01 Rights of First Refusal................................. 28
ARTICLE XIV: ASSIGNMENT AND SUBLETTING; ATTORNMENT................... 29
14.01 Subletting and Assignment; Attornment................... 29
14.02 Attornment.............................................. 29
14.03 Sublease Limitation..................................... 30
ARTICLE XV: ARBITRATION ............................................ 30
15.01 Arbitration............................................. 30
15.02 Appointment of Arbitrators.............................. 30
15.03 Third Arbitrator........................................ 30
15.04 Arbitration Procedure................................... 30
15.05 Expenses................................................ 31
ARTICLE XVI: QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT,
BOND FINANCING AND ESTOPPEL CERTIFICATES................ 31
16.01 Quiet Enjoyment......................................... 31
16.02 Subordination........................................... 31
16.03 Attornment; Non-Disturbance............................. 31
16.04 Estoppel Certificates................................... 32
ARTICLE XVII: MISCELLANEOUS........................................... 33
17.01 Notices................................................. 33
17.02 Advertisement of Leased Property........................ 33
17.03 Entire Agreement........................................ 34
17.04 Severability............................................ 34
17.05 Captions and Headings................................... 34
17.06 Governing Law........................................... 34
17.07 Recording of Lease...................................... 34
17.08 Waiver.................................................. 34
17.09 Binding Effect.......................................... 34
17.10 Authority............................................... 34
17.11 Transfer of Permits, Etc................................ 34
17.12 Modification............................................ 35
17.13 Incorporation by Reference.............................. 35
17.14 No Merger............................................... 35
17.15 Laches.................................................. 35
17.16 Waiver of Jury Trial.................................... 35
iii
<PAGE> 5
17.17 Permitted Contests...................................... 36
17.18 Construction of Lease................................... 36
17.19 Counterparts............................................ 36
17.20 Relationship of Landlord and Tenant..................... 37
17.21 Custody of Escrow Funds................................. 37
17.22 Sale of Real Estate Assets.............................. 37
17.23 Use of Tenant's Name.................................... 37
iv
<PAGE> 6
MASTER OPERATING LEASE
AGREEMENT dated as of the 1st day of October, 1997, but effective
12:01 a.m., January 1, 1998, by and between NHR/OP, L.P., a Maryland limited
partnership, with NATIONAL HEALTH REALTY, INC. as general partner, ("Landlord")
and NATIONAL HEALTHCARE CORPORATION, or any wholly owned subsidiary to whom it
is assigned, a Delaware corporation (collectively "Tenant").
RECITALS
WHEREAS, Tenant desires to lease from Landlord various properties
upon which Landlord engages in the business of operating nursing homes and
healthcare facilities, which properties are listed on Schedule A attached hereto
(the "Real Estate Conveyance"); and
WHEREAS, Landlord and Tenant desire that each of the properties
listed on Schedule A shall be the subject of a separate and individual Short
Form Lease Agreement describing said property, the rent and various other terms
of said lease (each such Short Form Lease Agreement referred to individually as
a "Lease" and the property that is the subject of an individual Lease being
referred to as "Leased Property"); and
WHEREAS, Landlord and Tenant desire to set forth in this Agreement
certain terms and conditions applicable to all Leases of all Leased Properties,
except as any individual Lease with respect to a particular Leased Property may
otherwise provide;
NOW, THEREFORE, in consideration of the premises and of their
respective agreements and undertakings herein and in each Lease, Landlord and
Tenant agree as follows:
ARTICLE I: SEPARATE LEASE AGREEMENTS; PREMISES AND TERM
1.01 Separate Lease Agreements. Landlord and Tenant are concurrently
entering into a separate Lease for each of the Leased Properties referred to in
Schedule A hereto. Except as specifically set forth in a separate Lease, or any
amendment, supplement, schedule or exhibit thereto, all of the provisions of
this Agreement shall be deemed to be incorporated into and made a part of each
such separate Lease made between the Landlord as landlord (or lessor) and the
Tenant as tenant (or Lessee) during the Term of such separate Lease.
1.02 Leased Property. Except as set forth in an individual Lease
(including any schedule or exhibit thereto), the property that is the subject of
each Lease and that shall be considered as leased by the Landlord to the Tenant
thereunder shall consist of:
(a) The land described in the Lease ("Land");
(b) All buildings, structures, and other improvements,
including without
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limitation sidewalks, alleys, utility pipes, conduits, and lines,
parking areas, and roadways, now or hereafter situated upon the Land
("Improvements");
(c) All easements, rights and other appurtenances relating to
the Land and Improvements ("Appurtenances");
(d) All permanently affixed equipment, machinery, fixtures,
and other items of real property, including all components thereof,
located in, or used in connection with, and permanently affixed to or
incorporated into the Improvements, including without limitation, all
furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating (but not movable refrigerators),
incineration, air and water pollution control, waste disposal
air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, and built-in oxygen
and vacuum systems, 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 items within the category
of "Tenant's Property" defined in Section 12.01 hereof (collectively
the "Fixtures").
The Land, Improvements, Appurtenances and Fixtures are hereinafter referred to
as the "Leased Property".
SUBJECT, HOWEVER, to the easements, liens, encumbrances, restrictions,
agreements, and other title matters listed or specifically referred to in any
individual Lease ("Permitted Exceptions").
1.03 Term. To have and to hold, unless otherwise provided in an
individual Lease, the initial term (the "Initial Term") of each Lease is ten
(10) years commencing on January 1, 1998, (the "Commencement Date") and expiring
on December 31, 2007. Provided that no Event of Default has occurred and that
Tenant has not given Landlord a six (6) month notice of termination on or before
December 31, 2007, Tenant shall have been deemed to renew all (but except as
Landlord shall otherwise specifically agree in writing not less than all) Leases
for one (1) additional five (5) year term commencing January 1, 2008 (the "First
Renewal Term") on the same terms (other than with respect to renewal) as the
Initial Term; and provided that no Event of Default has occurred and that Tenant
has not given Landlord a six (6) month notice of termination on or before
December 31, 2012, Tenant shall have been deemed to renew all (but except as
Landlord shall otherwise specifically agree in writing not less than all) Leases
for one (1) further five (5) year term commencing January 1, 2013 (the "Second
Renewal Term") on the same terms as the First Renewal Term. The term "Term"
means the Initial Term and each Renewal Term as appropriate. The term "Lease
Year" means each twelve (12) month period during the Term commencing on January
1 and ending on December 31.
1.04 Holding Over. Should Tenant, without the express consent of
Landlord,
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continue to hold and occupy the Leased Property after the expiration of the
Term, such holding over beyond the Term and the acceptance or collection of Rent
by the Landlord shall operate and be construed as creating a tenancy from
month-to-month and not for any other term whatsoever. During any such holdover
period Tenant shall pay to Landlord for each month Tenant remains in the Leased
Property one hundred fifty (150%) percent of the Base Rent in effect on the
expiration date. Said month-to-month tenancy may be terminated by Landlord by
giving Tenant ten (10) days written notice, and at any time thereafter Landlord
may re-enter and take possession of the Leased Property.
1.05 Surrender. Except for (i) Permitted Alterations; (ii) normal and
reasonable wear and tear (subject to the obligation of Tenant to maintain the
Leased Property in good order and repair during the Term); and (iii) casualty,
taking or other damage and destruction not required to be repaired by Tenant,
Tenant shall surrender and deliver up the Leased Property (including the
Certificate of Need and/or license to operate the Leased Property) at the
expiration or termination of the Term broom clean, free of all Tenant's
equipment and personal property, and in as good order and condition as of the
Commencement Date.
ARTICLE II: RENT
2.01 Base Rent. Unless otherwise provided in an individual Lease,
Tenant shall pay Landlord base rent for each Property that is the subject of a
Lease in the amount specified therein (the "Base Rent") for the Term in
consecutive monthly installments payable in advance on the Commencement Date of
each Lease and thereafter on the first day of each month during the Term, in
accordance with the Base Rent Schedule set forth in or attached to each
individual Lease.
2.02 Additional Rent. In addition to Base Rent and Percentage Rent (as
hereinafter defined in Section 2.06), Tenant shall pay all other amounts,
liabilities, obligations and Impositions (as hereinafter defined) which Tenant
assumes or agrees to pay under this Agreement or any Lease and any fine,
penalty, interest, charge and cost which may be added for nonpayment or late
payment of such items (collectively the "Other Additional Rent").
2.03 Place(s) of Payment of Rent; Direct Payment of Additional Rent.
The Base Rent, Percentage Rent, and Additional Rent are hereinafter referred to
as "Rent". Landlord shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Agreement, in any Lease or by
statute or otherwise in the case of nonpayment of the Rent. Tenant shall make
all payments of Base Rent and of Percentage Rent at Landlord's principal place
of business or as Landlord may otherwise from time to time direct in writing,
and all payments of Other Additional Rent directly to the person or persons to
whom such amount is owing at the time and times when such payments are due, and
shall give to Landlord such evidence of such direct payments as Landlord shall
reasonably request.
2.04 Net Lease. This Lease shall be deemed and construed to be an
"absolute net
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lease" or "triple net lease", and Tenant shall pay all Rent and other charges
and expenses in connection with the Leased Property throughout the Term, without
abatement, deduction or set-off.
2.05 No Termination Abatement, Etc. Except as otherwise specifically
provided in this Agreement or a particular Lease, Tenant shall remain bound by
this Agreement or such Lease in accordance with its terms. Except as otherwise
specifically provided in the Agreement or a particular Lease, Tenant shall not,
without the prior written consent of Landlord modify, surrender or terminate the
Agreement or such Lease, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent. Except as
specifically provided in this Agreement or a particular Lease, the obligations
of Landlord and Tenant shall not be affected by reason of [i] the lawful or
unlawful prohibition of, or restriction upon, Tenant's use of the Leased
Property, or any part thereof, the interference with such use by any person,
corporation, partnership or other entity, or by reason of eviction by paramount
title; [ii] any claim which Tenant has or might have against Landlord or by
reason of any default or breach of any warranty by Landlord under this Agreement
or a particular Lease or any other agreement between Landlord and Tenant, or to
which Landlord and Tenant are parties; [iii] any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceeding affecting Landlord or any assignee or transferee of
Landlord; or [iv] any other cause, whether similar or dissimilar to any of the
foregoing, other than a discharge of Tenant from any such obligations as a
matter of law. Except as otherwise specifically provided in this Agreement or a
particular Lease, and to the maximum extent permitted by law, Tenant hereby
specifically waives all rights, including but not limited to any rights under
any statute relating to rights of tenants in any state in which any Leased
Property is located, arising from any occurrence whatsoever, which may now or
hereafter be conferred upon it by law [a] to modify, surrender or terminate this
Lease or quit or surrender the Leased Property or any portion thereof; or [b]
entitling Tenant to any abatement, reduction, suspension or deferment of the
Rent or other sums payable by Tenant hereunder. The obligations of Landlord and
Tenant hereunder shall be separate and independent covenants and agreements and
the Rent and all other sums payable by Tenant hereunder shall continue to be
payable in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Agreement or a particular Lease or by
termination of this Agreement or a particular Lease other than by reason of an
Event of Default.
2.06 Percentage Rent. In addition to the Base Rent, with respect to
each Lease Year after 1999 Tenant shall pay Landlord percentage rent
("Percentage Rent") in accordance with this Section 2.06 equal to three percent
(3%) of the amount by which the Gross Revenues (as defined in Section 2.06.01)
of each Leased Property in the applicable Lease Year exceed the Gross Revenues
of each Leased Property during 1999.
2.06.01 "Gross Revenues" means all revenues received or receivable by
the Tenant from or by reason of the operation of the Leased Property, or any
other use of the Leased Property, as calculated in accordance with generally
accepted accounting principles and as adjusted as set
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forth in this Section 2.06.01. Gross Revenues shall not include non-operating
revenues such as interest income or income from the sale of assets other than in
the ordinary course of business. Gross Revenues shall be adjusted by the
following items: [i] contractual allowances (difference between customary
charges and amounts receivable based on contract) relating to any period during
the Term of the Lease; [ii] all proper patient billing credits and adjustments
(including adjustments for bad debts) according to generally accepted accounting
principles relating to health care accounting; and [iii] federal, state or local
excise taxes and any tax based upon or measured by said revenues which is added
to or made a part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated separately. To the
extent that the Leased Property is subleased by Tenant, Gross Revenues shall be
calculated for purposes of the Lease by including the rent received or
receivable by the Tenant if the space rental does not replace an operating bed
and is for not more than 10% of the square footage of the Leased Property.
Otherwise, Gross Revenues shall be calculated by including the Gross Revenues of
such sub-lessees with respect to the subleased property, i.e., the Gross
Revenues generated from the operations conducted on such subleased portion of
the Leased Property shall be included directly in the Gross Revenues for the
purpose of determining percentage rent payable under this Lease and the rent
received or receivable by Tenant under such subleases shall be excluded from
Gross Revenues for such purpose.
2.06.02 On or before March 31, 2000 with respect to the year ended
December 31, 1999 and on or before each following March 31 with respect to each
Lease Year thereafter, Tenant shall deliver to Landlord a notarized, sworn
statement (the "Tenant's Certification") setting forth the Gross Revenues for
the prior year. Annually a certificate from a nationally reputable accounting
firm satisfactory to Landlord shall be delivered to Landlord which certificate
shall state that, in the course of the regular audit of Tenant's financial
statements, such firm has reviewed Tenant's calculations of the amount of Gross
Revenues for each of the Leased Properties as set forth in Tenant's
Certification and that nothing has come to its attention to make such firm
believe the Tenant's Certification is incorrect in any material respect (and/or
stating, if applicable, any proposed audit adjustments with respect to Gross
Revenue which Tenant elected not to record and set forth in Tenant's
Certification). In addition to the Tenant's Certification and upon the request
of Landlord, Tenant shall deliver the following: [i] any reports sent to any
reimbursement agency, including, but not limited to Medicaid Cost Reports; [ii]
copies of Medicare Cost Reports; [iii] copies of interim or final cost
settlements with Medicare authorities concerning Medicare receivables with a
debit or credit balance; [iv] patient census data by type of patient on a
quarterly basis within thirty (30) days after the end of each calendar quarter
beginning January 31, 1999; [v] copies of changes in rates for Medicare,
Medicaid, private payor or any other provider paying for patients in the Leased
Property; and [vi] Tenant's calculation supporting any estimated contractual
allowances in the Financial Statements.
2.06.03 In each Lease Year commencing 2000, Tenant shall for such Lease
Year make anticipated payments of Percentage Rent monthly at the time of paying
installments of Base Rent, which payments shall be equal to one-twelfth (1/12th)
of the Percentage Rent determined for the preceding Lease Year, subject to final
determination and adjustment in payment by March
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31 of the following year.
2.06.04 Landlord or its duly authorized representatives may, upon
reasonable notice and on any business day and during reasonable office hours,
inspect Tenant's records of Gross Revenues, either at the Leased Property or
elsewhere as reasonably designated by Tenant, provided such inspection is made
within twelve months after a Tenant's Certification is furnished to Landlord by
Tenant. Any claim by Landlord for a revision of any Tenant's Certification must
be made in writing to Tenant within twelve (12) months after the date such
Tenant's Certification is furnished to Landlord; otherwise it shall be deemed
waived by Landlord. If Landlord inspects Tenant's records and such inspection
shows an error(s) in the Tenant's Certification which results in an
understatement of Gross Revenues of five percent (5%) or more for any Leased
Property, then in addition to paying the additional Percentage Rent on demand,
Tenant shall pay Landlord, on demand, the reasonable cost of such inspection as
Additional Rent.
ARTICLE III: IMPOSITIONS AND UTILITIES
3.01 Payment of Impositions. Subject to the adjustments set forth
herein, Tenant shall pay, as Additional Rent, all Impositions (as hereinafter
defined) that may be levied or become a lien on the Leased Property or any part
thereof at any time (whether prior to or during the Term), without regard to
prior ownership of said Leased Property, before any fine, penalty, interest, or
cost is incurred. Tenant shall, upon request from Landlord, promptly furnish to
Landlord copies of official receipts or other satisfactory proof evidencing such
payments. Tenant's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof. Tenant, at its expense, shall prepare and file all tax returns
and reports in respect of any Imposition as may be required by governmental
authorities. Tenant shall be entitled to any refund due from any taxing
authority if no Event of Default (as hereinafter defined) shall have occurred
hereunder and be continuing. Landlord shall be entitled to any refund from any
taxing authority if an Event of Default has occurred and is continuing. Any
refunds retained by Landlord due to an Event of Default shall be applied as
provided in Section 9.08. 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 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 may legally so file.
Landlord, to the extent it possesses the same, and Tenant, 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. Where Landlord is legally required to file personal
property tax returns, Tenant will be provided with copies of assessment notices
indicating a value in excess of the reported value in sufficient time for Tenant
to file a protest. 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
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action. Tenant shall promptly reimburse Landlord for all personal property taxes
paid by Landlord upon receipt of billings accompanied by copies of a bill
therefor and payments thereof which identify the personal property with respect
to which such payments are made. Impositions imposed in respect to the
tax-fiscal period during which the Term commences and terminates shall be
adjusted and prorated between Landlord and Tenant on a per diem basis, with
Tenant being obligated to pay its pro rata share from and including the
Commencement Date to and including the expiration or termination date of the
Term, whether or not such Imposition is imposed before or after such
commencement or termination, and Tenant's obligation to pay its prorated share
thereof shall survive such termination. Tenant shall also pay to Landlord a sum
equal to the amount which Landlord may be caused to pay of any privilege tax,
sales tax, gross receipts tax, rent tax, occupancy tax or like tax (excluding
any tax based on net income), hereinafter levied, assessed, or imposed by any
federal, state, county or municipal governmental authority, or any subdivision
thereof, upon or measured by or rent or other consideration required to be paid
by Tenant under this Lease.
3.02 Definition of Impositions. "Impositions" means, collectively, [i]
taxes (including without limitation, all real estate and personal property ad
valorem (whether assessed as part of the real estate or separately assessed as
unsecured personal property, sales and use, business or occupation, single
business, gross receipts, transaction privilege, rent or similar taxes, but not
including income or franchise or excise taxes payable with respect to Landlord's
receipt of Rent); [ii] assessments (including without limitation, 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 with the
Term); [iii] ground rents, water, sewer or other rents and charges, excises, tax
levies, and fees (including without limitation, license, permit, inspection,
authorization and similar fees); [iv] to the extent they may become a lien on
the Leased Property all taxes imposed on Tenant's operations of the Leased
Property including without limitation, employee withholding taxes, income taxes
and intangible taxes; and [v] 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 or any part
thereof and/or the Rent (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time prior to, during or in respect
of the Term hereof may be assessed or imposed on or in respect of or be a lien
upon [a] Landlord or Landlord's interest in the Leased Property or any part
thereof; [b] the Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein; or [c] any occupancy, 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. Tenant shall not, however, be required to pay [i] any tax based on
net income (whether denominated as a franchise or capital stock or other tax)
imposed on Landlord; or [ii] except as provided in Section 13.01, any tax
imposed with respect to the sale, exchange or other disposition by Landlord of
any Leased Property or the proceeds thereof; provided, however, that if any tax,
assessment, tax levy or charge which Tenant is obligated to pay pursuant to the
first sentence of this definition and which is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause [i] or [ii] immediately above is levied, assessed or
imposed expressly in lieu thereof
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Tenant shall then pay such tax, levy, or charge set forth in said clause [i] or
[ii].
3.03 Escrow of Impositions. If Landlord's lender requires Landlord to
escrow real property taxes or other Impositions on a periodic basis during the
Term, Tenant, on notice from Landlord indicating this requirement, shall pay a
sum of money toward its liability under this Article to lender on a periodic
basis in accordance with the lender's requirements. Landlord shall escrow the
payments received from Tenant in accordance with the requirements of its lender,
and shall furnish Tenant with a copy of the lender's requirements for escrow.
Further, if an Event of Default occurs hereunder which is not cured within any
applicable grace period, Tenant shall thereafter, at Landlord's election,
deposit with Landlord on the first day of each month during the remaining Term
hereof and any extended Term, a sum equal to one-twelfth (1/12th) of the
Impositions assessed against the Leased Property for the preceding tax year,
which sums shall be used by Landlord toward payment of such Impositions. If, at
the end of any applicable tax year, any such funds held by Landlord are
insufficient to make full payment of taxes or other Impositions for which such
funds are held, Tenant, on demand, shall pay to Landlord any additional funds
necessary to pay and discharge the obligations of Tenant pursuant to the
provisions of this section. If, however, at the end of any applicable tax year,
such funds held by Landlord are in excess of the total payment required to
satisfy taxes or other Impositions for which such funds are held, Landlord shall
apply such excess amounts to Tenant's tax and Imposition escrow fund for the
next tax year. If any such excess of funds occurs at the end of the final Lease
Year, and subject to Section 9.08 below, Landlord shall promptly refund such
excess amounts to Tenant. The receipt by Landlord of the payment of such
Impositions by and from Tenant shall only be as an accommodation to Tenant, the
mortgagees, and the taxing authorities, and shall not be construed as rent or
income to Landlord, Landlord serving, if at all, only as a conduit for delivery
purposes.
3.04 Utilities. Tenant shall pay, as Additional Rent all taxes,
assessments, charges/deposits, and bills for utilities, including without
limitation charges for water, gas, oil, sanitary and storm sewer, electricity,
telephone service, and trash collection, which may be charged against the
occupant of the Improvements during the Term. If an Event of Default occurs
hereunder and is not cured within any applicable grace period, Tenant shall
thereafter, at Landlord's election, deposit with Landlord on the first day of
each month during the remaining Term, a sum equal to one-twelfth (1/12th) of the
amount of the annual utility expenses for the preceding Lease Year, which sums
shall be used by Landlord to pay such utilities. If, at any time during the
Lease Year, such funds held by Landlord are insufficient to cover monthly,
annual, or other periodic charges for utilities, Tenant shall, on demand pay to
Landlord any additional amount needed to pay such utilities. Landlord's receipt
of such payments shall only be an accommodation to Tenant and the utility
companies and shall not constitute rent or income to Landlord. If, at any time
during the Lease Year, such funds held by Landlord are in excess of the total
monthly, annual or other periodic payment necessary to satisfy utility costs,
such excess amounts shall be applied to Tenant's escrow fund for the next
payment of such utilities. If any such excess exists following the expiration or
earlier termination of the Lease and after all utility bills and accounts have
been settled, Landlord shall, subject to Section 9.08 below, promptly
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refund such amounts to Tenant. Tenant shall at all times maintain that amount of
heat necessary to ensure against the freezing of water lines. Tenant hereby
agrees to indemnify and hold Landlord harmless from and against any liability or
damages to the utility systems and the Leased Property that may result from
Tenant's failure to maintain sufficient heat in the Improvements.
3.05 Discontinuance of Utilities. Landlord will not be liable for
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of Rent or operate to
release Tenant from any of Tenant's obligations under this Lease.
ARTICLE IV: INSURANCE
4.01 Property Insurance. Tenant shall, at Tenant's expense, keep the
Improvements, Fixtures, and other components of the Leased Property insured
against the following risks:
(a) Loss or damage by fire, vandalism and malicious
mischief, sprinkler leakage and all other physical loss perils commonly
covered by "All Risk" insurance in an amount not less than one hundred
percent (100%) of the then full replacement cost thereof (as
hereinafter defined). Such policy shall include an agreed amount
endorsement if available at a reasonable cost. Such policy shall also
include endorsements for contingent liability for operation of building
laws, demolition costs, and increased cost of construction.
(b) Loss or damage by explosion of steam boilers, pressure
vessels, or similar apparatus, now or hereafter installed on the Leased
Property, in commercially reasonable amounts acceptable to Landlord.
(c) Loss of rent under a rental value insurance policy
covering risk of loss during the first nine (9) months of
reconstruction necessitated by the occurrence of any hazards described
in Sections 4.01(a) or 4.01(b) above, in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer, containing
endorsements for extended period of indemnity and premium adjustment,
and written with an agreed amount clause, if the insurance provided for
in this clause (c) is available at a reasonable cost.
(d) If the Land is located in whole or in part within a
designated flood plain area, loss or damage caused by flood in
commercially reasonable amounts acceptable to Landlord.
(e) Loss or damage commonly covered by blanket crime
insurance including employee dishonesty, loss of money orders or paper
currency, depositor's forgery, and loss of property of patients
accepted by Tenant for safekeeping, in commercially reasonable amounts
acceptable to the Landlord.
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4.02 Liability Insurance. Tenant shall, at Tenant's expense, maintain
liability insurance against the following:
(a) Claims for personal injury or property damage commonly
covered by comprehensive general liability insurance with endorsements
for nursing home or comparable professional malpractice, blanket
contractual, personal injury, owner's protective liability, real
property fire damage legal liability, voluntary medical payments,
products and completed operations, broad form property damage, and
extended bodily injury, with commercially reasonable amounts for bodily
injury, property damage, and voluntary medical payments acceptable to
Landlord, but with a combined single limit of not less than One Million
Dollars ($1,000,000.00) per occurrence, One Million Dollars
($1,000,000.00) per location. If malpractice insurance coverage is
unavailable generally or is unreasonably expensive, Landlord and Tenant
will consult in good faith regarding an alternative.
(b) Claims for personal injury and property damage commonly
covered by comprehensive automobile liability insurance, covering all
owned and nonowned automobiles, with commercially reasonable amounts
for bodily injury, property damage, and for automobile medical payments
acceptable to Landlord, but with a combined single limit of not less
than One Million Dollars ($1,000,000.00) per occurrence, Three Million
Dollars ($3,000,000.00) aggregate.
(c) Claims commonly covered by worker's compensation
insurance for all persons employed by Tenant on the Leased Property.
Such worker's compensation insurance shall be in accordance with the
requirements of all applicable local, state, and federal law.
4.03 Insurance Requirements. The following provisions shall apply to
all insurance coverages required hereunder:
(a) The form and substance of all policies shall be subject
to the approval of Landlord, which approval will not be unreasonably
withheld.
(b) The carriers of all policies shall have a Best's Rating
of "A-" or better and a Best's Financial Category of XII or larger and
shall be authorized to do insurance business in the state in which the
Leased Property is located.
(c) Tenant shall be the "named insured" and Landlord shall
be an "additional named insured" on each policy.
(d) Tenant shall deliver to Landlord certificates or
policies showing the required coverages and endorsements. The policies
of insurance shall provide that the policy may
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not be canceled or not renewed, and no material change or reduction in
coverage may be made, without at least thirty (30) days' prior written
notice to Landlord.
(e) The policies shall contain a severability of interest
and/or cross-liability endorsement, provide that the acts or omissions
of Tenant will not invalidate the Landlord's coverage, and provide that
Landlord shall not be responsible for payment of premiums.
(f) All loss adjustment shall require the written consent of
Landlord and Tenant, as their interests may appear.
(g) At least thirty (30) days prior to the expiration of
each policy, Tenant shall deliver to Landlord a certificate showing
renewal of such policy and payment of the annual premium therefor.
4.04 Replacement Cost. The term "full replacement cost" means the
actual replacement cost thereof from time to time including increased cost of
construction, with no reductions or deductions. Tenant shall, not later than
thirty (30) days after the anniversary of each Lease Year of the Term, increase
the amount of the replacement cost endorsement for the Improvements. If Tenant
makes any Permitted Alterations (as hereinafter defined) to the Leased Property,
Landlord may have such full replacement cost redetermined at any time after such
Permitted Alterations are made, regardless of when the full replacement cost was
last determined.
4.05 Blanket Policy. Tenant may carry the insurance required by this
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all of the requirements of
this Agreement.
4.06 No Separate Insurance. Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing insurance
by securing an additional policy or additional policies, unless all parties
having an insurable interest in the subject matter of the insurance, including
Landlord and any mortgagees, are included therein as additional named insureds
or loss payees, the loss is payable under said insurance in the same manner as
losses are payable under this Agreement, and such additional insurance is not
prohibited by the existing policies of insurance. Tenant shall immediately
notify Landlord of the taking out of such separate insurance or the increasing
of any of the amounts of the existing insurance by securing an additional policy
or additional policies. The term "mortgages" as used in this Agreement includes
Deeds of Trust and the term "mortgagees" includes trustees and beneficiaries
under a Deed of Trust.
4.07 Waiver of Subrogation. Each party hereto hereby waives any and
every claim which arises or may arise in its favor and against the other party
hereto during the Term or any extension or renewal thereof, for any and all loss
of, or damage to, any of its property located
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within or upon, or constituting a part of, the Leased Property, which loss or
damage is covered by valid and collectible insurance policies, to the extent
that such loss or damage is recoverable under such policies. Said mutual waiver
shall be in addition to, and not in limitation or derogation of, any other
waiver or release contained in this Lease with respect to any loss or damage to
property of the parties hereto. Inasmuch as the said waivers will preclude the
assignment of any aforesaid claim by way of subrogation (or otherwise) to an
insurance company (or any other person), each party hereto agrees immediately to
give each insurance company which has issued to it policies of insurance,
written notice of the terms of said mutual waivers, and to have such insurance
policies properly endorsed, if necessary, to prevent the invalidation of said
insurance coverage by reason of said waivers, so long as such endorsement is
available at a reasonable cost.
4.08 Mortgages. The following provisions shall apply if Landlord now or
hereafter places a mortgage on the Leased Property or any part thereof: [i]
Tenant shall obtain a standard form of mortgage clause insuring the interest of
the mortgagee; [ii] Tenant shall deliver evidence of insurance to such
mortgagee; [iii] loss adjustment shall require the consent of the mortgagee; and
[iv] Tenant shall obtain such other coverages and provide such other information
and documents as may be reasonably required by the mortgagee.
4.09 Escrows. If Landlord's lender requires the Landlord to escrow
insurance premiums on a periodic basis, or if an Event of Default occurs
hereunder, Tenant, after notice from Landlord, shall make such periodic payments
in accordance with the lender's or Landlord's requirements.
ARTICLE V: INDEMNITY; HAZARDOUS SUBSTANCES
5.01 Tenant's Indemnification. Subject to Section 4.07, Tenant hereby
agrees to indemnify and hold harmless Landlord, its agents, and employees from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including consequential damages), losses, liabilities (including strict
liability), judgments, and expenses (including, without limitation, attorneys'
fees, court costs, and the costs set forth in Section 9.07) incurred in
connection with or arising from: [i] the use or occupancy of each Leased
Property by Tenant or any persons claiming under Tenant; [ii] any activity,
work, or thing done, or permitted or suffered by Tenant in or about the Leased
Property; [iii] any acts, omissions, or negligence of Tenant or any person
claiming under Tenant, or the contractors, agents, employees, invitees, or
visitors of Tenant or any such person; [iv] any breach, violation, or
nonperformance by Tenant or any person claiming under Tenant or the employees,
agents, contractors, invitees, or visitors of Tenant or of any such person, of
any term, covenant, or provision of this Agreement or any Lease or any law,
ordinance, or governmental requirement of any kind; and [v] any injury or damage
to the person, property or business of Tenant, its employees, agents,
contractors, invitees, visitors, or any other person entering upon the Leased
Property under the express or implied invitation of Tenant. If any action or
proceeding is brought against Landlord, its employees, or agents by reason of
any such claim, Tenant, upon notice from Landlord, will defend the claim at
Tenant's
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expense with counsel reasonably satisfactory to Landlord.
5.02 Hazardous Substances or Materials. Tenant shall not, either with
or without negligence, injure, overload, deface, damage or otherwise harm any
Leased Property or any part or component thereof; commit any nuisance; permit
the emission of any hazardous agents or substances; allow the release or other
escape of any biologically or chemically active or other hazardous substances or
materials so as to impregnate, impair or in any manner affect, even temporarily,
any element or part of any Leased Property, or allow the storage or use of such
substances or materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such substances
or materials; nor shall Tenant bring onto any Leased Property any such materials
or substances; permit the occurrence of objectionable noise or odors; or make,
allow or suffer any waste whatsoever to any Leased Property. Landlord may
inspect the Leased Property from time to time, and Tenant will cooperate with
such inspections. Without limitation, "hazardous substances" for the purposes of
this Section 5.02 shall include such substances described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. 9601 et seq. and the regulations adopted thereunder, and hazardous
materials shall include such materials as are described in the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.; and hazardous
substances or hazardous materials shall also include any substance or material
described in any applicable statute of any state in which Leased Properties are
located, and in any regulations adopted under any of these acts. Upon request by
Landlord, Tenant shall submit to Landlord quarterly reports regarding Tenant's
use, storage, and disposal of any of the foregoing materials, said reports to
include information regarding continued hazardous materials inspections,
personal interviews, and federal, state and local agency listings. In addition,
Tenant shall execute affidavits, representations and the like from time to time
at Landlord's request concerning Tenant's best knowledge and belief regarding
the presence or absence of hazardous materials on the Leased Property. In all
events, Tenant shall indemnify Landlord and all mortgagees of any Leased
Property from any release of hazardous materials on the Leased Property
occurring while Tenant is in possession, all costs and expenses and claims
arising from the release of, or discovery of the existence of, or need to clean
up or remove, or arising from any prior release or removal of any hazardous
substances or materials on or from any Leased Property, whether such release,
discovery or removal occurs during the Term or occurred prior to the
commencement of the Term. (At the request of Landlord, Tenant will from time to
time confirm such indemnity to mortgagees directly with such mortgagees.)
5.03 Limitation of Landlord's Liability. Landlord, its agents, and
employees, will not be liable for any loss, injury, death, or damage (including
consequential damages) to persons, property, or Tenant's business occasioned by
theft, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, order of governmental body or authority, fire,
explosion, falling objects, steam, water, rain or snow, leak or flow of water
(including water from the elevator system), rain or snow from any Leased
Property or into the Leased Property or from the roof, street, subsurface or
from any other place, or by dampness or from the breakage, leakage, obstruction,
or other defects of the pipes, sprinklers, wires, appliances, plumbing, air
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conditioning, or lighting fixtures of the Leased Property, or from construction,
repair, or alteration of the Leased Property or from any acts or omissions of
any other occupant or visitor of the Leased Property, or from the presence or
release of any hazardous substance or material on or from the Leased Property or
from any other cause beyond Landlord's control.
ARTICLE VI: USE AND ACCEPTANCE OF PREMISES
6.01 Use of Leased Property. Tenant shall use and occupy each Leased
Property exclusively as a nursing home, healthcare facility or other purpose for
which the Leased Property is being used at the Commencement Date of the Term,
and for no other purpose without the prior written consent of the Landlord,
which consent will not be unreasonably withheld. Tenant shall obtain and
maintain all approvals, licenses, and consents needed to use and operate each
Leased Property for such purposes. Tenant shall promptly deliver to Landlord
complete copies of surveys, examinations, certification and licensure
inspections, compliance certificates, and other similar reports issued to Tenant
by any governmental agency.
6.02 Acceptance of Leased Property. Except as otherwise specifically
provided in this Agreement or in any individual Lease, Tenant acknowledges that
[i] Tenant and its agents have had an opportunity to inspect the Leased
Property; [ii] Tenant has found the Leased Property fit for Tenant's use; [iii]
delivery of the Leased Property to Tenant is in "as-is" condition; [iv] Landlord
is not obligated to make any improvements or repairs to the Leased Property; and
[v] the roof, walls, foundation, heating, ventilating, air conditioning,
telephone, sewer, electrical, mechanical, utility, plumbing, and other portions
of the Leased Property are in good working order. Tenant waives any claim or
action against Landlord with respect to the condition of the Leased Property.
LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.
6.03 Conditions of Use and Occupancy. Tenant agrees that during the
Term it shall use and keep the Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy the Leased
Property for any unlawful purposes; not use or occupy the Leased Property or
permit the same to be used or occupied, for any purpose or business deemed extra
hazardous on account of fire or otherwise; keep the Leased Property in such
repair and condition as may be required by the local board of health, or other
city, state or federal authorities, free of all cost to Landlord; not permit any
acts to be done which will cause the cancellation, invalidation, or suspension
of any insurance policy; and permit Landlord and its agents to enter upon the
Leased Property at all reasonable times after notice to Tenant to examine the
condition thereof.
6.04 Financial Statements. Within one hundred twenty (120) days after
the end of
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each fiscal year, Tenant shall deliver to Landlord audited consolidated
financial statements of Tenant, certified by a nationally recognized accounting
firm. The financial statements shall include a complete schedule of contingent
liabilities and transactions with affiliates. Within forty-five (45) days after
the end of each calendar quarter, Tenant shall deliver to Landlord unaudited
profit and loss statements.
ARTICLE VII: REPAIRS, COMPLIANCE WITH LAWS,
AND MECHANICS' LIENS
7.01 Maintenance. Tenant shall maintain, repair, and replace each
Leased Property, including without limitation, all structural and nonstructural
repairs and replacements to the roof, foundations, exterior walls, building
systems, HVAC systems, parking areas, sidewalks, water, sewer, and gas
connections, pipes, and mains. Tenant shall pay as Additional Rent, the full
cost of maintenance, repairs, and replacements. Tenant shall maintain all
drives, sidewalks, parking areas, and lawns on or about the Leased Property in a
clean and orderly condition, free of accumulations of dirt, rubbish, snow and
ice. Tenant shall permit Landlord to inspect the Leased Property at all
reasonable times, and shall implement all reasonable suggestions of the Landlord
as to the maintenance and replacement of the Leased Property.
7.02 Compliance With Laws. Tenant shall comply with all laws,
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition, or occupancy of each Leased Property, including
without limitation, [i] licensure requirements for operation as a nursing home
or medical facility, [ii] certification requirements needed to obtain
reimbursement under the Medicare and state Medicaid programs unless Tenant,
after notice to Landlord, determines to discontinue participation in such
programs; [iii] requirements of the board of fire insurance underwriters or
insurance service office or any other similar body having jurisdiction over the
Leased Property, and [iv] all zoning and building codes and Environmental Laws.
At Landlord's request, from time to time, Tenant shall deliver to Landlord
copies of certificates or permits evidencing compliance with such laws,
including without limitation, copies of the nursing home or health care facility
license, provider agreements, certificates of occupancy and building permits.
Tenant hereby agrees to defend, indemnify and hold Landlord harmless from and
against any loss, liability (including strict liability), claim, damage
(including consequential damages), cost and expense (including attorneys' fees)
resulting from any failure by Tenant to comply with any laws, ordinances, rules,
regulations, and other governmental requirements.
7.03 Required Alterations. Tenant shall, at Tenant's sole cost and
expense, make any additions, changes, improvements or alterations to each Leased
Property, including structural alterations, which may be required by any
governmental authorities, including those required to continue certification
under the Medicare and Medicaid programs (unless Tenant has elected not to
participate in such programs), whether such changes are required by Tenant's
use, changes in the law, ordinances, or governmental regulations, defects
existing as of the date of this Lease, or any other cause whatever. All such
additions, changes, improvements or alterations shall be
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deemed to be Permitted Alterations and shall comply with all laws requiring such
alterations and with the provisions of Section 8.02.
7.04 Mechanic's Liens. Tenant shall have no authority to permit or
create a lien against Landlord's interest in the Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in the Leased Property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanic's
liens against the Leased Property by reason of work, labor services or materials
supplied or claimed to have been supplied on or to the Leased Property. Tenant
shall immediately remove, bond-off, or otherwise obtain the release of any
mechanic's lien filed against the Leased Property. Tenant shall pay all expenses
in connection therewith, including without limitation, damages, interest, court
costs and reasonable attorneys' fees.
7.05 Replacement of Fixtures. Tenant shall not remove Fixtures from any
Leased Property except to replace the Fixtures by other similar items of equal
quality and value. Items being replaced by Tenant may be removed and shall
become the property of Tenant and items replacing the same shall be and remain
the property of Landlord. Tenant shall execute, upon written request from
Landlord, any and all documents necessary to evidence Landlord's ownership of
the Fixtures and replacements therefor. Tenant may finance replacements for the
Fixtures by equipment lease or by a security agreement and financing statement;
provided, however, that for any item of Fixtures or Personal Property having a
cost greater than or equal to Ten Thousand Dollars ($10,000.00), Tenant may not
finance replacements by security agreement or equipment lease unless [i]
Landlord has consented to the terms and conditions of the equipment lease or
security agreement; [ii] the equipment lessor or lender has entered into a
nondisturbance agreement with Landlord upon terms and conditions acceptable to
Landlord, including without limitation, the following: [a] Landlord shall have
the right (but not the obligation) to assume such security agreement or
equipment lease upon the occurrence of an Event of Default by Tenant under this
Lease; [b] the equipment lessor or lender shall notify Landlord of any default
by Tenant under the equipment lease or security agreement and give Landlord a
reasonable opportunity to cure such default; and [c] Landlord shall have the
right to assign its rights under the equipment lease, security agreement, or
nondisturbance agreement; and [iii] Tenant shall, within thirty (30) days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement, and nondisturbance agreement, including without limitation,
reasonable attorneys' fees and costs.
ARTICLE VIII: ALTERATIONS AND SIGNS
8.01 Prohibition on Alterations and Improvements. Except for [i]
alterations required by Section 7.03; [ii] replacements of Fixtures provided for
in Section 7.05; and [iii] alterations at any Leased Property having an
aggregate cost of less than One hundred fifty thousand dollars ($150,000.00) in
any Lease Year, Tenant shall not make any structural or nonstructural changes,
alterations, additions and/or improvements (hereinafter collectively referred to
as "Alterations")
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to the Leased Property without the prior written consent of Landlord which
consent will not be unreasonably withheld. If Tenant desires to perform any
Alterations, Tenant shall deliver to Landlord plans, specifications, drawings,
and such other information as may be reasonably requested by Landlord
(collectively the "Plans and Specifications") showing the Alterations that
Tenant desires to perform. Landlord agrees not to unreasonably delay its review
of the Plans and Specifications. Tenant shall comply with the requirements of
Section 8.02 in making any Alterations approved by Landlord (the "Permitted
Alterations").
8.02 Requirements for Permitted Alterations. Tenant shall comply with
all of the following requirements in connection with any Permitted Alterations:
(a) The Permitted Alterations shall be made in accordance
with the approved Plans and Specifications.
(b) The Permitted Alterations and the installation thereof
shall comply with all applicable legal requirements and insurance
requirements.
(c) The Permitted Alterations shall be done in a good and
workmanlike manner, shall not impair the value or the structural
integrity of the Leased Property, and shall be free and clear of all
mechanic's liens.
(d) Tenant shall deliver to Landlord a payment and
performance bond, with a surety acceptable to Landlord, in an amount
equal to the estimated cost of the Permitted Alterations, guaranteeing
the completion of the work free and clear of liens and in accordance
with the approved Plans and Specifications, and naming Landlord and any
mortgagee of Landlord as joint obligees on such bond.
(e) Tenant shall, at Tenant's expense, obtain a builder's
completed value risk policy of insurance insuring against all risks of
physical loss, including collapse and transit coverage, in a
nonreporting form, covering the total value of the work performed, and
equipment, supplies, and materials, and insuring initial occupancy.
Landlord and any mortgagee of Landlord shall be additional named
insureds of such policy. Landlord shall have the right to approve the
form and substance of such policy, which approval shall not be
unreasonably withheld or delayed.
(f) Tenant shall pay the premiums required to increase the
amount of the insurance coverages required by Article IV to reflect the
increased value of the Improvements resulting from installation of the
Permitted Alterations, and shall deliver to Landlord a certificate
evidencing the increase in coverage.
(g) If the alterations are structural or additions, Tenant
shall, not later than sixty (60) days after completion of the Permitted
Alterations, deliver to Landlord a certificate of substantial
completion, certified by Tenant's architect or engineer, in the form of
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AIA-G704, or in any other form reasonably satisfactory to Landlord.
(h) Tenant shall not later than thirty (30) days after
completion of the Permitted Alterations, reimburse Landlord for any
costs and expenses, including attorneys' fees and architects' and
engineers' fees, reasonably incurred in connection with reviewing and
approving the Permitted Alterations and ensuring Tenant's compliance
with the requirements of this Section.
8.03 Ownership and Removal of Permitted Alterations. The Permitted
Alterations shall become a part of the Leased Property, owned by Landlord, and
leased to Tenant subject to the terms and conditions of this Agreement and the
Lease. Tenant shall not be required or permitted to remove any Permitted
Alterations.
8.04 Signs. Tenant may, at its own expense, erect and maintain
identification signs at the Leased Property, provided such signs comply with all
laws, ordinances, and regulations. Upon the occurrence of an Event of Default or
the termination or expiration of this Lease, Tenant shall, within thirty (30)
days after notice from Landlord, remove the signs and restore the Leased
Property to its original condition.
ARTICLE IX: DEFAULTS AND REMEDIES
9.01 Events of Default. The occurrence of any one or more of the
following shall be an event of default ("Event of Default") hereunder:
(a) Tenant fails to pay in full any installment of Rent, or
any other monetary obligation payable by Tenant to Landlord (or to the
holder of any Assumed Mortgage Debt Service, as applicable) under this
Lease, within ten (10) business days after notice of nonpayment from
Landlord.
(b) Landlord gives three (3) or more notices of nonpayment
of Rent to Tenant in any Lease Year; provided, however, that such shall
not be an Event of Default if Landlord fails to exercise its remedies
under Section 9.02 within sixty (60) days after the last of such
notices. Notice of the same default with respect to more than one Lease
or Leased Property shall constitute only one notice for purposes of
this Section 9.01(b).
(c) Tenant fails to observe and perform any other covenant,
condition or agreement under this Agreement or the Lease to be
performed by Tenant (except those described in Section 9.01(a) and
9.01(b) of this Agreement) and [i] such failure continues for a period
of thirty (30) days after written notice thereof is given to Tenant by
Landlord; or [ii] if, by reason of the nature of such default, the same
cannot be remedied within said thirty (30) days, Tenant fails to
proceed with reasonable diligence (satisfactory to Landlord) after
receipt of the notice to cure the same.
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(d) Tenant ceases operations at any Leased Property for a
period in excess of one-hundred eighty (180) days during the Term
except pursuant to damage described in Section 10.05 or condemnation
pursuant to Article XI (other than Section 11.02) of this Agreement.
(e) [i] The filing by Tenant of a petition under 11 U.S.C.
or the commencement of a bankruptcy or similar proceeding by Tenant;
[ii] the failure by Tenant within ninety (90) days to dismiss an
involuntary bankruptcy petition or other commencement of a bankruptcy,
reorganization or similar proceeding against Tenant, or to lift or stay
any execution, garnishment or attachment of such consequence as will
impair its ability to carry on its operation at the Leased Property;
[iii] the entry of an order for relief under 11 U.S.C. in respect of
Tenant; [iv] any assignment by Tenant for the benefit of its creditors;
[v] the entry by Tenant into an agreement of composition with its
creditors; [vi] the approval by a court of competent jurisdiction of a
petition applicable to Tenant in any proceeding for its reorganization
instituted under the provisions of any state or federal bankruptcy,
insolvency, or similar laws; [vii] appointment by final order,
judgment, or decree of a court of competent jurisdiction of a receiver
of a whole or any substantial part of the properties of Tenant
(provided such receiver shall not have been removed or discharged
within sixty (60) days of the date of his qualification).
(f) [i] any administrator, custodian, trustee or other
legally authorized person takes possession or control of any Leased
Property or part thereof and continues in possession for ninety (90)
days; [ii] any writ against any of the Leased Property is not released
or bonded off within ninety (90) days; [iii] any judgment is rendered
or proceedings are instituted against any Leased Property or Tenant
which affect any Leased Property or any part thereof (other than a
condemnation proceeding) which is not dismissed for ninety (90) days
(except as otherwise provided in this Section); [iv] all or a
substantial part of the assets of Tenant are attached, seized,
subjected to a writ or distress warrant, or are levied upon, or come
into the possession of any receiver, trustee, custodian, or assignee
for the benefit of creditors and is not dismissed within sixty (60)
days; [v] Tenant is enjoined, restrained, or in any way prevented by
court order, or any proceeding is filed or commenced seeking to enjoin,
restrain or in any way prevent Tenant from conducting all or a
substantial part of its business or affairs and is not dismissed within
sixty (60) days; or [vi] except as permitted by Section 18.18, a notice
of lien, levy or assessment is filed of record with respect to all or
any part of the property of Tenant and is not dismissed or bonded off
within sixty (60) days.
(g) Tenant or any Affiliate defaults on any material
obligation to Landlord, Tenant defaults on any material obligation
under any debt associated with the Leased Properties or any debt
co-guaranteed by Landlord and Tenant. As used herein, "Affiliate" means
any person, corporation, partnership, trust, or other legal entity
that, directly or indirectly, controls or is controlled by, or is under
common control with, Tenant. "Control" (and the correlative meanings
of the terms "controlled by" and "under common
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control with") means the possession, directly or indirectly, of the
power to direct or cause a direction of the management and policies of
such entity.
9.02 Remedies. Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:
(a) Landlord may terminate the applicable Lease, exclude
Tenant from possession of the Leased Property and use reasonable
efforts to lease the Leased Property to others. If any Lease is
terminated pursuant to the provisions of this subparagraph (a), Tenant
will remain liable to Landlord for damages in an amount equal to the
Rent and other sums which would have been owing by Tenant under the
Lease for the balance of the Term if the Lease had not been terminated,
less the net proceeds, if any, of any re-letting of the Leased Property
by Landlord subsequent to such termination, after deducting all
Landlord's expenses in connection with such reletting, including
without limitation, the expenses set forth in Section 9.02(b)(2) below.
Landlord will be entitled to collect such damages from Tenant monthly
on the days on which the Rent and other amounts would have been payable
under the Lease if the Lease had not been terminated and Landlord will
be entitled to receive such damages from Tenant on each such day.
Alternatively, at the option of Landlord, if the Lease is terminated,
Landlord will be entitled to recover from Tenant (A) the worth at the
time of award of the unpaid Rent which had been earned at the time of
termination; (B) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after termination until
the time of awards exceeds the amount of such Rent loss that Tenant
proves could reasonably have been avoided; (C) the worth at the time of
award of the amount by which the unpaid Rent for the balance of the
Term of the Lease after the time of award exceeds the amount of such
Rent loss that Tenant proves could reasonably be avoided; and (D) any
other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under
the Lease or which in the ordinary course of things would be likely to
result from such failure. The "worth at the time of award" of the
amount referred to in clauses (A) and (B) is computed at "present
value" using New York Prime Rate. For purposes of this Agreement, "New
York Prime Rate" shall mean that rate of interest identified as prime
or national prime by the Wall Street Journal, or if not published or
found, then the rate of interest charged by the American bank with the
greatest number of assets on ninety (90) day unsecured notes to its
preferred customers. The worth at the time of award of the amount
referred to in clause (C) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of New York at the time of
award. For the purpose of determining unpaid Rent under clause (C), the
Rent reserved in the Lease will be deemed to be the sum of the
following: [i] the Base Rent computed pursuant to Section 2.01; [ii]
the Additional Rent pursuant to Section 2.02 based upon the amount of
such Additional Rent for the month preceding the date of termination;
and [iii] the Percentage Rent pursuant to Section 2.06 based upon the
amount of the annualized Gross Revenues for the then Lease Year
increased by three percent (3%) per annum, to the date on which the
Lease would have
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expired if Landlord had not terminated the Lease, but not to exceed the
product of one (1%) percent of the initial Base Rent multiplied by the
number of years since 1999.
(b) (1) Without demand or notice, Landlord may re-enter and
take possession of the Leased Property or any part of the Leased
Property; and repossess the Leased Property as of the Landlord's former
estate; and expel the Tenant and those claiming through or under Tenant
from the Leased Property; and, remove the effects of both or either,
without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or preceding breach of
covenants or conditions. If Landlord elects to re-enter, as provided in
this paragraph (b) or if Landlord takes possession of the Leased
Property pursuant to legal proceedings or pursuant to any notice
provided by law, Landlord may, from time to time, without terminating
this Lease, re-let the Leased Property or any part of the Leased
Property, either alone or in conjunction with other portions of the
Improvements of which the Leased Property are a part, in Landlord's
name but for the account of Tenant, for such term or terms (which may
be greater or less than the period which would otherwise have
constituted the balance of the Term of this Lease) and on such terms
and conditions (which may include concessions of free rent, and the
alteration and repair of the Leased Property) as Landlord, in its
uncontrolled discretion, may determine. Landlord may collect and
receive the Rents for the Leased Property. Landlord will not be
responsible or liable for any failure to re-let the Leased Property, or
any part of the Leased Property, or for any failure to collect any Rent
due upon such re-letting. No such re-entry or taking Possession of the
Leased Property by Landlord will be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention is given to Tenant. No notice from Landlord under this Lease
or under a forcible entry and detainer statute or similar law will
constitute an election by Landlord to terminate this Lease unless such
notice specifically says so. Landlord reserves the right following any
such re-entry or re-letting, or both, to exercise its right to
terminate this Lease by giving Tenant such written notice, and, in that
event the Lease will terminate as specified in such notice.
(b) (2) If Landlord elects to take possession of the Leased
Property according to this subparagraph (b) without terminating the
Lease, Tenant will pay Landlord (i) the Rent and other sums which would
be payable under the Lease if such repossession had not occurred, less
(ii) the net proceeds, if any, of any re-letting of the Leased Property
after deducting all of Landlord's expenses incurred in connection with
such re-letting, including without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, expenses of
employees, alteration, remodeling, repair costs, and expenses of
preparation for such re-letting. If, in connection with any reletting,
the new Lease term extends beyond the existing Term or the Leased
Property covered by such re-letting include areas which are not part of
the Lease Property, a fair apportionment of the Rent received from such
re-letting and the expenses incurred in connection with such re-letting
will be made in determining the net proceeds received from such
re-letting. In addition, in determining the net proceeds from such
re-letting, any rent concessions will
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be apportioned over the term of the new Lease. Tenant will pay such
amounts to Landlord monthly on the days on which the Rent and all other
amounts owing under this Agreement or the Lease would have been payable
if possession had not been retaken, and Landlord will be entitled to
receive the rent and other amounts from Tenant on each such day.
(c) Landlord may re-enter the Leased Property and have,
repossess and enjoy the Leased Property as if the Lease had not been
made, and in such event, Tenant and its successors and assigns shall
remain liable for any contingent or unliquidated obligations or sums
owing at the time of such repossession.
(d) Landlord may have access to and inspect, examine and
make copies of the books and records and any and all accounts, data and
income tax and other returns of Tenant insofar as they pertain to the
Leased Property.
(e) Landlord may take whatever action at law or in equity as
may appear necessary or desirable to collect the Rent and other amounts
payable under the Lease then due and thereafter to become due, or to
enforce performance and observance of any obligations, agreements or
covenants of Tenant under this Lease.
9.03 Right of Set-Off. Landlord may, and is hereby authorized by
Tenant, at any time and from time to time, after advance notice to Tenant, to
set-off and apply any and all sums held by Landlord, any indebtedness of
Landlord to Tenant, and any claims by Tenant against Landlord, against any
obligations of Tenant under this Agreement or any Lease and against any claims
by Landlord against Tenant, whether or not Landlord has exercised any other
remedies hereunder. The rights of Landlord under this Section are in addition to
any other rights and remedies Landlord may have against Tenant.
9.04 Performance of Tenant's Covenants. Landlord may perform any
obligation of Tenant which Tenant has failed to perform within two (2) days
after Landlord has sent a written notice to Tenant informing it of its specific
failure. Tenant shall reimburse Landlord on demand, as Additional Rent, for any
expenditures thus incurred by Landlord and shall pay interest thereon at the
overdue Rate (as hereinafter defined).
9.05 Late Charge. Any payment not made by Tenant for more than ten (10)
days after the due date shall be subject to a late charge payable by tenant as
Rent of three percent (3%) of the amount of such overdue payment.
9.06 Litigation; Attorneys' Fees. Within ten (10) days after Tenant has
knowledge of any litigation or other proceeding that may be instituted against
Tenant, against the Leased Property to secure or recover possession thereof, or
that may affect the title to or the interest of Landlord in the Leased Property,
Tenant shall give written notice thereof to Landlord. Tenant shall pay all
reasonable costs and expenses incurred by Landlord in enforcing or preserving
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Landlord's rights under this Agreement and each Lease, whether or not an Event
of Default has actually occurred or has been declared and thereafter cured,
including without limitation, [i] the fees, expenses, and costs of any
litigation, receivership, administrative, bankruptcy, insolvency or other
similar proceeding; [ii] reasonable attorney, paralegal, consulting and witness
fees and disbursements; and [iii] the expenses, including without limitation,
lodging, meals, and transportation, of Landlord and its employees, agents.
attorneys, and witnesses in preparing for litigation, administrative,
bankruptcy, insolvency or other similar proceedings and attendance at hearings,
depositions, and trials in connection therewith. All such costs, charges and
fees as incurred shall be deemed to be Additional Rent under this Lease.
9.07 Remedies Cumulative. The remedies of Landlord herein are
cumulative to and not in lieu of any other remedies available to Landlord at law
or in equity. The use of any one remedy shall not be taken to exclude or waive
the right to use any other remedy.
9.08 Escrows and Application of Payments. As security for the
performance of its obligations hereunder Tenant hereby assigns to Landlord all
its right, title, and interest in and to all monies escrowed with Landlord under
this Agreement or under any Lease and all deposits with utility companies,
taxing authorities, and insurance companies; provided, however, that Landlord
shall not exercise its rights hereunder until an Event of Default has occurred.
Any payments received by Landlord under any provisions of this Agreement or
under any Lease during the existence, or continuance of an Event of Default
shall be applied to Tenant's obligations in the order which Landlord may
determine.
9.09 Power of Attorney. Tenant hereby irrevocably and unconditionally
appoints Landlord, or Landlord's authorized officer, agent, employee or
designee, as Tenant's true and lawful attorney-in-fact, to act, after an Event
of Default, for Tenant in Tenant's name, place, and stead, and for Tenant's and
Landlord's use and benefit, to execute, deliver and file all applications and
any and all other necessary documents or things, to effect a transfer,
reinstatement, renewal and/or extension of any and all licenses and other
governmental authorizations issued to Tenant in connection with Tenant's
operation of the Leased Property, and to do any and all other acts incidental to
any of the foregoing. Tenant irrevocably and unconditionally grants to Landlord
as its attorney-in-fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as Tenant might or could do if personally present or acting, with full
power of substitution, hereby ratifying and confirming all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is coupled with an interest and is irrevocable prior to the full performance of
the Tenant's obligations under this Agreement and each Lease.
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ARTICLE X: DAMAGE AND DESTRUCTION
10.01 General. Tenant shall notify Landlord if any of the Leased
Property is damaged or destroyed by reason of fire or any other cause. Tenant
shall promptly repair, rebuild, or restore the Leased Property, at Tenant's
expense, so as to make the Leased Property at least equal in value to the Leased
Property existing immediately prior to such occurrence and as nearly similar to
it in character as is practicable and reasonable. Before beginning such repairs
or rebuilding, or letting any contracts in connection with such repairs or
rebuilding, Tenant will submit for Landlord's approval, which approval Landlord
will not unreasonably withhold or delay, complete and detailed plans and
specifications for such repairs or rebuilding. Promptly after receiving
Landlord's approval of the plans and specifications, Tenant will begin such
repairs or rebuilding and will prosecute the repairs and rebuilding to
completion with diligence, subject, however, to strikes, lockouts, acts of God,
embargoes, governmental restrictions, and other causes beyond Tenant's
reasonable control. Landlord will make available to Tenant the net proceeds of
any fire or other casualty insurance paid to Landlord for such repair or
rebuilding as the same progresses, after deduction of any costs of collection,
including attorneys' fees. Payments will be made against properly certified
vouchers of a competent architect in charge of the work and approved by
Landlord. Prior to commencing the repairing or rebuilding, Tenant shall deliver
to Landlord for Landlord's approval a schedule setting forth the estimated
monthly draws for such work. Landlord will contribute to such payments out of
the insurance proceeds an amount equal to the proportion that the total net
amount received by Landlord from insurers bears to the total estimated cost of
the rebuilding or repairing, multiplied by the payment by Tenant on account of
such work. Landlord may, however, withhold ten percent (10%) from each payment
until the work of repairing or rebuilding is completed and proof has been
furnished to Landlord that no lien or liability has attached or will attach to
the Leased Property or to Landlord in connection with such repairing or
rebuilding. Upon the completion of rebuilding and the furnishing of such proof,
the balance of the net proceeds of such insurance payable to Tenant on account
of such repairing or rebuilding will be paid to Tenant. Tenant will obtain and
deliver to Landlord a temporary or final certificate of occupancy before the
Leased Property is reoccupied for any purpose. Tenant shall complete such
repairs or rebuilding free and clear of mechanic's or other liens, and in
accordance with the building codes and all applicable laws, ordinances,
regulations, or orders of any state, municipal, or other public authority
affecting the repairs or rebuilding, and also in accordance with all
requirements of the insurance rating organization, or similar body. Any
remaining proceeds of insurance after such restoration will be Tenant's
property.
10.02 Landlord's Inspection. During the progress of such repairs or
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating to such repairs
or rebuilding. Tenant will keep all plans, shop drawings, and specifications at
the building, and Landlord and its architects and engineers may examine them at
all reasonable times. If, during such repairs or rebuilding, Landlord and its
architects and engineers determine that the repairs or rebuilding are not being
done in accordance with the
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approved plans and specifications, Landlord will give prompt notice in writing
to Tenant, specifying in detail the particular deficiency, omission, or other
respect in which Landlord claims such repairs or rebuilding do not accord with
the approved plans and specifications. Upon the receipt of any such notice,
Tenant will cause corrections to be made to any deficiencies, omissions, or such
other respect. Tenant's obligations to supply insurance, according to Article
IV, will be applicable to any repairs or rebuilding under this Section.
10.03 Landlord's Costs. Tenant shall, within thirty (30) days after
receipt of an invoice from Landlord, pay the reasonable costs, expenses, and
fees of any architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith; provided, however, that Landlord will consult
with Tenant and notify Tenant of the estimated amount of such expenses.
10.04 Rent Abatement. In the event that the provisions of Section 10.01
above shall become applicable, the Base Rent, real estate taxes and other
Impositions shall be abated or reduced proportionately during any period in
which, by reason of such damage or destruction, there is substantial
interference with the operation of the business of Tenant in the Leased
Property, having regard to the extent to which Tenant may be required to
discontinue its business in the Leased Property, and such abatement or reduction
shall continue for the period commencing with such destruction or damage and
ending with the substantial completion (defined below) by Tenant of such work or
repair and/or reconstruction. Nothing in this section shall be construed to
abate or reduce Percentage Rent. In the event that only a portion of the Leased
Property is rendered untenantable or incapable of such use, the Base Rent and
all real estate taxes and other Impositions payable hereunder shall be reduced
on a pro rata basis for the number of licensed nursing home beds which were
rendered incapable of occupancy because of such damage or destruction in
proportion to the total amount of licensed nursing home beds available for
occupancy in the Leased Property prior to such damage or destruction. For
purposes of this paragraph, substantial completion shall occur upon the earlier
of (i) nine (9) months from the date of the first disbursement of insurance
proceeds, or (ii) the issuance of a certificate of occupancy for the Leased
Property.
10.05 Substantial Damage During Lease Term. Provided Tenant has fully
complied with Section 4.01 hereof (including actually maintaining in effect
rental value insurance provided for in clause (c) thereof), if, at any time
during the Term of the Lease, the Leased Property is so damaged by fire or
otherwise that more than fifty (50%) percent of the licensed nursing home beds
at the Leased Property are rendered unusable, Tenant may, within thirty (30)
days after such damage, give notice of its election to terminate the Lease
subject to the particular Leased Property and, subject to the further provisions
of this Section, such Lease will cease on the tenth (10th) day after the
delivery of such notice. If the Lease is so terminated, Tenant will have no
obligation to repair, rebuild or replace the Leased Property, and the entire
insurance proceeds will belong to Landlord. If the Lease is not so terminated,
Tenant shall rebuild the Leased
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Property in accordance with Section 10.01.
ARTICLE XI: CONDEMNATION
11.01 Total Taking. If, by exercise of the right of eminent domain or
by conveyance made in response to the threat of the exercise of such right
("Taking"), the entire Leased Property that is the subject of any Lease is
taken, or so much of the Leased Property is taken that the Leased Property
cannot be used by Tenant for the purposes for which it was used immediately
before the Taking, then the Lease will terminate on the earlier of the vesting
of title to the Leased Property in the condemning authority or the taking of
possession of the Leased Property by the condemning authority. All damages
awarded for such Taking under the power of eminent domain shall be the property
of the Landlord, except for damages awarded as compensation for diminution in
value of the leasehold in contrast to diminution in the value of the fee of the
Leased Property. Tenant shall also be entitled to any specific award made for
loss of business or the relocation thereof.
11.02 Partial Taking. If, after a Taking, so much of the Leased
Property that is the subject of any Lease remains that the Leased Property can
be used for substantially the same purposes for which it was used immediately
before the Taking, then [i] the Lease will end as to the part taken on the
earlier of the vesting of title to the Leased Property in the condemning
authority or the taking of possession of the Leased Property by the condemning
authority; [ii] Base Rent for so much of the Leased Property as remains will be
reduced on a pro rata basis by an amount equal to the difference between the
number of available nursing beds remaining after the Taking and the number of
available nursing beds before the Taking; [iii] at its cost, Tenant shall
restore so much of the Leased Property as remains to a sound architectural unit
substantially suitable for the purposes for which it was used immediately before
the Taking, using good workmanship and new, first-class materials; [iv] upon
completion of the restoration, or upon Tenant's request at intervals during the
restoration process, in accordance with the procedure set forth in Section
10.01, Landlord will pay Tenant the lesser of the net award made to Landlord on
the account of the Taking (after deducting from the total award, attorneys',
appraisers', and other fees and costs incurred in connection with the obtaining
of the award and amounts paid to the holders of mortgages secured by the Leased
Property), or Tenant's actual out-of-pocket costs of restoring the Leased
Property; and [v] Landlord shall be entitled to the balance of the net award.
ARTICLE XII: TENANT'S PROPERTY
12.01 Tenant's Property. Tenant shall install, place, and use on the
Leased Property such fixtures, furniture, equipment, inventory and other
personal property in addition to the Fixtures as may be required or as Tenant
may, from time to time, deem necessary or useful to operate the Leased Property
as a nursing home or assisted living facility. All fixtures, furniture,
equipment, inventory, and other personal property installed, placed, or used on
the Leased Property which is owned by Tenant or leased by Tenant from third
parties is hereinafter referred to as "Tenant's Property".
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12.02 Requirements for Tenant's Property. Tenant shall comply with all
of the following requirements in connection with Tenant's Property:
(a) Tenant shall notify Landlord within one hundred twenty
(120) days after each anniversary of any Lease of any additions,
substitutions, or replacements of any item of Tenant's Property which
individually has a cost of more than $10,000.00 and shall furnish
Landlord with such other information as Landlord may reasonably request
from time to time.
(b) Tenant's Property shall be installed in a good and
workmanlike manner, in compliance with all governmental laws,
ordinances, rules, and regulations and all insurance requirements, and
be installed free and clear of any mechanic's liens.
(c) Tenant shall, at Tenant's sole cost and expense, maintain,
repair, and replace Tenant's Property.
(d) Tenant shall, at Tenant's sole cost and expense, keep
Tenant's Property insured against loss or damage by fire, vandalism and
malicious mischief, sprinkler leakage, and other physical loss perils
commonly covered by fire and extended coverage, boiler and machinery,
and difference in conditions insurance in an amount not less than
ninety percent (90%) of the then full replacement cost thereof. Tenant
shall use the proceeds from any such policy for the repair and
replacement of Tenant's Property. The insurance shall meet the
requirements of Section 4.03.
(e) Tenant shall pay all taxes applicable to Tenant's
Property.
(f) If Tenant's Property is damaged or destroyed by fire or
any other cause, Tenant shall promptly repair or replace Tenant's
Property unless Tenant is entitled to and elects to terminate the Lease
pursuant to Section 10.05.
(g) Unless an Event of Default (or any event which, with the
giving of notice or lapse of time, or both, would constitute an Event
of Default) has occurred and remains uncured beyond any applicable
grace period, Tenant may remove Tenant's property from the Leased
Property from time to time provided that [i] the items removed are not
required to operate the Leased Property as a licensed nursing home
facility (unless such items are being replaced by Tenant); and [ii)
Tenant repairs any damage to the Leased Property resulting from the
removal of Tenant's Property.
(h) Tenant shall remove Tenant's Property upon the termination
or expiration of the Lease and shall repair any damage to the Leased
Property resulting from the removal of Tenant's Property. If Tenant
fails to remove Tenant's Property within ninety (90) days after the
termination or expiration of the Lease, then Tenant shall be deemed to
have
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abandoned Tenant's Property, Tenant's Property shall become the
property of Landlord, and Landlord may remove, store and dispose of
Tenant's Property. In such event, Tenant shall have no claim or right
against Landlord for such property or the value thereof regardless of
the disposition thereof by Landlord. Tenant shall pay Landlord, upon
demand, all expenses incurred by Landlord in removing, storing, and
disposing of Tenant's Property and repairing any damage caused by such
removal. Tenant's obligations hereunder shall survive the termination
or expiration of the Lease.
(i) Tenant shall perform its obligations under any equipment
lease or security agreement for Tenant's Property.
ARTICLE XIII: TENANT'S RIGHTS OF FIRST REFUSAL
13.01 Rights of First Refusal
(a) Subject to the terms and conditions set forth in this
Section 13.01, Tenant shall have a right of first refusal to purchase
any Leased Property (the "Purchase Refusal Right"). If during the Term
or for a period of six (6) months following termination of the Lease,
Landlord receives a bona fide third party offer to purchase any Leased
Property, Landlord shall, prior to accepting such third party offer,
send written notice thereof to Tenant ("Landlord's Notice") along with
a copy of such offer, and further setting forth in detail all of the
terms and conditions of such third party offer, including the price,
time for closing, and any contingencies. Tenant shall have fifteen (15)
days after receipt of Landlord's Notice to exercise Tenant's Purchase
Refusal Right, by giving Landlord written notice thereof. Failure of
Tenant to exercise the Purchase Refusal Right within such time period
set forth above shall be deemed to extinguish the Purchase Refusal
Right. Thereafter, Landlord may sell such Leased Property to such third
party on the same terms and conditions as set forth in the Landlord's
Notice. Tenant's Purchase Refusal Right shall revive in the event that
Landlord fails to close such third party offer. In the event that
Tenant elects to exercise the Purchase Refusal Right and to purchase
the Leased Property thereby, (a) Tenant shall purchase such Leased
Property on the same terms and conditions and subject to all time
periods and other limitations as provided in Landlord's Notice, and (b)
concurrently with such purchase, the Lease of such Leased Property
shall terminate (but Tenant shall remain liable to pay any unpaid Rent
with respect to such Leased Property and all indemnifications and other
provisions that survive the expiration of any Lease or of this
Agreement shall continue in effect), and this Agreement shall be
appropriately amended to reflect the termination of such Lease.
(b) Subject to the terms and conditions set forth in this
Section 13.01, Tenant shall have a right of first refusal to lease any
Leased Property (the "Lease Refusal Right"). If during the Term or
within six (6) months thereafter Landlord receives a bona fide third
party offer to lease any Leased Property after expiration of the Lease
to Tenant, Landlord shall, prior to accepting such third party offer,
send written notice thereof to
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Tenant ("Landlord's Notice") along with a copy of such offer, and
further setting forth in detail all of the terms and conditions of such
third party offer, including the rent. Tenant shall thereafter have
thirty (30) days after the date of Landlord's Notice to exercise
Tenant's Lease Refusal Right, by giving Landlord written notice
thereof. Failure of Tenant to exercise the Lease Refusal Right within
such time period set forth above shall be deemed to extinguish the
Lease Refusal Right. Thereafter, Landlord may lease such Leased
Property to such third party on the same terms and conditions as set
forth in the Landlord's Notice. Tenant's Lease Refusal Right shall
revive in the event that Landlord fails to close such third party
offer. In the event that Tenant elects to exercise the Lease Refusal
Right and to lease the Leased Property thereby, Tenant shall lease such
Leased Property on the same terms and conditions and subject to all
time periods and other limitations as provided in Landlord's Notice.
ARTICLE XIV: ASSIGNMENT AND SUBLETTING; ATTORNMENT
14.01 Subletting and Assignment; Attornment. Subject to the provisions
of Section 14.03 below and any other express conditions or limitations set forth
herein, Tenant may, without the consent of Landlord, (i) assign this Agreement
or any Lease or sublet all or any part of the Leased Property to any Affiliate
of Tenant or Landlord, or (ii) sublet all or any part of the Leased Property (a)
in the normal course of the conduct of Tenant's business on the Leased Property
(such as but not limited to leasing of space for major moveable equipment or
functional departments such as pathology, pharmacy and radiology), or (b) as to
less than an aggregate of 20% of the rentable square footage of the buildings on
any Leased Property, to concessionaires or other third party users or operators
of portions of the Leased Property which are reasonably related to the
health-care industry or which provide direct services for patients or employees
of the Leased Property. Landlord shall not unreasonably withhold its consent to
any other or further subletting or assignment, provided that (a) in the case of
a subletting, the sublessee shall comply with the provisions of Section 14.02,
(b) in the case of an assignment, the assignee shall assume in writing and agree
to keep and perform all of the terms of this Lease on the part of Tenant to be
kept and performed and shall be, and become, jointly and severally liable with
Tenant for the performance thereof, (c) an original counterpart of each such
sublease and assignment and assumption, duly executed by Tenant and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
the Landlord, shall be delivered promptly to Landlord, and (d) in case of either
an assignment or subletting, Tenant shall remain primarily liable, as principal
rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Tenant hereunder.
14.02 Attornment. Tenant shall insert in each sublease permitted under
Section 14.01 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of the Lease (including this
Agreement) and to the rights of Landlord hereunder, (b) in the event the Lease
shall terminate before the expiration of such sublease, the sublessee thereunder
will, at Landlord's option, attorn to Landlord and waive any right the sublessee
may have to terminate the sublease or to surrender possession thereunder, as a
result of the
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termination of the Lease, and (c) in the event the sublessee receives a
written notice from Landlord or Landlord's assignees, if any, stating that
Tenant is in Default under the Lease, the sublessee shall thereafter be
obligated to pay all rentals accruing under said sublease directly to the party
giving such notice, or as such party may direct. All rentals received from the
sublessee by Landlord or Landlord's assignees, if any, as the case may be, shall
be credited against the amounts owing by Tenant under the Lease.
14.03 Sublease Limitation. Anything contained in this Agreement or any
Lease to the contrary notwithstanding, Tenant shall not sublet the Leased
Property on any basis such that the rental to be paid by the sublessee
thereunder would be based, in whole or in part, on either (i) the income or
profits derived by the business activities of the sublessee, or (ii) any other
manner such that any portion of the sublease rental received by Landlord would
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Internal Revenue Code of 1986 as amended (the "Code"), or any
similar or successor provisions thereto.
ARTICLE XV: ARBITRATION
15.01 Arbitration. Except with respect to the payment of Base Rent
hereunder, in case any controversy shall arise between the parties hereto as to
any of the requirements of this Lease or the performance thereof, 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 provisions of this Article XV.
15.02 Appointment of Arbitrators. The party or parties requesting
arbitration shall serve upon the other a demand therefor, in writing, specifying
the matter to be submitted to arbitration, and nominating some competent
disinterested person to act as an arbitrator; within twenty (20) days after
receipt of such written demand and notification, the other party shall, in
writing, nominate a competent disinterested person and the two (2) arbitrators
so designated shall, within ten (10) days thereafter, select a third arbitrator
and give immediate written notice of such selection to the parties and shall fix
in said notice a time and place for the first meeting of the arbitrators, which
meeting shall be held as soon as conveniently possible after the selection of
all arbitrators at which time and place the parties to the controversy may
appear and be heard.
15.03 Third Arbitrator. In case the notified party or parties shall
fail to make a selection upon notice, as aforesaid, or in case the first two (2)
arbitrators selected shall fail to agree upon a third arbitrator within ten (10)
days after their selection, then such arbitrator or arbitrators, may, upon
application made by either of the parties to the controversy, after twenty (20)
days' written notice thereof to the other party or parties, be appointed by the
Senior Judge of the United States District Court having jurisdiction of
controversies litigated in Nashville Tennessee.
15.04 Arbitration Procedure. Said arbitrators shall give each of the
parties not less than ten (10) days' written notice of the time and place of
each meeting at which the parties or
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any of them may appear and be heard and after hearing the parties in regard to
the matter in dispute and taking such other testimony and making such other
examinations and investigations as justice shall require and as the arbitrators
may deem necessary, they shall decide the question submitted to them; and the
decision of said arbitrators in writing signed by a majority of them shall be
final and binding upon the parties to such controversy. In rendering such
decision and award, the arbitrators shall not add to, subtract from or otherwise
modify the provisions of this Agreement or of any applicable Lease.
15.05 Expenses. The expenses of such arbitration shall be divided
between Landlord and Tenant unless otherwise specified in award. Each party in
interest shall pay the fees and expenses of its own counsel.
ARTICLE XVI: QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT,
BOND FINANCING AND ESTOPPEL CERTIFICATES
16.01 Quiet Enjoyment. So long as Tenant performs all of its
obligations under this Agreement and each Lease, Tenant's possession of the
Leased Property will not be disturbed by or through Landlord.
16.02 Subordination. This Agreement and each Lease and Tenant's rights
under this Agreement and each Lease are subordinate to any ground lease or
underlying lease, first mortgage, first deed of trust, or other first lien
against the Leased Property, together with any renewal, consolidation,
extension, modification or replacement thereof, which now or at any subsequent
time affects the Leased Property or any interest of Landlord in the Leased
Property, except to the extent that any such instrument expressly provides that
this Agreement and each Lease is superior. This provision will be
self-operative, and no further instrument or subordination will be required in
order to effect it. However, Tenant shall execute, acknowledge and deliver to
Landlord, at any time and from time to time upon demand by Landlord, such
documents as may be requested by Landlord or any mortgagee or any holder of any
mortgage or other instrument described in this Section, to confirm or effect any
such subordination. If Tenant fails or refuses to execute, acknowledge, and
deliver any such document within twenty (20) days after written demand, Landlord
may execute, acknowledge and deliver any such document on behalf of Tenant as
Tenant's attorney-in-fact. Tenant hereby constitutes and irrevocably appoints
Landlord, its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant any documents described in this
Section. This power of attorney is coupled with an interest and is irrevocable.
16.03 Attornment; Non-Disturbance. If any holder of any mortgage,
indenture, deed of trust, or other similar instrument described in Section 16.02
succeeds to Landlord's interest in the Leased Property, Tenant will pay to such
holder all Rent subsequently payable under this Lease. Tenant shall, upon
request of anyone succeeding to the interest of Landlord, automatically become
the tenant of, and attorn to, such successor in interest without changing this
Lease. The successor in interest will not be bound by [i] any payment of Rent
for more than
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one (1) month in advance; [ii] any amendment or modification of this Lease made
without its written consent; [iii] any claim against Landlord arising prior to
the date on which the successor succeeded to Landlord's interest; or [iv] any
claim or offset of Rent against the Landlord. Upon request by Landlord or such
successor in interest and without cost to Landlord or such successor in
interest, Tenant will execute, acknowledge and deliver an instrument or
instruments confirming the attornment. If Tenant fails or refuses to execute,
acknowledge, and deliver any such instrument within twenty (20) days after
written demand, then Landlord or such successor in interest will be entitled to
execute, acknowledge, and deliver any document on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,
its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant any such document. This power of
attorney is coupled with an interest and is irrevocable.
Landlord shall use reasonable efforts to obtain a non-disturbance
agreement from any such party referred to above which provides that in the event
such party succeeds to Landlord's interest under the Lease and provided that no
Event of Default by Tenant exists, such party will not disturb Tenant's
possession, use or occupancy of the Leased Property.
16.04 Estoppel Certificates. At the request of Landlord or any
mortgagee or purchaser of the Leased Property, Tenant shall execute,
acknowledge, and deliver an estoppel certificate, in recordable form, in favor
of Landlord or any mortgagee or purchaser of the Leased Property certifying the
following: [i] that the Lease is unmodified and in full force and effect, or if
there have been modifications that the same is in full force and effect as
modified and stating the modifications; [ii] the date to which Rent and other
charges have been paid; [iii] that neither Tenant nor Landlord is in default nor
is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default, if that be the case, or specifying any existing
default; [iv] that Tenant has accepted and occupies the Leased Property; [v]
that Tenant has no defenses, set-offs, deductions, credits, or counterclaims
against Landlord, if that be the case, or specifying such that exist; [vi] that
the Landlord has no outstanding construction or repair obligations; and [vii]
such other information as may reasonably be requested by Landlord or any
mortgagee or purchaser. Any purchaser or mortgagee may rely on this estoppel
certificate. If Tenant fails to deliver the estoppel certificates to Landlord
within ten (10) days after the request of the Landlord, then Tenant shall be
deemed to have certified that [a] the Lease is in full force and effect and has
not been modified, or that the Lease has been modified as set forth in the
certificate delivered to Tenant; [b] Tenant has not prepaid any Rent or other
charges except for the current month; [c] Tenant has accepted and occupies the
Leased Property; [d] neither Tenant nor Landlord is in default nor is there any
fact or condition which, with notice or lapse of time, or both, would constitute
a default; [e] Landlord has no outstanding construction or repair obligation,
and [f] Tenant has no defenses, set-offs, deductions, credits, or counterclaims
against Landlord. Tenant hereby irrevocably appoints Landlord as Tenant's
attorney-in-fact to execute, acknowledge and deliver on Tenant's behalf any
estoppel certificate which Tenant does not object to within twenty (20) days
after Landlord sends the certificate to Tenant. This power of attorney is
coupled with an interest and is irrevocable.
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<PAGE> 38
ARTICLE XVII: MISCELLANEOUS
17.01 Notices. Landlord and Tenant hereby agree that all notices,
demands, requests, and consents (hereinafter "notices") required to be given
pursuant to the terms of this Lease shall be in writing shall be addressed as
follows:
If to Landlord: NHR/OP, L.P.
100 Vine Street, Attn: President
Suite 1400, City Center
Murfreesboro, Tennessee 37130
If to Tenant: National HealthCare Corporation
100 Vine Street
Suite 1400, City Center
Murfreesboro, Tennessee 37130
With a copy to: Richard F. LaRoche, Jr.
Senior Vice President and Secretary
National HealthCare Corporation
100 Vine Street
Suite 1400, City Center
Murfreesboro, Tennessee 37130
With a copy to: Ernest E. Hyne, II, Esq.
Harwell Howard Hyne Gabbert & Manner
P.O. Box 2960
Nashville, Tennessee 37219;
and shall be served by [i] personal delivery, [ii] certified mail, return
receipt requested, postage prepaid, or [iii] nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or three (3) days after mailing, or one (1) business day after deposit
with the overnight courier. Any notices meeting the requirements of this Section
shall be effective, regardless of whether or not actually received. Landlord or
Tenant may change its notice address at any time by giving the other party
notice of such change.
17.02 Advertisement of Leased Property. In the event the parties hereto
have not executed a renewal lease of any Leased Property within ninety (90) days
prior to the expiration of the Term, then Landlord or its agent shall have the
right to enter such Leased Property at all reasonable times for the purpose of
exhibiting the Leased Property to others and to place upon the Leased Property
for and during the period commencing one hundred eighty (180) days prior to the
expiration of the Term "for sale" or "for rent" notices or signs.
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<PAGE> 39
17.03 Entire Agreement. This Agreement and the individual Leases
contain the entire agreement between Landlord and Tenant with respect to the
subject matter hereof and thereof. No representations, warranties, and
agreements have been made by Landlord except as set forth in this Lease.
17.04 Severability. If any term or provision of this Agreement or any
Lease is held or deemed by Landlord to be invalid or unenforceable, such holding
shall not affect the remainder of this Agreement or any Lease and the same shall
remain in full force and effect, unless such holding substantially deprives
Tenant of the use of the Leased Property or Landlord of the Rents therefor, in
which event the Lease for such Leased Property shall forthwith terminate as if
by expiration of the Term.
17.05 Captions and Headings. The captions and headings are inserted
only as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Agreement or the intent of any provision hereof.
17.06 Governing Law. This Lease shall be construed under the laws of
the State of Tennessee.
17.07 Recording of Lease. Tenant shall not record this Agreement.
Tenant may, however, record the Lease approved by Landlord with respect to each
Leased Property; provided, however, such lease shall not disclose the Base Rent
of other economic terms of the Lease.
17.08 Waiver. No waiver by Landlord of any condition or covenant herein
contained, or of any breach of any such condition or covenant, shall be held or
taken to be a waiver of any subsequent breach of such covenant or condition, or
to permit or excuse its continuance or any future breach thereof or of any
condition or covenant, nor shall the acceptance of Rent by Landlord at any time
when Tenant is in default in the performance or observance of any condition or
covenant herein be construed as a waiver of such default, or of Landlord's right
to terminate this Agreement or any Lease or exercise any other remedy granted
herein on account of such existing default.
17.09 Binding Effect. This Agreement and each Lease will be binding
upon and inure to the benefit of the heirs, successors, personal
representatives, and permitted assigns of Landlord and Tenant.
17.10 Authority. The persons executing this Agreement or any Lease on
behalf of Tenant warrant that [i] Tenant has the power and authority to enter
into this Agreement or such Lease; [ii] Tenant is qualified to do business in
the state in which the Leased Property is located; and [iii] they are authorized
to execute this Lease on behalf of Tenant. Tenant shall, at the request of
Landlord, provide evidence satisfactory to Landlord confirming these
representations.
17.11 Transfer of Permits, Etc. Upon the expiration or earlier
termination of the Term
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<PAGE> 40
of any Lease (whether pursuant to the provisions of this Agreement or of such
Lease), Tenant shall to transfer and relinquish to Landlord or Landlord's
nominee and to cooperate with Landlord or Landlord's nominee in connection with
the processing by Landlord or such nominee of all licenses, operating permits,
certificates of need and other governmental authorization and all contracts,
including without limitation, a Certificate of Need, the nursing home and/or
health care facility license, and any other contracts with governmental or
quasi-governmental entities which may be necessary or appropriate for the
operation by Landlord or such nominee of the Leased Property for the purposes of
operating a nursing home and health care 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 nominee. Any such permits, licenses, certificates
and contracts which are held in Landlord's name now or at the termination of the
Lease shall remain the property of Landlord. To the extent permitted by law,
Tenant hereby irrevocably appoints Landlord, its successors and assigns and any
nominee or nominees specifically designated by Landlord or any successor or
assign as Tenant's attorney-in-fact to execute, acknowledge, deliver and file
all documents appropriate to such transfer or processing of any such application
on behalf of Tenant; this power of attorney is coupled with an interest and is
irrevocable.
17.12 Modification. This Agreement and any Lease may only be modified
by a writing signed by both Landlord and Tenant.
17.13 Incorporation by Reference. All schedules and exhibits referred
to in this Agreement are incorporated into this Agreement, and all schedules and
exhibits referred to in any Lease (as well as the provisions of this Agreement,
except to the extent specifically excluded from or inconsistent with the terms
of such Lease) are incorporated into such Lease.
17.14 No Merger. The surrender of this Agreement or of any Lease by
Tenant or the cancellation of this Agreement or of any Lease by agreement of
Tenant and Landlord or the termination of this Agreement or of any Lease on
account of Tenant's default will not work a merger, and will, at Landlord's
option, terminate any subleases or operate as an assignment to Landlord of any
subleases. Landlord's option under this paragraph will be exercised by notice to
Tenant and all known subtenants of any applicable Leased Property.
17.15 Laches. No delay or omission by either party hereto to exercise
any right or power accruing upon any noncompliance or default by the other party
with respect to any of the terms hereof shall impair any such right or power or
be construed to be a waiver thereof.
17.16 Waiver of Jury Trial. To the extent that there is any claim by
one party against the other that is not to be settled by arbitration as provided
in Article XV hereof, Landlord and Tenant waive trial by jury in any action,
proceeding or counterclaim brought by either of them against the other on all
matters arising out of this Lease or the use and occupancy of the Leased
Property (except claims for personal injury or property damage). If Landlord
commences any summary proceeding for nonpayment of Rent, Tenant will not
interpose, and waives the right to interpose, any counterclaim in any such
proceeding.
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<PAGE> 41
17.17 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 provided that [i] 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; [ii] neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in any
immediate danger of being sold, forfeited, attached or lost; [iii] in the case
of a legal requirement, Landlord would not be in any immediate danger of civil
or criminal liability for failure to comply therewith pending the outcome of
such Proceedings; [iv] in the event that any such contest shall involve a sum of
money or potential loss in excess of Fifty Thousand Dollars ($50,000.00), Tenant
shall deliver to Landlord and its counsel an opinion of Tenant's counsel to the
effect set forth in clauses [i], [ii] and [iii], to the extent applicable; [v]
in the case of a legal requirement and/or an Imposition, lien, encumbrance, or
charge, Tenant shall give such reasonable security as may be demanded by
Landlord to insure ultimate payment of the same and to prevent any sale or
forfeiture of the affected Leased Property or the Rent by reason of such
nonpayment or noncompliance; provided, however, the provisions of this Section
shall not be construed to permit Tenant to contest the payment of Rent (except
as to contests concerning the method of computation or the basis of levy of any
Imposition or the basis for the assertion of any other claim) or any other sums
payable by Tenant to Landlord hereunder; [vi] in the case of an insurance
requirement, the coverage required by Article IV shall be maintained: and [vii]
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 be reasonably required in any such contest, and, if reasonably
requested by Tenant or if Landlord so desires, Landlord shall join as a party
therein. Tenant hereby agrees to indemnify and save Landlord harmless from and
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.
17.18 Construction of Lease. This Agreement and each of the Leases for
Leased Properties described on Schedule A hereto have been prepared by Landlord
and its professional advisors and reviewed by Tenant and its professional
advisors. Landlord, Tenant, and their advisors believe that this Agreement and
such Leases are the product of all their efforts, that they express their
agreement, and agree that they shall not be interpreted in favor of either
Landlord or Tenant or against either Landlord or Tenant merely because of their
efforts in preparing such documents.
17.19 Counterparts. This Agreement and each Lease may be executed in
duplicate counterparts, each of which shall be deemed an original hereof or
thereof.
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<PAGE> 42
17.20 Relationship of Landlord and Tenant. The relationship of Landlord
and Tenant is the relationship of lessor and lessee. Landlord and Tenant are not
partners, joint venturers, or associates.
17.21 Custody of Escrow Funds. Any funds paid to Landlord in escrow
hereunder may be held by Landlord or, at Landlord's election, by a financial
institution, the deposits or accounts of which are insured or guaranteed by a
federal or state agency. The funds shall not be deemed to be held in trust, may
be commingled with the general funds of Landlord or such other institution, and
shall not bear interest.
17.22 Sale of Real Estate Assets. Notwithstanding any other provision
of this Agreement or of any Lease, Landlord shall not be required to sell or
transfer Leased Property, or any portion thereof, which is a real estate asset
as defined in Section 856(c)(6) of the Code, to Tenant if Landlord's counsel
advises Landlord that such sale or transfer may not be a sale of property
described in Section 857(b)(6)(C) of the Code. If Landlord determines not to
sell such property pursuant to the above sentence, Tenant's right, if any, to
purchase the Leased Property shall continue and be exercisable at such time as
the transaction, upon the advice of Landlord's counsel, would be a sale of
property described in Section 857(b)(6)(C) of the Code.
17.23 Use of Tenant's Name. Following the expiration or earlier
termination of this Agreement and of all of the Leases, Landlord shall use its
best efforts, if requested by Tenant within 12 months of such expiration or
termination, to cause its name to be changed to a name that does not include the
word "National" or any variation thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.
LANDLORD: NHR/OP, L.P.
By: National Health Realty, Inc., its Managing
General Partner
By:
-------------------------------
Title:
-------------------------------
TENANT: NATIONAL HEALTHCARE CORPORATION
By:
-------------------------------
Title:
-------------------------------
37
<PAGE> 1
Exibit 10.2
ADVISORY, ADMINISTRATIVE SERVICES
AND FACILITIES AGREEMENT
BETWEEN
NATIONAL HEALTH REALTY, INC.
AND
NATIONAL HEALTHCARE CORPORATION
THIS AGREEMENT is dated as of October 1, 1997, but it is effective
January 1, 1998, between NATIONAL HEALTH REALTY, INC., a Maryland corporation
and its divisions, subsidiaries and partnerships in which it serves as general
partner (collectively the "Corporation"), and NATIONAL HEALTHCARE CORPORATION, a
Delaware corporation (the "Advisor").
WHEREAS effective 11:59 p.m. central time on December 31, 1997,
pursuant to a plan to restructure National HealthCare L.P. ("NHC"), NHC will
convey to NHR/OP, L.P. (the "Operating Partnership") by special form deed or by
Capitalized Lease, subject to certain related NHC liabilities and obligations,
all of its right, title and interest in and to certain real property and
mortgage notes receivables (the "Conveyance"); and
WHEREAS immediately following the Conveyance, the Operating Partnership
will lease the real properties back to NHC pursuant to that certain Master
Operating Lease Agreement, dated October 1, 1997, but effective January 1, 1998
(the "Master Lease"); and
WHEREAS effective January 1, 1998 and as part of the overall plan to
capitalize the Corporation, NHC plans to distribute (the "Distribution") pro
rata to each holder of NHC's outstanding units, all of the shares of common
stock of the Corporation, par value $.01 (the "Shares"), except with respect to
Excess Stock, as defined in the Corporation's charter; and
WHEREAS the parties acknowledge that Advisor currently performs
functions similar to those described herein for National Health Investors, Inc.,
a qualified real estate investment trust, which shares are traded on the New
York Stock Exchange (hereinafter "NHI"); and
WHEREAS the Corporation intends to qualify as a real estate investment
trust as defined in the Internal Revenue Code of 1986, as amended, as the same
may be amended or modified from time to time; and
WHEREAS the Corporation desires to avail itself of the Advisor's
experience, sources of information, advice, and assistance and of certain
personnel and facilities available to the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
and subject to the supervision of the Board of Directors of the Corporation (the
"Directors"), as provided herein; and
WHEREAS the Advisor is willing to undertake to render such services,
subject to the supervision of the Directors, on the terms and conditions
hereinafter set forth; and
WHEREAS the relationships established by the Advisor and the
Corporation hereunder are independent of and unaffected by the relationships of
the parties established under the Master Lease;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Corporation and the Advisor agree as follows:
1. Duties of Advisor. The Corporation hereby engages the Advisor, and
the Advisor undertakes to use its best efforts (a) to present to the Corporation
a continuing and suitable investment program consistent with the investment
policies and objectives of the Corporation and investment opportunities of a
character consistent with such investment program as the Directors may adopt
from time to time, (b) to manage the day-to-day affairs and operations of the
Corporation and (c) to provide such administrative services and facilities as
are appropriate for such management. In performance of such undertakings,
subject to the supervision and approval of the Directors and upon their
direction, and consistent with the provisions of the Articles of Incorporation
and Bylaws of the Corporation and of any policies for the Corporation from time
to time established by the Directors after consultation with the Advisor, the
Advisor shall:
(i) make or have made for the Corporation such research reports,
economic and statistical data, evaluations, analyses, opinions and
recommendations as it may deem necessary or desirable or as the
Directors of the Corporation may request with respect to investment
opportunities available to the Corporation;
(ii) formulate a program for the investment of the Corporation's
assets;
(iii) select and evaluate potential projects and investments for
the Corporation;
(iv) make recommendations as to the nature, terms and amount
of involvement or participation in such project or investments and the
timing thereof;
(v) evaluate and make recommendations as to the sale or other
disposition of assets of the Corporation;
(vi) make such further recommendations as to the investments
of the Corporation as the Advisor may deem necessary or desirable;
(vii) investigate and make recommendations with respect to
selection of and relations with consultants, lenders and others
(including without limitation, tenants, property managers,
accountants, mortgage loan originators, correspondents and services,
architects, engineers and other technical advisers, attorneys, real
estate and mortgage loan bankers, brokers and dealers, corporate
fiduciaries, escrow agents, depositories, custodians, agents for
collection, insurers, insurance agents, banks, builders and
developers, and persons acting in any other capacity), in connection
with the Corporation's properties;
(viii) provide office and clerical facilities adequate for the
Corporation's operations and affairs;
(ix) act, or obtain for the Corporation the services of others to
act, as may be required to provide accounting, auditing, custodial,
transfer agent, registrar and other similar services, to disburse and
collect the funds of the Corporation, to pay the debts and fulfill the
obligations of the Corporation, to handle the prosecution and
settlement of any claims of the Corporation, to oversee, handle,
prepare and distribute or cause to be distributed all
2
<PAGE> 3
communications with the existing and future holders of the
Corporation's securities, including the holders of the Corporation's
Shares and Debentures, and, in connection with the foregoing, to
investigate, select and conduct relations with custodians, transfer
agents, registrars, proxy solicitors, attorneys, accountants,
auditors, brokers and investors, and others as necessary in connection
with the Corporation's operations;
(x) advise the Corporation concerning developments in the
healthcare and real estate investment trust industries appropriate or
useful to the Corporation's existing and potential future business and
investments;
(xi) make recommendations to the Directors as to appropriate
distributions by the Corporation to its stockholders; and
(xii) maintain or cause to be maintained records of activities
reasonably requested by the Corporation.
The foregoing duties of Advisor will also be rendered, for no
additional fee, to entities directly or indirectly controlled by the
Corporation, including but not limited to Operating Partnership and its
subsidiaries.
2. Restriction on Investment Activities. The parties expressly
understand and agree that for that period of time equal to the lesser of i) the
term of this agreement, or ii) Advisor being actively engaged as the Investment
Advisor for NHI, Corporation and Operating Partnership (and entities controlled
by either or both of them) will not (without the prior written approval of NHI)
transact business with any party, person, company, or firm other than Advisor.
It is the intent of this restriction that Corporation will not be actively or
passively engaged in the pursuit of additional investment opportunities, but
rather will focus upon its capacities as Landlord and Noteholder of those
certain assets conveyed to it in the Conveyance by Advisor.
3. Delegation. With the consent of the Directors from time to time, the
Advisor may delegate to or use the services of any third party, including any
Affiliate of the Advisor, in performing its duties hereunder provided that such
third party is subject to the supervision of the Advisor. The services to be
provided to the Corporation by the Advisor shall, at the direction of the
Directors, be provided to any subsidiaries of the Corporation.
4. No Partnership or Joint Venture. The Corporation and the Advisor are
not partners or joint venturers with each other and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.
5. Records. At all times, the Advisor shall keep proper books of
account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Corporation at any
time during ordinary business hours. Annually, and more frequently as reasonably
requested by the Directors, the Advisor shall report to the Directors its
estimated costs in providing the services for the Corporation hereunder (by
category of services to the extent practicable) and provide the Directors with
such information as is reasonably obtainable by the Advisor concerning the cost
to other real estate investment trusts specializing in healthcare facility
investments of administrative and advisory services comparable to those that are
the subject matter of this Agreement in order that the Directors may evaluate
the performance of the Advisor and the efficiency of the arrangements provided
for in this Agreement.
3
<PAGE> 4
6. Qualification as a Real Estate Investment Trust. Anything else in
this Agreement to the contrary notwithstanding, the Advisor shall refrain from
any action which, in its sole judgment made in good faith or in the judgment of
the Directors of which the Advisor has written notice, would adversely affect
the status of the Corporation as a real estate investment trust as defined and
limited in Sections 856-860 of the Internal Revenue Code of 1986, as amended,
which would violate any law, rule, regulation or statement of policy or any
governmental body or agency having jurisdiction over the Corporation or over its
securities, or which would otherwise not be permitted by the Corporation's
Articles of Incorporation and Bylaws.
7. Bank Accounts. The Advisor, at the expense of the Corporation, may
establish and maintain one or more bank accounts in its own name, and may
collect and deposit into any such account or accounts, and disburse from any
such account or accounts, any money on behalf of the Corporation, under such
terms and conditions as the Directors may approve, provided that no funds in any
such account shall be commingled with funds of the Advisor; and the Advisor
shall from time to time render appropriate accounting of such collections and
payments to the Directors and to the auditors of the Corporation.
8. Bond. The Advisor, if and to the extent that the Directors require,
shall maintain a fidelity bond with a responsible surety company in such amount
as may be required by the Directors from time to time, covering all directors,
officers, employees and agents of the Advisor handling funds of the Corporation
and any investment documents or records pertaining to investments of the
Corporation. Such bond shall inure to the benefit of the Corporation in respect
of losses of any such property from acts of such Directors, officers, employees
and agents through theft, embezzlement, fraud, negligence, error or omission or
otherwise. The premium for said bond shall be an expense of the Corporation.
9. Information Furnished Advisor. The Directors shall at all times keep
the Advisor fully informed with regard to the investment policy of the
Corporation, the capitalization policy of the Corporation and generally their
then current intentions as to the future of the properties and other investments
of the Corporation. In particular, the Directors shall notify the Advisor
promptly of their intention to sell or otherwise dispose of any of the
Corporation's investments or to make any new investment. The Corporation shall
furnish the Advisor with a certified copy of all financial statements, a signed
copy of each report prepared by independent certified public accountants and
such other information with regard to the Corporation's affairs as the Advisor
may from time to time reasonably request.
10. Consultation and Advice. In addition to the services described
above, the Advisor shall consult with the Directors, and shall, at the request
of the Directors or the officers of the Corporation, furnish advice and
recommendations with respect to other aspects of the business and affairs of the
Corporation. In general, the Advisor shall inform the Directors of any factors
which come to its attention which would influence the policies of the
Corporation, except to the extent that giving such information would involve a
breach of fiduciary duty.
11. Compensation to Advisor. The Corporation shall pay the Advisor for
its services hereunder the greater of i) two percent (2%) of Corporation's
consolidated gross revenues calculated according to generally accepted
accounting principles, or ii) the actual expenses incurred by Advisor as
outlined in Paragraph 12 herein. Advisor's compensation shall be payable in
4
<PAGE> 5
monthly installments on the last day of each month, adjusted annually upon
completion of audit.
12. Expenses of the Advisor. Except as provided in Section 13 and
without regard to the amount of compensation received hereunder by the Advisor,
the Advisor shall pay all expenses in performing its obligations hereunder,
including and in addition to the following expenses:
(a) the cost of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of
the Corporation;
(b) employment expenses of the officers and directors and
personnel of the Advisor and all expenses, including travel expenses,
of the Advisor, incidental to the investigation and acquisition of
properties for the Corporation prior to the time the Directors
definitively decide to acquire the property or to have the Advisor
continue with the acquisition process, whether the property is
acquired or not, and after the Directors definitively decide to
dispose of a property;
(c) advertising and promotional expenses incurred in seeking and
disposing of investments for the Corporation;
(d) rent, telephone, utilities, office furniture and furnishings
and other office expenses incurred by or allocable to the Advisor for
its own benefit and account regardless of whether incurred or used in
connection with rendering the services to the Corporation provided for
in this Agreement;
(e) all costs and expenses which the Advisor is obligated to pay
to the Corporation or others under any lease of property by the
Advisor from the Corporation; and
(f) all miscellaneous administrative and other expenses of the
Advisor, whether or not relating to the performance by the Advisor of
its functions hereunder.
(g) fees and expenses paid to independent contractors,
appraisers, consultants, attorneys, managers and other agents retained
by or on behalf of the Corporation and expenses directly connected
with the acquisition, financing, refinancing, disposition and
ownership of real estate interests or of other property (including
insurance premiums, legal services, brokerage and sales commissions,
maintenance, repair and improvement of property);
(h) insurance as required by the Directors (including Directors'
liability insurance);
(i) expenses connected with payments of dividends or
distributions in cash or any other form made or caused to be made by
the Directors to shareholders of the Corporation and expenses
connected with payments of interest to holders of the Corporation's
Debentures;
(j) all expenses connected with communications to holders of
securities of the Corporation and the other bookkeeping and clerical
work necessary in maintaining relations with holders of securities,
including the cost of printing and mailing certificates for securities
and proxy solicitation materials and reports to holders of the
Corporation's
5
<PAGE> 6
securities;
(k) transfer agent's, registrar's, dividend disbursing agent's,
dividend reinvestment plan agent's and indenture trustee's fees and
charges;
(l) legal and auditing fees and expenses of the Corporation; and
(m) legal, auditing, accounting, underwriting, brokerage,
listing, registration and other fees and printing, engraving and other
expenses and taxes incurred in connection with the organization of the
Corporation but any such expenses incurred after January 1, 1998 for
the issuance, distribution, transfer, registration and listing of the
Corporation's securities shall remain the Corporation's obligation.
13. Expenses of the Corporation. The Corporation shall pay the
following expenses of the Corporation (except to the extent that the Advisor is
responsible for any such expenses as tenant of any property leased from the
Corporation):
(a) dividends
(b) the cost of money borrowed by the Corporation, including
interest on debentures;
(c) taxes on income and taxes and assessments on real property
and all other taxes applicable to the Corporation, including without
limitation, franchise and excise fees;
(d) except as provided in Section 12 hereof, all ordinary and
necessary expenses incurred with respect to and allocable to the
prudent operation and business of the Corporation, including without
limitation, any fees, salaries and other employment costs, taxes and
expenses paid to Directors, officers and employees of the Corporation
who are not also employees of the Advisor;
14. Other Activities of the Advisor. Nothing herein contained shall
prevent the Advisor or any of its officers, directors or employees or any of its
affiliates from engaging in other business activities related to real estate
investments, from undertaking investments permitted of them by the Corporation's
Bylaws or from acting as advisor to any other person or entity even though
having investment policies similar to the Corporation, and the Advisor and its
officers, directors or employees and any of its Affiliates shall be free from
any obligation to present to the Corporation any particular investment
opportunity which comes to the Advisor or such persons, regardless of whether
such opportunity is within the Corporation's investment policies; provided,
however, that when the Advisor has the ability to present a particular
investment opportunity which is suitable for purchase by the Corporation and any
other entities as to which the Advisor has advisory responsibility, the Advisor
will review the investment portfolio of each entity and will decide which entity
will acquire a particular property on the basis of such factors as it deems
appropriate including, among others, cash-flow, the effect of the acquisition on
diversification of the portfolio of each, the estimated income tax effects of
the purchase, the amount of funds available and the length of time such funds
have been available for investment. In the event a particular property is
equally appropriate for investment by more than one entity, the Advisor will
offer the investment to the entity whose funds have been available for the
longest period of time.
6
<PAGE> 7
15. Term; Termination of Agreement. This Agreement shall continue in
force from the date hereof through December 31, 2003 and thereafter from year to
year unless earlier terminated as herein provided; provided, however, that
either party may terminate this Agreement at any time on or after January 1,
2000, specified in a written notice of termination given to the other party at
least ninety days prior to the effective date of such termination; and provided,
further, that the Corporation may terminate this Agreement at any time during
the continuation of any event described in Section 18 hereof or otherwise for
cause. Upon the termination of this Agreement for any reason the Advisor shall
cooperate with the Corporation to provide an orderly management transition.
16. Amendments. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise as provided herein.
17. Assignment. This Agreement shall not be assigned or otherwise
transferred by the Advisor without the prior written consent of a majority of
the Directors including a majority of the Directors not affiliated with the
Advisor. This Agreement shall not be assigned by the Corporation without the
consent of the Advisor, except in the case of assignment by the Corporation to a
corporation, association, trust or other organization which is a successor to
the Corporation. Such successor shall be bound hereunder and by the terms of
said assignment in the same manner as the Corporation is bound hereunder.
18. Default, Bankruptcy, Etc. At the option solely of the Corporation
upon vote of a majority of its Directors, this Agreement shall be and become
terminated immediately upon written notice of termination from the Corporation
to the Advisor if any of the following events shall occur:
(a) If the Advisor shall violate any provision of this Agreement,
and after notice of such violation shall not cure such default within
thirty days; or
(b) If the Advisor shall be adjudged bankrupt or insolvent by a
court of competent jurisdiction, or an order shall be made by a court
of competent jurisdiction for the appointment of a receiver,
liquidator or trustee of the Advisor or of all or substantially all of
its property by reason of the foregoing, or approving any petition
filed against the Advisor for its reorganization, and such
adjudication or order shall remain in force or unstayed for a period
of thirty days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or file a petition seeking reorganization under the Federal
bankruptcy laws, or for relief under any law for the relief of
debtors, or shall consent to the appointment of a receiver of itself
or of all or substantially all its property, or shall make a general
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally, as they become due.
The Advisor agrees that if any event specified in subsections (b) and
(c) of this Section 18 shall occur, it will give written notice thereof to the
Directors within seven days after the occurrence of such event.
19. Action Upon Termination. From and after the effective date of
termination of this
7
<PAGE> 8
Agreement, pursuant to Sections 15, 17 or 18 hereof, the Advisor, except as
provided in Section 11, shall not be entitled to compensation for further
services hereunder but shall be paid all compensation accruing to the date of
termination, including compensation the payment of which may have been deferred
as a result of the condition to payment set forth in Section 11(b) hereof. The
Advisor shall forthwith upon such termination:
(a) pay over to the Corporation all moneys collected and held
for the account of the Corporation pursuant to this Agreement, after
deducting any accrued compensation and reimbursement for its expenses
to which it is then entitled;
(b) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of all
moneys held by it, covering the period following the date of the last
accounting furnished to the Directors;
(c) deliver to the Directors all property and documents of the
Corporation then in the custody of the Advisor in its capacity as
such; and
(d) cooperate with the Directors to provide an orderly management
transition.
20. Miscellaneous. The Advisor assumes no responsibility under this
Agreement other than to render the services called for hereunder in good faith,
and shall not be responsible for any action of the Directors in following or
declining to follow any advice or recommendations of the Advisor. Neither the
Advisor nor its partners nor any shareholders, directors, officers or employees
of any of its partners shall be liable to the Corporation, the Directors, the
holders of securities of the Corporation or to any successor or assign of the
Corporation for any act taken in good faith and in a manner reasonably believed
by the Advisor or the person acting on behalf of the Advisor to be in the best
interests of the Corporation, or for any other act except an act constituting
bad faith, willful misfeasance, gross negligence or reckless disregard of its
duties.
21. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is accepted by the party to
whom it is given, and shall be given by being delivered at the following
addresses of the parties hereto:
The Corporation:
W. Andrew Adams
National Health Realty, Inc.
100 Vine Street, Suite 1400
Murfreesboro, TN 37130
with a copy to:
William B. King
Goodwin, Procter & Hoar
Exchange Place, 24th Floor
Boston, MA 02109-2881
The Advisor:
8
<PAGE> 9
Richard F. LaRoche, Jr.
National HealthCare Corporation
100 Vine Street
City Center, Suite 1400
Murfreesboro, Tennessee 37130
9
<PAGE> 10
with a copy to:
Mr. Ernie Hyne
Harwell, Howard, Hyne, Manner & Gabbert
1800 First American Center
315 Deaderick Street
Nashville, TN 37238
Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 21.
22. Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
23. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Maryland as at the
time in effect.
IN WITNESS WHEREOF, the Corporation and the Advisor, each by a duly
authorized officer have signed and delivered this Agreement under their
respective corporate seals all as of the day and year first above written.
NATIONAL HEALTH REALTY, INC.
By
------------------------------
Its
-----------------------------
NATIONAL HEALTHCARE CORPORATION
By
------------------------------
Its
-----------------------------
10
<PAGE> 1
Exhibit 10.3.2
NATIONAL HEALTH REALTY, INC.
1997 Stock Option & Stock Appreciation Rights Plan
<PAGE> 2
TABLE OF CONTENTS
-------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Purpose............................................................1
Section 2. Definitions.......................................................1
2.1 "Board of Directors" or "Board"....................................1
2.2 "Code".............................................................1
2.3 "Committee"........................................................1
2.4 "Common Stock".....................................................1
2.5 "Employee".........................................................1
2.6 "Investment Advisor"...............................................1
2.7 "ISO"..............................................................2
2.8 "Non-Qualified Option".............................................2
2.9 "Option"...........................................................2
2.10 "SAR"..............................................................2
2.11 "Subsidiary of the Company"........................................2
Section 3. Eligibility........................................................2
Section 4. Common Stock Subject to the Plan...................................2
4.1 Number.............................................................2
4.2 Terminated/Reacquired Options......................................2
Section 5. Administration of the Plan.........................................3
5.1 Committee..........................................................3
5.2 Options............................................................3
5.3 Plan Interpretation................................................3
5.4 Committee Interpretations Conclusive...............................3
5.5 Committee Voting...................................................4
5.6 Committee Exculpation..............................................4
5.7 Granting of Options to Directors and Officers......................4
Section 6. Terms and Conditions of Options....................................4
6.1 ISOs...............................................................4
6.2 Non-Qualified Options..............................................6
6.3 SARs...............................................................7
6.4 Terms and Conditions Common to All Options.........................8
6.5 Payment of Exercise Price with Previously Issued Stock............10
6.6 Modification, Extension and Renewal of Options....................10
6.7 Fixed Option Grant of Non-Qualified Stock Options to
Certain Directors.................................................10
6.8 Transfer of Non-Qualified Options and SARs........................10
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.9 Rights as a Stockholder...........................................11
6.10 Other Provisions...........................................................11
Section 7. Adjustments.......................................................11
7.1 Reorganization, Merger, Recapitalization, Etc.....................11
7.2 Sale of Not Less Than 50% of Common Stock.........................11
7.3 Acceleration of Vesting...........................................12
7.4 Limited Rights Upon Company's Restructure.........................12
7.5 Effect of Options on Company's Capital and Business Structure.....12
Section 8. Effect of the Plan on Employment Relationship.....................12
Section 9. Amendment of the Plan.............................................12
Section 10. Compliance with Rule 16b-3 and Code Section 422...................13
Section 11. Investment Purpose................................................13
Section 12. Indemnification of Committee......................................13
Section 13. Termination of the Plan...........................................13
Section 14. Application of Funds..............................................14
Section 15. No Obligation to Exercise Option..................................14
Section 16. Effective Date of the Plan........................................14
</TABLE>
ii
<PAGE> 4
NATIONAL HEALTH REALTY, INC.
1997 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
Section 1. Purpose. The purpose of the NATIONAL HEALTH REALTY, INC.
1997 Stock Option and Stock Appreciation Rights Plan (the "Plan") is to promote
the interests of NATIONAL HEALTH REALTY, INC., a Maryland corporation (the
"Company"), and its stockholders by providing an opportunity to selected
employees, officers, directors, consultants and advisors of the Company or any
Subsidiary thereof to purchase Common Stock of the Company or acquire stock
appreciation rights in the Company. By encouraging such stock ownership and/or
stock appreciation rights, the Company seeks to attract, retain and motivate
such employees and persons and to encourage such employees and persons to devote
their best efforts to the business and financial success of the Company. It is
intended that this purpose will be effected by the granting of "non-qualified
stock options" and/or "incentive stock options" to acquire the Common Stock of
the Company and "stock appreciation rights" in the Company. Under the Plan, the
Committee shall have the authority (in its sole discretion) to grant "incentive
stock options" within the meaning of section 422(b) of the Code and
"non-qualified stock options" and "stock appreciation rights" to which Code
section 421 does not apply. The Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
Section 2. Definitions. For purposes of the Plan, the following terms
used herein shall have the following meanings, unless a different meaning is
clearly required by the context.
2.1 "Board of Directors" or "Board" shall mean the Board of
Directors of the Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.3 "Committee" shall mean the Executive Committee of the
Board of Directors or such other committee established by the Board of Directors
to which it delegates administration of the Plan under section 5.1 hereof, or if
no committee is then administering the Plan, the Board of Directors.
2.4 "Common Stock" shall mean the common stock, $0.01 par
value, of the Company.
2.5 "Employee" shall mean (i) with respect to an ISO, any
person, including an officer or director of the Company, who, at the time an ISO
is granted to such person hereunder, is employed, as such term is used in Code
section 422 and the Treasury Regulations promulgated thereunder, on a full-time
basis by the Company or any Subsidiary of the Company, and (ii) with respect to
a Non-Qualified Option or SAR, any person employed by or performing services,
whether as an employee or otherwise, for the Company, any Subsidiary of the
Company, or the Investment Advisor, including, without limitation, directors and
officers.
<PAGE> 5
2.6 "Investment Advisor" shall mean National HealthCare
Corporation, a Delaware corporation, so long as it is providing services to the
Company pursuant to an Advisory, Administrative Services and Facilities
Agreement or such other agreement as it may enter into with the Company.
2.7 "ISO" shall mean an Option to purchase Common Stock
granted under the Plan that constitutes and shall be treated as an "incentive
stock option," as such phrase is defined in section 422(b) of the Code.
2.8 "Non-Qualified Option" shall mean an Option to purchase
Common Stock granted to a Participant pursuant to the Plan that is not an
"incentive stock option," with respect to which Code section 421 does not apply,
and that shall not constitute nor be treated as an ISO.
2.9 "Option" shall mean any ISO, Non-Qualified Option or SAR
granted to a Participant pursuant to this Plan.
2.10 "SAR" shall mean a stock appreciation right as described
in section 6.3 hereof.
2.11 "Subsidiary of the Company" shall have the meaning set
forth in section 424(f) of the Code.
Section 3. Eligibility. Options may be granted to any Employee. The
Committee shall have the sole authority to select the persons to whom Options
are to be granted hereunder and to determine whether a person is to be granted
an ISO, a Non-Qualified Option, an SAR, or any combination thereof. No person
shall have any right to participate in the Plan. Any person selected by the
Committee for participation during any one period shall not by virtue of such
participation have the right to be selected as a Participant for any other
period. Any Participant may hold at any time more than one (1) Option, but only
upon such terms as provided hereunder and any agreement evidencing such Options.
Section 4. Common Stock Subject to the Plan.
4.1 Number. The total number of shares of Common Stock for
which Options may be granted under this Plan shall not exceed in the aggregate
500,000 shares of Common Stock.
4.2 Terminated/Reacquired Options. The shares of Common Stock
that may be subject to Options granted under this Plan may be either authorized
and unissued shares or shares reacquired at any time and now or hereafter held
as treasury stock as the Committee may determine. In the event any outstanding
Option expires or is terminated for any reason, the shares allocable to the
unexercised portion of such Option shall again become available for issuance
pursuant to the Plan. If any shares of Common Stock acquired pursuant to the
exercise of an Option shall have been repurchased or reacquired by the Company,
then such shares shall again become available for issuance pursuant to the Plan.
2
<PAGE> 6
Section 5. Administration of the Plan.
5.1 Committee. The Plan shall be administered by the Executive
Committee of the Board of Directors or, at the Board of Directors' discretion,
any committee of the Board of Directors established thereby to which it
delegates the administration of the Plan, with the advice and recommendations of
the Company's compensation committee, if any. At any time that there is no
Executive Committee in existence or the Board of Directors has not delegated the
administration of the Plan to any other committee established by the Board, the
Company's Board of Directors shall administer the Plan and for these purposes
all references herein to the Committee shall be deemed to be references to the
Board of Directors.
5.2 Options. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Participants who are to be granted
Options hereunder; (ii) to designate whether any Option to be granted hereunder
is to be an ISO, a Non-Qualified Option or an SAR; (iii) to establish the number
of shares of Common Stock that may be issued under each Option; (iv) to
determine the time and the conditions subject to which Options may be exercised
in whole or in part; (v) to determine the form of the consideration that may be
used to purchase shares of Common Stock upon exercise of any Option (including
the circumstances under which the Company's issued and outstanding shares of
Common Stock may be used by a Participant to exercise an Option); (vi) to impose
restrictions and/or conditions with respect to shares of Common Stock acquired
upon exercise of an Option; (vii) to determine the circumstances under which
shares of Common stock acquired upon exercise of any Option may be subject to
repurchase by the Company; (viii) to determine the circumstances and conditions
subject to which shares acquired upon exercise of an Option may be sold or
otherwise transferred, including, without limitation, the circumstances and
conditions subject to which a proposed sale of shares of Common Stock acquired
upon exercise of an Option may be subject to the Company's right of first
refusal (as well as the terms and conditions of any such right of first
refusal); (ix) to establish vesting provisions for any Option relating to the
time (or the circumstance) when the Option may be exercised by a Participant,
including vesting provisions that may be contingent upon the Company meeting
specified financial goals; (x) to accelerate the time when outstanding Options
may be exercised, provided, however, that any ISO shall be "accelerated" only as
permitted by section 424(h) of the Code; and (xi) to establish any other terms,
restrictions and/or conditions applicable to any Option not inconsistent with
the provisions of the Plan, and, with respect to ISOs, not inconsistent with the
provisions of Code section 422.
5.3 Plan Interpretation. The Committee shall be authorized to
interpret the Plan and any Option granted hereunder and may, from time to time,
adopt such rules and regulations, not inconsistent with the provisions of the
Plan, as it may deem advisable to carry out the purpose of the Plan.
5.4 Committee Interpretations Conclusive. The interpretation
and construction by the Committee of any provision of the Plan, any Option
granted hereunder
3
<PAGE> 7
or any agreement evidencing any such Option shall be final and conclusive upon
all parties, except as may otherwise be determined by the Board of Directors.
5.5 Committee Voting. Subject to section 5.7 hereof, directors
of the Company (or members of the Committee) who are either eligible for Options
hereunder, or to whom Options have been granted hereunder, may vote on any
matter affecting the administration of the Plan or the granting of Options under
the Plan; provided, however, that no director (or member of the Committee) shall
vote upon the granting of an Option to himself, but any such director (or
Committee member) may be counted in determining the existence of a quorum at any
meeting of the Board of Directors (or the Committee) at which the Plan is
administered or action is taken with respect to the granting of any Option.
5.6 Committee Exculpation. All expenses and liabilities
incurred by the Committee in the administration of the Plan shall be borne by
the Company. The Committee may employ attorneys, consultants, accountants or
other persons in connection with the administration of the Plan. The Company,
and its officers and directors, shall be entitled to rely upon the advice,
opinions or valuations of any such persons. No member of the Committee or Board
of Directors shall be liable for any action, determination or interpretation
taken or made in good faith with respect to the Plan or any Option granted
hereunder.
5.7 Granting of Options to Directors and Officers.
Administrative discretion regarding the selection of any director or officer of
the Company to whom Options may be granted pursuant to this Plan, or the
determination of the number of shares of Common Stock that may be allocated
under such Options and the terms thereof, shall be exercised by: (a) approval in
advance by the full Board of Directors; (b) approval in advance by a committee
that is composed solely of two or more Non-Employee Directors, as such firm is
defined under Rule 16b-3 ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934; (c) approval in advance by a majority of the shareholders
in accordance with Rule 16b-3; (d) ratification by a majority of the
shareholders no later than the next annual meeting of the shareholders; or (e)
the officer or director retains the issuer equity securities for a period of six
(6) months following their acquisition in accordance with Rule 16b-3.
Section 6. Terms and Conditions of Options.
6.1 ISOs. The terms and conditions of each ISO granted under
the Plan shall be specified by the Committee, shall be set forth in a written
ISO agreement between the Company and the Participant in such form as the
Committee shall approve, and shall be clearly identified therein as an ISO. The
terms and conditions of each ISO shall be such that each ISO issued hereunder
shall constitute and shall be treated as an "incentive stock option" as defined
in section 422 of the Code. The terms and conditions of any ISO granted
hereunder need not be identical to those of any other ISO granted hereunder.
Notwithstanding the above, the terms and conditions of each ISO shall include
the following:
4
<PAGE> 8
6.1.1 The option price shall not be less than one hundred
percent (100%) (or one hundred ten percent (110%)) in the case of an
Employee referred to in section 4.3 hereof) of the fair market value,
as determined in accordance with Code section 422(c)(7) and as
determined in good faith by the Board of Directors, of the
shares of Common Stock subject to the ISO on the date the ISO is
granted, but in no event shall the option price be less than the par
value of such shares, which price shall be payable in U.S. dollars upon
the exercise of such ISO and paid, except as otherwise provided in
section 6.5, in cash or by check immediately upon exercise.
6.1.2 The Committee shall fix the term of all ISOs granted
pursuant to the Plan, including the date on which such ISO shall expire
and terminate, provided, however, that such term shall in no event
exceed ten (10) years from the date on which such ISO is granted (or,
in the case of an ISO granted to an Employee referred to in section
6.1.3 hereof, such term shall in no event exceed five (5) years from
the date on which such ISO is granted). Each ISO shall be exercisable
in such amount or amounts, under such conditions and at such times or
intervals or in such installments as shall be determined by the
Committee in its sole discretion.
6.1.3 An ISO shall not be granted to an Employee who, at the
time the ISO is granted, owns (actually or constructively under the
provisions of section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or Subsidiary of the Company (taking into account
the attribution rules of Code section 424), unless the option price is
at least one hundred ten percent (110%) of the fair market value
(determined as of the time the ISO is granted) of the shares of Common
Stock subject to the ISO and the ISO by its terms is not exercisable
more than five (5) years from the date it is granted. Notwithstanding
any other provision of the Plan, the provisions of this section 6.1.3
shall not apply, or be construed to apply, to any Non-Qualified Option
or SAR granted under the Plan.
6.1.4 In the event the Company or any Subsidiary of the
Company is required to withhold any Federal, state or local taxes in
respect of any compensation income realized by the Participant as a
result of any "disqualifying disposition" of any shares of Common Stock
acquired upon exercise of an ISO granted hereunder, the Company shall
deduct from any payments of any kind otherwise due to such Participant
the aggregate amount of such Federal, state or local taxes required to
be so withheld or, if such payments are insufficient to satisfy such
Federal, state or local taxes, or if no such payments are due or to
become due to such Participant, then such Participant shall be required
to pay to the Company, or make other arrangements satisfactory to the
Company regarding payment to the Company of, the aggregate amount of
any such taxes. All matters with respect to the total amount of taxes
to be withheld in respect of any such compensation income shall be
determined by the Committee in its sole discretion.
5
<PAGE> 9
6.1.5 If upon the exercise of one or more Options granted
pursuant to this or any other plan of the Company or any Subsidiary of
the Company that are designated as ISOs upon the grant thereof, a
portion of such exercised Options are not treated as ISOs pursuant to
Code section 422(d), which sets a limit upon the aggregate fair market
value (determined at the time the ISOs are granted) of stock subject to
ISOs that may become exercisable by the optionee thereof for the first
time during any calendar year, then the Company shall issue one or more
certificates evidencing the Common Stock acquired pursuant to the
exercise of ISOs and one or more certificates evidencing the Common
Stock acquired pursuant to the exercise of Options not treated as ISOs
in accordance with Code section 422 and shall so identify such
certificates in the Company's stock transfer records.
6.1.6 Following a transfer of stock to any person pursuant to
such person's exercise of an ISO, the Company or any Subsidiary of the
Company shall (on or before January 31 of the calendar year following
the year of such transfer) furnish to such person the written statement
prescribed by Code section 6039 and the Treasury Regulations
promulgated thereunder.
6.2 Non-Qualified Options. The terms and conditions of each
Non-Qualified Option granted under the Plan shall be specified by the Committee,
in its sole discretion, shall be set forth in a written option agreement between
the Company and the Participant in such form as the Committee shall approve, and
shall be clearly identified therein as a Non-Qualified Stock Option. The terms
and conditions of each Non-Qualified Option shall be such that each
Non-Qualified Option granted hereunder shall not constitute or be treated as an
"incentive stock option," as such phrase is defined in section 422 of the Code,
and will be a "non-qualified stock option" for Federal income tax purposes to
which Code section 421 does not apply. The terms and conditions of any
Non-Qualified Option granted hereunder need not be identical to those of any
other Non-Qualified Option granted hereunder. Notwithstanding the above, the
terms and conditions of each NonQualified Option shall include the following:
6.2.1 The option price shall be as determined by the
Committee, but in no event shall the option price be more than one
hundred percent (100%) of the fair market value, as determined in good
faith by the Committee, of the shares of Common Stock subject to the
Non-Qualified Option on the date such Non-Qualified Option is granted,
nor less than the par value of such shares. The Committee may, in its
sole discretion, include in a Non-Qualified Option issued to an
Employee a provision providing for a reduction of the option price at a
set future date or dates on the condition that certain Company
objectives, as determined by the Committee, shall have been achieved by
such date.
6.2.2 The Committee shall fix the term of all Non-Qualified
Options granted pursuant to the Plan (including the date on which such
Non-Qualified Option shall expire and terminate). Such term may be more
than ten (10) years from the date on which such Non-Qualified Option is
granted. Each Non-Qualified
6
<PAGE> 10
Option shall be exercisable in such amount or amounts, under such
conditions, and at such times or intervals or in such installments as
shall be determined by the Committee in its sole discretion.
6.2.3 In the event the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income
realized by the Participant in respect of a Non-Qualified Option
granted hereunder or in respect of any shares of Common Stock acquired
upon exercise of a Non-Qualified Option, the Company shall deduct from
any payments of any kind otherwise due to such Participant the
aggregate amount of such Federal, state or local taxes required to be
so withheld or, if such payments are insufficient to satisfy such
Federal, state or local taxes, or if no such payments are due or to
become due to such Participant, then such Participant shall be required
to pay to the Company, or make other arrangements satisfactory to the
Company regarding payment to the Company of, the aggregate amount of
any such taxes. All matters with respect to the total amount of taxes
to be withheld in respect of any such compensation income shall be
determined by the Committee in its sole discretion.
6.3 SARs. The terms and conditions of each SAR granted under
the Plan shall be specified by the Committee, in its sole discretion, shall be
set forth in a written agreement between the Company and the Participant in such
form as the Committee shall approve, and shall be clearly identified therein as
an SAR. The Committee shall have the power to grant, simultaneously with the
grant of a Non-Qualified Option or at any other time, stock appreciation rights
with respect to that portion of Common Stock as the Committee in its discretion
determines. Such rights may be granted separately and exclusively ("Exclusive
SARs") or under a Non-Qualified Option ("Attached SARs") either at the time of
grant of such Non-Qualified Option or upon any amendment thereof. The terms and
conditions of any SAR granted hereunder need not be identical to those of any
other SAR granted hereunder. Notwithstanding the above, the terms and conditions
of each SAR shall include the following:
6.3.1 Exclusive SARs shall include in their terms the fair
market value, for purposes of this section 6.3, of one (1) share of the
Company's Common Stock and shall provide that such SAR shall not be
exercisable prior to the date as determined by the Committee.
6.3.2 An Attached SAR may be exercised to the extent and only
to the extent the Non-Qualified Option to which it relates is
exercisable.
6.3.3 An SAR shall entitle the holder thereof to exercise such
SAR (or any portion thereof), and in the case of an Attached SAR, to
surrender simultaneously the Non-Qualified Option (or such portion
thereof) to the Company, and to receive from the Company in exchange
therefor cash, or its equivalent in shares of Common Stock or any
combination thereof as determined in the sole discretion of the
Committee, having an aggregate value equal to the excess of the value
of one
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<PAGE> 11
(1) share of Common Stock at the date of exercise over the value
thereof upon the date the SAR exercised was granted, as determined
pursuant to section 6.3.1 above, times the number of SARs exercised or
the number of Non-Qualified Options surrendered.
6.3.4 The Committee reserves the right to call for the
exercise of an SAR at any time without the approval of the holder of
such SAR.
6.3.5 If the Committee elects to pay part or all of the
benefit determined in accordance with section 6.3.3 above in shares of
Common Stock, the value of a share of Common Stock for such purpose
shall be the fair market value, as determined in accordance with
section 6.8 hereof, on the date of exercise. Provided, however, that
fractional shares shall not be delivered under this paragraph 6.3,
and in lieu thereof a cash adjustment shall be made.
6.3.6 It shall be a condition to the obligation of the
Company, upon settlement of an SAR, that the holder thereof pay to the
Company, upon its demand, such amount as may be requested by the
Company for the purpose of satisfying its liability to withhold
Federal, state or local income or other taxes incurred by reason of the
exercise of the SAR. If the amount requested is not paid, the Company
may refuse to conclude settlement of the SAR.
6.4 Terms and Conditions Common to All Options. All Options
granted under the Plan shall include the following provisions:
6.4.1 All Options, by their terms, shall not be transferable
otherwise than by last will and testament or the laws of descent and
distribution, and, during an Employee's lifetime, shall be exercisable
only by the Employee.
6.4.2 Except as otherwise provided in section 6.4.3 (relating
to permanent and total disability), 6.4.4 (relating to death), and
6.4.5 (relating to "cause"), in the event a Participant shall cease to
be employed by the Company or a Subsidiary of the Company on a
full-time basis for any reason, the unexercised portion of any Option
held by such Participant at that time may only be exercised within
three (3) months after the date on which the Participant ceased to be
so employed, and only to the extent that the Participant could have
otherwise exercised such Option as of the date on which he ceased to be
so employed; provided, however, if the Participant shall die within
said three (3) month period, then the period during which any Option
may be exercised shall be extended to the date that is one (1) year
after the Participant ceased to be employed by the Company; provided,
further, that in no event may such Option be exercised beyond the
expiration of the term of the Option.
6.4.3 In the event a Participant shall cease to be employed by
the Company or any Subsidiary of the Company on a full-time basis by
reason of his
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<PAGE> 12
"permanent and total disability" (within the meaning of section
22(e)(3) of the Code), the unexercised portion of any Option held by
such Participant at that time may only be exercised within one
(1) year after the date on which the Participant ceased to be so
employed, and only to the extent that the optionee could have otherwise
exercised such Option as of the date on which he ceased to be so
employed; provided that in no event may such Option be exercised beyond
the expiration of the term of the Option.
6.4.4 In the event a Participant shall die while in the
full-time employ of the Company or a Subsidiary of the Company, the
unexercised portion of any Option held by such Participant at the time
of his death may only be exercised within one (1) year after the date
of such Participant's death, and only to the extent that the
Participant could have otherwise exercised such Option at the time of
his death. In such event, such Option may be exercised by the executor
or administrator of the Participant's estate or by any person or
persons who shall have acquired the Option directly from the
Participant by last will and testament or the applicable laws of
descent and distribution.
6.4.5 In the event a Participant is terminated from employment
with the Company for "cause," such Participant's right to exercise any
Option granted hereunder, weather vested or non-vested, shall terminate
upon notice of discharge. For purposes of this paragraph, "cause" shall
mean final conviction of a felony, adjudication of bankruptcy,
nonacceptance of office or conduct prejudicial to the interests of the
Company.
6.4.6 Each Option shall state the number of shares to which it
pertains and the requirements and vesting schedule thereof, if any.
6.4.7 If an optionee shall cease to be employed by the Company
or any Subsidiary of the Company for any reason, the Company, at its
discretion, may elect to repurchase from the optionee or his legal
representative any and all Common Stock received by such optionee upon
exercise of any Options as of the date of termination for a price per
share equal to the exercise price of such Options. The Company's right
to repurchase the Common Stock shall continue for a period of six (6)
years from the date of grant of such Option. The payment for shares of
Common Stock repurchased by the Company pursuant hereto shall be made,
in cash or by check, at the address of the optionee as set forth in the
stock records of the Company, or at such other location as the parties
to the repurchase may mutually agree. Upon payment by the Company in
compliance with the provisions of this section 6.4.7, the optionee or
his legal representative shall deliver to the Company for cancellation
the certificate(s) evidencing the Common Stock repurchased by the
Company. The failure of the optionee or legal representative to so
deliver the certificate(s) shall not impinge the validity of the
Company's repurchase.
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<PAGE> 13
6.5 Payment of Exercise Price with Previously Issued Stock.
Except as otherwise provided in an Option agreement between the Company and a
Participant granting an ISO or a Non-Qualified Option to such Participant, the
Committee may permit the option price for any Option granted under the Plan to
be paid, in whole or in part, with previously issued Common Stock of the Company
(valued as of the date of exercise of such Option).
6.6 Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, and with
respect to ISOs as permitted by the Code, the Committee, in its discretion, may
modify, extend or renew outstanding Options granted under the Plan, or accept
the surrender of outstanding Options (to the extent not theretofore exercised)
and authorize the granting of new Options and substitutions therefor, provided,
however, that no modification, extension, renewal, revision or cancellation of
an Option shall, without the consent of the optionee thereof, cause an ISO to
become a Non-Qualified Option or, except as otherwise set forth herein, alter or
impair any rights or obligations under any Option theretofore granted under the
Plan.
6.7 Fixed Option Grant of Non-Qualified Stock Options to
Certain Directors. Each Director of the Company who is not an employee of the
Company ("Non-Employee Director") shall on December 31, 1997, for fiscal year
1997, without the need of further action on the part of the Company,
automatically be granted a Non-Qualified Option to acquire five thousand (5,000)
shares of Common Stock. Additionally, each year thereafter, at the first Board
meeting following the annual meeting of the Company's stockholders, each
Non-Employee Director on such date shall automatically be granted a
Non-Qualified Option to acquire 1,000 shares of Common Stock. All such
Non-Qualified Options shall have an exercise price equal to the fair market
value of the Common Stock at the close of business on the date of grant. If the
stock is listed upon an established stock exchange or exchanges, such fair
market value shall be deemed to be the last sales price of the Common Stock on
such stock exchange or exchanges on the day the Option is granted or if no sale
of the Company's Common Stock shall have been made on any stock exchange on that
day, on the next preceding day on which there was a sale of such stock. During
such time as the Common Stock is not listed upon an established stock exchange,
the fair market value per share shall be determined by the Committee. The
provisions of this section 6.7 may not be amended more than once every six (6)
months, other than to comply with changes in the Code, ERISA, or the rules
thereunder.
6.8 Transfer of Non-Qualified Options and SARs. Except as
provided in this section 6.8 or as specifically permitted in the Option
agreement, no Non-Qualified Option or SAR shall be transferable by the optionee
other than by last will and testament or the applicable laws of descent and
distribution, and during the lifetime of the optionee, Non-Qualified Options and
SARs granted hereunder may be exercised only by the optionee. Notwithstanding
anything in this section 6.8 to the contrary, any optionee of a Non-Qualified
Option or SAR may transfer same to members of his immediate family (or to one or
more trusts for the benefit of such family members or to partnerships or limited
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<PAGE> 14
liability companies in which such family members are the only partners or
members), if (i) the Option agreement with respect to which such Non-Qualified
Option or SAR expressly so provides and (ii) the optionee does not receive any
consideration for the transfer. Any Non-Qualified Option or SAR held by any such
transferees would continue to be subject to the same terms and conditions that
are applicable to such Options immediately prior to their transfer.
6.9 Rights as a Stockholder. Any optionee or transferee of an
Option granted hereunder shall have no rights as a stockholder of the Company
with respect to any shares of Common Stock to which such Option relates until
the date of the issuance of a stock certificate to him for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
otherwise required by section 7 hereof.
6.10 Other Provisions. The Option agreements authorized under
the Plan shall contain such other provisions, including, without limitation,
restrictions upon the exercise of Options, as the Committee shall deem
advisable. Any ISO agreement hereunder shall contain such limitations and
restrictions upon the exercise of ISOs as shall be necessary in order that such
ISOs will be "incentive stock options" as defined in section 422 of the Code, or
to conform to any change in the law, the provisions of which shall control any
inconsistent or contradictory provision of the Plan.
Section 7. Adjustments.
7.1 Reorganization, Merger, Recapitalization, Etc. Subject to
any required action by the stockholders, in the event that, after the adoption
of the Plan by the Board of Directors, the outstanding shares of the Company's
Common Stock shall be increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation through reorganization, merger or consolidation,
recapitalization, reclassification, stock split, split-up, combination or
exchange of shares or declaration of any dividends payable in Common Stock or in
any other manner effected without the receipt of consideration by the Company,
the Committee shall appropriately adjust (i) the number of shares of Common
Stock (and the option price per share) subject to the unexercised portion of any
outstanding Option (to the nearest possible full share), provided, however, that
the limitations of sections 422 and 424 of the Code shall apply with respect to
adjustments made to ISOs so as not to cause any ISO to cease to qualify as an
ISO under Code section 422, and (ii) the number of shares of Common Stock for
which Options may be granted under this Plan, as set forth in section 4.1
hereof, and such adjustments shall be effective and binding for all purposes of
this Plan.
7.2 Sale of Not Less Than 50% of Common Stock. Notwithstanding
section 7.1, upon the closing of any offer to holders of not less than fifty
percent (50%) of the Company's Common Stock relating to the acquisition of their
shares in a single
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<PAGE> 15
transaction or related series of transactions, including, without limitation,
through purchase, merger or otherwise, or any transaction relating to the
acquisition of substantially all of the assets or business of the Company, the
Committee may make such adjustment as it deems equitable in respect of
outstanding Options including, without limitation, the revision or cancellation
of any outstanding Options; provided, that, to the extent any such Options shall
be vested, such cancellation or revision shall be based upon the difference
between the acquisition value for the Company's Common Stock and the exercise
price of such Options. Any such equitable determination by the Committee shall
be effective and binding for all purposes of this Plan and any Stock Option
Agreement thereunder.
7.3 Acceleration of Vesting. A dissolution or liquidation of
the Company or a merger, consolidation or acquisition in which the Company is
not the surviving corporation shall cause the vesting date of each outstanding
Option to accelerate and be exercisable within sixty (60) days prior to such
occurrence in whole or in part.
7.4 Limited Rights Upon Company's Restructure. Except as
hereinbefore expressly provided in this section 7, an optionee shall have no
rights by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
7.5 Effect of Options on Company's Capital and Business
Structure. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassification,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
Section 8. Effect of the Plan on Employment Relationship. Neither the
Plan nor any Option granted hereunder to a Participant shall be construed as
conferring upon such Participant any right to continue in the employ of the
Company or the service of the Company or any Subsidiary, as the case may be, or
limit in any respect the right of the Company or any Subsidiary to terminate
such Participant's employment or other relationship with the Company or any
Subsidiary, as the case may be, at any time.
Section 9. Amendment of the Plan. The Board of Directors may, as
permitted by law, amend the Plan from time to time as it deems desirable;
provided, however, that, without the approval of the holders of a majority of
the outstanding Common Stock of the Company entitled to vote thereon at a
shareholders' meeting, the Board of Directors may not amend the Plan to (i)
increase (except for increases due to adjustments in accordance with section 7
hereof) the aggregate number of shares of Common Stock for which Options may be
granted hereunder, (ii) increase the benefits accruing to a Participant under
this
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<PAGE> 16
Plan, including any decrease in the minimum exercise price specified by the
Plan in respect of ISOs, (iii) change the class of Employees eligible to receive
Options under the Plan, or (iv) make any other revision to the Plan as it
relates to ISOs that requires shareholder approval under the Code.
Notwithstanding any other provision of the Plan, shareholder approval of
amendments to the Plan need not be obtained if such approval is not required
under Rule 16b-3 (to the extent applicable to the Company) as of the effective
date of such amendments, and with respect to ISOs, if such approval is not
required under Code section 422.
Section 10. Compliance with Rule 16b-3 and Code Section 422. The
Company shall use its best efforts to maintain the Plan, and to assure the
Options are granted and exercised under the Plan, in accordance with Rule 16b-3
(to the extent Rule 16b-3 could be applicable to any transaction in securities
arising in connection with the Plan), and with respect to ISOs, Code section
422, as said Rule 16b-3 and Code section 422 may be amended from time to time,
and any and all successor statutes and regulations thereof, including without
limitation, the seeking of any appropriate amendments to the Plan and all
requisite approvals and consents of such amendments, provided, however, that
except as otherwise set forth in the Plan, the Company shall take no action that
adversely affects Options then outstanding under the Plan without the prior
written consent of the holders of such Options.
Section 11. Investment Purpose. Each Option under the Plan shall be
granted on the condition that the purchases of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution, except that
in the event the stock subject to such Option is registered under the Securities
Act of 1933, as amended, or in the event a resale of such stock without such
registration would otherwise be permissible. Such condition shall be inoperative
if, in the opinion of counsel for the Company, such condition is not required
under the Securities Act of 1933 or any other applicable law, regulation, or
rule of any governmental agency.
Section 12. Indemnification of Committee. In addition to such other
rights of indemnification as they may have as directors or as members of the
Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence or misconduct in
the performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding, a Committee member shall in
writing offer the Company the opportunity, at its own expense, to handle and
defend the same.
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<PAGE> 17
Section 13. Termination of the Plan. The Board of Directors may
terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board, the Plan shall terminate ten (10) years after the date
of its initial adoption by the Board of Directors. No Option may be granted
hereunder after termination of the Plan. The termination or amendment of the
Plan shall not alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
Section 14. Application of Funds. The proceeds received by the Company
from the sale of Common Stock pursuant to Options granted hereunder shall be
used for general corporate purposes.
Section 15. No Obligation to Exercise Option. The granting of an
Option hereunder shall impose no obligation upon the optionee thereof to
exercise such Option.
Section 16. Effective Date of the Plan. This Plan shall be effective
as of January 1, 1998.
This Plan was adopted and approved by the Board of Directors on the
____ day of ______________, 1997 and the Company's shareholders, on the ____ day
of ______________, 1997.
--------------------------------------
Secretary
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<PAGE> 1
Exhibit 10.4
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made as of the 21st day of April,
1995, by and between NATIONAL L.P., a Delaware limited partnership also known
as NATIONAL HEALTHCORP L.P., NATIONAL HEALTHCARE L.P., LTD. and NHC
("Borrower"), and FIRST AMERICAN NATIONAL BANK, a national banking association
("Lender").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender make term loans to Borrower
in the aggregate principal amount of $22,850,000 (individually and collectively,
the "Loan") on the terms and conditions hereinafter set forth; and
WHEREAS, in connection with the foregoing, Borrower and Lender desire
to execute this Agreement in order to confirm and clarify certain agreements and
understandings between them with respect to the Loan, all as more particularly
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the foregoing, the mutual
covenants herein contained and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Borrower and
Lender hereby agree as follows:
1. The Loan.
(a) Notes. The Loan shall be evidenced by (i) a Note Secured By Real
Estate of even date herewith, in the original principal amount of $6,035,000,
(ii) a Note Secured By Real Estate of even date herewith, in the original
principal amount of $11,115,000, and (iii) a Note Secured By Real Estate of even
date herewith, in the original principal amount of $5,700,000, all made and
executed by Borrower payable to the order of Lender, in form and substance
satisfactory to Lender (all of the above-notes, together with any and all
renewals, modifications, extensions, replacements and/or consolidations thereof,
are sometimes individually and collectively referred to herein, as the "Notes").
(b) PurPose. The purpose of the Loan shall be to provide term financing
associated with Borrower's (i) nursing home and adult congregate living facility
known as Renaissance Health Care Center in Naples, Florida, (ii) nursing home
known as National Healthcare of Port Charlotte in Port Charlotte, Florida, and
(iii) nursing home known as National Healthcare of Lexington in West Columbia,
South Carolina (each a "Project"). The proceeds of the Loan shall not be used
for any other purpose.
(c) Security. The Loan shall be secured by, among other things, (1) a
Mortgage and Security Agreement of even date
<PAGE> 2
herewith, by and between Borrower and Lender, recorded or to be recorded in the
Official Records of Charlotte County, Florida (as the same may hereafter be
amended, renewed or replaced, the "Port Charlotte Mortgage"), (2) a Mortgage and
Security Agreement of even date herewith, by and between Borrower and Lender,
recorded or to be recorded in the Official Records of Collier County, Florida
(as the same may hereafter be amended, renewed or replaced, the "Renaissance
Mortgage"), (3) a Mortgage, Security Agreement and Fixture Filing of even date
herewith, by and between Borrower and Lender, recorded or to be recorded with
the Register of Mesne Conveyances/Office for Lexington County, South Carolina
(as the same may hereafter be amended, renewed or replaced, the "Columbia
Mortgage"), (4) an Assignment of Leases and Rents of even date herewith,
executed by Borrower in favor of Lender, recorded or to be recorded in the
Official Records of Charlotte County, Florida, (as the same may hereafter be
amended, renewed or replaced, the "Port Charlotte Assignment of Leases"), (5) an
Assignment of Leases and Rents of even date herewith, executed by Borrower in
favor of Lender, recorded or to be recorded in the Official Records of Collier
County, Florida (as the same may hereafter be amended, renewed or replaced, the
"Renaissance Assignment of Leases"), (6) an Assignment of Leases and Rents of
even date herewith, executed by Borrower in favor of Lender, recorded or to be
recorded with the Register of Mesne Conveyances/Office for Lexington County,
South Carolina (as the same may hereafter be amended, renewed or replaced, the
"Columbia Assignment of Leases"), and (7) a Security Agreement of even date
herewith, by and between Borrower and Lender (as the same may hereafter be
amended, renewed or replaced, the "Security Agreement"). This Agreement, the
Notes, the Port Charlotte Mortgage, the Renaissance Mortgage, the Columbia
Mortgage, the Port Charlotte Assignment of Leases, the Renaissance Assignment of
Leases, the Columbia Assignment of Leases, the Security Agreement and any and
all other documents, instruments and/or agreements now or hereafter evidencing,
securing or otherwise relating to the Loan are hereinafter collectively referred
to as the "Loan Documents".
(d) Commitment Fee. Contemporaneously with Borrower's
execution of this Agreement, Borrower shall pay to Lender a commitment fee in
the amount of $34,275.
2. Representations and Warranties. Borrower hereby represents and
warrants to Lender as follows:
(a) Status. Borrower is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to do business and in good standing in the State of
Tennessee, the State of Florida, the State of South Carolina, and each other
state in which a failure to be so qualified would have a material adverse effect
on Borrower's business. Borrower has the power to own and
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<PAGE> 3
operate its properties, to carry on its business as now conducted and to enter
into and perform its obligations under this Agreement and the other Loan
Documents to which it is a party.
(b) Authorization. Borrower has full legal right, power and
authority to conduct its business and affairs in the manner contemplated by the
Loan Documents and to enter into and perform its obligations thereunder without
the consent of any other person, firm, governmental agency or legal entity.
(c) Other Agreements. The transactions hereby contemplated
will not result in a breach of or constitute a default under any other agreement
to which Borrower is party.
(d) Litigation. There is no litigation or proceeding pending
against Borrower, nor to the knowledge of the Borrower threatened, which, if
decided adversely to Borrower would have a material adverse effect upon its
financial condition or business.
(e) Compliance with Law. Borrower has obtained all necessary
licenses, permits, governmental approvals and authorizations necessary or proper
in order conduct its business and affairs as heretofore conducted and as
hereafter intended to be conducted and is in compliance with all laws,
regulations, decrees and orders applicable to it.
(f) Taxes. Borrower has filed all required federal, state and
local tax returns, and has paid all taxes as shown on such returns as they have
become due and have paid all other taxes, fees or other charges imposed on it
prior to delinquency.
(g) Environmental Matters.
(i) As used in this Section 2(g) and in Section 3(1)
hereof, the following terms shall have the indicated meanings:
"Business" means all of Borrower's assets, both real and
personal, tangible and intangible, now existing or hereafter
acquired and wherever located, and all of Borrower's current
and future business operations at all locations and in all
jurisdictions.
"Environmental Authorities" means all federal, state and local
governmental bodies, authorities or agencies and all public
corporations created and/or empowered to administer, regulate
and/or enforce Environmental Laws, including without
limitation the U.S. Environmental Protection Agency.
"Environmental Laws" means any and all federal, state,
regional, county or local laws, statutes, rules,
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<PAGE> 4
regulations or ordinances relating to the generation,
recycling, use, reuse, sale, storage, handling, transport,
treatment or disposal of Hazardous Materials, including
without limitation the Comprehensive Environmental Response
Compensation Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. ss.9601 et seq. ("CERCLA"), the Resource Conservation
and Recovery Act of 1976, as amended by the Solid and
Hazardous Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq.
("RCRA"), and any rules, regulations and guidance documents
promulgated or published thereunder, and any state, regional,
county or local statute, law, rule, regulation or ordinance
relating to public health, safety or the discharge, emission
or disposal of Hazardous Materials or Hazardous Wastes in or
to air, water, land or groundwater, to the withdrawal or use
of groundwater, to the use, handling or disposal of asbestos,
polychlorinated biphenyls, petroleum, petroleum derivatives or
by-products, other hydrocarbons or urea formaldehyde, to the
treatment, storage, disposal or management OF Hazardous
Materials, to exposure to Hazardous Materials, to the
transportation, storage, disposal, management or release of
gaseous or liquid substances, and any regulation, order,
injunction, judgment, declaration, notice or demand issued
thereunder.
"Hazardous Materials" means any hazardous, TOXIC OR dangerous
materials, substances, chemicals, waste or pollutants that
from time to time are defined by or pursuant to or are
regulated under any Environmental Laws, including without
limitation asbestos, polychlorinated biphenyls, petroleum,
petroleum derivatives or by-products, other hydrocarbons, urea
formaldehyde and any material, substance, pollutant or waste
that is defined as a hazardous waste under RCRA or defined as
a hazardous substance under CERCLA.
"Hazardous Wastes" means Hazardous Materials that are or
become "wastes" or "Solid wastes" as such terms are used in
RCRA.
"Property" means all real property now or hereafter
constituting a part of, or otherwise used or operated by
Borrower in connection with, the Business, including without
limitation the nursing homes described in Section l(b) above.
(ii) Borrower represents and warrants to Lender as
follows:
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<PAGE> 5
(a) To Borrower's knowledge, information and
belief, the Property is being operated by Borrower in
full compliance with Environmental Laws, and Borrower
has obtained, maintained and is in good standing
under all approvals, consents, certificates, licenses
and permits required by Environmental Laws with
respect to the Property.
(b) To Borrower's knowledge, information and
belief, the Property is free of all Hazardous Wastes,
and is free of all Hazardous Materials other than
those maintained therein or thereon in full
compliance with Environmental Laws. Borrower has not
caused or permitted the Property to be used to
generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer, produce or process
Hazardous Materials except in full compliance with
Environmental Laws.
(c) Borrower has not received notice, and
has no knowledge, of any noncompliance with or
violation of any Environmental Laws with respect to
the Property or the Business.
3. Covenants and Agreements. Borrower covenants and agrees during the
term of this Agreement as follows:
(a) Payment of Obligations. Borrower shall pay the
indebtednesses evidenced by the Notes according to the tenor thereof,
and shall timely pay or perform, as the case may be, all of its other
obligations to Lender.
(b) Further Assurances. Borrower will take all actions
requested by Lender to create and maintain in Lender's favor valid liens and/or
perfected security interests in any collateral for the Loan.
(c) Financial Statements. Borrower covenants to provide the
following financial information to Lender when indicated:
(i) within forty-five (45) days after the close of
each of Borrower's fiscal quarters, unaudited financial
statements of Borrower with respect to such quarter, in
reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP").
Such financial statements shall be accompanied by a statement
from an officer of Borrower that all of the covenants
contained herein have been met and complied with during the
preceding quarter;
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<PAGE> 6
(ii) within ninety (90) days after the close of each
calendar year, financial statements of Borrower with respect
to such year, in reasonable detail, prepared in accordance
with GAAP, audited in accordance with generally accepted
auditing standards by an independent certified public
accounting firm acceptable to Lender, which statements shall
be accompanied by the unqualified opinion of such accountants.
The audited financial statements shall be accompanied by a
statement from an officer of Borrower that all of the
covenants contained herein have been met and complied with
during the preceding fiscal year.
(iii) within ninety (90) days after the close of each
calendar year, a certified copy of Borrower's Form 10-K with
respect to such year.
(iv) within forty-five (45) days after the close of
each of Borrower's fiscal quarters, a certified copy of
Borrower's Form 10-Q with respect to such quarter.
(v) within forty-five days after the close of each
of Borrower's fiscal quarters, separate, unaudited financial
statements for each Project, in reasonable detail, prepared in
accordance with GAAP.
(vi) within ninety (90) days after the close of each
calendar year, separate, unaudited financial statements for
each Project with respect to such year, in reasonable detail,
prepared in accordance with GAAP.
(vii) with reasonable promptness, such additional
inancial information as Lender may reasonably require.
(d) Insurance. Borrower shall maintain insurance coverage in
amounts and of types consistent with the coverages ordinarily, customarily and
prudently maintained by companies of similar size and scope, operating nursing
homes of similar value, size and location as that of Borrower. All such policies
of insurance shall provide that such insurance shall be payable to Borrower and
Lender as their respective interests may appear, and that at least thirty (30)
days' prior written notice of cancellation or modification of the policy shall
be given to Lender by the insurer.
(e) Taxes. Borrower shall file all required federal, state and
local tax returns and pay all taxes as shown on such returns as they become due,
and shall pay all other taxes, fees or other charges imposed on it prior to
delinquency.
(f) Existence. Borrower shall maintain its limited partnership
existence in good standing in the state of its
6
<PAGE> 7
organization and its qualification in good standing as a foreign entity in any
jurisdiction in which such qualification is necessary pursuant to applicable
law; provided, however, that Borrower may change its organizational structure to
a corporation upon Lender's prior written consent, which consent shall be
granted upon delivery to Lender of opinions of counsel and other evidence
reasonably requested and satisfactory in form and substance to Lender that the
Loan and the perfection and priority of Lender's liens and security interests in
and to the collateral security for the Loan shall not be affected by such
change.
(g) Compliance with Law and Other Agreements. Borrower shall
maintain its business operations and property owned or used in connection
therewith in compliance with (a) all applicable federal, state and local laws,
regulations and ordinances governing such business operations in the use and
ownership of such property, and (b) all agreements, licenses, franchises,
indentures and mortgages to which Borrower is a party or by which Borrower or
any of its properties is bound.
(h) Notice of Default. Borrower shall give written notice to
Lender of the occurrence of any default under this Agreement or any other Loan
Documents promptly upon the occurrence thereof.
(i) Notice of Litigation. Borrower shall give notice in
writing to Lender of any action, suit or proceeding wherein the amount in issue
is in excess of $1,000,000 instituted by any persons whomsoever against any
Borrower or any dispute between Borrower on the one hand and any governmental
regulatory body on the other hand in which dispute might interfere with the
normal operations of Borrower.
(j) ERISA Plan. If Borrower has in effect, or hereafter
institutes (with Lender's consent, as hereinafter provided), a pension plan that
is subject to the requirements of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29
U.S.C.A. Sections 1001 et seq. (1975), as amended from time to time ("ERISA"),
then the following warranty and covenants shall be applicable during such period
as any such plan (the "Plan") shall be in effect: (i) Borrower hereby warrants
that no fact that might constitute grounds for the involuntary termination of
the Plan, or for the appointment by the appropriate United States District Court
of a trustee to administer the Plan, exists at the time of execution of this
Agreement, (ii) Borrower hereby covenants that throughout the existence of the
Plan, Borrower's contributions under the Plan will meet the minimum funding
standards required by ERISA and Borrower will not institute a distress
termination of the Plan, (iii) Borrower hereby covenants that the Plan's annual
financial and actuarial statements and the Plan's annual Form 5500 information
return will be timely filed with the
7
<PAGE> 8
Internal Revenue Service and a copy delivered to Lender within thirty (30) days
of the preparation thereof, and (iv) Borrower covenants that it will send to
Lender a copy of any notice of a reportable event (as defined in ERISA) required
by ERISA to be filed with the Labor Department or the Pension Benefit Guaranty
Corporation, at the time that such notice is so filed.
(k) Mergers, Consolidations, Acquisitions and Sales. Without
the express prior written consent of Lender, Borrower shall not (a) be a party
to any merger, consolidation or reorganization, nor (b) purchase or otherwise
acquire all or substantially all of the assets or stock of any partnership or
joint venture interest in any other person, firm or entity, nor (c) sell,
transfer, convey or grant a security interest in or lease all or any substantial
part of its assets, nor (d) create any subsidiaries nor convey any of its assets
to any subsidiary.
(l) Environmental Matters.
(i) Borrower will cause the Property to remain free
of all Hazardous Wastes, and to remain free of all Hazardous
Materials other than those maintained therein or thereon in
full compliance with Environmental Laws. Borrower will not
cause or permit the Property to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce or process Hazardous Materials except in
full compliance with Environmental Laws.
(ii) Borrower will notify Lender immediately if it
receives any notice or obtains knowledge of any noncompliance
with or violation of any Environmental Laws with respect to
the Property or the Business.
(iii) In the event that Hazardous Materials unrelated
to the Business, or Hazardous Wastes, are discovered on or are
brought onto the Property, Borrower will cause such Hazardous
Materials or Hazardous Wastes to be removed and disposed of
promptly and in full compliance with Environmental Laws.
Borrower will provide Lender prior written notice of such
removal and disposal actions.
(iv) Borrower will comply with all Environmental
Laws in all jurisdictions in which Borrower operates, now or
in the future, and will comply with all Environmental Laws
that in the future become applicable to the Property or the
Business.
(m) Financial Covenants. Borrower shall comply with the
following financial covenants, with determination of compliance being made
quarterly:
8
<PAGE> 9
(i) Borrower shall at all times maintain a Current
Ratio of at least 1.5 to 1. As used herein, "Current Ratio"
shall mean the ratio of current assets to current liabilities.
(ii) Borrower shall at all times maintain a minimum
Working Capital level of $10,000,000.00. As used herein,
"Working Capital" shall mean current assets less current
liabilities.
(iii) Borrower shall at all times maintain a ratio of
Funded Debt to Adjusted Tangible Net Worth of no more than 3.5
to 1. As used herein, "Funded Debt" shall mean long term debt
(excluding Subordinated Debt), plus notes payable, plus
current maturities of long term debt, plus capitalized and
operating leases, plus guaranteed debt. As used herein,
"Adjusted Tangible Net Worth" shall mean the total equity of
Borrower, plus approximately $15,000,000.00 in deferred income
resulting from the profit on the sale of nursing home
properties to National Health Corporation as equity (which
amount shall decrease in accordance with Borrower's books and
records that comply with GAAP), plus Subordinated Debt, minus
the general intangibles of Borrower, including, without
limitation, goodwill and unamortized loan costs in excess of
$1,400,000.00. As used herein, "Subordinated Debt" shall mean
any indebtedness of Borrower to any other person or entity
that is expressly subordinated to the payment of, and security
for, any and all indebtednesses and obligations of Borrower to
Lender, whether now or hereafter existing, pursuant to
subordination agreement(s) that is satisfactory to Lender in
all respects.
(iv) Borrower shall at all times maintain a Debt
Service Coverage Ratio of not less than 1.3 to 1. As used
herein, "Debt Service Coverage Ratio" shall mean the ratio of
(x) the annualized sum of net income, plus
depreciation/amortization, plus interest expense, minus
distributions paid to holders of units of Borrower, for the
applicable fiscal year as projected by Borrower in written
financial projections furnished to Lender or as actually
paid, whichever is greater, to (y) interest expense, plus
current maturities of long term debt, plus any payments
required to fund any guaranty obligations of Borrower.
(v) Borrower shall at all times maintain a "Fixed
Charge Coverage Ratio" of not less than 1.10 to 1. As used
herein, "Fixed Charge Coverage Ratio" shall mean the ratio of
(x) the annualized sum of net income, plus
9
<PAGE> 10
depreciation and amortization, plus interest expense, plus
lease expense (excluding any components included in interest
expense and amortization), minus distributions paid to holders
of units of the Borrower for the fiscal year, as projected by
the Borrower in written financial projections furnished to the
Lender or as actually paid, whichever is greater, to (y) the
sum of interest expense, plus current maturities of long-term
debt, plus lease expense (excluding any components included in
interest expense and current maturities of long-term debt),
plus any payments required to fund any guaranty obligations of
the Borrower.
(vi) Borrower shall at all times maintain the
following minimum Tangible Net Worth requirements for the
following periods:
(A) From the date hereof through June 29,
1995, $69,400,000.
(B) On June 30, 1995 and on each subsequent
calendar quarter ending, the minimum Tangible Net
Worth requirements will increase by $1,400,000 per
quarter on a cumulative basis.
As used herein, "Tangible Net Worth" shall mean the
total equity of Borrower, plus Subordinated Debt, minus the
general intangibles of Borrower, including, without
limitation, goodwill and unamortized loan costs in excess of
$1,400,000.
(vii) Borrower shall at all times limit the balance
of notes receivable as set forth on its financial statements
to no more than Borrower's Adjusted Tangible Net Worth;
provided, however, that the notes receivable listed on Exhibit
I attached hereto shall be excluded from the balance of notes
receivable as set forth on Borrower's financial statements in
determining compliance with this subparagraph 3(n)(vii). The
listing of notes receivable on Exhibit I attached hereto may
be modified, amended, increased and/or reduced from time to
time by the Lender; provided, however, that any nursing home
project approved by Lender which results in a note receivable
to Borrower automatically shall be excluded from the balance
of notes receivables and shall be listed on Exhibit I.
(viii) All of the foregoing calculations, and all
account or financial terms, shall be made or construed in
accordance with GAAP.
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<PAGE> 11
4. Default and Remedies.
(a) Events of Default. The occurrence of any of the following
shall constitute an Event of Default hereunder:
(i) The occurrence of any default in the payment of
principal of or interest on the indebtednesses evidenced by
the Notes that is not fully cured within five (5) days after
notice thereof to Borrower; provided, however, that no such
notice shall be given to Borrower with respect to a payment
default under any Note in the event that Lender has given at
least two (2) such notices to Borrower under such Note in the
then-previous twelve (12) month period, in which event the
failure to make any such payment within five (5) days of when
due shall constitute an Event of Default hereunder;
(ii) Any misrepresentation by Borrower as to any
matter hereunder or under any of the other Loan Documents or
delivery of any statement, notice or writing to Lender that is
untrue in any respect;
(iii) Failure of Borrower to pay or perform any of
its obligations under this Agreement, the Notes or any other
Loan Documents or any default or event of default shall occur
under any of the other Loan Documents;
(iv) Borrower shall (i) generally not pay or shall
be unable to pay its debts as such debts become due; or (ii)
shall make an assignment for the benefit of creditors or
petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part
of its assets; or (iii) shall commence any proceedings under
any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv)
shall have had any such petition or application filed or any
such proceeding commenced against it in which an order for
relief is entered or an adjudication or appointment is made;
or (v) shall indicate by any act or omission, its consent to,
approval of or acquiescence in any such petition,
application, proceeding or order for relief or the
appointment of a custodian, receiver or trustee for it or a
substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue
undischarged for a period of thirty (30) days or more;
11
<PAGE> 12
(v) Borrower shall (x) fail to pay any indebtedness
for borrowed money (other than the Notes of the Borrower when
due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or (y) fail to perform or
observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument
relating to any such indebtedness, when required to be
performed or observed, if the effect of such failure to
perform or observe is to accelerate the maturity of such
indebtedness;
(vi) Borrower shall be liquidated, dissolved,
partitioned or terminated or the charter or certificate of
authority shall expire or be revoked; or
(vii) Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender
in connection with any other indebtedness of Borrower to
Lender;
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (five (5) days, if such Curable Default may be cured by
payment of a sum of money) of notice thereof to Borrower given in accordance
with the provisions hereof; provided that if such Curable Default is of a nature
that it cannot be cured within 30 days and Borrower shall promptly,
continuously, and in good faith attempt to cure such Curable Default, then
Borrower shall have such additional time to cure such Curable Default as
Borrower may reasonably require (provided however, that such additional period
shall in no event exceed 75 days).
(b) Remedies. Upon the occurrence of an Event of Default
described in Subsection 4(iv) hereof, the indebtednesses evidenced by the Notes
as well as any other indebtedness of Borrower to Lender shall be immediately due
and payable in full; and upon the occurrence of any other Event of Default
described above, Lender at any time thereafter may, at its option, accelerate
the maturity of the indebtedness evidenced by the Notes as well as any and all
indebtednesses of Borrower to Lender, all without notice of any kind. Upon the
occurrence of such Event of Default and the acceleration of the maturity of the
indebtednesses evidenced by the Notes, Lender shall have all rights and remedies
that Lender may now or hereafter possess at law, in equity or by statute.
12
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5. Miscellaneous.
(a) Performance by Lender. If Borrower shall default in the
payment, performance or observance of any covenant, term or condition of this
Agreement, Lender may, at its option, pay, perform or observe the same and all
payments made or costs or expenses incurred by Lender in connection therewith,
with interest thereon at the default rate provided in the Notes, shall be
immediately repaid to Lender by Borrower.
(b) Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of Borrower or by or on behalf of
Lender shall bind and inure to the benefit of their respective heirs, legal
representatives, successors-in-title and assigns. Lender may grant
participations in all or any portion of its interest in the indebtednesses
evidenced by the Notes, provided that Lender shall promptly give notice thereof
to Borrower of any such participations.
(c) Costs and Expenses. Borrower shall pay any and all
reasonable costs and expenses (including reasonable attorney's fees) incurred by
Lender in connection with the making, administration, servicing, collection and
enforcement of the Loan, promptly upon demand of Lender.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable, the remainder of this Agreement shall not be affected
and shall be enforced to the greatest extent permitted by law.
(e) Notices. Any notices permitted or required to be made
hereunder shall be made in writing, signed by the party giving such notice and
shall be delivered personally, telecopied or sent by certified mail or
nationally recognized courier service (such as Federal Express) to the party at
the address set forth below or at such other address as may be supplied in
writing and of which receipt has been acknowledged in writing. The date (i) of
personal delivery, with respect to all items delivered personally, (ii) of
receipt, with respect to all items sent by certified mail, or (iii) that is one
(1) business day after the date of delivery to such courier service, or after
transmission by telecopy, with respect to all items delivered by courier service
or telecopy, as applicable, shall be the date of such notice. For purposes of
this Agreement:
13
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The address of Lender is:
First American National Bank
First American Center
Nashville, Tennessee 37237
Attention: Sandy Hamrick
Telecopy Number: 615-748-2812
The address of Borrower is:
National HealthCare L.P.
180 Vine Street
Murfreesboro, Tennessee 37130
Attention: Richard F. LaRoche, Jr.
Telecopy Number: 615-890-0123
(f) Time of the Essence. Time is of the essence with respect
to each and every covenant, agreement and obligation of Borrower hereunder and
under all of the other Loan Documents.
(g) Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
(h) No Previous Course of Dealing. No action(s) or inaction(s)
taken by Borrower and/or Lender prior to the date hereof shall be construed to
(a) establish a course of dealing between Borrower and Lender, (b) constitute a
waiver of any term or provision contained herein, or (c) modify in any way the
terms and provisions contained herein.
(i) Amendments Etc. No amendment, modification, termination,
or waiver of any provision of any Loan Document to which the Borrower is a
party, nor consent to any departure by the Borrower from any Loan Document to
which it is a party, shall in any event be effective unless the same shall be in
writing and signed by Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(j) No Waiver. No failure or delay on the part of Lender in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder. The rights and remedies provided herein
are cumulative, and are not exclusive of any other rights, powers, privileges,
or remedies, now or hereafter existing, at law or in equity or otherwise.
14
<PAGE> 15
(k) Integration. This Agreement and the Loan Documents contain
the entire agreement between the parties relating to the subject matter hereof
and supersede all oral statements and prior writings with respect thereto. The
execution of this Agreement and the other Loan Documents by the Borrower was not
based upon any facts or materials provided by Lender, nor was the Borrower
induced or influenced to execute this Agreement or any other Loan Document by
any representation, statement, analysis or promise made by Lender.
(1) Indemnity. The Borrower hereby agrees to defend,
indemnify, and hold Lender harmless from and against any and all claims,
damages, judgments, penalties, costs, and expenses (including attorney fees and
court costs now or hereafter arising from the aforesaid enforcement of this
clause) arising directly or indirectly from the activities of Borrower and its
affiliates, its predecessors in interest, or third parties with whom it has a
contractual relationship, or arising directly or indirectly from the violation
of any environmental protection, health, or safety law, whether such claims are
asserted by any governmental agency or any other person. This indemnity shall
survive termination of this Agreement.
(m) Survival of Representations and Warranties. All
representations and warranties contained herein or made by or furnished on
behalf of the Borrower in connection herewith shall survive the execution and
delivery of this Agreement and all other Loan Documents.
(n) Construction. Should any provision of this Agreement
require judicial interpretation, the parties hereto agree that the court
interpreting or construing the same shall not apply a presumption that the terms
hereof shall be more strictly construed against one party by reason of the rule
of construction that a document is to be more strictly construed against the
party that itself or through its agent prepared the same, it being agreed that
Borrower, Lender and their respective agents have participated in the
preparation hereof.
(o) Jury Trial Waiver. BORROWER AND LENDER HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR
TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE LOAN DOCUMENTS. NO OFFICER OF LENDER HAS AUTHORITY TO WAIVE,
CONDITION, OR MODIFY THIS PROVISION.
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(p) Interest and Loan Charges Not to Exceed Maximum Amounts
Allowed by Law. Anything in this Agreement, the Notes or any of the other Loan
Documents to the contrary notwithstanding, in no event whatsoever, whether by
reason of acceleration of the maturity of the unpaid balance of the Loan or
otherwise, shall the interest and loan charges agreed to be paid to Lender for
the use of the money advanced or to be advanced hereunder exceed the maximum
amounts collectible under applicable laws in effect from time to time. It is
understood and agreed by the parties that, if for any reason whatsoever the
interest or loan charges paid or contracted to be paid by Borrower in respect of
the Loan shall exceed the maximum amounts collectible under applicable laws in
effect from time to time, then ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Lender
that exceed such maximum amounts shall be applied to the reduction of the
principal balances of the Loan in such order as Lender elects and/or refunded to
Borrower so that at no time shall the interest or loan charges paid or payable
in respect of the Loan exceed the maximum amounts permitted from time to time by
applicable law.
(q) Relationships of Parties. Neither Lender nor Borrower
shall be deemed a partner, joint venturer or related entity of any other party
by reason of this Agreement or any transactions contemplated hereby.
(r) Third Party Beneficiaries. This Agreement and the other
Loan Documents are intended for the sole and exclusive benefit of the parties
hereto and their respective successors and permitted assigns, and shall not
serve to confer any rights or benefits in favor of any person or entity not a
party hereto; and no other person or entity shall have any right to rely on this
Agreement or the other Loan Documents, or to derive any benefit herefrom.
(s) Governing Law. This Agreement shall be construed and
enforced under the laws of the State of Tennessee.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
16
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Exhibit 10.5
CREDIT AGREEMENT
AMONG
NATIONAL HEALTHCARE L.P.,
as Borrower,
The Banks Party Hereto, as the Lenders
and
SUNTRUST BANK, NASHVILLE, N.A
as the Agent for the Lenders
$35,000,000 Credit Loan
December 31, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS AND USAGE ............................................ 1
Section 1.1. Defined Terms ............................................. 1
Section 1.2. Computations; Accounting Principles ....................... 8
Section 1.3. Exhibits and Schedules .................................... 8
Section 1.4. General Construction; Captions ............................ 8
Section 1.5. Time Periods .............................................. 9
Section 1.6. UCC Terms ................................................. 9
Section 1.7. References to Documents and Laws .......................... 9
ARTICLE 2. LOAN FACILITY 9
Section 2.1. Loan Commitment .......................................... 9
Section 2.2. Lenders Not Permitted or Required To Make Loans .......... 9
Section 2.3. Borrowing Procedure ...................................... 9
Section 2.4. Disbursement of Funds ....................................10
Section 2.5. Notes ....................................................11
Section 2.6. Interest .................................................11
Section 2.7. Interest Periods .........................................12
Section 2.8. Fees .....................................................12
Section 2.9. Use Of Proceeds ..........................................12
Section 2.10. Repayment of Principal ...................................12
Section 2.11. Voluntary Prepayments of Borrowings ......................12
Section 2.12. Voluntary Reduction of Commitments .......................13
Section 2.13. Payments, etc ............................................13
Section 2.14. Interest Rate Not Ascertainable, etc .....................15
Section 2.15. Illegality ...............................................15
Section 2.16. Increased Costs ..........................................15
Section 2.17. Funding Losses ...........................................16
Section 2.18. Apportionment of Payments ................................17
Section 2.19. Sharing of Payments, Etc .................................17
Section 2.20. Capital Adequacy .........................................17
ARTICLE 3. REPRESENTATIONS AND WARRANTIES ...................................18
Section 3.1. Existence and Qualification ...............................18
Section 3.2. Power and Authorization ...................................18
Section 3.3. Binding Obligations .......................................18
Section 3.4. No Legal Bar or Resultant Lien ............................18
Section 3.5. No Consent ................................................18
Section 3.6. Financial Condition .......................................18
Section 3.7. Investments, Advances, and Guaranties .....................18
Section 3.8. Liabilities and Litigation ................................19
Section 3.9. Taxes; Governmental Charges ...............................19
Section 3.10. Title, Etc ...............................................19
Section 3.11. Intellectual Property ....................................19
</TABLE>
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<TABLE>
<S> <C>
Section 3.12. No Default ...............................................19
Section 3.13. Casualites; Taking of Properties, Etc.....................19
Section 3.14. Compliance with Laws, Etc.................................19
Section 3.15. ERISA ....................................................20
Section 3.16. Subsidiaries, Etc.........................................20
Section 3.17. No Material Misstatements.................................20
Section 3.18. Investment Company Act....................................20
Section 3.19. Securities Act, Etc.......................................20
Section 3.20. Regulation U..............................................20
Section 3.21. Use of Proceeds; Purpose of the Credit....................20
Section 3.22. Solvency..................................................20
Section 3.23. Capital.............. ....................................20
Section 3.24. Filings...................................................20
ARTICLE 4. CONDITIONS PRECEDENT..............................................21
Section 4.1. Initial Conditions ........................................21
Section 4.2. All Borrowings ............................................21
ARTICLE 5. AFFIRMATIVE COVENANTS ............................................22
Section 5.1. Financial Statements and Reports...........................22
Section 5.2. Taxes and Other Liens .....................................23
Section 5.3. Maintenance ...............................................23
Section 5.4. Further Assurances ........................................23
Section 5.5. Performance of Obligations ................................24
Section 5.6. Insurance .................................................24
Section 5.7. Accounts and Records ......................................24
Section 5.8. Right of Inspection .......................................24
Section 5.9. Notice of Certain Events ..................................24
Section 5.10. ERISA Information and Compliance .........................26
Section 5.11. Management ...............................................26
Section 5.12. Financial Covenants ......................................26
ARTICLE 6. NEGATIVE COVENANTS ...............................................27
Section 6.1. Debts, Guaranties, and Other Obligations ..................27
Section 6.2. Liens .....................................................27
Section 6.3. Investments, Loans, and Advances ..........................28
Section 6.4. Sales and Leasebacks ......................................28
Section 6.5. Nature of Business ........................................28
Section 6.6. Acquisitions, Mergers, Etc ................................29
Section 6.7. Asset Dispositions, Etc ...................................29
Section 6.8. Proceeds of Loan ..........................................29
Section 6.9. Sale or Discount of Receivables ...........................29
Section 6.10. Transactions with Affiliates .............................29
Section 6.11. Creation of Subsidiaries, Etc ............................29
Section 6.12. Additional Negative Pledges ..............................29
Section 6.13. Inconsistent Agreements ..................................29
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 7. EVENTS OF DEFAULT ................................................29
Section 7.1. Events of Default .........................................29
Section 7.2. Remedies ..................................................31
Section 7.3. Right of Set-off...........................................31
ARTICLE 8. INDEMNIFICATIONS .................................................31
Section 8.1. Representation and Indemnity Regarding Hazardous
Substances.................................................31
Section 8.2. Other Indemnities .........................................32
ARTICLE 9. AGENT ............................................................33
Section 9.1. Appointment of the Agent ..................................33
Section 9.2. Authorization of the Agent with Respect to the Loan
Documents..................................................33
Section 9.3. Agent's Duties Limited; No Fiduciary Duty .................34
Section 9.4. No Reliance on the Agent ..................................34
Section 9.5. Certain Rights of Agent ...................................35
Section 9.6. Reliance by the Agent .....................................35
Section 9.7. Indemnification of the Agent ..............................35
Section 9.8. The Agent in its Individual Capacity ......................35
Section 9.9. Holders of Notes ..........................................35
Section 9.10. Successor Agent ..........................................35
Section 9.11. Notice of Default or Event of Default ....................36
ARTICLE 10. GENERAL PROVISIONS ..............................................36
Section 10.1. Notices ..................................................36
Section 10.2. Amendments, Etc ..........................................36
Section 10.3. No Waiver; Remedies Cumulative ...........................37
Section 10.4. Payment of Expenses, Etc .................................37
Section 10.5. Right of Setoff ..........................................38
Section 10.6. Benefit of Agreement .....................................38
Section 10.7. Governing Law; Submission to Jurisdiction ................39
Section 10.8. Counterparts .............................................39
Section 10.9. Effectiveness; Survival ..................................39
Section 10.10. Severability ............................................40
Section 10.11. Independence of Covenants ...............................40
Section 10.12. Change in Accounting Principles, Fiscal Year or Tax Laws 40
Section 10.13. Headings Descriptive; Entire Agreement ..................40
Section 10.14. Interest ................................................40
ARTICLE 11. Jury Waiver......................................................41
Section 11.1. Jury Waiver ..............................................41
iv
</TABLE>
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into this 31st day of December,
1996, by and between NATIONAL HEALTHCARE L.P., a Delaware limited partnership
with its principal offices located at 100 Vine Street, Murfreesboro, Tennessee
37130 ("BORROWER"), and SUNTRUST BANK, NASHVILLE, N.A, a national banking
association with its principal offices located at 201 Fourth Avenue, North,
Nashville, Tennessee 37219 ("STB"), the other banks and lending institutions
listed on the signature pages hereof (collectively, together with STB, the
"LENDERS"), and SUNTRUST BANK, NASHVILLE, N.A., in its capacity as agent for the
Lenders and each successor agent for such Lenders, as appointed from time to
time pursuant to this Agreement (the "AGENT").
BACKGROUND:
WHEREAS, Borrower has requested and Lenders have agreed to provide
certain credit facilities to Borrower, with the Agent acting as the
administrative agent for the Lenders, on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS AND USAGE
SECTION 1.1. DEFINED TERMS. In addition to other words and terms
defined in the preamble hereof or elsewhere in this Agreement, the following
terms shall have the following meanings herein, unless the context expressly
requires otherwise:
"ADJUSTED TANGIBLE NET WORTH" means the total equity of Borrower and
its Subsidiaries, plus Subordinated Debt, minus the general intangibles of
Borrower, including, without limitation, goodwill and unamortized loan costs in
excess of One Million Four Hundred Thousand Dollars ($1,400,000.00).
"AFFILIATE" means a Person (other than a Subsidiary) (a) that directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with Borrower, (b) that beneficially owns or holds 5%
or more of any class of the Voting Securities of Borrower, or (c) of which 5% or
more of the Voting Securities is beneficially owned or held by Borrower or a
Subsidiary or another Affiliate the term "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person, firm or corporation whether through the
ownership of Voting Securities, by contract or otherwise.
"AGENT" means SunTrust Bank, Nashville, N.A., a national banking
association, and any successor agent appointed pursuant to Section 9.10 hereto.
"AGREEMENT" means this Loan Agreement (including all schedules and
exhibits hereto).
"APPLICABLE LIBOR RATE" means, for any Interest Period, the London
lnterbank Offered Rates for deposits in U.S. Dollars for a period comparable to
the interest Period and an amount comparable
<PAGE> 6
to the LIBOR Loan as quoted by the Telerate System and published on each
Business Day by STB's Funds Management Desk. If such rate is unavailable on
such service, then such rate shall be determined by and based on any other
interest rate reporting service of recognized standing designated in writing by
the Agent to the Borrower and the other Lenders.
"ASSET SALE" means any Disposition except the sale of inventory in the
ordinary course of business or equipment which has become obsolete or is
replaced in the ordinary course of business.
"BANKRUPTCY CODE" means the Bankruptcy Code of 1978, as amended and in
effect from time to time (11 U.S.C. Sections 101, et seq.).
"BASE RATE" means the rate of interest established from time to time
and announced by STB as its "base rate," which is an interest rate used as an
index for establishing interest rates on loans. STB's Base Rate is a reference
rate only and does not necessarily represent the lowest or best rate charged to
any customer. STB may make commercial loans or other loans at rates of interest
at, above or below STB's Base Rate.
"BASE RATE LOAN" means any outstanding principal amount of the Loans of
any Lender that bears interest at a rate determined at or referenced to the Base
Rate.
"BORROWING" means either (a) the Base Rate Loans and, in the case of
LIBOR Loans, having the same Interest Period, made on the same Business Day by
the Lenders; or (b) the combination or conversion thereof as provided in Section
2.3 hereof, in whole or in part.
"BORROWING REQUEST" means a loan request and certificate duly executed
and submitted by the Borrower, substantially in the form of Exhibit A hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday or day on
which commercial banks are authorized to close under the laws of the State of
Tennessee.
"CAPITAL LEASE" of any Person means any lease of any property (whether
real, personal or mixed) by such Person as lessee, which lease should, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of such Person.
"CLOSING" means the time and place of the execution and/or delivery of
the Loan Documents.
"CLOSING DATE" means December 31, 1996.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITMENT" OR "COMMITMENTS" means the aggregate commitment of all the
Lenders to make the Loans, as described in Section 2.1 in the amounts set forth
beside such Lender's name on the signature pages hereof, as the same may be
increased or decreased from time to time pursuant to Section 2.19.
"CONDITIONS PRECEDENT" means those matters or events that must be
completed or must occur or exist before Lenders would become obligated to fund
any Loan, including, without limitation, those matters described in Article 4
hereof.
2
<PAGE> 7
"CONTEST" means an appropriate proceeding diligently conducted and
brought in good faith by the Borrower whereby the Borrower disputes the
applicability or amount of any tax, levy, import, fee, governmental charge or
similar item and as to which Borrower has established appropriate reserves under
GAAP.
"CONTINUATION/CONVERSION NOTICE" means a notice of continuation or
conversion and certification duly executed by the Borrower, substantially in the
form of Exhibit B hereto.
"CURRENT ASSETS" means, with respect to any Person, as of any date of
determination, all assets of such Person that, in accordance with GAAP, would be
classified as current assets after deduction of all reserves properly deductible
from such assets.
"CURRENT LIABILITIES" means, with respect to any Person, as of any date
of determination, all Debt of such Person that, in accordance with GAAP, would
be classified as current liabilities.
"CURRENT RATIO" means the ratio of Current Assets to Current
Liabilities.
"DEBT SERVICE COVERAGE" means the ratio of (i) the annualized sum of
Net Income (Loss), plus depreciation amortization, plus interest expense, minus
the Maintenance Capital Expenditures Amount for such period, to (ii) interest
expense, plus current maturities of long term indebtedness, plus any payments
required to fund any Guaranty of Borrower.
"DEFAULT" means the occurrence of any of the events specified in
Section 7.1 hereof, even though any requirement for notice or lapse of time or
other condition precedent has not been satisfied.
"DEFAULT RATE" means a rate equal to two percent (2%) per annum above
the Base Rate.
"DISPOSITION" means any sale, conveyance, transfer, assignment, lease
or other disposition (including, without limitation, by merger or consolidation,
and by condemnation, eminent domain, loss, damage or destruction, and whether by
operation of law or otherwise) by the Borrower to any Person of any Property.
"DOLLARS" and "U.S. DOLLARS" and a sign "$" means lawful money of the
United States of America.
"EBITDA" means, for any period, the sum of Borrower's (or the property
subject to a Disposition, as the case may be) (i) Net Income (Loss) ~ (ii) the
sum of (a) interest expense, plus (b) tax expense, plus (c) depreciation, plus
(d) amortization, plus (e) other non-cash charges to Net Income (Loss), all as
determined in accordance with GAAP, consistently applied.
"ENVIRONMENTAL LAWS" means all federal, state, local and foreign
statutes and codes or regulations, rules or ordinances issued, promulgated or
approved thereunder, now or hereafter in effect (including, without limitation,
those with respect to asbestos or asbestos containing material or exposure to
asbestos or asbestos containing material), relating to, regulating or imposing
liability or standards of conduct concerning (a) pollution or protection of the
environment, (b) emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial toxic or hazardous
constituents, substances or wastes, including without limitation, any Hazardous
Substance, petroleum including crude oil or any fraction thereof, any petroleum
product or other waste, chemicals or substances regulated by
3
<PAGE> 8
any Environmental Law into the environment (including without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
(c) the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of any Hazardous Substance, petroleum
including crude oil or any fraction thereof, any petroleum product or other
waste, chemicals or substances regulated by any Environmental Law, or (d)
underground storage tanks and related piping, and emissions, discharges and
releases or threatened releases therefrom, such Environmental Laws to include,
without limitation (i) the Clean Air Act (42 U.S.C. Sections 7401 et seq.), (ii)
the Clean Water Act (33 U.S.C. Sections 1251 et seq.), (iii) the Resource
Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), (iv) the Toxic
Substances Control Act (15 U.S.C. Sections 2601 et seq.), (v) the Comprehensive
Environmental Response Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act (42 U.S.C. Sections 9601 et seq ),
(vi) any "Superfund" or "Superlien" law, including, without limitation, the
Tennessee Hazardous Waste Management Acts of 1977 and of 1983, as amended in
Tennessee Code Annotated Sections 68-212-101 et seq. and Sections 68-212-201 et
seq., and (vii) all applicable national and local laws or regulations with
respect to environmental control.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"ERISA AFFILIATE" means, with respect to any Person, (a) any
corporation (other than such Person) that is a member of a controlled group of
corporations (as defined in Section 414(b) of the Code) with such Person, (b)
any trade or business (other than such Person), whether or not incorporated,
that is under common control (as defined in Section 414(c) of the Code) with
such Person, and (c) any trade or business (other than such Person) that is a
member of an affiliated service group (as defined in Section 414(m) of the Code)
of which such Person is also a member. The term ERISA Affiliate also includes
any other entity required to be aggregated with such Person under Section 414(o)
of the Code and the treasury regulations thereunder.
"EVENT OF DEFAULT" means the occurrence of any of the events specified
in Section 7.1 hereof.
"FEE LETTER" means the confidential letter, dated December 30, 1996,
between Borrower and Agent.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with member banks of the Federal
Reserve System arranged by Federal funds brokers, as published by the Federal
Reserve Bank of Atlanta for such day (or, if such day is not a Business Day, for
the next preceding Business Day). If such Federal Funds Rate shall be the rate
is not published for any day that is not a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
(3) Federal funds brokers of recognized standing selected by the Agent.
"FINANCIAL STATEMENTS" means (a) the financial statement or statements
of Borrower described or referenced in Section 3.6 hereof and delivered with
this Agreement to the Agent, and (b) subsequent financial statements required to
be provided pursuant to this Agreement.
"FISCAL MONTH" means each of the twelve months in the Fiscal Year.
"FISCAL QUARTER" means each of the quarters of the Fiscal Year, ending
on March 31, June 30, September 30, and December 31.
4
<PAGE> 9
"FISCAL YEAR" means any twelve-month accounting period ending December
31.
"FIXED COVERAGE RATIO" means (a) the annualized sum of Net Income, plus
depreciation and amortization, plus interest expense, plus lease expense
(excluding any components included in interest expense and amortization), minus
distributions paid to holders of units of Borrower for the Fiscal Year, as
projected by Borrower in written financial projections furnished to the Lender
or as actually paid, whichever is greater, divided by (b) the sum of interest
expense, plus current maturities of long-term Indebtedness, plus lease expense
(excluding any components included in interest expense and current maturities of
long-term Indebtedness) plus any payments required to fund any obligations
guaranteed by Borrower, all as determined in accordance with GAAP.
"FUNDED DEBT" means, with respect to any Person, as of any date of
determination, long-term Indebtedness (but excluding Subordinated Debt), plus
notes payable, plus current maturities of long-term Indebtedness plus all
Capital Leases, plus all obligations under any Guaranty.
"GAAP" means generally accepted accounting principles.
"GENERAL PARTNER" means NHC, Inc., a Tennessee corporation or any
successor managing general partner of Borrower.
"GUARANTY" shall mean any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including any obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency; assets, level of income or other financial condition or to make any
payment other than for value received. The amount of any Guaranty shall be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which guaranty is made or, if not so stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"HAZARDOUS SUBSTANCES" means those substances included within the
definition of hazardous substances, hazardous materials, toxic substances, or
solid waste under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended, 42 U.S.C. Sections 9601 et seq.; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq., any
applicable state law and in the regulations promulgated pursuant to such acts
and laws, and such other substances, materials and waste which are or become
regulated under any applicable local, state, or federal law or regulation.
"INDEBTEDNESS" of any Person means, without duplication (a) ALL
OBLIGATIONS OF such Person that in accordance with GAAP would be shown on the
balance sheet of such Person as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of property
OR services, and obligations evidenced by bonds, debentures, notes or other
similar instruments); (b) all rental obligations under leases required to be
capitalized under GAAP; (c) all Guaranties of such Person (including contingent
reimbursement obligations under undrawn letters of credit); (d) Indebtedness of
5
<PAGE> 10
others secured by any Lien upon property owned by such Person, whether or not
assumed; and (e) obligations or other liabilities under currency contracts,
interest rate hedging contracts or similar agreements or combinations thereof.
"INTEREST PERIOD" shall have the meaning set forth in Section 2.7
hereof
"LENDER" or "LENDERS" means STB, the other banks and lending
institutions listed on the signature pages hereof and each permitted assignee
thereof, if any, pursuant to Section 10.6 hereof but shall not include any
participants
"LIBOR LOAN" means any outstanding principal amount of the Loans of any
Lender that bears interest at a rate determined at or referenced to Applicable
LIBOR Rate.
"LIEN" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute, or contract, and including,
without limitation, the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale, sale of accounts or
Intangibles, trust receipt or a lease, consignment, or bailment for security
purposes The term "Lien" includes reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting any Property. For the purposes of
this Agreement, Borrower shall be deemed to be the owner of any Property that it
has acquired or holds subject to a conditional sale agreement, financing lease,
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes, but shall not include
any Property subject to a management agreement or operating lease wherein
Borrower has the right to purchase such Property at or above fair market value
until such time as Borrower does in fact purchase such Property.
"LOAN" or "LOANS" shall have the same meaning set forth in Section 2.1
hereof.
"LOAN DOCUMENTS" means, collectively, all of the agreements, documents,
papers and certificates executed, furnished or delivered in connection with this
Agreement (whether before, at, or after the Closing Date) or at any time
evidencing any of the Obligations, including, without limitation, this
Agreement, the Notes, and all other documents, certificates, reports, and
instruments that this Agreement requires or that were executed or delivered (or
both) at the Agent's request.
"MAINTENANCE CAPITAL EXPENDITURES" means, with respect to any Person,
expenditures for the improvement, maintenance or renovation of assets which are
capitalized in accordance with GAAP, but specifically excluding, without
limitation, the expansion of existing leased and owned nursing homes or other
healthcare related facilities and the acquisition, development or construction
of new property.
"MAINTENANCE CAPITAL EXPENDITURES AMOUNT" means, with respect to any
PERSON FOR any period, the greater of (a) actual Maintenance Capital
Expenditures made during such period or (b) Five Hundred Dollars ($500.00) per
bed owned or leased by such Person during such period or any portion thereof.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means, as
applicable, a material adverse effect on, or material adverse change in, (a) the
business, operations or financial condition of Borrower, (b) the ability of
Borrower to perform its obligations under this Loan Agreement, the Notes, or
other Loan Documents, or (c) the Agent's ability to enforce the rights and
remedies granted under this
6
<PAGE> 11
Agreement or other Loan Documents, in all cases whether attributable to a single
circumstance or event or an aggregation of circumstances or events.
"MATURITY DATE" means the earlier of (i) December 31, 1999 or (ii) the
date Agent accelerates the Obligations following an Event of Default or (iii)
the occurrence of an event set forth in Section 7.1(e) or Section 7.1(f) herein.
All amounts owed by the Borrower to Lenders pursuant to this Agreement and the
Loan Documents shall be due and payable in full on the Maturity Date, unless the
Maturity Date is extended in a writing signed by the Lenders and Agent.
"NET INCOME (LOSS)" means, for the relevant accounting period of
Borrower, all ordinary income and ordinary gains less all ordinary expenses and
ordinary losses from operations Borrower (or the property subject to a
Disposition, as the case may be) and all Subsidiaries.
"NOTE" or "NOTES" means, individually and/or collectively, a promissory
note issued by Borrower payable to any Lender, in the form of Exhibit C hereto
(as such promissory note may be amended, endorsed or otherwise modified from
time to time) evidencing the aggregate Indebtedness of the Borrower to such
Lender resulting from outstanding Loans, and also means all other promissory
notes accepted from time to time in substitution therefor or renewal thereof.
"OBLIGATIONS" means all amounts owing to the Agent or any Lender
pursuant to the terms of this Agreement, including without limitation, all Loans
(including all principal and interest payments due thereunder), fees, expenses,
indemnification and reimbursement payments, indebtedness, liabilities and
obligations of the Borrower, direct or indirect, absolute or contingent,
liquidated or unliquidated, now existing or hereafter arising, together with all
renewals, extensions, modifications or refinancings thereof.
"PAYMENT OFFICE" means (i) for the Agent, the Agent's office located at
the address set forth at the beginning of this Agreement, and (ii) for each
Lender, the office identified on such Lender's signature page hereto, as the
same may be amended pursuant to Section 10.1.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust,
unincorporated organization, government, or any agency or political subdivision
thereof, or any other form of entity.
"PLAN" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by Borrower or any
Subsidiary and covered by Title IV of ERISA or to which Section 412 of the Code
applies.
"PRO RATA SHARE" means the percentage designated as each lender's pro
Rata share of the Commitment set forth under the name of such Lender on its
respective signature page hereto, in each case as such Pro Rata Share may change
from time to time as a result of assignments or amendments made pursuant to this
Agreement. Each Lender's Pro Rata Share is applicable to the Lender's
Commitment, each Loan to be made by each Lender, and each payment (including
payments of principal, interest or fees) to be made to each Lender.
7
<PAGE> 12
"PROPERTY" OR "PROPERTIES" means any interest in any kind of property
or asset, whether real, personal, or mixed, or tangible or intangible.
"REQUIRED LENDERS" means, at any time, Lenders (including STB) holding
at least an aggregate of sixty-six and two-thirds percent (66-2/3 %) of the then
aggregate unpaid principal amount of the Loans or, if no Loans are then
outstanding, having at least an aggregate of sixty-six and two-thirds percent
(662/3%) of the Commitments.
"SUBORDINATED DEBT" means any Debt of Borrower incurred from time to
time to any other Person, the payment of which is subordinated fully to the
Indebtedness pursuant to a written instrument or agreement that has been
previously approved by the Agent in writing as to form and substance.
"SUBSIDIARY" means, at the time as of which any determination is being
made, any corporation, partnership, or other entity of which more than fifty
percent (50%) of the issued and outstanding Voting Securities is owned or
controlled, directly or indirectly, by Borrower and/or by one or more of
Borrower's Subsidiaries.
"TAXES" shall mean any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions, withholdings or other
charges of whatever nature, now or hereafter imposed or levied by any
governmental authority and all interest, penalties, additions to tax and similar
liabilities with respect thereto, excluding, in the case of the Agent and each
Lender, net income and franchise taxes imposed on the Agent or such Lender by
the jurisdiction under the laws of which the Agent or such Lender is organized
or any political subdivision or taxing authority thereof or therein, or by any
jurisdiction in which such Lender's domestic lending offices or eurodollar
lending offices are located or any political subdivision or taxing authority
thereof or therein.
"UCC" means the Uniform Commercial Code as adopted in the State of
Tennessee.
"VOTING SECURITIES" means securities of any class of a corporation (or
other ownership interests in Persons that are not corporations) the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or persons performing similar functions) or
general partner(s).
SECTION 1.2. COMPUTATIONS; ACCOUNTING PRINCIPLES. Where the character
or amount of any asset or liability or item of income or expense is required to
be determined, or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, such determination or
calculation, to the extent applicable and except as otherwise specified in this
Agreement, shall be made in accordance with GAAP applied on a consolidated basis
consistently applied.
SECTION 13. EXHIBITS AND SCHEDULES. All exhibits and schedules attached
hereto are by reference made a part hereof.
SECTION 1.4. GENERAL CONSTRUCTION; CAPTIONS. All DEFINITIONS AND OTHER
TERMS USED IN THIS Agreement are equally applicable to the singular and plural
forms thereof, and all references to any gender include all other genders. The
words "hereof", "herein" and "hereunder" and words of similar import in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement, and references to Sections, subsections, schedules and
exhibits are to this Agreement unless otherwise specified. The words "includes"
and "including and words of similar import are inclusive and
8
<PAGE> 13
not exclusive terms, and are not intended to create any limitation. The captions
in this Agreement are for only, and in no way limit or amplify the provisions
hereof.
SECTION 1.5. TIME PERIODS. Unless otherwise specified, time periods
shall be calculated by including the date on which the time period starts and
excluding the date on which it ends.
SECTION 1.6. UCC TERMS. Terms used in this Agreement that are defined
in the UCC shall have the same meanings herein, except as otherwise expressly
provided or amplified (but not limited) herein.
SECTION 1.7. REFERENCES TO DOCUMENTS AND LAWS. All defined terms and
references in this Agreement with respect to any agreements, notes, instruments,
certificates or other documents shall be deemed to refer to such documents and
to any amendments, modifications, renewals, extensions, replacements,
restatements, substitutions and supplements of and to such documents. Unless
otherwise provided, all references to statutes and related regulations shall
include any amendments thereof and any successor statutes and regulations.
ARTICLE 2. LOAN FACILITY
SECTION 2.1. LOAN COMMITMENT. Subject to and upon the terms and
conditions herein set forth, from time to time on any Business Day occurring
prior to the Maturity Date, each Lender will make revolving credit loans
(relative to such Lender, and of any type, its "LOANS") to the Borrower equal to
such Lender's Pro Rata Share of the aggregate amount of the Borrowing of Loans
requested by the Borrower to be made on such day. The Commitment of each Lender
described in this Section 2.1 is herein referred to as its "LOAN COMMITMENT". On
the terms and subject to the conditions hereof, the Borrower may from time to
time borrow, prepay and reborrow the Loans.
SECTION 2.2. LENDERS NOT PERMITTED OR REQUIRED TO MAKE LOANS. No Lender
shall be permitted or required to make any Loan if, after giving effect thereto,
the aggregate outstanding principal amount of all Loans made by such Lender
would exceed such Lender's Pro Rata Share of the Commitment Amount.
SECTION 2.3. BORROWING PROCEDURE. (a) Whenever the Borrower desires to
make a Borrowing with respect to the Loan Commitments (other than one resulting
from a conversion or continuation pursuant to Section 2.3(c)), the Borrower
shall deliver to the Agent a Borrowing Request, such Borrowing Request to be
given prior to 10:00 A.M. (local time for the Agent) at its Principal Office (i)
the day of the request for such Borrowing in the case of Base Rate Loans, and
(ii) two (2) Business Days prior to the requested date of such Borrowing in the
case of LIBOR Loans. Notices received after 10:00 A.M. shall be deemed received
on the next Business Day. The Borrowing Request shall include any certificates
or documentation required by Agent to be given in connection with the Borrowing.
Each Borrowing Request shall be irrevocable and shall specify the aggregate
principal amount of the Borrowing, the date of Borrowing (which shall be a
Business Day), whether the Borrowing is to consist of Base Rate Loans or LIBOR
Loans (or both), whether the Borrowing is to be deposited into Borrower's demand
deposit account maintained with Agent or wire transferred into another account
(with appropriate wiring information) and the Interest Period chosen by the
Borrower.
(b) Each Loan shall, at the option of the Borrower, be made, continued
as or converted into part of one or more Borrowings that shall consist entirely
of Base Rate Loans and LIBOR Loans only. Each Borrowing comprised of LIBOR Loans
shall not be less than $1,000,000 or a greater integral
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multiple of $1,000,000 and each Borrowing comprised of Base Rate Loans shall be
not less than or a greater integral multiple of $100,000. At no time shall the
aggregate number of LIBOR Loans exceed ten (10).
(c) Whenever the Borrower desires to convert all or a portion of an
outstanding Borrowing into one or more Borrowings consisting of Loans of another
type, or to continue outstanding a Borrowing consisting of LIBOR Loans for a new
Interest Period, the Borrower shall deliver to Agent a Continuation/Conversion
Notice AT LEAST ONE (1) Business Day prior to such Borrowing being converted
into Base Rate Loans, and at least two (2) Business Days prior written notice
(or telephonic notice promptly confirmed in writing) of each such Borrowing to
be converted into or continued as LIBOR Loans. The Continuation/Conversion
Notice shall be given prior to 10:00 (local time for the Agent) on the date
specified at the Principal Office of the Agent. Each such Notice shall be
irrevocable and shall specify the aggregate principal amount of the Borrowings
to be converted or continued, the date of such conversion or continuation,
whether the Borrowings are being converted into Base Rate Loans or LIBOR Loans
or continued as LlBOR Loans. In the case of LlBOR Loans, the
Continuation/Conversion Notice shall also specify the Interest Period applicable
thereto. If, upon the expiration of any Interest Period in respect of any
Borrowing, the Borrower shall have failed to deliver the Continuation/Conversion
Notice, the Borrower shall be deemed to have elected to convert or continue such
Borrowing to a Borrowing consisting of Base Rate Loans. If a Default or Event of
Default has occurred and is continuing, no Continuation/Conversion Notice may be
given by Borrower unless the Agent and the Required Lenders shall have otherwise
consented in writing. No conversion of any Borrowing of LIBOR Loans shall be
permitted except on the last day of the Interest Period in respect thereof
unless prior to such conversion Borrower pays to each Lender the amounts due
under Section 2.17 hereof.
(d) The persons designated in the Officer's Certificate described in
Section 4.1(e) hereof are authorized to submit a Borrowing Request and a
Continuation/Conversion Notice and any other person designated thereby in
writing by the Borrower and delivered to Agent as being authorized to submit
such Requests and Notices, and such authority shall continue until revoked in
writing by the Borrower.
(f) Without in any way limiting the Borrower's obligation to confirm in
writing any telephonic notice, the Agent may act without liability upon the
basis of telephonic notice believed by the Agent in good faith to be from the
Borrower prior to receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Agent's record of the terms of
such telephonic notice.
(g) The Agent shall promptly give each Lender notice by telephone
(confirmed in writing) or by telex, telecopy or facsimile transmission of the
matters covered by the notices given to the Agent pursuant to this Section 2.3
with respect to the Commitments.
SECTION 2.4. DISBURSEMENT OF FUNDS. (A) NO LATER THAN 2:00 P.M. local
time for the agent) on the date of each Borrowing pursuant to the Loan
Commitments (other than one resulting from a conversion or continuation pursuant
to Section 2.3(c)), each Lender will make available its Pro Rata Share of the
amount of such Borrowing in immediately available funds at the Principal Office
of the Agent. The Agent will make available to the Borrower the aggregate of the
amounts (if any) so made available by the Lenders to the Agent in a timely
manner as directed by Borrower in the Borrowing Request by either (i) crediting
such amounts to the demand deposit account chosen by the Borrower in the
Borrowing Request by the close of business on such Business Day or (ii) wire
transfer pursuant to the instructions set out in the Borrowing Request In the
event that the Lenders do not make such amount available to
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the Agent by the time prescribed above, but such amount is received later that
day, such amount may be credited to the Borrower in the manner described in the
preceding sentence on the next Business Day.
(b) Unless the Agent shall have been notified by any Lender prior to
the date of a Borrowing pursuant to the Commitments that such Lender does not
intend to make available to the Agent such Lender's portion of the Borrowing to
be made on such date, the Agent may assume that such Lender has made such amount
available to the Agent on such date and the Agent may make available to the
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Lender on the date of Borrowing, the Agent
shall be entitled to recover such corresponding amount on demand from such
Lender together with interest at the Federal Funds Rate. If such Lender does not
pay such corresponding amount forthwith upon the Agent's demand therefor, the
Agent shall promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent together with interest at the rate
specified for the Borrowing which includes such amount paid and any amounts due
under Section 2.17 hereof. Nothing in this Section 2.4(b) shall be deemed to
relieve any Lender from its obligation to fund its Commitments hereunder or to
prejudice any rights that the Borrower may have against any Lender as a result
of any default by such Lender hereunder.
(c) All Borrowings under the Commitments shall be loaned by the Lenders
on the basis of their Pro Rata Share of such Commitments. No Lender shall be
responsible for any default by any other Lender in its obligations hereunder,
and each Lender shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Lender to fund its Commitments
hereunder.
SECTION 2.5. NOTES. Each Lender's Loans under its Loan Commitment shall
be evidenced by a Note payable to the order of such Lender in the maximum
principal amount equal to such Lender's Pro Rata Share of the original
Commitments.
SECTION 2.6. INTEREST. (a) The Borrower agrees to pay interest in
respect of all unpaid principal amounts of the Loans from the respective dates
such principal amounts were advanced to maturity (whether by acceleration,
notice of prepayment or otherwise) at rates per annum equal to the applicable
rates indicated below:
(i) For Base Rate Loans - The Base Rate.
(ii) For LIBOR Loans -- Applicable LIBOR Rate plus one
percent (1%) per annum.
(b) To the extent not prohibited by applicable law, the Borrower shall
pay a late charge equal to five percent (5%) of any payments of principal and/or
interest that are paid more than two (2) Business Days after receipt of written
notice from Agent regarding the late payment, to cover the extra expenses
involved in handling delinquent payments.
(c) During the existence of any Event of Default, all outstanding
principal and unpaid interest, in respect of the Loans and all other amounts
owing hereunder shall bear interest (both before and after judgment) at a rate
equal to two percentage points (2%) per annum above the Base Rate.
(d) Interest on each Loan shall accrue from and including the date of
such Loan to but ding the date of any repayment thereof. Interest on all
outstanding Base Rate Loans shall be payable of any repayment thereof. Interest
on all outstanding Base Rate Loans shall be payable
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on the last day of each Fiscal Month in arrears. Interest on all LIBOR Loans
shall be paid in arrears on the last day of the applicable interest Period.
Section 2.7. INTEREST PERIODS. In connection with the making or
continuation of, or conversion into, each Borrowing of LlBOR Loans, the Borrower
shall select an interest period (each an "Interest Period") to be applicable to
such LIBOR Loans, which Interest Period shall be either a one (1), two (2) or
three (3) month period; provided that:
(a) The Interest Period for any Borrowing of LIBOR Loans shall
commence on the date of such Borrowing (including the date of any
conversion from a Borrowing) as selected by the Borrower in the
Borrowing Request or Continuation/Conversion Notice given to Agent
pursuant to Section 2.3(a) or 2.3(c) and thereafter, if such Loan is
continued in whole or in part, as a LIBOR Loan pursuant to Section
2.3(c), shall commence on the last day of the immediately preceding
Interest Period with respect thereto;
(b) If any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
Business Day immediately following such day;
(c) No Interest Period with respect to the Loans shall extend
beyond the Maturity Date.
SECTION 2.8. FEES. (a) On the Closing Date, the Borrower shall pay to
the Agent for its sole benefit the fees in the amounts and on the dates set
forth in the Fee Letter.
(b) The Borrower shall pay to the Agent, for the account of each
Lender, a commitment fee for the period commencing on the Closing Date and
continuing as long as any of the Obligations remain outstanding, computed at a
rate equal to 37.5 basis points per annum on the average daily unused portion of
the Commitment Amount, computed quarterly, such fee payable quarterly in arrears
on the last calendar day of each Fiscal Quarter.
Section 2.9. USE OF PROCEEDS. The proceeds of the Loans shall be used
solely to build and acquire health care centers and to provide working capital
and other general capital purposes.
Section 2.10. REPAYMENT OF PRINCIPAL. (a) The Borrower's obligations to
pay the principal of and interest on the Loans to each Lender shall be evidenced
by the records of the Agent and such Lender and by the Note payable to such
Lender completed in conformity with this Agreement.
(b) All outstanding principal amounts under the Loans shall be due and
payable in full on the Maturity Date.
Section 2.11. VOLUNTARY PREPAYMENTS OF BORROWINGS. (a) The Borrower
may, at its option, prepay Borrowings consisting of Base Rate Loans at any time
in whole, or from time to time in part, in amounts aggregating $100,000 or any
greater integral multiple of $100,000, by paying the principal amount to be
prepaid. Those Borrowings consisting of LIBOR Loans may be prepaid, at
Borrower's option, in whole, or from time to time in part, in amounts
aggregating $1,000,000 or any greater integral multiple of $1,000,000, by paying
the principal amount to be prepaid, together with interest accrued and unpaid
thereon to the date of prepayment, and all compensation payments pursuant to
Section 2.17 if such
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<PAGE> 17
prepayment is made on a date other than the last day of an Interest Period
applicable thereto. Each such optional prepayment shall be applied in accordance
with Section 2.11(c).
(b) The Borrower shall give written notice (or telephonic notice
confirmed in writing) to the Agent of any intended prepayment of the Loans (i)
no later than by 10-00 A.M. (local time for the Agent) on the day of any
prepayment of Base Rate Loans, and (ii) not less than two (2) Business Days
prior to any prepayment of LIBOR Loans. Such notice, once given, shall be
irrevocable by the Borrower. Upon receipt of such notice of prepayment pursuant
to the first sentence of this Section 2.1 1 (b), the Agent shall promptly notify
each Lender of the contents of such notice and of such Lender's Pro Rata Share
of such prepayment, if any.
(c) The Borrower, when providing notice of prepayment pursuant to
Section 2.11 (b), may designate the types of Loans and the specific Borrowing or
Borrowings that are to be prepaid, provided that if any prepayment of LIBOR
Loans made pursuant to a single Borrowing shall reduce the outstanding Loans
made pursuant to such Borrowing to an amount less than $1,000,000, such
Borrowing shall immediately be converted into Base Rate Loans. In the absence of
a designation by the Borrower, the Agent shall, subject to the foregoing, apply
such prepayment first to Base Rate Loans and then to LIBOR Loans as Interest
Periods expire with respect thereto. All voluntary prepayments shall be applied
to the payment of interest before application to principal and shall be applied
against scheduled amortization payments in the inverse order of maturity.
SECTION 2.12. VOLUNTARY REDUCTION OF COMMITMENTS. The Borrower may,
from time to time on any Business Day, voluntarily reduce the amount of the
Commitment Amount; provided, however, that (i) all such reductions shall require
at least three (3) Business Days' prior written irrevocable notice to the Agent
and be permanent, (ii) any partial reduction of (A) the Commitment Amount shall
be in a minimum amount of $1,000,000 and in an integral multiple of $1,000,000,
and in an integral multiple of $500,000, and (iii) except as provided below, the
Commitment Amount may not be reduced to an amount less than the aggregate
outstanding principal amount of all Loans. The Borrower may terminate the
Commitments in whole if, at the time of and as a condition of such termination,
the Borrower shall have repaid in full the aggregate outstanding principal
amount of all Loans, together with all accrued interest and fees thereon to the
date of termination.
SECTION 2.13. PAYMENTS, ETC. (a) Except as otherwise specifically
provided herein, all payments under this Agreement and the other Loan Documents
shall be made without defense, set-off or counterclaim to the Agent not later
than 10:00 A.M. (local time for the Agent) on the date when due and shall be
made in Dollars in immediately available funds at its Principal Office.
(b)(i) All such payments shall be made free and clear of and
without deduction or withholding for any Taxes in respect of this
Agreement, the Notes or other Loan Documents, or any payments of
principal, interest, fees or other amounts payable hereunder or
thereunder. If any Taxes are so levied or imposed, the Borrower agrees
(A) to pay the full amount of such Taxes, and such additional amounts
as may be necessary so that every net payment of all amounts due
hereunder and under the notes and other loan documents, after
withholding or deduction for or on account of any such taxes (including
additional sums payable under this Section 2.13), will not be less than
the full amount provided for herein had no such deduction or
withholding been required, (B) to make such withholding or deduction,
and (C) to pay the full amount elevant author) in accordance with
applicable law. The Borrower will furnish deducted to the Agent and
each Lender, within thirty (30) days after the date the payment of
any Taxes
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is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by the--Borrower. The Borrower will indemnify
and hold harmless the Agent and each Lender and reimburse the Agent and
each Lender upon written request for the amount of any Taxes paid by
the Agent or Lender and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not
such Taxes were correctly or illegally asserted. A certificate as to
the amount of such payment by such Lender or the Agent, absent manifest
error, shall be final, conclusive and binding for all purposes. In the
event that the Agent or any Lender shall receive any refund or credit
in respect of Taxes paid by the Borrower, the Agent or such Lender (as
the case may be) shall promptly refund the resulting amount to the
Borrower.
(ii) Each Lender that is not incorporated under the laws of
the United States of America or a state thereof (including each Lender
that becomes a party to this Agreement after the date hereof, if any)
agrees that, prior to the first date on which any payment is due to it
hereunder, it will deliver to the Borrower and the Agent (i) two duly
completed copies of United States Internal Revenue Service Form 1001
or 4224 or successor applicable form, as the case may be, certifying
in each case that such Lender is entitled to receive payments under
this Agreement and the Notes payable to it, without deduction or
withholding of any United States federal income taxes, and (ii) an
Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be, to establish an exemption from United States backup
withholding tax. Each Lender which delivers to the Borrower and the
Agent a Form 1001 or 4224 and Form W-8 and W-9 pursuant to the
preceding sentence further undertakes to deliver to the Borrower and
the Agent two further copies of the said letter and Form 1001 and 4224
and Form W-8 or W-9, or successor applicable forms, or other manner or
certification, as the case may be, on or before the date that any such
letter or form expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent letter and form
previously delivered by it to the Borrower, and such extensions or
renewals thereof as may reasonably be requested by the Borrower.
(iii) The Borrower shall also reimburse the Agent and each
Lender, upon written request, for any Taxes imposed (including, without
limitation, Taxes imposed on the Agent or such Lender pursuant to the
laws of the jurisdictions with taxing authority over Agent or such
Lender) as the Agent or such Lender shall determine are payable by the
Agent or such Lender in respect of amounts paid by or on behalf of any
Borrower to or on behalf of the Agent or such Lender pursuant to
Section 2.13(b)(i).
(c) Subject to Section 2.7(b), whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day that is not a
Business Day, the due date thereof shall be extended to the Business Day
immediately following such day and, with respect to payments of principal,
interest thereon shall be payable at the applicable rate during such extension.
(d) All computations of interest and fees shall be made on the basis of
a year of three hundred and sixty (360) days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or fees are payable (to the extent computed on the basis of
days elapsed). Interest shall be calculated as to each respective Interest
Period from and including the first day thereof to but excluding the last day
thereof. Each determination by the Agent of an interest rate or fee hereunder
shall be made in good faith and, except for manifest error, shall be final,
conclusive and binding for all purposes.
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(e) Payment by the Borrower to the Agent in accordance with the terms
of this Agreement shall, as the Borrower, constitute payment to the Lenders
under this Agreement.
SECTION 2.14 INTEREST RATE NOT ASCERTAINABLE, ETC. In the event that
the Agent shall have determined (which determination shall be made in good faith
and, absent manifest error, shall be final, conclusive and binding upon all
parties) that on any date for determining the Applicable LIBOR Rate for any
interest Period, by reason of any changes arising after the date of this
Agreement affecting the London interbank market or the Agent's position in such
market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of the Applicable
LIBOR Rate, then, and in any such event, the Agent shall forthwith give notice
(by telephone confirmed in writing) to the Borrower and to the Lenders of such
determination and a summary of the basis for such determination. Until the Agent
notifies the Borrower that the circumstances giving rise to the suspension
described herein no longer exist, the obligations of the Lenders to make or
permit portions of the Loans to remain outstanding past the last day of then
current Interest Periods as LIBOR Loans shall be suspended, and such affected
Loans shall bear the same interest as Base Rate Loans and shall be maintained as
Base Rate Loans at the expiration of the Interest Period applicable thereto.
SECTION 2.15 ILLEGALITY. (a) In the event that any Lender shall have
determined (which determination shall be made in good faith and, absent manifest
error, shall be final, conclusive and binding upon all parties) at any time that
the making or continuance of any LIBOR Loan has become unlawful by compliance by
such Lender in good faith with any applicable law, governmental rule,
regulation, guideline or order (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful), then, in any such
event, the Lender shall give prompt notice (by telephone confirmed in writing)
to the Borrower and to the Agent of such determination and a summary of the
basis for such determination (which notice the Agent shall promptly transmit to
the other Lenders).
(b) Upon the giving of the notice to the Borrower referred to in
Section 2.15(a), (i) the Borrower's right to request from such Lender and such
Lender's obligation to make, LIBOR Loans shall be immediately suspended, and
such Lender shall make a Loan as part of the requested Borrowing of LIBOR Loans
as a Base Rate Loan, which Base Rate Loan shall, for all other purposes, be
considered part of such Borrowing, and (ii) if the LIBOR Loan or Loans then
outstanding are affected, the Borrower shall immediately, or if permitted by
applicable law, no later than the date permitted thereby, upon at least one
Business Days written notice to the Agent and the affected Lender, convert each
such Loan into a Base Rate Loan or Loans, provided that if more than one Lender
is affected at any time, then all affected Lenders must be treated the same
pursuant to this Section 2.15(b).
SECTION 2.16 INCREASED COSTS. (a) If by reason of (i) after the date
hereof, the introduction of or any change (including, without limitation, any
change by way of imposition or increase of reserve requirements) in or in the
interpretation of any law or regulation, or (ii) the compliance with any
guideline or request from any central bank or other governmental authority or
quasi-goverornental authority exercising control over banks or financial
institutions generally (whether or not having the force of law):
(A) any Lender shall be subject to any tax, duty or other
charge with respect to its LIBOR Loans or its obligation to make LIBOR
Loans, or the basis of taxation of payments to any Lender of the
principal of or interest on its LIBOR Loans or its obligation to make
LIBOR Loans shall have changed (except for changes in the tax on the
overall net income of such Lender pursuant to the laws of jurisdictions
with taxing authority over such Lender); or
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<PAGE> 20
(B) any reserve (including, without limitation, any reserve
imposed by the Board of Governors of the Federal Reserve System),
special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender shall be
imposed or deemed applicable or any other condition affecting its LIBOR
Loans or its obligation to make LIBOR Loans shall be imposed on any
Lender or the London interbank market;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or raking, funding or maintaining LIBOR Loans (except to
the extent already included in the determination of the interest rate for LIBOR
Loans), or there shall be a reduction in the amount received or receivable by
such Lender, then the Borrower shall from time to time, upon written notice
from and demand by such Lender on the Borrower (with a copy of such notice and
demand to the Agent), pay to the Agent for the account of such Lender within
five (5) Business Days after the date of such notice and demand, additional
mounts sufficient to indemnify such Lender against such increased cost. A
certificate as to the amount of such increased cost, submitted to the Borrower
and the Agent by such Lender in good faith and by a statement prepared by such
Lender describing in reasonable detail the basis for and Calculation of such
increased cost, shall, except for manifest error, be final, conclusive and
binding for all purposes.
(b) If any Lender shall advise the Agent that at any time, because of
the circumstances described in Section 2.16(a)(i) or (ii) or any other
circumstances beyond such Lender's reasonable control arising after the date of
this Agreement affecting such Lender or the London interbank market or such
Lender's position in such market, the calculations for the interest rates for
LIBOR Loans as determined y the Agent will not adequately and fairly reflect the
cost to such Lender of funding such Loans, then, and in any such event and until
such Lender notifies the Agent that such circumstances no longer exist:
(i) the Agent shall forthwith give notice (by telephone
confirmed in writing) to the Borrower and to the other Lenders of such
advice;
(ii) The Borrower's right to request from such Lender, and
such Lender's obligation to make or permit portions of the Loans to
remain outstanding past the last day of the then current Interest
Periods as LIBOR Loans shall be immediately suspended; and
(iii) such Lender shall make a Loan as part of the requested
Borrowing of LIBOR Loans as a Base Rate Loan.
SECTION 2.17 FUNDING LOSSES. The Borrower shall compensate each Lender,
upon its written request to the Borrower (which request shall set forth the
basis for requesting such amounts in reasonable detail and which request shall
be made in good faith and, absent manifest error, shall be final, conclusive
and binding upon all of the parties hereto), for all losses, expenses and
liabilities (including, without imitation, any interest paid by such Lender to
lenders of funds borrowed by it to make or carry its LIBOR Loans, in either
case to the extent not recovered by such Lender in connection with the
reemployment of such funds and including loss of anticipated profits), which
the Lender may sustain: (a) for any reason (other than a default by such
Lender) a borrowing of, or conversion to or continuation of, LIBOR Loans to
Borrower does not occur on the date specified therefor in a Borrowing Request,
or Continuation/Conversion Notice (whether or not withdrawn), (b) if any
repayment (including mandatory repayments and any conversions pursuant to
Section 2.15) of any LIBOR Loans to the Borrower occurs on a date that is not
the last day of an Interest Period applicable thereto, or (c), if, for any
reason, the
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<PAGE> 21
Borrower defaults in its obligation to repay its LIBOR when required by the
terms of this Agreement.
SECTION 2.18 APPORTIONMENT OF PAYMENTS. Aggregate principal and
interest payments in respect of Loans shall be apportioned among all outstanding
Commitments and Loans to which such payments relate proportionately to the
Lenders' respective Pro Rata Share of such Commitments and outstanding Loans.
The Agent shall distribute to each Lender at its Payment Office its share of all
such payments received by the Agent, with such distribution by Agent occurring
no later than the end of the Business Day following Agent's receipt of such
payments.
SECTION 2.19 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment or reduction (including, without limitation, any amounts received as
adequate protection of a deposit treated as cash collateral under the Bankruptcy
Code) of the Obligations (whether voluntary, involuntary, through the exercise
of any right of set-off or otherwise) in excess of its Pro Rata Share of
payments or reductions of such Obligations obtained by all the Lenders, such
Lender shall forthwith (a) notify each of the other Lenders and Agent of such
receipt, and (b) purchase from the other Lenders such participations in the
affected Obligations as shall be necessary to cause such purchasing Lender to
share the excess payment or reduction, net of costs incurred in connection
therewith, ratably with each of them, provided that if all or any portion of
such excess payment or reduction is thereafter recovered from such purchasing
Lender or additional costs are incurred, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery or such additional costs,
but without interest unless the Lender obligated to return such funds is
required to pay interest on such funds. Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.19
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.20 CAPITAL ADEQUACY. Without limiting any other provision of
this Agreement, but without duplication, in the event that any Lender shall have
determined that any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy not currently in
effect or fully applicable as of the Closing Date, or any change therein or in
the interpretation or application thereof after the Closing Date, or compliance
by such Lender with any request or directive regarding capital adequacy not
currently in effect or fully applicable as of the Closing Date (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) from a central bank or governmental authority or body having
jurisdiction, does or shall have the effect of reducing the rate of return on
such Lender's capital as a consequence of its obligations hereunder to a level
below that which such Lender could have achieved but for such law, treaty, rule,
regulation, guideline or order, or such change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then within ten (10) Business Days
after written notice and demand by such Lender (with copies thereof to the
Agent), the Borrower shall from time to time pay to such Lender additional
amounts sufficient to compensate such Lender for such reduction (but, in the
case of outstanding Base Rate Loans, without duplication of any amounts already
recovered by such Lender by reason of an adjustment in the applicable Base
Rate). Each certificate as to the amount payable under this Section 2.20 (which
certificate shall set forth the basis for requesting such amounts in reasonable
detail), submitted to the Borrower by any Lender in good faith, shall. absent
manifest error, be final, conclusive and binding for all purposes.
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and each Lender to enter this Agreement and extend
credit under this Agreement, Borrower covenants, represents, and warrants to the
Agent and each Lender that as of the date hereof and as of the Closing Date:
SECTION 3.1. EXISTENCE AND QUALIFICATION. Borrower is a limited
partnership duly formed and legally existing, under the laws of the State of
Delaware pursuant to that certain partnership agreement dated October 31, 1986,
as amended to date (the "Partnership Agreement"), a copy of which has been
delivered to the Agent. Borrower is duly qualified as a foreign limited
partnership in Tennessee and in all jurisdictions in which the Property owned or
the business transacted by it makes such qualification necessary. Borrower will
not commence doing business in any state unless and until it shall have
qualified to do business in such state.
SECTION 3.2. POWER AND AUTHORIZATION. Borrower is duly authorized and
empowered to execute, deliver, and perform under all Loan Documents; the
Borrower and General Partner's board of directors have authorized Borrower and
the General Partner to execute and perform under the Loan Documents; and all
other partnership, corporate and/or shareholder action on Borrower's part
required for the due execution, delivery, and performance of the Loan Documents
has been duly and effectively taken.
SECTION 3.3. BINDING OBLIGATIONS. This Agreement is, and the Notes and
other Loan Documents when executed and delivered in accordance with this
Agreement will be, legal, valid and binding upon and against Borrower and its
Properties enforceable in accordance with their respective terms, subject to no
defense, counterclaim, set-off, or objection of any kind. Neither the Agent nor
any Lender has taken any action or failed to take any action that subjects it to
any liability to Borrower.
SECTION 3.4. No LEGAL BAR OR RESULTANT LIEN. Borrower's execution,
delivery and performance of the Loan Documents do not constitute a default
under, and will not violate any provisions of the partnership agreement of
Borrower or the articles of incorporation (or charter) or bylaws of General
Partner, any contract, agreement, law, regulation, order, injunction, judgment,
decree, or writ to which Borrower and/or General Partner is subject, or result
in the creation or imposition of any lien upon any Properties of Borrower and/or
General Partner, other than those contemplated by the Loan Documents.
SECTION 3.5 NO CONSENT. Borrower's execution, delivery, and performance
of the Loan Documents do not require the consent or approval of any other
Person.
SECTION 3.6. FINANCIAL CONDITION. The Financial Statements for the
period ended December 31, 1995 and the Fiscal Quarter ended September 30, 1996
which have been delivered to the Agent and each Lender, have been prepared in
accordance with GAAP, consistently applied, and the Financial Statements present
fairly the financial condition of Borrower as of the date or dates and for the
period or periods stated therein. No Material Adverse Change has occurred since
the date of the most recent Financial Statements.
SECTION 3.7. INVESTMENTS, ADVANCES AND GUARANTIES. Borrower has not
made investments in, advances to, or guaranties of the obligations of any
Person, or committed or agreed to undertake any of these actions or obligations,
except as referred to or reflected in the financial statements.
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Section 3.8. LIABILITIES AND LITIGATION. Borrower has no material
liabilities (individually or in the aggregate) direct or contingent, except as
referred to or reflected in the Financial Statements. There is no litigation,
legal or administrative proceeding, investigation, or other action of any nature
pending or, to the knowledge of Borrower, threatened against or affecting
Borrower that involves the possibility of any judgment or liability not fully
covered by insurance and that may cause a Material Adverse Effect. Borrower has
not recently experienced and is not now experiencing any strike, labor dispute,
slowdown, or work stoppage due to labor disagreements that would have a Material
Adverse Effect, and no such strike, dispute, slowdown, or work stoppage is
threatened against Borrower.
SECTION 3.9. TAXES, GOVERNMENTAL CHARGES. Borrower has filed or caused
to be filed all tax returns and reports required to be filed. Borrower has paid
all due and payable taxes, assessments, fees, and other governmental charges
levied upon it or upon any of its Properties or income including interest and
penalties. Borrower has made all required withholding deposits.
SECTION 3.10. TITLE. ETC. (a) Borrower has good title to its
Properties, free and clear of all liens except those referenced or reflected in
the Financial Statements or the Permitted Liens. Borrower enjoys peaceful and
undisturbed possession under all of its leases and all leases are in full force
and effect and no material default exists under any such leases.
(b) Those locations set forth on Schedule 3.10(b) are all of the
locations (i) at which material property owned or leased by the Borrower is
located and (ii) representing each of the Borrower's place of business if only
one (l) exists or chief executive office if more than one (l) place of business
exists.
SECTION 3.11. INTELLECTUAL PROPERTY. Borrower possesses or has the
right to use all trademarks, service marks, copyrights, trade names, patents,
licenses, and other intellectual property, and rights therein, as are adequate
in all material respects for the conduct of its business as now conducted and
presently proposed to be conducted, without conflict with the rights or claimed
rights of others.
SECTION 3.12. NO DEFAULT. Borrower is not in default in any material
respect that affects its business, Properties, operations, or condition,
financial or otherwise, under any indenture, mortgage, deed of trust, credit
agreement, note, agreement, or other instrument to which Borrower is a party or
by, which it or its Properties are bound. Borrower is not in violation of its
Partnership Agreement.
SECTION 3.13. CASUALTIES; TAKING OF PROPERTIES, ETC. Neither the
business nor the Properties of Borrower have been affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of property,
cancellation of contracts, permits, concessions by any domestic or foreign
government or any agency thereof, riot activities of armed forces or acts of God
or of any public enemy.
SECTION 3.14. COMPLIANCE WITH LAWS, ETC. Borrower is not in violation
of any law, judgment, decree, order, ordinance, or governmental rule or
regulation to which Borrower or any of its Properties is subject. Borrower has
not failed to obtain any license, permit, franchise, or other governmental
authorization necessary to the ownership of any of its properties or to the
conduct of its business. All improvements on real estate owned by, leased to or
used by borrower conform in all material respects to all applicable state and
local laws, zoning and building ordinances and health and safety ordinances, and
such real estate is zoned for the various purposes for which such real estate
and improvements thereon are presently being used.
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SECTION 3.15. ERISA. Borrower is in compliance in all material respects
with the applicable provisions of ERISA. Borrower has not incurred any material
"accumulated funding defiency" within the meaning of ERISA, and has not incurred
any material liability to PBGC in connection with any Plan.
SECTION 3.16. SUBSIDIARIES, ETC. Except as disclosed on Schedule 3.16,
Borrower has no Subsidiaries and is not a joint venture partner, limited
liability company member or general partner in any joint venture, partnership or
limited liability company; and Borrower uses, and has used during the preceding
six years, only the trade names listed on Schedule 3.16.
SECTION 3.17. NO MATERIAL MISSTATEMENTS. No information, exhibit, or
report furnished or to be furnished by Borrower to the Agent or any Lender in
connection with this Agreement, contain as of the date thereof, or will contain
as of the Closing Date, any material misstatement of fact or failed or will fail
to state any material fact, the omission of which would render the statements
therein materially false or misleading.
SECTION 3.18. INVESTMENT COMPANY ACT. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 3.19. SECURITIES ACT. ETC. The Notes are not required to be'
registered under the Securities Act of 1933, as amended, or under the securities
laws of any state. This Agreement is not required to be qualified under the
Trust Indenture Act of 1939, as amended.
SECTION 3.20. REGULATION U. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System. No part of the
Indebtedness shall be used at any time to purchase or to carry margin stock
within the meaning of Regulation U or to extend credit to others for the purpose
of purchasing or carrying any margin stock if to do so would cause any Lender to
violate the provisions of Regulation U.
SECTION 3.21. USE OF PROCEEDS; PURPOSE OF THE CREDIT. Borrower has used
or will use proceeds from the Loan exclusively for the purposes stated in this
Agreement. No proceeds of the Loans will be used to acquire any security in any
transaction that is subject to Section 13 and 14 of the Securities Exchange Act
of 1934, including without limitation Sections 13(d) and 14(d) thereof.
SECTION 3.22. SOLVENCY. Borrower is solvent as of the Closing Date.
Borrower is generally paying its debts as they mature and the fair value of
Borrower's assets substantially exceeds the sum total of Borrower's liabilities.
SECTION 3.23. CAPITAL. Borrower now has and shall at all times
hereafter have capital sufficient to carry on its business and transactions and
all businesses and transactions in which it is about to engage.
SECTION 3.24. FILINGS. To the date hereof, borrower has filed all
reports and statements required to be filed with the Securities and Exchange
Commission. As of their respective dates, the reports and statements referred to
above complied in all material respects with all rules and regulations
promulgated by the Securities and Exchange Commission and did not contain any
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, in light of the
circumstances under which they were made, not misleading.
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ARTICLE 4. CONDITIONS
SECTION 4.1. INITIAL CONDITIONS. Each Lender's obligation to extend
credit hereunder is subject to the Conditions Precedent that the Agent shall
have received (or the Agent and each Lender shall have agreed in writing to
waive or defer receipt of) all of the following, each duly executed, dated and
delivered as of the Closing Date, in form and substance satisfactory to the
Agent and its counsel:
(a) Notes. The Notes, payable to the order of each Lender, duly
executed by Borrower.
(b) Loan Documents. All other Loan Documents, all duly executed by
Borrower.
(c) Resolutions. Certified copies of resolutions of the Board of
Directors of the General Partner authorizing or ratifying the execution,
delivery, and performance, respectively, of this Agreement and all Loan
Documents by the Borrower.
(d) Certificates of Existence. Certificates of existence or good
standing certified by the respective Secretary of State of the state in which
Borrower and General Partner were organized, containing no facts objectionable
to the Agent.
(e) Officer's Certificate. A certificate of the secretary or any
assistant secretary of the General Partner certifying: (i) the names of the
officer(s) of the General Partner authorized to sign this Agreement and the Loan
Documents on behalf of the Borrower and authorized to submit a Borrowing Request
and a Continuation/Conversion Notice, together with a sample of the true
signature of such officer(s), and (ii) as to representations and warranties of,
and litigation involving, Borrower.
(f) Organizational Documents. A copy of Borrower's partnership
agreement and the General Partner's by-laws and charter (including all
amendments thereto certified by the respective secretary or any assistant
secretary of Borrower and General Partner.
(g) Legal Opinions. Opinions of counsel for Borrower, addressed to the
Agent an the Lenders, and substantially in the form of Exhibit D.
(h) Consents. Etc. Certified copies of all documents evidencing any
necessary corporate action, consents, and governmental approvals (if any with
respect to this Agreeme and the Loan Documents.
(i) Evidence of insurance. A summary set forth in format and detail
reasonab acceptable to the Agent of the types and amounts of insurance (property
and liability) maintained by the Borrower;
(j) Other. Such other documents as the Agent may reasonably request.
SECTION 4.2. ALL BORROWINGS. Each Lender's obligations to extend credit
under its note . subject to the following additional Conditions Precedent, which
must be satisfied each time a loan requested and a Loan is made:
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(a) Representations. The representations of Borrower contained
in Article 3 are true and correct as of the date of the requested Loan,
with the same effect as though made on the date additional funds are
advanced;
(b) Material Adverse Change. There has been no Material
Adverse Change in the condition of Borrower or the General Partner
since the date of the most recent borrowing hereunder;
(c) No Default. No Event of Default has occurred and continues
to exist;
(d) No Material Litigation. No material litigation (including,
without limitation, derivative actions), arbitration proceedings or
governmental proceedings. not disclosed in writing by Borrower to the
Agent and Lenders prior to the date of the execution and delivery of
this Agreement is pending or known to be threatened against Borrower
(or the General Partner or any Subsidiary), and no material development
not so disclosed has occurred in any litigation, arbitration
proceedings or governmental proceedings so disclosed, in either case
that could reasonably be expected to have a Material Adverse Effect on
Borrower (or the General Partner or any Subsidiary).
ARTICLE 5. AFFIRMATIVE COVENANTS
Borrower covenants that, during the term of this Agreement (including
any extensions hereof) and until all Obligations shall have been fully paid and
discharged, unless the Agent shall otherwise first consent in writing, Borrower
shall:
SECTION 5.1. FINANCIAL STATEMENTS AND REPORTS. Promptly furnish to the
Agent (with sufficient copies to deliver to Lenders):
(a) Annual Reports. As soon as available, and in any event
within ninety (90) days after the close of each Fiscal Year, the
audited Consolidated Financial Statements of Borrower and its
Subsidiaries prepared by a firm of independent certified public
accountants of recognized national standing setting forth the audited
consolidated balance sheets of Borrower and its Subsidiaries as at the
end of such year, and the audited consolidated statements of income,
statements of cash flows, and statements of retained earnings of
Borrower and its Subsidiaries for such year, setting forth in each case
in comparative form (beginning when comparative data are available) the
corresponding figures for the preceding Fiscal Year, accompanied by the
report of Borrower's certified public accountants, and by an unaudited
consolidating balance sheet and unaudited consolidating statements of
income, statements of cash flows, and statements of retained earnings
of Borrower and its Subsidiaries duly certified by borrower's chief
financial officer as being correct reflections of the information used
for the audited consolidated financial Statements;
(b) Ouarterlv and Year-to-Date Reports. As soon as available
and in any event within forty-five (45) days after the end of each
fiscal quarter, the consolidated balance sheets of Borrower and its
Subsidiaries as of the end of such Fiscal Quarter, and the consolidated
and consolidating statements of income of Borrower and its Subsidiaries
for such Fiscal Quarter and for period from the beginning of the Fiscal
Year to the close of such Fiscal Quarter, all
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certified by the chief financial officer chief accounting officer of
Borrower as being true and correct to the best of his or her knowledge;
(c) No Default/Compliance Certificate. Together with the
financial statements required pursuant to Section 5.1 (a) and (b), a
certificate of the treasurer or chief financial officer of Borrower (i)
to the effect that, based on the review of the activities of the
Borrower and such financial statements during the period covered
thereby, there exists no Default or Event of Default under this
Agreement, or if there exists a Default or Event of Default hereunder,
specifying the nature thereof and the proposed response thereto and
(ii) demonstrating in reasonable detail compliance as of the end of
such Fiscal Year or such Fiscal Quarter with Section 5.12, Sections 6.1
through 6.5 and Section 6.13.
(d) Other Information. Promptly upon its becoming available,
such other material information about Borrower, any Subsidiary or the
Indebtedness as the Agent may reasonably request from time to time.
All such balance sheets and other Financial Statements referred to in Sections
5.1(a) and (b) hereof shall conform to GAAP on a basis consistent with those of
previous Financial Statements.
SECTION 5.2. TAXES AND OTHER LIENS. Pay and discharge promptly all
taxes, assessments, and governmental charges or levies imposed upon it or upon
any of its income or Property as well as all claims of any kind (including
claims for labor, materials, supplies, and rent) which, if unpaid, might become
a Lien upon any or all of its Property; provided. however, that Borrower shall
not be required to pay any such tax, assessment, charge, levy, or claim if the
amount, applicability, or validity thereof shall currently be subject to a
Contest.
SECTION 5.3. MAINTENANCE.
(a) Maintain its existence, name, rights, and franchises;
(b) Observe and comply (to the extent necessary so that any
failure will not have a Material Adverse Effect) with all applicable
laws, statutes, codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, certificates, franchises, permits,
licenses, authorizations, and requirements of all federal, state,
county, municipal, and other governments; and
(c) Maintain its Property (and any Property leased by or
consigned to it or held under title retention or conditional sales
contracts) in good and workable condition at all times and make all
repairs, replacements, additions, and improvements to its Property
reasonably necessary and proper to ensure that the business carried on
in connection with its Property may be conducted properly and
efficiently at all times.
SECTION 5.4. FURTHER ASSURANCES. Promptly cure any defects in the
creation, issuance, and delivery of the Loan Documents. Borrower at its expense
promptly will execute and deliver to the Agent and each Lender upon request all
such other and further documents, agreements, and instruments in compliance
with or accomplishment of the covenants and agreements of Borrower in the Loan
Documents, or to correct any omissions in the Loan Documents, or to state
more fully the Obligations
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and agreements set out in any of the Loan Documents, all as may be reasonably
necessary or appropriate in connection therewith
SECTION 5.5. PERFORMANCE OF OBLIGATIONS. the the according to the terms
of the Loan Documents; and do and perform, and cause to be done and to be
performed, every act and discharge all of the Obligations provided to be
performed and discharged by Borrower under the Loan Documents, at the time or
times and in the manner specified.
SECTION 5.6. INSURANCe. Maintain and continue to maintain, with
financially sound and reputable insuroers, insurance satisfactory in type, form,
coverage and amount to the Agent, against such liabilities, casualties, risks,
and contingencies and in such types and amounts as is customary in the case of
corporations engaged in the same or similar businesses and similarly situated..
SECTION 5.7. ACCOUNTS AND RECORDS. Keep books of record and account, in
which full, true, and correct entries will be made of all dealings or
transactions in accordance with GAAP, except only for changes in accounting
principles or practices with which Borrower's certified public accountants
concur and which changes have been reported to the Agent in writing and with an
explanation thereof.
SECTION 5.8. RIGHT OF INSPECTION. Permit any officer, employee, or
agent of the Agent or any Lender to visit and inspect any of the Property of
Borrower, to examine Borrower's s books of record and accounts, to take copies
and extracts from such books of record and accounts, and to discuss the affairs,
finances, and accounts of Borrower with Borrower's respective officers,
accountants, and auditors, all at such reasonable times and as often as the
Agent and Lenders may reasonably desire.
SECTION 5.9. NOTICE OF CERTAIN EVENTS. Furnish to the Agent:
(a) Default. Promptly after the Borrower has notice or
knowledge of the occurrence of a Default or an Event of Default, a
certificate of the chief financial officer or principal accounting
officer of the Borrower specifying the nature thereof and the proposed
response thereto;
(b) Litigation. Promptly after (i) the occurrence thereof,
notice of the institution of any action, suit or proceeding or any
governmental investigation or any arbitration, before any court or
arbitrator or any governmental or administrative body, agency or
official, against the Borrower, or any property of any thereof an
adverse determination of which to the reasonable judgment of Borrower
could have a Material Adverse Effect, or (ii) actual knowledge of the
threat of any such action, suit, proceeding, investigation or
arbitration;
(c) Environmental Notices. Promptly after receipt thereof,
notice of any actual or alleged violation, or notice of any action,
claim or request for information, either judicial or administrative,
from any governmental authority relating to any actual or alleged
claim, notice of potential liability under or violation of any
Environmental Law, or any actual or alleged spill, leak, disposal or
other release of any waste, petroleum product, or hazardous waste or
Hazardous Substance by the Borrower that could result in penalties,
fines, claims or other liabilities to the Borrower in amounts in excess
of $1,000,000;
(d) ERISA. (i) Promptly after the Borrower has knowledge or
should have had knowledge of the occurrence thereof with respect to any
Plan of any Consolidated Company or
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and agreements set out in any of the Loan Documents, all as may be
reasonably necessary or appropriate in connection therewith.
SECTION 5.5. PERFORMANCE OF OBLIGATIONS. Pay the Indebtedness to the
terms of the Loan Documents; and do and perform, and cause to be done and to be
performed, every act and discharge all of the Obligations provided to be
performed and discharged by Borrower under the Loan Documents, at the time or
times and in the manner specified.
SECTION 5.6. INSURANCE. Maintain and continue to maintain, with
financially sound and reputable insurors, insurance satisfactory in type, form,
coverage and amount to the Agent, against such liabilities, casualties, risks,
and contingencies and in such types and amounts as is customary in the case of
corporations engaged in the same or similar businesses and similarly situated
SECTION 5.7. ACCOUNTS AND RECORDS. Keep books of record and account, in
which full, true, and correct entries will be made of all dealings or
transactions in accordance with GAAP, except only for changes in accounting
principles or practices with which Borrower's certified public accountants
concur and which changes have been reported to the Agent in writing and with an
explanation thereof.
SECTION 5.8. RIGHT OF INSPECTION. Permit any officer, employee, or
agent of the Agent or any Lender to visit and inspect any of the Property of
Borrower, to examine Borrower's books of record and accounts, to take copies and
extracts from such books of record and accounts, and to discuss the affairs,
finances, and accounts of Borrower with Borrower's respective officers,
accountants, and auditors, all at such reasonable times and as often as the
Agent and Lenders may reasonably desire.
SECTION 5.9. NOTICE OF CERTAIN EVENTS. Furnish to the Agent:
(a) Default. Promptly after the Borrower has notice or
knowledge of the occurrence of a Default or an Event of Default, a
certificate of the chief financial officer or principal accounting
officer of the Borrower specifying the nature thereof and the proposed
response thereto;
(b) Litigation Promptly after (i) the occurrence thereof,
notice of the institution of any action, suit or proceeding or any
governmental investigation or any arbitration, before any court or
arbitrator or any governmental or administrative body, agency or
official, against the Borrower, or any property of any thereof an
adverse determination of which to the reasonable judgment of Borrower
could have a Material Adverse Effect, or (ii) actual knowledge of the
threat of any such action, suit, proceeding, investigation or
arbitration;
(c) Environmental Notices. Promptly after receipt thereof,
notice of any actual or alleged violation, or notice of any action,
claim or request for information, either judicial or administrative,
from Any governmental authority relating to any actual or alleged
claim, notice of potential liability under or violation of any
Environmental Law, or any actual or alleged spill, leak, disposal or
other release of any waste, petroleum product, or hazardous waste or
Hazardous Substance by the Borrower that could result in penalties,
fines, claims or other liabilities to the Borrower in amounts in excess
of $1,000,000;
(d) ERISA. (i) Promptly after the Borrower has knowledge or
should have had knowledge of the occurrence thereof with respect to any
Plan of any Consolidated Company or
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holders, of all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any of them with any
securities exchange, and of all financial press releases and other
statements made available generally to the public relating to material
developments in the business or financial condition of the Borrower;
(g) Accountants' Reports. Promptly upon receipt thereof,
copies of all financial statements of, and all reports submitted by,
independent public accountants to the Borrower in connection with each
annual, interim or special audit of the Borrower's financial
statements;
(h) Additional Debt. The occurrence of the receipt of any
notice from, or the taking of any other action by, the holder of any
promissory note, debenture, or other evidence of Indebtedness of
the Borrower or of any security (as defined under the Securities Act of
1933, as amended) of the Borrower with respect to a claimed default,
together with a detailed statement by a responsible officer of the
Borrower specifying the notice given or other action taken by such
holder and the nature of the claimed default and what action the
Borrower is taking or proposes to take with respect thereto;
(i) Change in Management. Any material change in the
management of the Borrower; and
(j) Other Information. With reasonable promptness, such other
information about the Borrower as the Agent or any Lender may
reasonably request from time to time.
Section 5.10. ERISA INFORMATION AND COMPLIANCE. Comply with ERISA and
all other applicable laws governing any pension or profit sharing plan or
arrangement to which Borrower is a party or is otherwise subject. Borrower shall
provide the Agent and each Lender with notice of any "reportable event" or
"prohibited transaction" or the imposition of a "withdrawal liability" within
the meaning of ERISA.
SECTION 5.11. MANAGEMENT. Give immediate notice to the Agent and each
Lender of any material change in the management of Borrower.
SECTION 5.12. FINANCIAL COVENANTS.
(a) Current Ratio. Maintain at all times a Current Ratio of at
least l.0 to 1.
(b) Funded Debt to Adiusted Tangible Net Worth Ratio. Maintain
at all times a Funded Debt to Adjusted Tangible Net Worth ratio of no
more than 3.5 to 1.
(c) Debt Service Coverage. Maintain at all times a minimum
debt service coverage of 1.3 to 1.
(d) Fixed Charge Coverage Ratio. Maintain at all times a Fixed
Charge Coverage Ratio of not less than l.l0 to l.
(e) Funded Debt to EBITDA. Maintain a Funded Debt (excluding
all obligations under any Guaranty) to EBITDA (excluding, to the extent
included in the calculation of EBITDA,
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all Maintenance Capital Expenditures) ratio of not more than the
following ratios for the corresponding periods:
Ratio Time Period
4.5 to 1 Closing Date through September 30, 1998
4.25 to 1 October 1, 1998 and thereafter
The financial covenants set forth in Section 5.12(a)-(e) will be
measured at the end of each Fiscal Quarter beginning December 31, 1996.
ARTICLE 6. NEGATIVE COVENANTS
Borrower covenants and agrees that, during the term of this Agreement
and until the Obligations has been paid and satisfied in full, unless the Agent
shall otherwise first consent in writing, Borrower will not, and will not permit
any Subsidiary to, either directly or indirectly:
SECTION 6.1. DEBTS, GUARANTIES, AND OTHER OBLIGATIONS. Incur, create,
assume, or in any manner become or be liable with respect to any Debt; provided
that subject to all other provisions of this Article 6, the foregoing
prohibitions shall not apply to:
(a) Indebtedness evidenced by the Notes;
(b) Indebtedness outstanding on the date hereof, all as
described on Schedule 6.01(b);
(c) endorsements of negotiable or similar instruments for
collection or deposit in the ordinary course of business;
(d) trade payables or similar obligations (other than for
borrowed money or purchase money obligations) from time to time
incurred in the ordinary course of business not to exceed amounts
historically and customarily incurred by Borrower;
(e) taxes, assessments, or other governmental charges that are
not assessed or are subject to a Contest; being contested in good faith
by appropriate action promptly initiated and diligently conducted, if
Borrower shall have made any reserve therefor required by GAAP; and
(f) Subordinated Debt; and
(g) Indebtedness (in addition to the Indebtedness described in
Section 6.1 (a), (b), (d), (e) and (f)) in an aggregate principal
amount not to exceed $20,000,000.
SECTION 6.2. LIENS. Create, incur, assume, or permit to exist any lien
on any of its property (now owned or hereafter acquired) except, subject to all
other provisions of this article, the foregoing restrictions shall not apply to:
(a) Liens existing on the date hereof disclosed on Schedule
6.2;
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(b) Liens securing the Indebtedness permitted in Section
6.1(g); provided, however, that any such Lien shall be confined solely
to health care facilities owned by the Borrower acquired and/or
refinanced and shall not exceed 100% of the value of such nursing home;
(c) Liens for taxes not yet delinquent, and Liens for Taxes
that are subject to a Contest;
(d) Liens arising by operation of law in favor of materialmen,
mechanics, carriers, lessors and other similar Persons arising in the
ordinary course of business which relate to obligations which are not
yet due or which are subject to a Contest;
(e) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security or to secure the
performance of tenders, statutory obligations, surety and appeal bonds
and other similar obligations; and
(f) zoning restrictions, easements, licenses or restrictions
on the use of real property owned by the Borrower, which do not
materially impair the use of such property in the operation of the
business of the Borrower or the value of such property for the purpose
of such business.
SECTION 6.3. INVESTMENTS, LOANS, AND ADVANCES. Make or permit to remain
outstanding any loans or advances to or investments in any Person, except that,
subject to all other provisions of this Article, the foregoing restriction shall
not apply to:
(a) investments in direct obligations of the United States of
America or any agency thereof;
(b) investments in certificates of deposit having maturities
of less than one year, or repurchase agreements issued by commercial
banks in the United States of America having capital and surplus in
excess of 550,000,000, or commercial paper of the highest quality;
(c) investments in money market funds so long as the entire
investment therein is fully insured or so long as the fund is a fund
operated by a commercial bank of the type specified in (b) above; and
(d) mortgage participations and other similar investments not
to exceed $10,000,000 in the aggregate.
SECTION 6.4. SALES AND LEASEBACKS. Enter into any arrangement, directly
or indirectly, with any Person by which Borrower shall sell or transfer any
Property, whether now owned or hereafter acquired, and by which Borrower shall
then or thereafter rent or lease as lessee such Property or any part thereof or
other Property that Borrower intends to use for substantially the same purpose
or purposes as the Property sold or transferred other than on properties that
are expanded and added to an existing lease.
SECTION 6.5. NATURE OF BUSINESS. Suffer or permit any material change
to be made in the character of its business as carried on at the closing Date
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SECTION 6.6. ACQUISITIONS, MERGERS, ETC. (a) Merge with any Person if
as a result of such merger the surviving entity would not be the Borrower or if
a Default or Event of Default would result therefrom or (b) purchase, lease or
otherwise acquire (including by merger unless the provision in clause (a) above
applies) all or any substantial portion of the property or assets (including
capital stock) of any Person during the existence of a Default or Event of
Default or if such purchase, lease or acquisition would cause the occurrence of
a Default or an Event of Default.
SECTION 6.7. ASSET DISPOSITIONS, ETC. Permit any Asset Sales having an
aggregate EBITDA in excess of ten percent (10%) of Borrower's EBITDA during any
twelve month period.
SECTION 6.8. PROCEEDS OF LOAN. Permit the proceeds of the Loans to be
used for any purpose other than those permitted under this Agreement.
SECTION 6.9. SALE OR DISCOUNT OF RECEIVABLES. Except to minimize losses
on bona fide debts previously contracted, discount or sell with recourse, or
sell for less than the greater of the face or market value thereof, any of its
notes receivable or accounts.
Section 6.10. TRANSACTIONS WITH AFFILIATES. Enter into any transactions
or series of related transactions with any Affiliate of the Borrower, other than
on terms and conditions substantially as favorable to the Borrower as would be
obtained by the Borrower at the time in a comparable arm's-length transaction
with a Person other than an Affiliate..
Section 6.11. CREATION OF SUBSIDIARIES, ETC. Create, purchase, or
otherwise acquire any Subsidiary other than an existing Subsidiary or become an
Affiliate of any Person, or use a trade name not disclosed in this Agreement.
SECTION 6.12. ADDITIONAL NEGATIVE PLEDGES. Create or otherwise cause or
suffer to exist or become effective, directly or indirectly, any prohibition or
restriction on the creation or existence of any Lien upon any asset of the
Borrower, other than pursuant to (a) Section 6.2 and (b) any requirement of
applicable law or any regulatory authority having jurisdiction over any of the
Borrower.
SECTION 6.13. INCONSISTENT AGREEMENTS. Enter into any agreement
containing any provision that would be violated or breached by Borrower's
performance of its Obligations.
ARTICLE 7. EVENTS OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. Any of the following events shall be
considered an Event of Default (and shall be considered a Default pending the
passage of time, giving of notice or other condition specified below):
(a) Principal and Interest Payments. Borrower fails to pay any
installment of principal or interest under this Agreement or on any
Note within two (2) Business Days after the Agent or any Lender
notifies Borrower of Borrower's failure to make such PAyment or
borrower fails to pay any other amount payable hereunder, under any
note or other Loan Document o with respect to the Indebtedness within
two (2) Business Days after the Agent or any Lender notifies Borrower
of Borrower's failure to make such payment; or
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(b) Representations and Warranties. Any representation,
warranty, statement (including financial statements), certification
or data made or furnished by or on behalf of Borrower in connection
with this Agreement or any other Loan Document is incorrect or
misleading in any material respect as of the date as of which the
facts therein set forth were stated or certified; or
(c) Obligations. Borrower fails to perform any of the promises
or obligations contained in or required by this Agreement or any other
Loan Document and fails to cure such non-performance within thirty (30)
days from the earlier of (i) its knowledge thereof or (ii) the Agent's
written notice thereof; or
(d) Involuntary Bankruptcy or Receivership Proceedings. Any of
the following events or conditions occurs with respect to Borrower or
General Partner: (i) a receiver, custodian, liquidator, or trustee of
itself or of any of its respective Property is appointed by the order
or decree of any court or agency or supervisory authority having
jurisdiction; or (ii) any of its Property is sequestered by court
order; or (iii) a petition is filed against it under any state or
federal bankruptcy, reorganization, debt arrangement, insolvency,
readjustment of debt, dissolution, liquidation or receivership law of
any jurisdiction, whether now or hereafter in effect and either: (y)
such petition is not dismissed or vacated within sixty (60) calendar
days from the filing date of such petition or (z) an order for relief
is entered in such action; or
(e) Voluntary Petitions. Borrower or General Partner files (or
takes affirmative steps to prepare to file) a voluntary bankruptcy
petition or other petition to seek relief under any provision of any
bankruptcy, reorganization, debt arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction or consents
to the filing of any such petition against it under any such law; or
(f) Assignments for Benefit of Creditors, Etc. Borrower or
General Partner makes an assignment for the benefit of its creditors,
or admits in writing its inability to pay its debts generally as they
become due, or consents to the appointment of a receiver, trustee, or
liquidator of itself or of all or any part of its Property; or
(g) Discontinuance of Business, Etc. Borrower (i) discontinues
its usual business, or (ii) commences to dissolve, wind-up or liquidate
itself; or
(h) Cross-Default on Other Debt or Security. Subject to any
applicable grace period or waiver prior to any due date, Borrower fails
to make any payment due on any Indebtedness, exceeding $500,000 in the
aggregate, or any event shall occur, the effect of which is to cause or
to permit the holder of such Indebtedness or any other Person to
accelerate that maturity of such Indebtedness, or any such Indebtedness
shall be required to be prepaid in whole or in part; or
(i) Undischarged Judgements. Any court or other governmental
authority renders judgement against Borrower for the payment of money
in excess of $500,000, payment of which is not fully covered by valid
collectible insurance; or
(j) Violation of Laws, Etc, Borrower materially violates or
otherwise materially fails to comply with any law, rule, regulation,
decree, order, or judgement under the laws of the United States of
America, or of any state or jurisdiction thereof; or Borrower fails or
refuses at
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any and all times to remain current on its financial reporting
requirements pursuant to such laws, rules, and regulations or pursuant
to the rules and regulations of any exchange upon which any units of
Borrower are traded; or
(k) Change in Control. Any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act of
1934, as amended from time to time), shall become the "beneficial
owner(s)" (as defined in said Rule 13d-3) of more than forty percent
(40%) of the units of the Borrower entitled to vote for members of the
Borrower's management committee or similar management group.
SECTION 7.2. REMEDIES. Upon the happening of any Event of Default set
forth above, with the exception of those events set forth in Section 7.1(d),
7.1(e) and 7.1(f): the Agent may, and upon written or telex request of the
Required Lenders, shall (i) declare the entire principal amount of the
Obligations then outstanding, including interest accrued thereon, to be
immediately due and payable without presentment, demand, protest, notice of
protest, or dishonor or other notice of default of any kind, all of which
Borrower hereby expressly waives, (ii) declare the Commitments terminated
whereupon the Commitments of each Lender shall terminate immediately, or (iii)
exercise all rights set forth in the Loan Documents or afforded a creditor under
applicable law.
Upon the happening of any event specified in Section 7.1(d), 7.1(e) or
7.1(f) above: (i) all Obligations, including all principal, accrued interest,
and other charges or monies due in connection therewith shall be immediately and
automatically due and payable in full, without presentment, demand, protest, or
dishonor or other notice of any kind, all of which Borrower hereby expressly
waives, (ii) all obligations of Lenders under this Agreement shall immediately
cease and terminate unless and until Required Lenders shall reinstate such
obligations in writing, (iii) all rights set forth in the Loan Documents may be
exercised; or (iv) Agent may bring an action to protect or enforce Lenders'
rights under the Loan Documents or seek to collect and/or enforce the
Obligations by any lawful means.
SECTION 7.3. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, each Lender is authorized, at any time and
from time to time, pursuant to Article 10, without notice to the Borrower (any
such notice being expressly waived by the Borrower), to set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by Lender to or for the
credit or the account of the Borrower against any and all of the Obligations,
irrespective of whether or not Lender or Agent shall have accelerated the
Obligations or made any demand under this Agreement or any Note and although
such obligations may be unmatured, all pursuant to Article 10 hereof.
ARTICLE 8. INDEMNIFICATIONS
SECTION 8.1. REPRESENTATION AND INDEMNITY REGARDING HAZARDOUS
SUBSTANCES.
(a) Borrower has no knowledge (i) of the presence of any
Hazardous Substances on any of its Property; (ii) of any spills,
releases, discharges, or disposal of Hazardous Substances that have
occurred or are presently occurring on or onto any of its Property; or
(iii) of any spills or disposal of Hazardous Substances that have
occurred or are occurring off any of its Property as a result of any
construction on or operation and use of the Property.
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(b) Borrower represents that its Property and any previous or
current operation concerning its Property and its business operations
are not in violation of anv applicable federal, state or local statute,
ordinance, law or regulation including common law, and Borrower has no
actual knowledge or any notice from any governmental body claiming that
the Property or its business operations or operations or uses of the
Property have or may result in any violation of any law, ordinance,
code or regulation or requiring or calling attention to the need for
any work, repairs, corrective actions, construction alterations or
installation on or in connection with the Property or Borrower's
business in order to comply with any laws, ordinances, codes or
regulations with which Borrower has not complied. If there are any such
notices with which Borrower has complied, Borrower shall provide the
Agent with copies thereof. If Borrower receives any such notice,
Borrower will immediately provide a copy to the Agent.
(c) To the best of Borrower's knowledge, no portion of any of
its Property consists of filled ground, or was used or will be used for
the dumping of trash, debris or other refuse.
(d) To the best of Borrower's knowledge, no barrels, cans,
trash, debris, containers, articles or any other items which were
dumped, abandoned, discarded or stored on in, or under any of its
Property are currently existing on the Property or will be placed on,
in, or under the Property in the future.
(e) To the best of Borrower's knowledge, no storage tanks for
gasoline or any other substance are or were located on any of its
Property at any time prior to Borrower's ownership thereof, or are
currently existing thereon or will be placed thereon in the future.
(f) Borrower agrees to indemnify and hold the Agent and each
Lender harmless from and against any and all claims, demands, damages,
losses, liens, liabilities, penalties, fines, lawsuits, and other
proceedings, costs and expenses (including, without limitation,
reasonable attorneys' fees), arising directly or indirectly from or out
of, or in any way connected with (i) the presence of any Hazardous
Substances on any of its Property; (ii) any violation or alleged
violation of any local, state of federal environmental law, regulation,
ordinance or administrative or judicial order relating to Hazardous
Substances on any of its Property, whether attributable to events
occurring before or after Borrower's acquisition of any of its
Property; (iii) any violation of any Environmental Law by Borrower
resulting from the conduct of its business, use of its Property, or
otherwise; or (iv) any inaccuracy in the certifications contained
herein.
As used in this section, the term "RELEASE" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the
environment. The term "ENVIRONMENT" means any surface or groundwater,
drinking water supply, land, surface or subsurface strata or the
ambient air.
SECTION 8.2. OTHER INDEMNITIES. In consideration of the execution and
delivery of this Agreement by the agent and each Lender and the extension of the
Loans, Borrower hereby indemnifies, exonerates and holds the Agent, each Lender
and each of their respective its officers, directors, shareholders, employees,
agents and assigns (the "INDEMNIFIED PARTIES") free and harmless from and
against any and all actions, causes of action, suits, losses, costs, liabilities
and damages and expenses (irrespective of whether any such indemnified party is
a party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements incurred by the indemnified parties
or any of them resulting from (a) any transaction financed or to be financed in
whole or in part,
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directly or indirectly, with the proceeds of the Loan; or (b) the entering into
and performance of this Agreement and any other Loan Document by any of the
indemnified parties, regardless of whether caused by, or within the control of,
Borrower, except to the extent arising out of an indemnified party's gross
negligence or wilful misconduct, or (c) Borrower's and/or Guarantor's breach of
any provision of any Loan Document (collectively, the "INDEMNIFIED
LIABILITIES"). If and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law. The indemnification set
forth in this Section 8.2 shall survive payment of the Obligations and
termination of this Agreement.
ARTICLE 9. AGENT
SECTION 9.1. APPOINTMENT OF THE AGENT. Each Lender hereby designates
STB as the Agent to administer all matters concerning the Loans and to act as
herein specified. Each Lender hereby irrevocably authorizes, and each holder of
any Note by the acceptance of a Note shall be deemed irrevocably to authorize,
the Agent to take such actions on its behalf under the provisions of this
Agreement, the other Loan Documents and all other instruments and agreements
referred to herein or therein, and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto. The Agent may perform any of its duties hereunder
by or through its agents or employees. Neither the Agent nor any of its
directors, officers, employees or agents shall be liable for any action taken or
omitted to be taken by it or them hereunder or in connection herewith, except
for its or their own gross negligence or willful misconduct.
SECTION 9.2. AUTHORIZATION OF THE AGENT WITH RESPECT TO THE LOAN
DOCUMENTS.
(a) Each Lender hereby authorizes the Agent to enter into each
of the Loan Documents and to take all action contemplated thereby, all
in its capacity as the Agent for the ratable benefit of the Lenders.
All rights and remedies under the Loan Documents may be exercised by
the Agent for the benefit of the Agent and the Lenders upon the terms
thereof. The Lenders further agree that the Agent may assign its rights
and obligations under any of the Loan Documents to any affiliate of the
Agent or to any trustee, if necessary or appropriate under applicable
law. Each such case assignee shall be entitled to all the rights of the
Agent under and with respect to the applicable Loan Document, subject
to compliance with any requirements of applicable law governing the
assignment of such Loan Documents.
(b) The Agent shall be entitled to use its discretion with
respect to exercising or refraining from exercising any rights that may
be vested in it by this Agreement, and with respect to taking or
refraining from taking any action or actions that it may be able to
take under or respect of this Agreement, unless (i) such actions or
rights expressly require the consent of the Required Lenders or all of
the Lenders, or (ii) the Required Lenders shall have instructed the
Agent to exercise or refrain from exercising such rights or to take or
refrain from taking such action. The Agent shall incur no liability
under or respect of this Agreement with respect to anything that it may
do or refrain from doing in the reasonable exercise of its judgment or
that may seem to it to be necessary or desirable in the circumstances,
except for its gross negligence or willful misconduct.
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(c) The Agent shall not be liable to the Lenders or to any
Lender in acting or refraining from acting under this Agreement or any
other Loan Document in accordance with the instructions of the Required
Lenders or all of the Lenders, where expressly required by this
Agreement, and any action taken or failure to act pursuant to such
instructions shall be binding on all Lenders. In each circumstance
where any consent of or direction from the Required Lenders or all of
the Lenders is required, the Agent shall send to the Lenders a notice
setting forth a description in reasonable detail of the matter as to
which consent or direction is requested and the Agent's proposed course
of action with respect thereto. If the Agent does not receive a
response from any Lender within five (5) Business Days after such
Lender's receipt of such notice, such Lender shall be deemed to have
agreed to the course of action proposed by the Agent.
SECTION 9.3. AGENT'S DUTIES, LIMITED; NO FIDUCIARY DUTY. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement and the other Loan Documents. Neither the Agent nor any of its
respective officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such hereunder or in connection herewith,
unless caused by its or their gross negligence or willful misconduct. The Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender, and nothing in this Agreement, express or implied, is intended to
or shall be so construed as to impose upon the Agent any obligations in respect
of this Agreement or the other Loan Documents except as expressly set forth
herein.
SECTION 9.4. NO RELIANCE ON THE AGENT.
(a) Each Lender represents and warrants to the Agent and the
other Lenders that such Lender, to the extent it deems appropriate, has
made and shall continue to make, independently and without reliance
upon the Agent, (i) its own independent investigation of the financial
condition and affairs of the Borrower in connection with the taking or
not taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of the Borrower. Each Lender further
agrees that, except as expressly provided in this Agreement, the Agent
shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession
before the making of the Loans or at any time or times thereafter. As
long as any of the Loans are outstanding, each Lender shall continue to
make its own independent evaluation of the financial condition and
affairs of the Borrower.
(b) The Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness,
validity, enforceability, collectibility, priority or sufficiency of
this Agreement, the Notes, the other Loan Documents, or any other
documents contemplated hereby or thereby, or the financial condition of
the Borrower. The Agent shall not be required to make any inquiry
concerning the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Notes, the other Loan
Documents or the other documents contemplated hereby or thereby, or the
financial condition of the Borrower or the existence or possible
existence of any Default or Event of Default; provided, however, to the
extent that the Agent has been advised that a Lender has not received
any information formally delivered to the Agent pursuant to Section
5.1, the Agent shall deliver such information, or cause it to be
delivered, to such Lender.
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SECTION 9.5. CERTAIN RIGHTS OF AGENT. If the Agent shall request
instructions from the Required Lenders with respect to any action or actions
(including the failure to act) in connection with this Agreement, the Agent
shall be entitled to refrain from such act or taking such act, unless and until
the Agent shall have received instructions from the Required Lenders; and the
Agent shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder in accordance with the instructions of the Required Lenders.
SECTION 9.6. RELIANCE BY THE AGENT. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, radiogram, order or other documentary, teletransmission or
telephone message believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person. The Agent may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
SECTION 9.7. INDEMNIFICATION OF THE AGENT. To the extent the Agent is
not reimbursed and indemnified by the Borrower, each Lender will reimburse and
indemnify the Agent, ratably according to the respective amounts of the Loans
outstanding hereunder (or if no amounts are outstanding, ratably in accordance
with the Commitments), in either case, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including fees of experts, consultants and counsel and disbursements)
or disbursements of any kind or nature whatsoever that may be imposed on,
incurred by or asserted against the Agent in performing its duties hereunder, in
any way relating to or arising out of this Agreement or the other Loan
Documents; provided that no Lender shall be liable to the Agent for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct.
SECTION 9.8. THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its
obligation as a Lender to lend under this Agreement, the Loans made by it and
the Notes issued to it, the Agent shall have the same rights and powers
hereunder as any other Lender or holder of a Note and may exercise the same as
though it were not performing the duties of the Agent specified herein; and the
terms "Lenders," "Required Lenders," "holders of Notes," or any similar terms
shall, unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent and its affiliates may accept deposits from, lend
money to (unless expressly prohibited by the terms of this Agreement), and
generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower as if it were not performing the duties specified
herein as the Agent, and may accept fees and other consideration from the
Borrower for services in connection with this Agreement and otherwise without
having to account for the same to the Lenders.
SECTION 9.9. HOLDERS OF NOTES. The Agent may deem and treat the payee
of Any Note as the owner thereof for all purposes hereof.
SECTION 9.10. SUCCESSOR AGENT.
(a) The Agent may resign at any time by giving written notice
thereof to the Lenders and Borrower and may be removed at any time with
or without cause by the Required Lenders; provided, however, the Agent
may not resign or be removed until a successor Agent has been
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appointed and has accepted such appointment. Upon any such resignation
or removal, the Required Lenders shall have the right to appoint a
successor Agent with the consent of Borrower which shall not be
unreasonably withheld or delayed. If no successor Agent has been so
appointed by the Required Lenders and has accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a bank that maintains an office in
the United States, or a commercial bank organized under the laws of
the United States of America or any State thereof, or any Affiliate of
such bank, having a combined capital and surplus of at least
$100,000,000.
(b) Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this
Article 9 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was an the Agent under this Agreement.
SECTION 9.11. NOTICE OF DEFAULT OR EVENT OF DEFAULT. If the Agent or
any Lender acquires actual knowledge, or has been notified, of any Default
(other than through a notice by one party hereto to all other parties), it shall
promptly notify the Agent and the other Lenders, and the Agent shall take such
action and assert such rights under this Agreement as the Required Lenders (or
all the Lenders, where expressly required by this Agreement) shall request in
writing, and the Agent shall not be subject to any liability by reason of its
acting pursuant to any such request. If the Required Lenders shall fail to
request the Agent to take action or to assert rights under this Agreement in
respect of any Default within five (5) days after their receipt of the notice of
any Default from the Agent or any Lender, or shall request inconsistent action
with respect to such Default, the Agent may, but shall not be required to, take
such action and assert such rights (other than rights under Article 9 hereof) as
it deems in its discretion to be advisable for the protection of the Lenders.
ARTICLE 10. GENERAL PROVISIONS
SECTION 10.1. NOTICES. All communications under or in connection with
this Agreement or any of the other Loan Documents shall be in writing and shall
be mailed by first class certified mail, postage prepaid, or otherwise sent by
telex, telegram, telecopy, or other similar form of rapid transmission confirmed
by mailing (in the manner stated above) a written confirmation at substantially
the same time as such rapid transmission, or personally delivered to an officer
of the receiving party. All such communications shall be mailed, sent, or
delivered to such party at its address or applicable teletransmission number set
forth opposite such party's name on the signature pages hereof, or such other
address or applicable teletransmission number as such party may hereafter
specify to Agent and the Borrower. Each such notice, request or other
communication shall be effective (a) if given by mail seveny-two (72) hours
after such communication is deposited in the mails with first-class postage
prepaid, addressed as aforesaid, (b) if given by telecopy, when such telecopy is
transmitted to the telecopy number as described above and the appropriate
confirmation is received, or (c) if given by any other means (including, without
limitation, by air courier), when delivered or received at the address specified
in this Section 10.1; provided that notices to the Agent shall not be effective
until received.
SECTION 10.2. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement or the other Loan Documents, nor consent to any departure by
Borrower therefrom, shall in any event
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be effective unless the same shall be in writing and signed by the Required
Lenders, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided that no
amendment, waiver or consent shall, unless in writing and signed by all the
Lenders do any of the following: (a) increase the Loan Commitments or other
contractual obligations to the Borrower under this Agreement, (b) reduce the
principal of, or interest on, the Notes or any fees hereunder, (c) postpone any
date fixed for the payment in respect of principal of, or interest on, the Notes
or any fees hereunder, (d) change the percentage of the Loan Commitments or of
the aggregate unpaid principal amount of the Notes, or the number or identity of
Lenders that shall be required for the Lenders or any of them to take any action
hereunder, (e) modify the definition of "Required Lenders," or (f) modify
Article 9 or (g) modify this Section 10.2. Notwithstanding the foregoing, no
amendment, waiver or consent shall, unless in writing and signed by the Agent in
addition to the Lenders required hereinabove to take such action, affect the
rights or duties of the Agent under this Agreement or under any other Loan
Document.
SECTION 10.3. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Agent, any Lender or any holder of a Note in exercising any
right or remedy hereunder or under any other Loan Document, and no course of
dealing between Borrower and the Agent, any Lender or the holder of any Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right or remedy hereunder or under any other Loan Document preclude any
other or further exercise thereof or the exercise of any other right or remedy
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies that the Agent, any
Lender or the holder of any Note would otherwise have. No notice to or demand on
Borrower not required hereunder or under any other Loan Document in any case
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agent, the
Lenders or the holder of any Note to any other or further action in any
circumstances without notice or demand.
SECTION 10.4. PAYMENT OF EXPENSES, ETC. Borrower shall:
(a) whether or not the transections hereby contemplated are
consummated, pay all reasonable, out-of-pocket costs and expenses of the Agent
in the administration (both before and after the execution hereof and including
reasonable expenses actually incurred relating to advice of counsel as to the
rights and duties of the Agent and the Lenders with respect thereto) of, and in
connection with the preparation, execution and delivery of, preservation of
rights under, enforcement of, and, after a Default or Event of Default,
refinancing, renegotiation or restructuring of, this Agreement and the other
Loan Documents and the documents and instruments referred to therein, and any
amendment, waiver or consent relating thereto (including, without limitation,
the reasonable fees actually incurred and disbursements of counsel for the
Agent), and in the case of enforcement of this Agreement or any Loan Document
after an Event of Default, all such reasonable, out-of-pocket costs and expenses
(including, without limitation, the reasonable fees actually incurred and
disbursements of counsel), for any of the Lenders;
(b) pay and hold each of the Lenders harmless from and against any and
all present and future stamp, documentary, indebtedness and other similar taxes
with respect to this Agreement, the Notes and any other Loan Documents, or any
payments due thereunder, and save each Lender harmless from and against any and
all liabilities with respect to or resulting from any delay or omission to pay
such taxes unless such delay or omission is caused by the gross negligence of
the Agent and Lenders; and
(c) indemnify the Agent and each Lender, and their respective officers,
directors, employees, representatives and agents from, and hold each of them
harmless against, any and all costs, losses,
37
<PAGE> 42
liabilities, claims, damages expenses incurred by any of them (whether or not
any of them is designated a party thereto) (an Indemnitee") arising out of or
by reason of any investigation, litigation or other proceeding related to any
actual or proposed use of the proceeds of any of the Loans or Borrower's
entering into and performing of the Agreement, the Notes or the other Loan
Documents, including, without limitation, the reasonable fees actually incurred
and disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding; provided, however, the Borrower shall not be
obligated to indemnify any Indemnitee for any of the foregoing arising out of
such Indemnitee's gross negligence or willful misconduct;
(d) without limiting the indemnities set forth in Section 10.4(c),
indemnify each Indemnitee for any and all expenses and costs (including without
limitation, remedial, removal, response, abatement, cleanup, investigative,
closure and monitoring costs), losses, claims (including claims for contribution
or indemnity and including the cost of investigating or defending any claim and
whether or not such claim is ultimately defeated, and whether such claim arose
before, during or after Borrower's ownership, operation, possession or control
of its business, property or facilities or before, on or after the date hereof,
and including also any amounts paid incidental to any compromise or settlement
by the Indemnitee or Indemnitees to the holders of any such claim), lawsuits,
liabilities, obligations, actions, judgments, suits, disbursements,
encumbrances, liens, damages (including without limitation damages for
contamination or destruction of natural resources), penalties and fines of any
kind or nature whatsoever (including without limitation in all cases the
reasonable fees actually incurred, other charges and disbursements of counsel in
connection therewith) incurred, suffered or sustained by that Indemnitee based
upon, arising under or relating to Environmental Laws based on, arising out of
or relating to in whole or in part, the existence or exercise of any rights or
remedies by any Indemnitee under this Agreement, any other Loan Document or any
related documents.
If and to the extent that the obligations of the Borrower under this Section
10.4 are unenforceable for any reason, the Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations that is
permissible under applicable law.
SECTION 10.5. RIGHT OF SETOFF. In addition to and not in limitation of
all rights of offset that any Lender or other holder of a Note may have under
applicable law and subject to Section 2.19 hereof, each Lender or other holder
of a Note shall, upon the occurrence of any Event of Default and whether or not
such Lender or such holder has made any demand or the Borrower's obligations are
matured, have the right to appropriate and apply to the Obligations, all
deposits of the Borrower (general or special, time or demand, provisional or
final) then or thereafter held by and other Indebtedness or property then or
thereafter owing by such Lender or other holder to the Borrower, whether or not
related to this Agreement or any transaction hereunder. Upon direction by the
Agent with the consent of the Required Lenders, each Lender holding deposits of
the Borrower shall exercise its set-off rights as so directed and any such
amounts recovered shall be applied to the Obligations.
SECTION 10.6. BENEFIT OF AGREEMENT. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, provided that the Borrower may not assign or
transfer any of its interest hereunder without the prior written consent of the
Lenders.
(b) Any Lender may make, carry, transfer or participate Loans at, to or
for the account of, any of its branch offices or the office of an Affiliate of
such Lender provided that the Borrower will not be responsible for any increased
Taxes as a result of any such transfer or participation.
38
<PAGE> 43
(c) Any Lender may at any time assign all or any portion of its rights
in this Agreement and the Notes issued to it to a Federal Reserve Bank; provided
that no such assignment shall release the Lender from any of its obligations
hereunder.
(d) If (i) any Taxes referred to in Section 2.13(b) have been levied or
imposed so as to require withholdings or deductions by the Borrower and payment
by the Borrower of additional amounts to any Lender as a result thereof, (ii)
any Lender shall make demand for payment of any material additional amounts as
compensation for increased costs pursuant to Section 2.16 or for its reduced
rate of return pursuant to Section 2.20, or (iii) any Lender shall decline to
consent to a modification or waiver of the terms of this Agreement or the other
Loan Documents requested by the Borrower, then and in such event, upon request
from the Borrower delivered to such Lender and the Agent, such Lender shall
assign, pursuant to such documentation acceptable to Agent, all of its rights
and obligations under this Agreement and the other Loan Documents to another
Lender selected by the Borrower, in consideration for the payment by such
assignee to the Lender of the principal of, and interest on, the outstanding
Loans accrued to the date of such assignment, and the assumption of such
Lender's Commitment hereunder, together with any and all other amounts owing to
such Lender under any provisions of this Agreement or the other Loan Documents
accrued to the date of such assignment.
Section 10.7. GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE
NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF
TENNESSEE.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE CHANCERY COURTS FOR
DAVIDSON COUNTY, TENNESSEE OR IN THE FEDERAL COURTS FOR THE MIDDLE DISTRICT OF
TENNESSEE, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER
HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND EACH BORROWER HEREBY IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
(c) Nothing herein shall affect the right of the Agent, any Lender, any
holder of a Note or Borrower to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against Borrower in
any other jurisdiction.
SECTION 10.8. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
SECTION 10.9. EFFECTIVENESS; SURVIVAL. (a) This Agreement shall become
effective on the date on which all of the parties hereto shall have executed a
copy hereof (whether the same or different copies) and shall have delivered the
same to the Agent pursuant to Section 10.1 or, in the case of the Lenders,
39
<PAGE> 44
shall have given to the Agent written or telex notice (actually received) that
the same has been executed and mailed to them.
(b) The obligations of the Borrower under Sections 2.13, 2.16, 2.17,
2.20, 10.4 and Article 9 shall survive the payment in full of the Notes after
the Maturity Date. All representations and warranties made herein, in the
certificates, reports, notices and other documents delivered pursuant to this
Agreement shall survive the execution and delivery of this Agreement, the other
Loan Documents, and such other agreements and documents, the making of the Loans
hereunder, and the execution and delivery of the Notes.
SECTION 10.10. SEVERABILITY. In case any provision in or obligation
under this Agreement or the other Loan Documents shall be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 10.11. INDEPENDENCE OF COVENANTS. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant, shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
SECTION 10.12. CHANGE IN ACCOUNTING PRINCIPLES, FISCAL YEAR OR TAX
LAWS. If (a) any preparation of the Financial Statements hereafter occasioned by
the promulgation of rules, regulations, pronouncements and opinions by or
required by the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or successors thereto or agencies with similar
functions) (other than changes mandated by FASB-106) result in a material change
in the method of calculation of financial covenants, standards or terms found in
this Agreement, or (b) there is a material change in federal tax laws that
materially affects the Borrower's ability to comply with the financial
covenants, standards or terms found in this Agreement, the Borrower and the
Required Lenders agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating the Borrower's financial condition shall be the same
after such changes as if such changes had not been made. Unless and until such
provisions have been so amended, the provisions of this Agreement shall govern.
SECTION 10.13. HEADINGS DESCRIPTIVE; ENTIRE AGREEMENT. The headings of
the several Sections and subsections of this Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement. This Agreement, the other Loan Documents, and
the agreements and documents required to be delivered pursuant to the terms of
this Agreement constitute the entire agreement among the parties hereto and
thereto regarding the subject matters hereof and thereof and supersede all prior
agreements, representations and understandings related to such subject matters.
SECTION 10.14. INTEREST. The parties to this Agreement intend to
conform strictly to applicable usury laws and other laws that may limit monetary
charges, however such charges may be characterized, as presently in effect.
Accordingly, if the transactions contemplated hereby would be usurious or
otherwise excessive under applicable law (including the laws of the United
States of America and the State of Tennessee), then, in that event,
notwithstanding anything to the contrary in any Loan Document or agreement
executed in connection with or as security for any of the Notes, the Borrower
and Lenders agree as follows: (a) the aggregate of all consideration that
constitutes interest under applicable law which
40
<PAGE> 45
is contracted for, charged or received under any of the Notes, this Agreement or
any of the other Loan Documents or agreements, or otherwise in connection with
the Notes, and all other monetary charges, shall under no circumstances exceed
the maximum lawful rate of interest or lawful amount of other charges permitted
by applicable law, and any excess shall be credited on the applicable Notes by
the holder thereof (or, if the Notes shall have been paid in full, refunded to
the Borrower); and (b) in the event that the maturity of any of the Notes is
accelerated by reason of an election of the holder resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest may
never include more than the maximum amount of interest permitted by applicable
law, and excess interest, if any, for which this Agreement provides, or
otherwise, shall be cancelled automatically as of the date of such acceleration
or prepayment and, if previously paid, shall be credited on the applicable Notes
(or, if the Notes shall have been paid in full, refunded to the Borrower).
ARTICLE 11. JURY WAIVER
SECTION 11.1. JURY WAIVER. IF ANY ACTION OR PROCEEDING INVOLVING THIS
LOAN AGREEMENT OR ANY LOAN DOCUMENT IS COMMENCED IN ANY COURT OF COMPETENT
JURISDICTION, BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE THEIR RIGHTS TO
DEMAND A JURY TRIAL.
ENTERED INTO the date first above written.
BORROWER:
Address for Notices: NATIONAL HEALTHCARE L.P.
100 Vine Street By: NHC, Inc.,
Murfreesboro, Tennessee 37130 Managing General Partner
Telephone No.: (615) 890-2020
Telecopy No.: (615) 890-0123
By:/s/
---------------------------
Title: President
------------------------
41
<PAGE> 46
AGENT:
Address for Notices: SUNTRUST BANK, NASHVILLE, N.A., as Agent
201 Fourth Avenue North By: /s/
P.O. Box 305110 ----------------------------
Nashville, Tennessee 37230-5110 Title: /s/ Group Vice President
Attn: Karen Cole Ahern, -------------------------
Group Vice President
Telephone No.: (615) 748-5817
Telecopy No.: (615) 748-5161
LENDERS:
Address for Notices: SUNTRUST BANK, NASHVILLE, N.A.
201 Fourth Avenue North
P.O. Box 305110 By: /s/
Nashville, Tennessee 37230-5110 ----------------------------
Attn: Karen Cole Ahern, Title: Group Vice President
Group Vice President -------------------------
Telephone No.: (615) 748-5817
Telecopy No.: (615) 748-5161
Payment Office:
201 Fourth Avenue North
P.O. Box 305110
Nashville, TN 37230-5110
Attn: Karen Cole Ahern, Group
Group Vice-President
Telephone No.: (615) 748-5817
Telecopy No.: (615) 748-5161
LOAN COMMITMENT: $15,000,000
PRO RATA SHARE: 42.8572%
Address for Notices: FIRST AMERICAN NATIONAL BANK
First American Center
Nashville, TN 37238 By:/s/
Attn: Sandra G. Hamrick ---------------------------
Telephone No.: (615) 748-2191
Telecopy No.: (615) 748-2812
Title: SENIOR VICE PRESIDENT
------------------------
42
<PAGE> 47
Payment Office:
First American Center
Nashville, TN 37238
ABA #:064000017
Attn: Sandra G. Hamrick
Re: National HealthCare L.P.
Telephone No.: (615) 748-2191
Telecopy No.: (615) 748-2812
LOAN COMMITMENT: $5,000,000
PRO RATA SHARE: 14.2857%
Address for Notices: NBD BANK
NBD Bank
611 Woodward Avenue By: /s/
Detroit, M1 48226 ----------------------------
Attn: William J. McCaffrey
Telephone No.: (313) 225-3444
Telecopy No.: (313) 225-2649 Title: Vice President
-------------------------
Payment Office:
NBD Bank
611 Woodward Avenue
Detroit, MI 48226
ABA #:072000326
Attn: Commercial Loans
Re: National HealthCare L.P.
Acct. #:2241149
Telephone No.: (313) 225-3444
Telecopy No.: (313) 225-2649
LOAN COMMITMENT: $10,000,000
PRO RATA SHARE: 28.5714%
UNION PLANTERS BANK OF MIDDLE
Address for Notices: TENNESSEE, N.A.
1861 Memorial Blvd. By: /s/
Murfreesboro, TN 37129 ----------------------------
Attn: Jim Bryant
Telephone No.: (615) 893-428
Telecopy No.: (615) 896-6438 Title: Senior Vice President
-------------------------
Payment Office:
1861 Memorial Blvd.
Murfreesboro. TN 37129
Attn: Jim Bryant
Telephone No.: (615) 893~428
Telecopy No.: (615) 896-6438
LOAN COMMITMENT: $5,000,000
PRO RATA SHARE: 14.2857%
43
<PAGE> 1
Exhibit 10.6
- --------------------------------------------------------------------------------
REIMBURSEMENT AND LETTER OF CREDIT AGREEMENT
Dated as of June 1, 1989
Among
WEST PLAINS MANOR,
NATIONAL HEALTHCORP L.P.
and
THE BANK OF TOKYO, LTD.
NEW YORK AGENCY
- --------------------------------------------------------------------------------
THE INDUSTRIAL DEVELOPMENT AUTHORITY
OF THE CITY OF WEST PLAINS, MISSOURI
VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT BONDS
(WEST PLAINS MANOR PROJECT) 1986 SERIES
<PAGE> 2
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINED TERMS..................................................2
ARTICLE II REIMBURSEMENT; FEE; SECURITY; AND PAYMENTS.....................5
2.1 Reimbursement..............................................5
2.2 Fee........................................................6
2.3 Payments in Respect of Increased Costs.....................7
2.4 Security for Reimbursement Obligation
2.5 Payments...................................................8
ARTICLE III LETTER OF CREDIT COMMITMENT; CONDITIONS
PRECEDENT TO ISSUANCE OF LETTER OF CREDIT;
REINSTATEMENT..................................................9
3.1 Letter of Credit Commitment................................9
3.2 Conditions Precedent to Issuance of
Letter of Credit...........................................9
3.3 Reinstatement.............................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES; COVENANTS
AND OTHER AGREEMENTS..........................................12
4.1 Representations and Warranties............................12
4.2 Affirmative Covenants of the Guarantor and
Company...................................................14
4.3 Negative Covenants of the Company.........................18
4.4 No Waiver of Right of Set-off.............................18
4.5 Indemnification...........................................18
4.6 Continuing Obligation; Obligation Absolute................19
4.7 Transfer of Letter of Credit..............................20
4.8 Liability for Acts and Omissions With
Respect to Letter of Credit...............................20
4.9 Insolvency of Bank........................................20
ARTICLE V DEFAULTS AND REMEDIES.........................................21
5.1 Events of Default.........................................21
5.2 No Waiver; Remedies Cumulative............................22
ARTICLE VI MISCELLANEOUS.................................................22
6.1 Costs, Expenses And Taxes.................................22
6.2 Severability..............................................23
6.3 Governing Law.............................................23
6.4 Headings..................................................23
6.5 Notices and Addresses for Notices.........................23
6.6 Counterparts..............................................23
6.7 No Recourse Against Company...............................24
6.8 Jurisdiction..............................................24
6.9 ParticiPations............................................24
</TABLE>
Exhibit: A - Form of Letter of Credit
B - Form of Pledge Agreement
C - Form of Guaranty
<PAGE> 3
REIMBURSEMENT AND LETTER OF CREDIT AGREEMENT
REIMBURSEMENT AND LETTER OF CREDIT AGREEMENT dated as of June 1, 1989
among WEST PLAINS MANOR, a Missouri limited partnership (the "Company"),
NATIONAL HEALTHCORP L.P., a Delaware limited partnership (the "Guarantor"), and
THE BANK OF TOKYO, LTD., NEW YORK AGENCY, a New York agency of a Japanese
banking corporation (the "Bank").
WHEREAS:
A. The Industrial Development Authority of the City of West Plains,
Missouri (the "Issuer") has issued pursuant to the Indenture of Trust dated as
of February 1, 1986 (the "Indenture") between the Issuer and The Merchants Bank,
Kansas City, Missouri, as trustee (the "Trustee"), $3,200,000 principal amount
of its Variable Rate Demand Industrial Development Bonds (West Plains Manor
Project) 1986 Series (the "Bonds"); and
B. the proceeds from the sale of the Bonds have been used by the Issuer
and the Company to refund a previous issue of bonds issued in connection with
acquiring, constructing, installing and equipping a nursing home facility in
West Plains, Missouri owned by the Company (the "Project"); and
C. the Company and the Issuer entered into a Loan Agreement dated as of
February 1, 1986 providing for a loan from the Issuer to the Company of the
proceeds of the Bonds to refinance the Project as aforesaid, and pursuant to
which among other things, the Company has furnished an Irrevocable Letter of
Credit No. S013243 dated March 13, 1986 (the "Original Letter of Credit") issued
by Commerce Union Bank to the Trustee and a Confirmation Letter No. 110 LCX
957580 dated March 13, 1986 (the "Confirming Letter of Credit") issued by the
Bank to the Trustee for the account of the Company; and
D. the Company has requested the Bank to substitute for the Original
Letter of Credit and the Confirming Letter of Credit its Irrevocable Letter of
Credit in the form of Exhibit A to this Agreement (the "Letter of Credit") in
favor of the Trustee, in the stated amount set forth in Section 3.1 hereof; and
E. the Company, the Guarantor and the Bank desire to specify the
reimbursement obligations of the Company and the Guarantor, and the conditions
to the issuance of the Letter of Credit.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Bank to issue the Letter of Credit, and intending to be legally bound
hereby, the Company, the Guarantor and the Bank hereby agree as follows:
<PAGE> 4
ARTICLE I
DEFINED TERMS
The following terms shall have the meanings provided below.
"Affiliate" means, as to any Person, any other Person which controls,
is controlled by, or is under common control with, such Person.
"Agreement" means this Reimbursement and Letter of Credit Agreement
dated as of June 1, 1989 among the Company, the Guarantor and the Bank.
"Bank" means The Bank of Tokyo, Ltd., New York Agency, New York, New
York.
"Bond Counsel" means Linde Thomson Langworthy Kohn & Van Dyke, Kansas
City, Missouri.
"Bonds means the Issuer's $3,200,000 principal amount Variable Rate
Demand Industrial Development Bonds (West Plains Manor Project) 1986 Series.
"Business Day" means a day on which banks located in the city in which
the principal corporate trust office of the Trustee is located and banks located
in New York City are not required or authorized by law to remain closed and on
which the New York Stock Exchange is not closed.
"Cash Flow" means net income plus depreciation plus non-cash
amortization plus management fees, all determined on the basis of generally
accepted accounting principles consistently applied. "
"Collateral Shortfall" means the excess of (A) the aggregate principal
amounts outstanding (net of debt service reserve funds, if any) under the Bonds,
over (B) the product of eight (8) multiplied by the Company's Cash Flow,
determined semi-annually, at the end of each of the Company's second and fourth
fiscal quarters, in each case for the immediately preceding six-month period.
"Company" means West Plains Manor, a Missouri limited partnership, and
its successors and assigns.
"Consolidated" refers to the consolidation in accordance with generally
accepted accounting principles of the accounts of the Guarantor and those
Affiliates which are consolidated in accordance with generally accepted
accounting principles.
-2-
<PAGE> 5
"Date of Issuance" means the date of issuance and delivery by the Bank
of the Letter of Credit.
"Debt Service Ratio" means the ratio of (A) the sum of net income plus
current interest expense plus depreciation to (B) the sum of current principal
plus interest expense plus management fees, with respect to the Project, all
determined in accordance with generally accepted accounting principles
consistently applied.
"Event of Default" has the meaning set forth in Section 5.1 hereof.
"Collateral" means any intermediate care nursing home facility or
facilities owned and operated by the Guarantor or a wholly-owned subsidiary of
the Guarantor, the value of which as collateral hereunder is defined to be the
amount by which (A) the average number of occupied beds in such facility over
the preceding twelve (12) months, multiplied by $25,000, exceeds (B) the
outstanding amount of funded indebtedness which is secured by existing liens on
that facility.
"Guarantor" means National HealthCorp, L.P., a Delaware limited
partnership, and its successors and assigns.
"Guaranty" means the Guaranty Agreement between the Guarantor and the
Bank in the form attached hereto as Exhibit C.
"Hazardous Substance" and "Hazardous Substance Laws" have the meaning
set forth in Section 4.5 hereof.
"Indenture" means the Indenture of Trust dated as of February 1, 1986
constituting a trust agreement between the Issuer and the Trustee, as the same
may be duly amended or supplemented in accordance with the provisions thereof.
"Issuer" means The Industrial Development Authority of the City of West
Plains, Missouri and its successors and assigns.
"Letter of Credit" means the Bank's Letter of Credit to be issued in
the form of Exhibit A to this Agreement.
"Letter of Credit" means the Bank's commitment to issue the Letter of
Credit in the Stated Amount.
"Loan Agreement" means the Loan Agreement dated as of February l, 1986
between the Issuer and the Company, and any amendments or supplements thereto.
"Mortgage" means the First Amended and Restated Deed of Trust and
Security Agreement with Collateral Assignment of Rents
-3-
<PAGE> 6
and Leases dated as of February 1, 1986 from the Issuer to the Trustee and the
Bank granting a first mortgage lien on and security interest in the real and
other property of and related to the Project.
"Mortgaged Property" has the meaning defined in the Mortgage.
"New York Paying Agent" means The Bank of Tokyo Trust Company, as
Paying Agent under the Indenture.
"Participant" means any bank or financial institution to which the Bank
or any Participant has granted a participation in the Letter of Credit.
"Permitted Encumbrances" have the meaning defined in the Indenture.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Pledge Agreement" means the Pledge and Security Agreement of even date
herewith in the form of Exhibit B hereto between the Guarantor and the Bank.
"Pledged Bonds" means Bonds delivered to and at the time held by the
Bank pursuant to the Pledge Agreement following or in connection with any "C
Drawing" or "E Drawing", as defined in Section 2.1(d) hereof.
"Prime Rate" means the rate of interest per annum determined from time
to time by the Bank as its prime rate, any change in the Prime Rate to take
effect on the date specified in the announcement of such change.
"Project" means the Project as defined in the Indenture.
"Remarketing Agent" means the Remarketing Agent appointed in accordance
with the Indenture, presently, Drexel Burnham Lambert, Incorporated.
"Stated Amount" means the Stated Amount of the Letter of Credit as
provided in Section 3.1 hereof, subject to such irrevocable reduction as
provided in Section 3.3(c) hereof.
"Termination Date" means the date on which the Trustee s right to draw
under the Letter of Credit terminates, determined in accordance with its terms.
-4-
<PAGE> 7
"Trustee" means The Merchants Bank, Kansas City, Missouri, the Trustee
under the Indenture or any successor thereto as trustee appointed pursuant to
the Indenture.
"Underwriter" means Drexel Burnham Lambert, Incorporated.
The terms "hereof," "hereby, "hereto," "hereunder" and similar terms
mean this Agreement, and the term "heretofore" means before, and the term
"hereafter" means after, the effective date hereof. For all purposes of this
Agreement, unless the context shall otherwise indicate, words used in the
singular number shall include the plural and vice versa.
ARTICLE II
REIMBURSEMENT; FEE; SECURITY; AND PAYMENTS
Section 2.1 Reimbursement.
The Company and the Guarantor, jointly and severally, hereby agree to
pay to the Bank the following amounts in the manner and at the times set forth
below:
(a) On demand following the date of any "A Drawing" or "B Drawing", as
hereinafter defined, but not later than the Termination Date, the Company and
the Guarantor shall pay to the Bank, (i) an amount equal to the total amounts
drawn under the Letter of Credit plus (ii) interest on such amounts from the
date of the related drawing to the date of payment of the amount of such drawing
at an interest rate per annum equal to two percent (2%) above the Prime Rate,
provided that if any such amount is not paid when due, it shall thereafter bear
interest at the Prime Rate plus three percent (3%) per annum.
(b) In case of any "C Drawing" or "E Drawing", as hereinafter defined,
on or before the Termination Date, the Guarantor and the Company shall pay to
the Bank (i) an amount equal to the total amounts drawn under the Letter of
Credit pursuant to any "C Drawing", "D Drawing", "E Drawing", or "F Drawing",
each as hereinafter defined, to pay the purchase price of Bonds tendered to the
Remarketing Agent, the New York Paying Agent, or the Trustee, plus (ii) interest
on such amounts from the date of the related drawing to the date of payment of
the amount of such drawing at an interest rate per annum equal to the Prime Rate
for the first ninety (90) days and the Prime Rate plus one half of one percent
(1/2%) thereafter; provided that if any such amount is not paid when due, it
shall thereafter bear interest at the Prime Rate plus three percent (3%) per
annum.
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(c) On demand, the Company and the Guarantor shall pay to the Bank any
and all reasonable charges and expenses which the Bank may pay or incur relative
to the Letter of Credit.
(d) As used in this Agreement, (i) PA Drawing n means any drawing under
the Letter of Credit with respect to principal on any Bonds other than Pledged
Bonds, (ii) "B Drawing" means any drawing under the Letter of Credit with
respect to interest on any Bonds other than Pledged Bonds, (iii) "C Drawing"
means any drawing under the Letter of Credit with respect to payment of the
portion of the purchase price corresponding to principal on any Pledged Bonds
delivered to the Remarketing Agent pursuant to Section 1.01(f)(i) or (iii) of
the Indenture, (iv) "D Drawing" means any drawing under the Letter of Credit
with respect to payment of the portion of the purchase price corresponding to
interest on any Bonds referred to in the immediately preceding clause (iii), (v)
"E Drawing" means any drawing under the Letter of Credit with respect to payment
of the portion of the purchase price corresponding to principal on any Pledged
Bonds delivered to the Trustee or the New York Paying Agent pursuant to Section
1.01(f)(ii) of the Indenture, and (vi) "F Drawing" means any drawing under the
Letter of Credit with respect to payment of the portion of purchase price
corresponding to interest on any Bonds referred to in the immediately preceding
clause (v).
(e) The amount of each payment of interest hereunder shall be
calculated on the basis of the actual number of days elapsed and a 360-day year.
No interest shall be payable on drawings which are reimbursed on or prior to
3:00 P.M. (New York City time) on the day on which such drawings are made.
(f) The Bank shall open and maintain on its books a Reimbursement
Account and shall debit such Reimbursement Account with the amount of each
drawing and accrued interest thereon and shall credit such Reimbursement Account
for each payment hereunder. The records of the Bank with respect to the
Reimbursement Account shall be prima facie evidence in the absence of manifest
error of the reimbursement obligation of the Company and the Guarantor hereunder
and accrued interest thereon and all payments made by the Company or the
Guarantor with respect thereto.
Section 2.2 Fee. The Guarantor and the Company hereby agree to pay to
the Bank a fee with respect to the Letter of Credit from the Date of Issuance,
as reasonable compensation to the Bank for issuing the Letter of Credit, as
follows: quarterly in arrears on March 1, June 1, September 1 and December 1 in
each year that the Letter of Credit is outstanding and on the Termination Date
(each such date, a "payment date"), a facility fee in an amount equal to 1% per
annum of the average daily Stated Amount of the Letter of Credit during the
period begining
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<PAGE> 9
on the previous payment date (or, in the case of the first payment, beginning on
the Date of Issuance) and ending on the date next preceding the applicable
payment date, calculated on the basis of a 360-day year for actual days elapsed.
Section 2.3 Payments in Respect of Increased Costs. If any change in
any law or regulation or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration thereof
applicable to the Bank or any Participant shall (i) impose, modify or deem
applicable any reserve, special deposit, capital adequacy or similar requirement
against letters of credit issued by the Bank or participation therein by a
Participant, or (ii) impose on the Bank or any Participant any other condition
regarding this Agreement or the Letter of Credit, or (iii) subject the Bank or
any Participant to any tax (other than taxes based upon gross revenues or
income), and the result of any event referred to in clause (i), (ii) or (iii)
above shall be to increase the cost to the Bank or any Participant of issuing or
maintaining the Letter of Credit or any participation therein (which increase in
cost shall be the result of a reasonable allocation of the aggregate of such
cost increases resulting from such events), or to reduce the amount of
principal, interest or any fee or compensation to be paid to the Bank or any
Participant in respect of this Agreement or the Letter of Credit; then, upon
demand by the Bank, the Company and the Guarantor shall immediately pay to the
Bank, from time to time as specified by the Bank, additional amounts which shall
be sufficient to compensate the Bank or a Participant for such increased cost or
reduction relating to the Letter of Credit from the date of such change,
together with interest on each such amount from the date demanded until payment
in full thereof at the rate specified in Section 2.1(a) hereof. A certificate
setting forth in reasonable detail such increased cost or reduction incurred by
the Bank or any Participant as a result of any event mentioned in clause (i),
(ii) or (iii) above, submitted by the Bank to the Company, shall be prima facie
evidence, absent manifest error, as to the amount thereof. The obligations of
the Company and the Guarantor under this Section 2.3 shall survive the
termination of this Agreement.
Section 2.4 Security for Reimbursement Obligation.
(a) As security for payment of the obligations of the Company pursuant
to Section 2.1(a) hereof or otherwise hereunder, the Company will (i) amend and
restate the existing mortgage on the Project including the Bank as an equal and
ratable beneficiary with the Trustee, the priority of which shall be confirmed
by a mortgagee title insurance policy, ALTA Form 8-1970, subject only to
exceptions other than Permitted Encumbrances, all of which the Bank must have
consented to in writing; (ii) grant a security interest in all machinery,
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equipment, furniture, fixtures, and furnishings owned by the Company and located
at any time on the Project site, and all contract rights of the Company relating
to the Project; and (iii) grant an assignment of any and all rents and leases
relating to the Project. In addition, (x) the reimbursement obligations of
Company shall be unconditionally guaranteed by Guarantor pursuant to the
Guaranty, and (y) the Guarantor will from time to time grant or cause its
Affiliates to grant, for the benefit of the Bank and the Issuers, a second
priority mortgage or deed of trust lien in Excess Collateral valued at 130% of
the amount of any Collateral Shortfall at such times during which a Collateral
Shortfall exists.
(b) Bonds purchased with the proceeds of a "C Drawing" and "E Drawing"
under the Letter of Credit will be deemed to have been purchased by the
Guarantor, and the Guarantor will forthwith deliver or cause to be delivered to
the Bank such Bonds to be held in pledge under the terms of the Pledge
Agreement. As security for payment of the obligations of the Company to the Bank
pursuant to Section 2.1(b) hereof or otherwise hereunder, the Guarantor hereby
grants to the Bank a first priority lien and security interest in the Pledged
Bonds so delivered.
(c) As security for the payment of the obligations of the Company and
the Guarantor pursuant to Section 2.1 and otherwise hereunder, the Company
hereby grants to the Bank a lien on moneys or instruments (at such times as they
become payable to the Company under the Indenture) which the Company has an
interest in or title to pursuant to the Indenture, now or hereafter held in the
Bond Fund (as such term is defined in the Indenture) or otherwise by the Trustee
under any provision of the Indenture and in the right of the Company to receive
any such money or instruments. The Bank hereby confirms that such lien is and
shall be junior and subordinate to the lien on such moneys in favor of the
Trustee for the Bond holders.
Section 2.5 Payments. All payment by the Company or the Guarantor to
the Bank under this Agreement shall be made in lawful currency of the United
States in immediately available funds at the Bank office at 100 Broadway, New
York, New York, Attention: National Banking Department. In the case of payments
of the obligations under Section 2.1, such payments shall be accompanied by a
written advice stating whether such payment is to reimburse the Bank for a
drawing which was applied to the payment of the purchase price of a Bond, the
principal of a Bond or interest on a Bond. In the event that the date specified
for any payment hereunder is not a Business Day, such payment shall be made not
later than the next following Business Day and interest shall be paid at the
rate provided for herein on any such payment to the Business Day on which such
payment is made.
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ARTICLE III
LETTER OF CREDIT COMMITMENT; CONDITIONS
PRECEDENT TO ISSUANCE OF LETTER OF CREDIT; REINSTATEMENT
Section 3.1 Letter of Credit Commitment. (a) Subject to the terms and
conditions of this Agreement, the Bank agrees to issue the Letter of Credit in
the Stated Amount when issued of $3,261,546 and with an initial Termination Date
of July 10, 1995. The Stated Amount consists of a principal portion of
$3,200,000 which may be drawn upon with respect to the payment of unpaid
principal amount or the portion of purchase price corresponding to principal of
the Bonds and an interest portion in an amount not exceeding $61,546 which may
be drawn upon with respect to the payment of up to 54 days' accrued interest (at
an assumed rate of 13% per annum, calculated on the basis of a year of 365 days
or the portion of purchase price corresponding to accrued interest on the Bonds
on or prior to their maturity date.
(b) At the request of the Company, during the 30-day period following
December 1 of the year prior to the Termination Date then in effect, the Bank
may at its option extend the term of the Letter of Credit for an additional two
year period beyond the Termination Date then in effect, or for such other period
as the Company and the Bank shall agree upon at the time of such extension. Any
such extension shall be deemed to extend the term of the Letter of Credit upon
the same terms and conditions as shall then be in effect, except as the Company
and the Bank shall otherwise agree and subject to the terms and conditions of
the Indenture. Any such date to which the term of the Letter of Credit shall be
extended shall, from and after the date of such extension, constitute the
Termination Date then in effect for all purposes of this Agreement and the
Letter of Credit.
Section 3.2 Conditions Precedent to Issuance of Letter of Credit. It
shall be a condition precedent to the issuance by the Bank of the Letter of
Credit that:
(a) the Bank shall have received on or before the Date of Issuance the
following, each dated such date, in form and substance satisfactory to the Bank:
(i) copies of the Certificates of Limited Partnership and
Partnership Agreements of the Company and the Guarantor, and of organizational
action of the Company and the Guarantor, as appropriate, authorizing the
execution, delivery and performance of this Agreement, the Pledge Agreement and
the Guaranty, certified by appropriate officials or representatives of the
Company and the Guarantor, as appropriate;
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<PAGE> 12
(ii) true and correct copies of all governmental approvals
necessary for the Issuer to issue the Bonds and execute and deliver the
Indenture;
(iii) an opinion of Counsel to the Company and the
Guarantor, satisfactory in form and substance to the Bank, regarding the matters
set forth in paragraphs (a), (b), (c) and (d) of Section 4.1 hereof;
(iv) an opinion of Bond Counsel and Counsel to the Issuer
as to such matters as the Bank may reasonably request;
(v) the Guaranty, duly executed by the Guarantor and the
Bank;
(vi) an executed copy (or a duplicate thereof) of the
Indenture;
(vii) executed copies of this Agreement, the Pledge
Agreement and the Mortgage;
(viii) certificates of the appropriate officials or
representatives of the Company and the Guarantor certifying the name and true
signatures of the officers of the Company and the Guarantor authorized to sign
this Agreement, the Pledge Agreement, the Guaranty, and the other documents to
be delivered by the Company and the Guarantor hereunder;
(ix) evidence of the valid creation and perfection of the
liens and security interests referred to in Section 2.4(a) hereof;
(x) evidence that (A) the Company is insured under a
public liability insurance policy against bodily injury and property damage,
with limits of no less than $500,000 for each occurrence and $1,000,000, if
reasonably available, but in no event less than $500,000 aggregate liability,
and (B) the Project is insured against loss or damage by fire, lightning,
windstorm, explosion and smoke damage, in an amount not less than the full
insurable value of the Project, with all such insurance policies referred to in
this clause (xi) naming Trustee and Bank as co-insureds;
(xi) a mortgagee's title insurance policy insuring the
priority of the lien of the Mortgage, subject to no exceptions other than for
current year's taxes, and Permitted Encumbrances;
(xii) such other documents, instruments, approvals (and, if
requested by the Bank, certified duplicates of executed copies thereof) or
opinions as the Bank may reasonably request.
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<PAGE> 13
(b) The following statements shall be true and correct on the Date of
Issuance and the Bank shall have received a certificate signed by a duly
authorized official of the Company and the Guarantor, as appropriate, dated the
Date of Issuance, stating that:
(i) the representations and warranties contained in
Section 4 of this Agreement are correct on and as of the Date of Issuance as
though made on and as of such date; and
(ii) no Event of Default has occurred and is continuing,
or would result from the issuance of the Letter of Credit, and no event has
occurred and is continuing which would constitute any such Event of Default but
for the requirement that notice be given or time elapse or both.
(c) On the Date of Issuance:
(i) the Indenture shall be in full force and effect; and
(ii) no change or prospective change in law or regulation,
or any interpretation thereof by any court or administrative banking or
governmental authority charged or claiming to be charged with the administration
thereof applicable to the Bank or the Bonds or change in circumstances affecting
the market for tax-exempt securities has occurred, which in the opinion of the
Bank, would have any effect described in Section 2.3 hereof or would materially
increase the risk to the Bank with respect to payments under this Agreement or
the security therefor.
Section 3.3 Reinstatement.
(a) Upon reimbursement in full of the Bank with respect to Pledge Bonds
following a "C Drawing" or "E Drawing" under the Letter of Credit as applicable,
the obligation of the Bank to honor demands for payment under the Letter of
Credit with respect to the payment of principal or the portion of the purchase
price corresponding to principal of Bonds will be reinstated by an amount equal
to the aggregate principal amount of such Bonds, provided that such
reinstatement shall not cause the amount of the Letter of Credit Commitment to
exceed the Stated Amount.
(b) Following any "B Drawing", "D Drawing" or "F Drawing" on the Letter
of Credit, the obligation of the Bank to honor demands for payment under the
Letter of Credit for interest, or portion of purchase price corresponding to
interest, on the Bonds will be immediately reinstated to an amount equal to
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54 days' accrued interest on the proportionate amount of principal of the Bonds.
(c) The obligation of the Bank to honor demands for payment under the
Letter of Credit for principal shall not be reinstated following any "A Drawing"
on the Letter of Credit.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES; COVENANTS
AND OTHER AGREEMENTS
Section 4.1 Representations and Warranties. The Company and Guarantor
represent and warrant as follows:
(a) Organization. The Company has been duly organized and validly
exists under the laws of the State of Missouri, the Guarantor has been duly
organized and validly exists under the laws of the State of Delaware, and the
Company and Guarantor are authorized to transact business under the laws of the
State of Missouri.
(b) No Conflict. The execution and delivery of this Agreement, the
Pledge Agreement, the Mortgage and the Guaranty, and the performance by the
Company and the Guarantor, as appropriate of their obligations under the
aforementioned, do not and will not violate the Certificates of Limited
Partnership or Partnership Agreements of the Company or the Guarantor, as
appropriate, or any court order by which the Company or the Guarantor, as
appropriate, is bound, and such actions do not and will not constitute a default
under any agreement, indenture, mortgage, lease, note or other obligation or
instrument material to the Company or the Guarantor, as appropriate, to which
the Company or Guarantor is a party and no approval or other action by any
governmental authority or agency is required in connection therewith.
(c) Enforceability. This Agreement, the Pledge Agreement, the Mortgage
and the Guaranty, when executed and delivered by the Company or the Guarantor,
as appropriate, will be legal, valid and binding obligations of the Company or
the Guarantor, as appropriate, enforceable in accordance with their respective
terms (assuming due and valid authorization, execution and delivery of this
Agreement, the Pledge Agreement, the Mortgage and the Guaranty by other parties
thereto), except to the extent the binding effect and enforceability of the
agreement and instruments referred to above are subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws in effect from
time to time affecting the rights of creditors
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<PAGE> 15
generally and that the enforceability thereof may be limited by the application
of general principles of equity.
(d) Litigation. To the knowledge of the Company and the Guarantor,
there is no action, suit, proceeding, inquiry or investigation, at law or in
equity, or before or by any state or federal court or any governmental agency,
body or official, pending or threatened against or affecting the Company or the
Guarantor, as appropriate, the probable outcome of which would materially
adversely affect the ability of the Company or the Guarantor, as appropriate, to
perform its obligations under this Agreement, the Pledge Agreement, the Mortgage
or the Guaranty, or which, in any way, would adversely affect the validity or
enforceability of the Bonds, the Indenture, this Agreement, the Pledge
Agreement, the Mortgage or the Guaranty or any agreement or instrument to which
the Company is a party used or contemplated for use in the consummation of the
transactions contemplated by this Agreement, the Pledge Agreement, the Mortgage
or the Guaranty.
(e) Investment Activities. The Company is not engaged principally, or
as one of the Company's important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and will not use the proceeds of any loan hereunder so as to violate
Regulation U as it may be amended or interpreted from time to time by the Board
of Governors of the Federal Reserve System.
(f) Financial Statements. The Consolidated balance sheet of the
Guarantor as at September 30, 1988 and the related Consolidated statements of
income and retained earnings and changes in financial position of the Guarantor
for the fiscal year then ended, certified by its independent public accountants,
copies of which have been furnished to the Bank, fairly present, the
Consolidated financial condition of the Guarantor as at such date and the
Consolidated results of the operations of the Guarantor for the periods ended on
such date all in accordance with generally accepted accounting principles, and
since the date thereof there has been no material adverse change in such
condition or results of operations. The Guarantor does not have any material
contingent obligations, liabilities for taxes, long-term leases or unusual
forward or long-term commitments, which are not reflected in the foregoing
financial statements (and the related notes thereto) or have not been disclosed
in writing to the Bank.
(g) ERISA. The Company and the Guarantor are in substantial compliance
in all material respects with the applicable provisions of ERISA and the
regulations and published interpretations thereunder, and the Company and the
Guarantor
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<PAGE> 16
have not failed to comply with any such provision, regulation or interpretation
which would subject the Company or the Guarantor to any material tax or penalty.
No Reportable Event (as defined in Section 4043(b) of Title IV of ERISA) has
occurred with respect to any pension plan which might constitute grounds for a
termination of, and no proceedings have been instituted by the Company or the
Guarantor to withdraw from or to terminate, any pension plan as to which the
Company or the Guarantor may have any material liability.
(h) Environmental. The Mortgaged Property is presently in substantial
compliance with all applicable Hazardous Substance Laws relating to or affecting
the Mortgaged Property (including but not limited to, the discharge or removal
of any Hazardous Substances from the Mortgaged Property) and there is not now
pending or to the knowledge of the Mortgagor threatened any action, suit,
investigation or proceeding against the Mortgagor or the Mortgaged Property, or
against any other party relating to the Mortgaged Property, seeking to enforce
any right or remedy under any applicable Hazardous Substance Laws.
(i) Disclosure. There are no facts that the Company and the Guarantor
have failed to disclosure to the Bank that, individually or in the aggregate,
materially adversely affect or, as far as the Company and the Guarantor can
foresee, will materially adversely affect the business, properties, operations
or condition (financial or otherwise) or prospects of the Company or the
Guarantor.
Section 4.2 Affirmative Covenants of the Guarantor and Company. So long
as the Termination Date has not occurred or any amount is due or owing to the
Bank hereunder, the Company and the Guarantor agree, unless the Bank shall
otherwise consent in writing, as follows:
(a) Notice of Default. The Company and Guarantor will give prompt
notice in writing to the Bank of the occurrence of any Event of Default or the
occurrence of any event which with notice or the passage of time or both would
give rise to an Event of Default.
(b) Financial Reporting.
(i) The Guarantor will provide to the Bank, not less than
120 days following the end of its fiscal year, financial statements, including a
balance sheet, income statement, and sources and uses of funds statement, which
financial statements shall be audited and prepared in accordance with generally
accepted accounting principles. In addition, the Guarantor will provide the
Bank, not less than 45 days following the end of each quarter in its fiscal year
(other than the final
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<PAGE> 17
quarter thereof), its quarterly reports on Form 10-Q or its interim financial
statements, including a balance sheet, income and sources and uses of funds
statement; such quarterly statement may be unaudited, but shall be prepared to
the extent feasible in accordance with generally accepted accounting principles
and shall be certified as accurate by a responsible officer. In addition, the
Guarantor shall furnish the Bank not more than 45 days following the end of each
calendar quarter, with quarterly operating statements on the Project, certified
by a responsible officer to the best of his knowledge as accurate.
(ii) The Guarantor shall promptly, from time to time,
furnish to the Bank such information regarding the business, operations and
financial condition of the Guarantor as the Bank may reasonably request.
(c) Provision of Excess Collateral. Upon the request of the Bank, the
Guarantor will provide the Bank, for the ratable benefit of itself and the Bond
holders, with Excess Collateral acceptable to the Bank, whenever there shall
exist a Collateral Shortfall. The Bank agrees that it will not accept any
additional collateral, including but not limited to Excess Collateral, for the
obligations of Company and Guarantor hereunder, unless the same shall be held
and pledged for the ratable benefit of the Bank and the Bond holders.
(d) Compliance with Bond Documents. The Company and the Guarantor will
comply in all respects with all covenants applicable to them contained in the
Bonds, the Indenture, and other documents executed by the Guarantor or the
Company in connection therewith.
(e) Insurance. The Company will maintain the insurance required by
Section 3.02 of the Loan Agreement and to name the Bank as an assured. The
Company will deliver to the Bank annually broker s reports of the respective
insurers stating that such insurance is in force and effect.
(f) ERISA Compliance. The Company and the Guarantor will maintain each
of its pension plans or programs as to which it may have liability in compliance
in all material respects with the applicable provisions of ERISA and the
regulations and published interpretations thereunder the failure to comply with
which could subject the Company or the Guarantor to a tax or penalty which might
have material adverse effect on its financial condition.
(g) Remarketing Agent. If the Remarketing Agent ceases to act or fails
within 90 days to effect the remarketing
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of the Bonds, the Company and the Guarantor will at the direction of the Bank
retain a new Remarketing Agent.
(h) Environmental. The Company and the Guarantor each shall use its
best efforts to comply with, and ensure substantial compliance by all tenants or
occupants of the Mortgaged Property, with all applicable Hazardous Substance
Laws relating to or affecting the Mortgaged Property, and the Company and the
Guarantor each shall use its best efforts to keep the Mortgaged Property free
and clear of any liens imposed pursuant to any applicable Hazardous Substance
Laws, all at the Mortgagor's sole cost and expense.
(i) Financial Covenants. The Guarantor shall comply with the following
financial covenants, with determination of compliance being made quarterly.
(i) Current Ratio. The Guarantor shall at all times
maintain a "Current Ratio" of at least 1.5 to 1. "Current Ratio" shall
be defined as the ratio of current assets to current liabilities.
(ii) Working Capital. The Guarantor shall at all times
maintain a minimum "Working Capital. level of $10,000,000. "Working
Capital shall be defined as current assets less current liabilities.
(iii) Funded Debt to Adjusted Tangible Net Worth Ratio. The
Guarantor shall at all times maintain a "Funded Debt" to "Adjusted
Tangible Net Worth" ratio of no more than:
3.5 to 1 for the period from the Date of Issuance - until December 31,
1989;
3.0 to 1 for the period following until June 30, 1990;
2.75 to 1 for the period following until December 31, 1990;
2.5 to 1 for the period thereafter until the Termination Date;
"Funded Debt" is defined as long term debt, but excluding subordinated
debt, notes payable, current maturities of long term debt, plus
capitalized and operating leases, plus all guaranties; and "Adjusted
Tangible Net Worth" is defined as total equity of the Guarantor, plus
approximately $15,745,000 in deferred income resulting from the profit
on the sale of nursing home properties as equity (which amount shall
decrease in accordance with
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the Guarantor's books and records that comply with generally accepted
accounting principles), plus subordinated debt, minus good will and
unamortized loan costs in excess of $1,400,000.
(iv) Tangible Net Worth. The Guarantor shall at all times maintain
the following minimum Tangible Net Worth requirements for the
following periods:
$35,200,000 from the Date of Issuance through June
29, 1989;
$36,400,000 from June 30, 1989 through September 29,
1989;
$37,600,000 from September 30, 1989 through December
30, 1989;
$40,000,000 from December 31, 1989 through March 30,
1990;
On March 31, 1990 and on subsequent calendar quarter
endings, the minimum Tangible Net Worth requirements
will increase $1,400,000 per quarter on a cumulative
basis.
"Tangible Net worth" is defined as total equity of the Guarantor, plus
subordinated debt, minus good will and unamortized loan costs in excess
of $1,400,000.
(v) Debt Service Coverage. The Guarantor shall at all times
maintain a minimum "Debt Service Coverage" of 1.3 to 1. "Debt
Service Coverage" is defined as the ratio of (A) the annualized sum of
net income, plus depreciation/ amortization, plus interest expense, minus
distributions paid to holders of units of the Guarantor for the fiscal
year as projected by the Guarantor in written financial projections
furnished to Bank or as actually paid, whichever is greater to (B)
interest expense, plus current maturities of long term debt, plus any
payments required to fund any guaranty obligations of the Guarantor.
(j) Further Assurances. From time to time the Company and the Guarantor
will execute and deliver such additional documents and perform such other acts
as may be necessary or appropriate to carry out the intent of this Agreement and
the Indenture, including but not limited to documents necessary to create or
perfect, or continue the perfection of, the liens on the Project and on any
Excess Collateral. The Company and the Guarantor hereby authorize and empower
the Bank to file and
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financing or continuation statement of any amendments thereto with respect to
any security pledged or assigned to the Bank in accordance with the Uniform
Commercial Code of the States of Missouri or Tennessee or any other applicable
jurisdiction without the signature of the Company and the Guarantor.
Section 4.3 Negative Covenants of the Company. So long as the
Termination Date has not occurred or any amount is due or owing to the Bank
hereunder, unless the Bank shall otherwise consent in writing, the Company
agrees not to enter into or consent to any amendments of, or accept the benefits
of, any waivers of any provisions of the Loan Agreement, the effect of which
would be to (i) relieve the Company of any duty or responsibility to maintain or
preserve the condition of the Project or any part thereof, (ii) diminish or
modify any right or power of the Trustee or the Bank with respect to inspection
of the Project or receipt of the proceeds of sale or condemnation of the Project
or of insurance proceeds payable upon damage to or destruction of the Project,
(iii) impair or jeopardize the continuing perfection of any lien on or security
interest in the Project or any part thereof.
Section 4.4 No Waiver of Right of Set-off. Except as explicitly stated
in this Section 4.4, nothing contained in this Agreement shall be deemed to
waive or limit in any manner the Bank's right to set off any or all deposits at
any time held, and any other indebtedness at any time owing by the Bank to or
for the credit or the account of the Company or the Guarantor, against any and
all obligations of the Company or the Guarantor now or hereafter existing in
respect of the reimbursement obligations of the Company or the Guarantor
hereunder.
Section 4.5 Indemnification. (a) The Company and the Guarantor hereby
indemnify and hold harmless the Bank and any Participant from and against any
and all claims, damages, losses, liabilities, costs and expenses whatsoever
(including attorneys fees) which the Bank or any Participant may incur (or which
may be claimed against the Bank or any Participant by any person or entity
whatsoever) by reason of or in connection with (a) the execution and delivery or
transfer of, or payment or failure to pay under, the Letter of Credit, or (b)
the issuance and sale of the Bonds; provided, that the Company and the Guarantor
shall not be required to indemnify the Bank or any Participant for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only to the
extent, caused by (i) the willful misconduct or gross negligence of the Bank in
determining whether a document presented under the Letter of Credit complies
with the terms thereof, or (ii) the Bank s willful or grossly negligent failure
to pay under the Letter of Credit after the presentation to it by the Trustee
(or a successor trustee under the Indenture to whom the Letter of Credit has
been transferred in accordance
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with its terms) of a document complying with the terms and conditions of the
Letter of Credit.
(b) The Company and the Guarantor hereby indemnify and hold harmless
the Bank and any Participant from and against any and all claims, damages,
losses, liabilities, including strict liability, injuries, costs and expenses,
including reasonable attorneys' fees, costs of any settlement or judgment and
claims of any and every kind whatsoever paid, incurred or suffered by, or
asserted against, the Bank or any Participant by any person or entity or
governmental agency for, with respect to or as a result of, the presence on or
under, or the escape, seepage, leakage, spillage, discharge, emission,
discharging or release from, the Mortgaged Property of any Hazardous Substance.
For purposes of this Agreement, "Hazardous Substances" mean and include those
elements or compounds which are contained in the list of hazardous substances
adopted by the United States Environment Protection Agency ("EPA", or by any
agency of the State of Missouri ("State Agency") or the list of toxic pollutants
designated by Congress, the EPA or the State Agency or which are defined as
hazardous, toxic, pollutant, infectious or radioactive by any other Federal,
state or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material, as
now or any time hereafter in effect (for purposes of this Agreement, the
"Hazardous Substance Laws").
Section 4.6 Continuing Obligation; Obligation Absolute. This Agreement
is a continuing obligation and shall (a) be binding upon the Company and the
Guarantor, their successors and assigns, and (b) inure to the benefit of and be
enforceable by the Bank and its successors, transferees and assigns; provided,
that the Guarantor may not assign all or any part of this Agreement without the
prior written consent of the Bank, and provided further that any assignee of the
Company must, as a condition precedent to such assignment, assume in writing all
obligations of Company hereunder. The obligations of the Company and the
Guarantor under this Agreement, the Guaranty and the Pledge Agreement shall be
paid or performed strictly in accordance with the terms hereof and the Guaranty
and the Pledge Agreement, under all circumstances whatsoever, and shall be
absolute, irrevocable, and unconditional and shall not be subject to any right
of set-off or counterclaim arising from any breach by the Bank or any other
Person of any obligation to the Company or the Guarantor of any nature
whatsoever. The obligations of Company and the Guarantor to indemnify the Bank
as set forth in Section 4.5 hereof shall be continuing in nature and shall
survive the termination of the Letter of Credit and the reimbursement of the
Bank with respect to all amounts as to which
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<PAGE> 22
the Company or the Guarantor is required to reimburse the Bank hereunder.
Section 4.7 Transfer of Letter of Credit. The Letter of Credit may be
transferred to a successor trustee in accordance with the provisions set forth
therein, and shall terminate as set forth therein.
Section 4.8 Liability for Acts and Omissions With Respect to Letter of
Credit. The Company and the Guarantor assume all risks of the acts or omissions
of the Trustee and any transferee of a Letter of Credit with respect to its use
thereof. Neither the Bank nor any of its officers, directors or employees shall
be liable or responsible for: (a) the use which may be made of the Letter of
Credit by, or any acts or omissions of the Trustee and any transferee in
connection therewith; (b) the validity, sufficiency, accuracy or genuineness of
documents, or of any endorsement(s) thereon, even if such documents should in
fact prove to be in any or all respects invalid, insufficient, fraudulent or
forged; or (c) any other circumstances whatsoever in making or failing to make
payment under the Letter of Credit, except only that the Company having made the
payments hereunder shall have a claim against the Bank and the Bank shall
thereupon be liable to the Company to the extent, but only to the extent of
damages suffered by the Company which were caused by (i) the Bank's willful
misconduct or gross negligence in determining whether documents presented under
the Letter of Credit comply with the terms thereof or (ii) the Bank's willful or
grossly negligent failure to pay under the Letter of Credit after the
presentation to it by the Trustee (or a successor trustee under the Indenture to
whom the Letter of Credit has been transferred in accordance with its terms) of
a document complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, (i) the Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information received to the
contrary (other than an order of a court having jurisdiction in the premises),
(ii) the Bank may but shall not be required to accept documents which
substantially or otherwise reasonably comply with the terms of the credit, (iii)
the Company and the Guarantor waive any tests of literal or strict construction
as regards acceptability of documents, (iv) the Bank in the absence of bad faith
may honor drafts or documents otherwise in order which may be signed by any
purported administrator, successor, receiver, or transferee by operation of law
for the Trustee, and (v) the Bank may but shall not be required to honor drafts
which fail to bear any or adequate reference to the Letter of Credit.
Section 4.9 Insolvency of Bank. The Bank agrees promptly to notify the
Trustee in the event that the Bank should
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<PAGE> 23
be declared insolvent or placed into receivership (or consent to such
receivership) by the Superintendent of Banks of the State of New York, any
successor thereof, or any other state or federal regulatory agency or authority
having jurisdiction over the Bank.
ARTICLE V
DEFAULTS AND REMEDIES
Section 5.1 Events of Default. Unless waived by the Bank pursuant to
Section 5.2 hereof, any of the following shall constitute an Event of Default
hereunder:
(a) any representation or warranty made by the Company or the Guarantor
herein, or in any certificate, financial or other statement furnished by the
Company or the Guarantor pursuant to this Agreement shall prove to have been
untrue or incomplete in any material respect when made; or
(b) the Company or the Guarantor shall fail to pay when due any amount
specified in Article II hereof; or
(c) if, for any reason (other than release by the Bank), the Pledge
Agreement, the Mortgage or the Guaranty shall cease to be in full force and
effect or if the Company shall assert that it is not liable under the Pledge
Agreement or the Mortgage, or the Guarantor shall assert that it is not liable
under the Guaranty; or
(d) the breach by the Company or the Guarantor of any other term or
provision of this Agreement, the Pledge Agreement or the Guaranty which is not
remedied for 30 days after written notice from the Bank to the Company or the
Guarantor; or
(e) the occurrence of a default in the payment when due (subject to
applicable grace periods) of any indebtedness of the Company, the Guarantor, or
an Affiliate; or
(f) an "Event of Default" shall occur and be continuing under and as
described in Section 8.01 of the Indenture; or
(g) the loss and/or failure by the Company to obtain or maintain any
requisite licenses respecting the Project within 180 days of a final
determination that the same are required or that a deficiency exists in the
requirements for maintaining the same; or
(h) a material contract or payment default by Company or Guarantor; or
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<PAGE> 24
(i) material default by either party under, or material amendment of,
the management agreement dated as of February 1, 1986 between the Company and
the Guarantor; or
(j) failure of the Company to reflect on the operating statements with
respect to the Project delivered pursuant to Section 4.2(b), a Debt Service
Ratio of at least 1.0 to 1.0; or
(k) the granting or imposition of any lien or security interest in any
collateral securing the Company's obligations hereunder, other than in favor of
the Bank and the. Trustee under the Mortgage and the Indenture.
Upon the occurrence of an Event of Default hereunder, the Bank may, in its sole
discretion, but shall not be obligated to, by notice to the Company and the
Guarantor (i) declare an amount equal to the maximum liability of the Bank under
the Letter of Credit, and all other amounts payable hereunder by the Company and
the Guarantor to be forthwith due and payable, and the same shall thereupon
become immediately payable without demand, presentment, protest or further
notice of any kind, all of which are hereby expressly waived, (ii) notify the
Trustee in writing of the occurrence of such Event of Default, and (iii) pursue
any other remedy permitted to the Bank under this Agreement, the Indenture, the
Mortgage, the Pledge Agreement or the Guaranty, or at law or in equity. The Bank
may apply all monies recovered through the exercise of its remedies to the
payment of the reimbursement and other payment obligations of the Company and
the Guarantor under this Agreement in such order and priority as determined by
the Bank in its sole and exclusive judgment.
Section 5.2 No Waiver, Remedies Cumulative. No failure by the Bank to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other further exercise thereof or the exercise of any other right.
No waiver hereunder shall be valid unless in writing signed by the parties
hereto. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Costs, Expenses And Taxes. The Company and the Guarantor
agree to pay on demand all costs and expenses incurred by the Bank in connection
with the preparation, execution, delivery, and administration of this Agreement
and any other documents which may be delivered in connection with this Agreement
and all costs and expenses, if any, in connection with the enforcement of this
Agreement and such other documents which
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<PAGE> 25
may be delivered in connection with this Agreement, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Bank with respect thereto and with respect to advising the Bank as to its rights
and responsibilities under this Agreement. In addition, the Company and the
Guarantor shall pay any and all recording and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing and
recording of this Agreement and such other documents and agrees to save the Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and fees.
Section 6.2 Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 6.3 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
Section 6.4 Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 6.5 Notices and Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and, if to the
Company, mailed or delivered to West Plains Manor, 2200 East Sunshine, No. 204,
Springfield, Missouri 65804, with a copy to the Guarantor and to David L.
Timmerman, Esq., 1909 E. Bennett, Springfield, Missouri 65804; if to the
Guarantor, mailed or delivered to 814 South Church St., Murfreesboro, Tennessee
37130; and if to the Bank, mailed or delivered to it, addressed to it at 100
Broadway, New York, New York 10005, Attn: National Banking Department, or as to
each party at such other address as shall be designated by such party in a
written notice to the other party. All such notices and other communications
shall, when mailed, be effective three days after the date of deposit in the
mails, addressed as aforesaid.
Section 6.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be regarded as the original and all of which
shall constitute one and the same Agreement.
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<PAGE> 26
Section 6.7 No Recourse Against Company. No partners of the Company,
whether general partners, limited partners, additional partners, or substituted
partners (collectively the "Partners"), shall have any liability for payments
due under, arising out of or in connection with this Agreement, except for the
obligations of the Company to indemnify the Bank as set forth in Section 4.5(b)
hereof with respect to which the Bank shall have full recourse to the Partners.
In the event that the Company shall become legally liable to the Bank for any
reason or reasons arising out of, related to or in connection with the Agreement
other than as aforesaid, then the legal responsibility shall be limited to the
Company's equity in the "Mortgaged Property" and "collateral" as such terms are
defined in the Mortgage. Thus other than as aforesaid, the Bank agrees to look
solely to the Guarantor and to the Company's interest in the Collateral and the
Mortgaged Property for the payment of any sums for which the Company may become
legally liable to the Bank for any reason arising out of or in connection with
this Agreement, and other than as aforesaid the Bank agrees that it will not sue
or seek legal recourse against the Partners.
Section 6.8 Jurisdiction. The Company agrees that any legal action or
proceeding with respect to this Agreement or to enforce any judgment obtained
against the Company in connection with this Agreement may be brought by the Bank
in the courts of the State of New York or in the United States District Court
for the Southern District of New York, or any other court to the jurisdiction of
which the Company or any of its property is or may be subject. The Company
irrevocably submits to the jurisdiction of the courts of the State of New York
or of the United States District Court for the Southern District of New York,
and irrevocably waives any present or future objection to venue in any such
court, and any present or future claim that any such court is an inconvenient
forum, in connection with any action or proceeding related to this Agreement.
Section 6.9 Participations. The Bank may participate to Participants of
the Bank's choosing all or any portion of its obligations under the Letter of
Credit and of the obligations of the Company and the Guarantor evidenced by this
Agreement the Pledge Agreement, the Mortgage and the Guaranty; provided that the
Company and the Guarantor shall have the right to continue to deal solely with
the Bank, and further provided that no such participation shall cause any
national rating agency to withdraw or lower the bond rating of the Bonds or
affect the tax exempt status of interest on the Bonds.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their thereunto duly authorized as of the date
first above stated.
WEST PLAINS MANOR
By: John L. Harpole
General Partner
/s/
--------------------------------------------
NATIONAL HEALTHCORP L.P.
By: NHC, INC.
Managing Partner
By: /s/
-----------------------------------------
Title: Sr. V.P.
THE BANK OF TOKYO, LTD., NEW YORK AGENCY
By: /s/
-----------------------------------------
Title: Attorney-in-Fact
<PAGE> 1
Exhibit 10.7
THIS GUARANTY AGREEMENT made and entered into as of June 1, 1989 (the
"Guaranty"), by and between National HealthCorp L.P., a limited partnership duly
organized and existing under the laws of the State of Delaware and authorized to
do business in the State of Missouri ("Guarantor"), and The Bank of Tokyo, Ltd.,
New York Agency, New York, New York (the "Bank"), the issuer of a Letter of
Credit in favor of The Merchants Bank, Kansas City, Missouri (the "Trustee") as
security for the Bonds (the "Letter of Credit").
WHEREAS:
A. The Industrial Development Authority of the City of West Plains,
Missouri (the "Issuer") has issued its Variable Rate Industrial Development
Bonds (West Plains Manor Project) 1986 Series in the aggregate principal amount
of $3,200,000 (the "Bonds") under and pursuant to the Indenture of Trust between
the Issuer and the Trustee, dated as of February 1, 1986 (the "Indenture")
for the benefit of West Plains Manor (the "Company"); and
B. the Company and the Guarantor have entered into a Reimbursement and
Letter of Credit Agreement of even date herewith (the "Reimbursement Agreement")
with the Bank; and
C. the Company has entered into a First Amended and Restated Deed of
Trust and Security Agreement With Collateral Assignment-of Rents and Leases
dated as of February 1, 1986 (the "Mortgage") in favor of the Issuer and the
Bank covering the premises constituting the Company's health care facility at
West Plains, Missouri (the "Facilty"); and
D. the Guarantor has contracted with the Company to manage the Facility
pursuant to a Management Agreement dated as of February 1, 1986; and
E. the Guarantor was desirous that the Issuer issue the Bonds and is
willing to enter into this Guaranty in order to enhance the marketability of the
Bonds by causing the issuance of the Letter of Credit and thereby achieve cost
and other savings to the Company and thereby achieve financial benefits for the
Guarantor and as an inducement to the purchase of the Bonds and to secure the
monetary obligations of the Company to the Bank under the Reimbursement
Agreement, the non-recourse obligations of the Company to the Bank under the
Mortgage and the monetary obligations of the Guarantor to the Bank under the
Reimbursement Agreement (such documents being called the "Security Documents"),
<PAGE> 2
which obligations to the Bank are each herein defined as a Guaranteed
Obligation.
NOW, THEREFORE, in consideration of the premises, the Guarantor,
National Health Corp., L.P., does hereby, subject to the terms hereof, covenant
and agree with the Bank as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF THE GUARANTOR
The Guarantor does hereby represent and warrant that it is a limited
partnership duly organized under the laws of the State of Delaware, is qualified
to do business under the laws of the State of Missouri, is not in violation of
any provisions of its Certificate of Limited Partnership or Partnership
Agreement, or the laws of the States of Tennessee, Delaware or Missouri, has
power to enter into this Guaranty, has duly authorized the execution and
delivery of this Guaranty by proper partnership action and neither this Guaranty
nor the agreements herein contained contravene or constitute a default under any
agreement, instrument or indenture, or any provision of its Certificate of
Limited Partnership or Partnership Agreement or any other requirement of law.
The execution by the Guarantor of this Guaranty will result in a direct
financial benefit to it.
ARTICLE II
COVENANTS AND AGREEMENTS
Section 2.1 The Guarantor hereby unconditionally guarantees the payment
to the Bank of the Guaranteed Obligations of the Company under the Security
Documents. All payments by the Guarantor shall be paid in lawful money of the
United States of America. Each and every default in payment of the amounts due
under any Security Document shall give rise to a separate cause of action
hereunder, and separate suits may be brought hereunder as each cause of action
arises.
Section 2.2 The several obligations of the Guarantor under this
Guaranty shall be absolute and unconditional and shall remain in full force and
effect until all amounts due under each and every Security Document shall have
been paid and such obligations shall not be affected, modified or impaired upon
the happening from time to time of any event other than such payment or deposit,
including without limitation any of the following, whether or not with notice
to, or the consent of, the Guarantor:
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<PAGE> 3
(a) the compromise, settlement, release or termination of any or all of
the obligations, covenants or agreements of the Bank under any Security
Document;
(b) the failure to give notice to the Guarantor of the occurrence of an
event of default under the terms and provisions of any Security Document;
(c) the assignment or mortgaging or the purported assignment or
mortgaging of all or any part of the interest of the Bank or the Company in the
Facility or any failure of title with respect to the interests of the Bank or
the Company in the Facility;
(d) the waiver of the payment, performance or observance by any
beneficiary or the Company of any of the obligations, covenants or agreements of
any of them contained in any Security Document or in this Guaranty;
(e) the extension of the time for payment of any Guaranteed Obligation
or under this Guaranty or of the time for performance of any other obligations,
covenants or agreements under or arising out of the Security Documents or this
Guaranty or the extension or renewal of any thereof;
(f) the modification or amendment (whether material or otherwise) of
any Guaranteed Obligation or Security Document provided that, the obligations of
the Guarantor are not thereby increased or expanded without its prior written
consent;
(g) the taking, suffering or omitting to take, or the omission of any
of the actions referred to in the Security Documents and any actions under this
Guaranty;
(h) any failure, omission, delay or lack on the part of the Bank to
enforce, assert or exercise any right, power or remedy conferred on the Bank in
this Guaranty or by any Security Document;
(i) the voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all the assets, marshalling of assets
and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting the Guarantor, the
Company, the Bank, the Trustee or the Issuer or any of the assets of any of them
or any allegation or contest of the validity of this Guaranty, or any of the
Security Documents in any such proceeding;
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<PAGE> 4
(j) to the extent permitted by law, the release or discharge of the
Guarantor from the performance or observance of any obligation, covenant or
agreement contained in this Guaranty by operation of law; or
(k) the default or failure of the Guarantor fully to perform any of its
obligations as set forth in this Guaranty; or
(1) the assignment of any right, title or interest of the Issuer to
Trustee, its successors or assigns; or
(m) the invalidity of any of the Security Documents;
(n) transfer of the Facility or changes in the beneficial or actual
owners of the Company; or
(o) foreclosure of the Mortgage; or
(p) any other circumstance, occurrence or condition, whether similar or
dissimilar to any of the foregoing, that might be raised in avoidance of or in
defense against any action to enforce the obligations of the Guarantor under the
provisions hereof.
Section 2.3 The rights of the Bank to enforce the obligations of the
Guarantor under this Guaranty by any proceedings, whether by action at law, suit
in equity, or otherwise, shall not be impaired by any right, counterclaim or
defense of any character whatsoever, including without limitation any right,
claim or defense or rescission, recoupment, reduction, limitation, set-off,
counterclaim, waiver, frustration, surrender, alteration or compromise. This
Guaranty and the several obligations of the Guarantor hereunder are separate and
independent of the Company's and the Issuer's obligations under the Security
Documents, and it is specifically understood and agreed by the Guarantor that
any payment now or hereafter made by or on behalf of the Company or the Issuer
under or pursuant to the Security Documents shall not, except to the extent paid
to the owners of the bonds directly by the Trustee, affect, impair or diminish,
in any manner whatsoever, the joint and several obligations of the Guarantor
from asserting any separate or related claim against the Bank in a separate
proceeding, which proceeding shall in no way delay the prompt performance by the
Guarantor of its obligations hereunder. In the event that the Company or any
successor or assignee under the Security Documents should fail to perform any
such agreement on its part, the Guarantor may institute such action as it deems
necessary to compel performance so long as such action does not abrogate the
Guarantor's obligations herein.
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<PAGE> 5
Section 2.4 In the event of a default in the payment of a Guaranteed
Obligation, the Bank shall have the right to proceed first and directly against
the Guarantor under this Guaranty to the extent of its respective obligations
hereunder without proceeding against or exhausting any other remedies which it
may have and without resorting to any other security held by the Bank.
Section 2.5 The Guarantor hereby expressly waives notice from the Bank
of its acceptance and reliance on this Guaranty. The Guarantor agrees to pay all
costs, expenses and fees, including all reasonable attorneys' fees, which may be
incurred by the Primary Beneficiary in enforcing or attempting to enforce this
Guaranty following any default hereunder, whether the same be enforced by suit
or otherwise.
Section 2.6 No remedy herein conferred upon or reserved to the Bank is
intended to be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under this Guaranty or now or hereafter existing at law or in
equity. No delay or omission to exercise any right or power accruing upon any
default, omission or failure of performance hereunder shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Bank to exercise any remedy reserved to it in
this Guaranty, it shall not be necessary to give any notice, other than such
notice as may be herein expressly required. In the event any provision contained
in this Guaranty should be breached by the Guarantor and thereafter duly waived
by the Bank, such waiver shall be limited to the particular breach so waived and
shall not be deemed to waive any other breach hereunder. No waiver, amendment,
release or modification of this Guaranty shall be established by conduct, custom
or course of dealing, but solely by an instrument in writing duly executed by
the Bank.
Section 2.7 The Guarantor agrees that it will maintain its partnership
existence throughout the term of years that the Bonds will remain outstanding
and unpaid, and during such period the Guarantor will remain qualified to engage
in business and be subject to service of process in the States of Tennessee and
Missouri. The Guarantor further agrees that it will not dispose of all or
substantially all of its assets except to a corporation incorporated and
existing under the laws of one of the States of the United States of America and
qualified to do business in Missouri; provided, in all cases, that such other
corporation shall have a net worth not less than that of the
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<PAGE> 6
Guarantor and shall assume in writing all of the obligations of the Guarantor
herein.
Section 2.8 The Guarantor covenants and agrees that so long as the
Bonds remain outstanding and unpaid, it will furnish to the Bank, as soon as
available and, in any event, within 125 days after the end of each fiscal year,
copies of a certified balance sheet of the Guarantor and its consolidated
subsidiaries as of the end of each fiscal year. The Guarantor shall also furnish
to the Bank copies of its financial statements for all fiscal years accompanied
by the auditor's report thereon, as well as copies of all interim quarterly
reports sent to the Guarantor's stockholders.
Section 2.9 This Guaranty is entered into by the Guarantor for the
benefit of the Bank and may be amended or supplemented only with the prior
written consent of the Bank.
Section 2.10 The Guarantor shall be discharged of its obligations
hereunder upon the payment of all Guaranteed Obligations; provided that, in the
event the Bank is required by order of a court or administrative body having
jurisdiction at any time to refund or repay to any person or entity any sums
collected by it on account of the obligations subject to this Guaranty, the
Guarantor agrees that all such sums shall remain subject to the terms of this
Guaranty and the Bank shall be entitled to recover such sums from the Guarantor
notwithstanding the fact that the Guarantor shall have been otherwise discharged
from further liability under this Guaranty, but only on the condition precedent
that the Bank shall have given the Guarantor written notice of such court or
administrative proceeding and shall have afforded the Guarantor a reasonable
opportunity to contest any demand for a refund or repayment. The Guarantor shall
have an opportunity to make such a contest only within the time requirements of
the court or administrative body having jurisdiction and must proceed with
diligence to completion of the contest or the condition precedent described in
the preceding sentence shall be deemed to have been waived by the Guarantor.
ARTICLE III
JURISDICTION
Section 3.1 Jurisdiction. The Guarantor agrees that any legal action or
proceeding with respect to this Guaranty or to enforce any judgment obtained
against the Guarantor in connection with this Agreement may be brought by the
Bank in the courts of the State of New York or in the United States District
Court for the Southern District of New York, or any other court
- 6 -
<PAGE> 7
to the jurisdiction of which the Guarantor or any of its property is or may be
subject. The Guarantor irrevocably submits to the jurisdiction of the courts of
the State of New York or of the United States District Court for the Southern
District of New York, and irrevocably waives any present or future objection to
venue in any such court, and any present or future claim that any such court is
an inconvenient forum, in connection with any action or proceeding related to
this Guaranty.
ARTICLE IV
MISCELLANEOUS
Section 4.1 The several obligations of the Guarantor hereunder shall
arise absolutely and unconditionally when the Bonds shall have been issued, sold
and delivered by the Issuer.
Section 4.2 No delay or omission to exercise any right or power
accruing upon any default, omission or failure of performance hereunder shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Bank to exercise any remedy
reserved to it in this Guaranty, it shall not be necessary to give any notice,
other than such notice as may be herein expressly required. In the event any
provision contained in this Guaranty should be breached by the Guarantor and
thereafter duly waived by the Bank, such waiver shall be limited to the
particular breach so waive and shall not be deemed to waive any other breach
hereunder. No waiver, amendment, release or modification of this Guaranty shall
be established by conduct, custom or course of dealing, but solely by an
instrument in writing duly executed by the Bank.
Section 4.3 This Guaranty constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and may be
executed simultaneously in several counterparts, each of which shall be deemed
an original, and all of which together shall constitute one and the same
instrument.
Section 4.4 The invalidity or unenforceability of any one or more
phrases, sentences, clauses or Sections in this Guaranty shall not affect the
validity or enforceability of the remaining portions of this Guaranty, or any
part thereof.
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<PAGE> 8
Section 4.5 This Guaranty shall be governed by and construed
interpreted in accordance with the laws of the State of New York.
Section 4.6 The Guarantor covenants that it will not make any capital
expenditures which will cause the interest on the Bonds to become subject to
Federal income taxes pursuant to the provisions of Section 103(b) of the
Internal Revenue Code of 1954, as amended ( the "Code"), so long as any of the
Bonds are outstanding under the Indenture. The Guarantor further covenants that
it will not take or omit to take any action (other than making the aforesaid
expenditures) nor permit any action to be taken or omitted which would cause the
interest on the Bonds to become subject to Federal income taxes, provided that
the Guarantor shall not have violated this covenant if the interest on any of
the Bonds becomes taxable to a person who is a substantial user of the Facility
or a related person pursuant to the provisions of Section 103(b)(13) of the
Code.
Section 4.7 The agreements contained herein on the part of the
Guarantor shall inure to and be binding upon its successors and assigns,
including without limitation, any successor or assign in any transaction
expressly permitted by Section 2.7 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be
executed in their respective corporate names by their respective officers,
thereunto duly authorized and their respective corporate seals to be hereto
affixed as of the date first above written.
NATIONAL HEALTHCORP L.P.
as Guarantor
By NHC, INC.
Managing Partner
By /s/
-----------------------------------
Title: Senior Vice President
Accepted:
THE BANK OF TOKYO, LTD.
NEW YORK AGENCY
By /s/
----------------------------------
Title: Attorney-in-fact
-8-
<PAGE> 1
EXHIBIT 21
Subsidiaries of National Health Realty, Inc.
(MD)
1. NHR/OP, L.P. (DE)
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on National HealthCare L.P. dated October 15, 1997 and to all references
to our firm included in or made a part of this Form S-4 Registration Statement.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
September 30, 1997
