<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
---------------------
<TABLE>
<S> <C>
Commission file number 0-9109 Commission file number 0-9110
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
197 FIRST AVENUE, SUITE 300 197 FIRST AVENUE, SUITE 100
Needham Heights, Massachusetts 02494-9127 NEEDHAM HEIGHTS, MASSACHUSETTS 02494-9127
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(781) 433-6000 (781) 453-8062
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of each of the issuers' classes of common
stock, as of the close of business on April 30, 1999 were:
Meditrust Corporation 142,434,349
Meditrust Operating Company 141,128,972
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE MEDITRUST COMPANIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------------
<S> <C> <C>
Part I. Item 1. Financial Information
The Meditrust Companies
Combined Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31,
1998 1
Combined Consolidated Statements of Operations for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited) 2
Combined Consolidated Statements of Cash Flows for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited) 3
Meditrust Corporation
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 4
Consolidated Statements of Operations for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited) 6
Meditrust Operating Company
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 7
Consolidated Statements of Operations for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited) 8
Consolidated Statements of Cash Flows for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited) 9
Notes to Combined Consolidated Financial Statements (unaudited) 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 23
Part II. Other Information
Item 5. Other Information 40
Item 6. Exhibits and Reports on Form 8-K 40
Signatures 42
</TABLE>
<PAGE>
ITEM I. FINANCIAL INFORMATION
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
------------- --------------
<S> <C> <C>
(Unaudited)
ASSETS
Real estate investments, net..................................................... $ 5,015,852 $ 5,086,736
Cash and cash equivalents........................................................ 39,269 305,456
Fees, interest and other receivables............................................. 66,398 54,712
Goodwill, net.................................................................... 480,645 486,051
Net assets of discontinued operations............................................ -- 305,416
Other assets, net................................................................ 220,931 221,180
------------- --------------
Total assets............................................................... $ 5,823,095 $ 6,459,551
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Indebtedness:
Notes payable, net............................................................. $ 1,156,102 $ 1,155,837
Convertible debentures, net.................................................... 185,190 185,013
Bank notes payable, net........................................................ 1,230,624 1,831,336
Bonds and mortgages payable, net............................................... 122,826 129,536
------------- --------------
Total indebtedness........................................................... 2,694,742 3,301,722
Accounts payable, accrued expenses and other liabilities......................... 237,525 206,901
------------- --------------
Total liabilities.......................................................... 2,932,267 3,508,623
------------- --------------
Commitments and contingencies.................................................... -- --
Shareholders' equity:
Meditrust Corporation Preferred Stock, $.10 par value; 6,000 shares authorized;
700 shares issued and outstanding at March 31, 1999 and December 31, 1998;
stated liquidation preference of $250 per share.............................. 70 70
Paired Common Stock, $.20 combined par value; 270,000 shares authorized;
149,707 and 149,326 paired shares issued and outstanding at March 31, 1999
and December 31, 1998, respectively (including treasury shares).............. 29,941 29,865
Additional paid-in-capital..................................................... 3,896,325 3,891,987
Treasury stock at cost, 1,635 paired common shares at March 31, 1999 and
December 31, 1998............................................................ (176,759) (163,326)
Unearned compensation.......................................................... (9,403) (6,718)
Accumulated other comprehensive income......................................... 20,787 16,971
Distributions in excess of net income.......................................... (870,133) (817,921)
------------- --------------
Total shareholders' equity................................................... 2,890,828 2,950,928
------------- --------------
Total liabilities and shareholders' equity................................. $ 5,823,095 $ 6,459,551
------------- --------------
------------- --------------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
1
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
--------- ---------
<S> <C> <C>
Revenue:
Rental................................................................................... $ 43,712 $ 43,656
Interest................................................................................. 34,202 38,579
Hotel.................................................................................... 148,534 --
Other.................................................................................... 856 26,000
--------- ---------
227,304 108,235
--------- ---------
Expenses:
Interest................................................................................. 66,657 25,417
Depreciation and amortization............................................................ 33,859 10,458
Amortization of goodwill................................................................. 5,308 1,576
General and administrative............................................................... 4,918 4,384
Hotel operations......................................................................... 70,990 --
Rental property operations............................................................... 8,907 1,265
Gain on sale of assets................................................................... (12,271) --
Income from unconsolidated joint venture................................................. -- (111)
Other.................................................................................... 34,887 21,541
--------- ---------
213,255 64,530
--------- ---------
Income from continuing operations before benefit for income taxes.......................... 14,049 43,705
Income tax benefit......................................................................... (826) --
--------- ---------
Income from continuing operations.......................................................... 14,875 43,705
Discontinued operations:
Income from operations, net.............................................................. -- 7,916
Gain (loss adjustment) on disposal of Santa Anita, net................................... 1,875 --
Gain (loss adjustment) on disposal of Cobblestone Golf Group, net........................ 2,994 --
--------- ---------
Net income................................................................................. 19,744 51,621
Preferred stock dividends.................................................................. (3,938) --
--------- ---------
Net income available to Paired Common shareholders......................................... $ 15,806 $ 51,621
--------- ---------
--------- ---------
Basic earnings per Paired Common Share:
Income from continuing operations........................................................ $ .07 $ .48
Discontinued operations.................................................................. .04 .08
--------- ---------
Net income............................................................................... $ .11 $ .56
--------- ---------
--------- ---------
Diluted earnings per Paired Common Share:
Income from continuing operations........................................................ $ .07 $ .48
Discontinued operations.................................................................. .04 .08
--------- ---------
Net income............................................................................... $ .11 $ .56
--------- ---------
--------- ---------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
2
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income............................................................................... $ 19,744 $ 51,621
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of real estate.............................................................. 32,965 10,347
Goodwill amortization.................................................................... 5,308 1,576
Gain on sale of assets................................................................... (17,140) --
Shares issued for compensation........................................................... 39 182
Equity in income of joint venture, net of dividends received............................. -- 289
Other depreciation, amortization and other items, net.................................... 11,413 4,843
Other non cash items..................................................................... 30,788 15,600
----------- -----------
Cash Flows from Operating Activities
Available for Distribution............................................................... 83,117 84,458
Net change in other assets and liabilities of discontinued operations.................... (148) --
Net change in other assets and liabilities............................................... (53,829) (19,573)
----------- -----------
Net cash provided by operating activities.............................................. 29,140 64,885
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of paired common stock............................................ -- 277,313
Purchase of treasury stock............................................................... (13,433) --
Proceeds from borrowings on bank notes payable........................................... 355,000 170,000
Repayment of bank notes payable.......................................................... (963,000) (300,000)
Equity offering and debt issuance costs.................................................. (577) (5,636)
Principal payments on bonds and mortgages payable........................................ (6,762) (6,876)
Dividends to shareholders................................................................ (71,956) (53,545)
Proceeds from exercise of stock options.................................................. 307 1,105
----------- -----------
Net cash provided by (used in) financing activities.................................... (700,421) 82,361
----------- -----------
Cash Flows from Investing Activities:
Acquisition of real estate and development funding....................................... (59,337) (286,710)
Investment in real estate mortgages and development funding.............................. (11,956) (78,491)
Prepayment proceeds and principal payments received on real estate mortgages............. 8,182 259,102
Net proceeds from sale of assets......................................................... 476,950 4,709
Working capital and notes receivable advances, net of repayments and collections, and
other items............................................................................ (8,745) 938
----------- -----------
Net cash provided by (used in) investing activities.................................... 405,094 (100,452)
----------- -----------
Net increase (decrease) in cash and cash equivalents................................... (266,187) 46,794
Cash and cash equivalents at:
Beginning of period...................................................................... 305,456 43,732
----------- -----------
End of period............................................................................ $ 39,269 $ 90,526
----------- -----------
----------- -----------
</TABLE>
Supplemental disclosure of cash flow information (Note 2)
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
3
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Real estate investments, net..................................................... $ 4,996,179 $ 5,067,217
Cash and cash equivalents........................................................ 37,300 292,694
Fees, interest and other receivables............................................. 51,218 42,039
Goodwill, net.................................................................... 446,487 451,672
Net assets of discontinued operations............................................ -- 280,330
Other assets, net................................................................ 190,344 187,033
------------- --------------
Total assets............................................................... $ 5,721,528 $ 6,320,985
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Indebtedness:
Notes payable, net............................................................. $ 1,156,102 $ 1,155,837
Convertible debentures, net.................................................... 185,190 185,013
Bank notes payable, net........................................................ 1,230,624 1,831,336
Bonds and mortgages payable, net............................................... 122,826 129,536
------------- --------------
Total indebtedness........................................................... 2,694,742 3,301,722
------------- --------------
Due to Meditrust Operating Company............................................... 51,790 29,169
Accounts payable, accrued expenses and other liabilities......................... 122,171 116,741
------------- --------------
Total liabilities.......................................................... 2,868,703 3,447,632
------------- --------------
Commitments and contingencies.................................................... -- --
Shareholders' equity:
Preferred Stock, $.10 par value; 6,000 shares authorized; 700 shares issued and
outstanding at March 31, 1999 and December 31, 1998; stated liquidation
preference of $250 per share................................................. 70 70
Common Stock, $.10 par value; 270,000 shares authorized; 151,012 and 150,631
shares issued and outstanding at March 31, 1999 and December 31, 1998,
respectively (including treasury shares)..................................... 15,101 15,063
Additional paid-in-capital....................................................... 3,824,725 3,820,436
Treasury stock at cost, 1,635 common shares at March 31, 1999 and December 31,
1998........................................................................... (173,401) (160,223)
Unearned compensation............................................................ (6,497) (6,718)
Accumulated other comprehensive income........................................... 20,787 16,971
Distributions in excess of net income............................................ (811,889) (799,118)
------------- --------------
2,868,896 2,886,481
Due from Meditrust Operating Company............................................. (2,943) --
Note receivable--Meditrust Operating Company..................................... (13,128) (13,128)
------------- --------------
Total shareholders' equity................................................. 2,852,825 2,873,353
------------- --------------
Total liabilities and shareholders' equity............................... $ 5,721,528 $ 6,320,985
------------- --------------
------------- --------------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
4
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
--------- ---------
<S> <C> <C>
Revenue:
Rental................................................................................... $ 43,712 $ 43,656
Interest................................................................................. 34,030 38,512
Rent from Meditrust Operating Company.................................................... 68,248 --
Interest from Meditrust Operating Company................................................ -- 211
Royalty from Meditrust Operating Company................................................. 3,620 --
Hotel operating revenue.................................................................. 3,210 --
Other.................................................................................... 856 26,000
--------- ---------
153,676 108,379
--------- ---------
Expenses:
Interest................................................................................. 66,547 25,417
Depreciation and amortization............................................................ 32,058 10,458
Amortization of goodwill................................................................. 5,087 1,375
General and administrative............................................................... 4,918 3,794
Hotel operations......................................................................... 950 --
Rental property operations............................................................... 8,907 1,265
Gain on sale of assets................................................................... (12,271) --
Income from unconsolidated joint venture................................................. -- (111)
Other.................................................................................... 4,389 21,541
--------- ---------
110,585 63,739
--------- ---------
Income from continuing operations.......................................................... 43,091 44,640
Discontinued operations:
Income from operations, net.............................................................. -- 7,062
Gain (loss adjustment) on disposal of Santa Anita, net................................... 6,655 --
Gain (loss adjustment) on disposal of Cobblestone Golf Group, net........................ 9,439 --
--------- ---------
Net income................................................................................. 59,185 51,702
Preferred stock dividends.................................................................. (3,938) --
--------- ---------
Net income available to Common shareholders................................................ $ 55,247 $ 51,702
--------- ---------
--------- ---------
Basic earnings per Common Share:
Income from continuing operations........................................................ $ .26 $ .48
Discontinued operations.................................................................. .11 .08
--------- ---------
Net income............................................................................... $ .37 $ .56
--------- ---------
--------- ---------
Diluted earnings per Common Share:
Income from continuing operations........................................................ $ .26 $ .48
Discontinued operations.................................................................. .11 .07
--------- ---------
Net income............................................................................... $ .37 $ .55
--------- ---------
--------- ---------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
5
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income............................................................................. $ 59,185 $ 51,702
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of real estate............................................................ 30,737 10,347
Goodwill amortization.................................................................. 5,087 1,375
Gain on sale of assets................................................................. (28,365) --
Shares issued for compensation......................................................... 38 179
Equity in income of joint venture, net of dividends received........................... -- 289
Other depreciation, amortization and other items, net.................................. 9,673 4,030
Other non cash items................................................................... (2,123) 15,600
---------- ----------
Cash Flows from Operating Activities Available for Distribution........................ 74,232 83,522
Net change in other assets and liabilities............................................. (49,603) (23,992)
---------- ----------
Net cash provided by operating activities............................................ 24,629 59,530
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock................................................. -- 272,044
Purchase of treasury stock............................................................. (13,178) --
Proceeds from borrowings on bank notes payable......................................... 355,000 170,000
Repayment of bank notes payable........................................................ (963,000) (300,000)
Equity offering and debt issuance costs................................................ (577) (5,531)
Intercompany lending, net.............................................................. 38,619 3,065
Principal payments on bonds and mortgages payable...................................... (6,762) (6,876)
Dividends to shareholders.............................................................. (71,956) (53,545)
Proceeds from exercise of stock options................................................ 302 1,083
---------- ----------
Net cash provided by (used in) financing activities.................................. (661,552) 80,240
---------- ----------
Cash Flows from Investing Activities:
Acquisition of real estate and development funding..................................... (59,029) (286,710)
Investment in real estate mortgages and development funding............................ (11,956) (78,491)
Prepayment proceeds and principal payments received on real estate mortgages........... 8,182 259,102
Net proceeds from sale of real estate.................................................. 453,077 4,709
Working capital and notes receivable advances, net of repayments and collections, and
other items.......................................................................... (8,745) 938
---------- ----------
Net cash provided by (used in) investing activities.................................... 381,529 (100,452)
---------- ----------
Net increase (decrease) in cash and cash equivalents................................. (255,394) 39,318
Cash and cash equivalents at:
Beginning of period.................................................................. 292,694 24,059
---------- ----------
End of period........................................................................ $ 37,300 $ 63,377
---------- ----------
---------- ----------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
6
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
----------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents......................................................... $ 1,969 $ 12,762
Fees, interest and other receivables.............................................. 15,180 12,673
Due from Meditrust Corporation.................................................... 25,295 46,874
Other current assets, net......................................................... 10,202 10,423
----------- --------------
Total current assets.......................................................... 52,646 82,732
----------- --------------
Investment in common stock of Meditrust Corporation............................... 37,581 37,581
Goodwill, net..................................................................... 34,158 34,379
Property, plant and equipment, less accumulated depreciation of $1,261 and $760,
respectively.................................................................... 28,913 30,895
Other non-current assets.......................................................... 11,400 12,603
----------- --------------
Total assets.................................................................. $ 164,698 $ 198,190
----------- --------------
----------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................................................................. $ 20,016 $ 18,349
Accrued payroll and employee benefits............................................. 30,948 33,457
Accrued expenses and other current liabilities.................................... 58,075 30,980
----------- --------------
Total current liabilities..................................................... 109,039 82,786
----------- --------------
Note payable to Meditrust Corporation............................................. 13,128 13,128
Other non-current liabilities..................................................... 6,570 7,629
Net liabilities of discontinued operations........................................ -- 16,140
----------- --------------
Total liabilities............................................................. 128,737 119,683
----------- --------------
Commitments and contingencies..................................................... -- --
Shareholders' equity:
Common Stock, $.10 par value; 270,000 shares authorized; 149,707 and 149,326
shares issued and outstanding at March 31, 1999 and December 31, 1998,
respectively (including treasury shares)...................................... 14,970 14,933
Additional paid-in-capital...................................................... 109,051 109,001
Unearned compensation........................................................... (2,906) --
Treasury stock at cost, 1,635 common shares at March 31, 1999 and December 31,
1998.......................................................................... (3,358) (3,103)
Retained earnings (deficit)..................................................... (58,244) (18,803)
----------- --------------
59,513 102,028
Due from Meditrust Corporation................................................ (23,552) (23,521)
----------- --------------
Total shareholders' equity.................................................... 35,961 78,507
----------- --------------
Total liabilities and shareholders' equity.................................. $ 164,698 $ 198,190
----------- --------------
----------- --------------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
7
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
----------- ---------
<S> <C> <C>
Revenue:
Hotel.................................................................................... $ 145,324 $ --
Interest................................................................................. 172 67
----------- ---------
145,496 67
----------- ---------
Expenses:
Hotel operations......................................................................... 70,040 --
Depreciation and amortization............................................................ 1,801 --
Amortization of goodwill................................................................. 221 201
Interest and other....................................................................... 110 --
Interest to Meditrust Corporation........................................................ -- 211
General and administrative............................................................... -- 590
Royalty to Meditrust Corporation......................................................... 3,620 --
Rent to Meditrust Corporation............................................................ 68,248 --
Other.................................................................................... 30,498 --
----------- ---------
174,538 1,002
----------- ---------
Loss from continuing operations before benefit for income taxes............................ (29,042) (935)
Income tax benefit......................................................................... (826) --
----------- ---------
Loss from continuing operations............................................................ (28,216) (935)
Discontinued operations:
Income from operations, net.............................................................. -- 854
Loss adjustment on disposal of Santa Anita, net.......................................... (4,780) --
Loss adjustment on disposal of Cobblestone Golf Group, net............................... (6,445) --
----------- ---------
Net loss................................................................................... $ (39,441) $ (81)
----------- ---------
----------- ---------
Basic earnings per Common Share:
Loss from continuing operations.......................................................... $ (.19) $ (.01)
Discontinued operations.................................................................. (.08) .01
----------- ---------
Net loss................................................................................. $ (.27) $ .00
----------- ---------
----------- ---------
Diluted earnings per Common Share:
Loss from continuing operations.......................................................... $ (.19) $ (.01)
Discontinued operations.................................................................. (.08) .01
----------- ---------
Net loss................................................................................. $ (.27) $ .00
----------- ---------
----------- ---------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
8
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................................................ $ (39,441) $ (81)
Goodwill amortization................................................................... 221 201
Loss on sale of assets.................................................................. 11,225 --
Shares issued for compensation.......................................................... 1 3
Other depreciation and amortization..................................................... 3,968 813
Other items............................................................................. 32,911 --
Net change in other assets and liabilities of discontinued operations................... (148) --
Net change in other assets and liabilities.............................................. (4,226) 4,419
---------- ---------
Net cash provided by operating activities............................................. 4,511 5,355
---------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of stock......................................................... -- 5,269
Purchase of treasury stock.............................................................. (255) --
Equity offering costs................................................................... -- (105)
Intercompany lending, net............................................................... (38,619) (3,065)
Proceeds from stock option exercises.................................................... 5 22
---------- ---------
Net cash provided by (used in) financing activities................................... (38,869) 2,121
---------- ---------
Cash Flows from Investing Activities:
Capital improvements to real estate..................................................... (308) --
Net Proceeds from sale of assets........................................................ 23,873 --
---------- ---------
Net cash provided by investing activities............................................. 23,565 --
---------- ---------
Net increase (decrease) in cash and cash equivalents.................................. (10,793) 7,476
Cash and cash equivalents at:
Beginning of period..................................................................... 12,762 19,673
---------- ---------
End of period........................................................................... $ 1,969 $ 27,149
---------- ---------
---------- ---------
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements contained within the Companies' Form 10-K for the year
ended December 31, 1998, are an integral part of these financial statements.
9
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted in this Form 10-Q in accordance with the Rules
and Regulations of the Securities and Exchange Commission.
The accompanying unaudited combined consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1999 and the results of
operations for the three months ended March 31, 1999 and 1998 and cash flows for
each of the three month periods ended March 31, 1999 and 1998. The results of
operations for the three month period ended March 31, 1999 are not necessarily
indicative of the results which may be expected for any other interim period or
for the entire year.
In the opinion of Meditrust Corporation ("Realty") and Meditrust Operating
Company and subsidiaries ("Operating Company" or "Operating" and collectively
with Realty the "Companies" or "The Meditrust Companies"), the disclosures
contained in this Form 10-Q are adequate to make the information presented not
misleading. See the Companies' Joint Annual Report on Form 10-K for the year
ended December 31, 1998 for additional information relevant to significant
accounting policies followed by the Companies.
BASIS OF PRESENTATION AND CONSOLIDATION
Separate financial statements have been presented for Realty and for
Operating Company. Combined Realty and Operating Company financial statements
have been presented as The Meditrust Companies. All significant intercompany and
inter-entity balances and transactions have been eliminated in combination. The
Meditrust Companies and Realty use an unclassified balance sheet presentation.
The consolidated financial statements of Realty and Operating Company
include the accounts of the respective entity and its majority-owned
subsidiaries, including unincorporated partnerships and joint ventures, after
the elimination of all significant intercompany accounts and transactions.
On July 17, 1998, Realty acquired La Quinta Inns, Inc. and its subsidiaries
(all wholly owned) and its unincorporated partnership and joint venture ("La
Quinta", "The La Quinta Merger"). La Quinta is a fully-integrated lodging
company that focuses on the ownership, operation and development of hotels. As
of March 31, 1999, the portfolio of hotels operated under the La Quinta name
included 293 operating hotels, and nine hotels under development with
approximately 38,000 rooms located in the western and southern regions of the
United States. The La Quinta Merger was accounted for under the purchase method
of accounting. Accordingly, the financial statements, including the results of
operations and cash flows, do not include the operations of La Quinta prior to
July 17, 1998.
On November 11, 1998, the Boards of Directors of Realty and Operating
Company approved a comprehensive restructuring plan (the "Plan") designed to
strengthen the Companies' financial position and clarify their investment and
operating strategy by focusing on the healthcare and lodging businesses.
Significant components of the Plan include selling more than $1,000,000,000 of
non-strategic assets, including their portfolio of golf-related real estate and
operating properties ("Cobblestone Golf Group"), the Santa Anita Racetrack and
adjacent property, and approximately $550,000,000 of non-strategic healthcare
properties.
10
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As a result of the Plan, the Companies have reflected the Cobblestone Golf
Group and Santa Anita Racetrack as discontinued operations and certain
healthcare properties as assets held for sale, in the accompanying financial
statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
RECLASSIFICATION
Certain reclassifications have been made to the 1998 presentation to conform
to the 1999 presentation.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Details of interest and income taxes paid and non-cash investing and
financing transactions follow:
The Meditrust Companies:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
(IN THOUSANDS) 1999 1998
--------- ---------
<S> <C> <C>
Interest paid during the period............................................................ $ 92,409 $ 44,120
Interest capitalized during the period..................................................... 2,743 1,652
Non-cash investing and financing transactions:
Value of real estate acquired (sold):
Land and buildings....................................................................... -- 7,118
Retirements and write-offs of project costs.............................................. (1,518) --
Accumulated depreciation of buildings sold............................................... 13,212 1,561
Debt assumed by buyer of Cobblestone Golf Group.......................................... 5,637 --
Increase in real estate mortgages net of participation reduction......................... 259 461
Change in market value of equity securities in excess of cost............................ 3,816 3,971
Value of shares issued for conversion of debentures...................................... -- 5,962
</TABLE>
11
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Meditrust Corporation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
(IN THOUSANDS) 1999 1998
--------- ---------
<S> <C> <C>
Interest paid during the period............................................................ $ 92,299 $ 44,120
Interest capitalized during the period..................................................... 2,743 1,652
Non-cash investing and financing transactions:
Value of real estate acquired (sold):
Land and buildings....................................................................... -- 7,118
Retirements and write-offs of project costs.............................................. (1,518) --
Accumulated depreciation of buildings sold............................................... 13,212 1,561
Debt assumed by buyer of Cobblestone Golf Group.......................................... 5,637 --
Increase in real estate mortgages net of participation reduction......................... 259 461
Change in market value of equity securities in excess of cost............................ 3,816 3,971
Value of shares issued for conversion of debentures...................................... -- 5,849
</TABLE>
Meditrust Operating Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
(IN THOUSANDS) 1999 1998
----------- -------------
<S> <C> <C>
Interest paid during the period............................................................ $ 110 $ 54
Non-cash investing and financing transactions:
Value of shares issued for conversion of debentures...................................... -- 113
</TABLE>
3. DISCONTINUED OPERATIONS
On December 10, 1998, the Companies sold certain assets, leases, and
licenses used in connection with the horseracing business conducted at Santa
Anita Racetrack and recorded a loss on sale of $67,913,000 for the year ended
December 31, 1998. During the three months ended March 31, 1999, the Companies
recorded an adjustment of $1,875,000 to the estimated final selling price of the
Santa Anita Racetrack. The Companies anticipate the final adjustment for this
transaction to be completed during 1999.
The Companies recorded a provision for loss on the disposition of
Cobblestone Golf Group of approximately $237,035,000, which included estimated
income taxes of $56,848,000, as of December 31, 1998 based upon the estimated
proceeds to be realized upon sale. At December 31, 1998, the net assets subject
to sale totaled $305,416,000 and were classified as net assets of discontinued
operations on the combined consolidated balance sheet. On March 31, 1999, the
Companies sold the Cobblestone Golf Group for approximately $393,000,000 before
working capital and other adjustments, and reduced the loss on disposition by
$2,994,000. The adjustment reflects an estimate of selling costs and an estimate
of the adjustment relating to working capital balances at the sale date, both of
which are being finalized. The Companies anticipate the final adjustment for
this transaction to be completed during 1999.
12
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. DISCONTINUED OPERATIONS (CONTINUED)
Combined operating results, for the three months ended March 31, 1999,
(exclusive of any interest expense, depreciation and corporate charges) of
discontinued golf operations are as follows:
<TABLE>
<CAPTION>
COBBLESTONE
(IN THOUSANDS) GOLF GROUP
-------------
<S> <C>
Revenues........................................................................................... $ 26,337
Operating expenses................................................................................. 22,268
-------------
Contribution....................................................................................... 4,069
Other expenses..................................................................................... 430
-------------
Income before income taxes......................................................................... 3,639
Income tax benefit................................................................................. 1,420
-------------
Net income......................................................................................... $ 5,059
-------------
-------------
</TABLE>
4. REAL ESTATE INVESTMENTS
The following is a summary of the Companies' real estate investments:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1999 1998
------------- --------------
<S> <C> <C>
Land............................................................................... $ 469,991 $ 475,376
Buildings and improvements, net of accumulated depreciation and other provisions of
$209,823 and $186,594............................................................ 3,316,031 3,381,392
Real estate mortgages and loans receivable, net of a valuation allowance of $19,191
and $18,991...................................................................... 1,201,467 1,197,634
Assets held for sale, net of accumulated depreciation and other provisions of
$36,129 and $41,562.............................................................. 28,363 32,334
------------- --------------
$ 5,015,852 $ 5,086,736
------------- --------------
------------- --------------
</TABLE>
During the three months ended March 31, 1999, the Companies provided net
funding of $17,869,000 for ongoing construction of healthcare facilities
committed to prior to 1999. The Companies also provided net funding of
$33,468,000 for construction and capital improvements to hotels acquired in The
La Quinta Merger, and net funding of approximately $8,000,000 for capital
improvements to golf courses which were included in net assets of discontinued
operations as of December 31, 1998 and subsequently sold on March 31, 1999.
Also during the three months ended March 31, 1999, Realty provided
$11,956,000 for ongoing construction of mortgaged facilities already in the
portfolio.
During the three months ended March 31, 1999, Realty received net proceeds
of $102,856,000 from the sale of one long-term care facility, one rehabilitation
facility and 15 assisted living facilities. Realty realized a net gain on these
sales of $12,271,000. In connection with these sales, $856,000 in lease breakage
fees were received and have been included in other income in the consolidated
statements of
13
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. REAL ESTATE INVESTMENTS (CONTINUED)
operations. Realty also received $2,943,000 from the sale of a hotel and land
held for development. There was no gain or loss realized on the sale.
On March 31, 1999, Realty sold 43 golf courses (or leasehold interests in
golf courses) as part of the sale of Cobblestone Golf Group (See Note 3). These
golf courses were included in net assets of discontinued operations as of
December 31, 1998.
During the three months ended March 31, 1999, Realty received principal
payments of $8,182,000 on real estate mortgages.
At March 31, 1999, Realty was committed to provide additional financing of
approximately $97,000,000 relating to four long-term care facilities, 9 assisted
living facilities and 9 hotel facilities currently under construction as well as
additions to existing facilities in the portfolio.
5. INDEBTEDNESS
On July 17, 1998, Realty entered into a credit agreement (the "Credit
Agreement") which provided Realty with up to $2,250,000,000 in credit
facilities, replacing Realty's then existing $365,000,000 revolving credit
facilities. The Credit Agreement provided for borrowings in four separate
tranches (each a "Tranche"): Tranche A, a $1,000,000,000 revolving loan, amounts
of which if repaid may be reborrowed, which matures July 17, 2001; Tranche B, a
term loan in the amount of $500,000,000, amounts of which if repaid may not be
reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory principal
payment on April 17, 1999; Tranche C, a term loan in the amount of $250,000,000,
amounts of which if repaid may not be reborrowed, which matures July 17, 1999
with a six month extension option; and Tranche D, a term loan in the amount of
$500,000,000, amounts of which if repaid may not be reborrowed, which matures
July 17, 2001.
On November 23, 1998, Realty amended its Credit Agreement to provide for
Realty's cash repayment of a portion of its Forward Equity Issuance Transaction
("FEIT"), the amendment of certain financial covenants to accommodate asset
sales, to exclude the impact of non-recurring charges in certain covenant
calculations, and to provide for future operating flexibility. The amendment
also provided for an increase to the LIBOR pricing of the credit facility by
approximately 125 basis points, and the pledge of stock of the Companies'
subsidiaries. This pledge of subsidiary stock also extended on a pro rata basis
to entitled bondholders. Realty also agreed to a 25 basis point increase to the
LIBOR pricing in the event that an equity offering of at least $100,000,000 had
not been completed by February 1, 1999. On February 1, 1999 this increase went
into effect.
On January 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan
that was scheduled to mature on April 17, 1999.
On March 10, 1999, Realty reached a second agreement with its bank group to
further amend the Credit Agreement. The second amendment, which was subject to
the successful completion of the sale of Cobblestone Golf Group, provided for a
portion of the sale proceeds to be applied to settle a portion of the FEIT. The
second amendment also provided for, among other things, deletion of limitations
on certain healthcare investments and lowering the Tranche A loan commitments to
$850,000,000. On March 31, 1999, the Companies completed the sale of Cobblestone
Golf Group.
14
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. INDEBTEDNESS (CONTINUED)
Of the $850,000,000 revolving tranche commitment, $561,000,000 was available
at March 31, 1999, at Realty's option of the base rate (9.75%) or LIBOR plus
2.875% (7.8125% at March 31, 1999).
During July 1998, Realty entered into interest rate swap agreements to
reduce the impact on interest expense of fluctuating interest rates on
$1,250,000,000 of its Credit Agreement. Realty agreed with the counterparty to
exchange, on a monthly basis, the difference between Realty's fixed pay rate and
the counterparty's variable pay rate of one month LIBOR. During January 1999,
Realty cancelled a $250,000,000 contract from the interest rate swap agreement
in connection with the repayment described above. At March 31, 1999, Realty was
a fixed rate payor of approximately 5.7% and received a variable rate of
approximately 4.9%. Differentials in the swapped amounts are recorded as
adjustments to interest expense of Realty.
6. SHAREHOLDERS' EQUITY
On March 10, 1999, the Companies entered into an agreement with Merrill
Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co.,
Inc. (collectively with its agent and successor in interest, "MLI") and certain
of its affiliates to use the proceeds from the sale of the Cobblestone Golf
Group in excess of $300,000,000 to repurchase all or a portion of the remaining
paired common shares, outstanding under the FEIT. MLI agreed not to sell any
shares of the remaining paired common shares until March 31, 1999, while the
Companies completed the sale of Cobblestone Golf Group. On March 31, 1999, the
Companies completed the sale of Cobblestone Golf Group and on April 1, 1999, the
Companies settled the FEIT by paying MLI approximately $89,840,000 for the
repurchase of 6,865,000 paired common shares.
As of March 31, 1999, the following classes of Preferred Stock, Excess Stock
and Series Common Stock were authorized; no shares were issued or outstanding at
either March 31, 1999 or December 31, 1998:
Meditrust Operating Company Preferred Stock $.10 par value; 6,000,000 shares
authorized;
Meditrust Corporation Excess Stock $.10 par value; 25,000,000 shares
authorized;
Meditrust Operating Company Excess Stock $.10 par value; 25,000,000 shares
authorized;
Meditrust Corporation Series Common Stock $.10 par value; 30,000,000 shares
authorized;
Meditrust Operating Company Series Common Stock $.10 par value; 30,000,000
shares authorized.
During January 1999, 200,000 restricted shares of the Companies' stock were
issued to key employees under The Meditrust Corporation 1995 Share Award Plan
and The Meditrust Operating Company 1995 Share Award Plan (collectively known as
the "Share Award Plan").
Under the Share Award Plan participants are entitled to cash dividends and
voting rights on their respective restricted shares. Restrictions generally
limit the sale or transfer of shares during a restricted period, not exceeding
eight years. Participants vest in the restricted shares granted on the earliest
of eight years after the date of issuance, upon achieving the performance goals
as defined, or as the Boards of Directors may determine.
15
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
Unearned compensation was charged for the market value of the restricted
shares on the date of grant and is being amortized over the restricted period.
The unamortized unearned compensation value is shown as a reduction of
shareholders' equity in the accompanying consolidated and combined consolidated
balance sheets.
7. COMPREHENSIVE INCOME AND OTHER ASSETS
As of March 31, 1999, Realty had invested approximately $57,204,000 in
Nursing Home Properties Plc ("NHP Plc"), a property investment group which
specializes in the financing, through sale leaseback transactions, of nursing
homes located in the United Kingdom. The investment includes approximately
26,606,000 shares of NHP Plc, representing an ownership interest in NHP Plc of
19.99% of which Realty has voting rights with respect to 9.99%. The difference
between the current market value and the cost, $18,905,000, is included in
shareholders' equity in the accompanying balance sheet.
As of March 31, 1999, Realty owns 331,000 shares of stock and warrants to
purchase 1,006,000 shares of stock in Balanced Care Corporation ("BCC"), a
healthcare operator. The stock and warrants have a current market value of
$2,987,000. The difference between current market value and the cost of the BCC
investment, $1,882,000, is included in shareholders' equity in the accompanying
balance sheet.
The following is a summary of the Companies' comprehensive income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
(IN THOUSANDS) 1999 1998
--------- ---------
<S> <C> <C>
Net income................................................................................. $ 19,744 $ 51,621
Other comprehensive income:
Changes in market value of equity securities in excess of cost............................. 3,816 3,971
--------- ---------
Comprehensive income....................................................................... $ 23,560 $ 55,592
--------- ---------
--------- ---------
</TABLE>
Other assets includes the investments in NHP Plc and BCC as well as La
Quinta intangible assets, furniture, fixtures and equipment, and other
receivables.
8. DISTRIBUTIONS PAID TO SHAREHOLDERS
On February 16, 1999, Realty paid a dividend of $0.46 per share of common
stock, to shareholders of record on January 29, 1999. On March 31, 1999, Realty
paid a dividend of $0.5625 per depository share of preferred stock to holders of
record on March 15, 1999 of its 9.00% Series A cumulative redeemable preferred
stock.
9. OTHER EXPENSES
During the first quarter of 1999, the Companies recorded approximately
$34,887,000 in other expenses.
16
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. OTHER EXPENSES (CONTINUED)
On May 10, 1999, The Meditrust Companies entered into a separation agreement
with Abraham D. Gosman, former Director and Chairman of the Companies and Chief
Executive Officer and Treasurer of Meditrust Operating Company. Under the terms
of the separation agreement, Mr. Gosman will receive severance payments totaling
$25,000,000 in cash and the continuation of certain life insurance benefits. The
Meditrust Companies established a Special Committee of The Boards of Directors
of Meditrust Corporation and Meditrust Operating Company (the "Special
Committee") to evaluate the applicability of Mr. Gosman's employment contract
and whether such severance or other payments were appropriate. Based on the
results of the evaluation and recommendation of the Special Committee, the
Boards of Directors concluded that the separation agreement was in the long-term
best interest of the shareholders of the Companies and approved the separation
agreement.
The Companies incurred approximately $5,889,000 of non-recurring costs
associated with the development and implementation of the Plan. These costs
primarily relate to the early repayment and modification of certain debt and
professional and other advisory fees.
Also, in conjunction with the implementation of the Plan, which included a
change in the focus of the lodging division to internal growth, La Quinta
management performed a review of the front desk system under development for its
lodging facilities, and made a decision to abandon the project. The decision was
based primarily on management's intent to integrate the front desk system with
new revenue management software, availability of more suitable and flexible
externally developed software and a shift in information systems philosophy
toward implementation of externally developed software and outsourcing of
related support services. A charge of approximately $3,998,000 to write-off
certain internal and external software development costs related to the project
was recorded in the first quarter of 1999.
10. LA QUINTA MERGER
On July 17, 1998, Realty completed its merger with La Quinta whereby La
Quinta merged with and into Realty, with Realty as the surviving corporation.
The following unaudited pro forma condensed combined consolidated results of
operations of Realty and Operating Company have been prepared as if the La
Quinta Merger had occurred on January 1, 1998.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31, 1998
----------------------
<S> <C>
(Unaudited in thousands, except per share amounts)
Revenue............................................................... $ 241,561
Net income from continuing operations................................. $ 43,719
Basic earnings per paired common share from
continuing operations............................................... $ .32
Weighted average paired common shares outstanding..................... 134,708
</TABLE>
The pro forma condensed combined consolidated results do not purport to be
indicative of results that would have occurred had the La Quinta Merger been in
effect for the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
17
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. EARNINGS PER SHARE
COMBINED CONSOLIDATED EARNINGS PER SHARE IS COMPUTED AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
--------- ---------
<S> <C> <C>
Income from continuing operations.......................................................... $ 14,875 $ 43,705
Preferred stock dividends.................................................................. (3,938)
--------- ---------
Income from continuing operations available to common shareholders......................... $ 10,937 $ 43,705
--------- ---------
--------- ---------
Average outstanding shares of paired common stock.......................................... 147,983 91,428
Dilutive effect of:
Contingently issuable shares............................................................. 363 143
Stock options............................................................................ 126 336
--------- ---------
Dilutive potential paired common stock..................................................... 148,472 91,907
--------- ---------
--------- ---------
Earnings per share:
Basic.................................................................................... $ 0.07 $ 0.48
--------- ---------
--------- ---------
Diluted.................................................................................. $ 0.07 $ 0.48
--------- ---------
--------- ---------
</TABLE>
Options to purchase 1,919,000 and 2,586,000 paired common shares at prices
ranging from $21.85 to $36.46 were outstanding during the three months ended
March 31, 1999 and 1998, respectively, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the paired common shares. The options, which expire on dates
ranging from October 2001 to October 2007, were still outstanding at March 31,
1999.
Convertible debentures outstanding for the three months ended March 31, 1999
and 1998, representing 6,540,000 and 7,990,000 paired common shares if
converted, respectively, are not included in the computation of diluted EPS
because the inclusion would result in an antidilutive effect.
18
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. EARNINGS PER SHARE (CONTINUED)
MEDITRUST CORPORATION EARNINGS PER SHARE IS COMPUTED AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
----------- ---------
<S> <C> <C>
Income from continuing operations........................................................ $ 43,091 $ 44,640
Preferred stock dividends................................................................ (3,938)
----------- ---------
Income from continuing operations available to common shareholders....................... $ 39,153 $ 44,640
----------- ---------
----------- ---------
Average outstanding shares of common stock............................................... 149,288 92,734
Dilutive effect of:
Contingently issuable shares........................................................... 363 143
Stock options.......................................................................... 126 336
----------- ---------
Dilutive potential common stock.......................................................... 149,777 93,213
----------- ---------
----------- ---------
Earnings per share:
Basic.................................................................................. $ 0.26 $ 0.48
----------- ---------
----------- ---------
Diluted................................................................................ $ 0.26 $ 0.48
----------- ---------
----------- ---------
</TABLE>
Options to purchase 1,919,000 and 2,586,000 paired common shares at prices
ranging from $21.85 to $36.46 were outstanding during the three months ended
March 31, 1999 and 1998, respectively, but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire on dates ranging
from October 2001 to October 2007, were still outstanding at March 31, 1999.
Convertible debentures outstanding for the three months ended March 31, 1999
and 1998, representing 6,540,000 and 7,990,000 paired common shares if
converted, respectively, are not included in the computation of diluted EPS
because the inclusion would result in an antidilutive effect.
MEDITRUST OPERATING COMPANY EARNINGS PER SHARE IS COMPUTED AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
----------- ---------
<S> <C> <C>
Loss from continuing operations.......................................................... $ (28,216) $ (935)
Preferred stock dividends................................................................ -- --
----------- ---------
Loss from continuing operations available to common shareholders......................... $ (28,216) $ (935)
----------- ---------
Average outstanding shares of common stock............................................... 147,983 91,428
Dilutive effect of:
Contingently issuable shares
Stock options..........................................................................
----------- ---------
Dilutive potential common stock.......................................................... 147,983 91,428
----------- ---------
----------- ---------
Earnings per share:
Basic.................................................................................. $ (0.19) $ (0.01)
----------- ---------
----------- ---------
Diluted................................................................................ $ (0.19) $ (0.01)
----------- ---------
----------- ---------
</TABLE>
19
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. EARNINGS PER SHARE (CONTINUED)
Convertible debentures outstanding for the three months ended March 31, 1999
and 1998, representing 6,540,000 and 7,990,000 paired common shares if
converted, respectively, are not included in the computation of diluted EPS
because the inclusion would result in an antidilutive effect.
Operating Company holds common shares of Realty which are unpaired pursuant
to a stock option plan approved by the shareholders. The common shares held
totaled 1,305,377 as of March 31, 1999. These shares affect the calculations of
Realty's net income per common share but are eliminated in the calculation of
net income per paired common share for The Meditrust Companies.
12. TRANSACTIONS BETWEEN REALTY AND OPERATING COMPANY
Operating Company leases hotel facilities from Realty and its subsidiaries.
The hotel facility lease arrangements between Operating Company and Realty
include base and additional rent provisions and require Realty to assume costs
attributable to property taxes and insurance.
In connection with certain acquisitions, Operating Company issued shares to
Realty and recorded a receivable. Due to the affiliation of Realty and Operating
Company, the receivable from Realty has been classified in Operating Company's
shareholders' equity.
Periodically, Realty and Operating Company issue shares under the Share
Award Plan. Amounts due from Realty and Operating Company in connection with
awards of shares under the Share Award Plan are shown as a reduction of
shareholders' equity in the accompanying consolidated balance sheets of Realty
and Operating Company, respectively.
Realty provides certain services to Operating Company primarily related to
general tax preparation and consulting, legal, accounting, and certain aspects
of human resources. In the opinion of management, the costs associated with
these services were not material and have been excluded from the financial
statements.
13. SEGMENT REPORTING
MEASUREMENT OF SEGMENT PROFIT OR LOSS
The Companies evaluate performance based on contribution from each
reportable segment. Contribution is defined by the Companies as income from
operations before interest expense, depreciation, amortization, gains and losses
on sales of assets, provisions for losses on disposal or impairment of assets,
income or loss from unconsolidated entities, income taxes and nonrecurring
income and expenses. The measurement of each of these segments is made on a
combined basis with revenue from external customers, and excludes lease income
between Realty and Operating Company. The Companies account for Realty and
Operating Company transactions as if the transactions were to third parties,
that is, at current market prices. Segment contribution for the three months
ended March 31, 1998 includes only healthcare. The lodging segment was acquired
on July 17, 1998.
20
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. SEGMENT REPORTING (CONTINUED)
The following table presents information used by management by reported
segment. The Companies do not allocate interest expense, income taxes or unusual
items to segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
--------- ---------
<S> <C> <C>
Healthcare:
Rental income.............................................................................. $ 43,712 $ 43,656
Interest income............................................................................ 34,202 38,579
Rental property operating costs............................................................ (2,254) (1,265)
General and administrative expenses........................................................ (4,918) (4,384)
--------- ---------
Healthcare Contribution.................................................................... 70,742 76,586
--------- ---------
Lodging:
Room revenue............................................................................... 139,051
Guest services and other................................................................... 9,483
Operating expenses......................................................................... (66,609)
General and administrative expenses (1).................................................... (4,381)
Rental property operating costs............................................................ (6,653)
---------
Lodging Contribution....................................................................... 70,891
---------
Combined Contribution...................................................................... 141,633 76,586
--------- ---------
Reconciliation to Combined Consolidated Financial Statements:
Interest expense........................................................................... 66,657 25,417
Depreciation and amortization.............................................................. 33,859 10,458
Amortization of goodwill................................................................... 5,308 1,576
Gain on sale of assets..................................................................... (12,271)
Income from unconsolidated joint venture................................................... (111)
Other income............................................................................... (856) (26,000)
Other expenses............................................................................. 34,887 21,541
--------- ---------
127,584 32,881
--------- ---------
Income from continuing operations before benefit for income taxes.......................... 14,049 43,705
Income tax benefit......................................................................... (826)
--------- ---------
Income from continuing operations.......................................................... 14,875 43,705
Discontinued operations:
Income from discontinued operations...................................................... 7,916
Gain (loss adjustment) on disposal of discontinued operations............................ 4,869
--------- ---------
Net income................................................................................. 19,744 51,621
Preferred stock dividends.................................................................. (3,938)
--------- ---------
Net income available to Paired Common shareholders....................................... $ 15,806 $ 51,621
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Includes $267,000 of general and administrative expenses allocated to
Operating related to maintaining the paired share structure.
21
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14. SUBSEQUENT EVENTS
On April 1, 1999, the Companies settled the FEIT with MLI with a payment
totaling approximately $89,840,000. MLI returned approximately 6,865,000 paired
common shares representing all of the remaining outstanding paired common shares
under the FEIT on that date.
On April 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan and
cancelled a $250,000,000 swap contract. Both were scheduled to mature in July
1999.
On April 14, 1999, the Board of Directors of Realty declared a dividend of
$0.46 per share of common stock payable on May 14, 1999 to shareholders of
record on April 30, 1999. This dividend relates to the quarter ended March 31,
1999.
On May 10, 1999, the Meditrust Companies entered into a separation agreement
with Abraham D. Gosman, former Director and Chairman of the Companies and Chief
Executive Officer and Treasurer of Meditrust Operating Company. Under the terms
of the separation agreement, Mr. Gosman will receive severance payments totaling
$25,000,000 in cash and the continuation of certain life insurance benefits. The
Meditrust Companies established a Special Committee to evaluate the
applicability of Mr. Gosman's employment contract and whether such severance or
other payments were appropriate. Based on the results of the evaluation and
recommendation of the Special Committee, the Boards of Directors concluded that
the separation agreement was in the long-term best interest of the shareholders
of the Companies and approved the separation agreement.
22
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN MATTERS DISCUSSED HEREIN CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE
MEDITRUST COMPANIES (THE "COMPANIES"), CONSISTING OF MEDITRUST CORPORATION
("REALTY") AND MEDITRUST OPERATING COMPANY ("OPERATING"), INTEND SUCH
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS, AND ARE INCLUDING THIS STATEMENT FOR PURPOSES OF
COMPLYING WITH THESE SAFE HARBOR PROVISIONS. ALTHOUGH THE COMPANIES BELIEVE THE
FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, THE COMPANIES
CAN GIVE NO ASSURANCE THAT THEIR EXPECTATIONS WILL BE ATTAINED. ACTUAL RESULTS
AND TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN OR
CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS,
INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND REAL ESTATE CONDITIONS, THE
CONDITIONS OF THE CAPITAL MARKETS AT THE TIME OF THE PROPOSED SPIN-OFF OF THE
HEALTHCARE DIVISION, THE IDENTIFICATION OF SATISFACTORY PROSPECTIVE BUYERS FOR
THE NON-STRATEGIC ASSETS AND THE AVAILABILITY OF FINANCING FOR SUCH PROSPECTIVE
BUYERS, THE AVAILABILITY OF EQUITY AND DEBT FINANCING FOR THE COMPANIES' CAPITAL
INVESTMENT PROGRAM, INTEREST RATES, COMPETITION FOR HOTEL SERVICES IN A GIVEN
MARKET, THE ENACTMENT OF LEGISLATION IMPACTING THE COMPANIES' STATUS AS A PAIRED
SHARE REAL ESTATE INVESTMENT TRUST ("REIT") OR REALTY'S STATUS AS A REIT, THE
FURTHER IMPLEMENTATION OF REGULATIONS GOVERNING PAYMENTS TO THE OPERATORS OF
REALTY'S HEALTHCARE FACILITIES, UNANTICIPATED DELAYS OR EXPENSES ON THE PART OF
THE COMPANIES AND THEIR SUPPLIERS IN ACHIEVING YEAR 2000 COMPLIANCE AND OTHER
RISKS DETAILED FROM TIME TO TIME IN THE FILINGS OF REALTY AND OPERATING WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), INCLUDING, WITHOUT LIMITATION, JOINT
QUARTERLY REPORTS ON FORM 10-Q, JOINT CURRENT REPORTS ON FORM 8-K AND 8-K/A, AND
JOINT ANNUAL REPORTS ON FORM 10-K AND 10-K/A.
OVERVIEW
The basis of presentation includes Management's Discussion and Analysis of
Financial Condition and Results of Operations for the combined and separate SEC
registrants. Management of the Companies believes that combined presentation is
most beneficial to the reader.
On November 5, 1997, Meditrust, a Massachusetts Business Trust ("Meditrust's
Predecessor") merged with Santa Anita Realty Enterprises, Inc., with Santa Anita
Realty Enterprises, Inc. as the surviving corporation, and Meditrust Acquisition
Company merged with Santa Anita Operating Company, with Santa Anita Operating
Company as the surviving corporation (hereafter referred to as the "Santa Anita
Merger" or "Santa Anita Mergers"). Upon completion of the Santa Anita Mergers,
Santa Anita Realty Enterprises, Inc. changed its corporate name to "Meditrust
Corporation" and Santa Anita Operating Company changed its corporate name to
"Meditrust Operating Company." The Santa Anita Mergers were accounted for as
reverse acquisitions whereby Meditrust's Predecessor and Meditrust Acquisition
Company were treated as the acquirers for accounting purposes. Accordingly, the
financial history is that of Meditrust's Predecessor and Meditrust Acquisition
Company prior to the Santa Anita Mergers.
After completing the Santa Anita Merger, the Companies began pursuing a
strategy of diversifying into additional new businesses. Implementation of this
strategy included the evaluation of numerous potential acquisition targets. On
January 3, and January 11, 1998, Realty entered into definitive merger
agreements to acquire La Quinta Inns, Inc. and its wholly owned subsidiaries and
its unincorporated partnership and joint venture (collectively "La Quinta" and
"La Quinta Merger") and Cobblestone Holdings, Inc. and its wholly owned
subsidiary (collectively "Cobblestone" and "Cobblestone Merger"), respectively.
In February 1998, legislation was proposed which limited the ability of the
Companies to
23
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
OVERVIEW (CONTINUED)
utilize the paired share structure. Accordingly, the Companies ceased any
further evaluation of potential merger candidates and began a process of
evaluating its healthcare portfolio.
The Companies consummated the Cobblestone Merger and the La Quinta Merger on
May 29, 1998 and July 17, 1998, respectively. On July 22, 1998, the President of
the United States signed into law the Internal Revenue Service Restructuring and
Reform Act of 1998 (the "Reform Act"), which limits the Companies' ability to
continue to grow through use of the paired share structure. While the Companies'
use of the paired share structure in connection with the Cobblestone Merger and
the La Quinta Merger was "grandfathered" under the Reform Act, the ability to
continue to use the paired share structure to acquire additional real estate and
operating businesses conducted with the real estate assets (including the golf
and lodging industries) was substantially limited. In addition, during the
summer of 1998, the debt and equity capital markets available to REITs
deteriorated, thus limiting the Companies' access to cost-efficient capital.
The Companies began an analysis of the impact of the Reform Act, the
Companies' limited ability to access the capital markets, and the operating
strategy of the Companies' existing businesses. This analysis included advice
from outside professional advisors and presentations by management on the
different alternatives available to the Companies. The analysis culminated in
the development of a comprehensive restructuring plan (the "Plan") designed to
strengthen the Companies' financial position and clarify its investment and
operating strategy by focusing on the healthcare and lodging business segments.
The Plan was announced on November 12, 1998 and included the following
components:
- Pursue the separation of the Companies' primary businesses, healthcare and
lodging, by creating two separately traded publicly listed REITs. The
Companies intend to spin off the healthcare financing business into a
stand-alone REIT;
- Continue to operate the Companies' healthcare and lodging businesses using
the existing paired share REIT structure until the healthcare spin-off
takes place;
- Sell more than $1 billion of non-strategic assets, including the portfolio
of golf-related real estate and operating properties ("Cobblestone Golf
Group"), the Santa Anita Racetrack and approximately $550 million of
non-strategic healthcare properties;
- Use the proceeds from these asset sales to achieve significant near-term
debt reduction;
- Settle the Companies' forward equity issuance transaction ("FEIT") with
Merrill Lynch;
- Reduce capital investments to reflect the current operating condition in
each industry;
- Reset Realty's annual dividend to $1.84 per common share, an amount that
Realty deemed sustainable and comparable to its peer groups.
Following the announcement of the Plan, the Companies classified the golf
and horseracing activities as discontinued operations for financial reporting
purposes. Accordingly, management's discussion and analysis of financial
condition and results of operations is focused on the Companies' primary
businesses, healthcare and lodging.
The joint annual report on Form 10-K, filed for the year ended December 31,
1998, summarized progress in implementing, and in some cases completing,
significant components of the Plan during
24
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
OVERVIEW (CONTINUED)
1998 and in early 1999. This joint quarterly report on Form 10-Q provides an
update since that document was filed.
THE MEDITRUST COMPANIES--COMBINED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998
Revenue for the three months ended March 31, 1999, was $227,304,000 compared
to $108,235,000 for the three months ended March 31, 1998, an increase of
$119,069,000. Revenue growth was primarily attributable to the addition of hotel
operating revenues of $148,534,000, which was partially offset by a net decrease
to rental and interest income of $4,321,000. The decrease resulted from mortgage
repayments received over the last year net of the effect of increased mortgage
investments made during the same period. Other non-recurring income for the
three months ended March 31, 1999 was $856,000, which arose from lease breakage
fees received from the sale of healthcare-owned properties. Other non-recurring
income for the three months ended March 31, 1998 was $26,000,000, which arose
from prepayment fees collected from a significant mortgage repayment. There are
no comparative hotel operating revenues for the three months ended March 31,
1998 as the La Quinta Merger was not consummated until July 17, 1998, however,
certain factors can be compared to the predecessor entity. Hotel operating
revenues generally are measured as a function of the average daily rate ("ADR")
and occupancy. The ADR increased to $61.73 in 1999 from $60.92 in 1998, an
increase of $0.81 or 1.3%. Occupancy percentage increased .5 percentage points
to 67.1% in 1999 from 66.6% in 1998. Revenue per available room ("RevPAR"),
which is the product of occupancy percentage and ADR, increased 2.2% over 1998.
For the three months ended March 31, 1999, total recurring operating
expenses were $84,815,000 compared to $5,649,000 for the three months ended
March 31, 1998, an increase of $79,166,000. This increase was primarily
attributable to the addition of hotel expenses which include operating expenses
of $66,609,000, general and administrative expenses of $4,381,000 which includes
$4,114,000 in overhead for the lodging segment and $267,000 for expenses of the
paired share structure and rental property operating expenses relating to the
hotels of $6,653,000. Hotel operating and general and administrative expenses
include costs associated with the operation such as salaries, wages, utilities,
repair and maintenance, credit card discounts and room supplies as well as
corporate expenses, such as the costs of general management, office rent,
training and field supervision of hotel managers and other marketing and
administrative expenses. Rental property operating costs attributed to the
lodging segment principally consist of property taxes on hotel facilities. For
the three months ended March 31, 1999, rental property operating expenses
attributable to the healthcare business were $2,254,000 compared to $1,265,000
for the three months ended March 31, 1998, an increase of $989,000. The increase
was primarily a result of expenses associated with medical office buildings
purchased over the last twelve months. Rental property operating expenses
attributed to the healthcare business principally consist of expenses for the
management and operation of medical office buildings. General and administrative
expenses related to healthcare increased by $534,000 primarily due to increases
in state franchise taxes resulting from acquisitions made over the last twelve
months.
The Companies consider contribution from each primary business in evaluating
performance. Contribution includes revenue from each business, excluding
non-recurring or unusual income, less operating expenses, rental property
operating expenses and general and administrative expenses. The combined
contribution of the healthcare and lodging businesses was $141,633,000 for the
three months
25
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
ended March 31, 1999, of which $70,742,000 related to healthcare and $70,891,000
related to lodging. The contribution of the healthcare business decreased
$5,844,000 from $76,586,000 for the comparative three months ended March 31,
1998. The decrease was primarily a result of the impact on revenue of mortgage
repayments made over the last year and increases to state franchise taxes
related to mergers completed in the last year.
The lodging contribution was $70,891,000 or 47.7% of lodging revenues during
the three months ended March 31, 1999, compared to 46.2% for the same period in
1998. This improvement is reflective of a greater number of Inn & Suites hotels
which generally operate at higher margins than La Quinta Inns and a continuing
focus on cost controls and reduced corporate overhead.
Interest expense increased by $41,240,000 due to increases in the borrowing
rate and in debt outstanding as a result of a new bank facility added in 1998,
the acquisitions of La Quinta and Cobblestone, net of amounts repaid from
various asset sales made over the past year. Depreciation and amortization
increased by $27,133,000 which was primarily a result of increased real estate
investments and amortization of goodwill from the La Quinta acquisition
completed on July 17, 1998.
ASSET SALES
During the three months ended March 31, 1999, Realty realized gains on the
sale of healthcare real estate assets of $12,271,000. Sales of healthcare
properties were completed pursuant to the Plan and included one rehabilitation
facility, one long-term care facility, and 15 assisted living facilities. Realty
also sold a hotel and land held for development on which there was no gain or
loss realized.
OTHER EXPENSES
During the first quarter of 1999, the Companies recorded approximately
$34,887,000 in other expenses.
On May 10, 1999, the Meditrust Companies entered into a separation agreement
with Abraham D. Gosman, former Director and Chairman of the Companies and Chief
Executive Officer and Treasurer of Meditrust Operating Company. Under the terms
of the separation agreement, Mr. Gosman will receive severance payments totaling
$25,000,000 in cash and the continuation of certain life insurance benefits. The
Meditrust Companies established a Special Committee of The Boards of Directors
of Meditrust Corporation and Meditrust Operating Company (the "Special
Committee") to evaluate the applicability of Mr. Gosman's employment contract
and whether such severance or other payments were appropriate. Based on the
results of the evaluation and recommendation of the Special Committee, the
Boards of Directors concluded that the separation agreement was in the long-term
best interest of the shareholders of the Companies and approved the separation
agreement.
The Companies incurred approximately $5,889,000 of non-recurring costs
associated with the development and implementation of the Plan. These costs
primarily relate to the early repayment and modification of certain debt and
professional and other advisory fees.
Also, in conjunction with the implementation of the Plan, which included a
change in the focus of the lodging division to internal growth, La Quinta
management performed a review of the front desk system under development for its
lodging facilities, and made a decision to abandon the project. The decision was
based primarily on management's intent to integreate the front desk system with
new revenue, management software, availability of more suitable and flexible
externally developed software and a shift
26
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
in information systems philosophy toward implementation of externally developed
software and outsourcing of related support services. A charge of approximately
$3,998,000 to write-off certain internal and external software development costs
related to the project was recorded in the first quarter of 1999.
DISCONTINUED OPERATIONS
As part of the Plan, the Companies sold the Santa Anita Racetrack during the
fourth quarter of 1998 and sold the Cobblestone Golf Group during the first
quarter of 1999. The Companies have reflected the financial results for 1999 and
1998 of Santa Anita and Cobblestone as discontinued operations. During the first
quarter of 1999, the Companies adjusted the provision for loss on disposal of
the Cobblestone Golf Group by recording a gain of approximately $2,944,000 which
includes an estimate of a working capital adjustment to the final selling price.
In addition, during the first quarter the Companies recorded $1,875,000 as an
adjustment to the estimated selling price of the Santa Anita Racetrack. The
Companies anticipate the final adjustments for both of these transactions will
be finalized during 1999.
NET INCOME
The resulting net income available for common shareholders, after deducting
preferred share dividends, for the three months ended March 31, 1999, was
$15,806,000 compared to net income of $51,621,000 for the three months ended
March 31, 1998. The net income per paired common share (diluted) for the three
months ended March 31, 1999 was $0.11 compared to net income per paired common
share (diluted) of $0.56 for the three months ended March 31, 1998. The per
paired common share amount decreased primarily due to other expenses and the
issuance of additional paired common shares to consummate the Cobblestone Merger
and the La Quinta Merger, of 8,177,000 and 43,280,000, respectively.
THE MEDITRUST COMPANIES--COMBINED LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
The principal source of cash to be used to fund the Companies' future
operating expenses, interest expense, recurring capital expenditures and
distribution payments will be cash flow provided by operating activities. The
Companies anticipate that cash flow provided by operating activities will
provide the necessary funds on a short and long-term basis to meet operating
cash requirements including all distributions to shareholders.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
On July 17, 1998, Realty entered into a credit agreement (the "Credit
Agreement") which provided Realty with up to $2,250,000,000 in credit
facilities, replacing Realty's then existing $365,000,000 revolving credit
facilities. The Credit Agreement provided for borrowings in four separate
tranches (each a "Tranche"): Tranche A, a $1,000,000,000 revolving loan, amounts
of which if repaid may be reborrowed, which matures July 17, 2001; Tranche B, a
term loan in the amount of $500,000,000, amounts of which if repaid may not be
reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory principal
payment on April 17, 1999; Tranche C, a term loan in the amount of $250,000,000,
amounts of which if repaid may not be reborrowed, which matures July 17, 1999
with a six month extension option which management intends to exercise for a fee
of 12.5 basis points; and Tranche D, a term loan in the amount of $500,000,000,
amounts of which if repaid may not be reborrowed, which matures July 17, 2001.
27
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THE MEDITRUST COMPANIES--COMBINED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On November 23, 1998, Realty amended its Credit Agreement to provide for
Realty's cash repayment of a portion of its FEIT, the amendment of certain
financial covenants to accommodate asset sales, to exclude the impact of
non-recurring charges in certain covenant calculations, and to provide for
future operating flexibility. The amendment also provided for an increase to the
LIBOR pricing of the credit facility by approximately 125 basis points, and the
pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock
also extended on a pro rata basis to entitled bondholders. Realty also agreed to
a 25 basis point increase to the LIBOR pricing in the event that an equity
offering of at least $100,000,000 had not been completed by February 1, 1999. On
February 1, 1999 this increase went into effect.
On January 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan
that was scheduled to mature on April 17, 1999.
On March 10, 1999, Realty reached a second agreement with its bank group to
further amend the Credit Agreement. The second amendment, which is effective
upon the successful completion of the sale of Cobblestone Golf Group, provides
for a portion of the sale proceeds to be applied to the FEIT. The second
amendment also provides for, among other things, upon the sale of Cobblestone
Golf Group, elimination of limitations on certain healthcare investments and
lowering the commitment on the revolving tranche to $850,000,000.
On March 10, 1999, the Companies entered into an agreement with Merrill
Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co.,
Inc. (collectively with its agent and successor in interest, "MLI") and certain
of its affiliates to use the proceeds from the sale of the Cobblestone Golf
Group in excess of $300,000,000 to repurchase all or a portion of the remaining
paired common shares, outstanding under the FEIT. MLI agreed not to sell any of
the remaining paired common shares outstanding under the FEIT until March 31,
1999, while the Companies completed the sale of Cobblestone Golf Group. On March
31, 1999, the Companies completed the sale of Cobblestone Golf Group and on
April 1, 1999, the Companies settled the FEIT by paying MLI $89,840,000 for the
repurchase of 6,865,000 paired common shares.
As of March 31, 1999, approximately $2,488,000 in charges related to the
Plan remained unpaid. Payments made during the quarter included professional and
advisory fees and severance paid to former employees.
As of March 31, 1999, the Companies' gross real estate investments totaled
approximately $5,280,995,000 consisting of 219 long-term care facilities, 142
retirement and assisted living facilities, 34 medical office buildings, one
acute care hospital campus, seven other healthcare facilities and 293 hotel
facilities in service with 9 more under construction. At March 31, 1999, Realty
was committed to provide additional financing of approximately $97,000,000
relating to four long-term care facilities, 9 assisted living facilities and 9
hotel facilities currently under construction as well as additions to existing
facilities in the portfolio.
The Companies had shareholders' equity of $2,890,828,000 and debt
constituted 48% of the Companies' total capitalization as of March 31, 1999.
On April 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan and
cancelled a $250,000,000 Swap Contract. Both were scheduled to mature on July
17, 1999.
On April 14, 1999, the Board of Directors of Realty declared a dividend of
$0.46 per share of common stock payable on May 14, 1999 to shareholders of
record on April 30, 1999. This dividend relates to the quarter ended March 31,
1999.
28
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THE MEDITRUST COMPANIES--COMBINED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Of the $850,000,000 revolving tranche commitment, $242,000,000 was available
at May 5, 1999, at Realty's option of the base rate (9.75%) or LIBOR plus 2.875%
(7.8125% at May 5, 1999).
The Companies have an effective shelf registration statement on file with
the SEC under which the Companies may issue $1,825,000,000 of securities
including shares, preferred stock, debt, series common stock, convertible debt
and warrants to purchase shares, preferred shares, debt, series common stock and
convertible debt.
The Companies believe that their various sources of capital are adequate to
finance their operations as well as their existing commitments, including the
acquisition and/or mortgage financing of certain healthcare facilities, the
completion of the La Quinta Inn & Suites currently under development and
repayment of the debt maturing in 1999.
COMBINED FUNDS FROM OPERATIONS
Combined Funds from Operations of the Companies was $73,946,000 and
$59,085,000 for the three months ended March 31, 1999 and 1998, respectively.
Management considers Funds from Operations to be a key external measurement
of REIT performance. Funds from Operations represents net income or loss
available to common shareholders (computed in accordance with generally accepted
accounting principles), excluding real estate related depreciation, amortization
of goodwill and certain intangible assets, gains and losses from the sale of
assets and non-recurring income and expenses. For 1999 and 1998, non-recurring
income primarily consists of gains attributable to the prepayment of loans and
lease breakage fees. Non-recurring expenses include charges related to a
separation agreement, comprehensive restructuring costs, write-off of other
capitalized costs related to terminated projects, asset impairments and
provisions on other assets and receivables unrelated to primary businesses.
Funds from Operations should not be considered an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating, investing,
or financing activities as a measure of liquidity. Funds from Operations does
not reflect working capital changes, cash expenditures for capital improvements
or principal payments on indebtedness.
The following reconciliation of net income and loss available to common
shareholders to Funds from Operations illustrates the difference between the two
measures of operating performance for the three months ended March 31, 1999 and
1998. Certain reconciling items include amounts reclassified from income from
operations or gain on disposal of discontinued operations and, accordingly, do
not necessarily agree to revenue and expense captions in the Companies'
financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
(IN THOUSANDS) 1999 1998
--------- ---------
<S> <C> <C>
Net income available to common shareholders................................................ $ 15,806 $ 51,621
Depreciation of real estate and intangible amortization.................................. 38,273 11,923
Gains on sales of assets................................................................. (14,594)
Other income............................................................................. (856) (26,000)
Other expenses........................................................................... 35,317 21,541
--------- ---------
Funds from Operations...................................................................... $ 73,946 $ 59,085
--------- ---------
--------- ---------
Weighted average paired common shares outstanding:
Basic...................................................................................... 147,983 91,428
Diluted.................................................................................... 148,472 91,907
</TABLE>
29
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
REALTY--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
Revenue for the three months ended March 31, 1999 was $153,676,000 compared
to $108,379,000 for the three months ended March 31, 1998, an increase of
$45,297,000. Revenue growth was primarily attributable to the addition of rent
and royalty income of $71,868,000 from Operating, related to hotel facilities
acquired in the La Quinta Merger and the addition of revenues of $3,210,000 from
hotels operated by Realty. These increases were partially offset by a net
decrease to rental and interest income of $4,637,000. The decrease resulted
primarily from mortgage repayments received over the last year net of the affect
of increased mortgage investments made during the same period. Other
non-recurring income for the three months ended March 31, 1999 was $856,000,
which arose from lease breakage fees received from the sale of healthcare-owned
properties. Other non-recurring income for the three months ended March 31, 1998
was $26,000,000, which arose from prepayment fees collected from a significant
mortgage repayment.
For the three months ended March 31, 1999, total recurring expenses
increased by $76,158,000. Interest expense increased $41,130,000 due to
increases in debt outstanding resulting from additional real estate investments
made over the past year and the acquisitions of La Quinta and Cobblestone.
Depreciation and amortization increased by $25,312,000 which was primarily a
result of increased real estate investments and amortization of goodwill from
the La Quinta Merger completed on July 17, 1998. General and administrative
expenses increased by $1,124,000 primarily due to a higher level of operating
costs associated with the management and activity of the portfolio and as a
result of the La Quinta Merger. Rental and hotel property operating expenses
increased by $8,592,000 primarily due to property taxes incurred at hotel
facilities, expenses related to the operation of two hotels and management and
operation of medical office buildings that were purchased in 1998.
ASSET SALES
During the three months ended March 31, 1999, Realty realized gains on the
sale of healthcare real estate assets of $12,271,000. Sales of healthcare
properties were completed pursuant to the Plan and included one rehabilitation
facility, one long-term care facility, and 15 assisted living facilities. Realty
also sold a hotel and land held for development on which there was no gain or
loss realized.
OTHER EXPENSES
During the three months ended March 31, 1999, other non-recurring expenses
of $4,389,000 were incurred which related to the Plan. Proceeds of asset sales
completed in December 1998 were used to repay debt prior to maturity and
de-lever the balance sheet. As a result, approximately $3,907,000 of capitalized
debt costs and $482,000 of breakage fees associated with swap contracts on
repaid debt and other items were charged off.
DISCONTINUED OPERATIONS
Pursuant to the Plan, Realty has classified golf and horseracing activities
as discontinued operations for financial reporting purposes. Accordingly, Realty
has presented as discontinued operations approximately $16,094,000 of gains on
disposal of the golf and horseracing segments during the three months ended
March 31, 1999. Realty has recorded a gain of $9,439,000 related to the sale of
the Cobblestone Golf Group, which was sold on March 31, 1999. The horseracing
segment was sold on December 10, 1998. During the first quarter of 1999, a gain
of $6,655,000 was recorded which related to
30
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
an adjustment of the selling price between Realty and Operating. For the three
months ended March 31, 1998, Realty has presented income from discontinued
operations of $7,062,000, which was related to the horseracing segment.
NET INCOME
The resulting net income available for common shareholders, after deducting
preferred share dividends, for the three months ended March 31, 1999, was
$55,247,000 compared to net income of $51,702,000 for the three months ended
March 31, 1998. The net income per common share (diluted) for the three months
ended March 31, 1999 was $0.37 compared to net income per common share (diluted)
of $0.55 for the three months ended March 31, 1998. The per common share amount
decreased primarily due to the issuance of additional common shares to
consummate the Cobblestone Merger and the La Quinta Merger, of 8,177,000 and
43,280,000, respectively.
REALTY--LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
The principal source of cash to be used to fund Realty's future operating
expenses, interest expense, recurring capital expenditures and distribution
payments will be cash flow provided by operating activities. Realty anticipates
that cash flow provided by operating activities will provide the necessary funds
on a short and long-term basis to meet operating cash requirements including all
distributions to shareholders.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
Realty provides funding for new investments and costs associated with the
restructuring through a combination of long-term and short-term financing
including, both debt and equity, as well as the sale of assets. Realty obtains
long-term financing through the issuance of shares, long-term unsecured notes,
convertible debentures and the assumption of mortgage notes. Realty obtains
short-term financing through the use of bank lines of credit, which are replaced
with long-term financing as appropriate. From time to time, Realty may utilize
interest rate caps or swaps to attempt to hedge interest rate volatility. It is
Realty's objective to match mortgage and lease terms with the terms of its
borrowings. Realty attempts to maintain an appropriate spread between its
borrowing costs and the rate of return on its investments. When development
loans convert to sale/leaseback transactions or permanent mortgage loans, the
base rent or interest rate, as appropriate, is fixed at the time of such
conversion. There is, however, no assurance that Realty will satisfactorily
achieve, if at all, the objectives set forth in this paragraph.
On July 17, 1998, Realty entered into a Credit Agreement which provided
Realty with up to $2,250,000,000 in credit facilities, replacing Realty's then
existing $365,000,000 revolving credit facilities. The Credit Agreement provided
for borrowings in four separate Tranches: Tranche A, a $1,000,000,000 revolving
loan, amounts of which if repaid may be reborrowed, which matures July 17, 2001;
Tranche B, a term loan in the amount of $500,000,000, amounts of which if repaid
may not be reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory
principal payment on April 17, 1999; Tranche C, a term loan in the amount of
$250,000,000, amounts of which if repaid may not be reborrowed, which matures
July 17, 1999 with a six month extension option which management intends to
exercise for a fee of 12.5 basis points; and Tranche D, a term loan in the
amount of $500,000,000, amounts of which if repaid may not be reborrowed, which
matures July 17, 2001.
31
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
REALTY--LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On November 23, 1998, Realty amended its Credit Agreement to provide for
Realty's cash repayment of a portion of its FEIT, the amendment of certain
financial covenants to accommodate asset sales, to exclude the impact of
non-recurring charges in certain covenant calculations, and to provide for
future operating flexibility. The amendment also provided for an increase to the
LIBOR pricing of the credit facility by approximately 125 basis points, and the
pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock
also extended on a pro rata basis to entitled bondholders. Realty also agreed to
a 25 basis point increase to the LIBOR pricing in the event that an equity
offering of at least $100,000,000 had not been completed by February 1, 1999. On
February 1, 1999 this increase went into effect.
On January 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan
that was scheduled to mature on April 17, 1999.
On March 10, 1999, Realty reached a second agreement with its bank group to
further amend the Credit Agreement. The second amendment, which is effective
upon the successful completion of the sale of Cobblestone Golf Group, provides
for a portion of the sale proceeds to be applied to the FEIT. The second
amendment also provides for, among other things, upon the sale of Cobblestone
Golf Group, elimination of limitations on certain healthcare investments and
lowering the commitment on the revolving tranche to $850,000,000.
On March 10, 1999, the Companies entered into an agreement with MLI and
certain of its affiliates to use the proceeds from the sale of the Cobblestone
Golf Group in excess of $300,000,000 to repurchase all or a portion of the
remaining paired common shares, outstanding under the FEIT. MLI agreed not to
sell any shares of the remaining paired common shares until March 31, 1999,
while the Companies completed the sale of Cobblestone Golf Group. On March 31,
1999, the Companies completed the sale of Cobblestone Golf Group and on April 1,
1999, the Companies settled the FEIT by paying MLI $89,840,000 for the
repurchase of 6,865,000 paired common shares.
As of March 31, 1999, approximately $907,000 in charges related to the Plan
remained unpaid. Payments made during the quarter included professional and
advisory fees and severance paid to former employees.
As of March 31, 1999, Realty's gross real estate investments totaled
approximately $5,260,981,000 consisting of 219 long-term care facilities, 142
retirement and assisted living facilities, 34 medical office buildings, one
acute care hospital campus, seven other healthcare facilities and 291 hotel
facilities in service with 9 more under construction. At March 31, 1999, Realty
was committed to provide additional financing of approximately $97,000,000
relating to four long-term care facilities, 9 assisted living facilities and 9
hotel facilities currently under construction as well as additions to existing
facilities in the portfolio.
Realty had shareholders' equity of $2,852,825,000 and debt constituted 49%
of Realty's total capitalization as of March 31, 1999.
On April 1, 1999, the Companies fully settled, in cash, the FEIT.
On April 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan and
cancelled a $250,000,000 swap contract. Both were scheduled to mature on July
17, 1999.
On April 14, 1999, the Board of Directors of Realty declared a dividend of
$0.46 per share of common stock payable on May 14, 1999 to shareholders of
record on April 30, 1999. This dividend relates to the quarter ended March 31,
1999.
32
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
REALTY--LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Of the $850,000,000 revolving tranche commitment, $242,000,000 was available
at May 5, 1999, at Realty's option of the base rate (9.75%) or LIBOR plus 2.875%
(7.8125% at May 5, 1999).
The Companies have an effective shelf registration statement on file with
the SEC under which the Companies may issue $1,825,000,000 of securities
including shares, preferred stock, debt, series common stock, convertible debt
and warrants to purchase shares, preferred shares, debt, series common stock and
convertible debt.
Realty believes that various sources of capital are adequate to finance
operations as well as existing commitments, including the acquisition and/or
mortgage financing of certain healthcare facilities, the completion of the La
Quinta Inn & Suites currently under development and repayment of the debt
maturing in 1999.
OPERATING--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
Operating has derived its revenue primarily from hotel operations since the
consummation of the La Quinta Merger on July 17, 1998. Hotel revenues for the
three months ended March 31, 1999 were $145,324,000. Approximately $139,051,000
or 96% of hotel revenues were derived from room rentals. Hotel operating
revenues generally are measured as a function of the ADR and occupancy
percentage. The ADR for the three months ended March 31,1999 was $61.73 compared
to ADR for the three months ended March 31,1998 of $60.92, an increase of $.81
or 1.3%. Occupancy percentage increased to 67.1% from 66.6%, an increase of .5
percentage points. RevPar, which is a product of the occupancy percentage and
ADR, increased 2.2% in the three months ended March 31,1999 over the three
months ended March 31,1998. Other sources of hotel revenues during the three
months ended March 31,1999 include guest services revenue of approximately
$3,465,000 derived from charges to guests for long distance service, fax use and
laundry service and approximately $2,172,000 related to meeting and banquet
rentals, restaurant rental and management services, which were earned during the
three months ended March 31, 1999. Commission revenue of approximately $636,000
was earned on phone, movie and vending services. Interest and other income was
$172,000 for the three months ended March 31, 1999 compared to $67,000 for the
same period in 1998. For the three months ended March 31, 1998, Operating
derived its revenue from horseracing which is now classified as discontinued
operations.
For the three months ended March 31,1999, total recurring expenses were
$144,040,000 compared to $1,002,000 for the same period in 1998. Expenses for
the three months ended March 31, 1999 were primarily attributable to the
addition of hotel operating expenses, interest, rent and royalties paid to
Realty. For the three months ended March 31, 1998, Operating expenses were
related to horseracing, which is now classified as discontinued operations.
Hotel operating costs consist of operating expenses, overhead and general and
administrative expenses of Operating. For the three months ended March 31, 1999,
total hotel operating costs were $70,040,000, including $4,114,000 of overhead
expenses and general and administrative expenses of $267,000. Salaries, wages
and related costs, represent approximately 40.8% of total hotel operating costs.
Other major categories of lodging operating expense include utilities, supplies,
advertising and administrative costs. General and administrative expenses
related to Operating for the three months ended March 31, 1998 were $590,000.
Interest, royalty and rent expenses due to Realty of $71,868,000 as well as
$110,000 of interest due to third parties were incurred
33
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
during the three months ended March 31,1999 compared to $211,000 for the same
period in 1998. Depreciation and amortization expense for the three months ended
March 31, 1999 were $2,022,000 compared to $201,000 for the same period in 1998.
The increase was primarily related to depreciation of furniture and fixtures and
other intangible assets acquired in the La Quinta Merger.
At May 1,1999, La Quinta operated 297 hotels (including 232 inns and 65 Inn
& Suites) with approximately 38,000 rooms, compared to 280 hotels (including 233
inns and 47 Inn & Suites) with approximately 36,000 rooms at the merger date of
July 17, 1998. La Quinta's unit growth program is based primarily on the
construction of new Inn & Suites hotels. La Quinta anticipates opening all 5 of
its Inns & Suites under construction by the end of the second quarter of 1999.
OTHER EXPENSES
During the first quarter of 1999, Operating recorded approximately
$30,498,000 in other expenses.
On May 10, 1999, the Meditrust Companies entered into a separation agreement
with Abraham D. Gosman, former Director and Chairman of the Companies and Chief
Executive Officer and Treasurer of Meditrust Operating Company. Under the terms
of the separation agreement, Mr. Gosman will receive severance payments totaling
$25,000,000 in cash and the continuation of certain life insurance benefits. The
Meditrust Companies established a Special Committee to evaluate the
applicability of Mr. Gosman's employment contract and whether such severance or
other payments were appropriate. Based on the results of the evaluation and
recommendation of the Special Committee, the Boards of Directors concluded that
the separation agreement was in the long-term best interest of the shareholders
of the Companies and approved the separation agreement.
In conjunction with the implementation of the Plan, which included a change
in the focus of the lodging division to internal growth, La Quinta management
performed a review of the front desk system under development for its lodging
facilities, and made a decision to abandon the project. The decision was based
primarily on management's intent to integrate the front desk system with new
revenue management software, availability of more suitable and flexible
externally developed software and a shift in information systems philosophy
toward implementation of externally developed software and outsourcing of
related support services. A charge of approximately $3,998,000 to write-off
certain internal and external software development costs related to the project
was recorded in the first quarter of 1999. Operating also incurred approximately
$1,500,000 of non-recurring costs associated with professional advisory fees.
DISCONTINUED OPERATIONS
Pursuant to the Plan, Operating has classified golf and horseracing
activities as discontinued operations for financial reporting purposes.
Accordingly, Operating has presented as discontinued operations approximately
$11,225,000 of losses on disposal from the golf and horseracing segments during
the three months ended March 31, 1999. Operating has recorded a loss of
$6,445,000 related to the sale of the Cobblestone Golf Group, which was sold on
March 31, 1999. The loss includes an estimate of working capital balances at the
sale date which will be adjusted when a final accounting is complete. The
horseracing segment was sold on December 10, 1998. During the three months ended
March 31, 1999, a loss of $6,655,000 was recorded which related to an adjustment
of the selling price between Realty and Operating. This loss was partially
offset by an estimated gain of $1,875,000 arising from an adjustment relating to
working capital balances at the sale date which are being finalized. Operating
anticipates final adjustments on the disposal of the golf and horseracing
segments to be completed during 1999. For the three months ended March 31, 1998,
Realty has presented income from discontinued operations of $854,000, which was
related to the horseracing segment.
34
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
NET LOSS
The resulting net loss available for common shareholders for the three
months ended March 31, 1999, was $39,441,000 compared to $81,000 for the three
months ended March 31, 1998. The net loss per common share for the three months
ended March 31, 1999 was $0.27 compared to $0.00 for the three months ended
March 31, 1998. The per common share amount decreased primarily due to the loss
on disposal of assets of discontinued operations, other expenses and the
issuance of additional common shares to consummate the Cobblestone Merger and
the La Quinta Merger, of 8,177,000 and 43,280,000, respectively.
OPERATING--LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
The principal source of cash to be used to fund Operating's future operating
expenses and recurring capital expenditures will be cash flow provided by
operating activities. Operating anticipates that cash flow provided by operating
activities will provide the necessary funds on a short and long-term basis to
meet operating cash requirements.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
Operating provides funding for costs associated with the restructuring
through a combination of long-term and short-term financing including, both debt
and equity, as well as the sale of assets. Operating obtains long-term financing
through the issuance of common shares and unsecured notes. Operating obtains
short-term financing through borrowings from Realty. There is, however, no
assurance that the Companies will satisfactorily achieve, if at all, the
objectives set forth in this paragraph.
On July 17, 1998, Realty entered into a Credit Agreement which provided
Realty with up to $2,250,000,000 in credit facilities, replacing Realty's then
existing $365,000,000 revolving credit facilities. The Credit Agreement provided
for borrowings in four separate Tranches: Tranche A, a $1,000,000,000 revolving
loan, amounts of which if repaid may be reborrowed, which matures July 17, 2001;
Tranche B, a term loan in the amount of $500,000,000, amounts of which if repaid
may not be reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory
principal payment on April 17, 1999; Tranche C, a term loan in the amount of
$250,000,000, amounts of which if repaid may not be reborrowed, which matures
July 17, 1999 with a six month extension option which management intends to
exercise for a fee of 12.5 basis points; and Tranche D, a term loan in the
amount of $500,000,000, amounts of which if repaid may not be reborrowed, which
matures July 17, 2001.
On November 23, 1998, Realty amended its Credit Agreement to provide for
Realty's cash repayment of a portion of its FEIT, the amendment of certain
financial covenants to accommodate asset sales, to exclude the impact of
non-recurring charges in certain covenant calculations, and to provide for
future operating flexibility. The amendment also provided for an increase to the
LIBOR pricing of the credit facility by approximately 125 basis points, and the
pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock
also extended on a pro rata basis to entitled bondholders. Realty also agreed to
a 25 basis point increase to the LIBOR pricing in the event that an equity
offering of at least $100,000,000 had not been completed by February 1, 1999. On
February 1, 1999 this increase went into effect.
35
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
On March 10, 1999, Realty reached a second agreement with its bank group to
further amend the Credit Agreement. The second amendment, which is effective
upon the successful completion of the sale of Cobblestone Golf Group, provides
for a portion of the sale proceeds to be applied to the FEIT. The second
amendment also provides for, among other things, upon the sale of Cobblestone
Golf Group, elimination of limitations on certain healthcare investments and
lowering the commitment on the revolving tranche to $850,000,000.
On March 10, 1999, the Companies entered into an agreement with MLI and
certain of its affiliates to use the proceeds from the sale of the Cobblestone
Golf Group in excess of $300,000,000 to repurchase all or a portion of the
remaining paired common shares outstanding under the FEIT. MLI agreed not to
sell any shares of the remaining paired common shares until March 31, 1999,
while the Companies completed the sale of Cobblestone Golf Group. On March 31,
1999, the Companies completed the sale of Cobblestone Golf Group and on April 1,
1999, the Companies settled the FEIT by paying MLI $89,840,000 for the
repurchase of 6,865,000 paired common shares.
As of March 31, 1999, approximately $1,581,000 in charges related to the
Plan remained unpaid. Payments made during the quarter included professional and
advisory fees and severance paid to former employees.
Operating had shareholders' equity of $35,961,000 as of March 31, 1999.
The Companies have an effective shelf registration statement on file with
the SEC under which the Companies may issue $1,825,000,000 of securities
including shares, preferred stock, debt, series common stock, convertible debt
and warrants to purchase shares, preferred shares, debt, series common stock and
convertible debt.
Operating believes that various sources of capital available over the next
twelve months are adequate to finance operations as well as pending
acquisitions. Over the next twelve months, as Operating identifies appropriate
operating or investment opportunities, Operating may raise additional capital
through the sale of shares, series common stock or preferred stock, or through
the issuance of long-term debt.
YEAR 2000
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. This "Year 2000 problem" is due to the fact that many
existing computer programs and embedded chip technology systems were developed
using only the last two digits to indicate a year. Thus, such systems may not
have the capability of recognizing a year that begins with "20" as opposed to
"19." As a consequence, these systems could fail altogether, or produce
erroneous results.
THE COMPANIES' STATE OF READINESS. The Companies have developed a
five-phase plan to address their Year 2000 issues (their "Year 2000 Plan"). The
five phases are: (i) Awareness, (ii) Assessment, (iii) Remediation, (iv) Testing
and (v) Implementation.
AWARENESS. The Companies have implemented a program to insure the relevant
employees are aware of the Year 2000 issue and have collected information from
such employees regarding systems that might be affected. Management has
assembled a Year 2000 Steering Committee to determine and assess the risks of
the Year 2000 issue, plan and implement necessary upgrades or changes to make
the Companies Year 2000 compliant or institute mitigating actions to minimize
those risks and oversee the Companies' progress with respect to the
implementation of their Year 2000 Plan.
36
<PAGE>
YEAR 2000 (CONTINUED)
ASSESSMENT. The Companies have substantially completed an assessment of
their internally and externally developed computer information systems.
Operating is in the process of obtaining written verification from vendors to
the effect that externally developed computer information systems acquired from
such vendors correctly distinguish dates before the Year 2000. Operating expects
to obtain such verifications, or a commitment from the relevant vendors to
provide a solution, by no later than the second quarter of 1999. In addition,
the Companies have engaged outside consultants to review the plan and
assessment. Realty is in the process of obtaining written verification from its
externally developed general ledger information system and payroll service
provider to ensure that the system correctly distinguishes dates before the Year
2000.
The Companies are currently evaluating and assessing their other electronic
systems that include embedded technology, such as telecommunications, security,
HVAC, elevator, fire and safety systems, and expect that the assessment will be
completed by the second quarter of 1999. The Companies are aware that such
systems contain embedded chips that are often difficult to identify and test and
may require complete replacement because they cannot be repaired. Failure of the
Companies to identify or remediate any embedded chips (either on an individual
or aggregate basis) on which significant business operations depend, such as
phone systems, could have a material adverse impact on the Companies' business,
financial condition and results of operations. To the extent such issues impact
property level systems the Companies may be required to fund capital
expenditures for upgraded equipment and software if necessary. In addition to
the Companies' systems and those of its vendors and suppliers, there exist
others that could have a material impact on the Companies' businesses if not
Year 2000 compliant. Such systems could affect airline operations and other
segments of the lodging and travel industries. These systems are outside of the
Companies' control and their compliance is not verifiable by the Companies.
The Companies' primary financial service providers are its primary bank,
credit card and payroll processors each of which will be required to provide
written verification to the Companies that they will be Year 2000 compliant. For
the foregoing reasons, the Companies do not believe that there is a significant
risk related to the failure of vendors or third-party service providers to
prepare for the Year 2000; however, the costs and timing of third-party Year
2000 compliance is not within the Companies' control and no assurances can be
given with respect to the cost or timing of such efforts or the potential
effects of any failure to comply.
REMEDIATION. Operating's primary uses of software systems are the hotel
reservation and front desk system, accounting, payroll and human resources
software. Upgrades to the hotel reservation system to address some Year 2000
compliance issues were installed and implemented during the fourth quarter of
1997 through the second quarter of 1998. Testing of various airline interfaces
with the hotel reservation system was completed by December 1998. Operating
plans to implement a new hotel front desk system by the end of 1999, for which
it has assurance that it is Year 2000 compliant. Operating has engaged outside
consultants to assist in this process with respect to certain Year 2000
compliance efforts. Operating has implemented Year 2000 compliant upgrades to
the existing accounting, payroll and human resource systems.
TESTING. To attempt to confirm that their computer systems are Year 2000
compliant, the Companies expect to perform limited testing of their computer
information systems and their other computer systems that do not relate to
information technology but include embedded technology; however, unless Year
2000 issues arise in the course of their limited testing, the Companies will
rely on the written verification received from each vendor of their computer
systems that the relevant system is Year 2000 compliant. Nevertheless, there can
be no assurance that the computer systems on which the Companies' business
relies will correctly distinguish dates before the Year 2000 from dates in and
after the Year
37
<PAGE>
YEAR 2000 (CONTINUED)
2000. Any such failures could have a material adverse effect on the Companies'
business, financial condition and results of operations. The Companies expect
that their testing will be complete by the end of the third quarter of 1999.
IMPLEMENTATION. The Companies have begun implementation of Year 2000
compliant software and software upgrades and expect to have them completed by
December, 1999.
COSTS TO ADDRESS THE COMPANIES' YEAR 2000 ISSUES. Based on current
information from their review to date, the Companies budgeted $1,250,000 for the
cost of repairing, updating and replacing their standard computer information
systems. The Companies anticipate that the primary cost of Year 2000 compliance
will be the cost of consultants and payroll and related expenses. The Companies
currently expect that the installation of above mentioned upgrades and software
will cost approximately $1,150,000, and as of April 30, 1999, the Companies have
spent approximately $600,000 in connection therewith. In addition, the Companies
expect that they will spend approximately $300,000 to address other Year 2000
related issues, including upgrades of certain systems with embedded technology.
Because the Companies' Year 2000 assessment is ongoing and additional funds may
be required as a result of future findings, the Companies are not currently able
to estimate the final aggregate cost of addressing the Year 2000 issue. While
these efforts will involve additional costs, the Companies believe, based on
available information, that these costs will not have a material adverse effect
on their business, financial condition or results of operations. The Companies
expect to fund the costs of addressing the Year 2000 issue from cash flows
resulting from operations. While the Companies believe that they will be Year
2000 compliant by December 31, 1999, if these efforts are not completed on time,
or if the costs associated with updating or replacing the Companies' computer
systems exceed the Companies' estimates, the Year 2000 issue could have a
material adverse effect on the Companies' business, financial condition and
results of operations.
RISKS PRESENTED BY YEAR 2000 ISSUES. The Companies are still in the process
of evaluating potential disruptions or complications that might result from Year
2000 related problems; however, at this time the Companies have not identified
any specific business functions that will suffer material disruption as a result
of Year 2000 related events. It is possible, however, that the Companies may
identify business functions in the future that are specifically at risk of Year
2000 disruption. The absence of any such determination at this point represents
only the Companies' current status of evaluating potential Year 2000 related
problems and facts presently known to the Companies, and should not be construed
to mean that there is no risk of Year 2000 related disruption. Moreover, due to
the unique and pervasive nature of the Year 2000 issue, it is impracticable to
anticipate each of the wide variety of Year 2000 events, particularly outside of
the Companies, that might arise in a worst case scenario which might have a
material adverse impact on the Companies' business, financial condition and
results of operations.
THE COMPANIES' CONTINGENCY PLANS. The Companies intend to develop
contingency plans for significant business risks that might result from Year
2000 related events. Because the Companies have not identified any specific
business function that will be materially at risk of significant Year 2000
related disruptions, and because a full assessment of the Companies risk from
potential Year 2000 failures is still in process, the Companies have not yet
developed detailed contingency plans specific to Year 2000 problems. Development
of these contingency plans is currently scheduled to occur by the second quarter
of 1999 and as otherwise appropriate. As a part of their contingency planning,
the Companies are analyzing the most reasonably likely worst-case scenario that
could result from Year 2000-related failures. Failures by third parties to
achieve Year 2000 compliance might result in short-term disruptions in travel
patterns, and potential temporary disruptions in the supply of utility,
telecommunications and
38
<PAGE>
YEAR 2000 (CONTINUED)
financial services, most likely regional or local in scope. These events could
cause temporary disruptions in the operations of hotel properties, and/or lead
travelers to postpone travel, or to cancel travel plans, thereby affecting
lodging patterns and occupancy.
The preceding "Year 2000 readiness disclosure" contains various
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements represent the
Companies' beliefs or expectations regarding future events. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the availability of
qualified personnel and other information technology resources; the ability to
identify and remediate all date sensitive lines of computer code or to replace
embedded computer chips in affected systems or equipment; and the actions of
governmental agencies or other third parties with respect to Year 2000 problems.
SEASONALITY
The lodging industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
This seasonality can be expected to cause quarterly fluctuations in revenue,
profit margins and net earnings. In addition, opening of new construction hotels
and/or timing of hotel acquisitions may cause variation of revenue from quarter
to quarter.
39
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 10, 1999, The Meditrust Companies entered into a separation agreement
with Abraham D. Gosman, former Director and Chairman of the Companies and Chief
Executive Officer and Treasurer of Operating Company. Under the terms of the
agreement, Mr. Gosman will receive a payment of $25 million in cash and the
continuation of certain life insurance benefits. The full text of the separation
agreement can be found in the Joint Current Report on Form 8-K of the Companies,
event date May 10, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Meditrust Corporation (incorporated by reference to Exhibit 3.2
to Joint Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating Company
(File Nos. 333-47737 and 333-47737-01));
3.2 Amended and Restated By-laws of Meditrust Corporation (incorporated by reference to Exhibit 3.5 to Joint
Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating Company (File Nos.
333-47737 and 333-47737-01));
3.3 Restated Certificate of Incorporation of Meditrust Operating Company filed with the Secretary of State of
Delaware on March 2, 1998 (incorporated by reference to Exhibit 3.4 to Joint Registration Statement on
Form S-4 of Meditrust Corporation and Meditrust Operating Company (File Nos. 33-47737 and 333-47737-01));
3.4 Amended and Restated By-laws of Meditrust Operating Company (incorporated by reference to Exhibit 3.6 to
Joint Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating company (File
Nos. 333-47737 and 333-47737-01));
3.5 Certificate of Designation for the 9% Series A Cumulative Redeemable Preferred Stock of Meditrust
Corporation filed with the Secretary of State of Delaware on June 12, 1998 (incorporated by reference to
Joint Current Report on Form 8-K of the Companies, event date June 10, 1998);
3.6 Certificate of Amendment of Restated Certificate of Incorporation of Meditrust Corporation filed with the
Secretary of State of Delaware on July 17, 1998 (incorporated by reference to exhibit 3.8 to the Joint
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998);
3.7 Certificate of Amendment of Restated Certificate of Incorporation of Meditrust Operating Company filed
with the Secretary of State of Delaware on July 17, 1998 (incorporated by reference to exhibit 3.9 to the
Joint Quarterly Report on Form 10-Q for the quarter ended June 30, 1998);
</TABLE>
40
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
4.1 Certificate of Designation for the 9% Series A Cumulative Redeemable Preferred Stock of Meditrust
Corporation filed with the Secretary of State of Delaware on June 12, 1998 (incorporated by reference to
Joint Current Report on Form 8-K of the Companies, event date June 10,1998);
10.1 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and David F. Benson
(filed herewith);
10.2 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and Michael S.
Benjamin (filed herewith);
10.3 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and Michael F.
Bushee (filed herewith);
10.4 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and Laurie T.
Gerber (filed herewith);
10.5 Amendment Agreement to Purchase Agreement dated as of February 26, 1999 among Meditrust Corporation,
Meditrust Operating Company, Merrill Lynch International and Merrill Lynch, Pierce, Fenner & Smith (filed
herewith);
10.6 Stock Purchase Agreement dated as of February 10, 1999 between The Meditrust Companies and Golf
Acquisitions L.L.C. (incorporated by reference to Exhibit 10.1 to the Joint Current Report on Form 8-K of
the Companies, event date March 31, 1999);
10.7 Separation Agreement dated as of May 10, 1999 by and among Meditrust Corporation, Meditrust Operating
Company, Abraham D. Gosman and other parties thereto (incorporated by reference to the Joint Current
Report on Form 8-K of the Companies, event date May 10, 1999);
27 Financial Data Schedule;
99.1 Second Amendment to Credit Agreement dated as of March 10, 1999 by and among Meditrust Corporation,
Morgan Guaranty Trust Company of New York, Bankers Trust Company and the other Banks set forth therein
(filed herewith).
(b) Reports on Form 8-K. During the quarter ended March 31, 1999, the Companies filed the following Current Reports on
Form 8-K:
1. Joint Current Report on Form 8-K, event date March 31, 1999, which contains a Stock Purchase Agreement
dated as of February 10, 1999, between the Meditrust Companies and Golf Acquisitions L.L.C. and a press
release announcing the completion of the sale of Cobblestone to Golf Acquisitions L.L.C.
</TABLE>
41
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C>
MEDITRUST CORPORATION
May 14, 1999 /s/ Laurie T. Gerber
-------------------------------------------
Laurie T. Gerber
Chief Financial Officer
MEDITRUST OPERATING COMPANY
May 14, 1999 /s/ William C. Baker
-------------------------------------------
William C. Baker
Interim President and
Interim Treasurer
</TABLE>
42
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this
1st day of January, 1999 by and between Meditrust Corporation, a Delaware
corporation (the "Employer"), and David F. Benson (the "Employee").
WHEREAS, the Employee is currently employed by the Employer as its
President and Chief Executive Officer; and
WHEREAS, the Employer and the Employee wish to extend such employment for
a four (4) year term on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto hereby agree as follows:
1. DUTIES. During the term of this Agreement, the Employee agrees to be
employed by and to serve the Employer as its President and Chief Executive
Officer, and the Employer agrees to employ and retain the Employee in such
capacity. The Employee also shall serve the Employer in such capacity or
capacities, and with such other duties consistent with such position, as shall
be designated by the Board of Directors of the Employer from time to time. The
Employee shall devote such of his business time, energy and skill to the affairs
of the Employer as shall be necessary to perform the duties of such position
and, in any event, not less of his business time, energy and skill than he has
previously devoted to the Employer, and he shall not assume an executive,
management or board position in any other business without the express
permission of the Board of Directors; provided that the Employee may serve in
any capacity with charitable or not-for-profit enterprises so long as there is
no material interference with the Employee's duties to the Employer. The
Employee shall report only to the Employer's Board of Directors and at all times
during the term of this Agreement shall have powers and duties commensurate with
his position as President and Chief Executive Officer of the Employer. Without
the Employee's consent, the Employer may not materially reduce the Employee's
duties or responsibilities hereunder or assign duties or responsibilities that
are inconsistent with the Employee's position as President and Chief Executive
Officer of the Employer. Notwithstanding the foregoing, in connection with a
corporate restructuring of the Employer, if the Employee continues to be
President and Chief Executive Officer of the publicly-traded healthcare company
resulting from a Permitted Spin-Off (as defined below), such change, in and of
itself, shall not be deemed to be a material reduction in the Employee's duties
and responsibilities for purposes of the preceding sentence.
2. TERMS OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(1) "Termination For Cause" shall mean termination by the
Employer of the Employee's employment by reason of (i) the Employee's fraud
upon,
<PAGE>
deliberate injury or attempted injury to, or dishonesty towards the Employer
that causes material and demonstrable injury to the Employer, (ii) the
Employee's intentional and material breach of the provisions of Section 5 of
this Agreement, (iii) the Employee's intentional and material breach of, or
material failure to perform under, this Agreement (other than the provisions of
Section 5 hereof) that is not cured by the Employee within 30 days after written
notice from the Board of Directors specifying the breach and requesting a cure,
or (iv) the conviction of any felony involving a crime of moral turpitude.
(2) "Termination Other Than For Cause" shall mean
termination by the Employer of the Employee's employment other than a
Termination For Cause, a Termination Upon Death or Disability, or a Termination
Upon a Change in Control.
(3) "Termination for Good Reason" shall mean termination of
employment by the Employee (i) after a material reduction by the Employer,
without the Employee's consent, in the Employee's duties and responsibilities,
(ii) if the Employee is not the President and Chief Executive Officer of
Meditrust Corporation prior to the Permitted Spin-Off and the Spin-Off Entity
after the Permitted Spin-Off, (iii) after any reduction by the Employer of the
Employee's Base Salary and benefits (provided that, in the case of
across-the-board benefit reductions similarly affecting all management
personnel, the Employer will continue to provide Employee with a benefit package
substantially equivalent to the benefits provided at the time of such reduction,
provided that the Employer shall not be required to expend more than 150% of the
Employer's cost therefor in fiscal year 1999), (iv) the relocation of the
Employer's offices at which the Employee is principally employed to a location
which is more than 35 miles from the current location of the Employer's office
or the requirement that the Employee be based (1) anywhere other than the
Employer's principal offices, as the same may be relocated within 35 miles as
provided above or (2) more than 35 miles from the Employer's current offices,
except for required travel on the Employer's business to an extent substantially
consistent with the Employee's present business travel obligations, (v) a
material breach of this Agreement by the Employer that is not rectified within
30 days of notification of the Board of Directors by the Employee of such
breach, (vi) the failure of the Employer to obtain an agreement from any
successor or assign of the Employer, to assume and agree to perform this
Agreement, as contemplated by Section 7.15, or (vii) the Employer's failure to
extend this Agreement pursuant to Section 2.2 hereof on each anniversary date.
Notwithstanding the foregoing, in connection with a Permitted Spin-Off, if the
Employee continues to be President and Chief Executive Officer of the Spin-Off
Entity, such change in title and position shall not be deemed to be a material
reduction in the Employee's duties and responsibilities for purposes of clause
(i) above.
(4) "Termination Upon a Change in Control" shall mean
termination of the Employee's employment with the Employer for any reason or for
no reason within two (2) years following a Change in Control either by the
Employee or by the Employer.
2
<PAGE>
(5) "Termination Upon Death or Disability" shall mean
termination by the Employer by reason of the Employee's death or disability as
described in Section 2.3 hereof.
(6) "Permitted Spin-Off" shall mean a corporate
restructuring of the Meditrust Companies pursuant to which all of the stock of
any existing or newly-created subsidiary of the Meditrust Companies (or either
of them) which owns (or acquires by purchase, dividend, investment or otherwise)
all of the healthcare assets and investments of the Meditrust Companies (or the
stock of subsidiaries which own such assets and investments) existing
immediately prior thereto is "spun-off" ratably to the shareholders of the
Meditrust Companies at the time of such spin-off.
(7) "Spin-Off Entity" shall mean any Person resulting from a
Permitted Spin-Off.
(8) "Change in Control" shall mean (a) an acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined voting power of the then
outstanding voting securities of the Employer entitled to vote generally in the
election of directors of the Employer (the "Outstanding Voting Securities") or
20% or more of the combined market value of the equity securities of the
Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly
from or by the Employer or any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Employer or an affiliated company
or any acquisition by a company pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a);
or (b) individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") of the Employer, cease for any reason to constitute at
least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any
individual becoming a director whose election, or nomination for election by the
Employer's stockholders, was approved by a vote of at least 60% of the directors
then comprising the Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors of the Employer; or
(c) consummation of a reorganization, merger or consolidation of the Employer (a
"Business Combination"), unless, in each case, following such Business
Combination, (i) all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the outstanding Equity Value and
Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the combined market
value of the equity securities and more than 60% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from such Business
Combination (including, without limitation, a
3
<PAGE>
corporation which as a result of such transaction owns the Employer or all or
substantially all of the Employer's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Equity Value and
Outstanding Voting Securities, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Employer or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the then outstanding voting securities or 20% or more
of the combined market value of the equity securities of the corporation
resulting from such business combination except to the extent that such
ownership existed prior to the Business Combination and (iii) at least 60% of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or the action of the Board, providing for
such Business Combination, (d) the sale or other disposition of more than 50% of
the healthcare assets of the Employer, or (e) a complete liquidation or
dissolution of the Employer or approval thereof by the stockholders of the
Employer. For purposes of this definition, "Employer" shall mean either (x)
Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together
with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust
Corporation, the assets of which are substantially all of the healthcare assets
and investments of Meditrust Corporation (or the stock of subsidiaries, the
assets of which are substantially all of the healthcare assets and investments
of Meditrust Corporation). Notwithstanding the foregoing, any corporate
restructuring directly related to a Permitted Spin-Off, including any related
change to the Board of Directors shall not be deemed to be a Change in Control;
provided, however, that this exclusion shall not apply to any simultaneous or
subsequent sale of, or Business Combination, or other events described in
clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity.
2.2 TERM. The term of employment of the Employee by the Employer
shall commence on the date and year first above written (the "Effective Date")
and shall continue through the fourth (4th) anniversary of the Effective Date;
provided, however the term of this Agreement shall automatically be extended for
one additional year on each anniversary date of the Effective Date unless, not
later than 90 days prior to such date, either party shall have given notice to
the other that it or he does not wish to extend this Agreement; provided,
further, that if a Change in Control (as defined in Section 2.1(f)) occurs
during the original or extended term of this Agreement, the term of this
Agreement shall continue in effect for a period of not less than two (2) years
beyond the month in which the Change in Control occurred.
2.3 TERMINATION. Notwithstanding any provision of this Employment
Agreement, the employment of the Employee pursuant to this Agreement may be
terminated by the Employer upon (a) at least 15 days' prior written notification
to the Employee in the event of a Termination For Cause, (b) upon at least 60
days' prior written notice to the Employee in the event of a Termination Other
Than For Cause or a Termination Upon a Change in Control, (c) upon written
notification to the Employee if the Employee, in the
4
<PAGE>
reasonable judgment of the Board of Directors of the Employer, has failed to
perform his duties under this Agreement because of illness or physical or mental
incapacity, and such illness or incapacity continues for a period of more than
four (4) consecutive months, or (d) in the event of the Employee's death, in
which case the Employee's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs. The Employee may
terminate his employment under this Agreement upon at least 60 days' prior
written notice to the Employer; provided, however, that in the event of a Change
in Control, the notice requirement is shortened to ten (10) days.
2.4 PAYMENTS UPON TERMINATION. Upon any termination of the
Employee's employment by the Employer hereunder, the Employer shall promptly pay
to the Employee, or in the case of his death, to his estate or such
beneficiaries as the Employee may from time to time designate, all accrued
salary, any benefits under any plans of the Employer in which the Employee is a
participant to the full extent of the Employee's rights under such plans,
accrued vacation pay and any appropriate business expense incurred by the
Employee in connection with his duties hereunder, all to the date of
termination. The Employee, or his estate or beneficiaries in the case of his
death, shall not be entitled to any other compensation or reimbursement of any
kind, including, without limitation, severance compensation, except as provided
in Section 4 hereof. Unless otherwise provided in writing or as provided in
Section 4 hereof, upon termination of employment, all options held by the
Employee that are not then currently exercisable and all Performance Units shall
immediately lapse and have no force or effect, and all then non-vested
Performance Shares held by the Employee shall be forfeited and returned to the
Employer.
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be rendered by the
Employee as provided in Section 1, and subject to the terms and conditions of
Section 2, the Employer agrees to pay to the Employee at the rate of $500,000
per annum (the "Base Salary"). The Base Salary shall be payable in equal
bi-monthly (twice a month) installments. Unless otherwise determined by the
Board of Directors, the Employee shall not be entitled to any compensation in
addition to that set forth in this Section 3 for serving as an officer of the
Employer. All services which the Employee may render to the Employer in any
capacity shall be deemed to be services required by this Agreement and as
consideration for the compensation herein provided.
3.2 BONUS. The Employee's bonus opportunity for each fiscal year
shall be equal to 75% to 100% ("Maximum Bonus") of Base Salary paid during such
fiscal year. The amount of bonus payments shall be determined at the sole
discretion of the Compensation Committee or pursuant to criteria to be
established from time to time.
3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to
participate in such of the Employer's benefits and deferred compensation plans
as are now generally available or later made generally available to executive
officers of the Employer, including,
5
<PAGE>
but not limited to, the 401(k) plan, non-qualified deferred compensation plan,
if any, medical insurance plan, dental insurance plan, life insurance plan, and
disability insurance plan. The Employee shall also be provided with an
automobile allowance that is not less than the amount currently paid, including
reimbursement for gasoline, insurance, maintenance and repairs.
3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the
Employee for reasonable and properly documented out-of-pocket expenses incurred
by the Employee in connection with his duties under this Agreement.
3.5 PERFORMANCE SHARES. The Employer has previously awarded the
Employee 125,000 performance shares in accordance with the terms described in
Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance
Shares").
3.6 STOCK OPTIONS. In connection with the negotiation and
execution hereof, on December 10, 1998, the Employer issued to the Employee
pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 250,000
paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per
Paired Share (the "Option"). The Option shall vest and become exercisable in
accordance with the Plan in 25% increments on each anniversary date of the date
of grant, so that the Option is fully vested and exercisable on the fourth (4th)
anniversary date of the date of grant. Further, on December 10, 1998, the
Employer issued to the Employee pursuant to the 1995 Share Award Plan an option
to purchase 125,000 Paired Shares, at $13.4375 per Paired Share (the
"Performance Option"). The Performance Option shall vest and become fully
exercisable in accordance with the Plan on December 10, 2004; provided, however,
that if prior to December 10, 2004 the 20-day average trading price of a Paired
Share (the "20-Day Average") attains $23.00, 33 1/3% of the Performance Option
shall vest and become exercisable in accordance with the Plan; and if prior to
December 10, 2004, the 20-Day Average attains $26.00, 66 2/3% of the Performance
Option shall vest and become exercisable in accordance with the Plan, and if
prior to December 10, 2004, the 20-Day Average attains $29.00, the remainder of
the Performance Option shall vest and become fully exercisable in accordance
with the Plan. For this purpose, the price of the Paired Shares shall be
determined by reference to the quoted closing price per Paired Share on the New
York Stock Exchange.
3.7 PERFORMANCE UNITS. The Employer has issued to the Employee
125,000 performance units ("Performance Units") in the Long Term Bonus Program.
Such Performance Units shall become payable only pursuant to the provisions of
Section 4.1, 4.2 or 4.3.
3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties
that upon the fourth anniversary of the Effective Date, the Employee shall own
equity in the Employer (which shall include the Performance Shares) with a value
equal to four (4) times his Base Salary. In the event the Employee does not
attain such level of equity ownership by such date, the Employee shall not be
eligible to receive any further equity grants from the Employer until such time
when the Employee attains the desired equity ownership level.
6
<PAGE>
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER
THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's
employment is terminated in a Termination Other Than For Cause or in a
Termination for Good Reason, subject to the signing by the Employee of a general
release of employment-related claims (other than continuing rights under this
Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all
unvested Performance Shares held by the Employee shall become immediately vested
in full, (ii) all Performance Units issued to the Employee pursuant to Section
3.7 hereof shall become immediately vested in full with the value of each Unit
deemed to be $25; provided that payment with respect to the Performance Units
shall be made in cash no earlier than January 1, 2002, (iii) any unvested
options to purchase shares of The Meditrust Companies held by the Employee shall
become immediately vested and exercisable in full in accordance with the Plan
and (iv) the Employee shall be paid a lump sum within 30 days of such
termination equal to the sum of his Base Salary and the average of the bonuses
received by the Employee under Section 3.2 for the three (3) immediately
preceding fiscal years (or for such shorter period that the Employee was
eligible for a bonus), multiplied by the greater of (a) three (3) or (b) the
number of full and fractional years remaining in the original term or extended
term of this Agreement (the "Unexpired Term"). The Employee shall continue to
enjoy the benefits under the medical and dental insurance plans and the
non-qualified retirement plan, if any, for the greater of three (3) years or the
Unexpired Term. He shall also be provided with an automobile allowance for the
greater of three (3) years or the Unexpired Term at a level which is not less
than the level provided to the Employee immediately prior to such termination.
Notwithstanding the foregoing, in the event a Change in Control occurs within
nine (9) months after a termination under this Section 4.1, the Employee's
employment shall be deemed to have been terminated in a Termination Upon a
Change in Control and the benefits inuring to the Employee shall be recalculated
and paid or delivered to the Employee as though Section 4.3 applied at the time
of such termination.
4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event
the Employee's employment is terminated in a Termination Upon Death or
Disability, and in the case of Termination Upon Disability, subject to the
signing by the Employee (in the case of Disability) of a general release of
employment-related claims (other than continuing rights under this Agreement) in
a form and manner reasonably satisfactory to the Employer, (i) all unvested
Performance Shares held by the Employee shall become immediately vested in full,
(ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof
shall become immediately vested in full with the value of each Unit deemed to be
$25; provided that payment with respect to the Performance Units shall be made
in cash no earlier than April 1, 2002, (iii) any unvested options to purchase
shares of The Meditrust Companies held by the Employee shall become immediately
vested and exercisable in full in accordance with the Plan and (iv) the Employee
or his estate shall be paid a lump sum within 30 days of such termination equal
to the sum of his Base Salary and the average of the bonuses received by the
Employee under Section 3.2 for the three (3) immediately preceding fiscal years
(or for such
7
<PAGE>
shorter period that the Employee was eligible for a bonus), multiplied by the
greater of three (3) or the Unexpired Term. The Employee (or dependents, in the
case of the Employee's death) shall continue to enjoy the benefits under the
medical and dental insurance plans for the greater of three (3) years or the
Unexpired Term. In the case of disability, the Employee shall also be provided
with an automobile allowance for the greater of three (3) years of the Unexpired
Term at a level which is not less than the level provided to the Employee
immediately prior to such termination.
4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL. Upon a Change in Control, (i) all unvested Performance Shares
held by the Employee shall become immediately vested in full, (ii) all
Performance Units issued to the Employee pursuant to Section 3.7 hereof shall
become immediately vested in full with the value of each Unit deemed to be $50,
(iii) any unvested options to purchase shares of The Meditrust Companies held by
the Employee shall become immediately vested and exercisable in accordance with
the Plan in full. In the event the Employee's employment is terminated in a
Termination Upon a Change in Control, subject to the signing by the Employee of
a general release of employment-related claims (other than continuing rights
under this Agreement) in a form and manner reasonably satisfactory to the
Employer, the Employee shall be paid a lump sum in cash within 30 days of such
termination in an amount equal to the full value of his Performance Units and an
amount equal to the greater of three (3) or the Unexpired Term times the sum of
(A) his Base Salary and (B) Maximum Bonus for the year of termination. The
Employee shall continue to enjoy the benefits under the medical and dental
insurance plan and the non-qualified retirement plan, if any, for the greater of
three (3) years or the Unexpired Term and any and all debts of the Employee to
the Employer will be forgiven by the Employer. The Employee shall also be
provided with an automobile allowance for the greater of three (3) years or the
Unexpired Term at a level which is not less than the level provided to the
Employee immediately prior to such termination. In addition, the Employee shall
be entitled to an additional payment for taxes imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), in accordance with the
terms of Schedule 1 attached hereto.
5. NON-COMPETITION AND NON-DISCLOSURE.
5.1 NON-COMPETITION. (a) During the term hereof, without approval
by the Board, the Employee will not, directly or indirectly, (i) engage or
become interested, directly or indirectly, as owner, employee, director,
partner, consultant, through stock ownership (except ownership of not more than
one percent (1%) of any class of securities of a corporation which is publicly
traded), investment of capital, lending of money or property, rendering of
services, or otherwise, either alone or in association with others, in any
business which competes directly or indirectly with the business of the
Employer, (ii) induce or attempt to induce any customer of the Employer to
reduce such customer's business with the Employer, or (iii) solicit any of the
Employer's employees to leave the employ of the Employer or employ any of such
Employees, except for the Employee's administrative assistant.
8
<PAGE>
(b) For a period of two (2) years after any termination of
employment, the Employee will not, directly or indirectly, (i) engage or become
interested, directly or indirectly, as owner, employee, director, partner,
consultant, through stock ownership (except ownership of not more than five
percent (5%) of any class of securities of a corporation which is publicly
traded), investment of capital, lending of money or property, rendering of
services, or otherwise, either alone or in association with others, in any
healthcare real estate investment trust financing business which competes
directly and materially with the business of the Employer or (ii) solicit any of
the Employer's employees to leave the employ of the Employer or employ any of
such employees, except for the Employee's administrative assistant. The Employee
recognizes and acknowledges that his obligations under this Section 5.1(b) are
limited to the geographic areas in which the Employer is doing business at the
time of the expiration or termination of this Agreement.
(c) As used in Sections 5.1, 5.2, 7.2, and 7.3, the term
"Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates.
The restrictions on the Employee set forth in this Section 5.1 shall not apply
in the case of a Termination Upon a Change in Control.
5.2 NON-DISCLOSURE. The Employee agrees that all confidential and
proprietary information relating to the business of the Employer shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by the Employer's Board of Directors or if
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6. INSURANCE. The Employer may, at its expense, procure and maintain
life insurance on the life of the Employee. The beneficiary of such policy shall
be the Employer. The Employee shall cooperate with the Employer as is reasonably
necessary to procure such insurance.
7. MISCELLANEOUS.
7.1 ARBITRATION; DISPUTE RESOLUTION.
9
<PAGE>
(1) ARBITRATION PROCEDURE. Any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this Agreement
or contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by final and binding arbitration in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA");
PROVIDED, that nothing contained herein shall be deemed to prohibit either party
to apply to a court of competent jurisdiction for temporary or preliminary
equitable relief. The arbitral tribunal shall consist of one arbitrator. In
making any decision, the arbitrator shall apply and follow the substantive law
of Massachusetts without reference to the conflicts of law provisions thereof.
The parties to the arbitration jointly shall directly appoint such arbitrator
within 30 days of the initiation of arbitration. If the parties shall fail to
appoint such arbitrator as provided above, such arbitrator shall be appointed by
the AAA as provided in the Arbitration Rules. The Employee and the Employer
agree that the decision of the arbitrator shall be final, the arbitral award may
be enforced against the parties to the arbitration proceeding or their assets
wherever they may be found and that a judgment upon the arbitral award may be
entered in any court having jurisdiction thereof. The Employer shall pay all
fees and expenses of the Arbitrator regardless of the result and shall provide
all witnesses and evidence reasonably required by the Employee to present his
case. The Employer shall pay to the Employee all reasonable arbitration expenses
and legal fees incurred by the Employee as a result of a termination of the
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement (whether or not the Employee is successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the Employee's request for payment accompanied with
such evidence of fees and expenses incurred as the Employer reasonably may
require.
(2) COMPENSATION DURING DISPUTE. The Employee's compensation
during any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the interpretation of this Agreement shall be as
follows:
If there is a termination by the Employer followed by a dispute as
to whether the Employee is entitled to the payments and other benefits provided
under this Agreement, then, during the period of that dispute the Employer shall
pay the Employee 50% of the amount specified in Section 4.1 hereof, and the
Employer shall provide the Employee with the benefits provided in Section 4.1
hereof, if, but only if, the Employee agrees in writing that if the dispute is
resolved against the Employee, the Employee shall promptly refund to the
Employer all payments received under Section 4.1 of this Agreement plus interest
at the rate provided in Section 1274(d) of the Code, compounded quarterly. If
the dispute is resolved in the Employee's favor, promptly after resolution of
the dispute, the Employer shall pay to the Employee the sum that was withheld
during the period of the dispute plus interest at the rate provided in Section
1274(d) of the Code, compounded quarterly.
7.2 LITIGATION AND REGULATORY COOPERATION. During and after the
Employee's employment, the Employee shall reasonably cooperate with the Employer
in the
10
<PAGE>
defense or prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Employer which relate to
events or occurrences that transpired while the Employee was employed by the
Employer; provided, however, that such cooperation shall not materially and
adversely affect the Employee or expose the Employee to an increased probability
of civil or criminal litigation. The Employee's cooperation in connection with
such claims or actions shall include, but not be limited to, being available to
meet with counsel to prepare for discovery or trial and to act as a witness on
behalf of the Employer at mutually convenient times. During and after the
Employee's employment, the Employee also shall cooperate fully with the Employer
in connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Employer. The
Employer shall also provide the Employee with compensation on an hourly basis
calculated at his final base compensation rate for requested litigation and
regulatory cooperation that occurs after his termination of employment, and
reimburse the Employee for all costs and expenses incurred in connection with
his performance under this Section 7.2, including, but not limited to,
reasonable attorneys' fees and costs.
7.3 NONDISPARAGEMENT. During and after the Employee's employment,
the Employee agrees that he shall not take any action or make any statement,
written or oral, which disparages or criticizes the Employer or The Meditrust
Companies, or their respective officers, directors, agents, or management and
business practices, or which disrupts or impairs the normal operations of the
Employer or The Meditrust Companies. During and after the Employee's employment,
the Employer agrees that it shall not take any action or make any statement,
written or oral, which disparages or criticizes Employee or Employee's
management and business practices and that it shall instruct its officers,
directors and agents not to take any action or make any statement, written or
oral, which disparages or criticizes the Employee or the Employee's management
and business practices.
7.4 NO MITIGATION. The Employer agrees that, if the Employee's
employment by the Employer is terminated during the term of this Agreement, the
Employee is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Employee by the Employer pursuant to Sections
3 and 4 hereof. Further, the amount of any payment provided for in this
Agreement shall not be reduced by any compensation earned by the Employee as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Employer, or
otherwise.
7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants
that it has full power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby and this Agreement is the
legal, valid and binding obligation of the party, enforceable against the party
in accordance with its terms. No consent, approval or agreement of any person,
party, court, government or entity is required to be obtained by either party in
connection with the execution and delivery of this Agreement. Each party is not
subject to any agreement, restriction, lien, encumbrance or right, title or
interest in anyone
11
<PAGE>
limiting in any way the scope of this Agreement or in any way inconsistent
herewith, and each party will not hereafter grant anyone the same.
7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or
other termination of this Agreement, all obligations of the parties shall
forthwith terminate, except for any obligation to pay any fixed sum of money or
provide any benefits which may have accrued and be due and payable hereunder at
the time of such expiration or other termination and except that the provisions
of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in
accordance with their terms, such Sections containing independent agreements and
obligations.
7.7 EQUITABLE RELIEF. The obligations of the Employee under
Section 5 hereunder are special, unique and extraordinary, and any breach by the
Employee thereof shall be deemed material and to cause irreparable injury not
properly compensated by damages in an action at law. Notwithstanding Section
7.1, the Employer's rights and remedies hereunder shall therefore be enforceable
both at law and in equity, by injunction and otherwise; and the rights and
remedies of the Employer hereunder with respect thereto shall be cumulative and
not alternative and shall not be exhausted by any one or more uses thereof.
7.8 CONSENT TO JURISDICTION. To the extent that any court action
is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this
Agreement, the parties hereby consent to the jurisdiction of the Courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court action,
the Employee (a) submits to the personal jurisdiction and venue of such courts;
(b) consents to service of process; and (c) waives any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to
personal jurisdiction, venue or service of process.
7.9 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof. All modifications to the
Agreement must be in writing and signed by the party against whom enforcement of
such modification is sought.
7.11 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed duly given (a) when delivered,
or (b) two (2) days after being mailed by first class mail, certified or
registered with return receipt requested, or (c) one (1) day after being mailed
through an overnight delivery service, or (d) upon confirmation of transmission
via facsimile, to the following addresses:
12
<PAGE>
If to the Employer: Meditrust Corporation
197 First Avenue
Needham, MA 02494
Attn: General Counsel
If to the Employee: David F. Benson
24 Middleton Road
Boxford, MA 01921
Any party may change such party's address for notices by notice duly given
pursuant to this Section 7.11.
7.12 HEADINGS. The Section headings herein are intended for
reference and shall not by themselves determine the construction or
interpretation of this Agreement.
7.13 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
applied without regard to conflict of law principles.
7.14 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
the Employee without the prior written consent of the Employer, and may be
assigned by the Employer and shall be binding upon, and inure to the benefit of,
the Employer's successors and assigns. The Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Employer to assume
expressly and agree to perform this Agreement in the same manner and to the
extent that the Employer would be required to perform it if no such succession
had taken place. As used in this Agreement, "Employer" shall mean the Employer
as herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
7.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
7.17 WITHHOLDINGS. All compensation and benefits to the Employee
hereunder shall be reduced by all federal, state, local and other withholdings
and similar taxes and payments required by applicable law. The Employee agrees
to pay all federal, state and local taxes owed by him in connection with this
Agreement.
13
<PAGE>
7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the
Spin-Off Entity shall be deemed to be the Employer for all purposes of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
MEDITRUST CORPORATION
SEAL
By
----------------------------------------------
Name: Michael S. Benjamin
Title: Senior Vice President and General Counsel
-------------------------------------------------
David F. Benson
14
<PAGE>
Exhibit A
THE PERFORMANCE SHARES
100% of the Performance Shares described in Section 3.5 shall be deemed issued
as of February 27, 1998 upon payment by the Employee of the par value thereof to
The Meditrust Companies. Subject to the terms of the Agreement, the Performance
Shares shall vest on the earliest of (a) eight (8) years after the date of
issuance, (b) on March 31 of the year following the first fiscal year after
issuance in which the Performance Goal is achieved or (c) as the Board of
Directors may determine. The Performance Goal for all outstanding grants of
Performance Shares shall be deemed achieved in any fiscal year commencing with
the year 2000 that meets both criteria specified below:
<TABLE>
<CAPTION>
Fiscal FFO Cumulative FFO per Share
Year Per Share Since January 1, 1998
---- --------- ---------------------
<S> <C> <C>
2000 $2.92 $ 8.28
2001 3.10 11.38
2002 3.28 14.66
2003 3.48 18.14
2004 3.69 21.83
</TABLE>
For purposes of the foregoing calculation, "FFO" shall mean funds from
operations as reported by The Meditrust Companies. The above Performance Goals
may be adjusted by the Board of Directors of the Employer to reflect changes in
accounting rules or changes in corporate structure.
Subject to the terms of the Agreement, upon termination of the Employee's
employment by The Meditrust Companies for any reason, all right, title and
interest in any unvested Performance Shares shall be transferred to The
Meditrust Companies in exchange for the par value of such Performance Shares,
and the Employee shall not receive any unissued Performance Shares.
The Employee shall receive all voting rights and dividends paid with respect to
unvested Performance Shares from the date of issuance so long as the Employee is
an employee of The Meditrust Companies or any subsidiary thereof.
<PAGE>
Schedule 1
EXCISE TAX GROSS-UP
The determination of any additional payment payable pursuant to Section
4.3 of the Agreement shall be made in accordance with the following provisions:
(a) Notwithstanding anything in the Agreement to the contrary, in
the event of the determination (as hereinafter provided) that any required
payment by the Employer to or for benefit of the Employee (whether paid or
payable pursuant to the terms of the Agreement or otherwise pursuant to, or by
reason of any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right, or similar right,
or the lapse or termination of any restriction on the vesting or exercisability
of any of the foregoing including without limitation the acceleration of the
vesting or lapse of deferral periods under any equity or incentive compensation
program (individually and collectively, "Payment")) would be subject to the
excise tax imposed by Section 4999 of the Code or any successor provision
thereto (the "Excise Tax"), the Employee shall be entitled to receive an
additional payment or payments (individually or collectively, "Tax Assistance
Payment"), which shall include an amount such that, after the Employee pays (1)
all Federal, state and local income and employment taxes upon the Tax Assistance
Payment and (2) any Excise Tax imposed upon the Tax Assistance Payment, the
Employee retains so much of the Tax Assistance Payment as is equal to the Excise
Tax imposed on the Payment.
(b) Subject to the provisions hereinafter concerning the provision
of notice of a claim by the Internal Revenue Service, all determinations
required to be made under these provisions, including whether an Excise Tax is
payable by the Employee, the amount of such Excise Tax and whether the Employer
is required to pay the Employee a Tax Assistance Payment and the amount of such
Tax Assistance Payment, if any, shall be made by PriceWaterhouseCoopers or such
other nationally recognized accounting firm retained by the Employer and
reasonably acceptable to the Employee ("Accounting Firm"). The Employer shall
direct the Accounting Firm to submit its determination and detailed supporting
calculations to both the Employee and the Employer within 15 days after the
payment or provision of any benefit that could give rise to an Excise Tax and
any such other time or times as the Employee or the Employer may request. For
purposes of this Paragraph (b), the Employee shall be deemed to pay Federal
income taxes at the highest marginal rate of Federal income taxation applicable
to individuals for the calendar year in which the determination is to be made,
and state and local income taxes at the highest marginal rates of individual
taxation in the state and locality of the Employee's residence on the Change in
Control, net of the maximum reduction in Federal income taxes which could be
obtained from deduction of such state and local taxes. If the Accounting Firm
determines that any Excise Tax is payable by the Employee, the Employer shall
pay the required Tax Assistance Payment to the Employee within ten (10) business
days after the Employer receives such determination and calculations with
respect to any Payment to the Employee. Any determination by the Accounting Firm
shall be binding upon the Employer and the Employee.
<PAGE>
(c) Any federal tax returns the Employee files shall be prepared
and filed on a basis consistent with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Employee. If the Accounting Firm
determines that the Employee is required to pay no Excise Tax, it shall (at the
same time it makes such determination) furnish the Employee and the Employer an
opinion that the Employee has substantial authority not to report any Excise Tax
on the Employee's federal income tax return. However, in view of the uncertainty
concerning application of Section 4999 of the Code (or any successor provision
thereto) at the time of any determination made hereunder by the Accounting Firm,
it is possible that a Tax Assistance Payment that should have been made by the
Employer will not have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event the Employer exhausts
or fails to pursue its remedies pursuant to the provisions concerning notice of
a claim by the Internal Revenue Service, and the Employee thereafter is required
to make a payment of any Excise Tax, the Employee shall direct the Accounting
Firm to determine the amount of the Underpayment and to submit its determination
and detailed supporting calculations as promptly as possible both to the
Employee and to the Employer, which shall pay the amount of such Underpayment to
the Employee or for the Employee's benefit within ten (10) business days
following the Employer's receipt of such determination and calculations.
(d) Each of the Employee and the Employer shall provide the
Accounting Firm access to and copies of any books, records and documents in the
Employee's or its possession, as the case may be, reasonably requested by the
Accounting Firm, and shall otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determination and
calculations required or contemplated hereunder.
(e) The Employer shall bear the fees and expenses of the
Accounting Firm for services hereunder. If, for any reason, the Employee
initially pays such fees and expenses, the Employer shall reimburse the Employee
the full amount of the same within ten (10) business days following receipt from
the Employee of a statement and reasonable evidence of the Employee's payment
thereof.
(f) The Employee shall notify the Employer in writing of any claim
by the Internal Revenue Service that, if successful, would require the Employer
to pay a Tax Assistance Payment. The Employee shall give such notification as
promptly as practicable, but in no event later than the tenth (10th) business
day next following the Employee's receipt of such claim, and the Employee
further shall apprise the Employer of the nature of such claim and the date on
which it is required to be paid (in each case, to the extent known to the
Employee). The Employee shall not pay or otherwise satisfy such claim prior to
the earlier of (a) the expiration of the 30-calendar-day period next following
the date on which the Employee give notice to the Employer or (b) the date any
payment of the amount with respect to such claim is due. If the Employer
notifies the Employee in writing prior to the expiration of such period that it
desires to contest such claim, the Employee shall:
2
<PAGE>
(i) provide the Employer any written records or documents in the
Employee's possession relating to such claim and reasonably requested by the
Employer;
(ii) take such action in connection with contesting such claim as
the Employer reasonably shall request in writing from time to time, including
without limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably selected
by the Employer;
(iii) cooperate with the Employer in good faith in order effectively
to contest such claim; and
(iv) permit the Employer to participate in any proceedings relating
to such claim, provided, however, that the Employer directly shall bear and pay
all costs and expenses (including without limitation, interest and penalties)
incurred in connection with such contest and shall indemnify the Employee and
hold the Employee harmless, on an after-tax basis, from and against any and all
Excise Tax or income tax (including without limitation, interest and penalties
with respect thereto), imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing, the Employer shall control
all proceedings taken in connection with the contest of any claim contemplated
by these provisions and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim (provided, however, that the Employee may
participate therein at the Employee's own cost and expense) and may, at its
option, either direct the Employee to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Employee agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Employer shall determine; provided, however, that if the Employer directs the
Employee to pay the tax claimed and to sue for a refund, the Employer shall
advance the amount of such payment to the Employee, and pay on a current basis
all costs of litigation, including without limitation attorneys' fees, on an
interest-free basis and shall agree to and shall indemnify the Employee and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax,
including without limitation, interest and penalties with respect thereto,
imposed with respect to such advance; and provided further, however, that any
extension of the statute of limitations relating to payment of taxes for the
Employee's taxable year with respect to which the contested amount is claimed to
be due is limited solely to such contested amount. Furthermore, the Employer's
control of any such contested claim shall be limited to issues with respect to
which a Tax Assistance Payment would be payable hereunder, and the Employee
shall be entitled to settle or to contest, as the case may be, any other
issue(s) raised by the Internal Revenue Service or any other taxing authority.
(e) If, after the Employee receives an amount advanced by the
Employer pursuant to provisions of the last full paragraph, the Employee
receives any refund with respect to such claim, the Employee shall (subject to
the Employer's complying with any applicable provisions of the same paragraph)
promptly pay to the Employer the amount of such
3
<PAGE>
refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the Employee receives such an amount advanced by
the Employer, a determination is made that the Employee shall not be entitled to
any refund with respect to such claim and the Employer does not notify the
Employee in writing of its intent to contest such denial or refund prior to
expiration of 30 calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid, and the amount of such
advance shall offset, to the extent thereof, the amount of the Tax Assistance
Payment the Employer is required to pay the Employee hereunder.
4
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this
1st day of January, 1999 by and between Meditrust Corporation, a Delaware
corporation (the "Employer"), and Michael S. Benjamin (the "Employee").
WHEREAS, the Employee is currently employed by the Employer as its Senior
Vice President and General Counsel; and
WHEREAS, the Employer and the Employee wish to extend such employment for
a three (3) year term on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto hereby agree as follows:
1. DUTIES. During the term of this Agreement, the Employee agrees to be
employed by and to serve the Employer as its Senior Vice President and General
Counsel, and the Employer agrees to employ and retain the Employee in such
capacity. The Employee also shall serve the Employer in such capacity or
capacities, and with such other duties consistent with such position, as shall
be designated by the President from time to time. The Employee shall devote such
of his business time, energy and skill to the affairs of the Employer as shall
be necessary to perform the duties of such position and, in any event, not less
of his business time, energy and skill than he has previously devoted to the
Employer, and he shall not assume an executive, management or board position in
any other business without the express permission of the Board of Directors;
provided that the Employee may serve in any capacity with charitable or
not-for-profit enterprises so long as there is no material interference with the
Employee's duties to the Employer. The Employee shall report to the President
and at all times during the term of this Agreement shall have powers and duties
commensurate with his position as Senior Vice President and General Counsel of
the Employer. Without the Employee's consent, the Employer may not materially
reduce the Employee's duties or responsibilities hereunder or assign duties or
responsibilities that are inconsistent with the Employee's position as Senior
Vice President and General Counsel of the Employer. Notwithstanding the
foregoing, in connection with a corporate restructuring of the Employer, if the
Employee continues to be Senior Vice President and General Counsel of the
publicly-traded healthcare company resulting from a Permitted Spin-Off (as
defined below), such change, in and of itself, shall not be deemed to be a
material reduction in the Employee's duties and responsibilities for purposes of
the preceding sentence.
2. TERMS OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(1) "Termination For Cause" shall mean termination by the
Employer of the Employee's employment by reason of (i) the Employee's fraud
upon,
<PAGE>
deliberate injury or attempted injury to, or dishonesty towards the Employer
that causes material and demonstrable injury to the Employer, (ii) the
Employee's intentional and material breach of the provisions of Section 5 of
this Agreement, (iii) the Employee's intentional and material breach of, or
material failure to perform under, this Agreement (other than the provisions of
Section 5 hereof) that is not cured by the Employee within 30 days after written
notice from the Board of Directors specifying the breach and requesting a cure,
or (iv) the conviction of any felony involving a crime of moral turpitude.
(2) "Termination Other Than For Cause" shall mean
termination by the Employer of the Employee's employment other than a
Termination For Cause, a Termination Upon Death or Disability, or a Termination
Upon a Change in Control.
(3) "Termination for Good Reason" shall mean termination of
employment by the Employee (i) after a material reduction by the Employer,
without the Employee's consent, in the Employee's duties and responsibilities,
(ii) if the Employee is not the Senior Vice President and General Counsel of
Meditrust Corporation prior to the Permitted Spin-Off and the Spin-Off Entity
after the Permitted Spin-Off, (iii) after any reduction by Employer of the
Employee's Base Salary and benefits (provided that, in the case of
across-the-board benefit reductions similarly affecting all management
personnel, the Employer will continue to provide Employee with a benefit package
substantially equivalent to the benefits provided at the time of such reduction,
provided that the Employer shall not be required to expend more than 150% of the
Employer's cost therefor in fiscal year 1999), (iv) the relocation of the
Employer's offices at which the Employee is principally employed to a location
which is more than 35 miles from the current location of the Employer's office
or the requirement that the Employee be based (1) anywhere other than the
Employer's principal offices, as the same may be relocated within 35 miles as
provided above, or (2) more than 35 miles from the Employer's current offices,
except for required travel on the Employer's business to an extent substantially
consistent with the Employee's present business travel obligations, (v) a
material breach of this Agreement by the Employer that is not rectified within
30 days of notification to the President of the Employer by the Employee of such
breach, (vi) the failure of the Employer to obtain an agreement from any
successor or assign of the Employer, to assume and agree to perform this
Agreement, as contemplated by Section 7.15, or (vii) the Employer's failure to
extend this Agreement pursuant to Section 2.2 hereof on each anniversary date.
Notwithstanding the foregoing, in connection with a Permitted Spin-Off, if the
Employee continues to be Senior Vice President and General Counsel of the
Spin-Off Entity, such change in title and position shall not be deemed to be a
material reduction in the Employee's duties and responsibilities for purposes of
clause (i) above.
(4) "Termination Upon a Change in Control" shall mean
termination of the Employee's employment with the Employer within two (2) years
following a Change in Control either by the Employer as a Termination Other Than
For Cause or by the Employee as a Termination for Good Reason.
2
<PAGE>
(5) "Termination Upon Death or Disability" shall mean
termination by the Employer by reason of the Employee's death or disability as
described in Section 2.3 hereof.
(6) "Permitted Spin-Off" shall mean a corporate
restructuring of the Meditrust Companies pursuant to which all of the stock of
any existing or newly-created subsidiary of the Meditrust Companies (or either
of them) which owns (or acquires by purchase, dividend, investment or otherwise)
all of the healthcare assets and investments of the Meditrust Companies (or the
stock of subsidiaries which own such assets and investments) existing
immediately prior thereto is "spun-off" ratably to the shareholders of the
Meditrust Companies at the time of such spin-off.
(7) "Spin-Off Entity" shall mean any Person resulting from a
Permitted Spin-Off.
(8) "Change in Control" shall mean (a) an acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined voting power of the then
outstanding voting securities of the Employer entitled to vote generally in the
election of directors of the Employer (the "Outstanding Voting Securities") or
20% or more of the combined market value of the equity securities of the
Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly
from or by the Employer or any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Employer or an affiliated company
or any acquisition by a company pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a);
or (b) individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") of the Employer, cease for any reason to constitute at
least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any
individual becoming a director whose election, or nomination for election by the
Employer's stockholders, was approved by a vote of at least 60% of the directors
then comprising the Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors of the Employer; or
(c) consummation of a reorganization, merger or consolidation of the Employer (a
"Business Combination"), unless, in each case, following such Business
Combination, (i) all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the outstanding Equity Value and
Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the combined market
value of the equity securities and more than 60% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from such Business
Combination (including, without limitation, a
3
<PAGE>
corporation which as a result of such transaction owns the Employer or all or
substantially all of the Employer's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Equity Value and
Outstanding Voting Securities, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Employer or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the then outstanding voting securities or 20% or more
of the combined market value of the equity securities of the corporation
resulting from such business combination except to the extent that such
ownership existed prior to the Business Combination and (iii) at least 60% of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or the action of the Board, providing for
such Business Combination, (d) the sale or other disposition of more than 50% of
the healthcare assets of the Employer, or (e) a complete liquidation or
dissolution of the Employer or approval thereof by the stockholders of the
Employer. For purposes of this definition, "Employer" shall mean either (x)
Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together
with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust
Corporation, the assets of which are substantially all of the healthcare assets
and investments of Meditrust Corporation (or the stock of subsidiaries, the
assets of which are substantially all of the healthcare assets and investments
of Meditrust Corporation). Notwithstanding the foregoing, any corporate
restructuring directly related to a Permitted Spin-Off, including any related
change to the Board of Directors shall not be deemed to be a Change in Control;
provided, however, that this exclusion shall not apply to any simultaneous or
subsequent sale of, or Business Combination, or other events described in
clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity.
2.2 TERM. The term of employment of the Employee by the Employer
shall commence on the date and year first above written (the "Effective Date")
and shall continue through the third (3rd) anniversary of the Effective Date;
provided, however the term of this Agreement shall automatically be extended for
one additional year on each anniversary date of the Effective Date unless, not
later than 90 days prior to such date, either party shall have given notice to
the other that it or he does not wish to extend this Agreement; provided,
further, that if a Change in Control (as defined in Section 2.1(f)) occurs
during the original or extended term of this Agreement, the term of this
Agreement shall continue in effect for a period of not less than two (2) years
beyond the month in which the Change in Control occurred.
2.3 TERMINATION. Notwithstanding any provision of this Employment
Agreement, the employment of the Employee pursuant to this Agreement may be
terminated by the Employer upon (a) at least 15 days' prior written notification
to the Employee in the event of a Termination For Cause, (b) upon at least 60
days' prior written notice to the Employee in the event of a Termination Other
Than For Cause or a Termination Upon a Change in Control, (c) upon written
notification to the Employee if the Employee, in the
4
<PAGE>
reasonable judgment of the Board of Directors of the Employer, has failed to
perform his duties under this Agreement because of illness or physical or mental
incapacity, and such illness or incapacity continues for a period of more than
four (4) consecutive months, or (d) in the event of the Employee's death, in
which case the Employee's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs. The Employee may
terminate his employment under this Agreement upon at least 60 days' prior
written notice to the Employer; provided, however, that in the event of a Change
in Control, the notice requirement is shortened to ten (10) days.
2.4 PAYMENTS UPON TERMINATION. Upon any termination of the
Employee's employment by the Employer hereunder, the Employer shall promptly pay
to the Employee, or in the case of his death, to his estate or such
beneficiaries as the Employee may from time to time designate, all accrued
salary, any benefits under any plans of the Employer in which the Employee is a
participant to the full extent of the Employee's rights under such plans,
accrued vacation pay and any appropriate business expense incurred by the
Employee in connection with his duties hereunder, all to the date of
termination. The Employee, or his estate or beneficiaries in the case of his
death, shall not be entitled to any other compensation or reimbursement of any
kind, including, without limitation, severance compensation, except as provided
in Section 4 hereof. Unless otherwise provided in writing or as provided in
Section 4 hereof, upon termination of employment, all options held by the
Employee that are not then currently exercisable and all Performance Units shall
immediately lapse and have no force or effect, and all then non-vested
Performance Shares held by the Employee shall be forfeited and returned to the
Employer.
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be rendered by the
Employee as provided in Section 1, and subject to the terms and conditions of
Section 2, the Employer agrees to pay to the Employee at the rate of $300,000
per annum (the "Base Salary"). The Base Salary shall be payable in equal
bi-monthly (twice a month) installments. Unless otherwise determined by the
Board of Directors, the Employee shall not be entitled to any compensation in
addition to that set forth in this Section 3 for serving as an officer of the
Employer. All services which the Employee may render to the Employer in any
capacity shall be deemed to be services required by this Agreement and as
consideration for the compensation herein provided.
3.2 BONUS. The Employee's bonus opportunity for each fiscal year
shall be equal to 40% to 80% ("Maximum Bonus") of Base Salary paid during such
fiscal year. The amount of bonus payments shall be determined at the sole
discretion of the Compensation Committee or pursuant to criteria to be
established from time to time.
3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to
participate in such of the Employer's benefits and deferred compensation plans
as are now generally available or later made generally available to executive
officers of the Employer, including,
5
<PAGE>
but not limited to, the 401(k) plan, non-qualified deferred compensation plan,
if any, medical insurance plan, dental insurance plan, life insurance plan, and
disability insurance plan. The Employee shall also be provided with an
automobile allowance that is not less than the amount currently paid, including
reimbursement for gasoline, insurance, maintenance and repairs.
3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the
Employee for reasonable and properly documented out-of-pocket expenses incurred
by the Employee in connection with his duties under this Agreement.
3.5 PERFORMANCE SHARES. The Employer has previously awarded the
Employee 50,000 performance shares in accordance with the terms described in
Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance
Shares").
3.6 STOCK OPTIONS. In connection with the negotiation and
execution hereof, on December 10, 1998, the Employer issued to the Employee
pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 100,000
paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per
Paired Share (the "Option"). The Option shall vest and become exercisable in
accordance with the Plan in 25% increments on each anniversary date of the date
of grant, so that the Option is fully vested and exercisable on the fourth (4th)
anniversary date of the date of grant. Further, on December 10, 1998, the
Employer issued to the Employee pursuant to the 1995 Share Award Plan an option
to purchase 50,000 Paired Shares, at $13.4375 per Paired Share (the "Performance
Option"). The Performance Option shall vest and become fully exercisable in
accordance with the Plan on December 10, 2004; provided, however, that if prior
to December 10, 2004 the 20-day average trading price of a Paired Share (the
"20-Day Average") attains $23.00, 33 1/3% of the Performance Option shall vest
and become exercisable in accordance with the Plan; and if prior to December 10,
2004, the 20-Day Average attains $26.00, 66 2/3% of the Performance Option shall
vest and become exercisable in accordance with the Plan, and if prior to
December 10, 2004, the 20-Day Average attains $29.00, the remainder of the
Performance Option shall vest and become fully exercisable in accordance with
the Plan. For this purpose, the price of the Paired Shares shall be determined
by reference to the quoted closing price per Paired Share on the New York Stock
Exchange.
3.7 PERFORMANCE UNITS. The Employer has issued to the Employee
50,000 performance units ("Performance Units") in the Long Term Bonus Program.
Such Performance Units shall become payable only pursuant to the provisions of
Section 4.1, 4.2 or 4.3.
3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties
that upon the fourth anniversary of the Effective Date, the Employee shall own
equity in the Employer (which shall include the Performance Shares) with a value
equal to two (2) times his Base Salary. In the event the Employee does not
attain such level of equity ownership by such date, the Employee shall not be
eligible to receive any further equity grants from the Employer until such time
when the Employee attains the desired equity ownership level.
6
<PAGE>
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER
THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's
employment is terminated in a Termination Other Than For Cause or in a
Termination for Good Reason, subject to the signing by the Employee of a general
release of employment-related claims (other than continuing rights under this
Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all
unvested Performance Shares held by the Employee shall become immediately vested
in full, (ii) all Performance Units issued to the Employee pursuant to Section
3.7 hereof shall become immediately vested in full with the value of each Unit
deemed to be $25; provided that payment with respect to the Performance Units
shall be made in cash no earlier than January 1, 2002, (iii) any unvested
options to purchase shares of The Meditrust Companies held by the Employee shall
become immediately vested and exercisable in full in accordance with the Plan
and (iv) the Employee shall be paid a lump sum within 30 days of such
termination equal to the sum of his Base Salary and the average of the bonuses
received by the Employee under Section 3.2 for the three (3) immediately
preceding fiscal years (or for such shorter period that the Employee was
eligible for a bonus), multiplied by the greater of (a) two (2) or (b) the
number of full and fractional years remaining in the original term or
extended term of this Agreement (the "Unexpired Term"). The Employee shall
continue to enjoy the benefits under the medical and dental insurance plans
and the non-qualified retirement plan, if any, for the greater of two (2)
years or the Unexpired Term. He shall also be provided with an automobile
allowance for the greater of two (2) years or the Unexpired Term at a level
which is not less than the level provided to the Employee immediately prior
to such termination. Notwithstanding the foregoing, in the event a Change in
Control occurs within nine (9) months after a termination under this Section
4.1, the Employee's employment shall be deemed to have been terminated in a
Termination Upon a Change in Control and the benefits inuring to the Employee
shall be recalculated and paid or delivered to the Employee as though Section
4.3 applied at the time of such termination.
4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event
the Employee's employment is terminated in a Termination Upon Death or
Disability, and in the case of Termination Upon Disability, subject to the
signing by the Employee (in the case of Disability) of a general release of
employment-related claims (other than continuing rights under this Agreement) in
a form and manner reasonably satisfactory to the Employer, (i) all unvested
Performance Shares held by the Employee shall become immediately vested in full,
(ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof
shall become immediately vested in full with the value of each Unit deemed to be
$25; provided that payment with respect to the Performance Units shall be made
in cash no earlier than April 1, 2002, (iii) any unvested options to purchase
shares of The Meditrust Companies held by the Employee shall become immediately
vested and exercisable in full in accordance with the Plan and (iv) the Employee
or his estate shall be paid a lump sum within 30 days of such termination equal
to the sum of his Base Salary and the average of the bonuses received by the
Employee under Section 3.2 for the three (3) immediately preceding fiscal years
(or for such
7
<PAGE>
shorter period that the Employee was eligible for a bonus), multiplied by the
greater of two (2) or the Unexpired Term. The Employee (or dependents, in the
case of the Employee's death) shall continue to enjoy the benefits under the
medical and dental insurance plans for the greater of two (2) years or the
Unexpired Term. In the case of disability, Employee shall also be provided
with an automobile allowance for the greater of two (2) years or the
Unexpired Term at a level which is not less than the level provided to the
Employee immediately prior to such termination.
4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL.
(1) Upon a Change in Control, (i) all unvested Performance
Shares held by the Employee shall become immediately vested in full, (ii) all
Performance Units issued to the Employee pursuant to Section 3.7 hereof shall
become immediately vested in full with the value of each Unit deemed to be $50,
(iii) any unvested options to purchase shares of The Meditrust Companies held by
the Employee shall become immediately vested and exercisable in accordance with
the Plan in full. In the event the Employee's employment is terminated in a
Termination Upon a Change in Control, subject to the signing by the Employee of
a general release of employment-related claims (other than continuing rights
under this Agreement) in a form and manner reasonably satisfactory to the
Employer, the Employee shall be paid a lump sum in cash within 30 days of such
termination in an amount equal to the full value of his Performance Units and an
amount equal to the greater of two (2) or the Unexpired Term times the sum of
(A) his Base Salary and (B) Maximum Bonus for the year of termination. The
Employee shall continue to enjoy the benefits under the medical and dental
insurance plan and the non-qualified retirement plan, if any, for the greater of
two (2) years or the Unexpired Term and any and all debts of the Employee to the
Employer will be forgiven by the Employer. The Employee shall also be provided
with an automobile allowance for the greater of two (2) years or the Unexpired
Term at a level which is not less than the level provided to the Employee
immediately prior to such termination.
(2) Notwithstanding the foregoing, in the event of the
determination (as hereinafter provided) that any required payment by the
Employer to or for the benefit of the Employee (whether paid or payable pursuant
to the terms of the Agreement or otherwise pursuant to, or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right, or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing including without limitation the acceleration of the vesting or
lapse of deferral periods under any equity or incentive compensation program
(individually and collectively, "Severance Payments")) would be subject to
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision thereto (the "Excise Tax"), the
following provisions shall apply:
(i) If the Severance Payments, reduced by the sum of (1) the
Excise Tax and (2) the total of the Federal, state, and local income and
employment taxes
8
<PAGE>
payable by the Employee on the amount of the Severance Payments
which are in excess of the Threshold Amount (as defined below), are greater than
or equal to the Threshold Amount, the Employee shall be entitled to the full
benefits payable under this Agreement.
(ii) If the Threshold Amount is less than (a) the Severance
Payments, but greater than (b) the Severance Payments reduced by the sum of (1)
the Excise Tax and (2) the total of the Federal, state, and local income and
employment taxes on the amount of the Severance Payments which are in excess of
the Threshold Amount, then the benefits payable under this Agreement shall be
reduced (but not below zero (0)) to the extent necessary so that the maximum
Severance Payments shall equal the Threshold Amount. To the extent that there is
more than one method of reducing the payments to bring them within the Threshold
Amount, the Employee shall determine which method shall be followed; provided
that if the Employee fails to make such determination within 15 days after the
Employer has sent the Employee written notice of the need for such reduction,
the Employer may determine the amount of such reduction in its sole discretion.
For the purposes of this section, "Threshold Amount" shall mean
three (3) times the Employee's "base amount" within the meaning of Section
280G(b)(3) of the Code and the regulations promulgated thereunder less one
dollar ($1.00).
The determination as to which provisions of this Section 4.3(b)
shall apply to the Employee shall be made by PriceWaterhouseCoopers or such
other nationally recognized accounting firm retained by the Employer and
reasonably acceptable to the Employee (the "Accounting Firm"). The Employer
shall direct the Accounting Firm to submit its determination and detailed
supporting calculations both to the Employer and the Employee within 15 days
after the Change in Control, or at such earlier time as is reasonably requested
by the Employer or the Employee. For purposes of this Section 4.3(b), the
Employee shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation applicable to individuals for the calendar year
in which the determination is to be made, and state and local income taxes at
the highest marginal rates of individual taxation in the state and locality of
the Employee's residence on the Change in Control, net of the maximum reduction
in Federal income taxes which could be obtained from deduction of such state and
local taxes. Any determination by the Accounting Firm shall be binding upon the
Employer and the Employee.
(3) Each of the Employee and the Employer shall provide the
Accounting Firm access to and copies of any books, records and documents in the
Employee's or its possession, as the case may be, reasonably requested by the
Accounting Firm, and shall otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determination and
calculations required or contemplated hereunder.
(4) The Employer shall bear the fees and expenses of the
Accounting Firm for services hereunder. If, for any reason, the Employee
initially pays such fees and expenses, the Employer shall reimburse the Employee
the full amount of the same within ten
9
<PAGE>
(10) business days following receipt from the Employee of a statement and
reasonable evidence of the Employee's payment thereof.
5. NON-COMPETITION AND NON-DISCLOSURE.
5.1 NON-COMPETITION.
(1) During the term hereof, without approval by the Board,
the Employee will not, directly or indirectly, (i) engage or become interested,
directly or indirectly, as owner, employee, director, partner, consultant,
through stock ownership (except ownership of not more than one percent (1%) of
any class of securities of a corporation which is publicly traded), investment
of capital, lending of money or property, rendering of services, or otherwise,
either alone or in association with others, in any business which competes
directly or indirectly with the business of the Employer, (ii) induce or attempt
to induce any customer of the Employer to reduce such customer's business with
the Employer, or (iii) solicit any of the Employer's employees to leave the
employ of the Employer or employ any of such Employees, except for the
Employee's administrative assistant.
(2) For a period of one (1) year after any termination of
employment, the Employee will not, directly or indirectly, (i) engage or become
interested, directly or indirectly, as owner, employee, director, partner,
consultant, through stock ownership (except ownership of not more than five
percent (5%) of any class of securities of a corporation which is publicly
traded), investment of capital, lending of money or property, rendering of
services, or otherwise, either alone or in association with others, in any
healthcare real estate investment trust financing business which competes
directly and materially with the business of the Employer or (ii) solicit any of
the Employer's employees to leave the employ of the Employer or employ any of
such employees, except for the Employee's administrative assistant. The Employee
recognizes and acknowledges that his obligations under this Section 5.1(b) are
limited to the geographic areas in which the Employer is doing business at the
time of the expiration or termination of this Agreement.
(3) As used in Sections 5.1, 5.2, 7.2 and 7.3, the term
"Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates.
The restrictions on the Employee set forth in this Section 5.1 shall not apply
in the case of a Termination Upon a Change in Control.
5.2 NON-DISCLOSURE. The Employee agrees that all confidential
and proprietary information relating to the business of the Employer shall be
kept and treated as confidential both during and after the term of this
Agreement, except as may be permitted in writing by the Employer's Board of
Directors or if such information is within the public domain or comes within the
public domain without any breach of this Agreement.
6. INSURANCE. The Employer may, at its expense, procure and maintain
life insurance on the life of the Employee. The beneficiary of such policy shall
be the Employer.
10
<PAGE>
The Employee shall cooperate with the Employer as is reasonably necessary to
procure such insurance.
7. MISCELLANEOUS.
7.1 ARBITRATION; DISPUTE RESOLUTION.
(1) ARBITRATION PROCEDURE. Any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this Agreement
or contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by final and binding arbitration in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA");
PROVIDED, that nothing contained herein shall be deemed to prohibit either party
to apply to a court of competent jurisdiction for temporary or preliminary
equitable relief. The arbitral tribunal shall consist of one arbitrator. In
making any decision, the arbitrator shall apply and follow the substantive law
of Massachusetts without reference to the conflicts of law provisions thereof.
The parties to the arbitration jointly shall directly appoint such arbitrator
within 30 days of the initiation of arbitration. If the parties shall fail to
appoint such arbitrator as provided above, such arbitrator shall be appointed by
the AAA as provided in the Arbitration Rules. The Employee and the Employer
agree that the decision of the arbitrator shall be final, the arbitral award may
be enforced against the parties to the arbitration proceeding or their assets
wherever they may be found and that a judgment upon the arbitral award may be
entered in any court having jurisdiction thereof. The Employer shall pay all
fees and expenses of the Arbitrator regardless of the result and shall provide
all witnesses and evidence reasonably required by the Employee to present his
case. The Employer shall pay to the Employee all reasonable arbitration expenses
and legal fees incurred by the Employee as a result of a termination of the
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement (whether or not the Employee is successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the Employee's request for payment accompanied with
such evidence of fees and expenses incurred as the Employer reasonably may
require.
(2) COMPENSATION DURING DISPUTE. The Employee's compensation
during any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the interpretation of this Agreement shall be as
follows:
If there is a termination by the Employer followed by a dispute as
to whether the Employee is entitled to the payments and other benefits provided
under this Agreement, then, during the period of that dispute the Employer shall
pay the Employee 50% of the amount specified in Section 4.1 hereof, and the
Employer shall provide the Employee with the benefits provided in Section 4.1
hereof, if, but only if, the Employee agrees in writing that if the dispute is
resolved against the Employee, the Employee shall promptly refund to the
Employer all payments received under Section 4.1 of this Agreement plus interest
at the rate
11
<PAGE>
provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is
resolved in the Employee's favor, promptly after resolution of the dispute, the
Employer shall pay to the Employee the sum that was withheld during the period
of the dispute plus interest at the rate provided in Section 1274(d) of the
Code, compounded quarterly.
7.2 LITIGATION AND REGULATORY COOPERATION. During and after the
Employee's employment, the Employee shall reasonably cooperate with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Employee was employed by the
Employer; provided, however, that such cooperation shall not materially and
adversely affect the Employee or expose the Employee to an increased probability
of civil or criminal litigation. The Employee's cooperation in connection with
such claims or actions shall include, but not be limited to, being available to
meet with counsel to prepare for discovery or trial and to act as a witness on
behalf of the Employer at mutually convenient times. During and after the
Employee's employment, the Employee also shall cooperate fully with the Employer
in connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Employer. The
Employer shall also provide the Employee with compensation on an hourly basis
calculated at his final base compensation rate for requested litigation and
regulatory cooperation that occurs after his termination of employment, and
reimburse the Employee for all costs and expenses incurred in connection with
his performance under this Section 7.2, including, but not limited to,
reasonable attorneys' fees and costs.
7.3 NONDISPARAGEMENT. During and after the Employee's employment,
the Employee agrees that he shall not take any action or make any statement,
written or oral, which disparages or criticizes the Employer or The Meditrust
Companies, or their respective officers, directors, agents, or management and
business practices, or which disrupts or impairs the normal operations of the
Employer or The Meditrust Companies. During and after the Employee's employment,
the Employer agrees that it shall not take any action or make any statement,
written or oral, which disparages or criticizes Employee or Employee's
management and business practices and that it shall instruct its officers,
directors and agents not to take any action or make any statement, written or
oral, which disparages or criticizes the Employee or the Employee's management
and business practices.
7.4 NO MITIGATION. The Employer agrees that, if the Employee's
employment by the Employer is terminated during the term of this Agreement, the
Employee is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Employee by the Employer pursuant to Sections
3 and 4 hereof. Further, the amount of any payment provided for in this
Agreement shall not be reduced by any compensation earned by the Employee as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Employer, or
otherwise.
12
<PAGE>
7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants
that it has full power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby and this Agreement is the
legal, valid and binding obligation of the party, enforceable against the party
in accordance with its terms. No consent, approval or agreement of any person,
party, court, government or entity is required to be obtained by either party in
connection with the execution and delivery of this Agreement. Each party is not
subject to any agreement, restriction, lien, encumbrance or right, title or
interest in anyone limiting in any way the scope of this Agreement or in any way
inconsistent herewith, and each party will not hereafter grant anyone the same.
7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or
other termination of this Agreement, all obligations of the parties shall
forthwith terminate, except for any obligation to pay any fixed sum of money or
provide any benefits which may have accrued and be due and payable hereunder at
the time of such expiration or other termination and except that the provisions
of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in
accordance with their terms, such Sections containing independent agreements and
obligations.
7.7 EQUITABLE RELIEF. The obligations of the Employee under
Section 5 hereunder are special, unique and extraordinary, and any breach by the
Employee thereof shall be deemed material and to cause irreparable injury not
properly compensated by damages in an action at law. Notwithstanding Section
7.1, the Employer's rights and remedies hereunder shall therefore be enforceable
both at law and in equity, by injunction and otherwise; and the rights and
remedies of the Employer hereunder with respect thereto shall be cumulative and
not alternative and shall not be exhausted by any one or more uses thereof.
7.8 CONSENT TO JURISDICTION. To the extent that any court action
is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this
Agreement, the parties hereby consent to the jurisdiction of the Courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court action,
the Employee (a) submits to the personal jurisdiction and venue of such courts;
(b) consents to service of process; and (c) waives any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to
personal jurisdiction, venue or service of process.
7.9 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof .
7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter
13
<PAGE>
hereof. All modifications to the Agreement must be in writing and signed by the
party against whom enforcement of such modification is sought.
7.11 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed duly given (a) when delivered,
or (b) two (2) days after being mailed by first class mail, certified or
registered with return receipt requested, or (c) one (1) day after being mailed
through an overnight delivery service, or (d) upon confirmation of transmission
via facsimile, to the following addresses:
If to the Employer: Meditrust Corporation
197 First Avenue
Needham, MA 02494
Attn: President and Chief Executive Officer
If to the Employee: Michael S. Benjamin
25 Old England Road
Chestnut Hill, MA 02467
Any party may change such party's address for notices by notice duly given
pursuant to this Section 7.11.
7.12 HEADINGS. The Section headings herein are intended for
reference and shall not by themselves determine the construction or
interpretation of this Agreement.
7.13 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
applied without regard to conflict of law principles.
7.14 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
the Employee without the prior written consent of the Employer, and may be
assigned by the Employer and shall be binding upon, and inure to the benefit of,
the Employer's successors and assigns. The Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Employer to assume
expressly and agree to perform this Agreement in the same manner and to the
extent that the Employer would be required to perform it if no such succession
had taken place. As used in this Agreement, "Employer" shall mean the Employer
as herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
14
<PAGE>
7.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
7.17 WITHHOLDINGS. All compensation and benefits to the Employee
hereunder shall be reduced by all federal, state, local and other withholdings
and similar taxes and payments required by applicable law. The Employee agrees
to pay all federal, state and local taxes owed by him in connection with this
Agreement.
7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the
Spin-Off Entity shall be deemed to be the Employer for all purposes of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
MEDITRUST CORPORATION
SEAL
By
------------------------------------------
Name: David F. Benson
Title: President and Chief Executive Officer
--------------------------------------------
Michael S. Benjamin
15
<PAGE>
Exhibit A
THE PERFORMANCE SHARES
100% of the Performance Shares described in Section 3.5 shall be deemed issued
as of February 27, 1998 upon payment by the Employee of the par value thereof to
The Meditrust Companies. Subject to the terms of the Agreement, the Performance
Shares shall vest on the earliest of (a) eight (8) years after the date of
issuance, (b) on March 31 of the year following the first fiscal year after
issuance in which the Performance Goal is achieved or (c) as the Board of
Directors may determine. The Performance Goal for all outstanding grants of
Performance Shares shall be deemed achieved in any fiscal year commencing with
the year 2000 that meets both criteria specified below:
<TABLE>
<CAPTION>
Fiscal FFO Cumulative FFO per Share
Year Per Share Since January 1, 1998
---- --------- ---------------------
<S> <C> <C>
2000 $2.92 $ 8.28
2001 3.10 11.38
2002 3.28 14.66
2003 3.48 18.14
2004 3.69 21.83
</TABLE>
For purposes of the foregoing calculation, "FFO" shall mean funds from
operations as reported by The Meditrust Companies. The above Performance Goals
may be adjusted by the Board of Directors of the Employer to reflect changes in
accounting rules or changes in corporate structure.
Subject to the terms of the Agreement, upon termination of the Employee's
employment by The Meditrust Companies for any reason, all right, title and
interest in any unvested Performance Shares shall be transferred to The
Meditrust Companies in exchange for the par value of such Performance Shares,
and the Employee shall not receive any unissued Performance Shares.
The Employee shall receive all voting rights and dividends paid with respect to
unvested Performance Shares from the date of issuance so long as the Employee is
an employee of The Meditrust Companies or any subsidiary thereof.
16
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this
1st day of January, 1999 by and between Meditrust Corporation, a Delaware
corporation (the "Employer"), and Michael F. Bushee (the "Employee").
WHEREAS, the Employee is currently employed by the Employer as its Chief
Operating Officer; and
WHEREAS, the Employer and the Employee wish to extend such employment for
a three (3) year term on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto hereby agree as follows:
1. DUTIES. During the term of this Agreement, the Employee agrees to be
employed by and to serve the Employer as its Chief Operating Officer, and the
Employer agrees to employ and retain the Employee in such capacity. The Employee
also shall serve the Employer in such capacity or capacities, and with such
other duties consistent with such position, as shall be designated by the
President from time to time. The Employee shall devote such of his business
time, energy and skill to the affairs of the Employer as shall be necessary to
perform the duties of such position and, in any event, not less of his business
time, energy and skill than he has previously devoted to the Employer, and he
shall not assume an executive, management or board position in any other
business without the express permission of the Board of Directors; provided that
the Employee may serve in any capacity with charitable or not-for-profit
enterprises so long as there is no material interference with the Employee's
duties to the Employer. The Employee shall report to the President and at all
times during the term of this Agreement shall have powers and duties
commensurate with his position as Chief Operating Officer of the Employer.
Without the Employee's consent, the Employer may not materially reduce the
Employee's duties or responsibilities hereunder or assign duties or
responsibilities that are inconsistent with the Employee's position as Chief
Operating Officer of the Employer. Notwithstanding the foregoing, in connection
with a corporate restructuring of the Employer, if the Employee continues to be
Chief Operating Officer of the publicly-traded healthcare company resulting from
a Permitted Spin-Off (as defined below), such change, in and of itself, shall
not be deemed to be a material reduction in the Employee's duties and
responsibilities for purposes of the preceding sentence.
2. TERMS OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(1) "Termination For Cause" shall mean termination by the
Employer of the Employee's employment by reason of (i) the Employee's fraud
upon, deliberate injury or attempted injury to, or dishonesty towards the
Employer that causes
<PAGE>
material and demonstrable injury to the Employer, (ii) the Employee's
intentional and material breach of the provisions of Section 5 of this
Agreement, (iii) the Employee's intentional and material breach of, or material
failure to perform under, this Agreement (other than the provisions of Section 5
hereof) that is not cured by the Employee within 30 days after written notice
from the Board of Directors specifying the breach and requesting a cure, or (iv)
the conviction of any felony involving a crime of moral turpitude.
(2) "Termination Other Than For Cause" shall mean
termination by the Employer of the Employee's employment other than a
Termination For Cause, a Termination Upon Death or Disability, or a Termination
Upon a Change in Control.
(3) "Termination for Good Reason" shall mean termination of
employment by the Employee (i) after a material reduction by the Employer,
without the Employee's consent, in the Employee's duties and responsibilities,
(ii) if the Employee is not the Chief Operating Officer of Meditrust Corporation
prior to the Permitted Spin-Off and the Spin-Off Entity after the Permitted
Spin-Off, (iii) after any reduction by Employer of the Employee's Base Salary
and benefits (provided that, in the case of across-the-board benefit reductions
similarly affecting all management personnel, the Employer will continue to
provide Employee with a benefit package substantially equivalent to the benefits
provided at the time of such reduction, provided that the Employer shall not be
required to expend more than 150% of the Employer's cost therefor in fiscal year
1999), (iv) the relocation of the Employer's offices at which the Employee is
principally employed to a location which is more than 35 miles from the current
location of the Employer's office or the requirement that the Employee be based
(1) anywhere other than the Employer's principal offices, as the same may be
relocated within 35 miles as provided above, or (2) more than 35 miles from the
Employer's current offices, except for required travel on the Employer's
business to an extent substantially consistent with the Employee's present
business travel obligations, (v) a material breach of this Agreement by the
Employer that is not rectified within 30 days of notification to the President
of the Employer by the Employee of such breach, (vi) the failure of the Employer
to obtain an agreement from any successor or assign of the Employer, to assume
and agree to perform this Agreement, as contemplated by Section 7.15, or (vii)
the Employer's failure to extend this Agreement pursuant to Section 2.2 hereof
on each anniversary date. Notwithstanding the foregoing, in connection with a
Permitted Spin-Off, if the Employee continues to be Chief Operating Officer of
the Spin-Off Entity, such change in title and position shall not be deemed to be
a material reduction in the Employee's duties and responsibilities for purposes
of clause (i) above.
(4) "Termination Upon a Change in Control" shall mean
termination of the Employee's employment with the Employer within two (2) years
following a Change in Control either by the Employer as a Termination Other Than
For Cause or by the Employee as a Termination for Good Reason.
2
<PAGE>
(5) "Termination Upon Death or Disability" shall mean
termination by the Employer by reason of the Employee's death or disability as
described in Section 2.3 hereof.
(6) "Permitted Spin-Off" shall mean a corporate
restructuring of the Meditrust Companies pursuant to which all of the stock of
any existing or newly-created subsidiary of the Meditrust Companies (or either
of them) which owns (or acquires by purchase, dividend, investment or otherwise)
all of the healthcare assets and investments of the Meditrust Companies (or the
stock of subsidiaries which own such assets and investments) existing
immediately prior thereto is "spun-off" ratably to the shareholders of the
Meditrust Companies at the time of such spin-off.
(7) "Spin-Off Entity" shall mean any Person resulting from a
Permitted Spin-Off.
(8) "Change in Control" shall mean (a) an acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined voting power of the then
outstanding voting securities of the Employer entitled to vote generally in the
election of directors of the Employer (the "Outstanding Voting Securities") or
20% or more of the combined market value of the equity securities of the
Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly
from or by the Employer or any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Employer or an affiliated company
or any acquisition by a company pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a);
or (b) individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") of the Employer, cease for any reason to constitute at
least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any
individual becoming a director whose election, or nomination for election by the
Employer's stockholders, was approved by a vote of at least 60% of the directors
then comprising the Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors of the Employer; or
(c) consummation of a reorganization, merger or consolidation of the Employer (a
"Business Combination"), unless, in each case, following such Business
Combination, (i) all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the outstanding Equity Value and
Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the combined market
value of the equity securities and more than 60% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from such Business
Combination (including, without limitation, a
3
<PAGE>
corporation which as a result of such transaction owns the Employer or all or
substantially all of the Employer's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Equity Value and
Outstanding Voting Securities, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Employer or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the then outstanding voting securities or 20% or more
of the combined market value of the equity securities of the corporation
resulting from such business combination except to the extent that such
ownership existed prior to the Business Combination and (iii) at least 60% of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or the action of the Board, providing for
such Business Combination, (d) the sale or other disposition of more than 50% of
the healthcare assets of the Employer, or (e) a complete liquidation or
dissolution of the Employer or approval thereof by the stockholders of the
Employer. For purposes of this definition, "Employer" shall mean either (x)
Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together
with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust
Corporation, the assets of which are substantially all of the healthcare assets
and investments of Meditrust Corporation (or the stock of subsidiaries, the
assets of which are substantially all of the healthcare assets and investments
of Meditrust Corporation). Notwithstanding the foregoing, any corporate
restructuring directly related to a Permitted Spin-Off, including any related
change to the Board of Directors shall not be deemed to be a Change in Control;
provided, however, that this exclusion shall not apply to any simultaneous or
subsequent sale of, or Business Combination, or other events described in
clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity.
2.2 TERM. The term of employment of the Employee by the Employer
shall commence on the date and year first above written (the "Effective Date")
and shall continue through the third (3rd) anniversary of the Effective Date;
provided, however the term of this Agreement shall automatically be extended for
one additional year on each anniversary date of the Effective Date unless, not
later than 90 days prior to such date, either party shall have given notice to
the other that it or he does not wish to extend this Agreement; provided,
further, that if a Change in Control (as defined in Section 2.1(f)) occurs
during the original or extended term of this Agreement, the term of this
Agreement shall continue in effect for a period of not less than two (2) years
beyond the month in which the Change in Control occurred.
2.3 TERMINATION. Notwithstanding any provision of this Employment
Agreement, the employment of the Employee pursuant to this Agreement may be
terminated by the Employer upon (a) at least 15 days' prior written notification
to the Employee in the event of a Termination For Cause, (b) upon at least 60
days' prior written notice to the Employee in the event of a Termination Other
Than For Cause or a Termination Upon a Change in Control, (c) upon written
notification to the Employee if the Employee, in the
4
<PAGE>
reasonable judgment of the Board of Directors of the Employer, has failed to
perform his duties under this Agreement because of illness or physical or mental
incapacity, and such illness or incapacity continues for a period of more than
four (4) consecutive months, or (d) in the event of the Employee's death, in
which case the Employee's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs. The Employee may
terminate his employment under this Agreement upon at least 60 days' prior
written notice to the Employer; provided, however, that in the event of a Change
in Control, the notice requirement is shortened to ten (10) days.
2.4 PAYMENTS UPON TERMINATION. Upon any termination of the
Employee's employment by the Employer hereunder, the Employer shall promptly pay
to the Employee, or in the case of his death, to his estate or such
beneficiaries as the Employee may from time to time designate, all accrued
salary, any benefits under any plans of the Employer in which the Employee is a
participant to the full extent of the Employee's rights under such plans,
accrued vacation pay and any appropriate business expense incurred by the
Employee in connection with his duties hereunder, all to the date of
termination. The Employee, or his estate or beneficiaries in the case of his
death, shall not be entitled to any other compensation or reimbursement of any
kind, including, without limitation, severance compensation, except as provided
in Section 4 hereof. Unless otherwise provided in writing or as provided in
Section 4 hereof, upon termination of employment, all options held by the
Employee that are not then currently exercisable and all Performance Units shall
immediately lapse and have no force or effect, and all then non-vested
Performance Shares held by the Employee shall be forfeited and returned to the
Employer.
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be rendered by the
Employee as provided in Section 1, and subject to the terms and conditions of
Section 2, the Employer agrees to pay to the Employee at the rate of $300,000
per annum (the "Base Salary"). The Base Salary shall be payable in equal
bi-monthly (twice a month) installments. Unless otherwise determined by the
Board of Directors, the Employee shall not be entitled to any compensation in
addition to that set forth in this Section 3 for serving as an officer of the
Employer. All services which the Employee may render to the Employer in any
capacity shall be deemed to be services required by this Agreement and as
consideration for the compensation herein provided.
3.2 BONUS. The Employee's bonus opportunity for each fiscal year
shall be equal to 40% to 80% ("Maximum Bonus") of Base Salary paid during such
fiscal year. The amount of bonus payments shall be determined at the sole
discretion of the Compensation Committee or pursuant to criteria to be
established from time to time.
3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to
participate in such of the Employer's benefits and deferred compensation plans
as are now generally available or later made generally available to executive
officers of the Employer, including,
5
<PAGE>
but not limited to, the 401(k) plan, non-qualified deferred compensation plan,
if any, medical insurance plan, dental insurance plan, life insurance plan, and
disability insurance plan. The Employee shall also be provided with an
automobile allowance that is not less than the amount currently paid, including
reimbursement for gasoline, insurance, maintenance and repairs.
3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the
Employee for reasonable and properly documented out-of-pocket expenses incurred
by the Employee in connection with his duties under this Agreement.
3.5 PERFORMANCE SHARES. The Employer has previously awarded the
Employee 50,000 performance shares in accordance with the terms described in
Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance
Shares").
3.6 STOCK OPTIONS. In connection with the negotiation and
execution hereof, on December 10, 1998, the Employer issued to the Employee
pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 100,000
paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per
Paired Share (the "Option"). The Option shall vest and become exercisable in
accordance with the Plan in 25% increments on each anniversary date of the
date of grant, so that the Option is fully vested and exercisable on the
fourth (4th) anniversary date of the date of grant. Further, on December 10,
1998, the Employer issued to the Employee pursuant to the 1995 Share Award
Plan an option to purchase 50,000 Paired Shares, at $13.4375 per Paired Share
(the "Performance Option"). The Performance Option shall vest and become
fully exercisable in accordance with the Plan on December 10, 2004; provided,
however, that if prior to December 10, 2004 the 20-day average trading price
of a Paired Share (the "20-Day Average") attains $23.00, 33 1/3% of the
Performance Option shall vest and become exercisable in accordance with the
Plan; and if prior to December 10, 2004, the 20-Day Average attains $26.00,
66 2/3% of the Performance Option shall vest and become exercisable in
accordance with the Plan, and if prior to December 10, 2004, the 20-Day
Average attains $29.00, the remainder of the Performance Option shall vest
and become fully exercisable in accordance with the Plan. For this purpose,
the price of the Paired Shares shall be determined by reference to the quoted
closing price per Paired Share on the New York Stock Exchange.
3.7 PERFORMANCE UNITS. The Employer has issued to the Employee
50,000 performance units ("Performance Units") in the Long Term Bonus Program.
Such Performance Units shall become payable only pursuant to the provisions of
Section 4.1, 4.2 or 4.3.
3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties
that upon the fourth anniversary of the Effective Date, the Employee shall own
equity in the Employer (which shall include the Performance Shares) with a value
equal to two (2) times his Base Salary. In the event the Employee does not
attain such level of equity ownership by such date, the Employee shall not be
eligible to receive any further equity grants from the Employer until such time
when the Employee attains the desired equity ownership level.
6
<PAGE>
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER
THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's
employment is terminated in a Termination Other Than For Cause or in a
Termination for Good Reason, subject to the signing by the Employee of a general
release of employment-related claims (other than continuing rights under this
Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all
unvested Performance Shares held by the Employee shall become immediately vested
in full, (ii) all Performance Units issued to the Employee pursuant to Section
3.7 hereof shall become immediately vested in full with the value of each Unit
deemed to be $25; provided that payment with respect to the Performance Units
shall be made in cash no earlier than January 1, 2002, (iii) any unvested
options to purchase shares of The Meditrust Companies held by the Employee shall
become immediately vested and exercisable in full in accordance with the Plan
and (iv) the Employee shall be paid a lump sum within 30 days of such
termination equal to the sum of his Base Salary and the average of the bonuses
received by the Employee under Section 3.2 for the three (3) immediately
preceding fiscal years (or for such shorter period that the Employee was
eligible for a bonus), multiplied by the greater of (a) two (2) or (b) the
number of full and fractional years remaining in the original term or extended
term of this Agreement (the "Unexpired Term"). The Employee shall continue to
enjoy the benefits under the medical and dental insurance plans and the
non-qualified retirement plan, if any, for the greater of two (2) years or the
Unexpired Term. He shall also be provided with an automobile allowance for the
greater of two (2) years or the Unexpired Term at a level which is not less than
the level provided to the Employee immediately prior to such termination.
Notwithstanding the foregoing, in the event a Change in Control occurs within
nine (9) months after a termination under this Section 4.1, the Employee's
employment shall be deemed to have been terminated in a Termination Upon a
Change in Control and the benefits inuring to the Employee shall be recalculated
and paid or delivered to the Employee as though Section 4.3 applied at the time
of such termination.
4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event
the Employee's employment is terminated in a Termination Upon Death or
Disability, and in the case of Termination Upon Disability, subject to the
signing by the Employee (in the case of Disability) of a general release of
employment-related claims (other than continuing rights under this Agreement) in
a form and manner reasonably satisfactory to the Employer, (i) all unvested
Performance Shares held by the Employee shall become immediately vested in full,
(ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof
shall become immediately vested in full with the value of each Unit deemed to be
$25; provided that payment with respect to the Performance Units shall be made
in cash no earlier than April 1, 2002, (iii) any unvested options to purchase
shares of The Meditrust Companies held by the Employee shall become immediately
vested and exercisable in full in accordance with the Plan and (iv) the Employee
or his estate shall be paid a lump sum within 30 days of such termination equal
to the sum of his Base Salary and the average of the bonuses received by the
Employee under Section 3.2 for the three (3) immediately preceding fiscal years
(or for such
7
<PAGE>
shorter period that the Employee was eligible for a bonus), multiplied by the
greater of two (2) or the Unexpired Term. The Employee (or dependents, in the
case of the Employee's death) shall continue to enjoy the benefits under the
medical and dental insurance plans for the greater of two (2) years or the
Unexpired Term. In the case of disability, Employee shall also be provided with
an automobile allowance for the greater of two (2) years or the Unexpired Term
at a level which is not less than the level provided to the Employee immediately
prior to such termination.
4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL.
(1) Upon a Change in Control, (i) all unvested Performance
Shares held by the Employee shall become immediately vested in full, (ii) all
Performance Units issued to the Employee pursuant to Section 3.7 hereof shall
become immediately vested in full with the value of each Unit deemed to be $50,
(iii) any unvested options to purchase shares of The Meditrust Companies held by
the Employee shall become immediately vested and exercisable in accordance with
the Plan in full. In the event the Employee's employment is terminated in a
Termination Upon a Change in Control, subject to the signing by the Employee of
a general release of employment-related claims (other than continuing rights
under this Agreement) in a form and manner reasonably satisfactory to the
Employer, the Employee shall be paid a lump sum in cash within 30 days of such
termination in an amount equal to the full value of his Performance Units and an
amount equal to the greater of two (2) or the Unexpired Term times the sum of
(A) his Base Salary and (B) Maximum Bonus for the year of termination. The
Employee shall continue to enjoy the benefits under the medical and dental
insurance plan and the non-qualified retirement plan, if any, for the greater of
two (2) years or the Unexpired Term and any and all debts of the Employee to the
Employer will be forgiven by the Employer. The Employee shall also be provided
with an automobile allowance for the greater of two (2) years or the Unexpired
Term at a level which is not less than the level provided to the Employee
immediately prior to such termination.
(2) Notwithstanding the foregoing, in the event of the
determination (as hereinafter provided) that any required payment by the
Employer to or for the benefit of the Employee (whether paid or payable pursuant
to the terms of the Agreement or otherwise pursuant to, or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right, or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing including without limitation the acceleration of the vesting or
lapse of deferral periods under any equity or incentive compensation program
(individually and collectively, "Severance Payments")) would be subject to
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision thereto (the "Excise Tax"), the
following provisions shall apply:
(i) If the Severance Payments, reduced by the sum of
(1) the Excise Tax and (2) the total of the Federal, state, and local income and
employment taxes
8
<PAGE>
payable by the Employee on the amount of the Severance Payments which are in
excess of the Threshold Amount (as defined below), are greater than or equal to
the Threshold Amount, the Employee shall be entitled to the full benefits
payable under this Agreement.
(ii) If the Threshold Amount is less than (a) the
Severance Payments, but greater than (b) the Severance Payments reduced by the
sum of (1) the Excise Tax and (2) the total of the Federal, state, and local
income and employment taxes on the amount of the Severance Payments which are in
excess of the Threshold Amount, then the benefits payable under this Agreement
shall be reduced (but not below zero (0)) to the extent necessary so that the
maximum Severance Payments shall equal the Threshold Amount. To the extent that
there is more than one method of reducing the payments to bring them within the
Threshold Amount, the Employee shall determine which method shall be followed;
provided that if the Employee fails to make such determination within 15 days
after the Employer has sent the Employee written notice of the need for such
reduction, the Employer may determine the amount of such reduction in its sole
discretion.
For the purposes of this section, "Threshold Amount" shall mean
three (3) times the Employee's "base amount" within the meaning of Section
280G(b)(3) of the Code and the regulations promulgated thereunder less one
dollar ($1.00).
The determination as to which provisions of this Section 4.3(b)
shall apply to the Employee shall be made by PriceWaterhouseCoopers or such
other nationally recognized accounting firm retained by the Employer and
reasonably acceptable to the Employee (the "Accounting Firm"). The Employer
shall direct the Accounting Firm to submit its determination and detailed
supporting calculations both to the Employer and the Employee within 15 days
after the Change in Control, or at such earlier time as is reasonably requested
by the Employer or the Employee. For purposes of this Section 4.3(b), the
Employee shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation applicable to individuals for the calendar year
in which the determination is to be made, and state and local income taxes at
the highest marginal rates of individual taxation in the state and locality of
the Employee's residence on the Change in Control, net of the maximum reduction
in Federal income taxes which could be obtained from deduction of such state and
local taxes. Any determination by the Accounting Firm shall be binding upon the
Employer and the Employee.
(3) Each of the Employee and the Employer shall provide the
Accounting Firm access to and copies of any books, records and documents in the
Employee's or its possession, as the case may be, reasonably requested by the
Accounting Firm, and shall otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determination and
calculations required or contemplated hereunder.
(4) The Employer shall bear the fees and expenses of the
Accounting Firm for services hereunder. If, for any reason, the Employee
initially pays such fees and expenses, the Employer shall reimburse the Employee
the full amount of the same within ten
9
<PAGE>
(10) business days following receipt from the Employee of a statement and
reasonable evidence of the Employee's payment thereof.
5. NON-COMPETITION AND NON-DISCLOSURE.
5.1 NON-COMPETITION.
(1) During the term hereof, without approval by the Board,
the Employee will not, directly or indirectly, (i) engage or become interested,
directly or indirectly, as owner, employee, director, partner, consultant,
through stock ownership (except ownership of not more than one percent (1%) of
any class of securities of a corporation which is publicly traded), investment
of capital, lending of money or property, rendering of services, or otherwise,
either alone or in association with others, in any business which competes
directly or indirectly with the business of the Employer, (ii) induce or attempt
to induce any customer of the Employer to reduce such customer's business with
the Employer, or (iii) solicit any of the Employer's employees to leave the
employ of the Employer or employ any of such Employees, except for the
Employee's administrative assistant.
(2) For a period of one (1) year after any termination of
employment, the Employee will not, directly or indirectly, (i) engage or become
interested, directly or indirectly, as owner, employee, director, partner,
consultant, through stock ownership (except ownership of not more than five
percent (5%) of any class of securities of a corporation which is publicly
traded), investment of capital, lending of money or property, rendering of
services, or otherwise, either alone or in association with others, in any
healthcare real estate investment trust financing business which competes
directly and materially with the business of the Employer or (ii) solicit any of
the Employer's employees to leave the employ of the Employer or employ any of
such employees, except for the Employee's administrative assistant. The Employee
recognizes and acknowledges that his obligations under this Section 5.1(b) are
limited to the geographic areas in which the Employer is doing business at the
time of the expiration or termination of this Agreement.
(3) As used in Sections 5.1, 5.2, 7.2 and 7.3, the term
"Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates.
The restrictions on the Employee set forth in this Section 5.1 shall not apply
in the case of a Termination Upon a Change in Control.
5.2 NON-DISCLOSURE. The Employee agrees that all confidential and
proprietary information relating to the business of the Employer shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by the Employer's Board of Directors or if
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6. INSURANCE. The Employer may, at its expense, procure and maintain
life insurance on the life of the Employee. The beneficiary of such policy shall
be the Employer.
10
<PAGE>
The Employee shall cooperate with the Employer as is reasonably necessary to
procure such insurance.
7. MISCELLANEOUS.
7.1 ARBITRATION; DISPUTE RESOLUTION.
(1) ARBITRATION PROCEDURE. Any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this Agreement
or contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by final and binding arbitration in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA");
PROVIDED, that nothing contained herein shall be deemed to prohibit either party
to apply to a court of competent jurisdiction for temporary or preliminary
equitable relief. The arbitral tribunal shall consist of one arbitrator. In
making any decision, the arbitrator shall apply and follow the substantive law
of Massachusetts without reference to the conflicts of law provisions thereof.
The parties to the arbitration jointly shall directly appoint such arbitrator
within 30 days of the initiation of arbitration. If the parties shall fail to
appoint such arbitrator as provided above, such arbitrator shall be appointed by
the AAA as provided in the Arbitration Rules. The Employee and the Employer
agree that the decision of the arbitrator shall be final, the arbitral award may
be enforced against the parties to the arbitration proceeding or their assets
wherever they may be found and that a judgment upon the arbitral award may be
entered in any court having jurisdiction thereof. The Employer shall pay all
fees and expenses of the Arbitrator regardless of the result and shall provide
all witnesses and evidence reasonably required by the Employee to present his
case. The Employer shall pay to the Employee all reasonable arbitration expenses
and legal fees incurred by the Employee as a result of a termination of the
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement (whether or not the Employee is successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the Employee's request for payment accompanied with
such evidence of fees and expenses incurred as the Employer reasonably may
require.
(2) COMPENSATION DURING DISPUTE. The Employee's compensation
during any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the interpretation of this Agreement shall be as
follows:
If there is a termination by the Employer followed by a dispute as
to whether the Employee is entitled to the payments and other benefits provided
under this Agreement, then, during the period of that dispute the Employer shall
pay the Employee 50% of the amount specified in Section 4.1 hereof, and the
Employer shall provide the Employee with the benefits provided in Section 4.1
hereof, if, but only if, the Employee agrees in writing that if the dispute is
resolved against the Employee, the Employee shall promptly refund to the
Employer all payments received under Section 4.1 of this Agreement plus interest
at the rate
11
<PAGE>
provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is
resolved in the Employee's favor, promptly after resolution of the dispute, the
Employer shall pay to the Employee the sum that was withheld during the period
of the dispute plus interest at the rate provided in Section 1274(d) of the
Code, compounded quarterly.
7.2 LITIGATION AND REGULATORY COOPERATION. During and after the
Employee's employment, the Employee shall reasonably cooperate with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Employee was employed by the
Employer; provided, however, that such cooperation shall not materially and
adversely affect the Employee or expose the Employee to an increased probability
of civil or criminal litigation. The Employee's cooperation in connection with
such claims or actions shall include, but not be limited to, being available to
meet with counsel to prepare for discovery or trial and to act as a witness on
behalf of the Employer at mutually convenient times. During and after the
Employee's employment, the Employee also shall cooperate fully with the Employer
in connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Employer. The
Employer shall also provide the Employee with compensation on an hourly basis
calculated at his final base compensation rate for requested litigation and
regulatory cooperation that occurs after his termination of employment, and
reimburse the Employee for all costs and expenses incurred in connection with
his performance under this Section 7.2, including, but not limited to,
reasonable attorneys' fees and costs.
7.3 NONDISPARAGEMENT. During and after the Employee's employment,
the Employee agrees that he shall not take any action or make any statement,
written or oral, which disparages or criticizes the Employer or The Meditrust
Companies, or their respective officers, directors, agents, or management and
business practices, or which disrupts or impairs the normal operations of the
Employer or The Meditrust Companies. During and after the Employee's employment,
the Employer agrees that it shall not take any action or make any statement,
written or oral, which disparages or criticizes Employee or Employee's
management and business practices and that it shall instruct its officers,
directors and agents not to take any action or make any statement, written or
oral, which disparages or criticizes the Employee or the Employee's management
and business practices.
7.4 NO MITIGATION. The Employer agrees that, if the Employee's
employment by the Employer is terminated during the term of this Agreement, the
Employee is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Employee by the Employer pursuant to Sections
3 and 4 hereof. Further, the amount of any payment provided for in this
Agreement shall not be reduced by any compensation earned by the Employee as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Employer, or
otherwise.
12
<PAGE>
7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants
that it has full power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby and this Agreement is the
legal, valid and binding obligation of the party, enforceable against the party
in accordance with its terms. No consent, approval or agreement of any person,
party, court, government or entity is required to be obtained by either party in
connection with the execution and delivery of this Agreement. Each party is not
subject to any agreement, restriction, lien, encumbrance or right, title or
interest in anyone limiting in any way the scope of this Agreement or in any way
inconsistent herewith, and each party will not hereafter grant anyone the same.
7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or
other termination of this Agreement, all obligations of the parties shall
forthwith terminate, except for any obligation to pay any fixed sum of money or
provide any benefits which may have accrued and be due and payable hereunder at
the time of such expiration or other termination and except that the provisions
of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in
accordance with their terms, such Sections containing independent agreements and
obligations.
7.7 EQUITABLE RELIEF. The obligations of the Employee under
Section 5 hereunder are special, unique and extraordinary, and any breach by the
Employee thereof shall be deemed material and to cause irreparable injury not
properly compensated by damages in an action at law. Notwithstanding Section
7.1, the Employer's rights and remedies hereunder shall therefore be enforceable
both at law and in equity, by injunction and otherwise; and the rights and
remedies of the Employer hereunder with respect thereto shall be cumulative and
not alternative and shall not be exhausted by any one or more uses thereof.
7.8 CONSENT TO JURISDICTION. To the extent that any court action
is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this
Agreement, the parties hereby consent to the jurisdiction of the Courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court action,
the Employee (a) submits to the personal jurisdiction and venue of such courts;
(b) consents to service of process; and (c) waives any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to
personal jurisdiction, venue or service of process.
7.9 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof .
7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter
13
<PAGE>
hereof. All modifications to the Agreement must be in writing and signed by the
party against whom enforcement of such modification is sought.
7.11 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed duly given (a) when delivered,
or (b) two (2) days after being mailed by first class mail, certified or
registered with return receipt requested, or (c) one (1) day after being mailed
through an overnight delivery service, or (d) upon confirmation of transmission
via facsimile, to the following addresses:
If to the Employer: Meditrust Corporation
197 First Avenue
Needham, MA 02494
Attn: General Counsel
If to the Employee: Michael F. Bushee
37 Meadow Drive
Middleton, MA 01949
Any party may change such party's address for notices by notice duly given
pursuant to this Section 7.11.
7.12 HEADINGS. The Section headings herein are intended for
reference and shall not by themselves determine the construction or
interpretation of this Agreement.
7.13 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
applied without regard to conflict of law principles.
7.14 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
the Employee without the prior written consent of the Employer, and may be
assigned by the Employer and shall be binding upon, and inure to the benefit of,
the Employer's successors and assigns. The Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Employer to assume
expressly and agree to perform this Agreement in the same manner and to the
extent that the Employer would be required to perform it if no such succession
had taken place. As used in this Agreement, "Employer" shall mean the Employer
as herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
14
<PAGE>
7.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
7.17 WITHHOLDINGS. All compensation and benefits to the Employee
hereunder shall be reduced by all federal, state, local and other withholdings
and similar taxes and payments required by applicable law. The Employee agrees
to pay all federal, state and local taxes owed by him in connection with this
Agreement.
7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the
Spin-Off Entity shall be deemed to be the Employer for all purposes of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
MEDITRUST CORPORATION
SEAL
By
----------------------------------------------
Name: David F. Benson
Title: President and Chief Executive Officer
-------------------------------------------------
Michael F. Bushee
15
<PAGE>
Exhibit A
THE PERFORMANCE SHARES
100% of the Performance Shares described in Section 3.5 shall be deemed issued
as of February 27, 1998 upon payment by the Employee of the par value thereof to
The Meditrust Companies. Subject to the terms of the Agreement, the Performance
Shares shall vest on the earliest of (a) eight (8) years after the date of
issuance, (b) on March 31 of the year following the first fiscal year after
issuance in which the Performance Goal is achieved or (c) as the Board of
Directors may determine. The Performance Goal for all outstanding grants of
Performance Shares shall be deemed achieved in any fiscal year commencing with
the year 2000 that meets both criteria specified below:
<TABLE>
<CAPTION>
Fiscal FFO Cumulative FFO per Share
Year Per Share Since January 1, 1998
---- --------- ---------------------
<S> <C> <C>
2000 $2.92 $ 8.28
2001 3.10 11.38
2002 3.28 14.66
2003 3.48 18.14
2004 3.69 21.83
</TABLE>
For purposes of the foregoing calculation, "FFO" shall mean funds from
operations as reported by The Meditrust Companies. The above Performance Goals
may be adjusted by the Board of Directors of the Employer to reflect changes in
accounting rules or changes in corporate structure.
Subject to the terms of the Agreement, upon termination of the Employee's
employment by The Meditrust Companies for any reason, all right, title and
interest in any unvested Performance Shares shall be transferred to The
Meditrust Companies in exchange for the par value of such Performance Shares,
and the Employee shall not receive any unissued Performance Shares.
The Employee shall receive all voting rights and dividends paid with respect to
unvested Performance Shares from the date of issuance so long as the Employee is
an employee of The Meditrust Companies or any subsidiary thereof.
DOCSB\586604.4
16
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this
1st day of January, 1999 by and between Meditrust Corporation, a Delaware
corporation (the "Employer"), and Laurie T. Gerber (the "Employee").
WHEREAS, the Employee is currently employed by the Employer as its Chief
Financial Officer; and
WHEREAS, the Employer and the Employee wish to extend such employment for
a three (3) year term on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereto hereby agree as follows:
1. DUTIES. During the term of this Agreement, the Employee agrees to be
employed by and to serve the Employer as its Chief Financial Officer, and the
Employer agrees to employ and retain the Employee in such capacity. The Employee
also shall serve the Employer in such capacity or capacities, and with such
other duties consistent with such position, as shall be designated by the
President from time to time. The Employee shall devote such of her business
time, energy and skill to the affairs of the Employer as shall be necessary to
perform the duties of such position and, in any event, not less of her business
time, energy and skill than she has previously devoted to the Employer, and she
shall not assume an executive, management or board position in any other
business without the express permission of the Board of Directors; provided that
the Employee may serve in any capacity with charitable or not-for-profit
enterprises so long as there is no material interference with the Employee's
duties to the Employer. The Employee shall report to the President and at all
times during the term of this Agreement shall have powers and duties
commensurate with her position as Chief Financial Officer of the Employer.
Without the Employee's consent, the Employer may not materially reduce the
Employee's duties or responsibilities hereunder or assign duties or
responsibilities that are inconsistent with the Employee's position as Chief
Financial Officer of the Employer. Notwithstanding the foregoing, in connection
with a corporate restructuring of the Employer, if the Employee continues to be
Chief Financial Officer of the publicly-traded healthcare company resulting from
a Permitted Spin-Off (as defined below), such change, in and of itself, shall
not be deemed to be a material reduction in the Employee's duties and
responsibilities for purposes of the preceding sentence.
2. TERMS OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
(1) "Termination For Cause" shall mean termination by the
Employer of the Employee's employment by reason of (i) the Employee's fraud
upon, deliberate injury or attempted injury to, or dishonesty towards the
Employer that causes
<PAGE>
material and demonstrable injury to the Employer, (ii) the Employee's
intentional and material breach of the provisions of Section 5 of this
Agreement, (iii) the Employee's intentional and material breach of, or material
failure to perform under, this Agreement (other than the provisions of Section 5
hereof) that is not cured by the Employee within 30 days after written notice
from the Board of Directors specifying the breach and requesting a cure, or (iv)
the conviction of any felony involving a crime of moral turpitude.
(2) "Termination Other Than For Cause" shall mean
termination by the Employer of the Employee's employment other than a
Termination For Cause, a Termination Upon Death or Disability, or a Termination
Upon a Change in Control.
(3) "Termination for Good Reason" shall mean termination of
employment by the Employee (i) after a material reduction by the Employer,
without the Employee's consent, in the Employee's duties and responsibilities,
(ii) if the Employee is not the Chief Financial Officer of Meditrust Corporation
prior to the Permitted Spin-Off and the Spin-Off Entity after the Permitted
Spin-Off, (iii) after any reduction by Employer of the Employee's Base Salary
and benefits (provided that, in the case of across-the-board benefit reductions
similarly affecting all management personnel, the Employer will continue to
provide Employee with a benefit package substantially equivalent to the benefits
provided at the time of such reduction, provided that the Employer shall not be
required to expend more than 150% of the Employer's cost therefor in fiscal year
1999), (iv) the relocation of the Employer's offices at which the Employee is
principally employed to a location which is more than 35 miles from the current
location of the Employer's office or the requirement that the Employee be based
(1) anywhere other than the Employer's principal offices, as the same may be
relocated within 35 miles as provided above, or (2) more than 35 miles from the
Employer's current offices, except for required travel on the Employer's
business to an extent substantially consistent with the Employee's present
business travel obligations, (v) a material breach of this Agreement by the
Employer that is not rectified within 30 days of notification to the President
of the Employer by the Employee of such breach, (vi) the failure of the Employer
to obtain an agreement from any successor or assign of the Employer, to assume
and agree to perform this Agreement, as contemplated by Section 7.15, or (vii)
the Employer's failure to extend this Agreement pursuant to Section 2.2 hereof
on each anniversary date. Notwithstanding the foregoing, in connection with a
Permitted Spin-Off, if the Employee continues to be Chief Financial Officer of
the Spin-Off Entity, such change in title and position shall not be deemed to be
a material reduction in the Employee's duties and responsibilities for purposes
of clause (i) above.
(4) "Termination Upon a Change in Control" shall mean
termination of the Employee's employment with the Employer within two (2) years
following a Change in Control either by the Employer as a Termination Other Than
For Cause or by the Employee as a Termination for Good Reason.
2
<PAGE>
(5) "Termination Upon Death or Disability" shall mean
termination by the Employer by reason of the Employee's death or disability as
described in Section 2.3 hereof.
(6) "Permitted Spin-Off" shall mean a corporate
restructuring of the Meditrust Companies pursuant to which all of the stock of
any existing or newly-created subsidiary of the Meditrust Companies (or either
of them) which owns (or acquires by purchase, dividend, investment or otherwise)
all of the healthcare assets and investments of the Meditrust Companies (or the
stock of subsidiaries which own such assets and investments) existing
immediately prior thereto is "spun-off" ratably to the shareholders of the
Meditrust Companies at the time of such spin-off.
(7) "Spin-Off Entity" shall mean any Person resulting from a
Permitted Spin-Off.
(8) "Change in Control" shall mean (a) an acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined voting power of the then
outstanding voting securities of the Employer entitled to vote generally in the
election of directors of the Employer (the "Outstanding Voting Securities") or
20% or more of the combined market value of the equity securities of the
Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly
from or by the Employer or any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Employer or an affiliated company
or any acquisition by a company pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a);
or (b) individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") of the Employer, cease for any reason to constitute at
least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any
individual becoming a director whose election, or nomination for election by the
Employer's stockholders, was approved by a vote of at least 60% of the directors
then comprising the Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors of the Employer; or
(c) consummation of a reorganization, merger or consolidation of the Employer (a
"Business Combination"), unless, in each case, following such Business
Combination, (i) all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the outstanding Equity Value and
Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the combined market
value of the equity securities and more than 60% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from such Business
Combination (including, without limitation, a
3
<PAGE>
corporation which as a result of such transaction owns the Employer or all or
substantially all of the Employer's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Equity Value and
Outstanding Voting Securities, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Employer or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the then outstanding voting securities or 20% or more
of the combined market value of the equity securities of the corporation
resulting from such business combination except to the extent that such
ownership existed prior to the Business Combination and (iii) at least 60% of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or the action of the Board, providing for
such Business Combination, (d) the sale or other disposition of more than 50% of
the healthcare assets of the Employer, or (e) a complete liquidation or
dissolution of the Employer or approval thereof by the stockholders of the
Employer. For purposes of this definition, "Employer" shall mean either (x)
Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together
with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust
Corporation, the assets of which are substantially all of the healthcare assets
and investments of Meditrust Corporation (or the stock of subsidiaries, the
assets of which are substantially all of the healthcare assets and investments
of Meditrust Corporation). Notwithstanding the foregoing, any corporate
restructuring directly related to a Permitted Spin-Off, including any related
change to the Board of Directors shall not be deemed to be a Change in Control;
provided, however, that this exclusion shall not apply to any simultaneous or
subsequent sale of, or Business Combination, or other events described in
clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity.
2.2 TERM. The term of employment of the Employee by the Employer
shall commence on the date and year first above written (the "Effective Date")
and shall continue through the third (3rd) anniversary of the Effective Date;
provided, however the term of this Agreement shall automatically be extended for
one additional year on each anniversary date of the Effective Date unless, not
later than 90 days prior to such date, either party shall have given notice to
the other that it or she does not wish to extend this Agreement; provided,
further, that if a Change in Control (as defined in Section 2.1(f)) occurs
during the original or extended term of this Agreement, the term of this
Agreement shall continue in effect for a period of not less than two (2) years
beyond the month in which the Change in Control occurred.
2.3 TERMINATION. Notwithstanding any provision of this Employment
Agreement, the employment of the Employee pursuant to this Agreement may be
terminated by the Employer upon (a) at least 15 days' prior written notification
to the Employee in the event of a Termination For Cause, (b) upon at least 60
days' prior written notice to the Employee in the event of a Termination Other
Than For Cause or a Termination Upon a Change in Control, (c) upon written
notification to the Employee if the Employee, in the
4
<PAGE>
reasonable judgment of the Board of Directors of the Employer, has failed to
perform her duties under this Agreement because of illness or physical or mental
incapacity, and such illness or incapacity continues for a period of more than
four (4) consecutive months, or (d) in the event of the Employee's death, in
which case the Employee's employment shall be deemed to have terminated as of
the last day of the month during which her death occurs. The Employee may
terminate her employment under this Agreement upon at least 60 days' prior
written notice to the Employer; provided, however, that in the event of a Change
in Control, the notice requirement is shortened to ten (10) days.
2.4 PAYMENTS UPON TERMINATION. Upon any termination of the
Employee's employment by the Employer hereunder, the Employer shall promptly pay
to the Employee, or in the case of her death, to her estate or such
beneficiaries as the Employee may from time to time designate, all accrued
salary, any benefits under any plans of the Employer in which the Employee is a
participant to the full extent of the Employee's rights under such plans,
accrued vacation pay and any appropriate business expense incurred by the
Employee in connection with her duties hereunder, all to the date of
termination. The Employee, or her estate or beneficiaries in the case of her
death, shall not be entitled to any other compensation or reimbursement of any
kind, including, without limitation, severance compensation, except as provided
in Section 4 hereof. Unless otherwise provided in writing or as provided in
Section 4 hereof, upon termination of employment, all options held by the
Employee that are not then currently exercisable and all Performance Units shall
immediately lapse and have no force or effect, and all then non-vested
Performance Shares held by the Employee shall be forfeited and returned to the
Employer.
3. SALARY AND BENEFITS.
3.1 BASE SALARY. As payment for the services to be rendered by the
Employee as provided in Section 1, and subject to the terms and conditions of
Section 2, the Employer agrees to pay to the Employee at the rate of $250,000
per annum (the "Base Salary"). The Base Salary shall be payable in equal
bi-monthly (twice a month) installments. Unless otherwise determined by the
Board of Directors, the Employee shall not be entitled to any compensation in
addition to that set forth in this Section 3 for serving as an officer of the
Employer. All services which the Employee may render to the Employer in any
capacity shall be deemed to be services required by this Agreement and as
consideration for the compensation herein provided.
3.2 BONUS. The Employee's bonus opportunity for each fiscal year
shall be equal to 40% to 80% ("Maximum Bonus") of Base Salary paid during such
fiscal year. The amount of bonus payments shall be determined at the sole
discretion of the Compensation Committee or pursuant to criteria to be
established from time to time.
3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to
participate in such of the Employer's benefits and deferred compensation plans
as are now generally available or later made generally available to executive
officers of the Employer, including,
5
<PAGE>
but not limited to, the 401(k) plan, non-qualified deferred compensation plan,
if any, medical insurance plan, dental insurance plan, life insurance plan, and
disability insurance plan. The Employee shall also be provided with an
automobile allowance that is not less than the amount currently paid, including
reimbursement for gasoline, insurance, maintenance and repairs.
3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the
Employee for reasonable and properly documented out-of-pocket expenses incurred
by the Employee in connection with her duties under this Agreement.
3.5 PERFORMANCE SHARES. The Employer has previously awarded the
Employee 50,000 performance shares in accordance with the terms described in
Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance
Shares").
3.6 STOCK OPTIONS. In connection with the negotiation and
execution hereof, on December 10, 1998, the Employer issued to the Employee
pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 100,000
paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per
Paired Share (the "Option"). The Option shall vest and become exercisable in
accordance with the Plan in 25% increments on each anniversary date of the
date of grant, so that the Option is fully vested and exercisable on the
fourth (4th) anniversary date of the date of grant. Further, on December 10,
1998, the Employer issued to the Employee pursuant to the 1995 Share Award
Plan an option to purchase 50,000 Paired Shares, at $13.4375 per Paired Share
(the "Performance Option"). The Performance Option shall vest and become
fully exercisable in accordance with the Plan on December 10, 2004; provided,
however, that if prior to December 10, 2004 the 20-day average trading price
of a Paired Share (the "20-Day Average") attains $23.00, 33 1/3% of the
Performance Option shall vest and become exercisable in accordance with the
Plan; and if prior to December 10, 2004, the 20-Day Average attains $26.00,
66 2/3% of the Performance Option shall vest and become exercisable in
accordance with the Plan, and if prior to December 10, 2004, the 20-Day
Average attains $29.00, the remainder of the Performance Option shall vest
and become fully exercisable in accordance with the Plan. For this purpose,
the price of the Paired Shares shall be determined by reference to the quoted
closing price per Paired Share on the New York Stock Exchange.
3.7 PERFORMANCE UNITS. The Employer has issued to the Employee
50,000 performance units ("Performance Units") in the Long Term Bonus Program.
Such Performance Units shall become payable only pursuant to the provisions of
Section 4.1, 4.2 or 4.3.
3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties
that upon the fourth anniversary of the Effective Date, the Employee shall own
equity in the Employer (which shall include the Performance Shares) with a value
equal to two (2) times her Base Salary. In the event the Employee does not
attain such level of equity ownership by such date, the Employee shall not be
eligible to receive any further equity grants from the Employer until such time
when the Employee attains the desired equity ownership level.
6
<PAGE>
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER
THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's
employment is terminated in a Termination Other Than For Cause or in a
Termination for Good Reason, subject to the signing by the Employee of a general
release of employment-related claims (other than continuing rights under this
Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all
unvested Performance Shares held by the Employee shall become immediately vested
in full, (ii) all Performance Units issued to the Employee pursuant to Section
3.7 hereof shall become immediately vested in full with the value of each Unit
deemed to be $25; provided that payment with respect to the Performance Units
shall be made in cash no earlier than January 1, 2002, (iii) any unvested
options to purchase shares of The Meditrust Companies held by the Employee shall
become immediately vested and exercisable in full in accordance with the Plan
and (iv) the Employee shall be paid a lump sum within 30 days of such
termination equal to the sum of her Base Salary and the average of the bonuses
received by the Employee under Section 3.2 for the three (3) immediately
preceding fiscal years (or for such shorter period that the Employee was
eligible for a bonus), multiplied by the greater of (a) two (2) or (b) the
number of full and fractional years remaining in the original term or extended
term of this Agreement (the "Unexpired Term"). The Employee shall continue to
enjoy the benefits under the medical and dental insurance plans and the
non-qualified retirement plan, if any, for the greater of two (2) years or the
Unexpired Term. She shall also be provided with an automobile allowance for the
greater of two (2) years or the Unexpired Term at a level which is not less than
the level provided to the Employee immediately prior to such termination.
Notwithstanding the foregoing, in the event a Change in Control occurs within
nine (9) months after a termination under this Section 4.1, the Employee's
employment shall be deemed to have been terminated in a Termination Upon a
Change in Control and the benefits inuring to the Employee shall be recalculated
and paid or delivered to the Employee as though Section 4.3 applied at the time
of such termination.
4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event
the Employee's employment is terminated in a Termination Upon Death or
Disability, and in the case of Termination Upon Disability, subject to the
signing by the Employee (in the case of Disability) of a general release of
employment-related claims (other than continuing rights under this Agreement) in
a form and manner reasonably satisfactory to the Employer, (i) all unvested
Performance Shares held by the Employee shall become immediately vested in full,
(ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof
shall become immediately vested in full with the value of each Unit deemed to be
$25; provided that payment with respect to the Performance Units shall be made
in cash no earlier than April 1, 2002, (iii) any unvested options to purchase
shares of The Meditrust Companies held by the Employee shall become immediately
vested and exercisable in full in accordance with the Plan and (iv) the Employee
or her estate shall be paid a lump sum within 30 days of such termination equal
to the sum of her Base Salary and the average of the bonuses received by the
Employee under Section 3.2 for the three (3) immediately preceding fiscal years
(or for such
7
<PAGE>
shorter period that the Employee was eligible for a bonus), multiplied by the
greater of two (2) or the Unexpired Term. The Employee (or dependents, in the
case of the Employee's death) shall continue to enjoy the benefits under the
medical and dental insurance plans for the greater of two (2) years or the
Unexpired Term. In the case of disability, Employee shall also be provided with
an automobile allowance for the greater of two (2) years or the Unexpired Term
at a level which is not less than the level provided to the Employee immediately
prior to such termination.
4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL.
(1) Upon a Change in Control, (i) all unvested Performance
Shares held by the Employee shall become immediately vested in full, (ii) all
Performance Units issued to the Employee pursuant to Section 3.7 hereof shall
become immediately vested in full with the value of each Unit deemed to be $50,
(iii) any unvested options to purchase shares of The Meditrust Companies held by
the Employee shall become immediately vested and exercisable in accordance with
the Plan in full. In the event the Employee's employment is terminated in a
Termination Upon a Change in Control, subject to the signing by the Employee of
a general release of employment-related claims (other than continuing rights
under this Agreement) in a form and manner reasonably satisfactory to the
Employer, the Employee shall be paid a lump sum in cash within 30 days of such
termination in an amount equal to the full value of her Performance Units and an
amount equal to the greater of two (2) or the Unexpired Term times the sum of
(A) her Base Salary and (B) Maximum Bonus for the year of termination. The
Employee shall continue to enjoy the benefits under the medical and dental
insurance plan and the non-qualified retirement plan, if any, for the greater of
two (2) years or the Unexpired Term and any and all debts of the Employee to the
Employer will be forgiven by the Employer. The Employee shall also be provided
with an automobile allowance for the greater of two (2) years or the Unexpired
Term at a level which is not less than the level provided to the Employee
immediately prior to such termination.
(2) Notwithstanding the foregoing, in the event of the
determination (as hereinafter provided) that any required payment by the
Employer to or for the benefit of the Employee (whether paid or payable pursuant
to the terms of the Agreement or otherwise pursuant to, or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right, or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing including without limitation the acceleration of the vesting or
lapse of deferral periods under any equity or incentive compensation program
(individually and collectively, "Severance Payments")) would be subject to
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision thereto (the "Excise Tax"), the
following provisions shall apply:
(i) If the Severance Payments, reduced by the sum of
(1) the Excise Tax and (2) the total of the Federal, state, and local income and
employment taxes
8
<PAGE>
payable by the Employee on the amount of the Severance Payments which are in
excess of the Threshold Amount (as defined below), are greater than or equal to
the Threshold Amount, the Employee shall be entitled to the full benefits
payable under this Agreement.
(ii) If the Threshold Amount is less than (a) the
Severance Payments, but greater than (b) the Severance Payments reduced by the
sum of (1) the Excise Tax and (2) the total of the Federal, state, and local
income and employment taxes on the amount of the Severance Payments which are in
excess of the Threshold Amount, then the benefits payable under this Agreement
shall be reduced (but not below zero (0)) to the extent necessary so that the
maximum Severance Payments shall equal the Threshold Amount. To the extent that
there is more than one method of reducing the payments to bring them within the
Threshold Amount, the Employee shall determine which method shall be followed;
provided that if the Employee fails to make such determination within 15 days
after the Employer has sent the Employee written notice of the need for such
reduction, the Employer may determine the amount of such reduction in its sole
discretion.
For the purposes of this section, "Threshold Amount" shall mean
three (3) times the Employee's "base amount" within the meaning of Section
280G(b)(3) of the Code and the regulations promulgated thereunder less one
dollar ($1.00).
The determination as to which provisions of this Section 4.3(b)
shall apply to the Employee shall be made by PriceWaterhouseCoopers or such
other nationally recognized accounting firm retained by the Employer and
reasonably acceptable to the Employee (the "Accounting Firm"). The Employer
shall direct the Accounting Firm to submit its determination and detailed
supporting calculations both to the Employer and the Employee within 15 days
after the Change in Control, or at such earlier time as is reasonably requested
by the Employer or the Employee. For purposes of this Section 4.3(b), the
Employee shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation applicable to individuals for the calendar year
in which the determination is to be made, and state and local income taxes at
the highest marginal rates of individual taxation in the state and locality of
the Employee's residence on the Change in Control, net of the maximum reduction
in Federal income taxes which could be obtained from deduction of such state and
local taxes. Any determination by the Accounting Firm shall be binding upon the
Employer and the Employee.
(3) Each of the Employee and the Employer shall provide the
Accounting Firm access to and copies of any books, records and documents in the
Employee's or its possession, as the case may be, reasonably requested by the
Accounting Firm, and shall otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determination and
calculations required or contemplated hereunder.
(4) The Employer shall bear the fees and expenses of the
Accounting Firm for services hereunder. If, for any reason, the Employee
initially pays such fees and expenses, the Employer shall reimburse the Employee
the full amount of the same within ten
9
<PAGE>
(10) business days following receipt from the Employee of a statement and
reasonable evidence of the Employee's payment thereof.
5. NON-COMPETITION AND NON-DISCLOSURE.
5.1 NON-COMPETITION.
(1) During the term hereof, without approval by the Board,
the Employee will not, directly or indirectly, (i) engage or become interested,
directly or indirectly, as owner, employee, director, partner, consultant,
through stock ownership (except ownership of not more than one percent (1%) of
any class of securities of a corporation which is publicly traded), investment
of capital, lending of money or property, rendering of services, or otherwise,
either alone or in association with others, in any business which competes
directly or indirectly with the business of the Employer, (ii) induce or attempt
to induce any customer of the Employer to reduce such customer's business with
the Employer, or (iii) solicit any of the Employer's employees to leave the
employ of the Employer or employ any of such Employees, except for the
Employee's administrative assistant.
(2) For a period of one (1) year after any termination of
employment, the Employee will not, directly or indirectly, (i) engage or become
interested, directly or indirectly, as owner, employee, director, partner,
consultant, through stock ownership (except ownership of not more than five
percent (5%) of any class of securities of a corporation which is publicly
traded), investment of capital, lending of money or property, rendering of
services, or otherwise, either alone or in association with others, in any
healthcare real estate investment trust financing business which competes
directly and materially with the business of the Employer or (ii) solicit any of
the Employer's employees to leave the employ of the Employer or employ any of
such employees, except for the Employee's administrative assistant. The Employee
recognizes and acknowledges that her obligations under this Section 5.1(b) are
limited to the geographic areas in which the Employer is doing business at the
time of the expiration or termination of this Agreement.
(3) As used in Sections 5.1, 5.2, 7.2 and 7.3, the term
"Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates.
The restrictions on the Employee set forth in this Section 5.1 shall not apply
in the case of a Termination Upon a Change in Control.
5.2 NON-DISCLOSURE. The Employee agrees that all confidential and
proprietary information relating to the business of the Employer shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by the Employer's Board of Directors or if
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6. INSURANCE. The Employer may, at its expense, procure and maintain
life insurance on the life of the Employee. The beneficiary of such policy shall
be the Employer.
10
<PAGE>
The Employee shall cooperate with the Employer as is reasonably necessary to
procure such insurance.
7. MISCELLANEOUS.
7.1 ARBITRATION; DISPUTE RESOLUTION.
(1) ARBITRATION PROCEDURE. Any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this Agreement
or contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by final and binding arbitration in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA");
PROVIDED, that nothing contained herein shall be deemed to prohibit either party
to apply to a court of competent jurisdiction for temporary or preliminary
equitable relief. The arbitral tribunal shall consist of one arbitrator. In
making any decision, the arbitrator shall apply and follow the substantive law
of Massachusetts without reference to the conflicts of law provisions thereof.
The parties to the arbitration jointly shall directly appoint such arbitrator
within 30 days of the initiation of arbitration. If the parties shall fail to
appoint such arbitrator as provided above, such arbitrator shall be appointed by
the AAA as provided in the Arbitration Rules. The Employee and the Employer
agree that the decision of the arbitrator shall be final, the arbitral award may
be enforced against the parties to the arbitration proceeding or their assets
wherever they may be found and that a judgment upon the arbitral award may be
entered in any court having jurisdiction thereof. The Employer shall pay all
fees and expenses of the Arbitrator regardless of the result and shall provide
all witnesses and evidence reasonably required by the Employee to present her
case. The Employer shall pay to the Employee all reasonable arbitration expenses
and legal fees incurred by the Employee as a result of a termination of the
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement (whether or not the Employee is successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the Employee's request for payment accompanied with
such evidence of fees and expenses incurred as the Employer reasonably may
require.
(2) COMPENSATION DURING DISPUTE. The Employee's compensation
during any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the interpretation of this Agreement shall be as
follows:
If there is a termination by the Employer followed by a dispute as
to whether the Employee is entitled to the payments and other benefits provided
under this Agreement, then, during the period of that dispute the Employer shall
pay the Employee 50% of the amount specified in Section 4.1 hereof, and the
Employer shall provide the Employee with the benefits provided in Section 4.1
hereof, if, but only if, the Employee agrees in writing that if the dispute is
resolved against the Employee, the Employee shall promptly refund to the
Employer all payments received under Section 4.1 of this Agreement plus interest
at the rate
11
<PAGE>
provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is
resolved in the Employee's favor, promptly after resolution of the dispute, the
Employer shall pay to the Employee the sum that was withheld during the period
of the dispute plus interest at the rate provided in Section 1274(d) of the
Code, compounded quarterly.
7.2 LITIGATION AND REGULATORY COOPERATION. During and after the
Employee's employment, the Employee shall reasonably cooperate with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Employee was employed by the
Employer; provided, however, that such cooperation shall not materially and
adversely affect the Employee or expose the Employee to an increased probability
of civil or criminal litigation. The Employee's cooperation in connection with
such claims or actions shall include, but not be limited to, being available to
meet with counsel to prepare for discovery or trial and to act as a witness on
behalf of the Employer at mutually convenient times. During and after the
Employee's employment, the Employee also shall cooperate fully with the Employer
in connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Employer. The
Employer shall also provide the Employee with compensation on an hourly basis
calculated at her final base compensation rate for requested litigation and
regulatory cooperation that occurs after her termination of employment, and
reimburse the Employee for all costs and expenses incurred in connection with
her performance under this Section 7.2, including, but not limited to,
reasonable attorneys' fees and costs.
7.3 NONDISPARAGEMENT. During and after the Employee's employment,
the Employee agrees that she shall not take any action or make any statement,
written or oral, which disparages or criticizes the Employer or The Meditrust
Companies, or their respective officers, directors, agents, or management and
business practices, or which disrupts or impairs the normal operations of the
Employer or The Meditrust Companies. During and after the Employee's employment,
the Employer agrees that it shall not take any action or make any statement,
written or oral, which disparages or criticizes Employee or Employee's
management and business practices and that it shall instruct its officers,
directors and agents not to take any action or make any statement, written or
oral, which disparages or criticizes the Employee or the Employee's management
and business practices.
7.4 NO MITIGATION. The Employer agrees that, if the Employee's
employment by the Employer is terminated during the term of this Agreement, the
Employee is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Employee by the Employer pursuant to Sections
3 and 4 hereof. Further, the amount of any payment provided for in this
Agreement shall not be reduced by any compensation earned by the Employee as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Employer, or
otherwise.
12
<PAGE>
7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants
that it has full power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby and this Agreement is the
legal, valid and binding obligation of the party, enforceable against the party
in accordance with its terms. No consent, approval or agreement of any person,
party, court, government or entity is required to be obtained by either party in
connection with the execution and delivery of this Agreement. Each party is not
subject to any agreement, restriction, lien, encumbrance or right, title or
interest in anyone limiting in any way the scope of this Agreement or in any way
inconsistent herewith, and each party will not hereafter grant anyone the same.
7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or
other termination of this Agreement, all obligations of the parties shall
forthwith terminate, except for any obligation to pay any fixed sum of money or
provide any benefits which may have accrued and be due and payable hereunder at
the time of such expiration or other termination and except that the provisions
of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in
accordance with their terms, such Sections containing independent agreements and
obligations.
7.7 EQUITABLE RELIEF. The obligations of the Employee under
Section 5 hereunder are special, unique and extraordinary, and any breach by the
Employee thereof shall be deemed material and to cause irreparable injury not
properly compensated by damages in an action at law. Notwithstanding Section
7.1, the Employer's rights and remedies hereunder shall therefore be enforceable
both at law and in equity, by injunction and otherwise; and the rights and
remedies of the Employer hereunder with respect thereto shall be cumulative and
not alternative and shall not be exhausted by any one or more uses thereof.
7.8 CONSENT TO JURISDICTION. To the extent that any court action
is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this
Agreement, the parties hereby consent to the jurisdiction of the Courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court action,
the Employee (a) submits to the personal jurisdiction and venue of such courts;
(b) consents to service of process; and (c) waives any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to
personal jurisdiction, venue or service of process.
7.9 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter
13
<PAGE>
hereof. All modifications to the Agreement must be in writing and signed by the
party against whom enforcement of such modification is sought.
7.11 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed duly given (a) when delivered,
or (b) two (2) days after being mailed by first class mail, certified or
registered with return receipt requested, or (c) one (1) day after being mailed
through an overnight delivery service, or (d) upon confirmation of transmission
via facsimile, to the following addresses:
If to the Employer: Meditrust Corporation
197 First Avenue
Needham, MA 02494
Attn: General Counsel
If to the Employee: Laurie T. Gerber
60 Laurel Road
Weston, MA 02493
Any party may change such party's address for notices by notice duly given
pursuant to this Section 7.11.
7.12 HEADINGS. The Section headings herein are intended for
reference and shall not by themselves determine the construction or
interpretation of this Agreement.
7.13 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
applied without regard to conflict of law principles.
7.14 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
the Employee without the prior written consent of the Employer, and may be
assigned by the Employer and shall be binding upon, and inure to the benefit of,
the Employer's successors and assigns. The Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Employer to assume
expressly and agree to perform this Agreement in the same manner and to the
extent that the Employer would be required to perform it if no such succession
had taken place. As used in this Agreement, "Employer" shall mean the Employer
as herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
14
<PAGE>
7.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
7.17 WITHHOLDINGS. All compensation and benefits to the Employee
hereunder shall be reduced by all federal, state, local and other withholdings
and similar taxes and payments required by applicable law. The Employee agrees
to pay all federal, state and local taxes owed by her in connection with this
Agreement.
7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the
Spin-Off Entity shall be deemed to be the Employer for all purposes of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the day and year first above written.
MEDITRUST CORPORATION
SEAL
By
----------------------------------------------
Name: David F. Benson
Title: President and Chief Executive Officer
-------------------------------------------------
Laurie T. Gerber
15
<PAGE>
Exhibit A
THE PERFORMANCE SHARES
100% of the Performance Shares described in Section 3.5 shall be deemed issued
as of February 27, 1998 upon payment by the Employee of the par value thereof to
The Meditrust Companies. Subject to the terms of the Agreement, the Performance
Shares shall vest on the earliest of (a) eight (8) years after the date of
issuance, (b) on March 31 of the year following the first fiscal year after
issuance in which the Performance Goal is achieved or (c) as the Board of
Directors may determine. The Performance Goal for all outstanding grants of
Performance Shares shall be deemed achieved in any fiscal year commencing with
the year 2000 that meets both criteria specified below:
<TABLE>
<CAPTION>
Fiscal FFO Cumulative FFO per Share
Year Per Share Since January 1, 1998
---- --------- ---------------------
<S> <C> <C>
2000 $2.92 $ 8.28
2001 3.10 11.38
2002 3.28 14.66
2003 3.48 18.14
2004 3.69 21.83
</TABLE>
For purposes of the foregoing calculation, "FFO" shall mean funds from
operations as reported by The Meditrust Companies. The above Performance Goals
may be adjusted by the Board of Directors of the Employer to reflect changes in
accounting rules or changes in corporate structure.
Subject to the terms of the Agreement, upon termination of the Employee's
employment by The Meditrust Companies for any reason, all right, title and
interest in any unvested Performance Shares shall be transferred to The
Meditrust Companies in exchange for the par value of such Performance Shares,
and the Employee shall not receive any unissued Performance Shares.
The Employee shall receive all voting rights and dividends paid with respect to
unvested Performance Shares from the date of issuance so long as the Employee is
an employee of The Meditrust Companies or any subsidiary thereof.
16
<PAGE>
Exhibit 10.5
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT (the "Agreement") is made as of this 26th day of
February, 1999, by and among Meditrust Corporation, a Delaware corporation
("REIT"), Meditrust Operating Company, a Delaware corporation ("OPCO" and,
together with REIT, the "Companies" and each a "Company"), Merrill Lynch
International ("MLI") and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
agent acting for the account of MLI and as owner of the Purchase Shares (as
defined in the Purchase Agreement (as defined herein)) and successor to the
rights and obligations of MLI under the Purchase Agreement ("Merrill Lynch" and,
together with MLI, the "Merrill Lynch Parties"). Reference is made to the
Purchase Agreement dated as of February 26, 1998 by and among the parties hereto
(as amended from time to time, the "Purchase Agreement"), the Unsecured Purchase
Price Adjustment Mechanism Agreement dated as of February 26, 1998 by and among
the parties hereto (the "Unsecured Adjustment Agreement"), and the Amended and
Restated Settlement Agreement dated as of November 11, 1998 by and among the
parties hereto (the "Settlement Agreement" and, collectively with the Purchase
Agreement and the Unsecured Adjustment Agreement, the "Forward Equity
Agreements").
NOW, THEREFORE, in consideration of the agreements and covenants set forth
herein, the parties hereto hereby covenant and agree as follows:
SECTION 1. EXTENSION OF MATURITY. The parties hereto agree that the
Maturity Date set forth in Section 1(v) of the Unsecured Adjustment Agreement
shall be March 31, 1999. The parties agree that the extension of the Maturity
Date is not intended to limit the rights of the Merrill Lynch Parties under
Sections 4 and 5 of the Unsecured Adjustment Agreement.
<PAGE>
SECTION 2. EXTENSION OF STANDSTILL. The parties hereto agree to extend the
Standstill (as defined in the Settlement Agreement) until March 31, 1999;
provided, that the Standstill shall terminate if (i) the Companies fail to
deliver to MLI any Interim Settlement Shares (as defined in the Unsecured
Adjustment Agreement), dividends on Interim Settlement Shares (as defined in the
Unsecured Adjustment Agreement) and cash required by Section 5 of the Unsecured
Adjustment Agreement within one (1) Business Day of any date on which such
delivery is required, and (ii) the Companies challenge in any legal proceeding
the adequacy of the consideration received by the Companies in connection with
their delivery of, or agreement to deliver, the Standstill Consideration (as
defined in the Settlement Agreement) under the Settlement Agreement or the
Excess Net Cash Proceeds (as defined below) under this Agreement. If the
Standstill is terminated pursuant to the proviso of the foregoing sentence each
day from and after February 26, 1999 through the termination of this Agreement
shall be deemed to be a Black-out Day (as defined in the Unsecured Adjustment
Agreement).
SECTION 3. COBBLESTONE EXCESS PROCEEDS. In consideration of the extension
of the Standstill by the Merrill Lynch Parties, the Companies agree to pay or to
otherwise deliver to the Merrill Lynch Parties the amount of the pre-tax cash
proceeds (net of reasonable out-of-pocket costs directly attributable to such
sale) from the sale of the entities generally known as the Cobblestone Golf
Group (the "Cobblestone Sale") in excess of $300 million (the "Excess Net Cash
Proceeds") (up to the maximum amount of the then outstanding Reference Amount
(as defined in the Unsecured Adjustment Agreement)), which Excess Net Cash
Proceeds will, upon delivery to the Merrill Lynch Parties, reduce the Reference
Amount in accordance with the provisions of Section 3.3 of the Unsecured
Adjustment Agreement.
2
<PAGE>
SECTION 4. BLACK-OUT PERIOD. In the event that (a) the Companies have not
closed the Cobblestone Sale and paid or otherwise delivered to the Merrill Lynch
Parties the Excess Net Cash Proceeds and (b) the Companies have not caused a
Resale Registration Statement (as defined in the Purchase Agreement) to be
effective, provided the Merrill Lynch Parties with a deliverable Prospectus and
Prospectus Supplement and provided the appropriate Resale Closing Documents (as
such terms are defined in the Purchase Agreement), in each case on or before
March 31, 1999, the Companies shall have the right to pay or otherwise deliver
to the Merrill Lynch Parties a Black-out Period Extension Fee (as defined in the
Purchase Agreement) of $25 million on or before April 1, 1999 (the "April 1
Extension Fee"), and solely for the purposes of extending the Black-out Period
(as defined in the Purchase Agreement) under Section 5.2 of the Purchase
Agreement, upon receipt by the Merrill Lynch Parties, such April 1 Extension Fee
shall have the effect of a Black-out Period Extension Fee paid or delivered to
the Merrill Lynch Parties on March 18, 1999 had the Maturity Date not been
extended to March 31, 1999 by Section 1 hereof, and the Black-out Period shall
be extended to April 7, 1999. The Companies acknowledge that, in the event that
the Companies have not closed the Cobblestone Sale and paid or otherwise
delivered to the Merrill Lynch Parties the Excess Net Cash Proceeds on or before
March 31, 1999, the continuation of the Black-out Period beyond March 31, 1999
shall entitle the Merrill Lynch Parties to a claim for the April 1 Extension Fee
and the continuation of the Black-out Period beyond April 7, 1999 shall entitle
the Merrill Lynch Parties to a claim for additional Black-out Period Extension
Fees of $25 million for each twenty (20) days thereafter as provided in Section
5.2 of the Purchase Agreement. The April 1 Extension Fee and any subsequent
Black-out Period
3
<PAGE>
Extension Fees paid or otherwise delivered to the Merrill Lynch Parties shall
reduce the Reference Amount (as defined in the Unsecured Adjustment Agreement)
in the manner set forth in Section 3.3 of the Unsecured Adjustment Agreement.
SECTION 5. EXPENSES. Except as specifically provided herein, the parties
shall each pay their respective fees and expenses incurred in connection with
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby; provided, that the Companies shall reimburse
the Merrill Lynch Parties for their reasonable, documented out-of-pocket
expenses incurred in connection with the transactions contemplated hereby. Such
reimbursable expenses are in addition to the amounts referred to in Section 13.9
of the Settlement Agreement.
SECTION 6. PRESS RELEASES. The provisions of the first sentence of Section
10 of the Settlement Agreement shall be applicable to the transactions
contemplated by this Agreement.
SECTION 7. EFFECT ON OTHER AGREEMENTS; CONFLICTS WITH OTHER AGREEMENTS. In
the event of any conflict between the provisions of this Agreement and the
Forward Equity Agreements, the terms and provisions of this Agreement shall
govern. Except as explicitly amended hereby, all other terms and conditions of
the Forward Equity Agreements shall remain in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH INTERNATIONAL
By:___________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:___________________________________
Name:
Title:
MEDITRUST OPERATING COMPANY
By:___________________________________
Name:
Title:
MEDITRUST CORPORATION
By:___________________________________
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1999 and the Consolidated
Statement of Income for the three months ended March 31, 1999 of
Meditrust Corporation and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY>U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 37,300
<SECURITIES> 0
<RECEIVABLES> 51,218
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,040,323
<DEPRECIATION> 245,611
<TOTAL-ASSETS> 5,721,528
<CURRENT-LIABILITIES> 0
<BONDS> 2,694,742
0
70
<COMMON> 3,839,826
<OTHER-SE> (971,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,721,528
<SALES> 0
<TOTAL-REVENUES> 153,676
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,547
<INCOME-PRETAX> 43,091
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,091
<DISCONTINUED> 16,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,185
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1999 and the Consolidated
Statement of Operations for the three months ended March 31, 1999 of
Meditrust Operating Company and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000314661
<NAME> MEDITRUST OPERATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY>U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,969
<SECURITIES> 0
<RECEIVABLES> 15,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,646
<PP&E> 30,174
<DEPRECIATION> 1,261
<TOTAL-ASSETS> 164,698
<CURRENT-LIABILITIES> 109,039
<BONDS> 0
0
0
<COMMON> 121,115
<OTHER-SE> (61,602)
<TOTAL-LIABILITY-AND-EQUITY> 164,698
<SALES> 0
<TOTAL-REVENUES> 145,496
<CGS> 0
<TOTAL-COSTS> 70,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (29,042)
<INCOME-TAX> (826)
<INCOME-CONTINUING> (28,216)
<DISCONTINUED> (11,225)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,441)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
<PAGE>
Exhibit 99.1
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is made as of
March 10, 1999, by and among MEDITRUST CORPORATION (the "BORROWER"), MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE
AGENT"), BANKERS TRUST COMPANY, as Syndication Agent, BANKBOSTON, N.A., as
Co-Documentation Agent, FLEET NATIONAL BANK, as Co-Documentation Agent, and the
BANKS listed on the signature pages hereof.
W I T N E S S E T H:
WHEREAS, the Borrower and the Banks have entered into the Credit
Agreement, dated as of July 17, 1998, as amended by Amendment to Credit
Agreement, dated as of November 23, 1998 (as so amended, the "CREDIT
AGREEMENT"); and
WHEREAS, the parties desire to modify the Credit Agreement upon the terms
and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Credit Agreement.
2. OPTIONAL TERMINATION. For purposes of Section 2.11(g) of the Credit
Agreement, this Amendment shall be
<PAGE>
deemed to constitute the notice from the Borrower to the Administrative Agent
and the Banks required by such Section, pursuant to which the Borrower has
elected, effective as of the Effective Date, to cancel a portion of the Tranche
A Loan Commitments in an amount equal to One Hundred Fifty Million Dollars
($150,000,000) in the aggregate.
3. USE OF PROCEEDS. Section 5.16 of the Credit Agreement is hereby amended
by adding after the phrase "(including associated artwork)" the following: "or
from the sale of its golf related assets (both real and personal) but only to
the extent that the Net Cash Proceeds in connection with any sale of such golf
related assets (plus any taxable capital gains actually deducted in calculating
the same), shall be in excess of $300,000,000."
4. THE FEITS AGREEMENT. The following is hereby added to the end of
Section 5.23: "Notwithstanding the foregoing, the Borrower may enter into an
amendment to the Current FEITS Agreement in the form previously delivered by the
Borrower to the Administrative Agent, the Syndication Agent and the
Co-Documentation Agent."
5. HEALTHCARE INVESTMENTS. Section 5.25 of the Credit Agreement is hereby
deleted.
2
<PAGE>
6. EFFECTIVE DATE. This Amendment (with the exception of the provisions
of Paragraph 4 hereof, which shall become effective upon the satisfaction of
clauses (a) through (d) below only) shall become effective when each of the
following conditions is satisfied (or waived by the Required Banks) (the date
such conditions are satisfied or waived being deemed the "EFFECTIVE DATE"):
(a) the Borrower shall have executed and delivered to the Administrative
Agent a duly executed original of this Amendment;
(b) the Required Banks shall have executed and delivered to the
Administrative Agent a duly executed original of this Amendment;
(c) MOC shall have executed and delivered to the Administrative Agent a
duly executed original of the Confirmation of Guaranty;
(d) each of the Guarantors (as defined in the Guaranty) other than the
golf related entities shall have executed and delivered to the
Administrative Agent a duly executed original of the Confirmation
of Guaranty;
(e) the Borrower shall have delivered to the Administrative Agent
financial projections for
3
<PAGE>
the first two fiscal quarters of its fiscal year 1999;
(f) the sale of the Borrower's golf related assets (both real and
personal) to an unaffiliated third party shall have closed;
(g) the Administrative Agent shall have received an opinion of Nutter,
McClennen & Fish, LLP and Goodwin, Procter & Hoar LLP, counsel for the
Borrower, MOC and the other parties (the "OTHER PARTIES") to the Guaranty
(other than the Administrative Agent and the golf related entities),
acceptable to the Administrative Agent, the Banks and their counsel;
(h) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of
the Borrower, MOC, and the Other Parties, the authority for and the
validity of this Amendment, and the other documents executed in
connection therewith, and any other matters relevant hereto, all in form
and substance reasonably satisfactory to the Administrative Agent. Such
documentation shall include, without limitation, the certificate of
4
<PAGE>
incorporation and by-laws (or other organizational documents) of the
Borrower, MOC, and the Other Parties, as amended, modified or
supplemented prior to the Effective Date, each certified to be true,
correct and complete by an officer of the Borrower, MOC or the Other
Parties, as of a date not more than twenty (20) days prior to the
Effective Date, together with a good standing certificate from the
Secretary of State (or the equivalent thereof) of the State of Delaware
with respect to the Borrower and MOC and from the applicable Secretary
of State with respect to each of the Other Parties organized in the
United States (except as may be waived by the Administrative Agent),
each to be dated not more than twenty (20) days prior to the Effective
Date;
(i) the Administrative Agent shall have received all certificates,
agreements and other documents and papers referred to in this Amendment,
unless otherwise specified, in sufficient counterparts, satisfactory in
form and substance to the Administrative Agent in its reasonable
discretion;
5
<PAGE>
(j) the Borrower, MOC and each of the Other Parties shall have taken all
actions required to authorize the execution and delivery of this
Amendment, the Confirmations of Guaranty and the other documents executed
in connection herewith and the performance thereof by the Borrower, MOC
and the Other Parties;
(k) the Administrative Agent shall have received the reasonable fees and
expenses accrued through the Effective Date of Skadden, Arps, Slate,
Meagher & Flom LLP;
(l) the representations and warranties of the Borrower contained in the
Credit Agreement shall be true and correct in all material respects on
and as of the Effective Date; and
(m) receipt by the Administrative Agent and the Banks of a certificate of
an officer of the Borrower certifying that the Borrower is in compliance
with all covenants of the Borrower contained in the Credit Agreement,
including, without limitation, the requirements of Section 5.8, as of the
Effective Date.
7. ENTIRE AGREEMENT. This Amendment constitutes the entire and final
agreement among the parties hereto
6
<PAGE>
with respect to the subject matter hereof and there are no other agreements,
understandings, undertakings, representations or warranties among the parties
hereto with respect to the subject matter hereof except as set forth herein.
8. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the law of the State of New York.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
10. HEADINGS, ETC. Section or other headings contained in this Amendment
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Amendment.
11. NO FURTHER MODIFICATIONS. Except as modified herein, all of the terms
and conditions of the Credit Agreement, as modified hereby shall remain in full
force and effect and, as modified hereby, the Borrower confirms and ratifies all
of the terms, covenants and conditions of the Credit Agreement in all respects.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER: MEDITRUST CORPORATION
By:
-------------------------------
Name: Michael S. Benjamin
Title: Senior Vice President
8
<PAGE>
BANKS:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as a Bank and
as Administrative Agent
By:
-------------------------------
Name: Timothy O'Donovan
Title: Vice President
9
<PAGE>
BANKERS TRUST COMPANY, as a Bank
and as Syndication Agent
By:
-------------------------------
Name: G. Andrew Keith
Title: Vice President
10
<PAGE>
FLEET NATIONAL BANK, as a Bank
and as Co-Documentation Agent
By:
-------------------------------
Name:
Title:
11
<PAGE>
BANKBOSTON, N.A., as a Bank and
as Co-Documentation Agent
By:
-------------------------------
Name:
Title:
12
<PAGE>
NATIONSBANK, N.A., as a Bank
By:
-------------------------------
Name:
Title:
13
<PAGE>
VIA BANQUE, as a Bank
By:
-------------------------------
Name:
Title:
14
<PAGE>
OAK BROOK BANK, as a Bank
By:
-------------------------------
Name:
Title:
15
<PAGE>
PARIBAS CAPITAL FUNDING LLC, as a Bank
By:
-------------------------------
Name:
Title:
16
<PAGE>
THE TRAVELERS INSURANCE COMPANY, as a Bank
By:
-------------------------------
Name:
Title:
17
<PAGE>
TORONTO DOMINION (TEXAS), INC., as a Bank
By:
-------------------------------
Name:
Title:
18
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
as a Bank
By:
-------------------------------
Name:
Title:
19
<PAGE>
ML CLO XIX STERLING (CAYMAN) LTD.
By: Sterling Asset Manager, LLC,
as its Investment Advisor
By:
-------------------------------
Name:
Title:
20
<PAGE>
MERRILL LYNCH GLOBAL INVESTMENT SERIES:
INCOME STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management LP,
as Investment Advisor
By:
-------------------------------
Name:
Title:
21
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management LP,
as Investment Advisor
By:
-------------------------------
Name:
Title:
22
<PAGE>
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: Merrill Lynch Asset management LP,
as Investment Advisor
By:
-------------------------------
Name:
Title:
23
<PAGE>
MERRILL, LYNCH, PIERCE, FENNER & SMITH INC.
By:
-------------------------------
Name:
Title:
24
<PAGE>
VAN KAMPEN SENIOR
FLOATING RATE FUND
By:
-------------------------------
Name:
Title:
25
<PAGE>
VAN KAMPEN
SENIOR INCOME TRUST
By:
-------------------------------
Name:
Title:
26
<PAGE>
VAN KAMPEN PRIME RATE INCOME
TRUST
By:
-------------------------------
Name:
Title:
27
<PAGE>
AERIES FINANCE LTD.
By:
-------------------------------
Name:
Title:
28
<PAGE>
CERES FINANCE LTD.
By:
-------------------------------
Name:
Title:
29
<PAGE>
STRATA FUNDING LTD.
By:
-------------------------------
Name:
Title:
30
<PAGE>
MORGAN STANLEY SENIOR FUNDING, INC.
By:
-------------------------------
Name:
Title:
31
<PAGE>
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE INC.
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
32
<PAGE>
BANK ONE, ARIZONA, NA
By:
-------------------------------
Name:
Title:
33
<PAGE>
CARAVELLE INVESTMENT FUND, L.L.C.
By:
------------------------------
By:
-------------------------------
Name:
Title:
34
<PAGE>
CAPTIVA FINANCE LTD.
By:
-------------------------------
Name:
Title:
35
<PAGE>
CAPTIVA II FINANCE LTD.
By:
-------------------------------
Name:
Title:
36
<PAGE>
FIRST DOMINION FUNDING I
By:
-------------------------------
Name:
Title:
37
<PAGE>
FRANKLIN FLOATING RATE TRUST
By:
-------------------------------
Name:
Title:
38
<PAGE>
DRESDNER KLEINWORT BENSON
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
39
<PAGE>
ERSTE BANK NEW YORK BRANCH
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
40
<PAGE>
FIRST UNION NATIONAL BANK
By:
-------------------------------
Name:
Title:
41
<PAGE>
KEY CORPORATE CAPITAL INC.
By:
-------------------------------
Name:
Title:
42
<PAGE>
KZH III LLC
By:
-------------------------------
Name:
Title:
43
<PAGE>
KZH SHOSHONE LLC
By:
-------------------------------
Name:
Title:
44
<PAGE>
KZH STERLING LLC
By:
-------------------------------
Name:
Title:
45
<PAGE>
KZH HIGHLAND-2 LLC
By:
-------------------------------
Name:
Title:
46
<PAGE>
KZH PAMCO LLC
By:
-------------------------------
Name:
Title:
47
<PAGE>
LEHMAN SYNDICATED LOAN FUNDING
TRUST
BY: LEHMAN COMMERCIAL PAPER
INC., NOT IN ITS INDIVIDUAL
CAPACITY BUT SOLELY AS ASSET
MANAGER
By:
-------------------------------
Name:
Title:
48
<PAGE>
ML CBO IV (CAYMAN) LTD.
By: Highland Capital Management,
L.P., as Collateral Manager
By:
-------------------------------
Name:
Title:
49
<PAGE>
ML CLO XX PILGRIM AMERICA
By: Pilgrim Investments Inc., as
its Investment Manager
By:
-------------------------------
Name:
Title:
50
<PAGE>
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments Inc., as
its Investment Manager
By:
-------------------------------
Name:
Title:
51
<PAGE>
MOUNTAIN CLO TRUST
By:
-------------------------------
Name:
Title:
52
<PAGE>
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management
as Investment Advisor
By:
-------------------------------
Name:
Title:
53
<PAGE>
PAM CAPITAL FUNDING L.P.
By: Highland Capital Management,
as Collateral Agent
By:
-------------------------------
Name:
Title:
54
<PAGE>
PAMCO CAYMAN LTD.
By: Highland Capital Management,
as Collateral Manager
By:
-------------------------------
Name:
Title:
55
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and
Research as Investment
Advisor
By:
-------------------------------
Name:
Title:
56
<PAGE>
WAINWRIGHT BANK & TRUST COMPANY
By:
-------------------------------
Name:
Title:
57
<PAGE>
ELC CAYMAN LTD.
By:
-------------------------------
Name:
Title:
58
<PAGE>
BLACK DIAMOND CLO 1998-1 LTD.
By:
-------------------------------
Name:
Title:
59
<PAGE>
OASIS COLLATERALIZED HIGH INCOME
PORTFOLIOS-I, LTD.
By:
-------------------------------
Name:
Title:
60
<PAGE>
PACIFICA PARTNERS I, L.P.
By:
-------------------------------
By:
-------------------------------
Name:
Title:
61
