UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to _____
Commission File Number 1-9317
HEALTH AND RETIREMENT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-6558834
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
400 Centre Street, Newton, Massachusetts 02158
(Address of principal executive offices) (Zip Code)
617-332-3990
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Shares of Beneficial Interest New York Stock Exchange
Floating Rate Senior Notes,
Series A, Due 1999 New York Stock Exchange
Floating Rate Senior Notes,
Series B, Due 1999 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock of the registrant
held by non-affiliates was $823,402,873 based on the $14.875
closing price per share for such stock on the New York Stock
Exchange on March 29, 1994. For purposes of this calculation,
1,013,651 shares held by HRPT Advisors, Inc. (the "Advisor"), a
total of 2,777,768 shares held by the Advisor solely in its
capacity as voting trustee under certain voting trust agreements,
and an aggregate of 33,935 shares held by the trustees and
executive officers of the registrant, have been included in the
number of shares held by affiliates.
Number of the registrant's Common Shares of Beneficial Interest,
$.01 par value ("Shares"), outstanding as of March 15, 1995:
59,162,768 .
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is incorporated
herein by reference from the Company's definitive Proxy Statement
for the annual meeting of shareholders currently scheduled to be
held on May 16, 1995.
THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED OCTOBER
9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO
(THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND,
PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST"
REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO
TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE TRUST
SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY,
FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS
OF THE TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION.<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
1994 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . 24
Item 3. Legal Proceedings . . . . . . . . . . . . . . 26
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 26
PART II
Item 5. Market for the Registrant's Common
Stock and Related Stockholder Matters . . 26
Item 6. Selected Financial Data . . . . . . . . . . . 28
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . 28
Item 8. Financial Statements and Supplementary Data. 34
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . 35
PART III
To be incorporated by reference from the Company's definitive
Proxy Statement for the annual meeting of shareholders
currently scheduled to be held on May 16, 1995, which will be filed not
later than 120 days after the end of the Company's fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . 35
FINANCIAL STATEMENTS AND SCHEDULES . . . . . . . . . . . F-1<PAGE>
PART I
Item 1. Business.
The Company. Health and Retirement Properties Trust (the
"Company") was organized on October 9, 1986 as a Maryland real estate
investment trust. The Company primarily invests in nursing homes,
retirement complexes and other income producing health care related real
estate. The Company's investments, to date, have been principally in
nursing homes and other long-term care facilities, assisted living
facilities, retirement complexes and facilities that provide subacute
services. In March 1995, in a one time transaction, the Company
invested $179.4 million in 21 hotel properties managed by an affiliate
of Marriott International, Inc. (Marriott). See "Developments since
January 1, 1994". The facilities in which the Company has made
investments by mortgage, purchase lease or merger transactions shall
hereinafter be referred to individually as a "Property" and collectively
as "Properties".
As of December 31, 1994, the Company owned 80 Properties acquired
for an aggregate of $673.1 million and had mortgage investments in 61
Properties aggregating $133.5 million, for total real estate investments
of approximately $806.6 million in 141 Properties located in 27 states.
The Properties are described in "Business -- Developments Since January
1, 1994" and "Properties".
<TABLE>
<CAPTION>
Number of Total Investment
State Properties at December 31, 1994
(in thousands)
<S> <C> <C>
Arizona............. 5 $ 28,062
California.......... 17 80,005
Colorado............ 11 34,551
Connecticut......... 9 85,036
Florida............. 6 132,951
Georgia............. 5 8,167
Illinois............ 2 39,453
Iowa................ 10 14,729
Kansas.............. 4 8,738
Kentucky............ 2 8,733
Louisiana........... 1 24,376
Maryland............ 1 33,080
Massachusetts....... 5 82,058
Michigan............ 2 9,400
Missouri............ 2 3,235
Nebraska............ 12 17,700
North Carolina...... 9 16,359
Ohio................ 7 25,125
Pennsylvania........ 2 18,409
South Carolina...... 1 901
South Dakota........ 3 7,589
Tennessee........... 1 1,013
Texas............... 7 17,166
Virginia............ 3 57,662<PAGE>
Washington.......... 1 5,193
Wisconsin........... 9 38,672
Wyoming............. 4 8,197
--- --------
Total.......... 141 $806,560
</TABLE>
The Company's principal executive offices are located at 400 Centre
Street, Newton, Massachusetts 02158, and its telephone number is (617)
332-3990.
Investment Policy and Method of Operation. The Company's investment
goals are current income for distribution to shareholders, capital
growth resulting from appreciation in the residual value of owned
Properties, and preservation and protection of shareholders' capital.
The Company's income is derived primarily from minimum rent and minimum
interest payments under its leases and mortgages and from additional
rent and additional interest payments based upon revenue increases at
the leased and mortgaged Properties.
The Company's day-to-day operations are conducted by HRPT Advisors,
Inc., the Company's investment advisor (the "Advisor"). The Advisor
originates and presents investment opportunities to the Company's Board
of Trustees (the "Trustees"). In evaluating potential investments, the
Company considers such factors as: the adequacy of current and
anticipated cash flow from the property to meet operational needs and
financing obligations and to provide a competitive market return on
investment to the Company; the growth, tax and regulatory environments
of the community in which the property is located; the quality,
experience, and credit worthiness of the property's operator; an
appraisal of the property, if available; occupancy and demand for
similar facilities in the same or nearby communities; the mix of private
and government sponsored patients; the mix of cost-based and
charge-based revenues; the construction quality, condition and design of
the property; and the geographic area and type of property.
The Trustees have established a policy that the Company will not
purchase or mortgage finance a facility for an amount which exceeds the
appraised value of such facility. Prior to investing in properties, the
Company obtains title commitments or policies of title insurance
insuring that the Company holds title to or has mortgage interests in
such properties, free of material liens and encumbrances.
The Company's investments may be structured using leases with minimum
and additional rent and escalator provisions, loans with fixed or
floating rates, joint ventures and partnerships with affiliated or
unaffiliated parties, commitments or options to purchase interests in
real estate, mergers or any combination of the foregoing that will best
suit the particular investment.
In connection with its revolving credit facility, the Company has
agreed to obtain bank approval before exceeding certain investment
concentrations. Among these are that no more than 40% of its properties
be operated by any single tenant or mortgagor, that investment in
rehabilitation treatment, acute care and United Kingdom properties not
exceed 40%, 15% and 10%, respectively, of total investments and that no
new psychiatric care or hotel investments be made. In addition to these
restrictions, the Trustees may establish limitations as they deem<PAGE>
appropriate from time to time. No limits have been set on the number of
properties in which the Company will seek to invest, or on the
concentration of investments involving any one facility or geographical
area; however, the Trustees consider concentration of investments in
determining whether to make new or increase existing investments. The
Company's Declaration of Trust (the "Declaration") and operating
policies provide that any investment in facilities owned or operated by
the Advisor, persons expressly permitted under the Declaration to own
more than 8.5% of the Company's shares, or any company affiliated with
any of the foregoing must, however, be approved by a majority of the
Trustees not affiliated with any of the foregoing (the "Independent
Trustees").
The Company has in the past and may in the future consider, from time
to time, the acquisition of or merger with other companies engaged in
the same business as the Company; however, the Company has no present
agreements or understandings concerning any such acquisition or merger.
The Company has no intention of investing in the securities of others
for the purpose of exercising control.
Borrowing Policy. In addition to the use of equity, the Company
utilizes short-term and long-term borrowings to finance investments.
During 1994, the Company obtained investment grade ratings on its long
term debt from Moody's Investor Services ("Moody's"), Standard and
Poor's Corporation ("S&P") and Fitch Investor Services, Inc. ("Fitch")
in connection with the issuance of $200 million of floating rate notes.
The notes were issued in two series. The Series A notes may be called,
at the Company's option, beginning in April 1995. The Series B notes,
which were issued at a discount, may be called, at the Companys option,
beginning in July 1996. The notes bear interest at a spread over LIBOR
and mature in July 1999. At December 31, 1994, the Company had a
revolving credit facility available to it totalling $170 million.
Availability under this revolver was increased to $200 million effective
March 15, 1995. As of March 15, 1995, $10 million of this amount was
outstanding, and $190 million was available to be drawn. All but $17.6
million of outstanding indebtedness is at variable interest rates
determined by formulae based upon the London Interbank Offered Rate
("LIBOR"), prime or some other generally recognized interest rate
standard. Fluctuations in interest rates on $200 million of variable
rate outstanding term indebtedness have been limited by hedging
arrangements so that the maximum average rates payable on the $200
million of indebtedness is 6.85% per annum. The maturities of the hedge
agreements range from 1995 through 1998.
The Company's borrowing guidelines established by its Trustees and
covenants in various debt agreements prohibit the Company from
maintaining a debt to equity ratio of greater than 1 to 1. At December
31, 1994, the Company's debt to equity ratio was .36 to 1. The
Declaration prohibits the Company from incurring secured and unsecured
indebtedness which in the aggregate exceeds 300% of the net assets of
the Company, unless approved by a majority of the Independent Trustees.
There can be no assurance that debt capital will in the future be
available at reasonable rates to fund the Company's operations or
growth.
-3-<PAGE>
Developments Since January 1, 1994.
Horizon/Greenery Merger. In February 1994, the merger transaction
(the "Horizon/Greenery Merger") between Horizon Healthcare Corporation
("Horizon") and Greenery Rehabilitation Group, Inc. ("Greenery") was
consummated. In connection with this merger, the Company sold to
Horizon for $28.4 million three facilities that had been leased to
Greenery. The Company realized a gain of approximately $4.0 million on
the sale of these properties. In addition, Horizon leased seven
facilities previously leased to Greenery, on substantially similar terms
except the leases were extended through 2005. The Company has also
granted Horizon a ten year option to buy the seven leased facilities, at
the rate of no more than one facility per consecutive twelve months.
Also, the Company leased the three remaining Greenery facilities to a
newly formed corporation, Connecticut Subacute Corporation, II ("CSC
II"), an affiliate of the Advisor. These facilities are being managed
by and the lease payments are guaranteed by Horizon for a term of up to
five years. The terms of these lease arrangements are substantially
similar to the original lease arrangements with Greenery.
On February 11, 1994, in connection with the Horizon-Greenery merger,
the Company provided Horizon with $9.4 million first mortgage financing
for two facilities. One of the facilities previously was owned by the
Company and leased to Greenery. The mortgage notes bear interest at
11.5% per annum and mature December 31, 2000.
In January 1995, Horizon exercised its option and purchased one of the
seven leased properties from the Company for $24.5 million resulting in
a gain of $2.5 million. The Company provided Horizon a 16 year $19.5
million mortgage in connection with this sale in 1995.
New Revolving Credit Facility. During 1994 and early 1995, the
Company amended its revolving credit facility from a syndicate of banks
(the "Credit Facility"). The Credit Facility which allows borrowing of
up to $200 million, will mature in 1998, unless extended by the parties.
Borrowings on the Credit Facility will bear interest, at the Company's
option, at prime or a spread over or LIBOR.
May Share Offering. During the second quarter of 1994, the Company
sold 12,650,000 Shares in a public offering and received net proceeds of
approximately $174 million. The proceeds were used, in part, to prepay
$73 million in outstanding indebtedness and, in part, to fund the
transactions described below.
July Floating Rate Note Offering. In July 1994, the Company issued
$200 million floating rate notes in a public offering and received net
proceeds after financing costs of approximately $197 million. The notes
were issued in two series; Series A issued at par and Series B issued at
a discount. The Series A and B notes mature in July 1999, but may be
called, at the Company's option, beginning in April 1995 and July 1996,
respectively. The notes bear interest at a spread over the three month
LIBOR. The proceeds of the note offering were used, in part, to fund the
Marriott retirement communities transaction described below.
-4-<PAGE>
Marriott Retirement Communities Transaction. On September 9, 1994,
the Company completed its previously announced transaction with Host
Marriott Corporation ("Host Marriott") to acquire 14 retirement
communities containing 3,952 residences or beds for $320 million. These
communities are triple net leased through December 31, 2013 to a wholly
owned subsidiary of Marriott. The leases provide for fixed rent and
additional rentals equal to a percentage of annual revenues from
operations in excess of base amounts determined on a facility by
facility basis. All of the leases are subject to cross default
provisions and are guaranteed by Marriott. This transaction was funded
from cash on hand, the proceeds of the equity offering discussed above,
drawings under the Company's Credit Facility, assumption of $17.6
million of existing debt bearing interest at 7.75% and a portion of the
proceeds from a floating rate note offering described above.
1995 Commitments; Hotel Transaction. Since January 1, 1995, the
Company has made or committed to make real estate investments in four
separate transactions involving 41 healthcare facilities totalling
approximately $109 million. Of this amount, approximately $14 million
represents mortgage financings and $95 million represents acquisitions
of healthcare facilities.
In addition, the Company entered into a purchase and lease agreement
with a subsidiary of Host Marriott for 21 Courtyard by Marriott hotel
properties for approximately $179.4 million, subject to adjustment. The
properties have been leased for an initial term of 12 years, with
renewal options of an additional 37 years to a subsidiary of Host
Marriott, and are being managed by a subsidiary of Marriott
International. An amount equal to one year's rent was withheld from the
purchase price to secure the tenant's obligations to the Company. The
transaction closed in March 1995.
Although the Company's investments are no longer exclusively in
healthcare, retirement and related properties, the Company's investment
in hotel properties does not represent a change in the Company's
strategy of focusing on investments in long term care and retirement
facilities. Rather, this investment, structured as a triple net lease,
will represent only approximately 15% of the Company's portfolio,
including the commitments noted above as of March 24, 1995. The
facilities are new, having been constructed within the last five years,
and occupancy and cash flow coverage are strong. Following the
announcement of this investment, Moody's downgraded the Company's debt
rating and S&P and Fitch maintained their ratings. The Company
believes, despite the negative reaction by Moody's, that this
transaction will enhance the security and growth potential of its funds
from operations.
The Advisor. The Advisor is wholly owned by Gerard M. Martin and
Barry M. Portnoy. Messrs. Martin, Portnoy and Mark J. Finkelstein are
the directors of the Advisor, Mr. Finkelstein is the President and Chief
Executive Officer, David J. Hegarty is the Executive Vice President,
Chief Financial Officer and Secretary and John G. Murray is the
Treasurer of the Company. Effective April 1, 1995, Mr. Finkelstein will
resign to pursue his interests in operating nursing homes and will
become president of Subacute Management Corporation of America, Inc.
-5-<PAGE>
The Company's Board of Trustees has elected David J. Hegarty President,
Chief Operating Officer and Secretary, John G. Murray, Executive Vice
President and Chief Financial Officer and Ajay Saini, Treasurer. These
officers of the Advisor are also officers of the Company. The Advisor
provides management services and investment advice to the Company. The
Advisor's principal executive offices are located at 400 Centre Street,
Newton, Massachusetts 02158, and its telephone number is (617) 332-3990.
Employees. As of March 14, 1995, the Company had no employees. The
Advisor, which administers the day-to-day operations of the Company, has
9 full-time employees and two active directors.
Regulation and Reimbursement; Competition. Compliance with federal,
state and local statutes and regulations governing health care
facilities is a prerequisite to continuation of health care operations
at the Properties. In addition, the health care industry depends
significantly upon federal and federal/state programs for revenues and,
as a result, is vulnerable to the budgetary policies of both the federal
and state governments.
Certificate of Need and Licensure. Most states in which the Company
has or may invest require certificates of need ("CONs") prior to
expansion of beds or services, certain capital expenditures, and in some
states, a change in ownership. CON requirements are not uniform
throughout the United States. Changes in CON requirements may affect
competition, profitability of the Properties and the Company's
opportunities for investment in health care facilities.
State licensure requirements, including regulations providing that
commonly controlled facilities are subject to delicensure if one such
facility is delicensed, also affect facilities in which the Company
invests. The Company believes that each facility in which it has
invested is appropriately licensed. Although each of the facilities may
from time to time receive notices of non-compliance with certain
standards, and certain facilities in Connecticut and Massachusetts are
subject to provisional or probationary licenses, the Company believes
that such actions have not, in fiscal year 1994 and through the date
hereof, had any material adverse effect on the operations of the
Company. Horizon's licenses to operate the Massachusetts facilities
leased to it are probationary subject to certain conditions.
An increasing number of legislative proposals have been introduced in
Congress that would effect major reforms of the health care system.
Such proposals include universal health coverage, employer mandated
insurance, and a single government health insurance plan. Following the
failure of the Clinton administration's proposed Health Security Act or
other major health care reform legislation to become law in 1994,
legislative proposals for more incremental reforms have also been
introduced, such as group health insurance plans for small businesses,
health insurance industry reforms, health care anti-fraud legislation,
and Medicare and Medicaid reforms and cost containment measures. The
Company cannot predict whether any such legislative proposals will be
adopted and, if adopted, what effect, if any, such proposals would have
on the business of the lessees, the mortgagors or the Company. New
regulations adopted by the Health Care Finance Administration governing
-6-<PAGE>
Medicare and Medicaid nursing facility surveys, certification, and
enforcement, are scheduled to be effective on July 1, 1995. The
regulations require the states to implement a wide range of enforcement
remedies, and penalties for noncompliance with Medicare/Medicaid
standards may increase in the future. An adverse determination
concerning licensure or eligibility for government reimbursement of any
operator could materially adversely affect that operator, its affiliates
and the Company. In addition, federal and state civil and criminal
anti-fraud and anti-kickback laws and regulations govern financial
activities of health care providers and enforcement proceedings have
increased. If any operator of the Company's Properties were to fail to
comply with such laws or regulations, it, and therefore the Company,
could be materially adversely affected unless and until any such
property of properties were returned to compliance or the Company were
able to re-lease or sell the affected Property or Properties on
favorable terms.
Reimbursement. Reimbursement for health care services derives
principally form the following sources: Medicare, a federal health
insurance program for the aged and certain chronically disabled
individuals; Medicaid, a medical assistance program for indigent persons
operated by individual states with the financial participation of the
federal government; health and other insurance plans, including health
maintenance organizations; and private funds. These reimbursement
sources are generally contingent upon compliance with state CON and
licensure regulations and with extensive federal requirements for
Medicare and Medicaid participation.
Medicaid programs provide significant current revenues of nursing
facilities. Medicare is not presently a major source of revenue for the
Company's lessees and mortgagors. The Medicaid program is subject to
change and affected by state and federal budget shortfalls and funding
restrictions which may materially decrease rates of payment or delay
payment. There is no assurance that Medicaid or Medicare payments will
remain constant or be sufficient to cover costs allocable to Medicare
and Medicaid patients. The operators of the Properties appeal
reimbursement rates from time to time. The Company cannot predict
whether such appeals, if decided adversely, would have any material
effect upon the respective financial positions of the operators.
Other. Federal law limits Medicare and Medicaid reimbursement for
capital costs related to increases in the valuation of capital assets
solely as a result of a change of ownership of nursing facilities, and
numerous states use more restrictive standards to limit Medicaid
reimbursement of capital costs. Effective in October of 1993, Medicare
eliminated reimbursement of return on equity capital for Medicare
skilled nursing homes. Some state Medicaid programs also do not provide
for return on equity capital. In addition, a seller is liable to the
Medicare program, and in certain states may also be liable to the
Medicaid program, for recaptured depreciation. Such limitations may
adversely affect the resale value of some Properties owned or financed
by the Company.
Effective in October of 1992, DHHS issued final regulations which
limit the amount of Medicare reimbursement available to a facility for
-7-<PAGE>
rental or lease expenses paid after a purchase lease transaction to that
amount which would have been reimbursed as capital costs had the
provider retained legal title to the facility. Limitations on rental
expenses contained in the regulations may adversely affect the financial
feasibility of future purchase lease transactions by denying Medicare
and Medicaid reimbursement for additional rental expenses.
It is not possible to predict the content, scope or impact of future
legislation, regulations or changes in reimbursement or insurance
coverage policies which might affect the health care industry.
Competition. The Company is one of several REITs currently investing
primarily in health care related real estate. The REITs compete with
one another in that each is continually seeking attractive investment
opportunities in health care facilities. The Company also competes with
banks, non-bank finance companies, leasing companies and insurance
companies.
In addition, the Company competes with the operators of its Properties
in connection with the expansion of their businesses. Although each of
the operators may offer investment opportunities to the Company, each of
the operators or its affiliates will, in fact, compete with the Company
(as well as with others) for investment opportunities. The operators
may own facilities that are not mortgaged or leased to the Company. An
operator, or an affiliate thereof, could preferentially place patients
or operate special service programs in facilities other than those
included among the Properties. Such preferential treatment and/or new
programs could adversely affect the revenues derived by the Company
under its mortgages and leases.
Federal Income Tax Considerations. The Company believes that it is
and it intends to be and remain qualified as a real estate investment
trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"). These Code provisions are highly
technical and complex. Each shareholder therefore is urged to consult
his own tax advisor with respect to the federal income tax and other tax
consequences of the purchase, holding and sale of shares of beneficial
interest of the Company.
The Company has obtained legal opinions that the Company has been
organized in conformity with the requirements for qualification as a
REIT, has qualified as a REIT for its 1987, 1988, 1989, 1990, 1991,
1992, 1993 and 1994 taxable years, and that its current and anticipated
investments and its plan of operation will enable it to continue to meet
the requirements for qualification and taxation as a REIT under the
Code. Actual qualification of the Company as a REIT, however, will
depend upon the Company's continued ability to meet, and its meeting,
through actual annual operating results, the various qualification tests
imposed under the Code. No assurance can be given that the actual
results of the Company's operation for any one taxable year will satisfy
such requirements.
Taxation of the Company. If the Company qualifies for taxation as a
REIT and distributes to its shareholders at least 95% of its "real
estate investment trust taxable income", it generally will not be
-8-<PAGE>
subject to federal corporate income taxes on the amount distributed.
However, a REIT is subject to special taxes on the net income derived
from "prohibited transactions." In addition, property acquired by the
Company as the result of a default or imminent default on a lease or
mortgage is classified as "foreclosure property". Certain net income
from foreclosure property held by the Company for sale is taxable to it
at the highest corporate marginal tax rate then prevailing.
Section 856(a) of the Code defines a REIT as a corporation, trust or
association: (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest; (3) which
would be taxable, but for Sections 856 through 859 of the Code, as a
domestic corporation; (4) which is neither a financial institution nor
an insurance company subject to certain provisions of the Code; (5) the
beneficial ownership of which is held by 100 or more persons; (6) which
is not closely held as determined under the personal holding company
stock ownership test (as applied with one modification); and (7) which
meets certain other tests, described below. Section 856(b) of the Code
provides that conditions (1) to (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. By reason of condition (6)
above, the Company will fail to qualify as a REIT for a taxable year if
at any time during the last half of such year more than 50% in value of
its outstanding Shares are owned directly or indirectly by five or fewer
individuals. To help maintain conformity with condition (6), the
Company's Declaration of Trust (the "Declaration") contains certain
provisions restricting share transfers and giving the Board of Trustees
power to redeem shares involuntarily.
It is the expectation of the Company that it will have at least 100
shareholders during the requisite period for each of its taxable years.
There can, however, be no assurance in this connection and, if the
Company has fewer than 100 shareholders during the requisite period,
condition (5) described above will not be satisfied, and the Company
would not qualify as a REIT during such taxable year.
For taxable years beginning after 1993, the rule that an entity will
fail to qualify as a REIT for a taxable year if at any time during the
last half of such year more than 50% in value of its outstanding shares
is owned directly or indirectly by five or fewer individuals has been
liberalized in the case of a qualified pension trust owning shares in a
REIT. Under the new rule, the requirement is applied by treating shares
in a REIT held by such a pension trust as held directly by its
beneficiaries in proportion to their actuarial interests in the pension
trust. Consequently, five or fewer pension trusts could own more than
50% of the interests in an entity without jeopardizing its qualification
as a REIT. However, if a REIT is a "pension-held REIT" as defined in
the new law, each pension trust holding more than 10% of its shares (by
value) generally will be taxable on a portion of the dividends it
receives from the REIT, based on the ratio of the REIT's gross income
for the year which would be unrelated trade or business income if the
REIT were a qualified pension trust to the total gross income of the
REIT for the year. A "pension-held REIT" is one in which at least one
-9-<PAGE>
qualified pension trust holds more than 25% (by value) of the interests
by value, or a combination of qualified pension trusts each of which
owns more than 10% by value of the REIT together holds more than 50% of
the REIT interests by value.
To qualify as a REIT for a taxable year under the Code, the Company
must elect to be so treated and must meet other requirements, certain of
which are summarized below, including percentage tests relating to the
sources of its gross income, the nature of the Company's assets, and the
distribution of its income to shareholders. The Company has made such
election for 1987 (its first full year of operations) and such election,
assuming continuing compliance with the qualification tests discussed
herein, continues in effect for subsequent years.
There are three gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from certain sales of
property held primarily for sale) must be derived directly or indirectly
from investments relating to real property (including "rents from real
property") or mortgages on real property. When the Company receives new
capital in exchange for its shares (other than dividend reinvestment
amounts) or in a public offering of five-year or longer debt
instruments, income attributable to the temporary investment of such new
capital in stock or a debt instrument, if received or accrued within one
year of the Company's receipt of the new capital, is qualifying income
under the 75% test. Second, at least 95% of the Company's gross income
(excluding gross income from certain sales of property held primarily
for sale) must be derived from such real property investments,
dividends, interest, certain payments under interest rate swap or cap
agreements, and gain from the sale or disposition of stock, securities,
or real property or from any combination of the foregoing. Third,
short-term gain from the sale or other disposition of stock or
securities, including, without limitation, stock in other REITs,
dispositions of interest rate swap or cap agreements, and gain from
certain prohibited transactions or other dispositions of real property
held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the
Company's gross income. (This rule does not apply for a year in which
the REIT is completely liquidated, as to dispositions occurring after
the adoption of a plan of complete liquidation.) For purposes of these
rules, income derived from a "shared appreciation provision" is treated
as gain recognized on the sale of the property to which it relates.
Even though the Company's present mortgages do not contain shared
appreciation provisions, the Company may make mortgage loans which
include such provisions.
The Company temporarily invests working capital in short-term
investments, including shares in other REITs. Although the Company will
use its best efforts to ensure that its income generated by these
investments will be of a type which satisfies the 75% and 95% gross
income tests, there can be no assurance in this regard (see discussion
above of the "new capital" rule under the 75% test). Moreover, the
Company may realize short-term capital gain upon sale or exchange of
such investments, and such short-term capital gain would be subject to
the limitations imposed by the 30% gross income test.
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In order to qualify as "rents from real property," the amount of rent
received generally must not be determined from the income or profits of
any person, but may be based on receipts or sales. The Code also
provides that rents will not qualify as "rents from real property," in
satisfying the gross income tests, if the REIT owns 10% or more of the
tenant, whether directly or under certain attribution rules. The
Company intends not to lease property to any party if rents from such
property would not so qualify. Application of the 10% ownership rule
is, however, dependent upon complex attribution rules provided in the
Code and circumstances beyond the control of the Company. Ownership,
directly or by attribution, by an unaffiliated third party of more than
10% of the Company's shares and more than 10% of the stock of a lessee
would result in lessee rents not qualifying as "rents from real
property". The Declaration provides that transfers or purported
acquisitions, directly or by attribution, of shares that could result in
disqualification of the Company as a REIT are null and void and permits
the Trustees to repurchase shares to the extent necessary to maintain
the Company's status as a REIT. Nevertheless, there can be no assurance
such provisions in the Declaration will be effective to prevent the
Company's REIT status from being jeopardized under the 10% rule.
Furthermore, there can be no assurance that the Company will be able to
monitor and enforce such restrictions, nor will shareholders necessarily
be aware of share holdings attributed to them under the attribution
rules.
In addition, the Company must not manage the property or furnish or
render services to the tenants of such property, except through an
independent contractor from whom the company derives no income. There
is an exception to this rule permitting a REIT to perform certain
customary tenant services of the sort which a tax-exempt organization
could perform without being considered in receipt of "unrelated business
taxable income."
If rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." The portion of
rental income treated as attributable to personal property is determined
according to the ratio of the tax basis of the personal property to the
total tax basis of the property which is rented. If rent payments do
not qualify, for the reasons discussed above, as rents from real
property for the purposes of Section 856 of the Code, it will be more
difficult for the Company to meet the 95% or 75% gross income tests and
to qualify as a REIT. Finally, in order to qualify as mortgage interest
on real property for purposes of the 75% test, interest must derive from
a mortgage loan secured by real property with a fair market value at
least equal to the amount of the loan. If the amount of the loan
exceeds the fair market value of the real property, the interest will be
treated as interest on a mortgage loan in a ratio equal to the ratio of
the fair market value of the real property to the total amount of the
mortgage loan.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if its failure to meet such test was due to reasonable
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cause and not due to willful neglect, it attaches a schedule of the
sources of its income to its return, and any incorrect information on
the schedule was not due to fraud with intent to evade tax. It is not
possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. If these
relief provisions apply, a special tax generally equal to 100% is
imposed upon the greater of the amount by which the Company failed the
75% test or the 95% test, less an amount which generally reflects the
expenses attributable to earning the non-qualified income.
At the close of each quarter of the Company's taxable year, it must
also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must consist of
real estate assets (including its allocable share of real estate assets
held by joint ventures or partnerships in which the Company
participates), cash, cash items and government securities. Second, not
more than 25% of the Company's total assets may be represented by
securities (other than those includable in the 75% asset class).
Finally, of the investments included in the 25% asset class, the value
of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets, and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
Where a failure to satisfy the 25% asset test results from an
acquisition of securities or other property during a quarter, the
failure can be cured by disposition of sufficient non-qualifying assets
within 30 days after the close of such quarter. The Company intends to
maintain adequate records of the value of its assets to maintain
compliance with the 25% asset test, and to take such action as may be
required to cure any failure to satisfy the test within 30 days after
the close of any quarter.
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its shareholders in an
amount equal to or greater than the excess of (A) the sum of (i) 95% of
the Company's "real estate investment trust taxable income" (computed
without regard to the dividends paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, (after tax) from
foreclosure property, over (B) the sum of certain non-cash income (from
certain imputed rental income and income from transactions inadvertently
failing to qualify as like-king exchanges). These requirements may be
waived by the IRS if the REIT establishes that it failed to meet them by
reason of distributions previously made to meet the requirements of the
4% excise tax discussed below. To the extent that the Company does not
distribute all of its net long-term capital gain and all of its "real
estate investment trust taxable income", it will be subject to tax
thereon. In addition, the Company will be subject to a 4% excise tax to
the extent it fails within a calendar year to make "required
distributions" to its shareholders of 85% of its ordinary income and 95%
of its capital gain net income plus the excess, if any, of the "grossed
up required distribution" for the preceding calendar year over the
amount treated as distributed for such preceding calendar year. For
this purpose, the term "grossed up required distribution" for any
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calendar year is the sum of the taxable income of the Company for the
calendar year (without regard to the deduction for dividends paid) and
all amounts from earlier years that are not treated as having been
distributed under the provision. Dividends declared in October,
November, or December and paid during the following January will be
treated as having been paid and received on December 31.
It is possible but highly unlikely, that the Company, from time to
time, may not have sufficient cash or other liquid assets to meet the
95% distribution requirements, due to timing differences between the
actual receipt of income and actual payment of deductible expenses or
dividends on the one hand and the inclusion of such income and deduction
of such expenses or dividends in arriving at "real estate investment
trust taxable income" of the Company on the other hand. The problem of
inadequate cash to make required distributions could also occur as a
result of the repayment in cash of principal amounts due on the
Company's outstanding debt, particularly in the case of "balloon"
repayments or as a result of capital losses on short-term investments of
working capital. Therefore, the Company might find it necessary to
arrange for short-term, or possibly long-term, borrowing, or new equity
financing. If the Company were unable to arrange such borrowing or
financing as might be necessary to provide funds for required
distributions, its REIT status could be jeopardized.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying
"deficiency dividends" to shareholders in a later year, which may be
included in the Company's deduction for dividends paid for the earlier
year. The Company may be able to avoid being taxed on amounts
distributed as deficiency dividends; however, the Company may in certain
circumstances remain liable for the 4% excise tax discussed above.
The Company is also required to request annually from record holders
of certain significant percentages of its shares certain information
regarding the ownership of such shares. Under the Declaration,
shareholders are required to respond to such requests for information.
Federal Income Tax Treatment of Leases. The availability to the
Company of, among other things, depreciation deductions with respect to
the facilities owned and leased by the Company will depend upon the
treatment of the Company as the owner of the facilities and the
classification of the leases of the facilities as true leases, rather
than as sales or financing arrangements, for Federal income tax
purposes. As to the approximately 5% of the leased facilities which
constitutes personal property, it is less clear that the Company will be
treated as the owner of such personal property and that the leases will
be treated as true leases with respect to such property. The Company
plans to insure its compliance with the 95% distribution requirement
(and the "required distribution" requirement) by making distributions on
the assumption that it is not entitled to depreciation deductions for
the 5% of the leased facilities which constitute personal property, but
to report the amount of income taxable to its shareholders by taking
into account such depreciation.
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Other Issues. In the case of certain sale-leaseback arrangements, the
IRS could assert that the Company realized prepaid rental income in the
year of purchase to the extent that the value of a leased property
exceeds the purchase price paid by the Company for that property. In
litigated cases involving sale-leasebacks which have considered this
issue, courts have concluded that buyers have realized prepaid rent
where both parties acknowledged that the purported purchase price for
the property was substantially less than fair market value and the
purported rents were substantially less than the fair market rentals.
Because of the lack of clear precedent, complete assurance cannot be
given that the IRS could not successfully assert the existence of
prepaid rental income.
Additionally, it should be noted that Code Section 467 (concerning
leases with increasing rents) would apply to the leases because many of
the leases provide for rents that increase from one period to the next.
Section 467 provides that in the case of a so-called "disqualified
leaseback agreement," rental income must be accrued at a constant rate.
If such constant rent accrual were required, the Company would recognize
rental income in excess of cash rents and, as a result, may fail to meet
the 95% dividend distribution requirement. "Disqualified leaseback
agreements" include leaseback transactions where a principal purpose for
providing increasing rent under the agreement is the avoidance of
Federal income tax. Because Section 467 directs the Treasury to issue
regulations providing that rents will not be treated as increasing for
tax avoidance purposes where the increases are based upon a fixed
percentage of lessee receipts, the additional rent provisions of the
leases should not cause the leases to be "disqualified leaseback
agreements". In addition, the legislative history of Section 467
indicates that the Treasury should issue regulations under which leases
providing for fluctuations in rents by no more than a reasonable
percentage from the average rent payable over the term of the lease will
be deemed not motivated by tax avoidance; this legislative history
indicated that a standard allowing a 10% fluctuation in rents may be too
restrictive for real estate leases.
Depreciation of Properties. For tax purposes, the Company's real
property generally is depreciated on a straight-line basis over 40 years
and personal property owned by the Company generally is depreciated over
12 years.
Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year, and the relief provisions do not apply, the
Company will be subject to tax on its taxable income at regular
corporate rates (plus any applicable minimum tax). Distributions to
shareholders in any year in which the Company fails to qualify will not
be deductible by the Company nor will they be required to be made. In
such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary
income and, subject to certain limitations in the Code, eligible for the
70% dividends received deduction for corporations. Unless entitled to
relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the following four taxable
years. It is not possible to state whether in all circumstances the
Company would be entitled to statutory relief from such
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disqualification. Failure to qualify for even one year could result in
the Company's incurring substantial indebtedness (to the extent
borrowings are feasible) or liquidating substantial investments in order
to pay the resulting taxes.
Taxation of United States Shareholders--Generally. As long as the
Company qualifies as a REIT, distributions (including reinvestments
pursuant to the Company's dividend reinvestment plan) made to the
Company's shareholders out of current or accumulated earnings and
profits will be taken into account by them as ordinary income (which
will not be eligible for the 70% dividends received deduction for
corporations). Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains to the extent they do
not exceed the Company's actual net capital gain for the taxable year
although corporate shareholders may be required to treat up to 20% of
any such capital gain dividend as ordinary income pursuant to Section
291 of the Code. For purposes of computing the Company's earnings and
profits, depreciation on real estate is computed on a straight-line
basis (over 40 years for property acquired after 1986). Distributions
in excess of current or accumulated earnings and profits will not be
taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but will reduce the basis of
the shareholder's shares. To the extent that such distributions exceed
the adjusted basis of a shareholder's shares they will be included in
income as long-term capital gain (or short-term capital gain if the
shares have been held for not more than one year) assuming the shares
are a capital asset in the hands of the shareholder. Shareholders may
not include in their individual income tax returns any net operating
losses or capital losses of the Company.
Dividends declared by the Company in October, November or December of
a taxable year to shareholders of record on a date in such month, will
be deemed to have been received by such shareholders on December 31,
provided the Company actually pays such dividends during the following
January. The Company has, however, generally declared dividends for the
quarter ended December 31 in January of the following year and paid
these dividends in the following February. As a result, for tax
purposes, the dividend for any calendar year will generally include the
dividends for the first three quarters of that year plus the dividend
for the fourth quarter of the prior year. For tax purposes, dividends
paid in 1987, 1988, 1989, 1990, 1991, 1992, 1993 and 1994 aggregated
$1.085, $.840, $1.13, $1.16, $1.22, $1.25, $1.29 and $1.32 respectively,
of which $.289, $.065, $.332, $.267, $.104, $.218, $.335 and $.081,
respectively, represented a return of capital.
A sale of a share will result in recognition of gain or loss to the
holder in an amount equal to the difference between the amount realized
and its adjusted basis. Such a gain or loss will be capital gain or
loss, provided the share is a capital asset in the hands of the seller.
In general, any loss upon a sale or exchange of shares by a shareholder
who has held such shares for not more than one year (after applying
certain rules), will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
shareholders as long-term capital gain.
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Investors (other than certain corporations) who borrow funds to
finance their acquisition of Shares in the Company could be limited in
the amount of deductions allowed for the interest paid on the
indebtedness incurred in such an arrangement. Under Code Section
163(d), interest paid or accrued on indebtedness incurred or continued
to purchase or carry property held for investment is generally
deductible only to the extent of the taxpayer's net investment income.
An investor's net investment income will include the dividend and
capital gain dividend distributions he receives from the Company;
however, distributions treated as a nontaxable return of the
shareholder's basis will not enter into the computation of net
investment income.
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a
real estate investment trust to a tax-exempt employee's pension trust
did not constitute "unrelated business taxable income". Revenue rulings
are interpretive in nature and subject to revocation or modification by
the IRS. However, based upon Revenue Ruling 66-106 and the analysis
therein, the Company has received an opinion of counsel that
distributions by the Company to qualified pension plans (including
individual retirement accounts) and other tax-exempt entities should not
constitute "unrelated business taxable income," except as explained
above in the case of a pension trust which holds more than 10% by value
of a "pension-held REIT". This Revenue Ruling may not apply if a
shareholder has borrowed money to acquire shares.
Under Section 469 of the Code, taxpayers (other than certain
corporations) generally will not be entitled to deduct losses from
so-called passive activities except to the extent of their income from
passive activities. For purposes of these rules, distributions received
by a shareholder from the Company will not be treated as income from a
passive activity and thus will not be available to offset a
shareholder's passive activity losses.
Tax preference and other items which are treated differently for
regular and alternative minimum tax purposes are to be allocated between
a REIT and its shareholders under regulations which are to be
prescribed. It is likely that these regulations would require tax
preference items to be allocated to the Company's shareholders with
respect to any accelerated depreciation claimed by the Company, but the
Company has not claimed accelerated depreciation with respect to its
existing Properties.
Special Tax Considerations for Foreign Shareholders
The rules governing United States income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign
trusts and estates (collectively, "Non-U.S. Shareholders") are complex,
and the following discussion is intended only as a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own
tax advisors to determine the impact of Federal, state, and local income
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tax laws on an investment in the Company, including any reporting
requirements.
In general, a Non-U.S. Shareholder will be subject to regular United
States income tax with respect to its investment in the Company if such
investment is "effectively connected" with the Non-U.S. Shareholder's
conduct of a trade or business in the United States, or if the Non-U.S.
Shareholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year. A corporate
Non-U.S. Shareholder that receives income that is (or is treated as)
effectively connected with a U.S. trade or business may also be subject
to the branch profits tax under Section 884 of the Code, which is
payable in addition to regular United States corporate income tax. The
following discussion will apply to Non-U.S. Shareholders whose
investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from
the sale or exchange by the Company of a United States real property
interest and that is not designated by the Company as a capital gain
dividend will be treated as an ordinary income dividend to the extent
that it is made out of current or accumulated earnings and profits.
Generally, unless the dividend is effectively connected with the Non-
U.S. Shareholder's conduct of a trade or business, such a dividend will
be subject to a United States withholding tax equal to 30% of the gross
amount of the dividend unless such withholding is reduced by an
applicable tax treaty. A distribution of cash in excess of the
Company's earnings and profits will be treated first as a nontaxable
return of capital that will reduce a Non-U.S. Shareholder's basis in its
shares (but not below zero) and then as gain from the disposition of
such shares, the tax treatment of which is described under the rules
discussed below with respect to disposition of shares. A distribution
in excess of the Company's earnings and profits may be subject to 30%
dividend withholding if at the time of the distribution it cannot be
determined whether the distribution will be in an amount in excess of
the Company's current and accumulated earnings and profits. If its
subsequently determined that such distribution is, in fact, in excess of
current and accumulated earnings and profits, the Non-U.S. Shareholder
may seek a refund from the IRS. The Company expects to withhold United
States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Shareholder unless (i) a lower tax
treaty applies and the required form evidencing eligibility for that
reduced rate is filed with the Company or (ii) the Non-U.S. Shareholder
files IRS Form 4224 with the Company claiming that the distribution is
"effectively connected" income.
For any year in which the Company qualifies as a REIT, distributions
by the Company that are attributable to gain from the sale or exchange
of a United States real property interest will be taxed to a Non-U.S.
Shareholder in accordance with the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed
to a Non-U.S. Shareholder as if such distributions were gains
"effectively connected" with a United States trade or business.
Accordingly, a Non-U.S. Shareholder will be taxed at the normal capital
gain rates applicable to a U.S. Shareholder (subject to any applicable
alternative minimum tax and a special alternative minimum tax in the
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case of non-resident alien individuals). Distributions subject to
FIRPTA may also be subject to a 30% branch profits tax in the hands of a
foreign corporate shareholder that is not entitled to treaty exemption.
The Company will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the IRS, 35% of the amount of any
distribution that could be designated as capital gain dividends.
Tax treaties may reduce the Company's withholding obligations. If the
amount of tax withheld by the Company with respect to a distribution to
a Non-U.S. Shareholder exceeds the shareholder's United States liability
with respect to such distribution, the Non-U.S. Shareholder may file for
a refund of such excess from the IRS. It should be noted that the 35%
withholding tax rate on capital gain dividends corresponds to the
maximum income tax rate applicable to corporations but is higher than
the 28% maximum rate on capital gains of individuals.
If the Shares fail to constitute a "United States real property
interest" within the meaning of FIRPTA, a sale of the Shares by a Non-
U.S. Shareholder generally will not be subject to United States taxation
unless (i) investment in the Shares is effectively connected with the
Non-U.S. Shareholder's United States trade or business, in which case,
as discussed above, the Non-U.S. Shareholder would be subject to the
same treatment as U.S. Shareholders on such gain or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year, in which
case the nonresident alien individual will be subject to a 30% tax on
the individual's capital gains.
The Shares will not constitute a United States real property interest
if the Company is a "domestically controlled REIT". A domestically
controlled REIT is a REIT in which at all times during a specified
testing period less than 50% in value of its shares is held directly or
indirectly by Non-U.S. Shareholders. It is currently anticipated that
the Company will be a domestically controlled REIT, and therefore that
the sale of Shares will not be subject to taxation under FIRPTA.
However, because the Shares will be publicly traded, no assurance can be
given that the Company will continue to be a domestically controlled
REIT. If the Company did not constitute a domestically controlled REIT,
whether a Non-U.S. Shareholder's sale of Shares would be subject to tax
under FIRPTA as a sale of a United States real property interest would
depend on whether the Shares were "regularly traded" (as defined by
applicable Treasury Regulations) on an established securities market
(e.g., the New York Stock Exchange, on which the Shares are listed) and
on the size of the selling shareholder's interest in the Company. If
the gain on the sale of the Shares were subject to taxation under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment
as a U.S. Shareholder with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). In any event, a purchaser of
Shares from a Non-U.S. Shareholder will not be required under FIRPTA to
withhold on the purchase price if the purchased Shares are "regularly
traded" on an established securities market or if the Company is a
domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of
Shares may be required to withhold 10% of the purchase price and to
remit such amount to the IRS.
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Federal Estate Tax
Shares owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includible in the
individual's gross estate for United States federal estate tax purposes
unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting Requirements
The Company must report annually to the IRS and to each Non-U.S.
Shareholder the amount of dividends paid to and the tax withheld with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to
the tax authorities in the country in which the Non-U.S. Shareholder
resides. United States backup withholding tax (which generally is a
withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish the information required under the United
States information reporting requirements) will generally not apply to
dividends paid on Shares to a Non-U.S. Shareholder at an address outside
the United States.
The payment of the proceeds from the disposition of Shares to or
through the United States office of a broker will be subject to
information reporting and backup withholding at a rate of 31% unless the
owner, under penalties of perjury, certifies, among other things, its
status as a Non-U.S. Shareholder, or otherwise establishes an exemption.
The payment of the proceeds from the disposition of Shares to or through
a non-U.S. office of a broker generally will not be subject to backup
withholding and information reporting. In the case of proceeds from a
disposition of Shares paid to or through a non-U.S. office of a U.S.
broker or paid to or through a non-U.S. office of a non-U.S. broker that
is (i) a "controlled foreign corporation" for United States federal
income tax purposes or (ii) a person 50% or more of whose gross income
from all sources for a certain three-year period was effectively
connected with a United States trade or business, (a) backup withholding
will not apply unless the broker has actual knowledge that the owner is
not a Non-U.S. Shareholder, and (b) information reporting will not apply
if the broker has documentary evidence in its files that the owner is a
Non-U.S. Shareholder (unless the broker has actual knowledge to the
contrary).
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Shareholder will be refunded (or credited against the Non-
U.S. Shareholder's United States federal income tax liability, if any),
provided that the required information is furnished to the IRS.
Other Tax Consequences. The Company and its shareholders may be
subject to state or local taxation in various state or local
jurisdictions, including those in which it or they transact business or
reside.
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There may be other Federal, state, local or foreign income, or estate
and gift, tax considerations applicable to the circumstances of a
particular investor. Shareholders should consult their own tax advisors
with respect to such matters.
ERISA Plans, Keogh Plans and Individual Retirement Accounts
General Fiduciary Obligations. Fiduciaries of a pension,
profit-sharing or other employee benefit plan subject to Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA") ("ERISA Plan")
must consider whether their investment in the Company's shares satisfies
the diversification requirements of ERISA, whether the investment is
prudent in light of possible limitations on the marketability of the
shares, whether such fiduciaries have authority to acquire such shares
under the appropriate governing instrument and Title I of ERISA, and
whether such investment is otherwise consistent with their fiduciary
responsibilities. Any ERISA Plan fiduciary should also consider ERISA's
prohibition on improper delegation of control over or responsibility for
"plan assets." Trustees and other fiduciaries of an ERISA plan may
incur personal liability for any loss suffered by the plan on account of
a violation of their fiduciary responsibilities. In addition, such
fiduciaries may be subject to a civil penalty of up to 20% of any amount
recovered by the plan on account of such a violation (the "Fiduciary
Penalty"). Also, fiduciaries of any Individual Retirement Account
("IRA"), Keogh Plan or other qualified retirement plan not subject to
Title I of ERISA because it does not cover common law employees
("Non-ERISA Plan") should consider that such an IRA or non-ERISA Plan
may only make investments that are authorized by the appropriate
governing instrument. Fiduciary shareholders should consult their own
legal advisers if they have any concern as to whether the investment is
inconsistent with any of the foregoing criteria.
Prohibited Transactions. Fiduciaries of ERISA Plans and persons
making the investment decision for an IRA or other Non-ERISA Plan should
also consider the application of the prohibited transaction provisions
of ERISA and the Code in making their investment decision. Sales and
certain other transactions between an ERISA Plan, IRA, or other
Non-ERISA Plan and certain persons related to it are prohibited
transactions. The particular facts concerning the sponsorship,
operations and other investments of an ERISA Plan, IRA, or other
Non-ERISA Plan may cause a wide range of other persons to be treated as
disqualified persons or parties in interest with respect to it. A
prohibited transaction, in addition to imposing potential personal
liability upon fiduciaries of ERISA Plans, may also result in the
imposition of an excise tax under the Code or a penalty under ERISA upon
the disqualified person or party in interest with respect to the ERISA
or Non-ERISA Plan or IRA. If the disqualified person who engages in the
transaction is the individual on behalf of whom an IRA is maintained (or
his beneficiary), the IRA may lose its tax-exempt status and its assets
may be deemed to have been distributed to such individual in a taxable
distribution (and no excise tax will be imposed) on account of the
prohibited transaction. Fiduciary shareholders should consult their own
legal advisers if they have any concern as to whether the investment is
a prohibited transaction.
-20-<PAGE>
Special Fiduciary and Prohibited Transactions Considerations. On
November 13, 1986 the Department of Labor ("DOL"), which has certain
administrative responsibility over ERISA Plans as well as over IRAs and
other Non-ERISA Plans, issued a final regulation defining "plan assets."
The regulation generally provides that when an ERISA or non-ERISA Plan
or IRA acquires a security that is an equity interest in an entity and
that security is neither a "publicly offered security" nor a security
issued by an investment company registered under the Investment Company
Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets include both
the equity interest and an undivided interest in each of the underlying
assets of the entity, unless it is established either that the entity is
an operating company or that equity participation in the entity by
benefit plan investors is not significant.
The regulation defines a publicly offered security as a security that
is "widely held," "freely transferable" and either part of a class of
securities registered under the Securities Exchange Act of 1934, or sold
pursuant to an effective registration statement under the Securities Act
of 1933 (provided the securities are registered under the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year
of the issuer during which the offering occurred). The Company's
shares have been registered under the Securities Exchange Act of 1934.
The regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. However, a security will
not fail to be "widely held" because the number of independent investors
falls below 100 subsequent to the initial public offering as a result of
events beyond the issuer's control.
The regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The regulation further provides that,
where a security is part of an offering in which the minimum investment
is $10,000 or less, certain restrictions ordinarily will not, alone or
in combination, affect a finding that such securities are freely
transferable. The restrictions on transfer enumerated in the regulation
as not affecting that finding include: any restriction on or prohibition
against any transfer or assignment which would result in a termination
or reclassification of the Company for Federal or state tax purposes, or
would otherwise violate any state or Federal law or court order; any
requirement that advance notice of a transfer or assignment be given to
the Company and any requirement that either the transferor or
transferee, or both, execute documentation setting forth representations
as to compliance with any restrictions on transfer which are among those
enumerated in the regulation as not affecting free transferability,
including those described in the preceding clause of this sentence; any
administrative procedure which establishes an effective date, or an
event prior to which a transfer or assignment will not be effective; and
any limitation or restriction on transfer or assignment which is not
imposed by the issuer or a person acting on behalf of the issuer. The
Company believes that the restrictions imposed under the Declaration on
the transfer of shares do not result in the failure of the shares to be
"freely transferable." Furthermore, the Company believes that at
-21-<PAGE>
present there exist no other facts or circumstances limiting the
transferability of the shares which are not included among those
enumerated as not affecting their free transferability under the
regulation, and the Company does not expect or intend to impose in the
future (or to permit any person to impose on its behalf) any limitations
or restrictions on transfer which would not be among the enumerated
permissible limitations or restrictions. However, the final regulation
only establishes a presumption in favor of a finding of free
transferability, and no guarantee can be given that the DOL or the
Treasury Department will not reach a contrary conclusion.
Assuming that the shares will be "widely held" and that no other facts
and circumstances exist which restrict transferability of the shares,
the Company has received an opinion of counsel that the shares should
not fail to be "freely transferable" for purposes of the regulation due
to the restrictions on transfer of the shares under the Declaration and
that under the regulation the shares are publicly offered securities and
the assets of the Company will not be deemed to be "plan assets" of any
ERISA Plan, IRA or other Non-ERISA Plan that invests in the shares.
If the assets of the Company are deemed to be plan assets under ERISA,
(i) the prudence standards and other provisions of Part 4 of Title I of
ERISA would be applicable to investments made by the Company; (ii) the
person or persons having investment discretion over the assets of ERISA
Plans which invest in the Company would be liable under the
aforementioned Part 4 of Title I of ERISA for investments made by the
Company which do not conform to such ERISA standards unless the Advisor
registers as an investment adviser under the Investment Advisers Act of
1940 and certain other conditions are satisfied; and (iii) certain
transactions that the Company might enter into in the ordinary course of
its business and operation might constitute "prohibited transactions"
under ERISA and the Code.
Item 2. Properties.
General. Approximately 77% of the Company's total investments are in
nursing homes retirement centers and assisted living centers providing
long-term care, 21% of the Company's total investments are in nursing
homes with subacute and other specialty rehabilitation services and 2%
are in other healthcare facilities. The Company believes that the
physical plant of each of the facilities in which it has invested is
suitable and adequate for its present and any currently proposed uses.
At December 31, 1994, the Company had total real estate investments of
approximately $807 million in 141 properties located in 27 states and
with approximately 27 different lessees and mortgagors.
-22-<PAGE>
The following table summarizes certain information about the
Properties as of December 31, 1994. All dollar figures are in
thousands.
<TABLE>
<CAPTION>
REAL ESTATE OWNED:
No. of No. of Investment Minimum
Location Facilities Beds/Units Amount
Rent/Interest
<S> <C> <C> <C> <C>
Nursing Homes with Subacute Services
Connecticut 4 660 $44,805 $5,709
Louisiana 1 118 24,376 3,065
Massachusetts 5 762 82,058 10,044
Pennsylvania 1 120 15,598 1,951
Long-Term Care and Retirement Facilities
Arizona 5 616 28,062 2,404
California 10 1,542 58,874 6,597
Colorado 6 756 20,532 2,570
Connecticut 5 867 40,231 4,803
Florida 5 1,522 131,991 9,986
Illinois 2 593 39,453 2,018
Iowa 10 676 14,678 1,709
Kansas 1 83 2,270 252
Maryland 1 351 33,080 4,054
Missouri 2 215 3,235 498
Ohio 2 400 9,872 1,183
South Dakota 3 381 7,589 914
Texas 1 145 12,411 1,213
Virginia 3 848 57,662 5,817
Washington 1 143 5,193 611
Wisconsin 7 1,026 28,989 3,192
Wyoming 4 295 8,197 920
Other HealthCare Facilities
California 1 0 3,927 503
-- ------- --------- -------
Total Real Estate: 80 12,119 $673,083 $70,013
== ====== ======== =======
MORTGAGE INVESTMENTS:
Long-Term Care and Retirement Facilities
California 6 1,011 $17,204 $1,934
Colorado 5 389 14,019 1,564
Florida 1 58 960 124
Georgia 5 650 8,167 921
Iowa * * 51 207
Kansas 3 346 6,468 686
Kentucky 1 90 1,365 180
Michigan 2 342 9,400 1,081
Nebraska 12 834 17,700 1,835
-23-<PAGE>
North Carolina 8 759 13,780 1,613
Ohio* 5 719 15,253 1,667
Pennsylvania 1 120 2,811 313
South Carolina 1 102 901 101
Tennessee 1 78 1,013 123
Texas 6 556 4,755 599
Wisconsin 2 366 9,683 2,005
Other Healthcare Facilities
Kentucky 1 94 7,368 2,645
North Carolina 1 64 2,579 882
-- ----- ------ ------
Total Mortgages 61 6,578 $133,477 $18,480
== ===== ======== =======
</TABLE>
* Amounts represent or include notes receivable related to improvements
to owned property, above.
-24-<PAGE>
Item 3. Legal Proceedings.
The Company may be subject to routine litigation in the ordinary
course of business. It is not presently subject to any legal
proceedings which would result in material losses to the Company. The
Company knows of no proceedings contemplated by governmental authorities
relating to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders during the
fourth quarter of the year covered by this Form 10-K.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Shares are traded on the New York Stock Exchange
(symbol: HRP). The following table sets forth for the periods indicated
the high and low sale prices for the Shares as reported in the New York
Stock Exchange Composite Transactions reports.
High Low
1993
First Quarter........... 15 11 3/8
Second Quarter.......... 14 12
Third Quarter........... 15 1/8 12 1/2
Fourth Quarter.......... 16 3/4 14
1994
First Quarter........... 16 3/8 14 3/8
Second Quarter.......... 15 3/8 14
Third Quarter........... 15 3/4 14 1/4
Fourth Quarter.......... 14 7/8 13
The closing price of the Shares on the New York Stock Exchange on
March 3, 1995 was $14.50.
As of March 3, 1995, there were 3,815 holders of record of the Shares
and the Company estimates that as of such date there were in excess of
60,000 beneficial owners of the Shares.
Dividends declared with respect to each period for the two most recent
fiscal years and the amount of such dividends and the respective
annualized rates are set forth in the following table.
-25-<PAGE>
Annualized
Dividend Dividend
Per Share Rate
1993
First Quarter...... $.32 $1.28
Second Quarter..... .32 1.28
Third Quarter...... .33 1.32
Fourth Quarter..... .33 1.32
1994
First Quarter...... .33 1.32
Second Quarter..... .33 1.32
Third Quarter...... .33 1.32
Fourth Quarter..... .34 1.36
All dividends declared have been paid. The Company intends to
continue to declare and pay future dividends on a quarterly basis.
In order to qualify for the beneficial tax treatment accorded to
REITs by Sections 856 through 860 of the Code, the Company is required
to make distributions to shareholders which annually will be at least
95% of the Company's "real estate investment trust taxable income" (as
defined in the Code). All distributions will be made by the Company at
the discretion of the Board of Trustees and will depend on the earnings
of the Company, funds from operations, the financial condition of the
Company and such other factors as the Board of Trustees deems relevant.
The Company has in the past distributed, and intends to continue to
distribute, substantially all of its "real estate investment trust
taxable income" to its shareholders.
-26-<PAGE>
Item 6. Selected Financial Data.
Set forth below are selected financial data for the Company for the
periods and dates indicated. This data should be read in conjunction
with, and is qualified in its entirety by reference to, the financial
statements and accompanying notes included elsewhere in this Form 10-K.
Amounts are in thousands, except per Share information.
<TABLE>
<CAPTION>
Year Ended December 31,
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Total revenues........ $32,872 $43,835 $48,735 $56,485 $86,683
Income before gain (loss)
on sale of properties and
extraordinary items 14,280 22,079 27,243 37,738 57,878
Income before extraordinary
items 14,280 22,079 27,243 37,738 51,872
Net income............ 14,280 22,079 27,243 33,417 49,919
Funds from operations(1) 19,467 30,059 36,853 47,578 73,846
Dividends declared.... 18,927 27,179 33,079 44,869 76,317
Per Share:
Income before gain (loss)
on sale of proeprties and
extraordinary items .89 1.01 1.02 1.10 1.10
Income before extraordinary
items .89 1.01 1.02 1.10 .98
Net income.......... .89 1.01 1.02 .97 .95
Funds from operations(1) 1.21 1.38 1.38 1.38 1.40
Dividends declared.. 1.17 1.23 1.26 1.30 1.33
Average Shares
Outstanding......... 16,088 21,834 26,760 34,407 52,738
Balance Sheet Data:
Real estate properties
at cost $200,839 $281,766 $337,076 $384,881 $673,083
Real estate mortgages 87,061 31,760 47,173 157,281 133,477
Total assets 290,099 340,718 374,468 527,662 840,206
Total indebtedness 125,500 103,000 138,500 73,000 216,513
Total shareholders' equity 147,760 234,427 228,301 441,135 602,039
</TABLE>
(1) Funds from operations does not equal cash flow from operating
activities as defined by generally accepted accounting principles and
should not be considered an alternative to net income as an indication
of the Company's performance or to cash as a measure of liquidity.
Funds from operations means income before gain (loss) on sale of
properties and extraordinary items plus depreciation and other non-cash
items. Dividends in excess of net income generally constitute a return
of capital.
Item 7. Management's Discussion and Analysis of Financial
-27-<PAGE>
Condition and Results of Operations.
Results of Operations
Year Ended December 31, 1994 compared to Year Ended December 31, 1993
Total revenues for the year ended December 31, 1994 were $86.7
million, an increase of $30.2 million or 53% over the year ended
December 31, 1993. Rental income increased to $63.9 million from $46.1
million and interest income increased to $22.8 million from $10.4
million. Rental income increased as a result of new purchase and lease
investments, primarily a $33.4 million transaction in December 1993 and
the $320 million retirement community transaction with Marriott
International, Inc. (Marriott) in 1994. The growth in interest income
is primarily the result of the full year impact of three loan pool
acquisitions in 1993 and a mortgage transaction of $26.6 million in
December 1993.
Total expenses for 1994 increased to $28.8 million, from $18.7
million, in the comparable 1993 period. The increase of $10.1 million
was due primarily to increases in interest of $2.7 million, advisory
fees of $1.5 million, and depreciation and amortization of $5.6 million.
The increases in advisory fees and depreciation and amortization are
directly related to the Company's increased investments whereas interest
increased due to both higher interest rates during the second half of
1994 and the issuance of $200 million senior notes in July 1994 in
connection with the Marriott transaction.
Income before gain (loss) on sale of properties and extraordinary
items for 1994 increased to $57.9 million, or $1.10 per share, from
$37.7 million, or $1.10 per share, in 1993. Per share amounts remained
flat reflecting the issuance of nine million new shares of the Company's
stock in December 1993 and 13.3 million new shares in 1994, as well as
negative interest arbitrage resulting from unusually high cash balances
caused by timing differences between receipt of proceeds from the note
offering and the investment of those proceeds in real estate.
Income before extraordinary items and net income in 1994 was $51.9
million ($.98 per share) and $49.9 million ($.95 per share),
respectively, versus $37.7 million ($1.10 per share) and $33.4 million
($.97 per share), respectively, in 1993. On a per share basis, income
before extraordinary items and net income decreased during 1994
primarily as a result of the new share issuances noted above and
negative arbitrage noted above and the $10 million provision for the
potential loss on the sale of two psychiatric hospitals. These two
hospitals are HRP's only investments in the psychiatric industry and the
loss is due to the general decline in value of such property.
The Company's business plan is to maximize funds from operations
rather than net income. The Company's Board of Trustees considers funds
from operations, among other factors, when determining dividends to be
paid to shareholders. Funds from operations means net income excluding
gains or losses from debt restructuring and sales of property, plus
depreciation. Cash flow provided by operating activities may not
necessarily equal funds from operations as the cash flow of the Company
-28-<PAGE>
is affected by other factors not included in the funds from operations
calculation such as changes in assets and liabilities. Funds from
operations for the year ended December 31, 1994, was $73.9 million, or
$1.40 per share, versus $47.6 million, or $1.38 per share, in 1993.
Funds from operations for 1994 increased $26.3 million or 55% over the
prior year. However, funds from operations per share increased only
slightly as a result of nine million new shares of the Company's stock
issued in December 1993 and 13.3 million new shares issued in 1994 and
the negative arbitrage from large cash balances previously discussed.
Dividends declared for the years ended December 31, 1994 and 1993 were
$1.33 per share and $1.30 per share, respectively. Dividends in excess
of net income constitute a return of capital. For 1994, the return of
capital portion reported was 6.1% of dividends and 12.6% of dividends
was considered a long term capital gain.
Cash flow provided by (used for) operating, investing and financing
activities were $78.3 million, ($261.8 million) and $229.4 million,
respectively, for the year ended December 31, 1994 and $47.2 million,
($175.4 million) and $128.0 million, respectively in 1993.
Year Ended December 31, 1993 compared to Year Ended
December 31, 1992
Total revenues for the year ended December 31, 1993 were
$56.5 million, an increase of $7.8 million or 16% over the year ended
December 31, 1992. Rental income increased to $46.1 million from $43.0
million and interest income increased to $10.4 million from $5.7
million. Rental income increased as a result of new purchase lease
investments, increases in additional rent, and improvement financings
during 1993. The growth in interest income is primarily the result of
the acquisition since December 1, 1992, of four pools of performing
mortgage loans for $133.7 million with a principal balance at the time
of acquisition of approximately $148.2 million.
Net income for 1993 increased to $33.4 million, or $.97 per share,
from $27.2 million, or $1.02 per share in the comparable 1992 period.
The increase in net income of $6.2 million or 23% during the 1993 period
was primarily the result of new investments discussed above and a
decrease in total expenses of $2.7 million. On a per share basis, net
income decreased slightly during 1993 primarily as a result of non-
recurring charges related to the early extinguishment of debt. Debt was
retired with the proceeds from the issuance of 10.35 million and nine
million new shares of the Company's stock during the first and fourth
quarters, respectively, of 1993. Total expenses for 1993 were $18.7
million, a decrease of 13% from $21.5 million for the comparable 1992
period. Interest expense decreased $3.2 million as a result of lower
average bank borrowings and lower interest rates during the comparable
periods. Depreciation and amortization expense remained flat reflecting
the fact that the new mortgage investments occurred throughout the year
and the significant purchase lease investments occurred near year end.
-29-<PAGE>
The Company's funds from operations for the years ended December
31, 1993, and 1992 was $47.6 million ($1.38 per share) and $36.9 million
($1.38 per share), respectively. Total funds from operations for 1993
increased $10.7 million or 29% over the prior year. However, on a per
share basis, funds from operations remained unchanged, primarily as a
result of the 19.4 million new shares of the Company's stock issued in
1993. Dividends declared for the years ended December 31, 1993 and 1992
were $1.30 per share and $1.26 per share, respectively. Dividends in
excess of net income constitute a return of capital. For 1993, the
return of capital portion was 26% of the dividends.
Cash flow provided by (used for) operations, investing and
financing activities were $47.2 million, ($175.4 million) and $128.0
million, respectively, for the year ended December 31, 1993, and $42.0
million, ($71.9 million) and $1.9 million, respectively, for the year
ended December 31, 1992.
Liquidity and Capital Resources
Assets increased to $840.2 million as of December 31, 1994, from
$527.7 million as of December 31, 1993. The increase of $312.5 million
or 59% is primarily attributable to the increases in real estate
properties, net, and cash and cash equivalents of $283.7 million and
$45.9 million, respectively, net of a decrease in real estate mortgages
and notes, net, of $23.8 million. The increase in real estate
properties is the net result of the acquisition of 14 retirement
communities in connection with the Marriott transaction, and the sale of
three properties in connection with the February 11, 1994 merger of
Greenery Rehabilitation Group, Inc. (Greenery) into Horizon Healthcare
Corporation (Horizon). Cash increased as a result of mortgage
prepayments and excess proceeds from the July debt offering. Real
estate mortgages and notes, net, decreased principally due to the
prepayment of mortgage investments totalling $48.7 million, net of new
mortgage financings of $14.5 million.
On February 11, 1994, in connection with the Horizon-Greenery
merger, the Company sold to Horizon for $28.4 million three facilities
that had been leased to Greenery. The Company realized a capital gain
of approximately $4.0 million on the sale of these properties. In
addition, Horizon has leased seven facilities previously leased to
Greenery, on substantially similar terms except the leases were extended
through 2005. The Company has granted Horizon a ten year option to buy
the seven leased facilities, at the rate of no more than one facility
per consecutive twelve months. The Company leased the three remaining
Greenery facilities to a newly formed corporation, Connecticut Subacute
Corporation, II (CSC II), an affiliate of HRPT Advisors, Inc. (Advisor).
These facilities are being managed by and the lease payments are
guaranteed by Horizon for a term of up to five years. The terms of
these lease arrangements are substantially similar to the original lease
arrangements with Greenery.
In January 1995 Horizon exercised its option and purchased one of
the seven leased properties from the Company for $24.5 million resulting
in a capital gain of $2.5 million. The Company provided Horizon a 16
year $19.5 million mortgage in connection with this sale in 1995.
-30-<PAGE>
On February 11, 1994, in connection with the Horizon-Greenery
merger, the Company provided Horizon with $9.4 million first mortgage
financing for two facilities. One of the facilities previously was
owned by the Company and leased to Greenery. The mortgage notes bear
interest at 11.5% per annum and mature December 31, 2000.
During 1994 the Company received net proceeds of approximately
$182.4 million from the public offering of 13,251,500 shares of
beneficial interest (including the underwriter's over-allotment). A
portion of the proceeds were used to repay the outstanding balance of
$73 million on the Company's revolving credit facility and the remainder
was used to fund part of the Marriott transaction.
On September 9, 1994, the Company completed its acquisition of 14
retirement communities containing 3,952 residencies or beds for $320
million. These communities are triple net leased through December 31,
2013 to a wholly owned subsidiary of Marriott International Inc. The
leases provide for fixed rent and additional rentals equal to a
percentage of annual revenues from operations in excess of base amounts
determined on a facility by facility basis. All of the leases are
subject to cross default provisions and are guaranteed by Marriott.
This transaction was funded from cash on hand, the proceeds of an equity
offering discussed above, drawings under the Company's revolving credit
facility, assumption of $17.6 million of existing debt bearing interest
at 7.75% and a portion of the proceeds from a note offering described
below.
On July 13, 1994, the Company received net proceeds of $197.3
million from the offering of $200 million floating rate senior notes due
in 1999. The notes were issued in two series, A and B, which may be
called by the Company beginning April 13, 1995 and July 13, 1996,
respectively. The weighted average interest rate is LIBOR plus 84 basis
points. A portion of these proceeds were used to fund part of the
Marriott transaction and to repay $56 million in borrowings under the
Company's revolving credit facility. The Company retained the balance
to fund future real estate acquisitions. The Company has interest rate
cap agreements which provide for maximum weighted average interest rates
of approximately 6.85% on its variable rate debt.
This senior note offering was drawn under a shelf registration
statement for the offering of up to $345 million of debt securities,
preferred shares of beneficial interest, common shares of beneficial
interest and common share warrants. An additional $145 million of
securities may be issued under this registration statement.
At December 31, 1994, the Company had $59.8 million of cash and
cash equivalents. The Company's $170 million revolving credit facility
was undrawn at December 31, 1994. The facility matures in 1997 and
bears interest at a spread over LIBOR.
As of December 31, 1994, the Company had extended commitments to
provide financing totalling approximately $58.1 million. In addition to
completing certain of these committed transactions in early 1995 as
described below, the Company also entered into several additional
commitments.
-31-<PAGE>
On January 24, 1995, the Company provided first mortgage financing
of $11.5 million due in 2007, secured by four assisted living properties
and operated by a newly created health care operating company. The
borrower has provided a $1 million cash security deposit, to guarantee
its obligations to the Company.
On January 31, 1995, the Company acquired nine nursing facilities
for approximately $32 million. The facilities have been leased to two
newly formed corporations which are affiliates of the Company. The
purchase price paid was approximately $8.1 million in cash and 1.8
million shares of the Company's common stock.
The Company entered into a commitment to purchase and lease 11
nursing properties for $18 million and provide first mortgage financing
of $2 million secured by three nursing properties, to a subsidiary of an
existing tenant, on terms substantially similar to the Company's
existing lease and mortgage agreements with that tenant. The
acquisition is expected to close in April 1995.
The Company entered into an commitment to purchase and lease 14
nursing properties for approximately $45 million subject to adjustment,
located in the United Kingdom, on terms substantially similar to the
Company's existing lease agreements. The Company expects to fund this
investment by borrowing in British sterling and has recently amended its
bank credit facility to permit such borrowings. By borrowing in the
same currency as it invests in, the Company believes it can reduce the
impact of fluctuations in relative currency values. The acquisition is
expected to close in installments beginning in April 1995 with the
entire transaction being completed by December 1995.
The Company entered into a purchase and lease agreement with Host
Marriott Corporation (Host Marriott) for 21 Courtyard by Marriott hotel
properties for approximately $179.4 million, subject to adjustment. The
properties are leased for an initial term of 12 years, with renewal
options of an additional 37 years to a subsidiary of Host Marriott and
are managed by a subsidiary of Marriott International. An amount equal
to one year's rent was withheld from the purchase price to secure the
tenant's obligations to the Company. The transaction closed in March
1995.
The Company funded and intends to fund these commitments with a
combination of cash on hand, amounts available under its existing credit
facilities, proceeds of mortgage prepayments, if any, and/or proceeds of
other financings such as the possible issuance of additional securities
in connection with the shelf registration statement described above.
The Company's investment in hotel properties does not represent a
change in the Company's strategy of focusing on investments in long term
care and retirement facilities. Rather, this investment, structured as
a triple net lease, will represent only approximately 15% of the
portfolio upon closing. The facilities are new, having been constructed
within the last five years, and occupancy and cash flow coverage are
strong. Following the announcement of this investment, Moody's
downgraded the Company's debt rating and S&P and Fitch maintained their
-32-<PAGE>
ratings. The Company believes, despite the negative reaction by
Moody's, that this transaction will enhance the security and growth
potential of its funds from operations.
The Company continues to seek new investments to expand and
diversify its portfolio of leased and mortgaged health care, retirement
and related real estate. The Company believes that the transactions
described above improve the security of its future cash flow and
dividends. The Company intends to balance the use of debt and equity in
such a manner that the long term cost of funds borrowed to acquire or
mortgage finance facilities is appropriately matched, to the extent
practicable, with the terms of the investments made with such borrowed
funds. As of December 31, 1994, the Company's debt as a percentage of
total capitalization was approximately 26%.
Impact of Inflation
Management believes that the Company is not adversely affected by
inflation. In the real estate market, inflation tends to increase the
value of the Company's underlying real estate which may be realized at
the end of the lessees' fixed terms. In the health care and hotel
industries, inflation increases the lessees' and mortgagors' revenues,
thereby increasing the Company's additional rent or interest. At
December 31, 1994, increases in interest rates on all of the Company's
outstanding debt were capped by the use of interest rate cap agreements.
The Company has interest rate cap agreements which provide for maximum
weighted average interest rates of approximately 6.85% on its variable
rate debt.
Item 8. Financial Statements and Supplementary Data
The financial statements and related notes and report of
independent auditors for the Company are included following Part IV,
beginning on page F-1, and identified in the index appearing at Item
14(a). The financial statements for Marriott are incorporated by
reference to Marriott's Annual Report on Form 10-K for the year ended
December 30, 1994, Commission File No. 1-12188. The financial statements
and financial statement schedules for Horizon are incorporated by
reference to Horizon's Annual Report on Form 10-K for the year ended May
31, 1994, Commission File No. 1-9369 and Horizon's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1994, Commission File No.
1-9369. The financial statements and financial statement schedules for
Grancare are incorporated by reference to Grancare's Annual Report on
Form 10-K for the year ended December 31, 1994, Commission File No. 0-
19571.
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure
Not applicable
PART III
-33-<PAGE>
The information in Part III (Items, 10, 11, 12 and 13) is incorporated
by reference to the Company's definitive Proxy Statement, which will be
filed not later than 120 days after the end of the Company's fiscal
year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Index to Financial Statements and Financial Statement Schedules
HEALTH AND RETIREMENT PROPERTIES TRUST
Page
Report of Ernst & Young LLP, Independent Auditors F-1
Balance Sheets as of December 31, 1993 and 1994 F-2
Statements of Income for the years ended
December 31, 1992, 1993 and 1994 F-3
Statements of Shareholders' Equity for the years
ended December 31, 1992, 1993 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1992, 1993 and 1994 F-5
Notes to Financial Statements F-6
The following financial schedules are included:
III -- Real Estate and Accumulated Depreciation F-16
IV -- Mortgage Loans on Real Estate F-18
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
Exhibits:
3.1 - July 1994 Amended and Restated Declaration of Trust (3)
3.2 - Amended and Restated By-Laws (1)
4.1 - Form of Series A Note (2)
4.2 - Form of Series B Note (2)
4.3 - Shawmut Bank, N.A. Indenture dated as of June 1, 1994 (2)
4.4 - Supplemental Shawmut Bank, N.A., Indenture dated as of
June 29, 1994 (2)
9.1 - AMS Voting Trust Agreement (9)
9.2 - Amended and Restated AMS Voting Trust Agreement (4)
10.1 - Advisory Agreement, as amended (10)(+)
10.2 - Second Amendment to Advisory Agreement (5)(+)
10.3 - Incentive Share Award Plan (6)(+)
10.4 - Master Lease Document (8)
10.5 - HRPT Shares Pledge Agreement (8)
10.6 - AMS Properties Security Agreement (8)
10.7 - AMS Subordination Agreement (8)
-34-<PAGE>
10.8 - AMS Guaranty (8)
10.9 - AMS Pledge Agreement (pledging shares of AMSP) (8)
10.10 - AMS Holding Co. Pledge Agreement (pledging shares of AMS)
(7)
10.11 - Amended and Restated Renovation Funding Agreement (7)
10.12 - Amendment to AMS Transaction Documents (7)
10.13 - GCI Master Lease Document (6)
10.14 - Amended and Restated HRP Shares Pledge Agreement (6)
10.15 - Guaranty, Cross-Default and Cross-Collateralization
Agreement (6)
10.16 - CSC $8,000,000 Working Capital Promissory Note (6)
10.17 - Marriott Senior Living Services Purchase and Sale
Agreement (5)
10.18 - Connecticut Subacute Corporation II Lease Document
Waterbury (1)
10.19 - Connecticut Subacute Corporation II Lease Document
- Cheshire (1)
10.20 - Connecticut Subacute Corporation II Lease Document
- New Haven (1)
10.21 - Vermont Subacute/New Hampshire Subacute Corporation
Master Lease Agreement (Chapple) (1)
10.22 - Amended and Restated Agreement and Plan of Reorganization
(Chapple) (1)
10.23 - March 1995 Second Amended and Restated Revolving Loan
Agreement (1)
10.24 - Purchase Option Agreement (1)
12.1 - Earnings to Fixed Charges (1)
21.1 - Subsidiaries of the Registrant (1)
23.1 - Consent of Ernst & Young (1)
23.2 - Consent of Arthur Andersen LLP (Horizon) (1)
25.1 - Powers of Attorney (1)
27.1 - Financial Data Schedule (1)
(+) Management contract or compensatory plan or arrangement
(1) Filed herewith.
(2) Incorporated by reference to the Company's Registration Statement
on Form 8-A dated July 11, 1994.
(3) Incorporated by reference to the Company's Current Report on Form
8-K dated July 1, 1994 and amendments thereto.
(4) Incorporated by reference to the Company's Registration Statement
on Form S-3 dated June 2, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1993.
(6) Incorporated by reference to the Company's Registration Statement
No. 33-55684 on Form S-11 dated December 23, 1992 and amendments
thereto.
-35-<PAGE>
(7) Incorporated by reference to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1991.
(8) Incorporated by reference to the Company's Current Report on Form
8-K dated December 28, 1990 and amendments thereto.
(9) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1990 and amendments
thereto.
(10) Incorporated by reference to the Company's Registration Statement
No. 33-16799 on Form S-11 dated August 27, 1987 and amendments
thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
-36-<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders
Health and Retirement Properties Trust
We have audited the accompanying balance sheets of Health and Retirement
Properties Trust as of December 31, 1994 and 1993, and the related
statements of income, shareholders' equity, and cash flows for each of
the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Health and
Retirement Properties Trust at December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
February 9, 1995
F-1<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
BALANCE SHEETS
(Dollars in thousands, except share amounts)
December 31,
1993 1994
ASSETS
<S> <C> <C>
Real estate properties, at cost
(including properties leased to
affiliates with a cost of
$217,947 and $69,545 respectively):
Land $ 33,450 $ 63,186
Buildings and improvements 351,361 609,897
-------- --------
384,811 673,083
Less accumulated depreciation 34,969 39,570
------- -------
349,842 633,513
Real estate mortgages and notes, net 157,281 133,477
Cash and cash equivalents 13,887 59,766
Interest and rents receivable 3,039 4,712
Deferred interest and finance costs,
net, and other assets 3,613 8,738
-------- --------
$527,662 $840,206
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 73,000 $ -
Notes and bonds payable, net - 216,513
Accounts payable and accrued expenses 4,518 16,346
Security deposits 8,300 3,800
Due to affiliate 709 1,508
Commitments
Shareholders' equity:
Preferred shares of beneficial interest,
$.01 par value; 50,000,000 shares
authorized, none issued - -
Common shares of beneficial interest,
$.01 par value; 100,000,000 shares
authorized, 44,121,000 shares and
57,385,000 shares issued and
outstanding, respectively 441 574
Additional paid-in capital 470,572 652,989
Cumulative net income 118,889 168,808
Dividends (148,767) (220,332)
--------- ---------
F-2<PAGE>
Total shareholders' equity 441,135 602,039
-------- --------
$527,662 $840,206
======== ========
</TABLE>
See accompanying notes
F-3<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
Year Ended December 31,
1992 1993 1994
<S> <C> <C> <C>
Revenues:
Rental income $43,029 $46,069 $63,856
Interest income 5,706 10,416 22,827
------- ------- -------
Total revenues 48,735 56,485 86,683
------- ------- -------
Expenses:
Interest 9,466 6,217 8,965
Depreciation and amortization 9,076 9,087 14,724
General, administrative and advisory 2,950 3,443 5,116
------- ------- ------
Total expenses 21,492 18,747 28,805
------- ------- ------
Income before gain (loss) on sale of
properties and extraordinary items 27,243 37,738 57,878
Provision for loss on sale of properties - - (10,000)
Gain on sale of properties - - 3,994
------ ------ -------
Income before extraordinary items 27,243 37,738 51,872
Extraordinary items - early
extinguishment of debt - (4,321) (1,953)
------- ------- -------
Net income $27,243 $33,417 $49,919
======= ======= =======
Weighted average shares
outstanding 26,760 34,407 52,738
====== ======= =======
Per share amounts:
Income before gain (loss) on sale of
properties and extraordinary items $ 1.02 $ 1.10 $ 1.10
======= ======= =======
Income before extraordinary items $ 1.02 $ 1.10 $ .98
======= ======= =======
Net income $ 1.02 $ .97 $ .95
======= ======= =======
</TABLE>
See accompanying notes
F-4<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Additional Cumulative
Number of Common Paid-in Net
Shares Shares Capital Income Dividends
Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991 26,755,000 $268 $246,378 $58,229 $(70,448) $234,427
Expenses related to the
issuance of common shares
of beneficial interest - - (15) - - (15)
Exercise of stock
options 1,000 - 8 - - 8
Stock grants 7,500 - 88 - - 88
Net income - - - 27,243 - 27,243
Dividends($1.26
per share) - - - - ( 33,450) ( 33,450)
---------- ------ --------- -------- -------- --------
Balance at December 31,
1992 26,763,500 268 246,459 85,472 (103,898) 228,301
Redemption of common
shares of beneficial
interest (2,000,000) (20) ( 20,580) -
- (20,600)
Issuance of common
shares of beneficial
beneficial interest 19,350,000 193 244,599 - - 244,792
Stock grants 7,500 - 94 - - 94
Net income - - - 33,417 - 33,417
Dividends ($1.29
per share) - - - - (44,869) (44,869)
---------- ------ --------- -------- -------- --------
Balance at December 31,
1993 44,121,000 441 470,572 118,889 (148,767) 441,135
Issuance of common
shares of beneficial
interest 13,251,500 133 182,233 - - 182,366
Stock grants 12,500 - 184 - - 184
Net income - - - 49,919 - 49,919
Dividends ($1.32
per share) - - - - (71,565) ( 71,565)
---------- ------ --------- -------- -------- --------
Balance at December 31,
F-5<PAGE>
1994 57,385,000 $574 $652,989 $168,808
$(220,332) $602,039
========== ====== ========= ======== ========= ========
</TABLE>
See accompanying notes
F-6<PAGE>
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1992 1993 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,243 $ 33,417 $ 49,919
Adjustments to reconcile net income to cash
provided by operating activities:
Gain on sale of properties - - (3,994)
Extraordinary items - 4,321 1,953
Depreciation and amortization 9,076 9,087 14,724
Provision for loss on real estate - - 10,000
Amortization of deferred interest costs 534 700 864
Increase (decrease) in security deposits 4,500 3,800 (4,500)
Change in assets and liabilities:
(Increase) decrease in interest and rents
receivable and other assets 735 (6,156) (3,259)
Increase in accounts payable and
accrued expenses 1,219 1,554 11,828
Increase (decrease) in due to affiliate (1,343) 506 799
-------- -------- ---------
Cash provided by operating activities 41,964 47,229 78,334
-------- -------- ---------
Cash flows from investing activities:
Real estate acquisitions (52,287) (47,735) (324,554)
Investments in mortgage loans (22,049) (143,935) (9,372)
Proceeds from repayment of mortgage loans 2,476 16,227 48,762
Proceeds from sale of real estate - - 23,318
-------- -------- ---------
Cash used for investing activities (71,860) (175,443) (261,846)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from (cost of) issuance of
common shares (7) 244,792 182,366
Proceeds from borrowings 35,500 98,700 333,770
Payments on borrowings - (164,200) (208,000)
Deferred finance costs (126) (583) (7,180)
Termination costs of debt and interest
rate hedging arrangements - (2,843) -
Payment related to stock surrender - (3,000) -
Dividends paid (33,450) (44,869) (71,565)
-------- -------- ---------
Cash provided by financing activities 1,917 127,997 229,391
-------- -------- ---------
Increase (decrease) in cash (27,979) (217) 45,879
Cash and cash equivalents at beginning of period 42,083 14,104 13,887
-------- -------- ---------
Cash and cash equivalents at end of period $ 14,104 $ 13,887 $ 59,766
======== ======== =========
F-7<PAGE>
Supplemental cash flow information:
Interest paid $ 7,330 $ 6,522 $ 5,677
======= ======== =========
Non-cash investing and financing activities:
Exchange of real estate mortgages $ 4,160 $ 17,600 $ -
Investment in real estate mortgages - - (5,100)
Exchange of common shares - (17,600) -
Assumption of bonds payable - - 17,620
Real estate acquisitions (38,160) - (17,620)
Sale of real estate - - 5,100
Real estate exchanged 34,000 - -
Restricted stock grants 24 53 141
</TABLE>
See accompanying notes
F-8<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 1. Organization
Health and Retirement Properties Trust (formerly known as Health and
Rehabilitation Properties Trust), a Maryland real estate investment
trust (the Company), was organized on October 9, 1986. The Company
invests in income-producing real estate, primarily health care related
properties.
Note 2. Summary of Significant Accounting Policies
Real estate properties and mortgages. Real estate properties and
mortgages are recorded at cost. Depreciation is provided for on a
straight-line basis over the estimated useful lives ranging up to 40
years. If the estimated net realizable value of an investment is less
than the carrying value, an allowance for possible investment loss is
established. The determination of net realizable value includes
consideration of many factors including income to be earned from the
investment, holding costs, estimated selling prices, and prevailing
economic conditions.
Cash and cash equivalents. Cash, over-night repurchase agreements
and short-term investments with maturities of three months or less at
date of purchase are carried at cost plus accrued interest.
Deferred interest and finance costs. Costs incurred to secure
certain borrowings are capitalized and amortized over the terms of their
respective loans.
Interest rate hedging arrangements. The Company enters into
interest rate hedging arrangements to limit the exposure to increasing
interest rates with respect to its bank borrowings and notes payable.
Their cost is included in interest expense ratably over the terms of the
respective agreements. Amounts receivable from hedging arrangements are
accrued as an adjustment to interest expense. The unamortized cost of
these agreements is included in other assets.
Revenue recognition. Rental income from operating leases is
recognized on a straight line basis over the life of the lease
agreements. Interest income is recognized as earned over the terms of
the real estate mortgages. Additional rent and interest revenue is
recognized as earned.
Net income per share. Net income per share is computed using the
weighted average number of shares outstanding during the period.
Supplemental earnings per share for the years ended December 31, 1993
and 1994, was $.91 and $.93, respectively, based on the assumption that
the issuance of shares in the Company's public offerings during 1993 and
1994, and the related repayment of outstanding bank borrowings, took
place at the beginning of each year.
F-9<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Reclassifications. Certain reclassifications have been made to the
prior year financial statements to conform with the current year's
presentation.
Federal income taxes. The Company is a real estate investment trust
under the Internal Revenue Code of 1986, as amended. Accordingly, the
Company expects not to be subject to federal income taxes on amounts
distributed to shareholders provided it distributes at least 95% of its
real estate investment trust taxable income and meets certain other
requirements for qualifying as a real estate investment trust.
Note 3. Real estate properties.
The Company's real estate properties are leased pursuant to
noncancellable, fixed term operating leases expiring from 1996 to 2013.
The leases generally provide for renewal terms at existing rates
followed by several market rate renewal terms. Each lease is a triple
net lease and generally requires the lessee to pay minimum rent,
additional rent based upon increases in net patient revenues and all
operating costs associated with the leased property. Additional rent and
interest for the years ended December 31, 1992, 1993 and 1994 were
$1,809, $2,312, and $2,768, respectively.
During 1994, the Company acquired 14 retirement communities, two
nursing properties and a medical laboratory building for an aggregate
purchase price of approximately $326,350. The 14 retirement communities
are leased to a subsidiary of Marriott International, Inc. (together
with its subsidiaries, "Marriott") and the lease obligation is
guaranteed by Marriott through the year 2013.
The obligations of Marriott are cross defaulted, cross guaranteed
and cross secured. In the event Marriott's debt rating decreases to
below "investment grade", Marriott is required to provide the Company a
cash security deposit of approximately $6,911.
In addition, during 1994 the Company terminated the leases on
thirteen properties. Seven of these properties have been leased to
Horizon Healthcare Corporation (Horizon) on substantially similar terms,
with the leases extended through 2005, and the Company has granted
Horizon a ten year option to buy the seven properties, at the rate of no
more than one property per consecutive twelve month period. Three of
the properties have been leased to a newly formed corporation, an
affiliate of HRPT Advisors, Inc. ("Advisor"), on substantially similar
terms. These three properties are being managed by, and the lease
payments are guaranteed by, Horizon for a term of up to five years. The
three remaining properties were sold for approximately $28,400. The
Company realized a gain of approximately $3,994 on the sale. In
January, 1995, Horizon purchased one of the seven leased properties from
F-10<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
the Company for $24,500 and the Company realized a gain of
approximately $2,476. The Company provided Horizon a $19,500 mortgage
with a maturity of 2010 in connection with the sale of the property.
The various leases and mortgages with another lessee, GranCare, Inc.
(together with its subsidiaries, "GranCare") are secured by the pledge
to the Company of 1,000,000 shares of the Company's common stock held by
Grancare and substantially all the assets of the special operating
subsidiaries. All obligations of GranCare are cross defaulted, cross
guaranteed and cross secured.
The leases, mortgages and note due to the Company by Community Care
of America ("CCA") and its subsidiaries are secured by a $3,800 cash
security deposit, by a pledge of substantially all the assets of certain
of the operating CCA subsidiaries and by a guarantee from the parent
corporation. Substantially all of the CCA obligations are cross
defaulted, cross guaranteed and cross secured.
The future minimum lease payments to be received by the Company
during the current terms of the leases as of December 31, 1994, are
approximately $70,422 in 1995, $70,397 in 1996, $65,305 in 1997, $65,046
in 1998, $60,640 in 1999 and $636,377 thereafter.
Note 4. Real Estate Mortgages and Notes, net
December 31,
1993 1994
Mortgage notes receivable, net of
discounts of $11,951 and $5,817,
respectively, due July 1995
through December 2016 $124,367 $ 92,560
Mortgage note receivable due
December 2016 13,600 13,600
Amount due on investment held for sale,
net of reserve of $10,000 - 9,947
Mortgage note receivable due
December 2000 10,283 9,683
Secured note due December 2016 7,000 7,000
Other secured notes receivable 816 687
Loan to an affiliate 1,215 -
$157,281 $133,477
At December 31, 1994, the interest rates on the mortgages range from
6.6% to 13.75%.
During 1994, the Company provided two mortgage loans secured by two
properties for $9,400. One of these properties was previously owned by
the Company. In addition, 23 mortgage loans, secured by 19 properties,
F-11<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
with outstanding principal balances aggregating approximately $48,667
were repaid.
In the fourth quarter of 1994, the Company agreed to sell its two
psychiatric properties to the current operator, with a financial effect
of September 1, 1994 ("Sale Date"). The sales price is being determined
by a judicially supervised appraisal process and payments made to the
Company, subsequent to Sale Date, on this investment, are being
classified as interest and principal. Accordingly, at December 31,
1994, the Company has classified these properties as a mortgage
receivable and has made a provision for a loss on this investment of
approximately $10,000.
Note 5. Shareholders' Equity
During January 1994 and May 1994, the Company issued 601,500 and
12,650,000 common shares of beneficial interest, respectively, and
received net proceeds of approximately $8,301 and $174,065,
respectively.
In October, 1994, the Company adopted a Shareholders Rights Plan
("Plan") and declared a dividend of one right for each outstanding
common share of beneficial interest ("Right"). Each Right entitles the
holder to purchase one one-hundredth of a preferred share of beneficial
interest, $.01 par value, or in certain circumstances, to receive cash,
property, common shares or other securities of the Company, at a
purchase price of $50 per one-hundredth of a preferred share, subject to
adjustment. Upon the occurrence of certain events the holder of the
Right will be entitled to acquire common shares at 50% of the then
current market value of the shares. The Rights expire on October 17,
2004 and are redeemable at the Company's option at any time at $.01 per
Right.
The Company has reserved 1,000,000 shares of the Company's stock,
under the terms of the 1992 Incentive Share Award Plan ("Award Plan").
The Award Plan provides for the grant of the Company's stock to selected
officers, Trustees and others rendering valuable services to the
Company. During 1992, 1993 and 1994, 6,000, 6,000 and 11,000 shares,
respectively, were granted to officers of the Company and certain
employees of Advisors and 500 shares, annually, were granted to each of
the three Independent Trustees, as part of their annual fee. The shares
granted to the Trustees vest immediately. The shares granted to others
vest over a three year period. At December 31, 1994, 972,500 shares of
the Company remain reserved for issuance under the Award Plan.
Note 6. Financing Commitments
At December 31, 1994, the Company had total commitments aggregating
$58,148, of which $8,603 is committed to finance improvements to certain
F-12<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
properties leased or mortgaged by the Company. During 1994, the Company
funded approximately $11,088 of such improvements.
Note 7. Transactions With Affiliates
The Company has an agreement with the Advisor whereby the Advisor
provides investment, management and administrative services to the
Company. The Advisor is owned by Gerard M. Martin and Barry M. Portnoy.
Messrs. Martin and Portnoy are directors of Horizon, shareholders of
Connecticut Subacute Corporation ("CSC") and Connecticut Subacute
Corporation II ("CSCII"), lessees of the Company, and are Managing-
Trustees of the Company. The Company has extended a $4,000 line of
credit to CSC until June 30, 1995. At December 31, 1994, there were no
amounts outstanding under this agreement. Mr. Portnoy is a partner in
the law firm which provides legal services to the Company and was a
minority shareholder of the owner of Continuing Health Care Corporation,
a company which formerly leased or mortgaged properties from the
Company. Mr. Martin, until February 1994, was the majority shareholder
of Greenery Rehabilitation Group, Inc. ("Greenery"), one of the
Company's original sponsors and major tenant.
The Advisor is compensated at an annual rate equal to .7% of the
Company's real estate investments up to $250 million and .5% of such
investments thereafter. The Advisor is entitled to an incentive fee
comprised of restricted shares of the Company's common stock based on a
formula. Advisory fees for the years ended December 31, 1992, 1993 and
1994 were $2,231, $2,591 and $3,839, respectively. Incentive fees for
1994 were $239 which represents approximately 17,869 common shares. At
December 31, 1994, the Advisor owned 996,250 common shares.
Amounts resulting from transactions with affiliates included in the
accompanying statements of income, shareholders' equity and cash flows
are as follows:
<TABLE>
<CAPTION>
F-13<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Year Ended December 31,
1992 1993 1994
<S> <C> <C> <C>
Dividends paid to the Advisor $ 1,245 $ 1,285 $1,315
Dividends paid to Continuing
Health and affiliates 2,500 - -
Rent from Greenery 17,531 22,527 2,689
Rent and interest income from CSC 929 4,483 4,835
Rent from CSC II - - 3,646
Rent and interest income from
Continuing Health and affiliates 10,218 - -
Interest expense paid to Greenery 31 270 -
</TABLE>
<TABLE>
<CAPTION>
Note 8. Indebtedness December 31,
1993 1994
<S> <C> <C>
Term loan payable, repaid in February 1994 $ 33,000 $ -
$40,000 revolving line of credit, repaid
in February 1994 40,000 -
$170,000 unsecured revolving credit facility,
due August 1998, interest based on LIBOR - -
Senior Notes, Series A due July 1999
at LIBOR plus 1.05% - 75,000
Senior Notes, Series B, due July 1999
at LIBOR plus .72% - 125,000
Revenue Refunding Bonds, Series 1991A, due
August 2010 at 7.75% - 13,950
Revenue Refunding Bonds, Series 1991B, due
August 2009 at 7.75% - 3,670
-------- ---------
73,000 217,620
Less unamortized discount - (1,107)
-------- ---------
$ 73,000 $216,513
======== =========
</TABLE>
During 1994, the Company entered into a new revolving credit
arrangement, aggregating $170,000, and repaid borrowings then
outstanding. In connection with the prepayments, the Company terminated
certain interest rate hedge arrangements, wrote off certain deferred
costs related to the prepayment and recorded an extraordinary charge of
approximately $1,953. In addition, the Company received net proceeds
F-14<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
after financing costs of $197,270 from the issuance of $200,000 Series A
and Series B Senior Notes, issued at par and at a discount,
respectively. The Series A notes may be called, at the Company's
option, beginning in April 1995. The Series B notes may be called, at
the Company's option, beginning in July 1996.
In association with the purchase of the Marriott properties, the
Company assumed bonds payable of $17,620. These notes are secured by
first mortgage liens on two retirement communities having an aggregate
net book value of $67,997 at December 31, 1994, and by a $17,802 letter
of credit.
At December 31, 1994, the Company had interest rate hedge agreements
which cap interest rates on up to $200,000 of borrowings. The maximum
average rates payable on such borrowings under these arrangements is
6.85% per annum over the terms of the agreements. The maturities of the
hedge agreements range from 1995 through 1998.
The required principal payments for the next five years of $200,000
are due in 1999.
Note 9. Concentration of credit risk
Substantially all of the Company's assets are invested in income
producing health care related real estate. At December 31, 1994, the
Company's significant lessees and mortgagors are as follows:
<TABLE>
<CAPTION>
Notes,
Mortgages and 1994
Real Estate Rent and Mortgage
Properties, Net Interest Revenue
%of %of
Amount Total Amount Total
<S> <C> <C> <C> <C>
Marriott $321,199 42% $14,762 18%
Horizon 123,740 16 15,386 18
GranCare 86,064 11 14,483 17
Other 235,987 31 39,139 47
-------- --- ------- ---
$766,990 100% $83,770 100%
======== === ======= ===
</TABLE>
Note 10. Fair value of financial instruments.
F-15<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
At December 31, 1994, the carrying amounts and fair values of
the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
<S> <C> <C>
Real estate mortgages and notes $ 133,477 $ 133,850
Cash and cash equivalents 59,766 59,766
Interest rate hedging agreements 3,548 8,381
Notes and bonds payable 216,513 216,045
Security deposits 3,800 3,800
Financing commitments - 58,148
Off-Balance-Sheet item:
Letter of credit - 267
</TABLE>
Cash and cash equivalents, security deposits and financing
commitments approximate fair values. Interest rate hedging agreements
are based on quoted market prices. The fair values of notes and bonds
payable are based on estimates using discounted cash flow analysis and
currently prevailing rates. The fair value of the letter of credit is
based on fees currently charged to enter into similar agreements taking
into account the remaining term and the counter party's credit standing.
F-16<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 11. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly
results of operations of the Company for 1993 and 1994.
<TABLE>
<CAPTION>
1993
First Second Third
Fourth
Quarter Quarter Quarter
Quarter
<S> <C> <C> <C> <C>
Revenues $12,650 $13,763 $14,727
$15,345
Income before gain (loss)
on sale of property and
extraordinary items 8,409 9,536 9,739 10,054
Income before extraordinary items 8,409 9,536 9,739
10,054
Extraordinary items (3,392) - -
(929)
Net income 5,017 9,536 9,739 9,125
Per share data:
Income before gain (loss)
on sale of property and
extraordinary items .27 .27 .28 .28
Income before extraordinary items .27 .27 .28
.28
Net income .16 .27 .28 .26
</TABLE>
<TABLE>
<CAPTION>
1994
First Second Third
Fourth
Quarter Quarter Quarter
Quarter
<S> <C> <C> <C> <C>
Revenues $17,547 $19,916 $23,816
$25,404
Income before gain (loss)
on sale of property and
extraordinary items 12,650 14,334 15,588 15,306
Income before extraordinary items 16,644 14,334 15,588
5,306
F-17<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Extraordinary items - (1,953) -
-
Net income 16,644 12,381 15,588 5,306
Per share data:
Income before gain (loss)
on sale of property and
extraordinary items .28 .28 .27 .27
Income before extraordinary items .37 .28 .27
.09
Net income .37 .24 .27 .09
</TABLE>
Note 12. Subsequent Events and Pro Forma Information (Unaudited)
On January 24, 1995, the Company provided first mortgage
financing of $11,500, due in 2007, secured by four assisted living
properties and operated by a newly created health care operating
company. The borrower has provided a $1,000 cash security deposit to
guarantee its obligations to the Company.
In addition, on January 31, 1995, the Company acquired nine
nursing facilities for approximately $32,000. The facilities have been
leased to a newly formed corporation which is an affiliate of the
Company. The purchase price paid was approximately $8,132 in cash and
1,777,768 shares of the Company's common stock.
The Company entered into a commitment to purchase and lease
11 nursing properties for $18,000 and provide first mortgage financing
of $2,045, secured by three nursing properties, to a subsidiary of an
existing tenant, on terms substantially similar to the Company's
existing lease and mortgage agreements. The acquisition is expected to
close on or about April 1, 1995.
The Company has entered into a commitment of approximately
$45,000, subject to adjustment, to purchase and lease 14 nursing
properties located in the United Kingdom, on terms substantially similar
to the Company's existing lease agreements. This investment will be
funded in British Sterling. The acquisition is expected to close in
installments beginning in April 1995 with the entire transaction
completed by December 31, 1995.
The Company entered into a purchase and lease agreement with
a subsidiary of Host Marriott Corporation ("Host Marriott") for 21
Courtyard by Marriott hotel properties for approximately $179,400,
subject to adjustment. The properties will be leased for an initial
term of 12 years, with renewal options of an additional 37 years to a
subsidiary of Host Marriott, and will be managed by a subsidiary of
F-18<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Marriott International. A portion of the purchase price equal to one
year's rent will be withheld by the Company to guarantee the rent
obligations to the Company. The acquisition is expected to close in
March 1995.
The following summarized Pro Forma Statements of Income
assume that the 1994 transactions described in Notes 3 and 4, the
issuance of the Company's common shares and senior notes during 1994 and
the transactions described above had occurred on January 1, 1993, and
give effect to the Company's borrowing rates throughout the periods
indicated.
The summarized Pro Forma Balance Sheet is intended to
present the financial position of the Company as if the transactions
described in Note 14 had occurred on December 31, 1994.
These pro forma statements are not necessarily indicative of
the expected results of operations or the Company's financial position
for any future period. Differences could result from, but are not
F-19<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
limited to, additional property investments, changes in interest rates
and changes in the debt and/or equity structure of the Company.
<TABLE>
<CAPTION>
Year Ended December 31,
Pro Forma Statements of Income 1993 1994
(Unaudited)
<S> <C> <C>
Total revenues $105,888 $123,903
Total expenses 42,276 54,308
-------- --------
Net income $ 63,612 $ 69,595
======== ========
Weighted average shares
outstanding (in thousands) 59,163 59,163
======== ========
Net income per share $ 1.08 $ 1.18
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
Pro Forma Balance Sheet 1994
(Unaudited)
<S> <C>
Real estate properties, net $ 885,802
Real estate mortgages and notes, net 156,575
Other assets 17,686
----------
Total assets $1,060,063
==========
Indebtednes $ 391,513
Other liabilities 40,254
Shareholders' equity 628,296
----------
Total liabilities and
shareholders' equity $1,060,603
==========
</TABLE>
F-20<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1994
(Dollars in thousands)
Costs
Capatilized Gross Amount at
Subsequent Which Carried at
Original
Initial Cost to Company to Close of Period Accum. Date
Construction
Location State Land Building Equipment Acquisition Land Building Equipment
Total (1) Deprn (2) Acquired Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YUMA AZ 223 1,984 116 4 223 1,988 116 2,327 148 6/30/92 1984
PHOENIX AZ 655 2,366 159 5 655 2,371 159 3,185 181 6/30/92 1963
YUMA AZ 103 569 35 1 103 570 35 708 43 6/30/92 1984
SCOTTSDALE AZ 979 8,807 0 140 990 8,936 0 9,926 174 5/16/94 1990
SUN CITY AZ 1,174 10,569 0 173 1,189 10,727 0 11,916 173 6/17/94 1990
NEWPORT BEACH CA 1,176 1,584 145 1,223 1,176 2,785 167 4,128 256 12/28/90 1962
SAN DIEGO CA 1,114 964 109 480 1,114 1,402 151 2,667 177 12/28/90 1969
LANCASTER CA 601 1,736 123 1,009 601 2,667 201 3,469 267 12/28/90 1963
FRESNO CA 738 2,411 166 188 738 2,554 211 3,503 320 12/28/90 1968
PALM SPRINGS CA 103 1,196 68 982 103 2,147 99 2,349 183 12/28/90 1969
TARZANA CA 1,277 864 113 806 1,278 1,648 134 3,060 193 12/28/90 1969
THOUSAND OAKS CA 622 2,365 157 310 622 2,647 185 3,454 312 12/28/90 1965
VAN NUYS CA 716 322 56 225 718 503 98 1,319 72 12/28/90 1969
STOCKTON CA 382 2,593 157 4 382 2,597 157 3,136 195 6/30/92 1968
LAGUNA HILLS CA 3,132 28,184 0 473 3,172 28,617 0 31,789 251 9/9/94 1975
COLORADO SPRINGS CO 23 777 0 114 26 888 0 914 7 11/1/94 1960
GRAND JUNCTION CO 136 2,311 272 67 136 2,378 272 2,786 84 12/30/93 1978
GRAND JUNCTION CO 204 3,467 408 135 204 3,602 408 4,214 127 12/30/93 1968
PAONIA CO 115 1,950 229 25 115 1,975 229 2,319 71 12/30/93 1981
LAKEWOOD CO 232 3,566 200 724 232 4,285 205 4,722 473 12/28/90 1972
LITTLETON CO 185 4,782 261 349 185 5,051 341 5,577 606 12/28/90 1965
NEW HAVEN CT 1,681 14,201 752 94 1,681 14,295 752 16,728 1,097 5/11/92 1971
CHESHIRE CT 520 7,110 270 111 520 7,221 270 8,011 1,453 11/1/87 1963
WILLIMANTIC CT 134 3,316 250 479 166 3,763 250 4,179 847 5/15/87 1965
WATERFORD CT 86 4,214 500 453 87 4,667 499 5,253 1,181 5/15/87 1965
KILLINGLY CT 240 4,910 450 460 240 5,371 449 6,060 1,283 5/15/87 1972
BOCA RATON FL 4,404 39,633 0 797 4,474 40,360 0 44,834 754 5/20/94 1994
Ft. MYERS FL 2,349 21,137 0 419 2,385 21,520 0 23,905 233 8/16/94 1984
DEERFIELD BEACH FL 1,664 14,972 0 298 1,690 15,244 0 16,934 287 5/16/94 1986
F-21<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
PALM HARBOR FL 3,327 29,945 0 595 3,379 30,488 0 33,867 544 5/16/94 1992
PORT ST. LUCIE FL 1,223 11,009 0 219 1,242 11,209 0 12,451 221 5/20/94 1993
CLARINDA IA 77 1,300 153 57 77 1,357 153 1,587 47 12/30/93 1968
MEDIAPOLIS IA 94 1,589 187 69 94 1,658 187 1,939 58 12/30/93 1973
MUSCATINE IA 246 4,190 493 170 245 4,362 492 5,099 153 12/30/93 1964
TOLEDO IA 153 2,601 306 131 153 2,732 306 3,191 95 12/30/93 1975
WINTERSET IA 111 1,878 221 103 111 1,981 221 2,313 69 12/30/93 1973
COUNCIL BLUFFS IA 50 467 0 32 50 499 0 549 19 6/4/93 1970
NASHVILLE IL 75 2,424 132 80 75 2,458 178 2,711 301 12/28/90 1964
ARLINTON HEIGHTS IL 3,621 32,587 0 534 3,665 33,077 0 36,742 286 9/9/94 1986
SMITH CENTER KS 111 1,878 221 60 111 1,938 221 2,270 69 12/30/93 1971
SILVER SPRING MD 3,229 29,065 0 786 3,301 29,779 0 33,080 386 7/25/94 1992
TARKIO MO 102 1,734 204 25 102 1,759 204 2,065 63 12/30/93 1970
St. JOSEPH MO 111 1,027 0 32 111 1,059 0 1,170 40 6/4/93 1976
AKRON OH 330 4,970 400 727 330 5,697 400 6,427 1,302 5/15/87 1971
GROVE CITY OH 332 3,081 0 32 332 3,113 0 3,445 119 6/4/93 1965
HURON SD 144 2,945 163 4 144 2,949 163 3,256 218 6/30/92 1968
HURON SD 45 917 51 1 44 919 51 1,014 68 6/30/92 1968
SIOUX FALLS SD 253 2,896 166 4 253 2,900 166 3,319 215 6/30/92 1960
BELLAIRE TX 1,223 11,010 0 178 1,238 11,173 0 12,411 200 5/16/94 1991
CHARLOTTESVILLE VA 2,936 26,422 0 472 2,976 26,854 0 29,830 418 6/17/94 1991
ARLINTON VA 1,859 16,734 0 295 1,885 17,003 0 18,888 249 7/25/94 1992
VIRGINIA BEACH VA 881 7,926 0 137 893 8,051 0 8,944 146 5/16/94 1990
SEATTLE WA 256 4,356 513 68 256 4,424 513 5,193 172 11/1/93 1972
MILWAUKEE WI 277 3,594 289 0 277 3,594 289 4,160 313 3/27/92 1969
CLINTONVILLE WI 49 1,542 83 88 30 1,640 92 1,762 193 12/28/90 1965
MILWAUKEE WI 116 3,260 178 123 116 3,379 182 3,677 397 12/28/90 1960
CLINTONVILLE WI 14 1,610 85 37 14 1,640 92 1,746 195 12/28/90 1960
MADISON WI 144 1,544 89 109 144 1,651 91 1,886 195 12/28/90 1920
WAUKESHA WI 68 3,276 176 1,912 68 5,185 179 5,432 427 12/28/90 1958
BROOKFIELD WI 834 3,615 234 5,643 834 9,258 234 10,326 560 12/28/90 1954
LARAMIE WY 191 3,250 382 76 191 3,326 382 3,899 116 12/30/93 1964
SARATOGA WY 13 1,487 0 126 14 1,612 0 1,626 17 11/1/94 1974
WORLAND WY 132 2,239 264 37 132 2,276 264 2,672 79 12/30/93 1970
Total Long-term Care
and Retirement 47,595421,228 9,986 23,510 48,092 443,779 10,448 502,319 19,398
WALLINGFORD CT 557 10,649 394 1,023 557 11,672 394 12,623 2,405 12/23/86 1974
WATERBURY CT 514 9,822 364 523 514 10,345 364 11,223 2,216 12/23/86 1971
FORESTVILLE CT 465 8,905 330 1,233 465 10,138 330 10,933 2,034 12/23/86 1972
WATERBURY CT 1,003 8,522 501 0 1,003 8,522 501 10,026 669 5/11/92 1974
SLIDELL LA 2,323 19,745 1,161 1,147 2,353 20,847 1,176 24,376 2,352 3/1/91 1984
BOSTON MA 2,164 19,836 1,000 1,977 2,163 21,814 1,000 24,977 3,440 5/1/89 1968
WORCESTER MA 1,829 14,186 885 1,869 1,829 16,055 885 18,769 2,991 5/1/88 1970
F-22<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
HYANNIS MA 829 7,048 415 0 829 7,048 415 8,292 553 5/11/92 1972
MIDDLEBORO MA 1,771 14,961 791 0 1,771 14,961 791 17,523 1,154 5/11/92 1975
NORTH ANDOVER MA 1,448 10,435 614 0 1,448 10,435 614 12,497 820 5/11/92 1985
CANONSBURG PA 1,499 12,743 750 606 1,518 13,320 760 15,598 1,508 3/1/91 1985
Total
Rehabilitation
Hospitals 14,402 136,852 7,205 8,378 14,450145,157 7,230166,837 20,142
SACRAMENTO CA 644 3,206 0 77 644 3,283 0 3,927 30 8/30/94 1984
Total Other 644 3,206 0 77 644 3,283 0 3,927 30
Total
Real Estate $62,641$561,286$17,191 $31,965 $63,186$592,219 $17,678$673,083 $39,570
(1) Aggregate cost for federal income tax purposes is approximately $636,427.
(2) Depreciation is provided for on buildings and improvements over 40 years, equipment over 12 years.
</TABLE>
<TABLE>
<CAPTION>
Real Estate and Accumulated
Equipment Depreciation
<S> <C> <C>
Balance at January 1, 1992 $281,766 $19,209
Additions 56,447 8,122
Adjustments to exchange contract (1,137) (1,137)
Balance at December 31, 1992 337,076 26,194
Additions 47,735 8,775
Balance at December 31, 1993 384,811 34,969
Additions 341,610 13,594
Disposals (53,338) (8,993)
Balance at December 31, 1994 $673,083 $39,570
</TABLE>
F-23<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
<TABLE>
HEALTH AND RETIREMENT PROPERTIES TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1994
(Dollars in thousands)
<CAPTION>
Principal
Amount of
Loans Subject
Final (1) to Delinquent
Interest Maturity Periodic Payment Face Value Carry Value Principal
Location Rate Date Terms of Mortgage of Mortgage or Interest
- - - ------------------ -------- --------- ----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
OMAHA, NE 9.000% 11/1/97 Principal & Interest payable 4,163 3,904 -
monthly in arrears. $3.9 million
due at maturity
FARMINGTON, MI 11.500% 12/31/00 Interest only payable monthly 4,300 4,300 -
in arrears. $4.1 million due
at maturity
TORRANCE, CA 10.460% 1/1/97 Principal & Interest payable 5,087 5,087 294
monthly in arrears. $5.0 million
due at maturity
HOWELL, MI 11.500% 12/31/00 Interest only payable monthly 5,100 5,100 -
in arrears. $4.8 million due
at maturity
CARROLLTON, GA } 9.500% 8/10/95 Principal & Interest payable 5,224 5,152 -
CUMMING, GA } monthly in arrears. $5.2 million
CEDARTOWN, GA } due at maturity
AINSWORTH, NE }
ASHLAND, NE }
BLUE HILL, NE } 9.000% 12/31/16 Interest only payable monthly 6,796 6,796
CENTRAL CITY, NE } in arrears. $2.0 million due
GRETNA, NE } at maturity
SUTHERLAND, NE }
WAVERLY, NE }
MEDINA, OH 6.625% 2/1/98 Principal & Interest payable 6,012 5,633 -
monthly in arrears. $6.5 million
F-24<PAGE>
due at maturity
MILWAUKEE, WI } 13.750% 12/28/00 Principal & Interest payable 8,800 8,800 -
PEWAUKEE, WI } monthly in advance. $4.9 million
due at maturity
CANON CITY, CO } 11.500% 12/31/16 Interest only payable monthly 14,019 14,019 -
DELTA, CO } in arrears. $5.4 million due
COLORADO SPRINGS,CO } at maturity
HICKORY, NC } 9.500% 1995 Principal & Interest payable 19,947 9,947
LOUISVILLE, KY } monthly in arrears (2)
32 MORTGAGES 7.187%-11.25% 3/95-3/01 N/A 62,163 57,053 373
----------------------------------------
TOTAL $141,611 $125,791 $667
========================================
<FN>
(1) Also represents cost for federal income tax purposes.
(2) Amounts due on two real estate facilities sold effective 9/1/94. The sale price is being determined by
a judicially supervised appraisal process. The write down is due to the general decline in the value of
such types of property.
</TABLE>
<TABLE>
Reconciliation of the carrying amount of mortgage loans at the beginning of the period.
<S> <C>
Balance at January 1, 1992 $ 31,760
New Mortgage Loans 19,573
Collections of Principal (4,160)
--------
Balance at December 31, 1992 47,173
New Mortgage Loans 133,939
Amortization of Discount 965
Collections of Principal (33,827)
--------
Balance at December 31, 1993 148,250
New Mortgage Loans 11,772
Reclassification of real estate investment 9,947
Amortization of Discount 4,597
Collections of Principal (48,775)
--------
Balance at December 31, 1994 $125,791
</TABLE>
F-25<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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, thereunto duly authorized.
HEALTH AND RETIREMENT PROPERTIES TRUST
By:/S/ David J. Hegarty
David J. Hegarty
Executive Vice President and
Chief Financial Officer
Dated: March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons, or by
their attorney-in-fact, in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Mark J. Finkelstein* President and Chief March 30, 1995
Mark J. Finkelstein Executive Officer
/s/ David J. Hegarty* Executive Vice March 30, 1995
David J. Hegarty President and Chief
Financial Officer
/s/ John L. Harrington* Trustee March 30, 1995
John L. Harrington
/s/ Arthur G. Koumantzelis* Trustee March 30, 1995
Arthur G. Koumantzelis
/s/ Justinian Manning, C.P.* Trustee March 30, 1995
Rev. Justinian Manning,
C.P.
/s/ Gerard M. Martin* Trustee March 30, 1995
Gerard M. Martin
/s/ Barry M. Portnoy Trustee March 30, 1995
F-26<PAGE>
Barry M. Portnoy
*By: /s/ Barry M. Portnoy
Barry M. Portnoy
Attorney-in-fact
/TABLE
<PAGE>
POWER OF ATTORNEY
The undersigned Officers and Trustees of Health and Retirement
Properties Trust hereby severally constitue Mark J. Finkelstein, David
J. Hegarty, Gerard M. Martin and Barry M. Portnoy, and each of them, to
sign for us and in our names in the capacities indicated below, the
Annual Report on Form 10-K herewith filed with the Securities and
Exchange Commission, and any and all amendments thereto, hereby
ratifying and confirming our signatures as they may be signed by our
said attorneys to the Annual Report on Form 10-K and any and all
amendments to the Annual Report on Form 10-K.
Witness our hands and seals on the dates set forth below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ MARK J. FINKELSTEIN President and Chief March 30, 1995
Mark J. Finkelstein Executive Officer
/s/ DAVID J. HEGARTY Executive Vice March 30, 1995
David J. Hegarty President and Chief
Financial Officer
/s/ JOHN L. HARRINGTON Trustee March 30, 1995
John L. Harrington
/s/ ARTHUR G. KOUMANTZELIS Trustee March 30, 1995
Arthur G. Koumantzelis
/s/ REV. JUSTINIAN MANNING Trustee March 30, 1995
Rev. Justinian Manning,
C.P.
/s/ GERARD M. MARTIN Trustee March 30, 1995
Gerard M. Martin
/s/ BARRY M. PORTNOY Trustee March 30, 1995
Barry M. Portnoy
</TABLE>
F-28<PAGE>
Exhibit 3.2
HEALTH AND RETIREMENT PROPERTIES TRUST
BYLAWS
Originally adopted as of October 9, 1986
Amended and Restated as of October 17, 1994
Further Amended as of January 9, 1995
<PAGE>
ARTICLE I
TRUSTEES
Section 1.1 Qualifying Shares Not Required. Trustees need not
be Shareholders of Health and Retirement Properties Trust (the "Trust").
Section 1.2 Quorum. A majority of the Trustees shall
constitute a quorum subject to the provisions of Section 2.6 of the
Trust's Declaration of Trust, as it may be amended from time to time (the
"Declaration").
Section 1.3 Number and Term; Election. The number and terms
of the Trustees shall be as provided in Section 2.1 of the Declaration.
Trustees shall be elected at annual meetings of Shareholders as provided
in Section 2.1 of the Declaration. If Trustees are not so elected at an
annual meeting or if such meeting is not held, Trustees may be elected at
a special meeting of Shareholders.
Section 1.4 Place of Meeting. Meetings of the Trustees shall
be held at the principal office of the Trust or at such place within or
without the State of Maryland as the President shall direct or as is
fixed from time to time by resolution of the Trustees. Whenever a place
other than the principal office is fixed by the President or by
resolution as the place at which future meetings are to be held, written
notice thereof shall be sent to all Trustees a reasonable time in advance
of any meeting to be held at such place.
Section 1.5 Organizational Meeting. Immediately following
each Annual Meeting of Shareholders, a regular meeting of the Trustees
shall be held for the purpose of organizing, electing officers and
transacting other business. Notice of such meetings need not be given.
Section 1.6 Regular Meetings. Regular meetings of the
Trustees shall be held at the place determined pursuant to Section 1.4 on
the dates, if any, established at each organizational meeting of the
Trustees and notice of such regular meetings of the Trustees is hereby
dispensed with.
Section 1.7 Special Meetings. Special meetings of the
Trustees may be called at any time by the Chairman or President and shall
be called by the Chairman or President upon the written request of three
(3) Trustees. Written notice of the time and place of a special meeting
shall be given to each Trustee, either personally or by sending a copy
thereof by mail or by facsimile or telex, charges prepaid, to the address
of the Trustee appearing on the books of the Trust or theretofore given
by the Trustee to the Trust for the purpose of notice. In case of
personal service, such notice shall be so delivered at least twenty-four
(24) hours prior to the time fixed for the meeting. If such notice is
mailed, it shall be deposited in the United States mail in the place in
which the principal office of the Trust is located at least seventy-two
(72) hours prior to the time fixed for the holding of the meeting. If
sent by facsimile or telex, it shall be sent at least forty-eight (48)
hours prior to the time fixed for the holding of the meeting. If notice<PAGE>
is not so given by the Secretary, it may be given in the same manner by
the Chairman, President or the Trustees requesting the meeting.
Section 1.8 Adjourned Meetings. A quorum of the Trustees may
adjourn any Trustees' meeting to meet again at a stated day and hour. In
the absence of a quorum, a majority of the Trustees present may adjourn
from time to time to meet again at a stated day and hour prior to the
time fixed for the next regular meeting of the Trustees. The motion for
adjournment shall be lodged with the records of the Trust. Notice of the
time and place of an adjourned meeting need not be given to any Trustee
present at the adjourned meeting if the time and place is fixed at the
meeting adjourned.
Section 1.9 Waiver of Notice. The transactions of any meeting
of the Trustees, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice
if a quorum is present and if, either before or after the meeting, each
of the Trustees not present signs a written waiver of notice, a consent
to the holding of such meeting or an approval of the minutes thereof.
All such waivers, consents or approvals shall be lodged with the Trust
records or made a part of the minutes of the meeting.
Section 1.10 Action Without Meeting. Unless specifically
otherwise provided in the Declaration, any action required or permitted
to be taken by the Trustees may be taken without a meeting if a majority
of the Trustees (or a majority of the Independent Trustees as to any
action which requires such a majority) shall individually or collectively
consent in writing to such action. Such written consent or consents
shall be lodged with the records of the Trust and shall have the same
force and effect as the affirmative vote of such Trustees at a duly held
meeting of the Trustees at which a quorum were present.
Section 1.11 Telephone Meetings. The Trustees may meet by
means of a telephone conference circuit or similar communications
equipment by means of which all persons participating in the meeting
shall be able to hear one another and participate therein. Such meeting
shall be deemed to have been held at a place designated by the Trustees
at the meeting. Participation in a telephone conference meeting shall
constitute presence in person at such meeting.
Section 1.12 Committee Rules. Unless the Trustees otherwise
provide, each committee designated by the Trustees may adopt, amend and
repeal rules for the conduct of such committee's business. In the
absence of a provision by the Trustees or a provision in the rules of
such committee to the contrary, a majority of the entire authorized
number of members of such committee shall constitute a quorum for the
transaction of business, the vote of a majority of the members present at
a meeting at the time of such-vote if a quorum is then present shall be
the act of such committee, and in other respects each committee shall
conduct its business in the same manner as the Trustees conduct their
business pursuant to Article II of the Declaration and this Article I of
these Bylaws.
-2-<PAGE>
ARTICLE II
OFFICERS
Section 2.1 Enumeration. The officers of the Trust shall be a
President, a Secretary, a Treasurer, and such other officers as are
elected by the Trustees including, in their discretion, a Chairman, with
such duties as are assigned to them by the Trustees. Officers shall be
elected by and shall hold office at the pleasure of the Trustees. When
the duties do not conflict, any two or more offices, except those of
Chairman and/or President and Secretary, may be held by the same person.
Section 2.2 Powers and Duties of the Chairman. The Chairman,
if there shall be such an officer, shall, if present, preside at all
meetings of the Shareholders and the Trustees and may be the chief
executive officer of the Trust if the Trustees so elect.
Section 2.3 Powers and Duties of the President. Subject to
such supervisory powers, if any, as may be given by the Trustees to the
Chairman, the President shall, subject to the control of the Trustees and
the supervision of the Chairman, have general supervision, direction and
control of the business of the Trust and its employees and shall exercise
such general powers of management as are usually vested in the office of
president of a corporation. In the absence of the Chairman, or if there
be none, he shall preside at all meetings of the Shareholders and/or
Trustees and, unless the Chairman has been designated as chief executive
officer, shall be chief executive officer of the Trust. He shall be, ex
officio, a member of all standing committees.
Section 2.4 Powers and Duties of Vice-President. Each Vice-
President, if any, designated by the Trustees shall be an administrative
officer of the Trust and have such duties as are designated by the
President or the Trustees.
-3-<PAGE>
Section 2.5 Duties of the Secretary. The Secretary shall:
(a) Minutes. Keep full and complete minutes of the
meetings (or actions in lieu thereof) of the Trustees, any committees of
the Trustees and the Shareholders and give notice, as required, of all
such meetings;
(b) Books and Other Records. Maintain custody of and
keep the books of account and other records of the Trust except such as
are in custody of the Treasurer; .
(c) Share Register. Maintain at the principal office of
the Trust a share register, showing the ownership and transfers of
ownership of all shares of the Trust, unless a transfer agent is employed
to maintain and does maintain such a share register; and
(d) General Duties. Generally, perform all duties which
pertain to his office and which are required by the Trustees.
An Assistant Secretary or Secretaries may be appointed to
act in the absence of the Secretary.
Section 2.6 Duties of the Treasurer. The Treasurer shall
perform all duties which pertain to his office and which are required by
the Trustees, including without limitation the receipt, deposit and
disbursement of funds belonging to the Trust.
An Assistant Treasurer or Treasurers may be appointed to act in
the absence of the Treasurer.
ARTICLE III
SHAREHOLDERS
Section 3.1 Effect of Quorum. Subject to the provisions of
the Declaration, the Shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough Shareholders so that
the remaining Shareholders constitute less than a quorum.
Section 3.2 Place of Meeting. Meetings of the Shareholders
shall be held at the principal office of the Trust or at such place
within or without the State of Maryland as is designated by the Trustees
or the Chairman or President or by the written consent of a majority of
the Shareholders entitled to vote thereat, given either before or after
the meeting and filed with the Secretary of the Trust.
Section 3.3 Annual Meeting. A regular annual meeting of the
Shareholders shall be called by the Chairman or President within six
months after the end of each fiscal year, commencing with the fiscal year
ending December 31, 1987.
-4-<PAGE>
Section 3.4 Special Meetings. Special meetings of the
Shareholders may be held at any time for any purpose or purposes
permitted by the Declaration and shall be called as provided in Section
6.9 of the Declaration.
Section 3.5 Notice of Regular or Special Meetings. Written
notice specifying the place, day and hour of any regular or special
meeting, the purposes of the meeting, and all other matters required by
law shall be given to each Shareholder of record entitled to vote, either
personally or by sending a copy thereof by mail or telegraph, charges
prepaid, to his address appearing on the books of the Trust or
theretofore given by him to the Trust for the purpose of notice or, if no
address appears or has been given, addressed to the place where the
principal office of the Trust is situated. It shall be the duty of the
Secretary to give notice of each Annual Meeting of the Shareholders at
least fifteen (15) days and not more than sixty (60) days before the date
on which it is to be held. Whenever an officer has been duly requested
to call a special meeting of Shareholders, it shall be his duty to fix
the date and hour thereof, which date shall be not less than twenty (20)
days and not more than sixty (60) days after the receipt of such request
if the request has been delivered in person or after the date of mailing
the request, as the case may be, and to give notice of such special
meeting within ten (10) days after receipt of such request. If the date
of such special meeting is not so fixed and notice thereof given within
ten (10) days after the date of receipt of the request, the date and hour
of such meeting may be fixed by the Person or Persons calling or
requesting the meeting and notice thereof shall be given by such Person
or Persons not less than twenty (20) nor more than sixty (60) days before
the date on which the meeting is to be held.
Section 3.6 Notice of Adjourned Meetings. It shall not be
necessary to give notice of the time and place of any adjourned meeting
or of the business to be transacted thereat other than by announcement at
the meeting at which such adjournment is taken, except that when a
meeting is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.
Section 3.7 Proxies. The appointment of a proxy or proxies
for any meeting of Shareholders entitled to vote shall be made by an
instrument in writing executed by the Shareholder or his duly authorized
agent and filed with such officer of the Trust as the Trustees shall have
designated for such purpose for verification prior to such meeting. Any
proxy relating to the Trust's shares of beneficial interest shall be
valid until the expiration date therein or, if no expiration is so
indicated, for such period as is permitted pursuant to Maryland law. At
a meeting of Shareholders all questions concerning the qualification of
voters, the validity of proxies, and the acceptance or rejection of
votes, shall be decided by the Secretary of the meeting unless inspectors
of election are appointed pursuant to Section 3.10 in which event such
inspectors shall pass upon all questions and shall have all other duties
specified in said section.
-5-<PAGE>
Section 3.8 Consent of Absentees. The transactions of any
meeting of Shareholders, either annual, special or adjourned, however
called and noticed, shall be as valid as though had at a meeting duly
held after the regular call and notice if a quorum is present and if,
either before or after the meeting, each Shareholder entitled to vote,
not present in person or by proxy, signs a written waiver of notice, a
consent to the holding of such meeting or an approval of the minutes
thereof. All such waivers, consents or approvals shall be lodged with
the Trust records or made a part of the minutes of the meeting.
Section 3.9 Voting Rights. If no date is fixed for the
determination of the Shareholders entitled to vote at any meeting of
Shareholders, only Persons in whose names Shares entitled to vote stand
on the share records of the Trust at the opening of business on the day
of any meeting of Shareholders shall be entitled to vote at such meeting.
Section 3.10 Advance Notice for Nomination of Trustees. Only
persons who are nominated in accordance with the following procedures
shall be eligible for election as Trustees of the Trust. Nominations of
persons for election to the Board of Trustees may be made (a) by or at
the direction of the Board of Trustees (or any duly authorized committee
thereof) or (b) by any Shareholder of the Trust (i) who is a Shareholder
of record on the date of the giving of the notice provided for in this
Section 3.10 and on the record date for the determination of Shareholders
entitled to vote upon such nominations and (ii) who complies with the
notice procedures set forth in this Section 3.10.
In addition to any other applicable requirements, for a
nomination to be made by a Shareholder, such Shareholder must have
given timely notice thereof in proper written form to the Secretary
of the Trust.
To be timely, a Shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the Trust (a) in the case of an annual meeting, not less
than seventy (70) days nor more than one hundred-twenty (120) days
prior to the anniversary date of the immediately preceding annual
meeting; provided, however, that in the event that the meeting is
called for a date more than seventy (70) days prior to such
anniversary date, notice by the Shareholder in order to be timely
must be so received not later than the close of business on the
twentieth (20th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs; and
(b) in the case of a special meeting of Shareholders called (other
than at the request of Shareholders) for the purpose of electing
Trustees, not later than the close of business on the twentieth
(20th) day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
-6-<PAGE>
To be in proper written form, a Shareholder's notice to the
Secretary must set forth (a) as to each person whom the Shareholder
proposes to nominate for election as a Trustee (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or
series and number of shares of capital stock of the Trust which are
owned beneficially or of record by the person, (iv) any other
information relating to the person that would be required to be dis-
closed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of Trustees
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder and (v) the consent of each nominee to serve
as a Trustee if so elected; and (b) as to the Shareholder giving the
notice (i) the name and record address of such Shareholder, (ii) the
class or series and number of shares of capital stock of the Trust
which are owned beneficially or of record by such Shareholder, (iii)
a description of all arrangements or understandings between such
Shareholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s)
are to be made by such Shareholder, (iv) a representation that such
Shareholder intends to appear in person or by proxy at the meeting,
if there be a meeting, to nominate the persons named in its notice
and (v) any other information relating to such Shareholder that
would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of
proxies for election of Trustees pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder.
Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a
Trustee if elected.
No person shall be eligible for election as a Trustee of the
Trust unless nominated in accordance with the procedures set forth
in this Section 3.10. If the Chairman of the meeting determines
that a nomination was not made in accordance with the foregoing
procedures, the Chairman shall declare to the meeting that the
nomination was defective, and such defective nomination shall be
disregarded.
Section 3.11 Advance Notice for Transaction of Business. No
business may be transacted by the Shareholders at an annual or special
meeting, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of
the Board of Trustees (or any duly authorized committee thereof), (b)
otherwise properly brought before the Shareholders by or at the direction
of the Board of Trustees (or any duly authorized committee thereof) or
(c) otherwise properly brought before the Shareholders by any Shareholder
of the Trust (i) who is a Shareholder of record on the date of the giving
of the notice provided for in this Section 3.11 and on the record date
for the determination of Shareholders entitled to vote or express consent
-7-<PAGE>
therefor and (ii) who complies with the notice procedures set forth in
this Section 3.11.
In addition to any other applicable requirements, for business
to be properly brought before an annual or special meeting by a
Shareholder (other than a shareholder proposal included in the
Trust's proxy statement pursuant to Rule 14a-8 under the Exchange
Act), such Shareholder must have given timely notice thereof in
proper written form to the Secretary of the Trust.
To be timely, a Shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the Trust not less than seventy (70) days nor more than
one hundred-twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the
event that the meeting is called for a date more than seventy (70)
days prior to such anniversary date, notice by the Shareholder in
order to be timely must be so received not later than the close of
business on the twentieth (20th) day following the day on which such
notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever
first occurs; and (b) in the case of a special meeting of
Shareholders called (other than at the request of Shareholders) for
the purpose of transacting business, not later than the close of
business on the twentieth (20th) day following the day on which
notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever
first occurs.
To be in proper written form, a Shareholder's notice to the
Secretary must set forth as to each matter such Shareholder proposes
to bring before the Shareholders (i) a brief description of the
business desired to be brought before the Shareholders and the
reasons therefor, (ii) the name and record address of such
Shareholder, (iii) the class or series and number of shares of
capital stock of the Trust which are owned beneficially or of record
by such Shareholder, (iv) a description of all arrangements or
understandings between such Shareholder and any other person or per-
sons (including their names) in connection with the proposal of such
business by such Shareholder and any material interest of such
Shareholder in such business and (v) a representation that such
Shareholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted by the Shareholders except
business brought before them in accordance with the procedures set
forth in this Section 3.11; provided, however, that, once business
has been properly brought before an annual or special meeting in
accordance with such procedures, nothing in this Section 3.11 shall
be deemed to preclude discussion by any Shareholder of any such
business. If the Chairman of the meeting determines that business
was not properly brought before the meeting in accordance with the
-8-<PAGE>
foregoing procedures, the Chairman shall declare to the meeting that
the business was not properly brought before the meeting, and such
business shall not be transacted.
Section 3.12 Record Date. In order to permit the Trustees to
appropriately fix a record date for determining the Shareholders entitled
to notice of or to vote at any special meeting of Shareholders or to
express consent to any proposal without a meeting in accordance with
Section 6.12 of the Declaration, any Shareholder requesting the call of a
special meeting or proposing to solicit such consents shall give notice
in proper written form to the Secretary of the Trust. To be in proper
written form, a Shareholder's notice to the Secretary shall set forth,
with respect to nominations of persons for election to the Board of
Trustees, those matters required by Section 3.10 of these Bylaws, and
with respect to transaction of other business, those matters required by
Section 3.11 of these Bylaws.
Section 3.13 Action Without Meeting. Whenever the Declaration
permits an action by Shareholders without a meeting, in order that
the Trust's Shareholders shall have an opportunity to receive and
consider the information germane to an informed judgment as to
whether to give a written consent, any action to be taken by written
consent shall not be effective until, and the Shareholders of the
Trust shall be able to give or revoke written consents for, at least
sixty (60) days from the date of the commencement of a solicitation
(as such term is defined in Rule 14a-l(l) promulgated under the
Exchange Act) of consents. For purposes of this Section 3.13, a
consent solicitation shall be deemed to have commenced when a proxy
statement or information statement containing the information re-
quired by law is first furnished to the Trust's Shareholders.
Consents shall be valid for a maximum of sixty (60) days after the
date of the earliest dated consent delivered to the Trust.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Record Dates and Closing of Transfer Books.
Pursuant to the Declaration, the Trustees may fix record dates for
specified purposes. If a record date is so fixed, only Shareholders of
record on the date so fixed shall be entitled to the rights to which the
record date pertains.
Section 4.2 Inspection of Bylaws. The Trustees shall keep at
the principal office for the transaction of business of the Trust the
original or a copy of the Bylaws as amended or otherwise altered to date,
certified by the Secretary, which shall be open to inspection by the
Shareholders at all reasonable times during office hours.
Section 4.3 Control Share Acquisition. Until such time as
this Section 4.3 shall be repealed or these Bylaws shall be amended to
provide otherwise, in each case in accordance with Article V of these
-9-<PAGE>
Bylaws, the provisions of Subtitle 7 of Title 3 of the Corporations and
Associations Article of the Annotated Code of Maryland (the "Code") shall
not apply to "control share acquisitions" of the Trust within the meaning
of the Code.
ARTICLE V
AMENDMENTS
Section 5.1 By Trustees. Except for any change for which the
Declaration or these Bylaws require approval by more than a majority
vote, these Bylaws may be amended or repealed or new or additional Bylaws
may be adopted by the vote or written consent of a majority of the
Trustees.
-10-<PAGE>
ARTICLE VI
DEFINITIONS
Section 6.1 Definitions. All terms defined in the Declaration
shall have the same meaning when used in these Bylaws.
ARTICLE VII
FISCAL YEAR
Section 7.1 Fiscal Year. The fiscal year of the Trust shall
be the calendar year.
-11-<PAGE>
TABLE OF CONTENTS
ARTICLE I
TRUSTEES
Section 1.1 Qualifying Shares Not Required . . . . . . . . . 1
Section 1.2 Quorum . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Number and Term; Election . . . . . . . . . . . . 1
Section 1.4 Place of Meeting . . . . . . . . . . . . . . . . 1
Section 1.5 Organizational Meeting . . . . . . . . . . . . . 1
Section 1.6 Regular Meetings . . . . . . . . . . . . . . . . 1
Section 1.7 Special Meetings . . . . . . . . . . . . . . . . 1
Section 1.8 Adjourned Meetings . . . . . . . . . . . . . . . 2
Section 1.9 Waiver of Notice . . . . . . . . . . . . . . . . 2
Section 1.10 Action Without Meeting . . . . . . . . . . . . . 2
Section 1.11 Telephone Meetings . . . . . . . . . . . . . . . 2
Section 1.12 Committee Rules . . . . . . . . . . . . . . . . . 2
ARTICLE II
OFFICERS
Section 2.1 Enumeration . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Powers and Duties of the Chairman . . . . . . . . 3
Section 2.3 Powers and Duties of the President . . . . . . . 3
Section 2.4 Powers and Duties of Vice-President . . . . . . . 3
Section 2.5 Duties of the Secretary . . . . . . . . . . . . . 3
(a) Minutes . . . . . . . . . . . . . . . . . . 4
(b) Books and Other Records . . . . . . . . . . 4
(c) Share Register . . . . . . . . . . . . . . . 4
(d) General Duties . . . . . . . . . . . . . . . 4
Section 2.6 Duties of the Treasurer . . . . . . . . . . . . . 4
ARTICLE III
SHAREHOLDERS
Section 3.1 Effect of Quorum . . . . . . . . . . . . . . . . 4
Section 3.2 Place of Meeting . . . . . . . . . . . . . . . . 4
Section 3.3 Annual Meeting . . . . . . . . . . . . . . . . . 4
Section 3.4 Special Meetings . . . . . . . . . . . . . . . . 5
Section 3.5 Notice of Regular or Special Meetings . . . . . . 5
Section 3.6 Notice of Adjourned Meetings . . . . . . . . . . 5
Section 3.7 Consent of Absentees . . . . . . . . . . . . . . 6
Section 3.8 Voting Rights . . . . . . . . . . . . . . . . . . 6
Section 3.9 Advance Notice for Nomination
of Trustees . . . . . . . . . . . . . . . . . . 6
Section 3.10 Advance Notice for Transaction <PAGE>
-ii-
of Business . . . . . . . . . . . . . . . . . . 8
Section 3.11 Record Date . . . . . . . . . . . . . . . . . . . 9
Section 3.12 Action Without Meeting . . . . . . . . . . . . . 9
ARTICLE IV
MISCELLANEOUS
Section 4.1 Record Dates and Closing of
Transfer Books . . . . . . . . . . . . . . . . 10
Section 4.2 Inspection of Bylaws . . . . . . . . . . . . . . 10
Section 4.3 Control Share Acquisition . . . . . . . . . . . . 10
ARTICLE V
AMENDMENTS
Section 5.1 By Trustees . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI DEFINITIONS . . . . . . . . . . 10
Section 6.1 Definitions . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII
FISCAL YEAR
Section 7.1 Fiscal Year . . . . . . . . . . . . . . . . . . . 11<PAGE>
LEASE AGREEMENT
DATED AS OF FEBRUARY 11, 1994,
BY AND BETWEEN
HEALTH AND REHABILITATION PROPERTIES TRUST,
AS LANDLORD,
AND
CONNECTICUT SUBACUTE CORPORATION II, AS TENANT.<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . 1
1.1 Added Value Percentage . . . . . . . . . . . . . 1
1.2 Additional Rent . . . . . . . . . . . . . . . . 1
1.3 Affiliated Person . . . . . . . . . . . . . . . 1
1.4 Assumed Indebtedness . . . . . . . . . . . . . . 2
1.5 Award . . . . . . . . . . . . . . . . . . . . . 2
1.6 Base Net Patient Revenues . . . . . . . . . . . 2
1.7 Base Rate . . . . . . . . . . . . . . . . . . . 2
1.8 Base Year . . . . . . . . . . . . . . . . . . . 2
1.9 Business Day . . . . . . . . . . . . . . . . . . 2
1.10 Capital Addition . . . . . . . . . . . . . . . . 2
1.11 Capital Additions Cost . . . . . . . . . . . . . 3
1.12 Capital Expenditure . . . . . . . . . . . . . . 3
1.13 Cash Adjustment . . . . . . . . . . . . . . . . 4
1.14 Claims . . . . . . . . . . . . . . . . . . . . . 4
1.15 Code . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Commencement Date . . . . . . . . . . . . . . . 4
1.17 Condemnation . . . . . . . . . . . . . . . . . . 4
1.18 Condemnor . . . . . . . . . . . . . . . . . . . 4
1.19 Consolidated Financials . . . . . . . . . . . . 4
1.20 Control . . . . . . . . . . . . . . . . . . . . 4
1.21 Date of Taking . . . . . . . . . . . . . . . . . 4
1.22 Default . . . . . . . . . . . . . . . . . . . . 5
1.23 Encumbrance . . . . . . . . . . . . . . . . . . 5
1.24 Entity . . . . . . . . . . . . . . . . . . . . . 5
1.25 Environmental Laws . . . . . . . . . . . . . . . 5
1.26 Environmental Notice . . . . . . . . . . . . . . 5
1.27 Environmental Obligation . . . . . . . . . . . . 5
1.28 Event of Default . . . . . . . . . . . . . . . . 5
1.29 Excess Net Patient Revenues . . . . . . . . . . 5
1.30 Extended Terms . . . . . . . . . . . . . . . . . 5
1.31 Facility . . . . . . . . . . . . . . . . . . . . 5
1.32 Facility Mortgage . . . . . . . . . . . . . . . 5
1.33 Facility Mortgagee . . . . . . . . . . . . . . . 5
1.34 Facility Trade Names . . . . . . . . . . . . . . 5
1.35 Fair Market Added Value . . . . . . . . . . . . 6
1.36 Fair Market Rental . . . . . . . . . . . . . . . 6
1.37 Fair Market Value . . . . . . . . . . . . . . . 6
1.38 Fair Market Value Purchase Price . . . . . . . . 6
1.39 Fiscal Year . . . . . . . . . . . . . . . . . . 6
1.40 Fixed Term . . . . . . . . . . . . . . . . . . . 6
1.41 Fixtures . . . . . . . . . . . . . . . . . . . . 6
1.42 Hazardous Substances . . . . . . . . . . . . . . 6
1.43 Immediate Family . . . . . . . . . . . . . . . . 7
1.44 Impositions . . . . . . . . . . . . . . . . . . 7
1.45 Initiating Party . . . . . . . . . . . . . . . . 7
1.46 Insurance Requirements . . . . . . . . . . . . . 7
1.47 Land . . . . . . . . . . . . . . . . . . . . . . 7
1.48 Landlord . . . . . . . . . . . . . . . . . . . . 8
1.49 Landlord Default. . . . . . . . . . . . . . . . . 8<PAGE>
1.50 Lease . . . . . . . . . . . . . . . . . . . . . 8
1.51 Leased Improvements . . . . . . . . . . . . . . 8
1.52 Leased Personal Property . . . . . . . . . . . . 8
1.53 Leased Property . . . . . . . . . . . . . . . . 8
1.54 Legal Requirements . . . . . . . . . . . . . . . 8
1.55 Lending Institution . . . . . . . . . . . . . . 8
1.56 Minimum Rent . . . . . . . . . . . . . . . . . . 8
1.57 Minimum Repurchase Price . . . . . . . . . . . . 8
1.58 Net Patient Revenues . . . . . . . . . . . . . . 9
1.59 Non-Capital Additions . . . . . . . . . . . . . 10
1.60 Officer's Certificate . . . . . . . . . . . . . 10
1.61 Other Leases . . . . . . . . . . . . . . . . . . 10
1.62 Overdue Rate . . . . . . . . . . . . . . . . . . 10
1.63 Parent . . . . . . . . . . . . . . . . . . . . . 10
1.64 Percentage Rent . . . . . . . . . . . . . . . . 10
1.65 Permitted Encumbrances . . . . . . . . . . . . . 10
1.66 Person . . . . . . . . . . . . . . . . . . . . . 10
1.67 Primary Intended Use . . . . . . . . . . . . . . 10
1.68 Qualified Appraiser . . . . . . . . . . . . . . 11
1.69 Records . . . . . . . . . . . . . . . . . . . . 10
1.70 Rent . . . . . . . . . . . . . . . . . . . . . . 10
1.71 Responding Party . . . . . . . . . . . . . . . . 11
1.72 SEC . . . . . . . . . . . . . . . . . . . . . . 11
1.73 State . . . . . . . . . . . . . . . . . . . . . 11
1.74 Subsidiary . . . . . . . . . . . . . . . . . . . 11
1.75 Substitute Properties . . . . . . . . . . . . . 11
1.76 Substitution Date . . . . . . . . . . . . . . . 11
1.77 Successor Landlord . . . . . . . . . . . . . . . 11
1.78 Superior Lease . . . . . . . . . . . . . . . . . 11
1.79 Superior Landlord . . . . . . . . . . . . . . . 11
1.80 Superior Mortgage . . . . . . . . . . . . . . . 11
1.81 Superior Mortgagee . . . . . . . . . . . . . . . 11
1.82 Tenant . . . . . . . . . . . . . . . . . . . . . 11
1.83 Tenant's Personal Property . . . . . . . . . . . 11
1.84 Term . . . . . . . . . . . . . . . . . . . . . . 11
1.85 Test Rate . . . . . . . . . . . . . . . . . . . 12
1.86 Trustees . . . . . . . . . . . . . . . . . . . . 12
1.87 Unavoidable Delays . . . . . . . . . . . . . . . 12
1.88 Unsuitable for Its Primary Intended Use . . . . 12
ARTICLE 2 PREMISES AND TERM . . . . . . . . . . . . . . 12
2.1 Premises . . . . . . . . . . . . . . . . . . . . 12
2.2 Condition of Premises . . . . . . . . . . . . . 13
2.3 Fixed Term . . . . . . . . . . . . . . . . . . . 14
2.4 Extended Terms . . . . . . . . . . . . . . . . . 14
ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . 15
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . 15
3.1.1 Minimum Rent . . . . . . . . . . . . . . 15
3.1.2 Percentage Rent . . . . . . . . . . . . . 15
3.1.3 Additional Rent . . . . . . . . . . . . . 17
3.2 Late Payment of Rent . . . . . . . . . . . . . . 19
3.3 Net Lease . . . . . . . . . . . . . . . . . . . 19<PAGE>
3.4 No Termination, Abatement, Etc . . . . . . . . . 19
ARTICLE 4 USE OF THE LEASED PROPERTY . . . . . . . . . . 20
4.1 Permitted Use . . . . . . . . . . . . . . . . . 20
4.1.1 Primary Intended Use . . . . . . . . . . 20
4.1.2 Necessary Approvals . . . . . . . . . . . 21
4.1.3 Continuous Operation, Etc . . . . . . . . 21
4.1.4 Lawful Use, Etc . . . . . . . . . . . . . 21
4.2 Compliance with Legal and Insurance
Requirements, Instruments, Etc . . . . . . . . 21
4.3 Compliance with Medicaid and Medicare
Requirements . . . . . . . . . . . . . . . . . 21
4.4 Environmental Matters . . . . . . . . . . . . . 22
ARTICLE 5 MAINTENANCE AND REPAIRS, ETC . . . . . . . . . 23
5.1 Maintenance and Repair . . . . . . . . . . . . . 23
5.1.1 Tenant's Obligations . . . . . . . . . . 23
5.1.2 Landlord's Obligations . . . . . . . . . 23
5.2 Capital Expenditure Cost Sharing . . . . . . . . 23
5.3 Tenant's Personal Property . . . . . . . . . . . 24
5.4 Yield Up . . . . . . . . . . . . . . . . . . . . 24
5.5 Encroachments, Restrictions, Etc . . . . . . . . 25
ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . 25
6.1 Construction of Capital Additions to the Leased
Property . . . . . . . . . . . . . . . . . . . 25
6.2 Capital Additions Financed by Tenant . . . . . . 27
6.3 Information Regarding Capital Additions . . . . 29
6.4 Non-Capital Additions . . . . . . . . . . . . . 30
6.5 Salvage . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . 30
7.1 Liens . . . . . . . . . . . . . . . . . . . . . 30
7.2 Landlord's Lien . . . . . . . . . . . . . . . . 31
7.3 Mechanic's Liens . . . . . . . . . . . . . . . . 32
ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . 32
ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . 33
9.1 General Insurance Requirements . . . . . . . . . 33
9.2 Waiver of Subrogation . . . . . . . . . . . . . 34
9.3 Form Satisfactory, Etc . . . . . . . . . . . . . 35
9.4 No Separate Insurance . . . . . . . . . . . . . 36
9.5 Indemnification of Landlord . . . . . . . . . . 36
9.6 Indemnification of Tenant . . . . . . . . . . . 36
ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . 37<PAGE>
10.1 Insurance Proceeds . . . . . . . . . . . . . . . 37
10.2 Reconstruction in the Event of Damage or
Destruction . . . . . . . . . . . . . . . . . 37
10.2.1 Material Damage or Destruction of Premises 37
10.2.2 Partial Damage or Destruction . . . . . 38
10.3 Insufficient Insurance Proceeds . . . . . . . . 39
10.4 Disbursement of Proceeds . . . . . . . . . . . . 39
10.5 Tenant's Property . . . . . . . . . . . . . . . 40
10.6 Restoration of Tenant's Property . . . . . . . . 40
10.7 No Abatement of Rent . . . . . . . . . . . . . . 40
10.8 Damage Near End of Term . . . . . . . . . . . . 40
ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . 41
11.1 Total Condemnation . . . . . . . . . . . . . . . 41
11.2 Partial Condemnation . . . . . . . . . . . . . . 41
11.3 Temporary Condemnation . . . . . . . . . . . . . 41
11.4 Tenant's Option . . . . . . . . . . . . . . . . 41
11.5 Allocation of Award . . . . . . . . . . . . . . 42
11.6 Abatement Procedures . . . . . . . . . . . . . . 42
ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . 43
12.1 Events of Default. . . . . . . . . . . . . . . . 43
12.2 Remedies . . . . . . . . . . . . . . . . . . . . 45
12.3 Waiver . . . . . . . . . . . . . . . . . . . . . 47
12.4 Application of Funds . . . . . . . . . . . . . . 47
12.5 Failure to Conduct Business . . . . . . . . . . 47
12.6 Landlord's Right to Cure Tenant's Default . . . 47
12.7 Trade Names . . . . . . . . . . . . . . . . . . 47
ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . 48
ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . 48
ARTICLE 15 PURCHASE OF PREMISES . . . . . . . . . . . . 49
ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 50
16.1 Tenant's Substitution Option . . . . . . . . . . 50
16.2 Landlord's Substitution Option . . . . . . . . . 50
16.3 Substitution Procedures . . . . . . . . . . . . 51
16.4 Conditions to Substitution . . . . . . . . . . . 53
16.5 Conveyance to Tenant . . . . . . . . . . . . . . 54
16.6 Expenses . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 17 SUBLETTING AND ASSIGNMENT . . . . . . . . . . 55
17.1 Subletting and Assignment . . . . . . . . . . . 55
17.2 Required Sublease Provisions . . . . . . . . . . 56
17.3 Sublease Limitation . . . . . . . . . . . . . . 56
17.4 Assignment and Subletting Procedure . . . . . . 56
ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS . . . . 57<PAGE>
18.1 Estoppel Certificates . . . . . . . . . . . . . 57
18.2 Financial Statements . . . . . . . . . . . . . . 57
18.3 General Operations . . . . . . . . . . . . . . . 58
18.3.1 Reimbursement, Licensure, Etc. . . . . . 58
18.3.2 Monthly Reports . . . . . . . . . . . . 59
ARTICLE 19 LANDLORD ACCESS . . . . . . . . . . . . . . . 59
19.1 Landlord's Right to Inspect . . . . . . . . . . 59
19.2 Landlord's Option to Purchase the Tenant's
Personal Property; Transfer of Licenses . . . 59
ARTICLE 20 APPRAISAL . . . . . . . . . . . . . . . . . . 60
20.1 Appraisal Procedure . . . . . . . . . . . . . . 60
ARTICLE 21 MORTGAGES . . . . . . . . . . . . . . . . . . 61
21.1 Landlord May Grant Liens . . . . . . . . . . . . 61
21.2 Subordination of Lease . . . . . . . . . . . . . 61
21.3 Notice to Mortgagee and Ground Landlord . . . . 63
ARTICLE 22 INVESTMENT TAX CREDIT . . . . . . . . . . . . 63
22.1 Investment Tax Credit . . . . . . . . . . . . . 63
ARTICLE 23 ADDITIONAL COVENANTS OF TENANT
23.1 Notice of Change of Name, Administrator, Etc. 64
23.2 Notice of Litigation, Potential Event of
Default, Etc. . . . . . . . . . . . . . . . . 64
23.3 Management of Leased Property . . . . . . . . . 64
23.4 Distributions, Payments to Affiliated Persons,
Etc. . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 24 MISCELLANEOUS . . . . . . . . . . . . . . . . 65
24.1 No Waiver . . . . . . . . . . . . . . . . . . . 65
24.2 Remedies Cumulative . . . . . . . . . . . . . . 65
24.3 Acceptance of Surrender . . . . . . . . . . . . 65
24.4 No Merger of Title . . . . . . . . . . . . . . . 65
24.5 Conveyance by Landlord . . . . . . . . . . . . . 65
24.6 Quiet Enjoyment . . . . . . . . . . . . . . . . 66
24.7 Landlord's Liability . . . . . . . . . . . . . . 66
24.8 Landlord's Consent . . . . . . . . . . . . . . . 66
24.9 Memorandum of Lease . . . . . . . . . . . . . . 67
24.10 Notices . . . . . . . . . . . . . . . . . . . . 67
24.11 Construction . . . . . . . . . . . . . . . . . . 68
24.12 Governing Law . . . . . . . . . . . . . . . . . 68
EXHIBITS
A - Other Leases
B - Permitted Encumbrances
C - The Land
D - Minimum Rent<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated as of February 11, 1994, is made by and
between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real
estate investment trust, as landlord ("Landlord"), having its principal
office at 400 Centre Street, Newton, Massachusetts, and CONNECTICUT
SUBACUTE CORPORATION II, a Delaware corporation, as tenant ("Tenant"),
having an office at 400 Centre Street, Newton, Massachusetts 02158.
W I T N E S S E T H :
WHEREAS, Landlord owns the Leased Property (this and other
capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in Article 1) and Landlord wishes to
lease the Leased Property to Tenant and Tenant wishes to lease the
Leased Property from Landlord, subject to and upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt
and legal sufficiency of which are hereby acknowledged, Landlord and
Tenant hereby agree as follows:
ARTICLE 1
DEFINITIONS
Each reference in this Lease to any of the following terms shall be
construed to incorporate the definitions hereinafter set forth and
include the plural as well as the singular. All accounting terms not
otherwise defined herein shall have the meanings assigned to them in
accordance with generally accepted accounting principles.
1.1 "Added Value Percentage" shall have the meaning given such
term in Section 6.2(a).
1.2 "Additional Rent" shall have the meaning given such term in
Section 3.1.3.
1.3 "Affiliated Person" shall mean, with respect to any Person,
(a) in the case of any such Person which is a partnership, any partner
in such partnership; (b) in the case of any such Person which is a
limited liability company, any member of such company; (c) any other
Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent of
the Persons referred to in the preceding clauses (a) and (b); (d) any
other Person otherwise directly or indirectly controlling or under
common control with such Person or one or more of the Persons referred
to in the preceding clauses (a), (b) and (c); and (e) any other Person
who is a member of the Immediate Family of such Person or any Person
referred to in the preceding clauses (a) through (d).<PAGE>
1.4 "Assumed Indebtedness" shall mean any indebtedness or other
obligations existing at the time of acquisition of the Leased Property
by Landlord secured by a mortgage, deed of trust or other security
agreement creating a lien on the Leased Property and assumed by
Landlord, and any indebtedness resulting from the refinancing thereof,
and/or any subsequent indebtedness resulting from Landlord's financing
of, or Landlord's reimbursement of Tenant's financing of, any Capital
Additions during the Term, except any indebtedness or other obligations
of Tenant not assumed by Landlord prior to or during the Term.
1.5 "Award" shall mean all compensation, sums or other value
awarded, paid or received by virtue of a total or partial Condemnation
of the Leased Property (after deduction of all reasonable legal fees and
other reasonable costs and expenses incurred by Landlord in connection
with obtaining any such award).
1.6 "Base Net Patient Revenues" shall mean Net Patient Revenues
for the Base Year.
1.7 "Base Rate" shall mean the rate of interest, determined daily
and expressed as a percentage, announced by Citibank, N.A., in New York,
New York, from time to time, as Citibank, N.A.'s "base rate" or "prime
rate", so-called, or, if at any time Citibank, N.A. ceases to announce
such a rate, as announced by the largest national or state chartered
banking institution other than Citibank, N.A. then having its principal
office in New York, New York and announcing such a rate. If at any time
neither Citibank, N.A. nor any of the five largest other national or
state chartered banking institutions having their principal offices in
New York, New York is announcing such a floating rate, "Base Rate" shall
mean a rate of interest, determined daily, which is two (2) percentage
points above the 14-day moving average closing trading price of 90-day
Treasury Bills.
1.8 "Base Year" shall mean the twelve-month period beginning June
1, 1999 and ending May 31, 2000.
1.9 "Business Day" shall mean any day other than Saturday, Sunday,
or any other day on which banking institutions in The Commonwealth of
Massachusetts or in New York, New York are authorized by law or
executive action to close.
1.10 "Capital Addition" shall mean one or more new buildings, or
one or more additional structures annexed to any portion of any of the
Leased Improvements, or the material expansion of existing improvements,
which are constructed on any parcel or portion of the Land during the
Term, including, but not limited to, the construction of a new wing or
new story, the renovation of existing improvements on the Leased
Property in order to provide a functionally new facility needed to
provide services not previously offered, or any expansion, construction,
renovation or conversion in order to increase the bed capacity of the
Facility, to change the purpose for which such beds are utilized or to
improve the quality of the Facility.
1.11 "Capital Additions Cost" shall mean the cost of any Capital
Addition proposed to be made by Tenant, whether paid for by Tenant or
Landlord. Such cost shall include (a) the cost of construction of the<PAGE>
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Capital Addition, including, site preparation and improvement,
materials, labor, supervision, developer and administrative fees, legal
fees, and related design, engineering and architectural services, the
cost of any fixtures, the cost of construction financing (including, but
not limited to, capitalized interest) and other miscellaneous costs
approved by Landlord, (b) if agreed to by Landlord in writing, in
advance, the cost of any land contiguous to the Leased Property which is
to become a part of the Leased Property purchased for the purpose of
placing thereon the Capital Addition or any portion thereof or for
providing means of access thereto, or parking facilities therefor,
including the cost of surveying the same, (c) the cost of insurance,
real estate taxes, water and sewage charges and other carrying charges
for such Capital Addition during construction, (d) title insurance
charges, (e) reasonable attorneys' fees, (f) filing and registration
fees and recording taxes, (g) documentary stamp or transfer taxes, and
(h) all actual and reasonable costs and expenses of Landlord and any
Lending Institution committed to finance the Capital Addition,
including, but not limited to, (i) reasonable attorneys' fees, (ii)
printing expenses, (iii) filing, registration and recording taxes and
fees, (iv) documentary stamp or transfer taxes, (v) title insurance
charges and appraisal fees, (vi) rating agency fees, and (vii) loan
commitment fees.
1.12 "Capital Expenditure" shall mean any single required
improvement, alteration, replacement or repair of the Leased Property,
or any part thereof, (a) having a cost in excess of One Hundred Thousand
Dollars ($100,000.00) (which amount shall be increased each year of the
Lease by the product determined by multiplying such amount by the
percentage increase in the Consumer Price Index, Urban Wage Earners and
Clerical Workers, All Items, Base 1982-84=100, published by the U.S.
Department of Labor, All Cities, or such comparable index published by
the U.S. Department of Labor or its successor agency), and (b) having a
useful life in excess of the longer of (i) twelve (12) months, or (ii)
the remaining period of the Term, except capital improvements
necessitated by destruction or Condemnation of the Leased Property, or
any portion thereof.
1.13 "Cash Adjustment" shall have the meaning given such term in
Section 16.3(d).
1.14 "Claims" shall have the meaning given such term in Article 8.
1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to
the extent applicable, the Treasury Regulations promulgated thereunder,
each as from time to time amended.
1.16 "Commencement Date" shall mean the date of this Lease.
1.17 "Condemnation" shall mean (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are
pending, and (c) a taking or voluntary conveyance of all or part of the
Leased Property, or any interest therein, or right accruing thereto or
use thereof, as the result or in settlement of any Condemnation or other<PAGE>
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eminent domain proceeding affecting any portion of the Leased Property,
whether or not the same shall have actually been commenced.
1.18 "Condemnor" shall mean any public or quasi-public authority,
or private corporation or individual having the power of Condemnation.
1.19 "Consolidated Financials" shall mean, for any Fiscal Year or
other accounting period of Tenant and its consolidated Subsidiaries,
statements of earnings, retained earnings and changes in financial
position for such period and for the period from the beginning of the
applicable Fiscal Year to the end of such period and the balance sheet
as at the end of such period, together with the notes thereto, all in
reasonable detail, and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding
Fiscal Year, and prepared in accordance with generally accepted
accounting principles, consistently applied.
1.20 "Control" and any variations thereof shall mean, with respect
to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, through the ownership of voting securities, partnership
interests or other equity interests.
1.21 "Date of Taking" shall mean the date the Condemnor has the
right to possession of the Leased Property, or any portion thereof, in
connection with a Condemnation.
1.22 "Default" shall mean any event, act or omission which with the
giving of notice and/or lapse of time could constitute an Event of
Default.
1.23 "Encumbrance" shall have the meaning given such term in
Section 21.1.
1.24 "Entity" shall mean any corporation, general or limited
partnership, limited liability company, stock company or association,
joint venture, association, company, trust, bank, trust company, land
trust, business trust, any government or agency or political subdivision
thereof or any other entity.
1.25 "Environmental Laws" shall mean all applicable Federal, state
or local statutes, laws, ordinances, rules and regulations, licensing
requirements or conditions, whether now existing or hereafter arising,
relating to Hazardous Substances.
1.26 "Environmental Notice" shall have the meaning given such term
in Section 4.4.
1.27 "Environmental Obligation" shall mean any cost, expense, loss
or damage arising under any Environmental Law or in connection with any
Hazardous Substance.
1.28 "Event of Default" shall have the meaning given such term in
Section 12.1.<PAGE>
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1.29 "Excess Net Patient Revenues" shall mean the amount of Net
Patient Revenues for any measuring period in excess of the Base Net
Patient Revenues for the equivalent period of the Base Year.
1.30 "Extended Terms" shall have the meaning given such term in
Section 2.4.
1.31 "Facility" shall mean the licensed nursing home being operated
on the Leased Property.
1.32 "Facility Mortgage" shall mean any mortgage, deed of trust or
other security agreement securing any Assumed Indebtedness or any other
encumbrance placed upon the Leased Property in accordance with Article
21.
1.33 "Facility Mortgagee" shall mean the holder of any Facility
Mortgage.
1.34 "Facility Trade Names" shall mean any of the names under which
Tenant operates, or has operated, the Facility at any time during the
Term.
1.35 "Fair Market Added Value" shall mean the Fair Market Value of
the Leased Property (including all Capital Additions) less the Fair
Market Value of the Leased Property determined as if no Capital
Additions financed by Tenant had been constructed.
1.36 "Fair Market Rental" shall mean the rental which a willing
tenant not compelled to rent would pay a willing landlord not compelled
to lease for the use and occupancy of the Leased Property, or applicable
portion thereof, on the terms and conditions of this Lease, for the term
in question, and determined in accordance with the appraisal procedures
set forth in Article 20 or in such other manner as shall be mutually
acceptable to Landlord and Tenant.
1.37 "Fair Market Value" shall mean the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell
for the Leased Property, (a) assuming the same is unencumbered by this
Lease, (b) determined in accordance with the appraisal procedures set
forth in Article 20 or in such other manner as shall be mutually
acceptable to Landlord and Tenant, (c) assuming such seller shall pay
the closing costs generally paid by a seller of real property in the
state in which such property is located and that such buyer shall pay
closing costs generally paid by a buyer of real property in the state in
which such property is located, and (d) not taking into account any
reduction in value resulting from any indebtedness to which such
property is subject, except the positive or negative effect on the value
of such property attributable to the interest rate, amortization
schedule, maturity date, prepayment penalty and other terms and
conditions of any lien or encumbrance which is not removed at or prior
to the closing of the transaction as to which such Fair Market Value
determination is being made.
1.38 "Fair Market Value Purchase Price" shall mean the Fair Market
Value of the Leased Property less the Fair Market Added Value.<PAGE>
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1.39 "Fiscal Year" shall mean each twelve (12) month period from
June 1 to May 31.
1.40 "Fixed Term" shall have the meaning given such term in Section
2.3.
1.41 "Fixtures" shall have the meaning given such term in Section
2.1(d).
1.42 "Hazardous Substances" shall mean hazardous substances (as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, as now in effect or as hereafter from time to time
amended), hazardous wastes (as defined by the Resource Conservation and
Recovery Act, as now in effect or as hereafter from time to time
amended), any hazardous waste, hazardous substance, pollutant or
contaminant, oils, radioactive materials, asbestos in any form or
condition, or any pollutant or contaminant or hazardous, dangerous or
toxic chemicals, materials or substances within the meaning of any other
applicable Federal, state or local law, regulation, ordinance or
requirements relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or
materials, all as now in effect or hereafter from time to time amended.
1.43 "Immediate Family" shall mean, with respect to any Person,
his spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law,
brothers-in-law, sisters-in-law, nephews and nieces.
1.44 "Impositions" shall mean all taxes, assessments, and ad
valorem, sales, and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same are imposed on either
Landlord or Tenant with respect to the Leased Property and/or the
business conducted thereon by Tenant and other charges and impositions
(including, but not limited to, fire protection service fees and similar
charges) levied, assessed or imposed at any time during the Term by any
governmental authority upon or against the Leased Property, or taxes in
lieu thereof, and additional types of taxes to supplement real estate
taxes due to legal limits imposed thereon. If, at any time during the
Term, any tax or excise on rents or other taxes, however described, are
levied or assessed against Landlord with respect to the rent reserved
hereunder, either wholly or partially in substitution for, or in
addition to, real estate taxes assessed or levied on the Leased
Property, such tax or excise on rents shall be included in Impositions;
provided, however, that Impositions shall not include franchise, estate,
inheritance, succession, capital levy, transfer, income or excess
profits taxes assessed on Landlord. Impositions shall include any
estimated payment, whether voluntary or required, made by Landlord on
account of a fiscal tax period for which the actual and final amount of
taxes for such period has not been determined by the governmental
authority as of the date of any such estimated payment.
1.45 "Initiating Party" shall have the meaning given such term in
Section 20.1.<PAGE>
-7-
1.46 "Insurance Requirements" shall mean all terms of any insurance
policy required by this Lease and all requirements of the issuer of any
such policy.
1.47 "Land" shall have the meaning given such term in Section
2.1(a).
1.48 "Landlord" shall have the meaning given such term in the
preambles to this Lease.
1.49 "Landlord Default" shall have the meaning given such term in
Article 14.
1.50 "Lease" shall mean this Lease Agreement, including Exhibits A
through D hereto, as it and they may be amended from time to time as
herein provided.
1.51 "Leased Improvements" shall have the meaning given such term
in Section 2.1(b).
1.52 "Leased Personal Property" shall have the meaning given such
term in Section 2.1(e).
1.53 "Leased Property" shall have the meaning given such term in
Section 2.1.
1.54 "Legal Requirements" shall mean all federal, state, county,
municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions, including,
but not limited to, Environmental Laws, affecting the Leased Property or
the maintenance, construction, use or alteration thereof, whether now or
hereafter enacted, including those which may (a) require repairs,
modifications or alterations in or to the Leased Property or any portion
thereof or (b) in any way adversely affect the use and enjoyment
thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
Tenant (other than encumbrances hereinafter created by Landlord without
the consent of Tenant), at any time in force affecting the Leased
Property.
1.55 "Lending Institution" shall mean any insurance company,
federally insured commercial or savings bank, national banking
association, savings and loan association, employees' welfare, pension
or retirement fund or system, corporate profit sharing or pension trust,
college or university, or real estate investment trust, including any
corporation qualified to be treated for federal tax purposes as a real
estate investment trust, having a net worth of at least $10,000,000.
1.56 "Minimum Rent" shall mean the amount set forth in Exhibit D.
1.57 "Minimum Repurchase Price" shall mean that portion of the
aggregate purchase price of the Leased Property paid by Landlord in cash
or in kind, plus the aggregate of unpaid principal balance of all
encumbrances against the Leased Property at the time of purchase thereof<PAGE>
-8-
by Tenant, plus any amounts paid by Landlord to reduce the principal
balance of any Assumed Indebtedness, less all proceeds received by
Landlord from any refinancing of the Leased Property (after payment of
the debt refinanced and net of any costs and expenses incurred in
connection with such refinancing, including, without limitation, loan
points, commitment fees and commissions) and less the net amount (after
deduction of all reasonable legal fees and other costs and expenses,
including, without limitation, expert witness fees, incurred by Landlord
in connection with obtaining any such award) of all awards received by
Landlord from any partial Condemnation of the Leased Property or any
portion thereof which are not applied to restoration.
1.58 "Net Patient Revenues" shall mean all revenues received or
receivable from or by reason of the operation of the Facility, or any
portion thereof, or any other use of the Leased Property, or any portion
thereof, including, without limitation, all patient revenues received or
receivable for the use of or otherwise by reason of all rooms, beds and
other facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Leased Property, or any
portion thereof, including, without limitation, and except as provided
below, any other arrangements with third parties relating to the
possession or use of any portion of any portion of the Leased Property;
provided, however, Net Patient Revenues shall not include: (a) revenue
from professional fees or charges by physicians and providers (other
than Tenant or Tenant's employees) of ancillary services, when and to
the extent such charges are paid over to such physicians or providers of
ancillary services, or are separately billed and not included in
comprehensive fees; (b) nonoperating revenues such as interest income or
income from the sale of assets not sold in the ordinary course of
business; (c) contractual allowances (relating to any period during the
Term) for billings not paid by or received from the appropriate
governmental agencies or third party providers; (d) allowances according
to generally accepted accounting principles for uncollectible accounts,
including credit card accounts and charity care or other administrative
discounts; (e) all proper patient billing credits and adjustments
according to generally accepted accounting principles relating to health
care accounting; (f) federal, state or local sales or excise taxes and
any tax based on or measured by such revenues which is added to or made
a part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated separately;
(g) provider discounts for hospital or other medical facility
utilization contracts and credit card discounts; (h) revenues
attributable to Capital Additions financed by Tenant as provided in
Section 6.2; (i) revenues attributable to services actually provided off
the Leased Property, such as home health care; and (j) any amounts
actually paid by Tenant for the cost of any federal, state or local
governmental programs imposed specially to provide or finance indigent
patient care. To the extent the Leased Property or any portion thereof
is subleased by Tenant, Net Patient Revenues shall include (x) the Net
Patient Revenues generated from the operations conducted on such
subleased portion of the Leased Property and (y) the rent received or
receivable by Tenant from or under any such sublease to the extent such
rent is not based on Net Patient Revenues and, therefore, has not
already been included in the calculation of Net Patient Revenues
pursuant to clause (x) preceding.<PAGE>
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1.59 "Non-Capital Additions" shall have the meaning given such term
in Section 6.4.
1.60 "Officer's Certificate" shall mean a certificate signed by the
chief financial officer or another officer of Tenant authorized by the
board of directors or by-laws of Tenant, or any other Person whose power
and authority to act has been so authorized.
1.61 "Other Leases" shall mean the Leases described in Exhibit A,
attached hereto and made a part hereof.
1.62 "Overdue Rate" shall mean a rate equal to the lesser of the
Base Rate plus two percent (2%) and the maximum rate then permitted
under applicable law.
1.63 "Parent" shall mean, with respect to any Person, any Person
which owns directly, or indirectly, through one or more Subsidiaries,
twenty percent (20%) or more of the voting or beneficial interests in
such Person or otherwise Controls such Person.
1.64 "Percentage Rent" shall have the meaning given such term in
Section 3.1.2(a).
1.65 "Permitted Encumbrances" shall mean the matters set forth in
Exhibit B, attached hereto and made a part hereof.
1.66 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns
of such Person where the context so admits.
1.67 "Primary Intended Use" shall have the meaning given such term
in Section 4.1.1.
1.68 "Qualified Appraiser" shall mean any disinterested person who
is a member in good standing of the American Institute of Real Estate
Appraisers or the American Society of Real Estate Counselors (or the
successor to either of such organizations) and who has had not less than
ten (10) years experience in appraising and valuing, commercial
buildings in the State.
1.69 "Records" shall have the meaning given such term in Section
7.2.
1.70 "Rent" shall mean, collectively, the Minimum Rent, Percentage
Rent and Additional Rent.
1.71 "Responding Party" shall have the meaning given such term in
Section 20.1.
1.72 "SEC" shall mean the Securities and Exchange Commission.
1.73 "State" shall mean the State, Commonwealth, Possession or
Territory in which the Leased Property is located.<PAGE>
-10-
1.74 "Subsidiary" shall mean, with respect to any Person, any
Entity in which such Person shall own, directly or indirectly, through
one or more Subsidiaries, twenty percent (20%) or more of the voting or
beneficial interests or any other entity Controlled by such Person.
1.75 "Substitute Properties" shall have the meaning given such term
in Section 16.1.
1.76 "Substitution Date" shall have the meaning given such term in
Section 16.1.
1.77 "Successor Landlord" shall have the meaning given such term in
Section 21.2.
1.78 "Superior Lease" shall have the meaning given such term in
Section 21.2.
1.79 "Superior Landlord" shall have the meaning given such term in
Section 21.2.
1.80 "Superior Mortgage" shall have the meaning given such term in
Section 21.2.
1.81 "Superior Mortgagee" shall have the meaning given such term in
Section 21.2.
1.82 "Tenant" shall have the meaning given such term in the
preambles to this Lease.
1.83 "Tenant's Personal Property" shall mean all motor vehicles and
consumable inventory and supplies, furniture, equipment and machinery
and all other personal property of Tenant located on the Leased Property
or used in Tenant's business on the Leased Property and all
modifications, replacements, alterations and additions to the Leased
Personal Property installed at the expense of Tenant, other than any
items included within the definition of Fixtures or Leased Personal
Property and expressly excluding Tenant's accounts receivable.
1.84 "Term" shall mean, collectively, the Fixed Term and any
Extended Terms, to the extent properly exercised pursuant to the
provisions of Section 2.4, unless sooner terminated pursuant to the
provisions of this Lease.
1.85 "Test Rate" shall mean the minimum interest rate necessary to
avoid imputation of original issue discount income under Sections 483 or
1272 of the Code or any similar provision.
1.86 "Trustees" shall mean the trustees of Landlord.
1.87 "Unavoidable Delays" shall mean delays due to strikes, lock-
outs, inability to procure materials, power failure, acts of God,
governmental restrictions, enemy action, civil commotion, fire,
unavoidable casualty or other causes beyond the reasonable control of
the party responsible for performing an obligation hereunder, but in no
event to exceed sixty (60) days so long as the affected party shall use<PAGE>
-11-
reasonable efforts to alleviate the cause of such delay and thereafter
promptly perform such obligation; provided, however, that (x) in no
event shall Tenant's obligation to pay the Rent be affected by
Unavoidable Delays, and (y) in no event shall lack of funds be deemed a
cause beyond the control of either party.
1.88 "Unsuitable for Its Primary Intended Use" shall mean a state
or condition of the Facility such that by reason of damage or
destruction, or a partial Condemnation, in the good faith judgment of
Landlord and Tenant, reasonably exercised, the Facility cannot be
operated on a commercially practicable basis for its Primary Intended
Use taking into account, among other relevant factors, the number of
usable beds, the amount of square footage, or revenues affected by such
damage or destruction or partial taking.
ARTICLE 2
PREMISES AND TERM
2.1 Premises. Upon and subject to the terms and conditions herein
set forth, Landlord leases to Tenant and Tenant leases from Landlord all
of the following (collectively, the "Leased Property"):
(a) those certain tracts, pieces and parcels of land as more
particularly described in Exhibit C, attached hereto and made a
part hereof (collectively, the "Land");
(b) all buildings, structures, Fixtures and other
improvements of every kind, including, but not limited to,
alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently
situated upon the Land and Capital Additions financed by Landlord
(collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the
Land and the Leased Improvements;
(d) all equipment, machinery, fixtures and other items of
property, now or hereafter permanently affixed to or incorporated
into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air
and water pollution control, waste disposal, air-cooling and air-
conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, all of which, to the greatest extent
permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's
Personal Property (collectively, the "Fixtures");
(e) all machinery, equipment, furniture, furnishings,
moveable walls or partitions, computers or trade fixtures or other<PAGE>
-12-
personal property used or useful in Tenant's business on or in the
Leased Improvements, and located on or in the Leased Improvements
on the Commencement Date, except items, if any, included within the
category of Fixtures, but specifically excluding all items included
within the category of Tenant's Personal Property (collectively the
"Leased Personal Property"); and
(f) all existing leases of space (including any security
deposits held pursuant thereto), if any, in the Leased Improvements
to tenants thereof.
2.2 Condition of Premises. On the Commencement Date, Landlord
shall deliver and Tenant shall accept the Leased Property in "as is"
condition, subject to the rights of parties in possession, the existing
state of title, including all covenants, conditions, restrictions,
easements and other matters of record, all applicable Legal
Requirements, the lien of financing instruments, mortgages and deeds of
trust, and such other matters which would have been disclosed by an
inspection of the Leased Property and the record title thereto or by an
accurate survey thereof. LANDLORD MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART
THEREOF, EITHER AS THE FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, WITH RESPECT TO THE
LEASED PROPERTY OR ANY PORTION THEREOF IT BEING AGREED THAT ALL SUCH
RISKS SHALL BE BORNE BY TENANT. To the extent permitted by law,
however, Landlord grants and assigns to Tenant all of Landlord's rights
to proceed against any predecessor in title for breaches of warranties
or representations or for latent defects in the Leased Property.
Landlord shall cooperate with Tenant in the prosecution of any such
claims, in Landlord's or Tenant's name, all at Tenant's sole cost and
expense. Tenant shall indemnify, and hold harmless Landlord from and
against any loss, cost, damage or liability (including attorneys' fees)
incurred by Landlord in connection with such cooperation.
2.3 Fixed Term. The initial term of this Lease (the "Fixed Term")
shall commence on the date hereof and, unless sooner terminated in
accordance with the terms and conditions of this Lease, shall expire on
December 31, 1998.
2.4 Extended Terms. Provided no Default or Event of Default shall
have occurred and be continuing and Tenant shall simultaneously exercise
its right to extend the term of all of the Other Leases, Tenant shall
have the right to extend the Fixed Term for two additional periods of
ten (10) years each (the "Extended Terms").
Each Extended Term shall commence on the day succeeding the
expiration of the Fixed Term or the preceding Extended Term, as the case
may be, and shall end on the day immediately preceding the tenth
anniversary of the commencement of such Extended Term. All of the
terms, covenants and provisions of this Lease shall apply to each such
Extended Term, except that (a) the Minimum Rent for the second such
Extended Term shall be the greater of (x) the Minimum Rent payable
during the first such Extended Term and (y) the Fair Market Rental for
the Leased Property determined as of the commencement of such Extended<PAGE>
-13-
Term, and (b) Tenant shall have no further right to extend the Term
beyond the Extended Terms hereinabove provided. If Tenant shall elect
to exercise either of the aforesaid options, it shall do so by giving
Landlord written notice thereof not later than one (1) year prior to the
expiration of the then current term of this Lease (Fixed or Extended, as
applicable); it being understood and agreed that time is of the essence
with respect to the giving of such notice. If Tenant shall fail to give
any such notice, this Lease shall automatically terminate at the end of
the term then in effect and Tenant shall have no further option to
extend the term of this Lease. If Tenant shall give such notice, the
extension of this Lease shall be automatically effected, without the
execution of any additional documents. <PAGE>
-14-
ARTICLE 3
RENT
3.1 Rent. Tenant shall pay to Landlord, by check or wire transfer
of immediately available federal funds, as Tenant may elect, without
offset, abatement, demand or deduction, Minimum Rent, Percentage Rent
and Additional Rent, during the Term, as herein provided.
3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal
monthly installments, in advance, on the first day of each and every
calendar month during the Term. Minimum Rent for any partial month
shall be pro-rated on a daily basis.
3.1.2 Percentage Rent.
(a) Amount. Commencing June 1, 2000, for each Fiscal Year
during the Term, Tenant shall pay to Landlord, as additional rent,
percentage rent ("Percentage Rent") in an amount equal to three
percent (3%) of Excess Net Patient Revenues for such Fiscal Year.
Percentage Rent shall be calculated and paid quarterly in arrears
on the basis of cumulative Excess Net Patient Revenues as the last
day of each quarter occurring during the applicable Fiscal Year,
less the Percentage Rent, if any, previously paid to Landlord for
such Fiscal Year.
(b) Payment of Percentage Rent. Tenant shall calculate and
deliver Percentage Rent to Landlord within forty-five (45) days
after the end of each quarter of any Fiscal Year (or, in the case
of the final quarter in any Fiscal Year, ninety (90) days
thereafter), together with an Officer's Certificate, setting forth
the calculation of Percentage Rent for such quarter.
(c) Reconciliation of Additional Rent. Within ninety (90)
days after the end of each Fiscal Year, Tenant shall deliver to
Landlord an Officer's Certificate, together with certified audits
with respect to Net Patient Revenues for the Facility and the
facilities leased under the Other Leases, in form and substance
reasonably satisfactory to Landlord, of Tenant's financial
operations prepared by accountants reasonably satisfactory to
Landlord, setting forth the Net Patient Revenues and Excess Net
Patient Revenues for the immediately preceding Fiscal Year,
together with such additional information with respect thereto as
Landlord may reasonably request.
If the Percentage Rent for any Fiscal Year as shown in the
applicable Officer's Certificate and accompanying financial
statements is less than the amount previously paid with respect
thereto, Landlord shall, at Landlord's option, refund any excess
payment to Tenant or grant Tenant a credit against the next due
payment of Percentage Rent in the amount of such difference. If
the Percentage Rent for any Fiscal Year as shown in the applicable
Officer's Certificate exceeds the amount previously paid with
respect thereto, Tenant shall pay such excess to Landlord at such
time as such Officer's Certificate is delivered.<PAGE>
-15-
Any difference between the Percentage Rent for any Fiscal Year
as shown in such Officer's Certificate and the total amount of
quarterly payments for such Fiscal Year previously paid, whether in
favor of Landlord or Tenant, shall bear interest at the Base Rate,
which interest shall accrue from the close of such Fiscal Year
until the amount of such difference shall be paid or otherwise
discharged.
A final reconciliation of Percentage Rent, taking into account
among other relevant adjustments, any contractual allowances which
are accrued after the expiration or sooner termination of this
Lease, but which related to Net Patient Revenues accrued prior to
such termination, and Tenant's good faith best estimate of the
amount of any unresolved contractual allowances shall be made not
later than two (2) years after such termination and Tenant shall
advise Landlord within sixty (60) days after such termination of
Tenant's best estimate at that time of the approximate amount of
such adjustments, which estimate shall not be binding on Tenant.
(d) Confirmation of Percentage Rent. Tenant shall utilize,
or cause to be utilized, an accounting system for the conduct of
its business at the Leased Property in accordance with its usual
and customary practices and in accordance with generally accepted
accounting principles, consistently applied, which will accurately
record all Net Patient Revenues, and shall employ independent
accountants reasonably acceptable to Landlord, and Tenant shall
retain, for at least four (4) years after the expiration of each
Fiscal Year (and in any event until the final reconciliation
described in subparagraph (c) above for such Fiscal Year has been
made), reasonably adequate records conforming to such accounting
system showing all Net Patient Revenues for such Fiscal Year.
Landlord, at its own expense, except as provided below, shall have
the right, from time to time by its accountants or representatives,
to audit the information set forth in the Officer's Certificate
referred to in subparagraph (b) above and, in connection with such
audit, to examine Tenant's records with respect thereto (including
supporting data and sales and excise tax returns), subject to any
prohibitions or limitations on disclosure of any such data under
applicable law or regulations, including, without limitation, any
duly enacted "Patients' Bill of Rights" or similar legislation and
such other limitations as may be necessary to preserve the
confidentiality of the Facility-patient relationship and the
physician-patient privilege. If any such audit shall disclose a
deficiency in the payment of Percentage Rent and either Tenant
agrees with the result of such audit or the matter is otherwise
determined or compromised, Tenant shall forthwith pay to Landlord
the amount of the deficiency, as finally agreed or determined,
together with interest thereon at the Base Rate. If any such audit
discloses that the Net Patient Revenues actually received by Tenant
for any Fiscal Year exceed those reported by Tenant by more than
three percent (3%), Tenant shall pay the reasonable cost of such
audit. Any proprietary information obtained by Landlord pursuant
to the provisions of this section shall be treated as confidential,
except such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties<PAGE>
-16-
and Landlord may disclose such information to prospective
purchasers or lenders.
3.1.3 Additional Rent. In addition to the Minimum Rent and
Percentage Rent, Tenant shall pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions
which Tenant assumes or agrees to pay under this Lease (collectively,
"Additional Rent"), including, but not limited to the following:
(a) Impositions. Subject to Article 8, Tenant shall pay, or
cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be
made directly to the taxing authorities where feasible, and shall
promptly, upon request, furnish to Landlord copies of official
receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully be
paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Tenant may exercise the option
to pay the same (and any accrued interest on the unpaid balance of
such Imposition) in installments and, in such event, shall pay such
installments during the Term as the same become due and before any
fine, penalty, premium, further interest or cost may be added
thereto. Landlord, at its expense, shall, to the extent required or
permitted by applicable law, prepare and file all tax returns in
respect of Landlord's net income, gross receipts, sales and use,
single business, transaction privilege, rent, ad valorem, franchise
taxes and taxes on its capital stock, and Tenant, at its expense,
shall, to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports in
respect of any Imposition as may be required by governmental
authorities. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Tenant, the same shall be paid
over to or retained by Tenant if no Default or Event of Default
shall have occurred and be continuing. Landlord and Tenant shall,
upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any
property covered by this Lease as personal property, Tenant shall
file all personal property tax returns in such jurisdictions where
it may legally so file. Each party shall, to the extent it
possesses the same, provide the other, upon request, with cost and
depreciation records necessary for filing returns for any property
so classified as personal property. Where Landlord is legally
required to file personal property tax returns, Landlord shall
provide Tenant with copies of assessment notices in sufficient time
for Tenant to file a protest. All Impositions assessed against
such personal property shall be (irrespective of whether Landlord
or Tenant shall file the relevant return) paid by Tenant not later
than thirty (30) days prior to the last date on which the same may
be made without interest or penalty. If the provisions of any
Facility Mortgage requires deposits on account of Impositions to be
made with such Facility Mortgagee, provided the Facility Mortgagee
has not elected to waive such provision, Tenant shall either pay
Landlord the monthly amounts required and Landlord shall transfer<PAGE>
-17-
such amounts to such Facility Mortgagee or, pursuant to written
direction by Landlord, Tenant shall make such deposits directly
with such Facility Mortgagee.
Landlord shall give prompt written notice to Tenant of all
Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge; provided, however, Landlord's failure to give
any such notice shall in no way diminish Tenant's obligation
hereunder to pay such Impositions.
Impositions imposed in respect of the tax-fiscal period during
which the Term commences and/or terminates shall be prorated
between Landlord and Tenant, whether or not such Imposition is
imposed before or after such termination.
(b) Utility Charges. Tenant shall pay or cause to be paid
all charges for electricity, power, gas, oil, water and other
utilities used at the Leased Property during the Term.
(c) Insurance Premiums. Tenant shall pay or cause to be paid
all premiums for the insurance coverage required to be maintained
pursuant to Article 9.
(d) Other Charges. Tenant shall pay or cause to be paid all
other amounts, liabilities and obligations which Tenant assumes or
agrees to pay under this Lease.
3.2 Late Payment of Rent. If any installment of Minimum Rent,
Percentage Rent or Additional Rent (but only as to those items of
Additional Rent which are payable directly to Landlord) shall not be
paid when due, Tenant shall pay Landlord, on demand, as Additional Rent,
a late charge (to the extent permitted by law) computed, during the
first ten (10) days such payment is delinquent at the greater of the
Base Rate and eleven and one-half percent (11.5%) per annum and,
thereafter, at the Overdue Rate, on the amount of such installment, from
the date such installment was due until the date paid. To the extent
that Tenant pays any Additional Rent directly to Landlord pursuant to
any requirement of this Lease, Tenant shall be relieved of its
obligation to pay such Additional Rent to the entity to which they would
otherwise be due.
In the event of any failure by Tenant to pay any Additional Rent
when due, Tenant shall promptly pay and discharge, as Additional Rent,
every fine, penalty, interest and cost which may be added for non-
payment or late payment of such items. Landlord shall have all legal,
equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of non-payment of the
Additional Rent as in the case of non-payment of the Minimum Rent.
3.3 Net Lease. The Rent shall be absolutely net to Landlord, so
that this Lease shall yield to Landlord the full amount of the
installments of Minimum Rent, Percentage Rent and Additional Rent
throughout the Term, subject to any other provisions of this Lease which
expressly provide for adjustment or abatement of Rent or other charges.<PAGE>
-18-
3.4 No Termination, Abatement, Etc. Except as otherwise
specifically provided in this Lease, Tenant, to the maximum extent
permitted by law, shall remain bound by this Lease in accordance with
its terms and shall neither take any action without the consent of
Landlord to modify, surrender or terminate the same, nor seek, nor be
entitled to any abatement, deduction, deferment or reduction of the
Rent, or set-off against the Rent, nor shall the respective obligations
of Landlord and Tenant be otherwise affected by reason of (a) any damage
to, or destruction of, the Leased Property or any portion thereof from
whatever cause or any Condemnation; (b) the lawful or unlawful
prohibition of, or restriction upon Tenant's use of the Leased Property,
or any portion thereof, or the interference with such use by any Person
or by reason of eviction by paramount title; (c) any claim which Tenant
may have against Landlord by reason of any Landlord Default; (d) any
bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting
Landlord or any assignee or transferee of Landlord; or (e) for any other
cause whether similar or dissimilar to any of the foregoing. Tenant
hereby waives all rights arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any
portion thereof or which may entitle Tenant to any abatement, reduction,
suspension or deferment of the Rent or other sums payable or other
obligations to be performed by Tenant hereunder, except as otherwise
specifically provided in this Lease. The obligations of Landlord and
Tenant hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Tenant hereunder
shall continue to be payable in all events unless the obligations to pay
the same shall be terminated pursuant to the express provisions of this
Lease.
ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use.
4.1.1 Primary Intended Use. Tenant shall continuously use or
cause to be used the Leased Property as a nursing home or subacute
facility and/or other facility offering any higher level health care
services and for such other uses as may be necessary or incidental
thereto (the particular use to which the Leased Property is put at any
particular time, its "Primary Intended Use"). Tenant shall not use the
Leased Property or any portion thereof for other than its Primary
Intended Use without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed; provided,
however, that such consent shall not be deemed to be unreasonably
withheld if, in the reasonable opinion of Landlord, the proposed use
will significantly alter the character or purpose or detract from the
value or operating efficiency of the Leased Property or significantly
impair the revenue-producing capability of the Leased Property or
adversely affect the ability of Tenant to comply with this Lease. No
use shall be made or permitted to be made of the Leased Property and no
acts shall be done thereon which will cause the cancellation of any<PAGE>
-19-
insurance policy covering the Leased Property or any part thereof, nor
shall Tenant sell or otherwise provide to residents or patients therein,
or permit to be kept, used or sold in or about the Leased Property, or
any portion thereof, any article which may be prohibited by law or by
the standard form of fire insurance policies, or any other insurance
policies required to be carried hereunder, or fire underwriter's
regulations.
4.1.2 Necessary Approvals. Tenant shall proceed with all due
diligence and exercise best efforts to obtain and maintain all approvals
necessary to use and operate the Leased Property and the Facility for
the Primary Intended Use under applicable local, state and federal law
and, without limiting the generality of the foregoing, shall use its
best efforts to maintain appropriate certifications for reimbursement
licensure.
4.1.3 Continuous Operation, Etc. Tenant shall use its best
efforts to operate continuously the Leased Property as a provider of
health care services in accordance with the Primary Intended Use.
Tenant shall not take, or omit to take, any action, the taking or
omission of which may materially impair the value or the usefulness of
the Leased Property for the Primary Intended Use.
4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or
permit the use of the Leased Property and Tenant's Personal Property for
any unlawful purpose. Tenant shall not commit or suffer to be committed
any waste on the Leased Property or the Facility, nor shall Tenant cause
or permit any nuisance thereon or therein. Tenant shall neither suffer
nor permit the Leased Property or any portion thereof, including any
Capital Addition, whether or not financed by Landlord, or Tenant's
Personal Property, to be used in such a manner as might reasonably tend
to impair Landlord's (or Tenant's, as the case may be) title thereto or
to any portion thereof, or may reasonably make possible any claim for
adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
4.2 Compliance with Legal and Insurance Requirements, Instruments,
Etc. Subject to the provisions of Article 8, Tenant, at its sole
expense, shall promptly (i) comply with all Legal Requirements and
Insurance Requirements in respect of the use, operation, maintenance,
repair, alteration and restoration of the Leased Property and Tenant's
Personal Property, and (ii) procure, maintain and comply with all
appropriate licenses, certificates of need, permits, provider agreements
and other authorizations required for any use of the Leased Property and
Tenant's Personal Property then being made, and for the proper erection,
installation, operation and maintenance of the Leased Property or any
part thereof, including, without limitation, any Capital Additions.
4.3 Compliance with Medicaid and Medicare Requirements. Tenant
shall, at its sole cost and expense, make whatever improvements (capital
or ordinary) as are required to conform the Leased Property to such
standards as may, from time to time, be required by Federal Medicare
(Title 18) or Medicaid (Title 19) skilled and/or intermediate care
nursing programs, if applicable, or any other applicable programs or
legislation, or capital improvements required by any other governmental<PAGE>
-20-
agency having jurisdiction over the Leased Property as a condition of
the continued operation of the Leased Property for the Primary Intended
Use.
4.4 Environmental Matters. Tenant shall not store, spill upon,
dispose of or transfer to or from the Leased Property any Hazardous
Substance, except that Tenant may store, transfer and dispose of
Hazardous Substances in compliance with all Environmental Laws. Tenant
shall maintain the Leased Property at all times free of any Hazardous
Substance (except such Hazardous Substances as are maintained in
compliance with all Environmental Laws). Tenant shall promptly: (a)
notify Landlord in writing of any change in the nature or extent of such
Hazardous Substances maintained, (b) transmit to Landlord a copy of any
report which is required to be filed with respect to the Leased Property
pursuant to any Environmental Law, (c) transmit to Landlord copies of
any citations, orders, notices or other governmental communications
received by Tenant or its agents or representatives with respect thereto
(collectively, "Environmental Notice"), (d) observe and comply with any
and all Environmental Laws relating to the use, maintenance and disposal
of Hazardous Substances and all orders or directives from any official,
court or agency of competent jurisdiction relating to the use or
maintenance or requiring the removal, treatment, containment or other
disposition thereof, and (e) pay or otherwise dispose of any fine,
charge or Imposition related thereto, unless Tenant shall contest the
same in accordance with Article 8.
If at any time prior to the termination of this Lease, Hazardous
Substances are discovered on the Leased Property, Tenant hereby agrees
to take all actions, and to incur any and all expenses, as may be
reasonably necessary and as may be required by any municipal, State or
Federal agency or other governmental entity or agency having
jurisdiction thereof, (a) to clean up and remove from and about the
Leased Property all Hazardous Substances thereon, (b) to contain and
prevent any further release or threat of release of Hazardous Substances
on or about the Leased Property and (c) to eliminate any further release
or threat of release of Hazardous Substances on or about the Leased
Property.
Tenant shall indemnify and hold harmless Landlord and each Facility
Mortgagee from and against all liabilities, obligations, claims,
damages, penalties, costs and expenses (including, without limitation,
reasonable attorney's fees and expenses) imposed upon, incurred by or
asserted against any of them by reason of any failure by Tenant or any
Person claiming under Tenant to perform or comply with any of the terms
of this Section 4.4.<PAGE>
-21-
ARTICLE 5
MAINTENANCE AND REPAIRS, ETC.
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations. Tenant shall, at its sole cost
and expense, keep the Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto (and Tenant's Personal Property)
in good order and repair, reasonable wear and tear excepted, (whether or
not the need for such repairs occurs as a result of Tenant's use, any
prior use, the elements or the age of the Leased Property or Tenant's
Personal Property, or any portion thereof), and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind
and nature, whether interior or exterior, structural or nonstructural,
ordinary or extraordinary, foreseen or unforeseen or arising by reason
of a condition existing prior to the commencement of the Term (concealed
or otherwise). All repairs shall be at least equivalent in quality to
the original work.
5.1.2 Landlord's Obligations. Landlord shall not, under any
circumstances, be required to build or rebuild any improvement on the
Leased Property, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Leased
Property, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to
maintain the Leased Property in any way, except as specifically provided
herein. Tenant hereby waives, to the extent permitted by law, the right
to make repairs at the expense of Landlord pursuant to any law in effect
at the time of the execution of this Lease or hereafter enacted.
Landlord shall have the right to give, record and post, as appropriate,
notices of nonresponsibility under any mechanic's lien laws now or
hereafter existing.
5.2 Capital Expenditure Cost Sharing. Replacement of or major
repairs to all structural or mechanical systems shall be undertaken by
Tenant, at its sole cost and expense in the exercise of its reasonable
business judgment, pursuant to and in accordance with plans and
specifications approved in advance by Landlord; provided, however, that
if the useful life of any improvement or repair for which a Capital
Expenditure is made extends beyond the termination of the Term (other
than any early termination resulting from the occurrence of an Event of
Default), provided Tenant shall have obtained Landlord's prior written
consent with respect to the making thereof, the cost of such replacement
or repair shall be apportioned between Landlord and Tenant so that
Landlord shall pay for that portion of the useful life of such item
occurring on or after such termination date. Landlord shall have no
obligation to reimburse Tenant for Landlord's share of the cost of such
replacement or repair until the date of the termination of this Lease.
Notwithstanding the foregoing, Landlord agrees to make any such payment
to Tenant within sixty (60) days after Tenant's written request
therefor.
<PAGE>
-22-
5.3 Tenant's Personal Property. Tenant may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any
parcels of the Land or in any of the Leased Improvements, any items of
Tenant's Personal Property, and Tenant may, subject to the conditions
set forth below, remove the same upon the expiration or sooner
termination of the Term. Tenant shall provide and maintain during the
entire Term all such Tenant's Personal Property as shall be necessary in
order to operate the Facility in compliance with all licensure and
certification requirements, applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the
industry for the Primary Intended Use. All of Tenant's Personal
Property not removed by Tenant on or prior to the expiration or earlier
termination of this Lease shall be considered abandoned by Tenant and
may be appropriated, sold, destroyed or otherwise disposed of by
Landlord without the necessity of first giving notice thereof to Tenant,
without any payment to Tenant and without any obligation to account
therefor. Tenant shall, at its expense, restore the Leased Property to
the condition required by Section 5.4, including repair of all damage to
the Leased Property caused by the removal of Tenant's Personal Property,
whether effected by Tenant or Landlord.
If Tenant uses any item of tangible personal property (other than
motor vehicles) on, or in connection with, the Leased Property which
belongs to anyone other than Tenant, Tenant shall use its best efforts
to require the agreement permitting such use to provide that Landlord or
its designee may assume Tenant's rights under such agreement upon
management of the Facility by Landlord or its designee.
5.4 Yield Up. Upon the expiration or sooner termination of this
Lease, Tenant shall vacate and surrender the Leased Property to Landlord
in the condition in which the Leased Property was on the Commencement
Date, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease, ordinary wear and
tear excepted.
In addition, upon the expiration or earlier termination of this
Lease, Tenant shall, at Landlord's reasonable cost and expense, use its
best efforts to transfer to and cooperate with Landlord or Landlord's
nominee in connection with the processing of all applications for
licenses, operating permits and other governmental authorizations and
all contracts, including, contracts with governmental or quasi-
governmental entities, which may be necessary for the operation of the
Facility. If requested by Landlord, Tenant shall continue to manage the
Facility after the termination of this Lease and for so long thereafter
as is necessary to obtain all necessary licenses, operating permits and
other governmental authorizations, on such reasonable terms (which shall
include an agreement to reimburse Tenant for its reasonable out-of-
pocket costs and expenses and reasonable administrative costs) as
Landlord shall request.
5.5 Encroachments, Restrictions, Etc. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or
other agreement affecting the Leased Property, or any part thereof, or<PAGE>
-23-
shall impair the rights of others under any easement or right-of-way to
which the Leased Property is subject, upon the request of Landlord or of
any person affected by any such encroachment, violation or impairment,
Tenant shall, at its sole cost and expense, subject to its right to
contest the existence of any encroachment, violation or impairment and
in such case, in the event of an adverse final determination, either (a)
obtain, in form and substance satisfactory to Landlord, valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant, or (b), subject to Landlord's
approval (which shall not be unreasonably withheld or delayed), make
such changes in the Leased Improvements and take such other actions, as
Tenant, in the good faith exercise of its judgment, deems reasonably
practicable, to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements and, in any event, take all such actions as may be
necessary in order to ensure the continued operation of the Leased
Improvements for the Primary Intended Use substantially in the manner
and to the extent the Leased Improvements were operated prior to the
assertion of such violation, impairment or encroachment. Any such
alteration shall be made in conformity with the applicable requirements
of this Article 5. Tenant's obligations under this Section 5.5 shall be
in addition to and shall in no way discharge or diminish any obligation
of any insurer under any policy of title or other insurance and Tenant
shall be entitled to a credit for any sums recovered by Landlord under
any such policy of title or other insurance.
ARTICLE 6
CAPITAL ADDITIONS, ETC.
6.1 Construction of Capital Additions to the Leased Property.
Provided no Default or Event of Default shall have occurred and be
continuing, Tenant shall have the right, subject to obtaining Landlord's
prior written consent (which consent shall not be unreasonably withheld
or delayed), upon and subject to the terms and conditions set forth
below, to construct or install Capital Additions on the Leased Property.
Landlord's consent shall not be deemed to be unreasonably withheld if
such Capital Addition will significantly alter the character or purpose
or detract from the value or operating efficiency or the
revenue-producing capability of the Leased Property, or adversely affect
the ability of Tenant to comply with this Lease. Any withholding of
consent shall be express and shall be effected within thirty (30) days
after receipt by Landlord of such documents or information as Landlord
may reasonably require, notice of which requirements shall be sent to
Tenant within thirty (30) days after Tenant's request. Failure to give
notice of the withholding of such consent within such thirty (30) day
period shall be deemed approval. Prior to commencing construction of
any Capital Addition, Tenant shall submit to Landlord, in writing, a
proposal setting forth, in reasonable detail, any proposed Capital
Addition and shall provide Landlord with such plans and specifications,
permits, licenses, contracts and other information concerning the
proposed Capital Addition as Landlord may reasonably request. Without
limiting the generality of the foregoing, such proposal shall indicate<PAGE>
-24-
the approximate projected cost of constructing such Capital Addition,
the use or uses to which it will be put and a good faith estimate of the
change, if any, in the Net Patient Revenues that Tenant anticipates will
result from such Capital Addition. Prior to commencing construction of
any Capital Addition, Tenant shall request in writing that Landlord
provide funds to pay for such Capital Addition. If, within sixty (60)
days after receipt of such request, Landlord shall not elect to provide
such financing on terms reasonably acceptable to Tenant (and, for
purposes of this Section 6.1, the failure of Landlord to respond within
such 60 day period shall be deemed an election not to provide such
funding), the provisions of Section 6.2 shall apply. Landlord's notice
of its election to provide such financing shall set forth the terms and
conditions of such proposed financing, including the terms of any
amendment to this Lease (including, without limitation, an increase in
Minimum Rent to compensate Landlord for the additional funds advanced).
In no event shall the portion of the projected Capital Additions Cost
comprised of land, if any, materials, labor charges and fixtures be less
than eighty percent (80%) of the total amount of such cost. Tenant may
withdraw its request by written notice to Landlord at any time before
Tenant's written acceptance of Landlord's terms and conditions. If
Landlord declines to finance a Capital Addition or if Landlord's
proposed financing terms are unacceptable to Tenant, Tenant may solicit
and negotiate a commitment for such financing from another Person,
provided Landlord shall approve all the terms and conditions of such
financing (which approval shall not be unreasonably withheld or
delayed). If Landlord shall finance the proposed Capital Addition,
Tenant shall pay to Landlord, as Additional Rent, all reasonable costs
and expenses paid or incurred by Landlord and any Lending Institution
which has committed to provide financing for such Capital Addition to
Landlord in connection therewith, including, but not limited to, (a) the
reasonable attorneys' fees and expenses, (b) all printing expenses, (c)
all filing, registration and recording taxes and fees, (d) documentary
stamp taxes, (e) title insurance charges, appraisal fees, and rating
agency fees, and (f) commitment fees.
No Capital Addition shall be made which would tie in or connect any
Leased Improvement or any Leased Property with any other improvements on
property adjacent to such Leased Property (and not part of the Land)
including, without limitation, tie-ins of buildings or other structures
or utilities, unless Tenant shall have obtained the prior written
approval of Landlord, which approval may be withheld by Landlord in
Landlord's sole discretion. Any Capital Additions shall, upon the
expiration or sooner termination of this Lease, become the property of
Landlord, free and clear of all encumbrances, subject to the provisions
of Section 6.2.
6.2 Capital Additions Financed by Tenant. Provided that Tenant
has obtained the prior written consent of Landlord in each instance
(which approval shall not be unreasonably withheld or delayed), Tenant
may arrange for financing for Capital Additions from third party lend-
ers; provided, however that (i) the terms and conditions of any such
financing shall be subject to the prior approval of Landlord and (ii)
any security interests in any property of Tenant, including, without
limitation, the Leased Property, shall be expressly and fully
subordinated to this Lease and to the interest of Landlord in the Leased<PAGE>
-25-
Property and to the rights of any Facility Mortgagee. If, pursuant to
the provisions of this Lease, Tenant provides or arranges financing with
respect to any Capital Addition, this Lease shall be and hereby is
amended to provide as follows:
(a) Upon completion of any such Capital Addition, Net Patient
Revenues attributable to such Capital Addition shall be excluded
from Net Patient Revenues of the Leased Property for purposes of
calculating Percentage Rent. The Net Patient Revenues attributable
to any such Capital Addition shall be deemed to be an amount (the
"Added Value Percentage") which bears the same proportion to the
total Net Patient Revenues from the entire Leased Property
(including all Capital Additions) as the Fair Market Added Value of
such Capital Addition bears to the Fair Market Value of the entire
Leased Property (including all Capital Additions) immediately after
completion of such Capital Addition. The Added Value Percentage
for Capital Additions financed by Tenant shall remain in effect
until any subsequent Capital Addition financed by Tenant is
completed.
(b) There shall be no adjustment in the Minimum Rent by
reason of any such Capital Addition.
(c) Upon the expiration or earlier termination of this Lease
(but if this Lease is terminated by reason of an Event of Default,
only after Landlord is fully compensated for all damages resulting
therefrom), Landlord shall compensate Tenant for all Capital
Additions financed by Tenant in any of the following ways
determined in Landlord's sole discretion:
(i) By purchasing such Capital Additions from Tenant for cash in
the amount of the then Fair Market Added Value of such Capital
Additions;
(ii) By purchasing such Capital Additions from Tenant by delivering
to Tenant Landlord's purchase money promissory note in the
amount of the Fair Market Added Value, which note shall be due
and payable as to both principal and interest on the second
anniversary of the making thereof, shall be on then
commercially reasonable terms and shall be secured by a
mortgage on the Leased Property and such Capital Additions
subject to all existing mortgages and encumbrances on the
Leased Property and such Capital Additions at the time of such
purchase;
(iii) By assigning to Tenant the right to receive an amount equal to
the Added Value Percentage (determined as of the date of the
expiration or earlier termination of this Lease) of all rent
and other consideration receivable by Landlord under any
re-letting or other disposition of the Leased Property and
such Capital Additions, after deducting from such rent all
costs and expenses incurred by Landlord in connection with
such re-letting or other disposition of the Leased Property
and such Capital Additions and all costs and expenses of
operating and maintaining the Leased Property and such Capital<PAGE>
-26-
Additions during the term of any such new lease which are not
borne by the tenant thereunder, with the provisions of this
Section 6.2(c) to remain in effect until the sale or other
final disposition of the Leased Property and such Capital
Additions, at which time the Fair Market Added Value of such
Capital Addition shall be immediately due and payable, such
obligation to be secured by a mortgage on the Leased Property
and such Capital Additions, subject to all existing mortgages
and encumbrances on the Leased Property at the time of such
purchase and assignment; or
(iv) By making such other arrangement regarding such compensation
as shall be mutually acceptable to Landlord and Tenant.
6.3 Information Regarding Capital Additions. Regardless of the
source of financing of any proposed Capital Addition, Tenant shall
provide Landlord with such information as Landlord may from time to time
reasonably request with respect to such Capital Addition, including,
without limitation, the following:
(a) Evidence that such Capital Addition will be, and upon
completion has been, completed in compliance with the applicable
requirements of State and federal law with respect to capital
expenditures for nursing facilities;
(b) Upon completion of such Capital Addition, a copy of the
certificate of occupancy for the Facility updated, if required;
(c) Such information, certificates, licenses, permits or
other documents necessary to confirm that Tenant will be able to
use the Capital Addition upon completion thereof in accordance with
the Primary Intended Use, including all required federal, State or
local government licenses and approvals;
(d) An Officer's Certificate and a certificate from Tenant's
architect setting forth, in reasonable detail, the projected (or
actual, if available) Capital Additions Cost and invoices and lien
waivers from Tenant's contractors for such work;
(e) A deed conveying to Landlord title to any land acquired
for the purpose of constructing the Capital Addition free and clear
of any liens or encumbrances, except those approved by Landlord
and, upon completion of the Capital Addition, a final as-built
survey thereof reasonably satisfactory to Landlord;
(f) Endorsements to any outstanding policy of title insurance
covering the Leased Property or commitments therefor, satisfactory
in form and substance to Landlord, (i) updating the same without
any additional exceptions except as approved by Landlord, and (ii)
increasing the coverage thereof by an amount equal to the Fair
Market Value of the Capital Addition (except to the extent covered
by the owner's policy of title insurance referred to in
subparagraph (g) below);<PAGE>
-27-
(g) If appropriate, (i) an owner's policy of title insurance
insuring fee simple title to any land conveyed to Landlord pursuant
to subparagraph (e) above, free and clear of all liens and
encumbrances, except those approved by Landlord, and (ii) a
lender's policy of title insurance, reasonably satisfactory in form
and substance to Landlord and the Lending Institution advancing any
portion of the Capital Additions Cost;
(h) An appraisal of the Leased Property by a Qualified
Appraiser, acceptable to Landlord, and an Officer's Certificate
stating that the value of the Leased Property upon completion of
the Capital Addition exceeds the Fair Market Value thereof prior to
the commencement of such Capital Addition by an amount not less
than 80% of the Capital Additions Cost; and
(i) Prints of architectural and engineering drawings relating
to such Capital Addition and such other certificates, documents,
opinions of counsel, appraisals, surveys, certified copies of duly
adopted resolutions of the board of directors of Tenant authorizing
the execution and delivery of any lease amendment or other
instruments reasonably required by Landlord and any Lending
Institution advancing or reimbursing Tenant for any portion of the
Capital Additions Cost.
6.4 Non-Capital Additions. Tenant shall have the right, at
Tenant's sole cost and expense, to make additions, modifications or
improvements to the Leased Property which are not Capital Additions
("Non-Capital Additions") from time to time as Tenant, in its reasonable
discretion, may deem desirable for the Primary Intended Use, provided
that such action will not adversely alter the character or purpose or
detract from the value, operating efficiency or revenue-producing
capability of the Leased Property, or adversely affect the ability of
Tenant to comply with the provisions of this Lease. All such Non-
Capital Additions shall, upon expiration or earlier termination of this
Lease, become the property of Landlord, free and clear of all
encumbrances other than Permitted Encumbrances.
6.5 Salvage. All materials which are scrapped or removed in
connection with the making of either Capital Additions or repairs
required by Article 5 shall be the property of the party paying or
providing the financing for such work.
ARTICLE 7
LIENS
7.1 Liens. Subject to Article 8, Tenant shall not, directly or
indirectly, create or allow to remain and shall promptly discharge, at
its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, other than (a) this Lease,
(b) the Permitted Encumbrances, (c) restrictions, liens and other
encumbrances which are consented to in writing by Landlord, (d) liens
for those taxes of Landlord which Tenant is not required to pay<PAGE>
-28-
hereunder, (e) subleases permitted by Article 17, (f) liens for
Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (i) the same are not yet payable, or (ii) are
payable without fine or penalty and such liens are being contested in
accordance with Article 8, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums disputed, provided that (i)
the payment of such sums shall not be postponed under any related
contract for more than sixty (60) days after the completion of the
action giving rise to such lien and a reserve or another appropriate
provision as shall be required by law or generally accepted accounting
principles shall have been made therefor, and (ii) any such liens are
being contested in accordance with Article 8, and (h) any liens which
are the responsibility of Landlord pursuant to Article 21.
7.2 Landlord's Lien. In addition to any statutory landlord's lien
and in order to secure payment of the Rent and all other sums payable
hereunder by Tenant, and to secure payment of any loss, cost or damage
which Landlord may suffer by reason of Tenant's breach of this Lease,
Tenant hereby grants unto Landlord a security interest in and an express
contractual lien upon Tenant's Personal Property (except motor vehicles
sold from time to time in the ordinary course of Tenant's operations),
and all ledger sheets, files, records, documents and instruments
(including, without limitation, computer programs, tapes and related
electronic data processing) relating to the operation of the Facility
(collectively, the "Records") and all proceeds therefrom; and Tenant's
Personal Property shall not be removed from the Leased Property without
the Landlord's prior written consent, unless no Default or Event of
Default shall have occurred and be continuing.
Upon Landlord's request, Tenant shall execute and deliver to
Landlord security agreements and financing statements in form sufficient
to perfect the security interests of Landlord in Tenant's Personal
Property and the proceeds thereof in accordance with the provisions of
the applicable laws of the State and otherwise in form and substance
reasonably satisfactory to Landlord. Tenant hereby grants Landlord an
irrevocable limited power of attorney, coupled with an interest, to
execute all such financing statements in Tenant's name, place and stead.
The security interest herein granted is in addition to any statutory
lien for the Rent.
Landlord agrees, at Tenant's request, to execute such documents as
Tenant may reasonably require to subordinate the lien granted pursuant
to this Section 7.2 in Tenant's Personal Property (but not the Records)
to the lien of any Person providing purchase money financing with
respect thereto.
7.3 Mechanic's Liens. Except as permitted with respect to Capital
Additions, nothing contained in this Lease and no action or inaction by
Landlord shall be construed as (a) constituting the consent or request
of Landlord, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the
Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any<PAGE>
-29-
labor or services or the furnishing of any materials or other property
in such fashion as would permit the making of any claim against Landlord
in respect thereof or to make any agreement that may create, or in any
way be the basis for any right, title, interest, lien, claim or other
encumbrance upon the Leased Property, or any portion thereof.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of
any Imposition, Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim (collectively "Claims")
by appropriate legal proceedings conducted in good faith and with due
diligence, provided that (a) the foregoing shall in no way be construed
as relieving, modifying or extending Tenant's obligation to pay any
Claims as finally determined or prior to the time the Leased Property
may be sold in satisfaction thereof, (b) such contest shall not cause
Landlord or Tenant to be in default under any mortgage or deed of trust
encumbering the Leased Property or any interest therein or result in or
reasonably be expected to result in a lien attaching to the Leased
Property, and (c) Tenant shall indemnify and hold harmless Landlord from
and against any cost, claim, damage, penalty or expense, including
reasonable attorneys' fees, incurred by Landlord in connection therewith
or as a result thereof. Upon Landlord's request, Tenant shall either
(a) provide a bond or other assurance reasonably satisfactory to
Landlord that all Claims which may be assessed against the Leased
Property, together with all interest and penalties thereon will be paid,
or (b) deposit within the time otherwise required for payment with a
bank or trust company, as trustee, as security for the payment of such
Claims, an amount sufficient to pay the same, together with interest and
penalties in connection therewith and all Claims which may be assessed
against or become a Claim against the Leased Property, or any part
thereof, in connection with any such contest. Tenant shall furnish
Landlord and any Facility Mortgagee with reasonable evidence of such
deposit within five (5) days after request therefor. Landlord agrees to
join in any such proceedings if required legally to prosecute such
contest; provided, however, that Landlord shall not thereby be subjected
to any liability therefor (including, for the payment of any costs or
expenses in connection therewith). Tenant shall be entitled to any
refund of any Claims and such charges and penalties or interest thereon
which have been paid by Tenant or paid by Landlord and for which
Landlord has been fully reimbursed by Tenant. If Tenant shall fail (a)
to pay any Claims when due, (b) to provide security therefor as provided
in this Article 8, or (c) to prosecute any such contest diligently and
in good faith, Landlord may, upon reasonable notice to Tenant (which
notice may be oral and shall not be required if Landlord shall determine
the same is not practicable), pay such charges, together with interest
and penalties due with respect thereto, and Tenant shall reimburse
Landlord therefor, upon demand, as Additional Rent.
ARTICLE 9<PAGE>
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INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements. Tenant shall at all times
during the Term and any other time Tenant shall be in possession of the
Leased Property, keep the Leased Property, and all property located in
or on the Leased Property, including Tenant's Personal Property, insured
against the risks in the amounts as follows:
(a) Comprehensive general liability insurance, including
bodily injury and property damage (on an occurrence basis and in
the broadest form available, including without limitation broad
form contractual liability, fire legal liability independent
contractor's hazard and completed operations coverage) under which
Tenant is named as an insured and Landlord and any Facility
Mortgagee (and such others as are in privity of estate with
Landlord, as set out in a notice from time to time) are named as
additional insureds as their interests may appear, in an amount
which shall, at the beginning of the Term, be at least equal to
$5,000,000 per occurrence in respect of bodily injury and death and
$1,000,000 per occurrence in respect of property damage, and which,
from time to time during the Term, shall be for such higher limits,
if any, as are customarily carried in the area in which the Leased
Property is located at property similar to the Leased Property and
used for similar purposes;
(b) "All-risk" property insurance on a "replacement cost"
basis with the usual extended coverage endorsements covering the
Leased Property and Tenant's Personal Property;
(c) Business interruption and loss of rental under a rental
value insurance policy covering risk of loss during the lesser of
the first twelve (12) months of reconstruction or the actual
reconstruction period necessitated by the occurrence of any of the
hazards described in paragraphs (a) and (b) above, in such amounts
as may be customary for comparable properties in the area and in an
amount sufficient to prevent Landlord or Tenant from becoming a
co-insurer;
(d) Claims arising out of malpractice in an amount not less
than Five Million Dollars ($5,000,000) for each person and for each
occurrence with respect to the Leased Property, provided the same
is available at rates which are economically practical in relation
to the risk covered, as determined by Tenant and approved by
Landlord (it being agreed that, in the event the same is not
available at rates which are economically practical in relation to
the risks covered, Tenant shall provide such malpractice insurance
by means of the maintenance of a program of self insurance, which,
in accordance with generally accepted accounting principles
consistently applied, satisfies the insurance requirements of this
paragraph (d) and, in such event, Tenant shall submit to Landlord
such records and other evidence thereof as Landlord may from time
to time reasonably request to confirm the maintenance of such a
program);
<PAGE>
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(e) Flood (if the Leased Property which is located in whole
or in part within a designated flood plain area) and such other
hazards and in such amounts as may be customary for comparable
properties in the area, provided the same is available at rates
which are economically practical in relation to the risks covered,
as determined by Tenant and approved by Landlord;
(f) Worker's compensation insurance coverage for all persons
employed by Tenant on the Leased Property with statutory limits and
otherwise with limits of and provisions in accordance with the
requirements of applicable local, state and federal law; and
(g) Such additional insurance as may be reasonably required,
from time to time, by Landlord or any Facility Mortgagee.
9.2 Waiver of Subrogation. Landlord and Tenant agree that
(insofar as and to the extent that such agreement may be effective
without invalidating or making it impossible to secure insurance
coverage from responsible insurance companies doing business in the
State) with respect to any property loss which is covered by insurance
then being carried by Landlord or Tenant or would be covered by
insurance if insurance were maintained in accordance with the applicable
provisions of this Lease, respectively, the party carrying such
insurance and suffering said loss releases the other of and from any and
all claims with respect to such loss; and they further agree that their
respective insurance companies shall have no right of subrogation
against the other on account thereof, even though extra premium may
result therefrom. In the event that any extra premium is payable by
Tenant as a result of this provision, Landlord shall not be liable for
reimbursement to Tenant for such extra premium.
9.3 Form Satisfactory, Etc. All policies of insurance required
under this Article 9 shall be written in a form reasonably satisfactory
to Landlord and by insurance companies authorized to do business in the
State, insurance, which companies shall be reasonably satisfactory to
Landlord. All policies of insurance required under this Article 9 shall
include no deductible in excess of $250,000 and shall name Landlord and
any Facility Mortgagee as additional insureds, as their interests may
appear. Losses shall be payable to Landlord or Tenant as provided in
Article 10. Any loss adjustment shall require the written consent of
Landlord, Tenant and each Facility Mortgagee. Evidence of insurance
shall be deposited with Landlord and, if requested, any Facility
Mortgagee. If any provisions of any Facility Mortgage requires deposits
of premiums for insurance to be made with such Facility Mortgagee,
provided that the Facility Mortgagee has not elected to waive such
provision, Tenant shall either pay Landlord monthly the amounts required
and Landlord shall transfer such amounts to such Facility Mortgagee, or,
pursuant to written direction by Landlord, Tenant shall make such
deposits directly with such Facility Mortgagee. Tenant shall pay all
insurance premiums, and deliver policies or certificates thereof to
Landlord prior to their effective date (and, with respect to any renewal
policy, ten (10) days prior to the expiration of the existing policy),
and in the event Tenant shall fail either to effect such insurance as
herein required, to pay the premiums therefor or to deliver such
policies or certificates to Landlord at the times required Landlord<PAGE>
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shall have the right, but not the obligation, to effect such insurance
and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest
accrued thereon at the Base Rate from the date such payment is made
until the date repaid. All such policies shall provide Landlord (and
any Facility Mortgagee, if required by the same) thirty (30) days' prior
written notice of any materially alter on, expiration or cancellation of
such policy.
9.4 No Separate Insurance. Tenant shall not take out separate
insurance, concurrent in form or contributing in the event of loss with
that required by this Article 9 or increase the amount of any existing
insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of
such insurance, including, Landlord and all Facility Mortgagees, are
included therein as additional insureds, and the loss is payable under
such insurance in the same manner as losses are payable under this
Lease. In the event Tenant shall take out any such separate insurance
or increase any of the amounts of the then existing insurance, Tenant
shall give Landlord prompt written notice thereof.
9.5 Indemnification of Landlord. Tenant shall indemnify and hold
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees), to the maximum extent
permitted by law, imposed upon or incurred by or asserted against
Landlord by reason of: (a) any accident, injury to or death of persons
or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, including, without limitation, any
claims of malpractice, (b) any past, present or future use, misuse,
non-use, condition, management, maintenance or repair by Tenant or
anyone claiming under Tenant of the Leased Property or Tenant's Personal
Property or any litigation, proceeding or claim by governmental entities
or other third parties to which Landlord is made a party or participant
related to the Leased Property or Tenant's Personal Property or such
use, misuse, non-use, condition, management, maintenance, or repair
thereof including, failure to perform obligations (other than
Condemnation proceedings) to which Landlord is made a party, (c) any
Impositions (which are the obligations of Tenant to pay pursuant to the
applicable provisions of this Lease), and (d) any failure on the part of
Tenant or anyone claiming under Tenant to perform or comply with any of
the terms of this Lease. Tenant shall pay all amounts payable under
this Section 9.5 within ten (10) days after demand therefor, and if not
timely paid, such amounts shall bear interest at the overdue rate from
the date of determination to the date of payment. Tenant, at its
expense, shall contest, resist and defend any such claim, action or
proceeding asserted or instituted against Landlord or may compromise or
otherwise dispose of the same as Tenant sees fit.
9.6 Indemnification of Tenant. Landlord shall indemnify and hold
harmless Tenant from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Tenant as a result of the gross
negligence or willful misconduct of Landlord.
<PAGE>
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ARTICLE 10
CASUALTY
10.1 Insurance Proceeds. All proceeds payable by reason of any
loss or damage to the Leased Property and insured under any policy of
insurance required by Article 9 shall be paid to Landlord and held in
trust by Landlord in an interest-bearing account (subject to the
provisions of Section 10.2) and shall be paid out by Landlord from time
to time for the reasonable costs of reconstruction or repair of the
Leased Property necessitated by damage or destruction. Any excess
proceeds of insurance remaining after the completion of the restoration
shall be paid to Tenant. In the event neither Landlord nor Tenant is
required or elects to restore the Leased Property and this Lease is
terminated without purchase or substitution by Tenant pursuant to
Section 10.2, all insurance proceeds therefrom shall be retained by
Landlord. All salvage resulting from any risk covered by insurance
shall belong to Landlord, except any salvage related to Capital
Additions paid for by Tenant or Tenant's Personal Property shall belong
to Tenant.
10.2 Reconstruction in the Event of Damage or Destruction.
10.2.1 Material Damage or Destruction of Premises. Except as
provided in Section 10.8, if, during the Term, the Leased Property shall
be totally or partially damaged or destroyed by fire or other casualty
and the Facility is thereby rendered Unsuitable for Its Primary Intended
Use, Tenant shall, at Tenant's option, exercisable by written notice to
Landlord within thirty (30) days after the date of such damage or
destruction, elect either (a) to restore the Facility to substantially
the same condition as existed immediately before such damage or
destruction, or (b) to offer (i) to purchase the Leased Property from
Landlord for a purchase price equal to the greater of the Minimum
Repurchase Price or the Fair Market Value Purchase Price of the Leased
Property immediately prior to such damage or destruction, or (ii) to
substitute a new property for the Leased Property in accordance with the
provisions of Article 16. Failure of Tenant to give Landlord written
notice of any such election within such 30-day period shall be deemed an
election by Tenant to restore the Facility. In the event Tenant shall
proceed in accordance with clause (b) preceding and Landlord does not
accept Tenant's offer to purchase the Leased Property or substitute
another property for the Leased Property within thirty (30) days after
receipt of Tenant's notice thereof, Tenant may either (a) withdraw such
offer and proceed promptly to restore the Facility to substantially the
same conditions as existed immediately before the damage or destruction,
or (b) terminate this Lease without further liability hereunder and
Landlord shall be entitled to retain the insurance proceeds. In the
event Tenant shall acquire the Leased Property or substitute a new
property therefor, the insurance proceeds payable on account of such
damage shall be paid to Tenant.
10.2.2 Partial Damage or Destruction. Except as provided in
Section 10.8, if, during the Term, all or any portion of the Leased
Property shall be totally or partially destroyed by fire or other
casualty and the Facility is not thereby rendered Unsuitable for its<PAGE>
-34-
Primary Intended Use, Tenant shall promptly restore the Facility to
substantially the same condition as existed immediately before such
damage or destruction; provided, however, that if Tenant cannot, using
diligent efforts, obtain all government approvals, including building
permits, licenses, conditional use permits and certificates of need,
necessary to perform all required repair and restoration and to operate
the Facility for its Primary Intended Use in substantially the same
manner as existed immediately prior to such damage or destruction within
one hundred eighty (180) days after the date of such fire or casualty,
Tenant shall, within thirty (30) days thereafter elect, by written
notice to Landlord, either (a) to substitute a new property or
properties for the Leased Property in accordance with the provisions of
Article 16, or (b) purchase the Leased Property for a purchase price
equal to the greater of the then Minimum Repurchase Price or the Fair
Market Value Purchase Price of the Leased Property immediately prior to
such damage or destruction. Failure of Tenant to give such notice
within such period shall be deemed an election by Tenant to purchase the
Leased Property. Within thirty (30) days after receipt of Tenant's
notice, Landlord shall give Tenant written notice as to whether Landlord
accepts such offer. Failure of Landlord to give such notice shall be
deemed an election by Landlord to accept Tenant's offer. If Landlord
shall reject such offer, Tenant shall elect, by written notice to
Landlord, given within thirty (30) days thereafter, either (a) to
withdraw such offer, in which event this Lease shall remain in full
force and effect with and Tenant shall proceed to restore the Facility
as soon as reasonably practicable to substantially the same condition as
existed immediately before such damage or destruction, or (b) terminate
this Lease. Failure of Tenant to give such notice within such period
shall be deemed an election by Tenant to restore the Leased Property.
In the event Landlord shall accept Tenant's offer to purchase
the Leased Property, this Lease shall terminate with respect thereto
upon payment of the purchase price. In the event Landlord shall accept
Tenant's offer to substitute a new property or properties, this Lease
shall be deemed modified to substitute such new property for the Leased
Property (effective as of the date of such substitution pursuant to
Article 16) and all insurance proceeds pertaining to the Leased Property
shall be paid to Tenant. Landlord and Tenant shall promptly execute
appropriate instruments to confirm the foregoing, although the failure
to do so shall not affect this Lease.
10.3 Insufficient Insurance Proceeds. If the cost of the repair
or restoration exceeds the amount of insurance proceeds received by
Landlord pursuant to Article 9, Tenant shall contribute any excess
amounts needed to complete such restoration. Such difference shall be
paid by Tenant to Landlord and held by Landlord in trust in an interest
bearing account, together with any other insurance proceeds, for
application to the cost of repair and restoration in accordance with
Section 10.4.
10.4 Disbursement of Proceeds. In the event Tenant is required to
restore the Leased Property pursuant to Sections 10.1 or 10.2, Tenant
shall, at its sole cost and expense, commence promptly and continue
diligently to perform, or cause to be performed, the repair and restora-
tion of the Leased Property so as to restore the Leased Property in full<PAGE>
-35-
compliance with all Legal Requirements and otherwise in compliance with
any other applicable provisions of this Lease, so that the Leased
Property shall be at least equal in value and general utility to its
general utility and value immediately prior to such damage or
destruction. Subject to the terms hereof, Landlord shall advance the
insurance proceeds (other than proceeds of business interruption
insurance which shall be advanced as provided below) and the amounts
paid to it pursuant to Section 10.3 to Tenant regularly during the
repair and restoration period so as to permit payment for the cost of
such restoration and repair. Any such advances shall be for not less
than $50,000 (or such lesser amount as equals the entire balance of the
repair and restoration costs) and Tenant shall submit to Landlord a
written requisition and substantiation therefor on AIA Forms G702 and
G703 (or on such other form or forms as may be acceptable to Landlord).
Landlord may, at its option, condition advancement of such insurance
proceeds and other amounts on (i) the absence of any Default or Event of
Default, (ii) its approval of plans and specifications of an architect
satisfactory to Landlord (which approval shall not be unreasonably with-
held or delayed), (iii) general contractors' estimates, (iv) architect's
certificates, (v) unconditional lien waivers of general contractors,
(vi) evidence of approval by all governmental authorities and other
regulatory bodies whose approval is required and (vii) such other
certificates as Landlord may, from time to time, reasonably require.
Provided no Default or Event of Default has occurred and is continuing,
on the first day of each calendar month during which proceeds of
business interruption insurance are disbursed to Landlord under the
policy of business interruption insurance maintained pursuant to Article
9, Landlord shall disburse proceeds of business interruption insurance
received by it to Tenant upon notice from Tenant accompanied by a
certification from Tenant that such moneys will be used for costs or
expenses of owning or operating the Leased Property.
Landlord's obligation to disburse insurance proceeds under this
Article 10 shall be subject to the release of such proceeds by any
Facility Mortgagee.
10.5 Tenant's Property. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property or Capital
Additions financed by Tenant shall be paid to Tenant and Tenant shall
hold such proceeds in trust to pay the cost of repairing or replacing
damaged Tenant's Personal Property or Capital Additions paid for or
financed by Tenant.
10.6 Restoration of Tenant's Property. If Tenant shall be
required or elect to restore the Facility as hereinabove provided,
Tenant shall either (a) restore all alterations and improvements made
by Tenant, Tenant's Personal Property and all Capital Additions paid for
or financed by Tenant, or (b) replace such alterations and improvements,
Tenant's Personal Property, and/or Capital Additions with improvements
or items of the same or better quality and utility in the operation of
the Facility.
10.7 No Abatement of Rent. Unless this Lease shall be terminated
as herein provided, during the first twelve (12) months of any period
required for repair or restoration, this Lease shall remain in full<PAGE>
-36-
force and effect and Tenant's obligation to make rental payments and to
pay all other charges required by this Lease shall remain unabated
during the Term notwithstanding any damage affecting the Leased
Property. Thereafter, payments of Minimum Rent shall be adjusted in the
manner provided in Section 11.6. If any fire or other casualty impairs
the revenue producing capacity of the Facility, projected Net Patient
Revenues attributable to the Facility shall be determined by Landlord in
its reasonable discretion.
10.8 Damage Near End of Term. Notwithstanding any provisions of
this Article 10 to the contrary, if (a) damage to or destruction of the
Facility occurs during the last twelve (12) months of the Term, (b)
Tenant has not elected to extend the Term, (c) no Default or Event of
Default shall have occurred and be continuing, and (d) such damage or
destruction cannot be fully repaired and restored within one hundred
eighty (180) days immediately following the date of loss, Tenant shall
have the right to terminate this Lease by the giving of written notice
thereof to Landlord within thirty (30) days after the date of casualty.
Failure of Tenant to give such notice within such 30-day period shall be
a waiver of Tenant's right to terminate this Lease pursuant to this
section.
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation. If the whole of the Leased Property
shall be taken by Condemnation, this Lease shall terminate as of the
Date of Taking. In the event a Condemnation of less than the whole of
the Leased Property renders the Leased Property Unsuitable for Its
Primary Intended Use, Tenant and Landlord shall each have the option, by
written notice to the other, given at any time prior to the date title
vests in a third party, to terminate this Lease as of the Date of
Taking, whereupon this Lease shall terminate as of such date.
11.2 Partial Condemnation. In the event of a Condemnation of less
than the whole of the Leased Property such that Leased Property is still
suitable for its Primary Intended Use, or if neither Tenant nor Landlord
shall terminate this Lease as provided in Section 11.1, Tenant, at its
sole cost and expense, shall, with all reasonable dispatch, restore the
untaken portion of the Leased Improvements so that such Leased
Improvements shall constitute a complete architectural unit of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to
such Condemnation. Landlord shall, subject to and in accordance with
the applicable provisions of Section 10.4, contribute to the cost of
restoration that part of its Award allocable to such restoration. In
such event, the Minimum Rent shall be permanently reduced as set forth
in Section 11.6.
11.3 Temporary Condemnation. In the event of any temporary
Condemnation of all or any part of the Leased Property or Tenant's
interest under this Lease, this Lease shall continue in full force and
effect and Tenant shall continue to pay, in the manner and on the terms<PAGE>
-37-
herein specified, the full amount of the Rent. To the extent reasonably
practicable, Tenant shall continue to perform and observe all of the
other terms and conditions thereof, on the part of Tenant to be
performed and observed. The entire amount of any Award made for such
temporary Taking or Condemnation allocable to the Term, whether paid by
way of damages, rent or otherwise, shall be paid to Tenant. Tenant
shall, upon the termination of any such period of temporary
Condemnation, at its sole cost and expense (but only to the extent of
the Award payable to Tenant), restore the Leased Property as nearly as
may be reasonably possible, to the condition that existed immediately
prior to such Condemnation, unless such period of temporary use or
occupancy shall extend beyond the expiration of the Term, in which case
Tenant shall not be required to make such restoration.
11.4 Tenant's Option. In the event of the termination of this
Lease as provided in Section 11.1, Tenant shall have the right,
exercisable by written notice to Landlord given within thirty (30) days
after receipt by Tenant of notice of Condemnation, to elect (a) to
acquire the Leased Property from Landlord for a purchase price equal to
the greater of its Minimum Repurchase Price or the Fair Market Value
Purchase Price of the Leased Property immediately prior to such
Condemnation, in which event, upon the closing of such acquisition,
Tenant shall have the right to receive the entire Award, or (b) to
substitute a new property therefor in accordance with the provisions of
Article 16, in which event Tenant shall receive the entire Award.
Failure of Tenant to give such notice within such 30-day period shall be
deemed a waiver of Tenant's rights pursuant to this Section 11.4. In
the event Landlord shall, by written notice to Tenant given within
thirty (30) days after receipt of Tenant's election notice, reject
Tenant's offer so to purchase or substitute, Tenant shall restore the
Leased Property to substantially the same condition as existed
immediately before such Condemnation in accordance with the applicable
provisions of this Lease and, in such event, Landlord shall, subject to
and in accordance with the applicable provisions of Section 10.4,
contribute to the cost of restoration that part of its Award allocable
to such restoration.
11.5 Allocation of Award. Except as provided in the second
sentence of this Section 11.5, the total Award shall be solely the
property of and payable to Landlord. Any portion of the Award made for
the taking of Tenant's leasehold interest in the Leased Property,
Capital Additions paid for or financed by Tenant, loss of business at
the Leased Property during the remainder of the Term, the taking of
Tenant's Personal Property, or Tenant's removal and relocation expenses
shall be the sole property of and payable to Tenant. In any
Condemnation proceedings, Landlord and Tenant shall each seek its own
Award in conformity herewith, at its own expense.
11.6 Abatement Procedures. In the event of a partial Condemnation
as described in Section 11.2, this Lease shall not terminate, but the
Minimum Rent shall be abated and Base Net Patient Revenues shall be
reduced in the manner and to the extent that is fair, just and equitable
to both Tenant and Landlord, taking into consideration, among other
relevant factors, the number of usable beds, the amount of square
footage, or the revenues affected by such partial or temporary taking or<PAGE>
-38-
damage or destruction. If Landlord and Tenant are unable to agree upon
the amount of such abatement within thirty (30) days after such
Condemnation or damage, the matter may be submitted by either party to a
court of competent jurisdiction for resolution or, if the parties so
agree, the matter may be submitted by the parties for resolution by
arbitration in accordance with the rules of the American Arbitration
Association.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this
Lease:
(a) Should Tenant fail to make any payment of the Rent or any
other sum payable hereunder when due and such failure shall
continue for ten (10) days after written notice thereof;
(b) Should Tenant fail to observe or perform any other term,
covenant or condition of this Lease and such failure shall continue
for thirty (30) days after written notice thereof; provided,
however, if such failure cannot with due diligence be cured within
such thirty (30) day period, an Event of Default shall not be
deemed to have occurred for such additional period (not to exceed
120 days in the aggregate) required to cure the same so long as
Tenant commences sure cure within such thirty (30) day period and
thereafter diligently prosecutes such cure to completion;
(c) Should Tenant: (i) admit in writing its inability, or be
unable, to pay its debts generally as they become due; (ii) file a
petition in bankruptcy or a petition to take advantage of any
insolvency law; (iii) make a general assignment for the benefit of
its creditors; (iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or
(v) file a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof;
(d) Should Tenant be adjudicated a bankrupt or have an order
for relief thereunder entered against it or a court of competent
jurisdiction shall enter an order or decree appointing a receiver
of Tenant or of the whole or substantially all of its property, or
approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be
vacated or set aside within sixty (60) days from the date of entry
thereof;
(e) Should Tenant be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution, or, in any<PAGE>
-39-
manner, permit the sale or divestiture of substantially all of its
assets;
(f) Should the estate or interest of Tenant in the Leased
Property or any part thereof shall be levied upon or attached in
any proceeding and the same shall not be vacated or discharged
within thirty (30) days after commencement thereof (unless Tenant
shall be contesting such lien or attachment in accordance with
Article 8);
(g) Except as a result of damage, destruction, strikes, lock-
outs or a partial or complete Condemnation, should Tenant
voluntarily cease operations on the Leased Property for a period in
excess of thirty (30) days; or
(h) Should any representation or warranty of Tenant contained
in this Lease or any certificate or document delivered in
connection herewith be untrue when made or at any time during the
Term in any material respect which materially and adversely affects
Landlord, and the same shall not be cured within ninety (90) days
after written notice thereof.
Upon the occurrence of any Event of Default, Landlord and the agents and
servants of Landlord lawfully may, in addition to and not in derogation
of any remedies for any preceding breach of covenant, immediately or at
any time thereafter, without demand or notice and with or without
process of law (forcibly, if necessary), enter into and upon the Leased
Property or any part thereof in the name of the whole or mail a notice
of termination addressed to Tenant, and repossess the same and expel
Tenant and those claiming through or under Tenant and remove its and
their effects (forcibly, if necessary), without being deemed guilty of
any manner of trespass and without prejudice to any remedies which might
otherwise be used for arrears of rent or prior breach of covenant, and,
upon such entry or mailing as aforesaid, this Lease shall terminate,
Tenant hereby waiving all statutory rights to the Leased Property
(including, without limitation, rights of redemption, if any, to the
extent such rights may be lawfully waived) and Landlord, without notice
to Tenant, may store Tenant's effects, and those of any person claiming
through or under Tenant, at Tenant's sole expense and risk, and, if
Landlord so elects, may sell such effects at public auction or private
sale and apply the net proceeds to the payment of all sums due to
Landlord from Tenant, if any, and pay over the balance, if any, to
Tenant.
Upon the occurrence of an Event of Default, Landlord may, in
addition to any other remedies provided herein, enter upon the Leased
Property and take possession of any and all of Tenant's Personal
Property and the Records (subject to any prohibitions or limitations to
disclosure of any such data as described in Section 3.1.2(d)) on the
Leased Property, without liability for trespass or conversion (Tenant
hereby waiving any right to notice or hearing prior to such taking of
possession by Landlord) and sell the same at public or private sale,
after giving Tenant reasonable notice of the time and place of any
public or private sale, at which sale Landlord or its assigns may
purchase all or any portion of such Personal Property unless otherwise<PAGE>
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prohibited by law. Unless otherwise provided by law, and without
intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice
is given in the manner prescribed in this Lease at least ten (10) days
before the day of sale. The proceeds from any such disposition, less
all expenses incurred in connection with the taking of possession,
holding and selling of such property (including, reasonable attorneys'
fees) shall be deducted from the proceeds of such sale. Any surplus
shall be paid to Tenant or as otherwise required by law and Tenant shall
pay any deficiency to Landlord, as Additional Rent, upon demand.
12.2 Remedies. In the event of any termination pursuant to Section
12.1, Tenant shall pay the Rent and other charges payable hereunder up
to the time of such termination and, thereafter, Tenant, until the end
of what would have been the Term of this Lease in the absence of such
termination, and whether or not the Leased Property, or any portion
thereof, shall have been re-let, shall be liable to Landlord for, and
shall pay to Landlord, as current damages, the Rent and other charges
which would be payable hereunder for the remainder of the Term had such
termination not occurred, less the net proceeds, if any, of any
reletting of the Leased Property, after deducting all expenses in
connection with such re-letting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorneys'
fees, advertising, expenses of employees, alteration costs and expenses
of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days on which the Minimum Rent would
have been payable hereunder if this Lease had not been terminated.
Percentage Rent for the purposes of this Section 12.2 shall be deemed to
be a sum equal to the amount of the Percentage Rent (determined on an
annualized basis) payable for the Fiscal Year immediately preceding the
Fiscal Year in which the termination, re-entry or repossession takes
place. If, however, such termination, re-entry or repossession occurs
during the first full Fiscal Year after the Base Year, the Percentage
Rent shall be an amount reasonably determined by Landlord.
At any time after such termination, whether or not Landlord shall
have collected any such current damages, as liquidated final damages and
in lieu of all such current damages beyond the date of such demand, at
Landlord's election, Tenant shall pay to Landlord either (a) an amount
equal to the excess, if any, of the Rent and other charges which would
be payable hereunder from the date of such demand (assuming that, for
the purposes of this paragraph, annual payments by Tenant on account of
Impositions would be the same as payments required for the immediately
preceding twelve calendar months, or if less than twelve calendar months
have expired since the Commencement Date, the payments required for such
lesser period projected to an annual amount and Percentage Rent shall be
determined in the manner set forth above) for what would be the then
unexpired term of this Lease if the same remained in effect, over the
Fair Market Rental for the same period, or (b) an amount equal to the
lesser of (i) the Rent and other charges that would have been payable
for the balance of the Term had it not been terminated, or (ii) the
aggregate of the Minimum Rent, Percentage Rent and other charges accrued
in the twelve (12) months ended next prior to such termination (without
reduction for any free rent or other concession or abatement). In the
event this Lease is so terminated prior the expiration of the first full<PAGE>
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year of the Term, the liquidated damages which Landlord may elect to
recover pursuant to clause (b) (ii) of this paragraph shall be
calculated as if such termination had occurred on the first anniversary
of the Commencement Date. Nothing contained in this Lease shall,
however, limit or prejudice the right of Landlord to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater than, equal to, or less than the
amount of the loss or damages referred to above.
In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (a)
relet the Leased Property or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms which may at
Landlord's option, be equal to, less than or exceed the period which
would otherwise have constituted the balance of the Term and may grant
concessions or free rent to the extent that Landlord considers advisable
and necessary to relet the same, and (b) may make such reasonable
alterations, repairs and decorations in the Leased Property as Landlord,
in its sole judgment, considers advisable and necessary for the purpose
of reletting the Leased Property; and the making of such alterations,
repairs and decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to relet the Leased
Property, or any portion thereof, or, in the event that the Leased
Property is relet, for failure to collect the rent under such reletting.
To the fullest extent permitted by law, Tenant hereby expressly waives
any and all rights of redemption granted under any present or future
laws in the event of Tenant being evicted or dispossessed, or in the
event of Landlord obtaining possession of the Leased Property, by reason
of the violation by Tenant of any of the covenants and conditions of
this Lease.
12.3 Waiver. If this Lease is terminated pursuant to Section 12.1
or 12.2, Tenant waives, to the extent permitted by law, (a) any right to
a trial by jury in the event of summary proceedings to enforce the
remedies set forth in this Article 12, and (b) the benefit of any laws
now or hereafter in force exempting property from liability for rent or
for debt.
12.4 Application of Funds. Any payments received by Landlord
under any of the provisions of this Lease during the existence or
continuance of any Event of Default (and any payment made to Landlord
rather than Tenant due to the existence of an Event of Default) shall be
applied to Tenant's obligations in such order as Landlord may determine
or as may be prescribed by the laws of the State.
12.5 Failure to Conduct Business. For the purpose of determining
rental loss damages or Percentage Rent, in the event Tenant shall fail
to conduct its business at the Leased Property for its Primary Intended
Use, exact damages or the amount of Percentage Rent being
unascertainable, the Percentage Rent for such period shall be deemed to
by an amount reasonably determined by Landlord.<PAGE>
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12.6 Landlord's Right to Cure Tenant's Default. If an Event of
Default shall have occurred and be continuing, Landlord, after written
notice to Tenant (provided that no such notice shall be required if
Landlord shall reasonably determine immediate action is necessary to
protect person or property), without waiving or releasing any obligation
of Tenant, and without waiving or releasing any Event of Default, may
(but shall not be obligated to), at any time thereafter, make such
payment or perform such act for the account and at the expense of
Tenant, and may, to the extent permitted by law, enter upon the Leased
Property, or any portion thereof, for such purpose and take all such
action thereon as, in Landlord's opinion, may be necessary or
appropriate therefor, including, the management of the Facility by
Landlord or its designee, and Tenant hereby irrevocably appoints, in the
event of such election by Landlord, Landlord or its designee as manager
of the Facility and its attorney in fact for such purpose, irrevocably
and coupled with an interest, in the name, place and stead of Tenant.
All costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by Landlord in connection therewith, together
with interest thereon (to the extent permitted by law) at the Overdue
Rate from the date such sums are paid by Landlord until repaid, shall be
paid by Tenant to Landlord, on demand.
12.7 Trade Names. If this Lease is terminated for any reason,
Landlord shall, upon the request of Tenant, cause the name of the
business conducted upon the Leased Property to be changed to a name
other than a Facility Trade Name or any approximation or abbreviation
thereof and sufficiently dissimilar to such name as to be unlikely to
cause confusion with such name; provided, however, that Tenant shall not
thereafter use a Facility Trade Name in the same market in which the
Facility is located in connection with any business that competes with
the Facility.
ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration of the Term shall
be treated as a daily tenancy at sufferance at a rate equal to two (2)
times the Minimum Rent and Percentage Rent then in effect plus
Additional Rent and other charges herein provided (prorated on a daily
basis). Tenant shall also pay to Landlord all damages, direct and/or
consequential (foreseeable and unforeseeable), sustained by reason of
any such holding over. Otherwise, such holding over shall be on the
terms and conditions set forth in this Lease, to the extent applicable.
ARTICLE 14
LANDLORD'S DEFAULT
If Landlord shall default in the performance or observance of any
of its covenants or obligations set forth in this Lease and such default
shall continue for a period of thirty (30) days after written notice<PAGE>
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thereof, or such additional period as may be reasonably required to
correct the same (except if such default shall constitute an immediate
threat to life or property, five (5) Business Days) Tenant may declare
the occurrence of a "Landlord Default" by a second notice to Landlord.
Thereafter, Tenant may forthwith cure the same and, subject to the
provisions of the following paragraph, invoice Landlord for costs and
expenses (including reasonable attorneys' fees and court costs) incurred
by Tenant in curing the same, together with interest from the date
Landlord receives Tenant's invoice, at a rate equal to the Base Rate.
Tenant shall have no right to terminate this Lease for any default by
Landlord hereunder and no right, for any such default, to offset or
counterclaim against any rent or other charges due hereunder.<PAGE>
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If Landlord shall in good faith dispute the occurrence of any
Landlord Default and Landlord, before the expiration of the applicable
cure period, shall give written notice thereof to Tenant, setting forth,
in reasonable detail, the basis therefor, no Landlord Default shall be
deemed to have occurred and Landlord shall have no obligation with
respect thereto until final adverse determination thereof. If Tenant
and Landlord shall fail, in good faith, to resolve the dispute within
five (5) days after Landlord's notice of dispute, either may submit the
matter to arbitration for resolution in accordance with the commercial
arbitration rules of the American Arbitration Association. Such
arbitration shall be final and binding on Landlord and Tenant and
judgment thereon may be entered into any court of competent
jurisdiction. Within five (5) days after submission to arbitration,
Landlord and Tenant shall submit all information required for such
arbitration and shall take all other actions required for such
arbitration to proceed and the arbitrators shall be instructed to render
a determination as soon as possible and in any event not later than
thirty (30) days after submission.
ARTICLE 15
PURCHASE OF PREMISES
In the event Tenant shall purchase the Leased Property from
Landlord pursuant to any of the terms of this Lease, Landlord shall,
upon receipt from Tenant of the applicable purchase price, together with
full payment of any unpaid Rent and other charges due and payable with
respect to any period ending on or before the date of the purchase,
deliver to Tenant a title insurance policy, together with an appropriate
deed or other instruments, conveying the entire interest of Landlord in
and to the Leased Property to Tenant, free and clear of all encumbrances
other than (a) those Tenant has agreed hereunder to pay or discharge,
(b) those liens, if any, which Tenant has agreed in writing to accept
and take title subject to, (c) the Permitted Encumbrances, and (d) any
other encumbrances permitted to be imposed on the Leased Property (x)
pursuant to the terms of this Lease or (y) otherwise permitted to be
imposed under the provisions of Section 21.1 which are assumable at no
cost to Tenant or to which Tenant may take subject without cost to
Tenant. The difference between the applicable purchase price and the
total of the encumbrances assumed or taken subject to shall be paid in
cash to Landlord or as Landlord may direct, in federal or other
immediately available funds. The closing of any such sale shall be
contingent upon and subject to Tenant's obtaining all required
governmental consents and approvals for such transfer and if such sale
shall fail to be consummated by reason of the inability of Tenant to
obtain all such approvals and consents, any options to extend the Term
of this Lease which otherwise would have expired during the escrow
period of such proposed sale shall be deemed to remain in effect for 30
days after termination thereof. All expenses of such conveyance,
including, without limitation, the cost of title examination or standard
coverage title insurance, usually paid by a purchaser of real property
in the State shall be paid by Tenant; all expenses of such conveyance
usually paid by a seller of real property in the State shall be paid by
Landlord.<PAGE>
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ARTICLE 16
SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY
16.1 Tenant's Substitution Option. Provided (a) in the good faith
judgment of Tenant, the Leased Property shall become Unsuitable for its
Primary Intended Use, (b) no Default or Event of Default shall have
occurred and be continuing, and (c) not less than one (1) year shall
remain in the Term, Tenant shall have the right, subject to the
conditions set forth in this Article 16, upon not less than thirty (30)
days prior written notice to Landlord, to substitute one or more
properties (collectively, the "Substitute Properties" or individually,
"Substitute Property") on the date specified in such notice (the
"Substitution Date"); provided, however, that if Tenant is required by
court order or administrative action to divest or otherwise dispose of
the Leased Property in less than thirty (30) days and Tenant shall have
given Landlord prior written notice of the filing of such court or
administrative action and kept Landlord reasonably apprised of the
status thereof, the time period shall be shortened appropriately to meet
the reasonable needs of Tenant, but in no event less than ten (10)
Business Days after the receipt by Landlord of such notice. Such notice
shall include (a) an Officer's Certificate, setting forth in reasonable
detail the reason(s) for the substitution and the proposed Substitution
Date, and (b) designate not less than two properties (or groups of
properties), each of which properties (or groups of properties) shall
provide Landlord with a yield (i.e., annual return on its equity in such
property) substantially equivalent to Landlord's yield from the Leased
Property at the time of such proposed substitution (or in the case of
substitution because of damage or destruction, the yield immediately
prior to such damage or destruction) and as reasonably projected over
the remaining Term of this Lease.
16.2 Landlord's Substitution Option. If Tenant shall have
voluntarily or involuntarily discontinued use of the Leased Property for
its business operations for a period in excess of one year, Landlord
shall have the right, exercisable by thirty (30) days prior written
notice to Tenant, to require Tenant to substitute a Substitute Property
for the Leased Property, (in which event, Tenant shall comply with the
applicable provisions of Section 16.1 within thirty (30) days
thereafter).
16.3 Substitution Procedures. (a) If either Landlord or Tenant
shall initiate a substitution pursuant to Section 16.1 or 16.2, Landlord
shall have a period of thirty (30) days within which to review the
designated properties and such additional information and either accept
or reject the Substitute Properties so presented, unless Tenant is
required by a court order or administrative action to divest or
otherwise dispose of the Leased Property within a shorter time period,
in which case the time period shall be shortened appropriately to meet
the reasonable needs of Tenant, but in no event shall such period be
less than five (5) Business Days after Landlord's actual receipt of
Tenant's notice (subject to further extension for any period of time in
which Landlord is not timely provided with the information provided for<PAGE>
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in this Section 16.3 and Section 16.4 below). Landlord and Tenant shall
use good faith efforts to agree on a Substitute Property.
(b) In the event that, on or before the expiration of the
applicable time period for Landlord's review, Landlord has rejected
both of the Substitute Properties so presented, Tenant shall, for a
period of sixty (60) days after the expiration of such period, have
the right to terminate this Lease, by the giving of written notice
thereof to Landlord, accompanied by an offer to purchase the Leased
Property on the date set forth in such notice, but in no event less
than ninety (90) days thereafter, for a purchase price equal to the
greater of the then Fair Market Value Purchase Price or the Minimum
Repurchase Price, and, subject to the provisions of Article 15,
this Lease shall terminate on such purchase date.
(c) Landlord shall not unreasonably withhold its consent to
an offer by Tenant to substitute a property as set forth in this
Article provided (i) Landlord shall determine the Substitute
Property shall provide Landlord with a yield substantially
equivalent to Landlord's yield from the Leased Property immediately
before such substitution or such damage or destruction, as the case
may be, and as projected over the remainder of the Term, and (ii)
the delivery of an opinion of counsel for Landlord confirming that
(w) the substitution of the Substitute Property for the Leased
Property will qualify as an exchange solely of property of a
like-kind under Section 1031 of the Code, in which, generally,
except for "boot", no gain or loss will be recognized by Landlord,
(x) the substitution will not result in ordinary recapture income
to Landlord pursuant to Section 1250(d)(4) of the Code or any other
provision of the Code, (y) the substitution will result in income,
if any, to Landlord of a type described in Section 856(c)(2) or (3)
of the Code and will not result in income of the types described in
Section 856(c)(4) of the Code or result in the tax imposed under
Section 857(b)(6) of the Code, and (z) the substitution, together
with all other substitutions made or requested by Tenant or an
Affiliated Person pursuant to the Other Leases or other transfers
of all or any portion of the Leased Property or properties leased
under the Other Leases, during the relevant time period, will not
jeopardize the qualification of Landlord as a real estate
investment trust under Sections 856-860 of the Code.
(d) In the event that the then Fair Market Value of the
Substitute Property or group of Substitute Properties minus the
encumbrances assumed by Landlord, or as to which Landlord will take
the Substitute Property or group of Substitute Properties subject,
as of the Substitution Date is greater than the then Fair Market
Value of the Leased Property minus the encumbrances assumed by
Tenant, or as to which the Tenant will take the Leased Property
subject, as of the Substitution Date (or in the case of damage or
destruction, the Fair Market Value immediately prior to such damage
or destruction), Landlord shall pay to Tenant an amount equal to
the difference, subject to the limitation set forth below; in the
event that such value of the Substitute Property or group of
Substitute Properties is less than such value of the Leased
Property, Tenant shall pay to Landlord an amount equal to the<PAGE>
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difference, subject to the limitation set forth below; provided,
however, neither Landlord nor Tenant shall be obligated to
consummate such substitution if such party would be required to
make a payment (the "Cash Adjustment") to the other in excess of an
amount equal to five percent (5%) of the Fair Market Value of the
Leased Property.
(e) The Rent for such Substitute Property shall, in all
respects, provide Landlord with a yield (i.e., annual return on its
equity in such property) substantially equivalent to Landlord's
yield from the Leased Property at the time of such substitution (or
in the case of substitution because of damage or destruction the
yield immediately prior to such damage or destruction) and as
reasonably projected over the remaining Term, taking into account
the Cash Adjustment paid or received by Landlord and any other
relevant factors, as reasonably determined by Landlord.
(f) The Minimum Repurchase Price of the Substitute Property
shall be an amount equal to the Minimum Repurchase Price of the
Leased Property (i) increased by any Cash Adjustment paid by
Landlord pursuant to Paragraph (d) above, or (ii) decreased by any
Cash Adjustment paid by Tenant pursuant to paragraph (d) above.
16.4 Conditions to Substitution. On the Substitution Date, the
Substitute Property shall become the Leased Property hereunder, upon
delivery by Tenant to Landlord of the following:
(a) An Officer's Certificate certifying that (i) the
Substitute Property has been accepted by Tenant for all purposes of
this Lease and there has been no material damage to the
improvements located thereon, nor is any Condemnation pending or
threatened with respect thereto; (ii) all appropriate permits,
licenses and certificates (including, but not limited to, a
permanent, unconditional certificate of occupancy and all
certificates of need, licenses and provider agreements) which are
necessary to permit the use of the Substitute Property in
accordance with the provisions of this Lease have been obtained and
are in full force and effect; (iii) under applicable zoning and use
laws, ordinances, rules and regulations, the Substitute Property
may be used for the purposes contemplated by this Lease and all
necessary subdivision approvals, if any, have been obtained; (iv)
there are no mechanics' or materialmen's liens outstanding or
threatened to the knowledge of Tenant against the Substitute
Property arising out of or in connection with the construction of
the improvements thereon, other than those being contested by
Tenant pursuant to Article 8; (v) to the best knowledge of Tenant,
there exists no Default or Event of Default, and no defense, offset
or claim with respect to any sums payable by Tenant hereunder; and
(vi) any exceptions to Landlord's title to the Substitute Property
do not materially interfere with the intended use of the Substitute
Property by Tenant;
(b) A deed with full warranties or assignment of a leasehold
estate with full warranties (as applicable) conveying to Landlord<PAGE>
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title to the Substitute Property free and clear of any liens or
encumbrances, except those approved by Landlord;
(c) an amendment duly executed, acknowledged and delivered by
Tenant, in form and substance satisfactory to Landlord, amending
this Lease to correct the legal description of the Land and make
such other changes herein as may be necessary or appropriate under
the circumstances;
(d) counterparts of a standard owner's or lessee's (as
applicable) policy of title insurance covering the Substitute
Property (or a valid, binding, unconditional commitment therefor),
dated as of the Substitution Date, in current form and including
mechanics' and materialmen's lien coverage, issued to Landlord by a
title insurance company and in the form reasonably satisfactory to
Landlord, which policy shall (i) insure (x) Landlord's fee title or
leasehold estate to the Substitute Property, subject to no liens or
encumbrances except those approved by Landlord and (y) that any
restrictions affecting the Substitute Property have not been
violated; (ii) be in an amount at least equal to the Fair Market
Value of the Substitute Property; and (iii) contain such
affirmative coverage endorsements as Landlord shall reasonably
request;
(e) certificates of insurance with respect to the Substitute
Property fulfilling the requirements of Article 9;
(f) current appraisals or other evidence satisfactory to
Landlord, in its sole discretion, as to the then current Fair
Market Values and the projected residual values of such Substitute
Property and the Leased Property as to which such substitution is
being made;
(g) all available revenue data relating to the Substitute
Property for the period from the date of opening for business of
the Facility on such Substitute Property to the date of Tenant's
most recent Fiscal Year end, or for the most recent three (3)
years, whichever is less; and
(h) such other certificates, documents, opinions of counsel
and other instruments as may be reasonably required by Landlord.
16.5 Conveyance to Tenant. On the Substitution Date, Landlord
shall convey the Leased Property to Tenant in accordance with the
provisions of Article 15 (except as to payment of any expenses in
connection therewith which shall be governed by Section 16.6) upon
either (a) payment in cash therefor or (b) conveyance to Landlord of the
Substitute Property, as appropriate.
16.6 Expenses. Tenant shall pay or cause to be paid, on demand,
all reasonable costs and expenses paid or incurred by Landlord in
connection with the substitution and conveyance of the Leased Property
and Substitute Property, including, but not limited to, (a) reasonable
fees and expenses of counsel, (b) all printing expenses, (c) the amount
of filing, registration and recording taxes and fees, (d) the cost of<PAGE>
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preparing and recording, if appropriate, a release of the Leased
Property from the lien of any mortgage, (e) brokers' fees and
commissions, (f) documentary stamp and transfer taxes, (g) title
insurance charges and premiums, and (h) escrow fees.
ARTICLE 17
SUBLETTING AND ASSIGNMENT
17.1 Subletting and Assignment. Except as hereinafter provided,
Tenant shall not assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer this Lease or sublease (which term shall be deemed to
include the granting of concessions and licenses and the like) all or
any part of the Leased Property or suffer or permit this Lease or the
leasehold estate hereby created or any other rights arising under this
Lease to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or
by operation of law, or permit the use or occupancy of the Leased
Property by anyone other than Tenant, or the Leased Property to be
offered or advertised for assignment or subletting except as hereinafter
provided. For purposes of this Section 17.1, an assignment of this
Lease shall be deemed to include any transaction pursuant to which
Tenant is merged or consolidated with another entity or pursuant to
which all or substantially all of Tenant's assets are transferred to any
other entity, as if such or transaction were an assignment of this
Lease.
If this Lease is assigned or if the Leased Property or any part
thereof are sublet (or occupied by anybody other than Tenant and its
employees) Landlord, after default by Tenant hereunder, may collect the
rents from such assignee, subtenant or occupant, as the case may be, and
apply the net amount collected to the Rent herein reserved, but no such
collection shall be deemed a waiver of the provisions set forth in the
first paragraph of this Section 17.1, the acceptance by Landlord of such
assignee, subtenant or occupant, as the case may be, as a tenant, or a
release of Tenant from the future performance by Tenant of its
covenants, agreements or obligations contained in this Lease.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting
or assignment in a particular instance shall be deemed to be a waiver of
the obligation to obtain the Landlord's written approval in the case of
any other subletting or assignment. No assignment, subletting or
occupancy shall affect the Primary Intended Use. Any subletting,
assignment or other transfer of Tenant's interest in this Lease in
contravention of this Section 17.1 shall be voidable at Landlord's
option.
If the rent and other sums (including, without limitation, the
reasonable value of any services performed by any assignee or subtenant
in consideration of such assignment or sublease) either initially or
over the term of any assignment or sublease, payable by such assignee or
subtenant on account of an assignment or sublease exceed the Rent called
for hereunder with respect to the space assigned or sublet, Tenant shall<PAGE>
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pay to Landlord as Additional Rent one hundred percent (100%) of such
excess net of the costs and expenses incurred by Tenant in procuring
such sublease payable monthly at the time for payment Minimum Rent.
17.2 Required Sublease Provisions. Any sublease of all or any
portion of the Leased Property shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or
shall be subject or subordinate, and that in the event of termination of
this Lease or reentry or dispossession of Tenant by Landlord under this
Lease, Landlord may, at its option, take over all of the right, title
and interest of Tenant, as sublessor under such sublease, and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to
the then executory provisions of such sublease, except that neither
Landlord nor any Facility Mortgagee, as holder of a mortgage or as
Landlord under this Lease, if such mortgagee succeeds to that position,
shall (a) be liable for any act or omission of Tenant under such
sublease, (b) be subject to any credit, counterclaim, offset or defense
which theretofore accrued to such subtenant against Tenant, (c) be bound
by any previous modification of such sublease or by any previous
prepayment of more than one (1) month's rent, (d) be bound by any
covenant of Tenant to undertake or complete any construction of the
Leased Property or any portion thereof, (e) be required to account for
any security deposit of the subtenant other than any security deposit
actually delivered to Landlord by Tenant, (f) be bound by any obligation
to make any payment to such subtenant or grant any credits, except for
services, repairs, maintenance and restoration provided for under the
sublease to be performed after the date of such attornment, (g) be
responsible for any monies owing by Tenant to the credit of such
Subtenant, or (h) be required to remove any person occupying the Leased
Property or any part thereof; and such sublease shall provide that the
subtenant thereunder shall, at the request of Landlord, execute a
suitable instrument in confirmation of such agreement to attorn. The
provisions of this paragraph shall not be deemed a waiver of the
provisions set forth in the first paragraph of Section 17.1.
17.3 Sublease Limitation. Anything contained in this Lease to the
contrary notwithstanding, Tenant shall not sublet the Leased Property on
any basis such that the rental to be paid by the sublessee thereunder
would be based, in whole or in part, on either (a) the income or profits
derived by the business activities of the sublessee, or (b) any other
formula such that any portion of the sublease rental would fail to
qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
17.4 Assignment and Subletting Procedure. Anything contained in
this Lease to the contrary notwithstanding, if Tenant wishes to enter
into a sublease with respect to any portion of the Leased Property or an
assignment of this Lease, Tenant shall give Landlord notice of such
intent, which notice ("Tenant's Notice") shall state, in the event of a
proposed sublease, the location and amount of area intended to be
covered by such sublease and the term of the proposed sublease, the
proposed effective date of such sublease or assignment, and the identity
of such proposed subtenant or assignee and such other information with
respect thereto as Landlord may reasonably require. Landlord shall not
unreasonably withhold its consent to any proposed assignment or sublease<PAGE>
-51-
provided Tenant shall deliver to Landlord a written instrument, in form
and substance reasonably satisfactory to Landlord, pursuant to which
such assignee agrees directly with Landlord to be bound by all the terms
of this Lease and to be jointly and severally liable with Tenant for all
of Tenant's obligations under this Lease.
ARTICLE 18
CERTIFICATES AND FINANCIAL STATEMENTS
18.1 Estoppel Certificates. At any time and from time to time,
upon not less than twenty (20) days prior written notice by Landlord,
Tenant shall furnish to Landlord an Officer's Certificate certifying
that this Lease is unmodified and in full force and effect (or that this
Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, that, to the
best of Tenant's knowledge and belief after making due inquiry, Tenant
is not in default in the performance or observance of any of the terms
of this Lease and that no event exists which with the giving of notice,
lapse of time, or both, would constitute a default hereunder, or if
Tenant shall be in default or any such event shall exist, specifying in
reasonable detail all such defaults or events, and the steps being taken
to remedy the same, and such additional information as Landlord may
reasonably request. Any such certificate furnished pursuant to this
section may be relied upon by Landlord and any prospective purchaser or
mortgagee of the Leased Property.
18.2 Financial Statements. Tenant shall furnish the following
statements to Landlord:
(a) Within forty-five (45) days after each of the first three
quarters of each Fiscal Year, the most recent Consolidated
Financials of Tenant, together with an Officer's Certificate
certifying to the accuracy of such Consolidated Financials;
(b) Within one hundred twenty (120) days after the end of
each Fiscal Year, the most recent Consolidated Financials of Tenant
for such year, certified by an independent certified public
accountant satisfactory to Landlord;
(c) Promptly after the sending or filing thereof, copies of
all reports which Tenant sends to its security holders generally,
and copies of all periodic reports which Tenant files with the SEC
or any stock exchange on which its shares are listed or traded;
(d) Promptly after the delivery thereof to Tenant, or its
management, a copy of any management letter or written report
prepared by Tenant's certified public accountants with respect to
the financial condition, operations, business or prospects of
Tenant;
(e) At any time and from time to time upon not less than
twenty (20) days notice from Landlord, any Consolidated Financials
or any other financial reporting information required to be filed<PAGE>
-52-
by Landlord with any securities and exchange commission, the SEC or
any successor agency, or any other governmental authority, or
required pursuant to any order issued by any court governmental
authority or arbitrator in any litigation to which Landlord is a
party, for purposes of compliance therewith; and
(f) With reasonable promptness, such other information as to
the financial condition and affairs of Tenant as Landlord may
reasonably request.
18.3 General Operations. Tenant covenants and agrees to furnish
to Landlord:
18.3.1 Reimbursement, Licensure etc. Within thirty (30) days
after receipt or modification thereof, copies of
(a) All licenses authorizing Tenant to operate the
Facility for its Primary Intended Use;
(b) All Medicare and Medicaid certifications, together
with provider agreements and all material correspondence
relating thereto with respect to the Facility (excluding,
however, correspondence which may be subject to any
attorney-client privilege);
(c) A Nursing Home Administrator License for the
individuals employed in such capacity with respect to the
Facility;
(d) All reports of surveys, statements of deficiencies,
plans of correction, and all material correspondence relating
thereto, including, without limitation, all reports and
material correspondence concerning compliance with or
enforcement of licensure, Medicare/Medicaid, and accreditation
requirements, including physical environment and Life Safety
Code survey reports (excluding, however, correspondence which
may be subject to any attorney-client privilege); and
(e) With reasonable promptness, such other confirmation
as to the Licensure and Medicare and Medicaid participation
of Tenant as Landlord may reasonably request from time to
time.
18.3.2 Monthly Reports. Tenant shall prepare and furnish to
Landlord for the Leased Property, within thirty (30) days after the end
of each calendar month during the term of this Agreement, a monthly
report, such report to include a balance sheet, a current month and year
to date income statement, showing each item of actual and projected
income and expense, prepared on an accrual basis and a current month and
year to date cash flow statement, reflecting the operating results of
the Facility; a statement of Net Patient Revenues for such month; and
such additional information as the Company may from time to time
reasonably require. <PAGE>
-53-
ARTICLE 19
LANDLORD ACCESS
19.1 Landlord's Right to Inspect. Tenant shall permit Landlord and
its authorized representatives to inspect the Leased Property during
usual business hours, and to do and make such repairs as Landlord is
permitted or required to make pursuant to the terms of this Lease,
subject to any security, health, safety or patient or business
confidentiality requirements of Tenant or any governmental agency or
Insurance Requirement relating to the Leased Property or imposed by law.
19.2 Landlord's Option to Purchase the Tenant's Personal Property;
Transfer of Licenses. Effective on not less than ninety (90) days'
prior notice given at any time within one hundred eighty (180) days
after the expiration of the Term (or such shorter period as shall be
appropriate if this Lease is terminated prior to its expiration date),
Landlord shall have the option to purchase all (but not less than all)
of Tenant's Personal Property (except motor vehicles), if any, at the
expiration or termination of this Lease, for an amount equal to the then
net market value thereof (current replacement cost as determined by
appraisal less accumulated depreciation on Tenant's books pertaining
thereto), subject to, and with appropriate price adjustments for, all
equipment leases, conditional sale contracts, UCC-1 financing statements
and other encumbrances to which such Personal Property is subject;
provided, however, Landlord shall not have the right to purchase any
Facility Trade Name or logo.
ARTICLE 20
APPRAISAL
20.1 Appraisal Procedure. In the event that it becomes necessary
to determine the Fair Market Value, Fair Market Value Purchase Price or
Fair Market Rental of the Leased Property or a Substitute Property for
any purpose of this Lease, the party required or permitted to give
notice of such required determination (the "Initiating Party") shall
include in such notice the name of a designated Qualified Appraiser
(hereinafter defined) on its behalf. Within 10 days after notice, the
party receiving such notice (the "Responding Party") shall, by written
notice to the other, appoint a second Qualified Appraiser. If the
Responding Party shall fail, neglect or refuse within said ten-day
period to designate another appraiser willing so to act, the appraiser
designated by the Initiating Party shall designate the second Qualified
Appraiser within ten (10) days thereafter. The two appraisers so
designated shall meet within ten (10) days after the second appraiser is
designated, and, if within ten (10) days after the second appraiser is
designated, the two appraisers do not agree upon the Fair Market Value,
Fair Market Value Purchase Price or Fair Market Rental, as the case may
be, of the applicable property as of the relevant date, the two
appraisers shall designate a third Qualified Appraiser, within ten (10)
days thereafter. In the event that the two appraisers are unable to
agree upon the appointment of a third Qualified Appraiser within such
ten (10) day period, either Landlord or Tenant, on behalf of both, may<PAGE>
-54-
then request appointment of such appraiser the then president of the
American Arbitration Association. In the event of a failure, refusal or
inability of any appraiser to act, a new appraiser shall be appointed in
his stead, which appointment shall be made in the same manner as
hereinabove provided for the appointment of such appraiser so failing,
refusing or being unable to act. In the event that all appraisers
cannot agree upon such value ten (10) days as aforesaid, each appraiser
shall submit his appraisal of such value to the other two appraisers in
writing, and such value shall be determined by calculating the average
of the two numerically closest (or, if the values are equidistant, all
three) values determined by the three appraisers.
The costs, other than counsel fees, of such appraisal shall be
borne equally by the parties. Upon determining such value, the
appraisers shall promptly notify Landlord and Tenant in writing of such
determination. If any party shall fail to appear at the hearings
appointed by the appraisers, the appraisers may act in the absence of
such party.
The determination of the board of appraisers (or the single
additional Qualified Appraiser, as appropriate) made in accordance with
the foregoing provisions shall be final and binding upon the parties,
such determination may be entered as an award in arbitration in a court
of competent jurisdiction, and judgment thereon may be entered.
ARTICLE 21
MORTGAGES
21.1 Landlord May Grant Liens. Without the consent of Tenant,
Landlord may, subject to the terms and conditions set forth in this
Section 21.1, from time to time, directly or indirectly, create or
otherwise cause to exist any lien, encumbrance or title retention
agreement ("Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing. Any such Encumbrance, other than one
the proceeds of which are used to finance construction of a Capital
Addition pursuant to the provisions of Sections 6.1 and 6.3, shall
include the right to prepay (whether or not subject to a prepayment
penalty) and shall provide (subject to Section 21.2) that it is subject
to the rights of Tenant under this Lease.
21.2 Subordination of Lease. Subject to Section 21.1 and the last
paragraph of this Section 21.2, this Lease, and all rights of Tenant
hereunder, are and shall be subject and subordinate to any ground or
master lease, and all renewals, extensions, modifications and
replacements thereof, and to all mortgages and deeds of trust, which may
now or hereafter affect the Leased Property or any improvements thereon
and/or any of such leases, whether or not such mortgages or deeds of
trust shall also cover other lands and/or buildings and/or leases, to
each and every advance made or hereafter to be made under such mortgages
and deeds of trust, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and deeds of trust and all
consolidations of such mortgages and deeds of trust. This section shall<PAGE>
-55-
be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall promptly
execute, acknowledge and deliver any instrument that Landlord, the
lessor under any such lease or the holder of any such mortgage or the
trustee or beneficiary of any deed of trust or any of their respective
successors in interest may reasonably request to evidence such
subordination. Any lease to which this Lease is, at the time referred
to, subject and subordinate is herein called "Superior Lease" and the
lessor of a Superior Lease or its successor in interest at the time
referred to, is herein called "Superior Landlord" and any mortgage or
deed of trust to which this Lease is, at the time referred to, subject
and subordinate, is herein called "Superior Mortgage" and the holder,
trustee or beneficiary of a Superior Mortgage is herein called "Superior
Mortgagee".
If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed, or otherwise,
then at the request of such party so succeeding to Landlord's rights
(herein called "Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to
and recognize such Successor Landlord as Tenant's landlord under this
Lease and shall promptly execute and deliver any instrument that such
Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment, this Lease shall continue in full force and effect
as a direct lease between the Successor Landlord and Tenant upon all of
the terms, conditions and covenants as are set forth in this Lease,
except that the Successor Landlord (unless formerly the landlord under
this Lease or its nominee or designee) shall not be (a) liable in any
way to Tenant for any act or omission, neglect or default on the part of
Landlord under this Lease, (b) responsible for any monies owing by or on
deposit with Landlord to the credit of Tenant, (c) subject to any
counterclaim or setoff which theretofore accrued to Tenant against
Landlord, (d) bound by any modification of this Lease subsequent to such
Superior Lease or Mortgage, or by any previous prepayment of Minimum
Rent or Percentage Rent for more than one (1) month, which was not
approved in writing by the Superior Landlord or the Superior Mortgagee
thereto, (e) liable to the Tenant beyond the Successor Landlord's
interest in the Leased Property and the rents, income, receipts,
revenues, issues and profits issuing from the Leased Property, (f)
responsible for the performance of any work to be done by the Landlord
under this Lease to render the Leased Property ready for occupancy by
Tenant, or (g) required to remove any person occupying the Leased
Property or any part thereof, except if such person claims by, through
or under the Successor Landlord. Tenant agrees at any time and from
time to time to execute a suitable instrument in confirmation of
Tenant's agreement to attorn, as aforesaid.
Tenant's obligation to subordinate this Lease and Tenant's rights
hereunder to any Superior Mortgage or Superior Lease shall be
conditioned upon Landlord obtaining from any Superior Mortgagee or
Superior Landlord, an agreement which shall be executed by Tenant and
such Superior Mortgagee or Superior Landlord which shall provide in
substance that so long as no Event of Default exists as would entitle<PAGE>
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Landlord or any such Superior Mortgagee or Superior Landlord to
terminate this Lease or would cause, without any further action of
Landlord or such Superior Mortgagee or Superior Landlord, the
termination of this Lease or would entitle Landlord or such Superior
Mortgagee or Superior Landlord to dispossess Tenant, this Lease shall
not be terminated, nor shall Tenant's use, possession or enjoyment of
the Leased Property, in accordance with the terms and provisions of this
Lease, be interfered with, nor shall the leasehold estate granted by
this Lease be affected in any other manner, in any foreclosure or any
action or proceeding instituted under or in connection with such
Superior Mortgage or Superior Lease, or in the event such Superior
Mortgagee or Superior Landlord takes possession of the Leased Property
pursuant to any provisions of such Superior Mortgage or Superior Lease,
unless Landlord or such Superior Mortgagee or Superior Landlord would
have had such right of termination pursuant to this Lease. Such
agreement shall be in form customarily used by the holder of any such
Superior Mortgage or Superior Lease.
21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the
receipt by Tenant of notice from any person, firm or other entity that
it is a Facility Mortgagee, or that it is the ground lessor under a
lease with Landlord, as ground lessee, which includes the Leased
Property as part of the demised premises, no notice from Tenant to
Landlord shall be effective unless and until a copy of the same is given
to such Facility Mortgagee or ground lessor and the curing of any of
Landlord's defaults by such Facility Mortgagee or ground lessor shall be
treated as performance by Landlord.
ARTICLE 22
INVESTMENT TAX CREDIT
22.1 Investment Tax Credit. Landlord agrees to elect, in
accordance with Section 48(d) of the Code, to treat Tenant as having
purchased all such eligible property in the Leased Property as may be
designated by Tenant in order that Tenant may obtain the benefit of the
credit, if any, allowed or allowable with respect thereto under Section
38 of the Code. Landlord makes no representation or warranty with
respect to the availability of the credit to Tenant or the efficacy of
such election. Landlord's sole responsibility in this regard shall be
to execute such documents as are reasonably required to effect the
election, which documents Tenant shall prepare, at Tenant's sole cost
and expense, and to provide Tenant with such information as may be
reasonably requested by Tenant in connection therewith. In addition,
Landlord agrees it and its assignees will not claim the credit provided
by Section 38 of the Code for any property included in the Leased
Property.<PAGE>
-57-
ARTICLE 23
ADDITIONAL COVENANTS OF TENANT
23.1 Notice of Change of Name, Administrator, Etc. Tenant shall
give prompt notice to Landlord of any change in (a) the name (operating
or otherwise) of Tenant or the Facility, (b) the individual licensed as
administrator of the Facility, (1) the number of beds in any bed
category for which the Facility is licensed or the number of beds in any
bed category available for use at the Facility (except for changes in
the number of certified distinct part beds made for reimbursement
maximization purposes), and (d) the patient and/or child care services
that are offered at the Facility.
23.2 Notice of Litigation, Potential Event of Default, Etc.
Tenant shall give prompt notice to Landlord of any litigation or any
administrative proceeding to which it may hereafter become a party which
involves a potential liability equal to or greater than $250,000, or
which may otherwise result in any material adverse change in the
business, operations, property, prospects, results of operation or
condition, financial or other, of Tenant. Forthwith upon Tenant
obtaining knowledge of any Default or Event of Default, or any event or
condition that would be required to be disclosed in a current report
filed by Tenant on Form 8-K or in Part II of a quarterly report on Form
10-Q if Tenant were required to file such reports under the Securities
Exchange Act of 1934, as amended, Tenant shall give Landlord notice
thereof, which notice shall set forth in reasonable detail the nature
and period of existence thereof and what action Tenant has taken or is
taking or proposes to take with respect thereto.
23.3 Management of Leased Property. Tenant shall not enter into
any management or similar agreement in respect of the Leased Property
without the express prior written consent of Landlord.
23.4 Distributions, Payments to Affiliated Persons, Etc. Tenant
will not declare, order, pay or make, directly or indirectly, any
distribution or any payment to any Affiliated Person as to Tenant
(including payments in the ordinary course of business and payment
pursuant to management agreements with any such Affiliated Person) or
set apart any sum or property therefor, or agree to do so, if, at the
time of such proposed action, or immediately after giving effect
thereto, any event or condition shall exist which constitutes a Default
or an Event of Default.
ARTICLE 24
MISCELLANEOUS
24.1 No Waiver. No failure by Landlord or Tenant to insist upon
the strict performance of any term hereof or to exercise any right,
power or remedy consequent upon a breach thereof, and no acceptance of
full or partial payment of rent during the continuance of any such<PAGE>
-58-
breach, shall constitute a waiver of any such breach or of any such
term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.
24.2 Remedies Cumulative. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord, now
or hereafter provided either in this Lease or by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every
other right, power and remedy and the exercise or beginning of the
exercise by Landlord or Tenant of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise
by Landlord or Tenant of any or all of such other rights, powers and
remedies.
24.3 Acceptance of Surrender. No surrender to Landlord of this
Lease or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in
writing by Landlord and no act by Landlord or any representative or
agent of Landlord, other than such a written acceptance by Landlord,
shall constitute an acceptance of any such surrender.
24.4 No Merger of Title. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the
same person, firm, corporation or other entity may acquire, own or hold,
directly or indirectly (a) this Lease or the leasehold estate created
hereby or any interest in this Lease or such leasehold estate and (b)
the fee estate or ground landlord's interest in the Leased Property.
24.5 Conveyance by Landlord. If Landlord or any successor owner of
the Leased Property shall convey the Leased Property in accordance with
the terms hereof other than as security for a debt, and the grantee or
transferee of the Leased Property shall expressly assume all obligations
of Landlord hereunder arising or accruing from and after the date of
such conveyance or transfer and shall be reasonably capable of
performing the obligations of Landlord hereunder, Landlord or such
successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of Landlord under this Lease
arising or accruing from and after the date of such conveyance or other
transfer as to the Leased Property and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
24.6 Quiet Enjoyment. So long as Tenant shall pay the Rent as the
same becomes due and shall substantially comply with all of the terms of
this Lease and perform its obligations hereunder, Tenant shall peaceably
and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Landlord or anyone claiming
by, through or under Landlord, but subject to all liens and encumbrances
of record as of the date hereof or hereafter consented to by Tenant.
Except as otherwise provided in this Lease, no failure by Landlord to
comply with the foregoing covenant shall give Tenant any right to cancel
or terminate this Lease or abate, reduce or make a deduction from or
offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Tenant hereunder.
Notwithstanding the foregoing, Tenant shall have the right, by separate<PAGE>
-59-
and independent action to pursue any claim it may have against Landlord
as a result of a breach by Landlord of the covenant of quiet enjoyment
contained in this Section.
24.7 Landlord's Liability. THE DECLARATION OF TRUST ESTABLISHING
LANDLORD, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL
AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND,
PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST"
REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES,
BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION. Tenant, its successors and assigns,
shall not assert nor seek to enforce any claim for breach of this Lease
against any of Landlord's assets other than Landlord's interest in the
Leased Property and in the rents, issues and profits thereof, and Tenant
agrees to look solely to such interest for the satisfaction of any
liability or claim against Landlord under this Lease, it being
specifically agreed that in no event whatsoever shall Landlord (which
term shall include, without limitation, any general or limited partner,
trustees, beneficiaries, officers, directors, or stockholders of
Landlord) ever be personally liable for any such liability. In no event
shall Landlord ever be liable to Tenant for any indirect or
consequential damages.
24.8 Landlord's Consent. Where provisions are made in this Lease
for Landlord's consent and Landlord shall fail or refuse to give such
consent, Tenant shall not be entitled to any damages for any withholding
by Landlord of its consent, it being intended that Tenant's sole remedy
shall be an action for specific performance or injunction, and that such
remedy shall be available only in those cases where Landlord has
expressly agreed in writing not to unreasonably withhold its consent.
24.9 Memorandum of Lease. Neither Landlord nor Tenant shall
record this Lease. However, Landlord and Tenant shall promptly, upon
the request of either, enter into a short form memorandum of this Lease,
in form suitable for recording under the laws of the State in which
reference to this Lease, and all options contained herein, shall be
made. Tenant shall pay all costs and expenses of recording such
memorandum of this Lease.
24.10 Notices. (a) Any and all notices, demands, consents,
approvals, offers, elections and other communications required or
permitted under this Lease shall be deemed adequately given if in
writing and the same shall be delivered either in hand, by telecopier
with written acknowledgment of receipt, or by mail or Federal Express or
similar expedited commercial carrier, addressed to the recipient of the
notice, postpaid and registered or certified with return receipt
requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).<PAGE>
-60-
(b) All notices required or permitted to be sent hereunder
shall be deemed to have been given for all purposes of this Lease
upon the date of acknowledged receipt, in the case of a notice by
telecopier, and, in all other cases, upon the date of receipt or
refusal, except that whenever under this Lease a notice is either
received on a day which is not a Business Day or is required to be
delivered on or before a specific day which is not a Business Day,
the day of receipt or required delivery shall automatically be
extended to the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
Health and Rehabilitation Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. David J. Hegarty
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
if to Tenant to:
Connecticut Subacute Corporation II
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. Mark Finklestein
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
(d) By notice given as herein provided, the parties hereto
and their respective successor and assigns shall have the right
from time to time and at any time during the term of this Agreement
to change their respective addresses effective upon receipt by the
other parties of such notice and each shall have the right to
specify as its address any other address within the United States
of America.
24.11 Construction. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination of this Lease shall<PAGE>
-61-
survive such termination. If any term or provision of this Lease or any
application thereof shall be invalid or unenforceable, the remainder of
this Lease and any other application of such term or provisions shall
not be affected thereby. If any late charges or any interest rate
provided for in any provision of this Lease are based upon a rate in
excess of the maximum rate permitted by applicable law, the parties
agree that such charges shall be fixed at the maximum permissible rate.
Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by
the party to be charged. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. The headings in this Lease are
for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Lease represents the entire agreement
among the parties and amends and restates the Original Leases in their
entirety. This Lease may not be amended or modified in any respect
except by the written agreement of Landlord and Tenant.
24.12 Governing Law. This Lease shall be interpreted, construed,
applied and enforced in accordance with the laws of the State applicable
to contracts between residents of the State which are to be performed
entirely within the State, regardless of (i) where this Lease is
executed or delivered; or (ii) where any payment or other performance
required by this Lease is made or required to be made; or (iii) where
any breach of any provision of this Lease occurs, or any cause of action
otherwise accrues; or (iv) where any action or other proceeding is
instituted or pending; or (v) the nationality, citizenship, domicile,
principle place of business, or jurisdiction of organization or
domestication of any party; or (vi) whether the laws of the forum
jurisdiction otherwise would apply the laws of a jurisdiction other than
the State; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the
provisions of this Lease may be brought and prosecuted in such court or
courts located in the State as is provided by law; and the parties
consent to the jurisdiction of said court or courts located in the State
and to service of process by registered mail, return receipt requested,
or by any other manner provided by law.
IN WITNESS WHEREOF, the parties have executed this Lease, as a
sealed instrument, as of the date first above written.
LANDLORD:
HEALTH AND REHABILITATION PROPERTIES TRUST
By: John G. Murray
Its: Treasurer
TENANT:<PAGE>
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CONNECTICUT SUBACUTE CORPORATION II
By: Barry M. Portnoy
Its: Secretary<PAGE>
EXHIBIT A
Other Leases
[See attached copy.]<PAGE>
EXHIBIT B
Permitted Encumbrances
[See attached copy.]<PAGE>
EXHIBIT C
The Land
[See attached copy.]<PAGE>
EXHIBIT D
Minimum Rent
[See attached copy.]<PAGE>
LEASE AGREEMENT
DATED AS OF FEBRUARY 11, 1994,
BY AND BETWEEN
HEALTH AND REHABILITATION PROPERTIES TRUST,
AS LANDLORD,
AND
CONNECTICUT SUBACUTE CORPORATION II, AS TENANT.<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . 1
1.1 Added Value Percentage . . . . . . . . . . . . . 1
1.2 Additional Rent . . . . . . . . . . . . . . . . 1
1.3 Affiliated Person . . . . . . . . . . . . . . . 1
1.4 Assumed Indebtedness . . . . . . . . . . . . . . 2
1.5 Award . . . . . . . . . . . . . . . . . . . . . 2
1.6 Base Net Patient Revenues . . . . . . . . . . . 2
1.7 Base Rate . . . . . . . . . . . . . . . . . . . 2
1.8 Base Year . . . . . . . . . . . . . . . . . . . 2
1.9 Business Day . . . . . . . . . . . . . . . . . . 2
1.10 Capital Addition . . . . . . . . . . . . . . . . 2
1.11 Capital Additions Cost . . . . . . . . . . . . . 3
1.12 Capital Expenditure . . . . . . . . . . . . . . 3
1.13 Cash Adjustment . . . . . . . . . . . . . . . . 4
1.14 Claims . . . . . . . . . . . . . . . . . . . . . 4
1.15 Code . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Commencement Date . . . . . . . . . . . . . . . 4
1.17 Condemnation . . . . . . . . . . . . . . . . . . 4
1.18 Condemnor . . . . . . . . . . . . . . . . . . . 4
1.19 Consolidated Financials . . . . . . . . . . . . 4
1.20 Control . . . . . . . . . . . . . . . . . . . . 4
1.21 Date of Taking . . . . . . . . . . . . . . . . . 4
1.22 Default . . . . . . . . . . . . . . . . . . . . 5
1.23 Encumbrance . . . . . . . . . . . . . . . . . . 5
1.24 Entity . . . . . . . . . . . . . . . . . . . . . 5
1.25 Environmental Laws . . . . . . . . . . . . . . . 5
1.26 Environmental Notice . . . . . . . . . . . . . . 5
1.27 Environmental Obligation . . . . . . . . . . . . 5
1.28 Event of Default . . . . . . . . . . . . . . . . 5
1.29 Excess Net Patient Revenues . . . . . . . . . . 5
1.30 Extended Terms . . . . . . . . . . . . . . . . . 5
1.31 Facility . . . . . . . . . . . . . . . . . . . . 5
1.32 Facility Mortgage . . . . . . . . . . . . . . . 5
1.33 Facility Mortgagee . . . . . . . . . . . . . . . 5
1.34 Facility Trade Names . . . . . . . . . . . . . . 5
1.35 Fair Market Added Value . . . . . . . . . . . . 6
1.36 Fair Market Rental . . . . . . . . . . . . . . . 6
1.37 Fair Market Value . . . . . . . . . . . . . . . 6
1.38 Fair Market Value Purchase Price . . . . . . . . 6
1.39 Fiscal Year . . . . . . . . . . . . . . . . . . 6
1.40 Fixed Term . . . . . . . . . . . . . . . . . . . 6
1.41 Fixtures . . . . . . . . . . . . . . . . . . . . 6
1.42 Hazardous Substances . . . . . . . . . . . . . . 6
1.43 Immediate Family . . . . . . . . . . . . . . . . 7
1.44 Impositions . . . . . . . . . . . . . . . . . . 7
1.45 Initiating Party . . . . . . . . . . . . . . . . 7
1.46 Insurance Requirements . . . . . . . . . . . . . 7
1.47 Land . . . . . . . . . . . . . . . . . . . . . . 7
1.48 Landlord . . . . . . . . . . . . . . . . . . . . 8
1.49 Landlord Default. . . . . . . . . . . . . . . . . 8<PAGE>
1.50 Lease . . . . . . . . . . . . . . . . . . . . . 8
1.51 Leased Improvements . . . . . . . . . . . . . . 8
1.52 Leased Personal Property . . . . . . . . . . . . 8
1.53 Leased Property . . . . . . . . . . . . . . . . 8
1.54 Legal Requirements . . . . . . . . . . . . . . . 8
1.55 Lending Institution . . . . . . . . . . . . . . 8
1.56 Minimum Rent . . . . . . . . . . . . . . . . . . 8
1.57 Minimum Repurchase Price . . . . . . . . . . . . 8
1.58 Net Patient Revenues . . . . . . . . . . . . . . 9
1.59 Non-Capital Additions . . . . . . . . . . . . . 10
1.60 Officer's Certificate . . . . . . . . . . . . . 10
1.61 Other Leases . . . . . . . . . . . . . . . . . . 10
1.62 Overdue Rate . . . . . . . . . . . . . . . . . . 10
1.63 Parent . . . . . . . . . . . . . . . . . . . . . 10
1.64 Percentage Rent . . . . . . . . . . . . . . . . 10
1.65 Permitted Encumbrances . . . . . . . . . . . . . 10
1.66 Person . . . . . . . . . . . . . . . . . . . . . 10
1.67 Primary Intended Use . . . . . . . . . . . . . . 10
1.68 Qualified Appraiser . . . . . . . . . . . . . . 11
1.69 Records . . . . . . . . . . . . . . . . . . . . 10
1.70 Rent . . . . . . . . . . . . . . . . . . . . . . 10
1.71 Responding Party . . . . . . . . . . . . . . . . 11
1.72 SEC . . . . . . . . . . . . . . . . . . . . . . 11
1.73 State . . . . . . . . . . . . . . . . . . . . . 11
1.74 Subsidiary . . . . . . . . . . . . . . . . . . . 11
1.75 Substitute Properties . . . . . . . . . . . . . 11
1.76 Substitution Date . . . . . . . . . . . . . . . 11
1.77 Successor Landlord . . . . . . . . . . . . . . . 11
1.78 Superior Lease . . . . . . . . . . . . . . . . . 11
1.79 Superior Landlord . . . . . . . . . . . . . . . 11
1.80 Superior Mortgage . . . . . . . . . . . . . . . 11
1.81 Superior Mortgagee . . . . . . . . . . . . . . . 11
1.82 Tenant . . . . . . . . . . . . . . . . . . . . . 11
1.83 Tenant's Personal Property . . . . . . . . . . . 11
1.84 Term . . . . . . . . . . . . . . . . . . . . . . 11
1.85 Test Rate . . . . . . . . . . . . . . . . . . . 12
1.86 Trustees . . . . . . . . . . . . . . . . . . . . 12
1.87 Unavoidable Delays . . . . . . . . . . . . . . . 12
1.88 Unsuitable for Its Primary Intended Use . . . . 12
ARTICLE 2 PREMISES AND TERM . . . . . . . . . . . . . . 12
2.1 Premises . . . . . . . . . . . . . . . . . . . . 12
2.2 Condition of Premises . . . . . . . . . . . . . 13
2.3 Fixed Term . . . . . . . . . . . . . . . . . . . 14
2.4 Extended Terms . . . . . . . . . . . . . . . . . 14
ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . 15
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . 15
3.1.1 Minimum Rent . . . . . . . . . . . . . . 15
3.1.2 Percentage Rent . . . . . . . . . . . . . 15
3.1.3 Additional Rent . . . . . . . . . . . . . 17
3.2 Late Payment of Rent . . . . . . . . . . . . . . 19
3.3 Net Lease . . . . . . . . . . . . . . . . . . . 19<PAGE>
3.4 No Termination, Abatement, Etc . . . . . . . . . 19
ARTICLE 4 USE OF THE LEASED PROPERTY . . . . . . . . . . 20
4.1 Permitted Use . . . . . . . . . . . . . . . . . 20
4.1.1 Primary Intended Use . . . . . . . . . . 20
4.1.2 Necessary Approvals . . . . . . . . . . . 21
4.1.3 Continuous Operation, Etc . . . . . . . . 21
4.1.4 Lawful Use, Etc . . . . . . . . . . . . . 21
4.2 Compliance with Legal and Insurance
Requirements, Instruments, Etc . . . . . . . . 21
4.3 Compliance with Medicaid and Medicare
Requirements . . . . . . . . . . . . . . . . . 21
4.4 Environmental Matters . . . . . . . . . . . . . 22
ARTICLE 5 MAINTENANCE AND REPAIRS, ETC . . . . . . . . . 23
5.1 Maintenance and Repair . . . . . . . . . . . . . 23
5.1.1 Tenant's Obligations . . . . . . . . . . 23
5.1.2 Landlord's Obligations . . . . . . . . . 23
5.2 Capital Expenditure Cost Sharing . . . . . . . . 23
5.3 Tenant's Personal Property . . . . . . . . . . . 24
5.4 Yield Up . . . . . . . . . . . . . . . . . . . . 24
5.5 Encroachments, Restrictions, Etc . . . . . . . . 25
ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . 25
6.1 Construction of Capital Additions to the Leased
Property . . . . . . . . . . . . . . . . . . . 25
6.2 Capital Additions Financed by Tenant . . . . . . 27
6.3 Information Regarding Capital Additions . . . . 29
6.4 Non-Capital Additions . . . . . . . . . . . . . 30
6.5 Salvage . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . 30
7.1 Liens . . . . . . . . . . . . . . . . . . . . . 30
7.2 Landlord's Lien . . . . . . . . . . . . . . . . 31
7.3 Mechanic's Liens . . . . . . . . . . . . . . . . 32
ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . 32
ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . 33
9.1 General Insurance Requirements . . . . . . . . . 33
9.2 Waiver of Subrogation . . . . . . . . . . . . . 34
9.3 Form Satisfactory, Etc . . . . . . . . . . . . . 35
9.4 No Separate Insurance . . . . . . . . . . . . . 36
9.5 Indemnification of Landlord . . . . . . . . . . 36
9.6 Indemnification of Tenant . . . . . . . . . . . 36
ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . 37<PAGE>
10.1 Insurance Proceeds . . . . . . . . . . . . . . . 37
10.2 Reconstruction in the Event of Damage or
Destruction . . . . . . . . . . . . . . . . . 37
10.2.1 Material Damage or Destruction of Premises 37
10.2.2 Partial Damage or Destruction . . . . . 38
10.3 Insufficient Insurance Proceeds . . . . . . . . 39
10.4 Disbursement of Proceeds . . . . . . . . . . . . 39
10.5 Tenant's Property . . . . . . . . . . . . . . . 40
10.6 Restoration of Tenant's Property . . . . . . . . 40
10.7 No Abatement of Rent . . . . . . . . . . . . . . 40
10.8 Damage Near End of Term . . . . . . . . . . . . 40
ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . 41
11.1 Total Condemnation . . . . . . . . . . . . . . . 41
11.2 Partial Condemnation . . . . . . . . . . . . . . 41
11.3 Temporary Condemnation . . . . . . . . . . . . . 41
11.4 Tenant's Option . . . . . . . . . . . . . . . . 41
11.5 Allocation of Award . . . . . . . . . . . . . . 42
11.6 Abatement Procedures . . . . . . . . . . . . . . 42
ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . 43
12.1 Events of Default. . . . . . . . . . . . . . . . 43
12.2 Remedies . . . . . . . . . . . . . . . . . . . . 45
12.3 Waiver . . . . . . . . . . . . . . . . . . . . . 47
12.4 Application of Funds . . . . . . . . . . . . . . 47
12.5 Failure to Conduct Business . . . . . . . . . . 47
12.6 Landlord's Right to Cure Tenant's Default . . . 47
12.7 Trade Names . . . . . . . . . . . . . . . . . . 47
ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . 48
ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . 48
ARTICLE 15 PURCHASE OF PREMISES . . . . . . . . . . . . 49
ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 50
16.1 Tenant's Substitution Option . . . . . . . . . . 50
16.2 Landlord's Substitution Option . . . . . . . . . 50
16.3 Substitution Procedures . . . . . . . . . . . . 51
16.4 Conditions to Substitution . . . . . . . . . . . 53
16.5 Conveyance to Tenant . . . . . . . . . . . . . . 54
16.6 Expenses . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 17 SUBLETTING AND ASSIGNMENT . . . . . . . . . . 55
17.1 Subletting and Assignment . . . . . . . . . . . 55
17.2 Required Sublease Provisions . . . . . . . . . . 56
17.3 Sublease Limitation . . . . . . . . . . . . . . 56
17.4 Assignment and Subletting Procedure . . . . . . 56
ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS . . . . 57<PAGE>
18.1 Estoppel Certificates . . . . . . . . . . . . . 57
18.2 Financial Statements . . . . . . . . . . . . . . 57
18.3 General Operations . . . . . . . . . . . . . . . 58
18.3.1 Reimbursement, Licensure, Etc. . . . . . 58
18.3.2 Monthly Reports . . . . . . . . . . . . 59
ARTICLE 19 LANDLORD ACCESS . . . . . . . . . . . . . . . 59
19.1 Landlord's Right to Inspect . . . . . . . . . . 59
19.2 Landlord's Option to Purchase the Tenant's
Personal Property; Transfer of Licenses . . . 59
ARTICLE 20 APPRAISAL . . . . . . . . . . . . . . . . . . 60
20.1 Appraisal Procedure . . . . . . . . . . . . . . 60
ARTICLE 21 MORTGAGES . . . . . . . . . . . . . . . . . . 61
21.1 Landlord May Grant Liens . . . . . . . . . . . . 61
21.2 Subordination of Lease . . . . . . . . . . . . . 61
21.3 Notice to Mortgagee and Ground Landlord . . . . 63
ARTICLE 22 INVESTMENT TAX CREDIT . . . . . . . . . . . . 63
22.1 Investment Tax Credit . . . . . . . . . . . . . 63
ARTICLE 23 ADDITIONAL COVENANTS OF TENANT
23.1 Notice of Change of Name, Administrator, Etc. 64
23.2 Notice of Litigation, Potential Event of
Default, Etc. . . . . . . . . . . . . . . . . 64
23.3 Management of Leased Property . . . . . . . . . 64
23.4 Distributions, Payments to Affiliated Persons,
Etc. . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 24 MISCELLANEOUS . . . . . . . . . . . . . . . . 65
24.1 No Waiver . . . . . . . . . . . . . . . . . . . 65
24.2 Remedies Cumulative . . . . . . . . . . . . . . 65
24.3 Acceptance of Surrender . . . . . . . . . . . . 65
24.4 No Merger of Title . . . . . . . . . . . . . . . 65
24.5 Conveyance by Landlord . . . . . . . . . . . . . 65
24.6 Quiet Enjoyment . . . . . . . . . . . . . . . . 66
24.7 Landlord's Liability . . . . . . . . . . . . . . 66
24.8 Landlord's Consent . . . . . . . . . . . . . . . 66
24.9 Memorandum of Lease . . . . . . . . . . . . . . 67
24.10 Notices . . . . . . . . . . . . . . . . . . . . 67
24.11 Construction . . . . . . . . . . . . . . . . . . 68
24.12 Governing Law . . . . . . . . . . . . . . . . . 68
EXHIBITS
A - Other Leases
B - Permitted Encumbrances
C - The Land
D - Minimum Rent<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated as of February 11, 1994, is made by and
between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real
estate investment trust, as landlord ("Landlord"), having its principal
office at 400 Centre Street, Newton, Massachusetts, and CONNECTICUT
SUBACUTE CORPORATION II, a Delaware corporation, as tenant ("Tenant"),
having an office at 400 Centre Street, Newton, Massachusetts 02158.
W I T N E S S E T H :
WHEREAS, Landlord owns the Leased Property (this and other
capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in Article 1) and Landlord wishes to
lease the Leased Property to Tenant and Tenant wishes to lease the
Leased Property from Landlord, subject to and upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt
and legal sufficiency of which are hereby acknowledged, Landlord and
Tenant hereby agree as follows:
ARTICLE 1
DEFINITIONS
Each reference in this Lease to any of the following terms shall be
construed to incorporate the definitions hereinafter set forth and
include the plural as well as the singular. All accounting terms not
otherwise defined herein shall have the meanings assigned to them in
accordance with generally accepted accounting principles.
1.1 "Added Value Percentage" shall have the meaning given such
term in Section 6.2(a).
1.2 "Additional Rent" shall have the meaning given such term in
Section 3.1.3.
1.3 "Affiliated Person" shall mean, with respect to any Person,
(a) in the case of any such Person which is a partnership, any partner
in such partnership; (b) in the case of any such Person which is a
limited liability company, any member of such company; (c) any other
Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent of
the Persons referred to in the preceding clauses (a) and (b); (d) any
other Person otherwise directly or indirectly controlling or under
common control with such Person or one or more of the Persons referred
to in the preceding clauses (a), (b) and (c); and (e) any other Person
who is a member of the Immediate Family of such Person or any Person
referred to in the preceding clauses (a) through (d).<PAGE>
1.4 "Assumed Indebtedness" shall mean any indebtedness or other
obligations existing at the time of acquisition of the Leased Property
by Landlord secured by a mortgage, deed of trust or other security
agreement creating a lien on the Leased Property and assumed by
Landlord, and any indebtedness resulting from the refinancing thereof,
and/or any subsequent indebtedness resulting from Landlord's financing
of, or Landlord's reimbursement of Tenant's financing of, any Capital
Additions during the Term, except any indebtedness or other obligations
of Tenant not assumed by Landlord prior to or during the Term.
1.5 "Award" shall mean all compensation, sums or other value
awarded, paid or received by virtue of a total or partial Condemnation
of the Leased Property (after deduction of all reasonable legal fees and
other reasonable costs and expenses incurred by Landlord in connection
with obtaining any such award).
1.6 "Base Net Patient Revenues" shall mean Net Patient Revenues
for the Base Year.
1.7 "Base Rate" shall mean the rate of interest, determined daily
and expressed as a percentage, announced by Citibank, N.A., in New York,
New York, from time to time, as Citibank, N.A.'s "base rate" or "prime
rate", so-called, or, if at any time Citibank, N.A. ceases to announce
such a rate, as announced by the largest national or state chartered
banking institution other than Citibank, N.A. then having its principal
office in New York, New York and announcing such a rate. If at any time
neither Citibank, N.A. nor any of the five largest other national or
state chartered banking institutions having their principal offices in
New York, New York is announcing such a floating rate, "Base Rate" shall
mean a rate of interest, determined daily, which is two (2) percentage
points above the 14-day moving average closing trading price of 90-day
Treasury Bills.
1.8 "Base Year" shall mean the twelve-month period beginning June
1, 1999 and ending May 31, 2000.
1.9 "Business Day" shall mean any day other than Saturday, Sunday,
or any other day on which banking institutions in The Commonwealth of
Massachusetts or in New York, New York are authorized by law or
executive action to close.
1.10 "Capital Addition" shall mean one or more new buildings, or
one or more additional structures annexed to any portion of any of the
Leased Improvements, or the material expansion of existing improvements,
which are constructed on any parcel or portion of the Land during the
Term, including, but not limited to, the construction of a new wing or
new story, the renovation of existing improvements on the Leased
Property in order to provide a functionally new facility needed to
provide services not previously offered, or any expansion, construction,
renovation or conversion in order to increase the bed capacity of the
Facility, to change the purpose for which such beds are utilized or to
improve the quality of the Facility.
1.11 "Capital Additions Cost" shall mean the cost of any Capital
Addition proposed to be made by Tenant, whether paid for by Tenant or
Landlord. Such cost shall include (a) the cost of construction of the<PAGE>
-3-
Capital Addition, including, site preparation and improvement,
materials, labor, supervision, developer and administrative fees, legal
fees, and related design, engineering and architectural services, the
cost of any fixtures, the cost of construction financing (including, but
not limited to, capitalized interest) and other miscellaneous costs
approved by Landlord, (b) if agreed to by Landlord in writing, in
advance, the cost of any land contiguous to the Leased Property which is
to become a part of the Leased Property purchased for the purpose of
placing thereon the Capital Addition or any portion thereof or for
providing means of access thereto, or parking facilities therefor,
including the cost of surveying the same, (c) the cost of insurance,
real estate taxes, water and sewage charges and other carrying charges
for such Capital Addition during construction, (d) title insurance
charges, (e) reasonable attorneys' fees, (f) filing and registration
fees and recording taxes, (g) documentary stamp or transfer taxes, and
(h) all actual and reasonable costs and expenses of Landlord and any
Lending Institution committed to finance the Capital Addition,
including, but not limited to, (i) reasonable attorneys' fees, (ii)
printing expenses, (iii) filing, registration and recording taxes and
fees, (iv) documentary stamp or transfer taxes, (v) title insurance
charges and appraisal fees, (vi) rating agency fees, and (vii) loan
commitment fees.
1.12 "Capital Expenditure" shall mean any single required
improvement, alteration, replacement or repair of the Leased Property,
or any part thereof, (a) having a cost in excess of One Hundred Thousand
Dollars ($100,000.00) (which amount shall be increased each year of the
Lease by the product determined by multiplying such amount by the
percentage increase in the Consumer Price Index, Urban Wage Earners and
Clerical Workers, All Items, Base 1982-84=100, published by the U.S.
Department of Labor, All Cities, or such comparable index published by
the U.S. Department of Labor or its successor agency), and (b) having a
useful life in excess of the longer of (i) twelve (12) months, or (ii)
the remaining period of the Term, except capital improvements
necessitated by destruction or Condemnation of the Leased Property, or
any portion thereof.
1.13 "Cash Adjustment" shall have the meaning given such term in
Section 16.3(d).
1.14 "Claims" shall have the meaning given such term in Article 8.
1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to
the extent applicable, the Treasury Regulations promulgated thereunder,
each as from time to time amended.
1.16 "Commencement Date" shall mean the date of this Lease.
1.17 "Condemnation" shall mean (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are
pending, and (c) a taking or voluntary conveyance of all or part of the
Leased Property, or any interest therein, or right accruing thereto or
use thereof, as the result or in settlement of any Condemnation or other<PAGE>
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eminent domain proceeding affecting any portion of the Leased Property,
whether or not the same shall have actually been commenced.
1.18 "Condemnor" shall mean any public or quasi-public authority,
or private corporation or individual having the power of Condemnation.
1.19 "Consolidated Financials" shall mean, for any Fiscal Year or
other accounting period of Tenant and its consolidated Subsidiaries,
statements of earnings, retained earnings and changes in financial
position for such period and for the period from the beginning of the
applicable Fiscal Year to the end of such period and the balance sheet
as at the end of such period, together with the notes thereto, all in
reasonable detail, and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding
Fiscal Year, and prepared in accordance with generally accepted
accounting principles, consistently applied.
1.20 "Control" and any variations thereof shall mean, with respect
to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, through the ownership of voting securities, partnership
interests or other equity interests.
1.21 "Date of Taking" shall mean the date the Condemnor has the
right to possession of the Leased Property, or any portion thereof, in
connection with a Condemnation.
1.22 "Default" shall mean any event, act or omission which with the
giving of notice and/or lapse of time could constitute an Event of
Default.
1.23 "Encumbrance" shall have the meaning given such term in
Section 21.1.
1.24 "Entity" shall mean any corporation, general or limited
partnership, limited liability company, stock company or association,
joint venture, association, company, trust, bank, trust company, land
trust, business trust, any government or agency or political subdivision
thereof or any other entity.
1.25 "Environmental Laws" shall mean all applicable Federal, state
or local statutes, laws, ordinances, rules and regulations, licensing
requirements or conditions, whether now existing or hereafter arising,
relating to Hazardous Substances.
1.26 "Environmental Notice" shall have the meaning given such term
in Section 4.4.
1.27 "Environmental Obligation" shall mean any cost, expense, loss
or damage arising under any Environmental Law or in connection with any
Hazardous Substance.
1.28 "Event of Default" shall have the meaning given such term in
Section 12.1.<PAGE>
-5-
1.29 "Excess Net Patient Revenues" shall mean the amount of Net
Patient Revenues for any measuring period in excess of the Base Net
Patient Revenues for the equivalent period of the Base Year.
1.30 "Extended Terms" shall have the meaning given such term in
Section 2.4.
1.31 "Facility" shall mean the licensed nursing home being operated
on the Leased Property.
1.32 "Facility Mortgage" shall mean any mortgage, deed of trust or
other security agreement securing any Assumed Indebtedness or any other
encumbrance placed upon the Leased Property in accordance with Article
21.
1.33 "Facility Mortgagee" shall mean the holder of any Facility
Mortgage.
1.34 "Facility Trade Names" shall mean any of the names under which
Tenant operates, or has operated, the Facility at any time during the
Term.
1.35 "Fair Market Added Value" shall mean the Fair Market Value of
the Leased Property (including all Capital Additions) less the Fair
Market Value of the Leased Property determined as if no Capital
Additions financed by Tenant had been constructed.
1.36 "Fair Market Rental" shall mean the rental which a willing
tenant not compelled to rent would pay a willing landlord not compelled
to lease for the use and occupancy of the Leased Property, or applicable
portion thereof, on the terms and conditions of this Lease, for the term
in question, and determined in accordance with the appraisal procedures
set forth in Article 20 or in such other manner as shall be mutually
acceptable to Landlord and Tenant.
1.37 "Fair Market Value" shall mean the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell
for the Leased Property, (a) assuming the same is unencumbered by this
Lease, (b) determined in accordance with the appraisal procedures set
forth in Article 20 or in such other manner as shall be mutually
acceptable to Landlord and Tenant, (c) assuming such seller shall pay
the closing costs generally paid by a seller of real property in the
state in which such property is located and that such buyer shall pay
closing costs generally paid by a buyer of real property in the state in
which such property is located, and (d) not taking into account any
reduction in value resulting from any indebtedness to which such
property is subject, except the positive or negative effect on the value
of such property attributable to the interest rate, amortization
schedule, maturity date, prepayment penalty and other terms and
conditions of any lien or encumbrance which is not removed at or prior
to the closing of the transaction as to which such Fair Market Value
determination is being made.
1.38 "Fair Market Value Purchase Price" shall mean the Fair Market
Value of the Leased Property less the Fair Market Added Value.<PAGE>
-6-
1.39 "Fiscal Year" shall mean each twelve (12) month period from
June 1 to May 31.
1.40 "Fixed Term" shall have the meaning given such term in Section
2.3.
1.41 "Fixtures" shall have the meaning given such term in Section
2.1(d).
1.42 "Hazardous Substances" shall mean hazardous substances (as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, as now in effect or as hereafter from time to time
amended), hazardous wastes (as defined by the Resource Conservation and
Recovery Act, as now in effect or as hereafter from time to time
amended), any hazardous waste, hazardous substance, pollutant or
contaminant, oils, radioactive materials, asbestos in any form or
condition, or any pollutant or contaminant or hazardous, dangerous or
toxic chemicals, materials or substances within the meaning of any other
applicable Federal, state or local law, regulation, ordinance or
requirements relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or
materials, all as now in effect or hereafter from time to time amended.
1.43 "Immediate Family" shall mean, with respect to any Person,
his spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law,
brothers-in-law, sisters-in-law, nephews and nieces.
1.44 "Impositions" shall mean all taxes, assessments, and ad
valorem, sales, and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same are imposed on either
Landlord or Tenant with respect to the Leased Property and/or the
business conducted thereon by Tenant and other charges and impositions
(including, but not limited to, fire protection service fees and similar
charges) levied, assessed or imposed at any time during the Term by any
governmental authority upon or against the Leased Property, or taxes in
lieu thereof, and additional types of taxes to supplement real estate
taxes due to legal limits imposed thereon. If, at any time during the
Term, any tax or excise on rents or other taxes, however described, are
levied or assessed against Landlord with respect to the rent reserved
hereunder, either wholly or partially in substitution for, or in
addition to, real estate taxes assessed or levied on the Leased
Property, such tax or excise on rents shall be included in Impositions;
provided, however, that Impositions shall not include franchise, estate,
inheritance, succession, capital levy, transfer, income or excess
profits taxes assessed on Landlord. Impositions shall include any
estimated payment, whether voluntary or required, made by Landlord on
account of a fiscal tax period for which the actual and final amount of
taxes for such period has not been determined by the governmental
authority as of the date of any such estimated payment.
1.45 "Initiating Party" shall have the meaning given such term in
Section 20.1.<PAGE>
-7-
1.46 "Insurance Requirements" shall mean all terms of any insurance
policy required by this Lease and all requirements of the issuer of any
such policy.
1.47 "Land" shall have the meaning given such term in Section
2.1(a).
1.48 "Landlord" shall have the meaning given such term in the
preambles to this Lease.
1.49 "Landlord Default" shall have the meaning given such term in
Article 14.
1.50 "Lease" shall mean this Lease Agreement, including Exhibits A
through D hereto, as it and they may be amended from time to time as
herein provided.
1.51 "Leased Improvements" shall have the meaning given such term
in Section 2.1(b).
1.52 "Leased Personal Property" shall have the meaning given such
term in Section 2.1(e).
1.53 "Leased Property" shall have the meaning given such term in
Section 2.1.
1.54 "Legal Requirements" shall mean all federal, state, county,
municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions, including,
but not limited to, Environmental Laws, affecting the Leased Property or
the maintenance, construction, use or alteration thereof, whether now or
hereafter enacted, including those which may (a) require repairs,
modifications or alterations in or to the Leased Property or any portion
thereof or (b) in any way adversely affect the use and enjoyment
thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
Tenant (other than encumbrances hereinafter created by Landlord without
the consent of Tenant), at any time in force affecting the Leased
Property.
1.55 "Lending Institution" shall mean any insurance company,
federally insured commercial or savings bank, national banking
association, savings and loan association, employees' welfare, pension
or retirement fund or system, corporate profit sharing or pension trust,
college or university, or real estate investment trust, including any
corporation qualified to be treated for federal tax purposes as a real
estate investment trust, having a net worth of at least $10,000,000.
1.56 "Minimum Rent" shall mean the amount set forth in Exhibit D.
1.57 "Minimum Repurchase Price" shall mean that portion of the
aggregate purchase price of the Leased Property paid by Landlord in cash
or in kind, plus the aggregate of unpaid principal balance of all
encumbrances against the Leased Property at the time of purchase thereof<PAGE>
-8-
by Tenant, plus any amounts paid by Landlord to reduce the principal
balance of any Assumed Indebtedness, less all proceeds received by
Landlord from any refinancing of the Leased Property (after payment of
the debt refinanced and net of any costs and expenses incurred in
connection with such refinancing, including, without limitation, loan
points, commitment fees and commissions) and less the net amount (after
deduction of all reasonable legal fees and other costs and expenses,
including, without limitation, expert witness fees, incurred by Landlord
in connection with obtaining any such award) of all awards received by
Landlord from any partial Condemnation of the Leased Property or any
portion thereof which are not applied to restoration.
1.58 "Net Patient Revenues" shall mean all revenues received or
receivable from or by reason of the operation of the Facility, or any
portion thereof, or any other use of the Leased Property, or any portion
thereof, including, without limitation, all patient revenues received or
receivable for the use of or otherwise by reason of all rooms, beds and
other facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Leased Property, or any
portion thereof, including, without limitation, and except as provided
below, any other arrangements with third parties relating to the
possession or use of any portion of any portion of the Leased Property;
provided, however, Net Patient Revenues shall not include: (a) revenue
from professional fees or charges by physicians and providers (other
than Tenant or Tenant's employees) of ancillary services, when and to
the extent such charges are paid over to such physicians or providers of
ancillary services, or are separately billed and not included in
comprehensive fees; (b) nonoperating revenues such as interest income or
income from the sale of assets not sold in the ordinary course of
business; (c) contractual allowances (relating to any period during the
Term) for billings not paid by or received from the appropriate
governmental agencies or third party providers; (d) allowances according
to generally accepted accounting principles for uncollectible accounts,
including credit card accounts and charity care or other administrative
discounts; (e) all proper patient billing credits and adjustments
according to generally accepted accounting principles relating to health
care accounting; (f) federal, state or local sales or excise taxes and
any tax based on or measured by such revenues which is added to or made
a part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated separately;
(g) provider discounts for hospital or other medical facility
utilization contracts and credit card discounts; (h) revenues
attributable to Capital Additions financed by Tenant as provided in
Section 6.2; (i) revenues attributable to services actually provided off
the Leased Property, such as home health care; and (j) any amounts
actually paid by Tenant for the cost of any federal, state or local
governmental programs imposed specially to provide or finance indigent
patient care. To the extent the Leased Property or any portion thereof
is subleased by Tenant, Net Patient Revenues shall include (x) the Net
Patient Revenues generated from the operations conducted on such
subleased portion of the Leased Property and (y) the rent received or
receivable by Tenant from or under any such sublease to the extent such
rent is not based on Net Patient Revenues and, therefore, has not
already been included in the calculation of Net Patient Revenues
pursuant to clause (x) preceding.<PAGE>
-9-
1.59 "Non-Capital Additions" shall have the meaning given such term
in Section 6.4.
1.60 "Officer's Certificate" shall mean a certificate signed by the
chief financial officer or another officer of Tenant authorized by the
board of directors or by-laws of Tenant, or any other Person whose power
and authority to act has been so authorized.
1.61 "Other Leases" shall mean the Leases described in Exhibit A,
attached hereto and made a part hereof.
1.62 "Overdue Rate" shall mean a rate equal to the lesser of the
Base Rate plus two percent (2%) and the maximum rate then permitted
under applicable law.
1.63 "Parent" shall mean, with respect to any Person, any Person
which owns directly, or indirectly, through one or more Subsidiaries,
twenty percent (20%) or more of the voting or beneficial interests in
such Person or otherwise Controls such Person.
1.64 "Percentage Rent" shall have the meaning given such term in
Section 3.1.2(a).
1.65 "Permitted Encumbrances" shall mean the matters set forth in
Exhibit B, attached hereto and made a part hereof.
1.66 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns
of such Person where the context so admits.
1.67 "Primary Intended Use" shall have the meaning given such term
in Section 4.1.1.
1.68 "Qualified Appraiser" shall mean any disinterested person who
is a member in good standing of the American Institute of Real Estate
Appraisers or the American Society of Real Estate Counselors (or the
successor to either of such organizations) and who has had not less than
ten (10) years experience in appraising and valuing, commercial
buildings in the State.
1.69 "Records" shall have the meaning given such term in Section
7.2.
1.70 "Rent" shall mean, collectively, the Minimum Rent, Percentage
Rent and Additional Rent.
1.71 "Responding Party" shall have the meaning given such term in
Section 20.1.
1.72 "SEC" shall mean the Securities and Exchange Commission.
1.73 "State" shall mean the State, Commonwealth, Possession or
Territory in which the Leased Property is located.<PAGE>
-10-
1.74 "Subsidiary" shall mean, with respect to any Person, any
Entity in which such Person shall own, directly or indirectly, through
one or more Subsidiaries, twenty percent (20%) or more of the voting or
beneficial interests or any other entity Controlled by such Person.
1.75 "Substitute Properties" shall have the meaning given such term
in Section 16.1.
1.76 "Substitution Date" shall have the meaning given such term in
Section 16.1.
1.77 "Successor Landlord" shall have the meaning given such term in
Section 21.2.
1.78 "Superior Lease" shall have the meaning given such term in
Section 21.2.
1.79 "Superior Landlord" shall have the meaning given such term in
Section 21.2.
1.80 "Superior Mortgage" shall have the meaning given such term in
Section 21.2.
1.81 "Superior Mortgagee" shall have the meaning given such term in
Section 21.2.
1.82 "Tenant" shall have the meaning given such term in the
preambles to this Lease.
1.83 "Tenant's Personal Property" shall mean all motor vehicles and
consumable inventory and supplies, furniture, equipment and machinery
and all other personal property of Tenant located on the Leased Property
or used in Tenant's business on the Leased Property and all
modifications, replacements, alterations and additions to the Leased
Personal Property installed at the expense of Tenant, other than any
items included within the definition of Fixtures or Leased Personal
Property and expressly excluding Tenant's accounts receivable.
1.84 "Term" shall mean, collectively, the Fixed Term and any
Extended Terms, to the extent properly exercised pursuant to the
provisions of Section 2.4, unless sooner terminated pursuant to the
provisions of this Lease.
1.85 "Test Rate" shall mean the minimum interest rate necessary to
avoid imputation of original issue discount income under Sections 483 or
1272 of the Code or any similar provision.
1.86 "Trustees" shall mean the trustees of Landlord.
1.87 "Unavoidable Delays" shall mean delays due to strikes, lock-
outs, inability to procure materials, power failure, acts of God,
governmental restrictions, enemy action, civil commotion, fire,
unavoidable casualty or other causes beyond the reasonable control of
the party responsible for performing an obligation hereunder, but in no
event to exceed sixty (60) days so long as the affected party shall use<PAGE>
-11-
reasonable efforts to alleviate the cause of such delay and thereafter
promptly perform such obligation; provided, however, that (x) in no
event shall Tenant's obligation to pay the Rent be affected by
Unavoidable Delays, and (y) in no event shall lack of funds be deemed a
cause beyond the control of either party.
1.88 "Unsuitable for Its Primary Intended Use" shall mean a state
or condition of the Facility such that by reason of damage or
destruction, or a partial Condemnation, in the good faith judgment of
Landlord and Tenant, reasonably exercised, the Facility cannot be
operated on a commercially practicable basis for its Primary Intended
Use taking into account, among other relevant factors, the number of
usable beds, the amount of square footage, or revenues affected by such
damage or destruction or partial taking.
ARTICLE 2
PREMISES AND TERM
2.1 Premises. Upon and subject to the terms and conditions herein
set forth, Landlord leases to Tenant and Tenant leases from Landlord all
of the following (collectively, the "Leased Property"):
(a) those certain tracts, pieces and parcels of land as more
particularly described in Exhibit C, attached hereto and made a
part hereof (collectively, the "Land");
(b) all buildings, structures, Fixtures and other
improvements of every kind, including, but not limited to,
alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently
situated upon the Land and Capital Additions financed by Landlord
(collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the
Land and the Leased Improvements;
(d) all equipment, machinery, fixtures and other items of
property, now or hereafter permanently affixed to or incorporated
into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air
and water pollution control, waste disposal, air-cooling and air-
conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, all of which, to the greatest extent
permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's
Personal Property (collectively, the "Fixtures");
(e) all machinery, equipment, furniture, furnishings,
moveable walls or partitions, computers or trade fixtures or other<PAGE>
-12-
personal property used or useful in Tenant's business on or in the
Leased Improvements, and located on or in the Leased Improvements
on the Commencement Date, except items, if any, included within the
category of Fixtures, but specifically excluding all items included
within the category of Tenant's Personal Property (collectively the
"Leased Personal Property"); and
(f) all existing leases of space (including any security
deposits held pursuant thereto), if any, in the Leased Improvements
to tenants thereof.
2.2 Condition of Premises. On the Commencement Date, Landlord
shall deliver and Tenant shall accept the Leased Property in "as is"
condition, subject to the rights of parties in possession, the existing
state of title, including all covenants, conditions, restrictions,
easements and other matters of record, all applicable Legal
Requirements, the lien of financing instruments, mortgages and deeds of
trust, and such other matters which would have been disclosed by an
inspection of the Leased Property and the record title thereto or by an
accurate survey thereof. LANDLORD MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART
THEREOF, EITHER AS THE FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, WITH RESPECT TO THE
LEASED PROPERTY OR ANY PORTION THEREOF IT BEING AGREED THAT ALL SUCH
RISKS SHALL BE BORNE BY TENANT. To the extent permitted by law,
however, Landlord grants and assigns to Tenant all of Landlord's rights
to proceed against any predecessor in title for breaches of warranties
or representations or for latent defects in the Leased Property.
Landlord shall cooperate with Tenant in the prosecution of any such
claims, in Landlord's or Tenant's name, all at Tenant's sole cost and
expense. Tenant shall indemnify, and hold harmless Landlord from and
against any loss, cost, damage or liability (including attorneys' fees)
incurred by Landlord in connection with such cooperation.
2.3 Fixed Term. The initial term of this Lease (the "Fixed Term")
shall commence on the date hereof and, unless sooner terminated in
accordance with the terms and conditions of this Lease, shall expire on
December 31, 1998.
2.4 Extended Terms. Provided no Default or Event of Default shall
have occurred and be continuing and Tenant shall simultaneously exercise
its right to extend the term of all of the Other Leases, Tenant shall
have the right to extend the Fixed Term for two additional periods of
ten (10) years each (the "Extended Terms").
Each Extended Term shall commence on the day succeeding the
expiration of the Fixed Term or the preceding Extended Term, as the case
may be, and shall end on the day immediately preceding the tenth
anniversary of the commencement of such Extended Term. All of the
terms, covenants and provisions of this Lease shall apply to each such
Extended Term, except that (a) the Minimum Rent for the second such
Extended Term shall be the greater of (x) the Minimum Rent payable
during the first such Extended Term and (y) the Fair Market Rental for
the Leased Property determined as of the commencement of such Extended<PAGE>
-13-
Term, and (b) Tenant shall have no further right to extend the Term
beyond the Extended Terms hereinabove provided. If Tenant shall elect
to exercise either of the aforesaid options, it shall do so by giving
Landlord written notice thereof not later than one (1) year prior to the
expiration of the then current term of this Lease (Fixed or Extended, as
applicable); it being understood and agreed that time is of the essence
with respect to the giving of such notice. If Tenant shall fail to give
any such notice, this Lease shall automatically terminate at the end of
the term then in effect and Tenant shall have no further option to
extend the term of this Lease. If Tenant shall give such notice, the
extension of this Lease shall be automatically effected, without the
execution of any additional documents. <PAGE>
-14-
ARTICLE 3
RENT
3.1 Rent. Tenant shall pay to Landlord, by check or wire transfer
of immediately available federal funds, as Tenant may elect, without
offset, abatement, demand or deduction, Minimum Rent, Percentage Rent
and Additional Rent, during the Term, as herein provided.
3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal
monthly installments, in advance, on the first day of each and every
calendar month during the Term. Minimum Rent for any partial month
shall be pro-rated on a daily basis.
3.1.2 Percentage Rent.
(a) Amount. Commencing June 1, 2000, for each Fiscal Year
during the Term, Tenant shall pay to Landlord, as additional rent,
percentage rent ("Percentage Rent") in an amount equal to three
percent (3%) of Excess Net Patient Revenues for such Fiscal Year.
Percentage Rent shall be calculated and paid quarterly in arrears
on the basis of cumulative Excess Net Patient Revenues as the last
day of each quarter occurring during the applicable Fiscal Year,
less the Percentage Rent, if any, previously paid to Landlord for
such Fiscal Year.
(b) Payment of Percentage Rent. Tenant shall calculate and
deliver Percentage Rent to Landlord within forty-five (45) days
after the end of each quarter of any Fiscal Year (or, in the case
of the final quarter in any Fiscal Year, ninety (90) days
thereafter), together with an Officer's Certificate, setting forth
the calculation of Percentage Rent for such quarter.
(c) Reconciliation of Additional Rent. Within ninety (90)
days after the end of each Fiscal Year, Tenant shall deliver to
Landlord an Officer's Certificate, together with certified audits
with respect to Net Patient Revenues for the Facility and the
facilities leased under the Other Leases, in form and substance
reasonably satisfactory to Landlord, of Tenant's financial
operations prepared by accountants reasonably satisfactory to
Landlord, setting forth the Net Patient Revenues and Excess Net
Patient Revenues for the immediately preceding Fiscal Year,
together with such additional information with respect thereto as
Landlord may reasonably request.
If the Percentage Rent for any Fiscal Year as shown in the
applicable Officer's Certificate and accompanying financial
statements is less than the amount previously paid with respect
thereto, Landlord shall, at Landlord's option, refund any excess
payment to Tenant or grant Tenant a credit against the next due
payment of Percentage Rent in the amount of such difference. If
the Percentage Rent for any Fiscal Year as shown in the applicable
Officer's Certificate exceeds the amount previously paid with
respect thereto, Tenant shall pay such excess to Landlord at such
time as such Officer's Certificate is delivered.<PAGE>
-15-
Any difference between the Percentage Rent for any Fiscal Year
as shown in such Officer's Certificate and the total amount of
quarterly payments for such Fiscal Year previously paid, whether in
favor of Landlord or Tenant, shall bear interest at the Base Rate,
which interest shall accrue from the close of such Fiscal Year
until the amount of such difference shall be paid or otherwise
discharged.
A final reconciliation of Percentage Rent, taking into account
among other relevant adjustments, any contractual allowances which
are accrued after the expiration or sooner termination of this
Lease, but which related to Net Patient Revenues accrued prior to
such termination, and Tenant's good faith best estimate of the
amount of any unresolved contractual allowances shall be made not
later than two (2) years after such termination and Tenant shall
advise Landlord within sixty (60) days after such termination of
Tenant's best estimate at that time of the approximate amount of
such adjustments, which estimate shall not be binding on Tenant.
(d) Confirmation of Percentage Rent. Tenant shall utilize,
or cause to be utilized, an accounting system for the conduct of
its business at the Leased Property in accordance with its usual
and customary practices and in accordance with generally accepted
accounting principles, consistently applied, which will accurately
record all Net Patient Revenues, and shall employ independent
accountants reasonably acceptable to Landlord, and Tenant shall
retain, for at least four (4) years after the expiration of each
Fiscal Year (and in any event until the final reconciliation
described in subparagraph (c) above for such Fiscal Year has been
made), reasonably adequate records conforming to such accounting
system showing all Net Patient Revenues for such Fiscal Year.
Landlord, at its own expense, except as provided below, shall have
the right, from time to time by its accountants or representatives,
to audit the information set forth in the Officer's Certificate
referred to in subparagraph (b) above and, in connection with such
audit, to examine Tenant's records with respect thereto (including
supporting data and sales and excise tax returns), subject to any
prohibitions or limitations on disclosure of any such data under
applicable law or regulations, including, without limitation, any
duly enacted "Patients' Bill of Rights" or similar legislation and
such other limitations as may be necessary to preserve the
confidentiality of the Facility-patient relationship and the
physician-patient privilege. If any such audit shall disclose a
deficiency in the payment of Percentage Rent and either Tenant
agrees with the result of such audit or the matter is otherwise
determined or compromised, Tenant shall forthwith pay to Landlord
the amount of the deficiency, as finally agreed or determined,
together with interest thereon at the Base Rate. If any such audit
discloses that the Net Patient Revenues actually received by Tenant
for any Fiscal Year exceed those reported by Tenant by more than
three percent (3%), Tenant shall pay the reasonable cost of such
audit. Any proprietary information obtained by Landlord pursuant
to the provisions of this section shall be treated as confidential,
except such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties<PAGE>
-16-
and Landlord may disclose such information to prospective
purchasers or lenders.
3.1.3 Additional Rent. In addition to the Minimum Rent and
Percentage Rent, Tenant shall pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions
which Tenant assumes or agrees to pay under this Lease (collectively,
"Additional Rent"), including, but not limited to the following:
(a) Impositions. Subject to Article 8, Tenant shall pay, or
cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be
made directly to the taxing authorities where feasible, and shall
promptly, upon request, furnish to Landlord copies of official
receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully be
paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Tenant may exercise the option
to pay the same (and any accrued interest on the unpaid balance of
such Imposition) in installments and, in such event, shall pay such
installments during the Term as the same become due and before any
fine, penalty, premium, further interest or cost may be added
thereto. Landlord, at its expense, shall, to the extent required or
permitted by applicable law, prepare and file all tax returns in
respect of Landlord's net income, gross receipts, sales and use,
single business, transaction privilege, rent, ad valorem, franchise
taxes and taxes on its capital stock, and Tenant, at its expense,
shall, to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports in
respect of any Imposition as may be required by governmental
authorities. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Tenant, the same shall be paid
over to or retained by Tenant if no Default or Event of Default
shall have occurred and be continuing. Landlord and Tenant shall,
upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any
property covered by this Lease as personal property, Tenant shall
file all personal property tax returns in such jurisdictions where
it may legally so file. Each party shall, to the extent it
possesses the same, provide the other, upon request, with cost and
depreciation records necessary for filing returns for any property
so classified as personal property. Where Landlord is legally
required to file personal property tax returns, Landlord shall
provide Tenant with copies of assessment notices in sufficient time
for Tenant to file a protest. All Impositions assessed against
such personal property shall be (irrespective of whether Landlord
or Tenant shall file the relevant return) paid by Tenant not later
than thirty (30) days prior to the last date on which the same may
be made without interest or penalty. If the provisions of any
Facility Mortgage requires deposits on account of Impositions to be
made with such Facility Mortgagee, provided the Facility Mortgagee
has not elected to waive such provision, Tenant shall either pay
Landlord the monthly amounts required and Landlord shall transfer<PAGE>
-17-
such amounts to such Facility Mortgagee or, pursuant to written
direction by Landlord, Tenant shall make such deposits directly
with such Facility Mortgagee.
Landlord shall give prompt written notice to Tenant of all
Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge; provided, however, Landlord's failure to give
any such notice shall in no way diminish Tenant's obligation
hereunder to pay such Impositions.
Impositions imposed in respect of the tax-fiscal period during
which the Term commences and/or terminates shall be prorated
between Landlord and Tenant, whether or not such Imposition is
imposed before or after such termination.
(b) Utility Charges. Tenant shall pay or cause to be paid
all charges for electricity, power, gas, oil, water and other
utilities used at the Leased Property during the Term.
(c) Insurance Premiums. Tenant shall pay or cause to be paid
all premiums for the insurance coverage required to be maintained
pursuant to Article 9.
(d) Other Charges. Tenant shall pay or cause to be paid all
other amounts, liabilities and obligations which Tenant assumes or
agrees to pay under this Lease.
3.2 Late Payment of Rent. If any installment of Minimum Rent,
Percentage Rent or Additional Rent (but only as to those items of
Additional Rent which are payable directly to Landlord) shall not be
paid when due, Tenant shall pay Landlord, on demand, as Additional Rent,
a late charge (to the extent permitted by law) computed, during the
first ten (10) days such payment is delinquent at the greater of the
Base Rate and eleven and one-half percent (11.5%) per annum and,
thereafter, at the Overdue Rate, on the amount of such installment, from
the date such installment was due until the date paid. To the extent
that Tenant pays any Additional Rent directly to Landlord pursuant to
any requirement of this Lease, Tenant shall be relieved of its
obligation to pay such Additional Rent to the entity to which they would
otherwise be due.
In the event of any failure by Tenant to pay any Additional Rent
when due, Tenant shall promptly pay and discharge, as Additional Rent,
every fine, penalty, interest and cost which may be added for non-
payment or late payment of such items. Landlord shall have all legal,
equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of non-payment of the
Additional Rent as in the case of non-payment of the Minimum Rent.
3.3 Net Lease. The Rent shall be absolutely net to Landlord, so
that this Lease shall yield to Landlord the full amount of the
installments of Minimum Rent, Percentage Rent and Additional Rent
throughout the Term, subject to any other provisions of this Lease which
expressly provide for adjustment or abatement of Rent or other charges.<PAGE>
-18-
3.4 No Termination, Abatement, Etc. Except as otherwise
specifically provided in this Lease, Tenant, to the maximum extent
permitted by law, shall remain bound by this Lease in accordance with
its terms and shall neither take any action without the consent of
Landlord to modify, surrender or terminate the same, nor seek, nor be
entitled to any abatement, deduction, deferment or reduction of the
Rent, or set-off against the Rent, nor shall the respective obligations
of Landlord and Tenant be otherwise affected by reason of (a) any damage
to, or destruction of, the Leased Property or any portion thereof from
whatever cause or any Condemnation; (b) the lawful or unlawful
prohibition of, or restriction upon Tenant's use of the Leased Property,
or any portion thereof, or the interference with such use by any Person
or by reason of eviction by paramount title; (c) any claim which Tenant
may have against Landlord by reason of any Landlord Default; (d) any
bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting
Landlord or any assignee or transferee of Landlord; or (e) for any other
cause whether similar or dissimilar to any of the foregoing. Tenant
hereby waives all rights arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any
portion thereof or which may entitle Tenant to any abatement, reduction,
suspension or deferment of the Rent or other sums payable or other
obligations to be performed by Tenant hereunder, except as otherwise
specifically provided in this Lease. The obligations of Landlord and
Tenant hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Tenant hereunder
shall continue to be payable in all events unless the obligations to pay
the same shall be terminated pursuant to the express provisions of this
Lease.
ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use.
4.1.1 Primary Intended Use. Tenant shall continuously use or
cause to be used the Leased Property as a nursing home or subacute
facility and/or other facility offering any higher level health care
services and for such other uses as may be necessary or incidental
thereto (the particular use to which the Leased Property is put at any
particular time, its "Primary Intended Use"). Tenant shall not use the
Leased Property or any portion thereof for other than its Primary
Intended Use without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed; provided,
however, that such consent shall not be deemed to be unreasonably
withheld if, in the reasonable opinion of Landlord, the proposed use
will significantly alter the character or purpose or detract from the
value or operating efficiency of the Leased Property or significantly
impair the revenue-producing capability of the Leased Property or
adversely affect the ability of Tenant to comply with this Lease. No
use shall be made or permitted to be made of the Leased Property and no
acts shall be done thereon which will cause the cancellation of any<PAGE>
-19-
insurance policy covering the Leased Property or any part thereof, nor
shall Tenant sell or otherwise provide to residents or patients therein,
or permit to be kept, used or sold in or about the Leased Property, or
any portion thereof, any article which may be prohibited by law or by
the standard form of fire insurance policies, or any other insurance
policies required to be carried hereunder, or fire underwriter's
regulations.
4.1.2 Necessary Approvals. Tenant shall proceed with all due
diligence and exercise best efforts to obtain and maintain all approvals
necessary to use and operate the Leased Property and the Facility for
the Primary Intended Use under applicable local, state and federal law
and, without limiting the generality of the foregoing, shall use its
best efforts to maintain appropriate certifications for reimbursement
licensure.
4.1.3 Continuous Operation, Etc. Tenant shall use its best
efforts to operate continuously the Leased Property as a provider of
health care services in accordance with the Primary Intended Use.
Tenant shall not take, or omit to take, any action, the taking or
omission of which may materially impair the value or the usefulness of
the Leased Property for the Primary Intended Use.
4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or
permit the use of the Leased Property and Tenant's Personal Property for
any unlawful purpose. Tenant shall not commit or suffer to be committed
any waste on the Leased Property or the Facility, nor shall Tenant cause
or permit any nuisance thereon or therein. Tenant shall neither suffer
nor permit the Leased Property or any portion thereof, including any
Capital Addition, whether or not financed by Landlord, or Tenant's
Personal Property, to be used in such a manner as might reasonably tend
to impair Landlord's (or Tenant's, as the case may be) title thereto or
to any portion thereof, or may reasonably make possible any claim for
adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
4.2 Compliance with Legal and Insurance Requirements, Instruments,
Etc. Subject to the provisions of Article 8, Tenant, at its sole
expense, shall promptly (i) comply with all Legal Requirements and
Insurance Requirements in respect of the use, operation, maintenance,
repair, alteration and restoration of the Leased Property and Tenant's
Personal Property, and (ii) procure, maintain and comply with all
appropriate licenses, certificates of need, permits, provider agreements
and other authorizations required for any use of the Leased Property and
Tenant's Personal Property then being made, and for the proper erection,
installation, operation and maintenance of the Leased Property or any
part thereof, including, without limitation, any Capital Additions.
4.3 Compliance with Medicaid and Medicare Requirements. Tenant
shall, at its sole cost and expense, make whatever improvements (capital
or ordinary) as are required to conform the Leased Property to such
standards as may, from time to time, be required by Federal Medicare
(Title 18) or Medicaid (Title 19) skilled and/or intermediate care
nursing programs, if applicable, or any other applicable programs or
legislation, or capital improvements required by any other governmental<PAGE>
-20-
agency having jurisdiction over the Leased Property as a condition of
the continued operation of the Leased Property for the Primary Intended
Use.
4.4 Environmental Matters. Tenant shall not store, spill upon,
dispose of or transfer to or from the Leased Property any Hazardous
Substance, except that Tenant may store, transfer and dispose of
Hazardous Substances in compliance with all Environmental Laws. Tenant
shall maintain the Leased Property at all times free of any Hazardous
Substance (except such Hazardous Substances as are maintained in
compliance with all Environmental Laws). Tenant shall promptly: (a)
notify Landlord in writing of any change in the nature or extent of such
Hazardous Substances maintained, (b) transmit to Landlord a copy of any
report which is required to be filed with respect to the Leased Property
pursuant to any Environmental Law, (c) transmit to Landlord copies of
any citations, orders, notices or other governmental communications
received by Tenant or its agents or representatives with respect thereto
(collectively, "Environmental Notice"), (d) observe and comply with any
and all Environmental Laws relating to the use, maintenance and disposal
of Hazardous Substances and all orders or directives from any official,
court or agency of competent jurisdiction relating to the use or
maintenance or requiring the removal, treatment, containment or other
disposition thereof, and (e) pay or otherwise dispose of any fine,
charge or Imposition related thereto, unless Tenant shall contest the
same in accordance with Article 8.
If at any time prior to the termination of this Lease, Hazardous
Substances are discovered on the Leased Property, Tenant hereby agrees
to take all actions, and to incur any and all expenses, as may be
reasonably necessary and as may be required by any municipal, State or
Federal agency or other governmental entity or agency having
jurisdiction thereof, (a) to clean up and remove from and about the
Leased Property all Hazardous Substances thereon, (b) to contain and
prevent any further release or threat of release of Hazardous Substances
on or about the Leased Property and (c) to eliminate any further release
or threat of release of Hazardous Substances on or about the Leased
Property.
Tenant shall indemnify and hold harmless Landlord and each Facility
Mortgagee from and against all liabilities, obligations, claims,
damages, penalties, costs and expenses (including, without limitation,
reasonable attorney's fees and expenses) imposed upon, incurred by or
asserted against any of them by reason of any failure by Tenant or any
Person claiming under Tenant to perform or comply with any of the terms
of this Section 4.4.<PAGE>
-21-
ARTICLE 5
MAINTENANCE AND REPAIRS, ETC.
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations. Tenant shall, at its sole cost
and expense, keep the Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto (and Tenant's Personal Property)
in good order and repair, reasonable wear and tear excepted, (whether or
not the need for such repairs occurs as a result of Tenant's use, any
prior use, the elements or the age of the Leased Property or Tenant's
Personal Property, or any portion thereof), and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind
and nature, whether interior or exterior, structural or nonstructural,
ordinary or extraordinary, foreseen or unforeseen or arising by reason
of a condition existing prior to the commencement of the Term (concealed
or otherwise). All repairs shall be at least equivalent in quality to
the original work.
5.1.2 Landlord's Obligations. Landlord shall not, under any
circumstances, be required to build or rebuild any improvement on the
Leased Property, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Leased
Property, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to
maintain the Leased Property in any way, except as specifically provided
herein. Tenant hereby waives, to the extent permitted by law, the right
to make repairs at the expense of Landlord pursuant to any law in effect
at the time of the execution of this Lease or hereafter enacted.
Landlord shall have the right to give, record and post, as appropriate,
notices of nonresponsibility under any mechanic's lien laws now or
hereafter existing.
5.2 Capital Expenditure Cost Sharing. Replacement of or major
repairs to all structural or mechanical systems shall be undertaken by
Tenant, at its sole cost and expense in the exercise of its reasonable
business judgment, pursuant to and in accordance with plans and
specifications approved in advance by Landlord; provided, however, that
if the useful life of any improvement or repair for which a Capital
Expenditure is made extends beyond the termination of the Term (other
than any early termination resulting from the occurrence of an Event of
Default), provided Tenant shall have obtained Landlord's prior written
consent with respect to the making thereof, the cost of such replacement
or repair shall be apportioned between Landlord and Tenant so that
Landlord shall pay for that portion of the useful life of such item
occurring on or after such termination date. Landlord shall have no
obligation to reimburse Tenant for Landlord's share of the cost of such
replacement or repair until the date of the termination of this Lease.
Notwithstanding the foregoing, Landlord agrees to make any such payment
to Tenant within sixty (60) days after Tenant's written request
therefor.
<PAGE>
-22-
5.3 Tenant's Personal Property. Tenant may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any
parcels of the Land or in any of the Leased Improvements, any items of
Tenant's Personal Property, and Tenant may, subject to the conditions
set forth below, remove the same upon the expiration or sooner
termination of the Term. Tenant shall provide and maintain during the
entire Term all such Tenant's Personal Property as shall be necessary in
order to operate the Facility in compliance with all licensure and
certification requirements, applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the
industry for the Primary Intended Use. All of Tenant's Personal
Property not removed by Tenant on or prior to the expiration or earlier
termination of this Lease shall be considered abandoned by Tenant and
may be appropriated, sold, destroyed or otherwise disposed of by
Landlord without the necessity of first giving notice thereof to Tenant,
without any payment to Tenant and without any obligation to account
therefor. Tenant shall, at its expense, restore the Leased Property to
the condition required by Section 5.4, including repair of all damage to
the Leased Property caused by the removal of Tenant's Personal Property,
whether effected by Tenant or Landlord.
If Tenant uses any item of tangible personal property (other than
motor vehicles) on, or in connection with, the Leased Property which
belongs to anyone other than Tenant, Tenant shall use its best efforts
to require the agreement permitting such use to provide that Landlord or
its designee may assume Tenant's rights under such agreement upon
management of the Facility by Landlord or its designee.
5.4 Yield Up. Upon the expiration or sooner termination of this
Lease, Tenant shall vacate and surrender the Leased Property to Landlord
in the condition in which the Leased Property was on the Commencement
Date, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease, ordinary wear and
tear excepted.
In addition, upon the expiration or earlier termination of this
Lease, Tenant shall, at Landlord's reasonable cost and expense, use its
best efforts to transfer to and cooperate with Landlord or Landlord's
nominee in connection with the processing of all applications for
licenses, operating permits and other governmental authorizations and
all contracts, including, contracts with governmental or quasi-
governmental entities, which may be necessary for the operation of the
Facility. If requested by Landlord, Tenant shall continue to manage the
Facility after the termination of this Lease and for so long thereafter
as is necessary to obtain all necessary licenses, operating permits and
other governmental authorizations, on such reasonable terms (which shall
include an agreement to reimburse Tenant for its reasonable out-of-
pocket costs and expenses and reasonable administrative costs) as
Landlord shall request.
5.5 Encroachments, Restrictions, Etc. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or
other agreement affecting the Leased Property, or any part thereof, or<PAGE>
-23-
shall impair the rights of others under any easement or right-of-way to
which the Leased Property is subject, upon the request of Landlord or of
any person affected by any such encroachment, violation or impairment,
Tenant shall, at its sole cost and expense, subject to its right to
contest the existence of any encroachment, violation or impairment and
in such case, in the event of an adverse final determination, either (a)
obtain, in form and substance satisfactory to Landlord, valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant, or (b), subject to Landlord's
approval (which shall not be unreasonably withheld or delayed), make
such changes in the Leased Improvements and take such other actions, as
Tenant, in the good faith exercise of its judgment, deems reasonably
practicable, to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements and, in any event, take all such actions as may be
necessary in order to ensure the continued operation of the Leased
Improvements for the Primary Intended Use substantially in the manner
and to the extent the Leased Improvements were operated prior to the
assertion of such violation, impairment or encroachment. Any such
alteration shall be made in conformity with the applicable requirements
of this Article 5. Tenant's obligations under this Section 5.5 shall be
in addition to and shall in no way discharge or diminish any obligation
of any insurer under any policy of title or other insurance and Tenant
shall be entitled to a credit for any sums recovered by Landlord under
any such policy of title or other insurance.
ARTICLE 6
CAPITAL ADDITIONS, ETC.
6.1 Construction of Capital Additions to the Leased Property.
Provided no Default or Event of Default shall have occurred and be
continuing, Tenant shall have the right, subject to obtaining Landlord's
prior written consent (which consent shall not be unreasonably withheld
or delayed), upon and subject to the terms and conditions set forth
below, to construct or install Capital Additions on the Leased Property.
Landlord's consent shall not be deemed to be unreasonably withheld if
such Capital Addition will significantly alter the character or purpose
or detract from the value or operating efficiency or the
revenue-producing capability of the Leased Property, or adversely affect
the ability of Tenant to comply with this Lease. Any withholding of
consent shall be express and shall be effected within thirty (30) days
after receipt by Landlord of such documents or information as Landlord
may reasonably require, notice of which requirements shall be sent to
Tenant within thirty (30) days after Tenant's request. Failure to give
notice of the withholding of such consent within such thirty (30) day
period shall be deemed approval. Prior to commencing construction of
any Capital Addition, Tenant shall submit to Landlord, in writing, a
proposal setting forth, in reasonable detail, any proposed Capital
Addition and shall provide Landlord with such plans and specifications,
permits, licenses, contracts and other information concerning the
proposed Capital Addition as Landlord may reasonably request. Without
limiting the generality of the foregoing, such proposal shall indicate<PAGE>
-24-
the approximate projected cost of constructing such Capital Addition,
the use or uses to which it will be put and a good faith estimate of the
change, if any, in the Net Patient Revenues that Tenant anticipates will
result from such Capital Addition. Prior to commencing construction of
any Capital Addition, Tenant shall request in writing that Landlord
provide funds to pay for such Capital Addition. If, within sixty (60)
days after receipt of such request, Landlord shall not elect to provide
such financing on terms reasonably acceptable to Tenant (and, for
purposes of this Section 6.1, the failure of Landlord to respond within
such 60 day period shall be deemed an election not to provide such
funding), the provisions of Section 6.2 shall apply. Landlord's notice
of its election to provide such financing shall set forth the terms and
conditions of such proposed financing, including the terms of any
amendment to this Lease (including, without limitation, an increase in
Minimum Rent to compensate Landlord for the additional funds advanced).
In no event shall the portion of the projected Capital Additions Cost
comprised of land, if any, materials, labor charges and fixtures be less
than eighty percent (80%) of the total amount of such cost. Tenant may
withdraw its request by written notice to Landlord at any time before
Tenant's written acceptance of Landlord's terms and conditions. If
Landlord declines to finance a Capital Addition or if Landlord's
proposed financing terms are unacceptable to Tenant, Tenant may solicit
and negotiate a commitment for such financing from another Person,
provided Landlord shall approve all the terms and conditions of such
financing (which approval shall not be unreasonably withheld or
delayed). If Landlord shall finance the proposed Capital Addition,
Tenant shall pay to Landlord, as Additional Rent, all reasonable costs
and expenses paid or incurred by Landlord and any Lending Institution
which has committed to provide financing for such Capital Addition to
Landlord in connection therewith, including, but not limited to, (a) the
reasonable attorneys' fees and expenses, (b) all printing expenses, (c)
all filing, registration and recording taxes and fees, (d) documentary
stamp taxes, (e) title insurance charges, appraisal fees, and rating
agency fees, and (f) commitment fees.
No Capital Addition shall be made which would tie in or connect any
Leased Improvement or any Leased Property with any other improvements on
property adjacent to such Leased Property (and not part of the Land)
including, without limitation, tie-ins of buildings or other structures
or utilities, unless Tenant shall have obtained the prior written
approval of Landlord, which approval may be withheld by Landlord in
Landlord's sole discretion. Any Capital Additions shall, upon the
expiration or sooner termination of this Lease, become the property of
Landlord, free and clear of all encumbrances, subject to the provisions
of Section 6.2.
6.2 Capital Additions Financed by Tenant. Provided that Tenant
has obtained the prior written consent of Landlord in each instance
(which approval shall not be unreasonably withheld or delayed), Tenant
may arrange for financing for Capital Additions from third party lend-
ers; provided, however that (i) the terms and conditions of any such
financing shall be subject to the prior approval of Landlord and (ii)
any security interests in any property of Tenant, including, without
limitation, the Leased Property, shall be expressly and fully
subordinated to this Lease and to the interest of Landlord in the Leased<PAGE>
-25-
Property and to the rights of any Facility Mortgagee. If, pursuant to
the provisions of this Lease, Tenant provides or arranges financing with
respect to any Capital Addition, this Lease shall be and hereby is
amended to provide as follows:
(a) Upon completion of any such Capital Addition, Net Patient
Revenues attributable to such Capital Addition shall be excluded
from Net Patient Revenues of the Leased Property for purposes of
calculating Percentage Rent. The Net Patient Revenues attributable
to any such Capital Addition shall be deemed to be an amount (the
"Added Value Percentage") which bears the same proportion to the
total Net Patient Revenues from the entire Leased Property
(including all Capital Additions) as the Fair Market Added Value of
such Capital Addition bears to the Fair Market Value of the entire
Leased Property (including all Capital Additions) immediately after
completion of such Capital Addition. The Added Value Percentage
for Capital Additions financed by Tenant shall remain in effect
until any subsequent Capital Addition financed by Tenant is
completed.
(b) There shall be no adjustment in the Minimum Rent by
reason of any such Capital Addition.
(c) Upon the expiration or earlier termination of this Lease
(but if this Lease is terminated by reason of an Event of Default,
only after Landlord is fully compensated for all damages resulting
therefrom), Landlord shall compensate Tenant for all Capital
Additions financed by Tenant in any of the following ways
determined in Landlord's sole discretion:
(i) By purchasing such Capital Additions from Tenant for cash in
the amount of the then Fair Market Added Value of such Capital
Additions;
(ii) By purchasing such Capital Additions from Tenant by delivering
to Tenant Landlord's purchase money promissory note in the
amount of the Fair Market Added Value, which note shall be due
and payable as to both principal and interest on the second
anniversary of the making thereof, shall be on then
commercially reasonable terms and shall be secured by a
mortgage on the Leased Property and such Capital Additions
subject to all existing mortgages and encumbrances on the
Leased Property and such Capital Additions at the time of such
purchase;
(iii) By assigning to Tenant the right to receive an amount equal to
the Added Value Percentage (determined as of the date of the
expiration or earlier termination of this Lease) of all rent
and other consideration receivable by Landlord under any
re-letting or other disposition of the Leased Property and
such Capital Additions, after deducting from such rent all
costs and expenses incurred by Landlord in connection with
such re-letting or other disposition of the Leased Property
and such Capital Additions and all costs and expenses of
operating and maintaining the Leased Property and such Capital<PAGE>
-26-
Additions during the term of any such new lease which are not
borne by the tenant thereunder, with the provisions of this
Section 6.2(c) to remain in effect until the sale or other
final disposition of the Leased Property and such Capital
Additions, at which time the Fair Market Added Value of such
Capital Addition shall be immediately due and payable, such
obligation to be secured by a mortgage on the Leased Property
and such Capital Additions, subject to all existing mortgages
and encumbrances on the Leased Property at the time of such
purchase and assignment; or
(iv) By making such other arrangement regarding such compensation
as shall be mutually acceptable to Landlord and Tenant.
6.3 Information Regarding Capital Additions. Regardless of the
source of financing of any proposed Capital Addition, Tenant shall
provide Landlord with such information as Landlord may from time to time
reasonably request with respect to such Capital Addition, including,
without limitation, the following:
(a) Evidence that such Capital Addition will be, and upon
completion has been, completed in compliance with the applicable
requirements of State and federal law with respect to capital
expenditures for nursing facilities;
(b) Upon completion of such Capital Addition, a copy of the
certificate of occupancy for the Facility updated, if required;
(c) Such information, certificates, licenses, permits or
other documents necessary to confirm that Tenant will be able to
use the Capital Addition upon completion thereof in accordance with
the Primary Intended Use, including all required federal, State or
local government licenses and approvals;
(d) An Officer's Certificate and a certificate from Tenant's
architect setting forth, in reasonable detail, the projected (or
actual, if available) Capital Additions Cost and invoices and lien
waivers from Tenant's contractors for such work;
(e) A deed conveying to Landlord title to any land acquired
for the purpose of constructing the Capital Addition free and clear
of any liens or encumbrances, except those approved by Landlord
and, upon completion of the Capital Addition, a final as-built
survey thereof reasonably satisfactory to Landlord;
(f) Endorsements to any outstanding policy of title insurance
covering the Leased Property or commitments therefor, satisfactory
in form and substance to Landlord, (i) updating the same without
any additional exceptions except as approved by Landlord, and (ii)
increasing the coverage thereof by an amount equal to the Fair
Market Value of the Capital Addition (except to the extent covered
by the owner's policy of title insurance referred to in
subparagraph (g) below);<PAGE>
-27-
(g) If appropriate, (i) an owner's policy of title insurance
insuring fee simple title to any land conveyed to Landlord pursuant
to subparagraph (e) above, free and clear of all liens and
encumbrances, except those approved by Landlord, and (ii) a
lender's policy of title insurance, reasonably satisfactory in form
and substance to Landlord and the Lending Institution advancing any
portion of the Capital Additions Cost;
(h) An appraisal of the Leased Property by a Qualified
Appraiser, acceptable to Landlord, and an Officer's Certificate
stating that the value of the Leased Property upon completion of
the Capital Addition exceeds the Fair Market Value thereof prior to
the commencement of such Capital Addition by an amount not less
than 80% of the Capital Additions Cost; and
(i) Prints of architectural and engineering drawings relating
to such Capital Addition and such other certificates, documents,
opinions of counsel, appraisals, surveys, certified copies of duly
adopted resolutions of the board of directors of Tenant authorizing
the execution and delivery of any lease amendment or other
instruments reasonably required by Landlord and any Lending
Institution advancing or reimbursing Tenant for any portion of the
Capital Additions Cost.
6.4 Non-Capital Additions. Tenant shall have the right, at
Tenant's sole cost and expense, to make additions, modifications or
improvements to the Leased Property which are not Capital Additions
("Non-Capital Additions") from time to time as Tenant, in its reasonable
discretion, may deem desirable for the Primary Intended Use, provided
that such action will not adversely alter the character or purpose or
detract from the value, operating efficiency or revenue-producing
capability of the Leased Property, or adversely affect the ability of
Tenant to comply with the provisions of this Lease. All such Non-
Capital Additions shall, upon expiration or earlier termination of this
Lease, become the property of Landlord, free and clear of all
encumbrances other than Permitted Encumbrances.
6.5 Salvage. All materials which are scrapped or removed in
connection with the making of either Capital Additions or repairs
required by Article 5 shall be the property of the party paying or
providing the financing for such work.
ARTICLE 7
LIENS
7.1 Liens. Subject to Article 8, Tenant shall not, directly or
indirectly, create or allow to remain and shall promptly discharge, at
its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, other than (a) this Lease,
(b) the Permitted Encumbrances, (c) restrictions, liens and other
encumbrances which are consented to in writing by Landlord, (d) liens
for those taxes of Landlord which Tenant is not required to pay<PAGE>
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hereunder, (e) subleases permitted by Article 17, (f) liens for
Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (i) the same are not yet payable, or (ii) are
payable without fine or penalty and such liens are being contested in
accordance with Article 8, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums disputed, provided that (i)
the payment of such sums shall not be postponed under any related
contract for more than sixty (60) days after the completion of the
action giving rise to such lien and a reserve or another appropriate
provision as shall be required by law or generally accepted accounting
principles shall have been made therefor, and (ii) any such liens are
being contested in accordance with Article 8, and (h) any liens which
are the responsibility of Landlord pursuant to Article 21.
7.2 Landlord's Lien. In addition to any statutory landlord's lien
and in order to secure payment of the Rent and all other sums payable
hereunder by Tenant, and to secure payment of any loss, cost or damage
which Landlord may suffer by reason of Tenant's breach of this Lease,
Tenant hereby grants unto Landlord a security interest in and an express
contractual lien upon Tenant's Personal Property (except motor vehicles
sold from time to time in the ordinary course of Tenant's operations),
and all ledger sheets, files, records, documents and instruments
(including, without limitation, computer programs, tapes and related
electronic data processing) relating to the operation of the Facility
(collectively, the "Records") and all proceeds therefrom; and Tenant's
Personal Property shall not be removed from the Leased Property without
the Landlord's prior written consent, unless no Default or Event of
Default shall have occurred and be continuing.
Upon Landlord's request, Tenant shall execute and deliver to
Landlord security agreements and financing statements in form sufficient
to perfect the security interests of Landlord in Tenant's Personal
Property and the proceeds thereof in accordance with the provisions of
the applicable laws of the State and otherwise in form and substance
reasonably satisfactory to Landlord. Tenant hereby grants Landlord an
irrevocable limited power of attorney, coupled with an interest, to
execute all such financing statements in Tenant's name, place and stead.
The security interest herein granted is in addition to any statutory
lien for the Rent.
Landlord agrees, at Tenant's request, to execute such documents as
Tenant may reasonably require to subordinate the lien granted pursuant
to this Section 7.2 in Tenant's Personal Property (but not the Records)
to the lien of any Person providing purchase money financing with
respect thereto.
7.3 Mechanic's Liens. Except as permitted with respect to Capital
Additions, nothing contained in this Lease and no action or inaction by
Landlord shall be construed as (a) constituting the consent or request
of Landlord, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the
Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any<PAGE>
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labor or services or the furnishing of any materials or other property
in such fashion as would permit the making of any claim against Landlord
in respect thereof or to make any agreement that may create, or in any
way be the basis for any right, title, interest, lien, claim or other
encumbrance upon the Leased Property, or any portion thereof.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of
any Imposition, Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim (collectively "Claims")
by appropriate legal proceedings conducted in good faith and with due
diligence, provided that (a) the foregoing shall in no way be construed
as relieving, modifying or extending Tenant's obligation to pay any
Claims as finally determined or prior to the time the Leased Property
may be sold in satisfaction thereof, (b) such contest shall not cause
Landlord or Tenant to be in default under any mortgage or deed of trust
encumbering the Leased Property or any interest therein or result in or
reasonably be expected to result in a lien attaching to the Leased
Property, and (c) Tenant shall indemnify and hold harmless Landlord from
and against any cost, claim, damage, penalty or expense, including
reasonable attorneys' fees, incurred by Landlord in connection therewith
or as a result thereof. Upon Landlord's request, Tenant shall either
(a) provide a bond or other assurance reasonably satisfactory to
Landlord that all Claims which may be assessed against the Leased
Property, together with all interest and penalties thereon will be paid,
or (b) deposit within the time otherwise required for payment with a
bank or trust company, as trustee, as security for the payment of such
Claims, an amount sufficient to pay the same, together with interest and
penalties in connection therewith and all Claims which may be assessed
against or become a Claim against the Leased Property, or any part
thereof, in connection with any such contest. Tenant shall furnish
Landlord and any Facility Mortgagee with reasonable evidence of such
deposit within five (5) days after request therefor. Landlord agrees to
join in any such proceedings if required legally to prosecute such
contest; provided, however, that Landlord shall not thereby be subjected
to any liability therefor (including, for the payment of any costs or
expenses in connection therewith). Tenant shall be entitled to any
refund of any Claims and such charges and penalties or interest thereon
which have been paid by Tenant or paid by Landlord and for which
Landlord has been fully reimbursed by Tenant. If Tenant shall fail (a)
to pay any Claims when due, (b) to provide security therefor as provided
in this Article 8, or (c) to prosecute any such contest diligently and
in good faith, Landlord may, upon reasonable notice to Tenant (which
notice may be oral and shall not be required if Landlord shall determine
the same is not practicable), pay such charges, together with interest
and penalties due with respect thereto, and Tenant shall reimburse
Landlord therefor, upon demand, as Additional Rent.
ARTICLE 9<PAGE>
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INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements. Tenant shall at all times
during the Term and any other time Tenant shall be in possession of the
Leased Property, keep the Leased Property, and all property located in
or on the Leased Property, including Tenant's Personal Property, insured
against the risks in the amounts as follows:
(a) Comprehensive general liability insurance, including
bodily injury and property damage (on an occurrence basis and in
the broadest form available, including without limitation broad
form contractual liability, fire legal liability independent
contractor's hazard and completed operations coverage) under which
Tenant is named as an insured and Landlord and any Facility
Mortgagee (and such others as are in privity of estate with
Landlord, as set out in a notice from time to time) are named as
additional insureds as their interests may appear, in an amount
which shall, at the beginning of the Term, be at least equal to
$5,000,000 per occurrence in respect of bodily injury and death and
$1,000,000 per occurrence in respect of property damage, and which,
from time to time during the Term, shall be for such higher limits,
if any, as are customarily carried in the area in which the Leased
Property is located at property similar to the Leased Property and
used for similar purposes;
(b) "All-risk" property insurance on a "replacement cost"
basis with the usual extended coverage endorsements covering the
Leased Property and Tenant's Personal Property;
(c) Business interruption and loss of rental under a rental
value insurance policy covering risk of loss during the lesser of
the first twelve (12) months of reconstruction or the actual
reconstruction period necessitated by the occurrence of any of the
hazards described in paragraphs (a) and (b) above, in such amounts
as may be customary for comparable properties in the area and in an
amount sufficient to prevent Landlord or Tenant from becoming a
co-insurer;
(d) Claims arising out of malpractice in an amount not less
than Five Million Dollars ($5,000,000) for each person and for each
occurrence with respect to the Leased Property, provided the same
is available at rates which are economically practical in relation
to the risk covered, as determined by Tenant and approved by
Landlord (it being agreed that, in the event the same is not
available at rates which are economically practical in relation to
the risks covered, Tenant shall provide such malpractice insurance
by means of the maintenance of a program of self insurance, which,
in accordance with generally accepted accounting principles
consistently applied, satisfies the insurance requirements of this
paragraph (d) and, in such event, Tenant shall submit to Landlord
such records and other evidence thereof as Landlord may from time
to time reasonably request to confirm the maintenance of such a
program);
<PAGE>
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(e) Flood (if the Leased Property which is located in whole
or in part within a designated flood plain area) and such other
hazards and in such amounts as may be customary for comparable
properties in the area, provided the same is available at rates
which are economically practical in relation to the risks covered,
as determined by Tenant and approved by Landlord;
(f) Worker's compensation insurance coverage for all persons
employed by Tenant on the Leased Property with statutory limits and
otherwise with limits of and provisions in accordance with the
requirements of applicable local, state and federal law; and
(g) Such additional insurance as may be reasonably required,
from time to time, by Landlord or any Facility Mortgagee.
9.2 Waiver of Subrogation. Landlord and Tenant agree that
(insofar as and to the extent that such agreement may be effective
without invalidating or making it impossible to secure insurance
coverage from responsible insurance companies doing business in the
State) with respect to any property loss which is covered by insurance
then being carried by Landlord or Tenant or would be covered by
insurance if insurance were maintained in accordance with the applicable
provisions of this Lease, respectively, the party carrying such
insurance and suffering said loss releases the other of and from any and
all claims with respect to such loss; and they further agree that their
respective insurance companies shall have no right of subrogation
against the other on account thereof, even though extra premium may
result therefrom. In the event that any extra premium is payable by
Tenant as a result of this provision, Landlord shall not be liable for
reimbursement to Tenant for such extra premium.
9.3 Form Satisfactory, Etc. All policies of insurance required
under this Article 9 shall be written in a form reasonably satisfactory
to Landlord and by insurance companies authorized to do business in the
State, insurance, which companies shall be reasonably satisfactory to
Landlord. All policies of insurance required under this Article 9 shall
include no deductible in excess of $250,000 and shall name Landlord and
any Facility Mortgagee as additional insureds, as their interests may
appear. Losses shall be payable to Landlord or Tenant as provided in
Article 10. Any loss adjustment shall require the written consent of
Landlord, Tenant and each Facility Mortgagee. Evidence of insurance
shall be deposited with Landlord and, if requested, any Facility
Mortgagee. If any provisions of any Facility Mortgage requires deposits
of premiums for insurance to be made with such Facility Mortgagee,
provided that the Facility Mortgagee has not elected to waive such
provision, Tenant shall either pay Landlord monthly the amounts required
and Landlord shall transfer such amounts to such Facility Mortgagee, or,
pursuant to written direction by Landlord, Tenant shall make such
deposits directly with such Facility Mortgagee. Tenant shall pay all
insurance premiums, and deliver policies or certificates thereof to
Landlord prior to their effective date (and, with respect to any renewal
policy, ten (10) days prior to the expiration of the existing policy),
and in the event Tenant shall fail either to effect such insurance as
herein required, to pay the premiums therefor or to deliver such
policies or certificates to Landlord at the times required Landlord<PAGE>
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shall have the right, but not the obligation, to effect such insurance
and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest
accrued thereon at the Base Rate from the date such payment is made
until the date repaid. All such policies shall provide Landlord (and
any Facility Mortgagee, if required by the same) thirty (30) days' prior
written notice of any materially alter on, expiration or cancellation of
such policy.
9.4 No Separate Insurance. Tenant shall not take out separate
insurance, concurrent in form or contributing in the event of loss with
that required by this Article 9 or increase the amount of any existing
insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of
such insurance, including, Landlord and all Facility Mortgagees, are
included therein as additional insureds, and the loss is payable under
such insurance in the same manner as losses are payable under this
Lease. In the event Tenant shall take out any such separate insurance
or increase any of the amounts of the then existing insurance, Tenant
shall give Landlord prompt written notice thereof.
9.5 Indemnification of Landlord. Tenant shall indemnify and hold
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees), to the maximum extent
permitted by law, imposed upon or incurred by or asserted against
Landlord by reason of: (a) any accident, injury to or death of persons
or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, including, without limitation, any
claims of malpractice, (b) any past, present or future use, misuse,
non-use, condition, management, maintenance or repair by Tenant or
anyone claiming under Tenant of the Leased Property or Tenant's Personal
Property or any litigation, proceeding or claim by governmental entities
or other third parties to which Landlord is made a party or participant
related to the Leased Property or Tenant's Personal Property or such
use, misuse, non-use, condition, management, maintenance, or repair
thereof including, failure to perform obligations (other than
Condemnation proceedings) to which Landlord is made a party, (c) any
Impositions (which are the obligations of Tenant to pay pursuant to the
applicable provisions of this Lease), and (d) any failure on the part of
Tenant or anyone claiming under Tenant to perform or comply with any of
the terms of this Lease. Tenant shall pay all amounts payable under
this Section 9.5 within ten (10) days after demand therefor, and if not
timely paid, such amounts shall bear interest at the overdue rate from
the date of determination to the date of payment. Tenant, at its
expense, shall contest, resist and defend any such claim, action or
proceeding asserted or instituted against Landlord or may compromise or
otherwise dispose of the same as Tenant sees fit.
9.6 Indemnification of Tenant. Landlord shall indemnify and hold
harmless Tenant from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Tenant as a result of the gross
negligence or willful misconduct of Landlord.
<PAGE>
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ARTICLE 10
CASUALTY
10.1 Insurance Proceeds. All proceeds payable by reason of any
loss or damage to the Leased Property and insured under any policy of
insurance required by Article 9 shall be paid to Landlord and held in
trust by Landlord in an interest-bearing account (subject to the
provisions of Section 10.2) and shall be paid out by Landlord from time
to time for the reasonable costs of reconstruction or repair of the
Leased Property necessitated by damage or destruction. Any excess
proceeds of insurance remaining after the completion of the restoration
shall be paid to Tenant. In the event neither Landlord nor Tenant is
required or elects to restore the Leased Property and this Lease is
terminated without purchase or substitution by Tenant pursuant to
Section 10.2, all insurance proceeds therefrom shall be retained by
Landlord. All salvage resulting from any risk covered by insurance
shall belong to Landlord, except any salvage related to Capital
Additions paid for by Tenant or Tenant's Personal Property shall belong
to Tenant.
10.2 Reconstruction in the Event of Damage or Destruction.
10.2.1 Material Damage or Destruction of Premises. Except as
provided in Section 10.8, if, during the Term, the Leased Property shall
be totally or partially damaged or destroyed by fire or other casualty
and the Facility is thereby rendered Unsuitable for Its Primary Intended
Use, Tenant shall, at Tenant's option, exercisable by written notice to
Landlord within thirty (30) days after the date of such damage or
destruction, elect either (a) to restore the Facility to substantially
the same condition as existed immediately before such damage or
destruction, or (b) to offer (i) to purchase the Leased Property from
Landlord for a purchase price equal to the greater of the Minimum
Repurchase Price or the Fair Market Value Purchase Price of the Leased
Property immediately prior to such damage or destruction, or (ii) to
substitute a new property for the Leased Property in accordance with the
provisions of Article 16. Failure of Tenant to give Landlord written
notice of any such election within such 30-day period shall be deemed an
election by Tenant to restore the Facility. In the event Tenant shall
proceed in accordance with clause (b) preceding and Landlord does not
accept Tenant's offer to purchase the Leased Property or substitute
another property for the Leased Property within thirty (30) days after
receipt of Tenant's notice thereof, Tenant may either (a) withdraw such
offer and proceed promptly to restore the Facility to substantially the
same conditions as existed immediately before the damage or destruction,
or (b) terminate this Lease without further liability hereunder and
Landlord shall be entitled to retain the insurance proceeds. In the
event Tenant shall acquire the Leased Property or substitute a new
property therefor, the insurance proceeds payable on account of such
damage shall be paid to Tenant.
10.2.2 Partial Damage or Destruction. Except as provided in
Section 10.8, if, during the Term, all or any portion of the Leased
Property shall be totally or partially destroyed by fire or other
casualty and the Facility is not thereby rendered Unsuitable for its<PAGE>
-34-
Primary Intended Use, Tenant shall promptly restore the Facility to
substantially the same condition as existed immediately before such
damage or destruction; provided, however, that if Tenant cannot, using
diligent efforts, obtain all government approvals, including building
permits, licenses, conditional use permits and certificates of need,
necessary to perform all required repair and restoration and to operate
the Facility for its Primary Intended Use in substantially the same
manner as existed immediately prior to such damage or destruction within
one hundred eighty (180) days after the date of such fire or casualty,
Tenant shall, within thirty (30) days thereafter elect, by written
notice to Landlord, either (a) to substitute a new property or
properties for the Leased Property in accordance with the provisions of
Article 16, or (b) purchase the Leased Property for a purchase price
equal to the greater of the then Minimum Repurchase Price or the Fair
Market Value Purchase Price of the Leased Property immediately prior to
such damage or destruction. Failure of Tenant to give such notice
within such period shall be deemed an election by Tenant to purchase the
Leased Property. Within thirty (30) days after receipt of Tenant's
notice, Landlord shall give Tenant written notice as to whether Landlord
accepts such offer. Failure of Landlord to give such notice shall be
deemed an election by Landlord to accept Tenant's offer. If Landlord
shall reject such offer, Tenant shall elect, by written notice to
Landlord, given within thirty (30) days thereafter, either (a) to
withdraw such offer, in which event this Lease shall remain in full
force and effect with and Tenant shall proceed to restore the Facility
as soon as reasonably practicable to substantially the same condition as
existed immediately before such damage or destruction, or (b) terminate
this Lease. Failure of Tenant to give such notice within such period
shall be deemed an election by Tenant to restore the Leased Property.
In the event Landlord shall accept Tenant's offer to purchase
the Leased Property, this Lease shall terminate with respect thereto
upon payment of the purchase price. In the event Landlord shall accept
Tenant's offer to substitute a new property or properties, this Lease
shall be deemed modified to substitute such new property for the Leased
Property (effective as of the date of such substitution pursuant to
Article 16) and all insurance proceeds pertaining to the Leased Property
shall be paid to Tenant. Landlord and Tenant shall promptly execute
appropriate instruments to confirm the foregoing, although the failure
to do so shall not affect this Lease.
10.3 Insufficient Insurance Proceeds. If the cost of the repair
or restoration exceeds the amount of insurance proceeds received by
Landlord pursuant to Article 9, Tenant shall contribute any excess
amounts needed to complete such restoration. Such difference shall be
paid by Tenant to Landlord and held by Landlord in trust in an interest
bearing account, together with any other insurance proceeds, for
application to the cost of repair and restoration in accordance with
Section 10.4.
10.4 Disbursement of Proceeds. In the event Tenant is required to
restore the Leased Property pursuant to Sections 10.1 or 10.2, Tenant
shall, at its sole cost and expense, commence promptly and continue
diligently to perform, or cause to be performed, the repair and restora-
tion of the Leased Property so as to restore the Leased Property in full<PAGE>
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compliance with all Legal Requirements and otherwise in compliance with
any other applicable provisions of this Lease, so that the Leased
Property shall be at least equal in value and general utility to its
general utility and value immediately prior to such damage or
destruction. Subject to the terms hereof, Landlord shall advance the
insurance proceeds (other than proceeds of business interruption
insurance which shall be advanced as provided below) and the amounts
paid to it pursuant to Section 10.3 to Tenant regularly during the
repair and restoration period so as to permit payment for the cost of
such restoration and repair. Any such advances shall be for not less
than $50,000 (or such lesser amount as equals the entire balance of the
repair and restoration costs) and Tenant shall submit to Landlord a
written requisition and substantiation therefor on AIA Forms G702 and
G703 (or on such other form or forms as may be acceptable to Landlord).
Landlord may, at its option, condition advancement of such insurance
proceeds and other amounts on (i) the absence of any Default or Event of
Default, (ii) its approval of plans and specifications of an architect
satisfactory to Landlord (which approval shall not be unreasonably with-
held or delayed), (iii) general contractors' estimates, (iv) architect's
certificates, (v) unconditional lien waivers of general contractors,
(vi) evidence of approval by all governmental authorities and other
regulatory bodies whose approval is required and (vii) such other
certificates as Landlord may, from time to time, reasonably require.
Provided no Default or Event of Default has occurred and is continuing,
on the first day of each calendar month during which proceeds of
business interruption insurance are disbursed to Landlord under the
policy of business interruption insurance maintained pursuant to Article
9, Landlord shall disburse proceeds of business interruption insurance
received by it to Tenant upon notice from Tenant accompanied by a
certification from Tenant that such moneys will be used for costs or
expenses of owning or operating the Leased Property.
Landlord's obligation to disburse insurance proceeds under this
Article 10 shall be subject to the release of such proceeds by any
Facility Mortgagee.
10.5 Tenant's Property. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property or Capital
Additions financed by Tenant shall be paid to Tenant and Tenant shall
hold such proceeds in trust to pay the cost of repairing or replacing
damaged Tenant's Personal Property or Capital Additions paid for or
financed by Tenant.
10.6 Restoration of Tenant's Property. If Tenant shall be
required or elect to restore the Facility as hereinabove provided,
Tenant shall either (a) restore all alterations and improvements made
by Tenant, Tenant's Personal Property and all Capital Additions paid for
or financed by Tenant, or (b) replace such alterations and improvements,
Tenant's Personal Property, and/or Capital Additions with improvements
or items of the same or better quality and utility in the operation of
the Facility.
10.7 No Abatement of Rent. Unless this Lease shall be terminated
as herein provided, during the first twelve (12) months of any period
required for repair or restoration, this Lease shall remain in full<PAGE>
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force and effect and Tenant's obligation to make rental payments and to
pay all other charges required by this Lease shall remain unabated
during the Term notwithstanding any damage affecting the Leased
Property. Thereafter, payments of Minimum Rent shall be adjusted in the
manner provided in Section 11.6. If any fire or other casualty impairs
the revenue producing capacity of the Facility, projected Net Patient
Revenues attributable to the Facility shall be determined by Landlord in
its reasonable discretion.
10.8 Damage Near End of Term. Notwithstanding any provisions of
this Article 10 to the contrary, if (a) damage to or destruction of the
Facility occurs during the last twelve (12) months of the Term, (b)
Tenant has not elected to extend the Term, (c) no Default or Event of
Default shall have occurred and be continuing, and (d) such damage or
destruction cannot be fully repaired and restored within one hundred
eighty (180) days immediately following the date of loss, Tenant shall
have the right to terminate this Lease by the giving of written notice
thereof to Landlord within thirty (30) days after the date of casualty.
Failure of Tenant to give such notice within such 30-day period shall be
a waiver of Tenant's right to terminate this Lease pursuant to this
section.
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation. If the whole of the Leased Property
shall be taken by Condemnation, this Lease shall terminate as of the
Date of Taking. In the event a Condemnation of less than the whole of
the Leased Property renders the Leased Property Unsuitable for Its
Primary Intended Use, Tenant and Landlord shall each have the option, by
written notice to the other, given at any time prior to the date title
vests in a third party, to terminate this Lease as of the Date of
Taking, whereupon this Lease shall terminate as of such date.
11.2 Partial Condemnation. In the event of a Condemnation of less
than the whole of the Leased Property such that Leased Property is still
suitable for its Primary Intended Use, or if neither Tenant nor Landlord
shall terminate this Lease as provided in Section 11.1, Tenant, at its
sole cost and expense, shall, with all reasonable dispatch, restore the
untaken portion of the Leased Improvements so that such Leased
Improvements shall constitute a complete architectural unit of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to
such Condemnation. Landlord shall, subject to and in accordance with
the applicable provisions of Section 10.4, contribute to the cost of
restoration that part of its Award allocable to such restoration. In
such event, the Minimum Rent shall be permanently reduced as set forth
in Section 11.6.
11.3 Temporary Condemnation. In the event of any temporary
Condemnation of all or any part of the Leased Property or Tenant's
interest under this Lease, this Lease shall continue in full force and
effect and Tenant shall continue to pay, in the manner and on the terms<PAGE>
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herein specified, the full amount of the Rent. To the extent reasonably
practicable, Tenant shall continue to perform and observe all of the
other terms and conditions thereof, on the part of Tenant to be
performed and observed. The entire amount of any Award made for such
temporary Taking or Condemnation allocable to the Term, whether paid by
way of damages, rent or otherwise, shall be paid to Tenant. Tenant
shall, upon the termination of any such period of temporary
Condemnation, at its sole cost and expense (but only to the extent of
the Award payable to Tenant), restore the Leased Property as nearly as
may be reasonably possible, to the condition that existed immediately
prior to such Condemnation, unless such period of temporary use or
occupancy shall extend beyond the expiration of the Term, in which case
Tenant shall not be required to make such restoration.
11.4 Tenant's Option. In the event of the termination of this
Lease as provided in Section 11.1, Tenant shall have the right,
exercisable by written notice to Landlord given within thirty (30) days
after receipt by Tenant of notice of Condemnation, to elect (a) to
acquire the Leased Property from Landlord for a purchase price equal to
the greater of its Minimum Repurchase Price or the Fair Market Value
Purchase Price of the Leased Property immediately prior to such
Condemnation, in which event, upon the closing of such acquisition,
Tenant shall have the right to receive the entire Award, or (b) to
substitute a new property therefor in accordance with the provisions of
Article 16, in which event Tenant shall receive the entire Award.
Failure of Tenant to give such notice within such 30-day period shall be
deemed a waiver of Tenant's rights pursuant to this Section 11.4. In
the event Landlord shall, by written notice to Tenant given within
thirty (30) days after receipt of Tenant's election notice, reject
Tenant's offer so to purchase or substitute, Tenant shall restore the
Leased Property to substantially the same condition as existed
immediately before such Condemnation in accordance with the applicable
provisions of this Lease and, in such event, Landlord shall, subject to
and in accordance with the applicable provisions of Section 10.4,
contribute to the cost of restoration that part of its Award allocable
to such restoration.
11.5 Allocation of Award. Except as provided in the second
sentence of this Section 11.5, the total Award shall be solely the
property of and payable to Landlord. Any portion of the Award made for
the taking of Tenant's leasehold interest in the Leased Property,
Capital Additions paid for or financed by Tenant, loss of business at
the Leased Property during the remainder of the Term, the taking of
Tenant's Personal Property, or Tenant's removal and relocation expenses
shall be the sole property of and payable to Tenant. In any
Condemnation proceedings, Landlord and Tenant shall each seek its own
Award in conformity herewith, at its own expense.
11.6 Abatement Procedures. In the event of a partial Condemnation
as described in Section 11.2, this Lease shall not terminate, but the
Minimum Rent shall be abated and Base Net Patient Revenues shall be
reduced in the manner and to the extent that is fair, just and equitable
to both Tenant and Landlord, taking into consideration, among other
relevant factors, the number of usable beds, the amount of square
footage, or the revenues affected by such partial or temporary taking or<PAGE>
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damage or destruction. If Landlord and Tenant are unable to agree upon
the amount of such abatement within thirty (30) days after such
Condemnation or damage, the matter may be submitted by either party to a
court of competent jurisdiction for resolution or, if the parties so
agree, the matter may be submitted by the parties for resolution by
arbitration in accordance with the rules of the American Arbitration
Association.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this
Lease:
(a) Should Tenant fail to make any payment of the Rent or any
other sum payable hereunder when due and such failure shall
continue for ten (10) days after written notice thereof;
(b) Should Tenant fail to observe or perform any other term,
covenant or condition of this Lease and such failure shall continue
for thirty (30) days after written notice thereof; provided,
however, if such failure cannot with due diligence be cured within
such thirty (30) day period, an Event of Default shall not be
deemed to have occurred for such additional period (not to exceed
120 days in the aggregate) required to cure the same so long as
Tenant commences sure cure within such thirty (30) day period and
thereafter diligently prosecutes such cure to completion;
(c) Should Tenant: (i) admit in writing its inability, or be
unable, to pay its debts generally as they become due; (ii) file a
petition in bankruptcy or a petition to take advantage of any
insolvency law; (iii) make a general assignment for the benefit of
its creditors; (iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or
(v) file a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof;
(d) Should Tenant be adjudicated a bankrupt or have an order
for relief thereunder entered against it or a court of competent
jurisdiction shall enter an order or decree appointing a receiver
of Tenant or of the whole or substantially all of its property, or
approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be
vacated or set aside within sixty (60) days from the date of entry
thereof;
(e) Should Tenant be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution, or, in any<PAGE>
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manner, permit the sale or divestiture of substantially all of its
assets;
(f) Should the estate or interest of Tenant in the Leased
Property or any part thereof shall be levied upon or attached in
any proceeding and the same shall not be vacated or discharged
within thirty (30) days after commencement thereof (unless Tenant
shall be contesting such lien or attachment in accordance with
Article 8);
(g) Except as a result of damage, destruction, strikes, lock-
outs or a partial or complete Condemnation, should Tenant
voluntarily cease operations on the Leased Property for a period in
excess of thirty (30) days; or
(h) Should any representation or warranty of Tenant contained
in this Lease or any certificate or document delivered in
connection herewith be untrue when made or at any time during the
Term in any material respect which materially and adversely affects
Landlord, and the same shall not be cured within ninety (90) days
after written notice thereof.
Upon the occurrence of any Event of Default, Landlord and the agents and
servants of Landlord lawfully may, in addition to and not in derogation
of any remedies for any preceding breach of covenant, immediately or at
any time thereafter, without demand or notice and with or without
process of law (forcibly, if necessary), enter into and upon the Leased
Property or any part thereof in the name of the whole or mail a notice
of termination addressed to Tenant, and repossess the same and expel
Tenant and those claiming through or under Tenant and remove its and
their effects (forcibly, if necessary), without being deemed guilty of
any manner of trespass and without prejudice to any remedies which might
otherwise be used for arrears of rent or prior breach of covenant, and,
upon such entry or mailing as aforesaid, this Lease shall terminate,
Tenant hereby waiving all statutory rights to the Leased Property
(including, without limitation, rights of redemption, if any, to the
extent such rights may be lawfully waived) and Landlord, without notice
to Tenant, may store Tenant's effects, and those of any person claiming
through or under Tenant, at Tenant's sole expense and risk, and, if
Landlord so elects, may sell such effects at public auction or private
sale and apply the net proceeds to the payment of all sums due to
Landlord from Tenant, if any, and pay over the balance, if any, to
Tenant.
Upon the occurrence of an Event of Default, Landlord may, in
addition to any other remedies provided herein, enter upon the Leased
Property and take possession of any and all of Tenant's Personal
Property and the Records (subject to any prohibitions or limitations to
disclosure of any such data as described in Section 3.1.2(d)) on the
Leased Property, without liability for trespass or conversion (Tenant
hereby waiving any right to notice or hearing prior to such taking of
possession by Landlord) and sell the same at public or private sale,
after giving Tenant reasonable notice of the time and place of any
public or private sale, at which sale Landlord or its assigns may
purchase all or any portion of such Personal Property unless otherwise<PAGE>
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prohibited by law. Unless otherwise provided by law, and without
intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice
is given in the manner prescribed in this Lease at least ten (10) days
before the day of sale. The proceeds from any such disposition, less
all expenses incurred in connection with the taking of possession,
holding and selling of such property (including, reasonable attorneys'
fees) shall be deducted from the proceeds of such sale. Any surplus
shall be paid to Tenant or as otherwise required by law and Tenant shall
pay any deficiency to Landlord, as Additional Rent, upon demand.
12.2 Remedies. In the event of any termination pursuant to Section
12.1, Tenant shall pay the Rent and other charges payable hereunder up
to the time of such termination and, thereafter, Tenant, until the end
of what would have been the Term of this Lease in the absence of such
termination, and whether or not the Leased Property, or any portion
thereof, shall have been re-let, shall be liable to Landlord for, and
shall pay to Landlord, as current damages, the Rent and other charges
which would be payable hereunder for the remainder of the Term had such
termination not occurred, less the net proceeds, if any, of any
reletting of the Leased Property, after deducting all expenses in
connection with such re-letting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorneys'
fees, advertising, expenses of employees, alteration costs and expenses
of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days on which the Minimum Rent would
have been payable hereunder if this Lease had not been terminated.
Percentage Rent for the purposes of this Section 12.2 shall be deemed to
be a sum equal to the amount of the Percentage Rent (determined on an
annualized basis) payable for the Fiscal Year immediately preceding the
Fiscal Year in which the termination, re-entry or repossession takes
place. If, however, such termination, re-entry or repossession occurs
during the first full Fiscal Year after the Base Year, the Percentage
Rent shall be an amount reasonably determined by Landlord.
At any time after such termination, whether or not Landlord shall
have collected any such current damages, as liquidated final damages and
in lieu of all such current damages beyond the date of such demand, at
Landlord's election, Tenant shall pay to Landlord either (a) an amount
equal to the excess, if any, of the Rent and other charges which would
be payable hereunder from the date of such demand (assuming that, for
the purposes of this paragraph, annual payments by Tenant on account of
Impositions would be the same as payments required for the immediately
preceding twelve calendar months, or if less than twelve calendar months
have expired since the Commencement Date, the payments required for such
lesser period projected to an annual amount and Percentage Rent shall be
determined in the manner set forth above) for what would be the then
unexpired term of this Lease if the same remained in effect, over the
Fair Market Rental for the same period, or (b) an amount equal to the
lesser of (i) the Rent and other charges that would have been payable
for the balance of the Term had it not been terminated, or (ii) the
aggregate of the Minimum Rent, Percentage Rent and other charges accrued
in the twelve (12) months ended next prior to such termination (without
reduction for any free rent or other concession or abatement). In the
event this Lease is so terminated prior the expiration of the first full<PAGE>
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year of the Term, the liquidated damages which Landlord may elect to
recover pursuant to clause (b) (ii) of this paragraph shall be
calculated as if such termination had occurred on the first anniversary
of the Commencement Date. Nothing contained in this Lease shall,
however, limit or prejudice the right of Landlord to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater than, equal to, or less than the
amount of the loss or damages referred to above.
In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (a)
relet the Leased Property or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms which may at
Landlord's option, be equal to, less than or exceed the period which
would otherwise have constituted the balance of the Term and may grant
concessions or free rent to the extent that Landlord considers advisable
and necessary to relet the same, and (b) may make such reasonable
alterations, repairs and decorations in the Leased Property as Landlord,
in its sole judgment, considers advisable and necessary for the purpose
of reletting the Leased Property; and the making of such alterations,
repairs and decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to relet the Leased
Property, or any portion thereof, or, in the event that the Leased
Property is relet, for failure to collect the rent under such reletting.
To the fullest extent permitted by law, Tenant hereby expressly waives
any and all rights of redemption granted under any present or future
laws in the event of Tenant being evicted or dispossessed, or in the
event of Landlord obtaining possession of the Leased Property, by reason
of the violation by Tenant of any of the covenants and conditions of
this Lease.
12.3 Waiver. If this Lease is terminated pursuant to Section 12.1
or 12.2, Tenant waives, to the extent permitted by law, (a) any right to
a trial by jury in the event of summary proceedings to enforce the
remedies set forth in this Article 12, and (b) the benefit of any laws
now or hereafter in force exempting property from liability for rent or
for debt.
12.4 Application of Funds. Any payments received by Landlord
under any of the provisions of this Lease during the existence or
continuance of any Event of Default (and any payment made to Landlord
rather than Tenant due to the existence of an Event of Default) shall be
applied to Tenant's obligations in such order as Landlord may determine
or as may be prescribed by the laws of the State.
12.5 Failure to Conduct Business. For the purpose of determining
rental loss damages or Percentage Rent, in the event Tenant shall fail
to conduct its business at the Leased Property for its Primary Intended
Use, exact damages or the amount of Percentage Rent being
unascertainable, the Percentage Rent for such period shall be deemed to
by an amount reasonably determined by Landlord.<PAGE>
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12.6 Landlord's Right to Cure Tenant's Default. If an Event of
Default shall have occurred and be continuing, Landlord, after written
notice to Tenant (provided that no such notice shall be required if
Landlord shall reasonably determine immediate action is necessary to
protect person or property), without waiving or releasing any obligation
of Tenant, and without waiving or releasing any Event of Default, may
(but shall not be obligated to), at any time thereafter, make such
payment or perform such act for the account and at the expense of
Tenant, and may, to the extent permitted by law, enter upon the Leased
Property, or any portion thereof, for such purpose and take all such
action thereon as, in Landlord's opinion, may be necessary or
appropriate therefor, including, the management of the Facility by
Landlord or its designee, and Tenant hereby irrevocably appoints, in the
event of such election by Landlord, Landlord or its designee as manager
of the Facility and its attorney in fact for such purpose, irrevocably
and coupled with an interest, in the name, place and stead of Tenant.
All costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by Landlord in connection therewith, together
with interest thereon (to the extent permitted by law) at the Overdue
Rate from the date such sums are paid by Landlord until repaid, shall be
paid by Tenant to Landlord, on demand.
12.7 Trade Names. If this Lease is terminated for any reason,
Landlord shall, upon the request of Tenant, cause the name of the
business conducted upon the Leased Property to be changed to a name
other than a Facility Trade Name or any approximation or abbreviation
thereof and sufficiently dissimilar to such name as to be unlikely to
cause confusion with such name; provided, however, that Tenant shall not
thereafter use a Facility Trade Name in the same market in which the
Facility is located in connection with any business that competes with
the Facility.
ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration of the Term shall
be treated as a daily tenancy at sufferance at a rate equal to two (2)
times the Minimum Rent and Percentage Rent then in effect plus
Additional Rent and other charges herein provided (prorated on a daily
basis). Tenant shall also pay to Landlord all damages, direct and/or
consequential (foreseeable and unforeseeable), sustained by reason of
any such holding over. Otherwise, such holding over shall be on the
terms and conditions set forth in this Lease, to the extent applicable.
ARTICLE 14
LANDLORD'S DEFAULT
If Landlord shall default in the performance or observance of any
of its covenants or obligations set forth in this Lease and such default
shall continue for a period of thirty (30) days after written notice<PAGE>
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thereof, or such additional period as may be reasonably required to
correct the same (except if such default shall constitute an immediate
threat to life or property, five (5) Business Days) Tenant may declare
the occurrence of a "Landlord Default" by a second notice to Landlord.
Thereafter, Tenant may forthwith cure the same and, subject to the
provisions of the following paragraph, invoice Landlord for costs and
expenses (including reasonable attorneys' fees and court costs) incurred
by Tenant in curing the same, together with interest from the date
Landlord receives Tenant's invoice, at a rate equal to the Base Rate.
Tenant shall have no right to terminate this Lease for any default by
Landlord hereunder and no right, for any such default, to offset or
counterclaim against any rent or other charges due hereunder.<PAGE>
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If Landlord shall in good faith dispute the occurrence of any
Landlord Default and Landlord, before the expiration of the applicable
cure period, shall give written notice thereof to Tenant, setting forth,
in reasonable detail, the basis therefor, no Landlord Default shall be
deemed to have occurred and Landlord shall have no obligation with
respect thereto until final adverse determination thereof. If Tenant
and Landlord shall fail, in good faith, to resolve the dispute within
five (5) days after Landlord's notice of dispute, either may submit the
matter to arbitration for resolution in accordance with the commercial
arbitration rules of the American Arbitration Association. Such
arbitration shall be final and binding on Landlord and Tenant and
judgment thereon may be entered into any court of competent
jurisdiction. Within five (5) days after submission to arbitration,
Landlord and Tenant shall submit all information required for such
arbitration and shall take all other actions required for such
arbitration to proceed and the arbitrators shall be instructed to render
a determination as soon as possible and in any event not later than
thirty (30) days after submission.
ARTICLE 15
PURCHASE OF PREMISES
In the event Tenant shall purchase the Leased Property from
Landlord pursuant to any of the terms of this Lease, Landlord shall,
upon receipt from Tenant of the applicable purchase price, together with
full payment of any unpaid Rent and other charges due and payable with
respect to any period ending on or before the date of the purchase,
deliver to Tenant a title insurance policy, together with an appropriate
deed or other instruments, conveying the entire interest of Landlord in
and to the Leased Property to Tenant, free and clear of all encumbrances
other than (a) those Tenant has agreed hereunder to pay or discharge,
(b) those liens, if any, which Tenant has agreed in writing to accept
and take title subject to, (c) the Permitted Encumbrances, and (d) any
other encumbrances permitted to be imposed on the Leased Property (x)
pursuant to the terms of this Lease or (y) otherwise permitted to be
imposed under the provisions of Section 21.1 which are assumable at no
cost to Tenant or to which Tenant may take subject without cost to
Tenant. The difference between the applicable purchase price and the
total of the encumbrances assumed or taken subject to shall be paid in
cash to Landlord or as Landlord may direct, in federal or other
immediately available funds. The closing of any such sale shall be
contingent upon and subject to Tenant's obtaining all required
governmental consents and approvals for such transfer and if such sale
shall fail to be consummated by reason of the inability of Tenant to
obtain all such approvals and consents, any options to extend the Term
of this Lease which otherwise would have expired during the escrow
period of such proposed sale shall be deemed to remain in effect for 30
days after termination thereof. All expenses of such conveyance,
including, without limitation, the cost of title examination or standard
coverage title insurance, usually paid by a purchaser of real property
in the State shall be paid by Tenant; all expenses of such conveyance
usually paid by a seller of real property in the State shall be paid by
Landlord.<PAGE>
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ARTICLE 16
SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY
16.1 Tenant's Substitution Option. Provided (a) in the good faith
judgment of Tenant, the Leased Property shall become Unsuitable for its
Primary Intended Use, (b) no Default or Event of Default shall have
occurred and be continuing, and (c) not less than one (1) year shall
remain in the Term, Tenant shall have the right, subject to the
conditions set forth in this Article 16, upon not less than thirty (30)
days prior written notice to Landlord, to substitute one or more
properties (collectively, the "Substitute Properties" or individually,
"Substitute Property") on the date specified in such notice (the
"Substitution Date"); provided, however, that if Tenant is required by
court order or administrative action to divest or otherwise dispose of
the Leased Property in less than thirty (30) days and Tenant shall have
given Landlord prior written notice of the filing of such court or
administrative action and kept Landlord reasonably apprised of the
status thereof, the time period shall be shortened appropriately to meet
the reasonable needs of Tenant, but in no event less than ten (10)
Business Days after the receipt by Landlord of such notice. Such notice
shall include (a) an Officer's Certificate, setting forth in reasonable
detail the reason(s) for the substitution and the proposed Substitution
Date, and (b) designate not less than two properties (or groups of
properties), each of which properties (or groups of properties) shall
provide Landlord with a yield (i.e., annual return on its equity in such
property) substantially equivalent to Landlord's yield from the Leased
Property at the time of such proposed substitution (or in the case of
substitution because of damage or destruction, the yield immediately
prior to such damage or destruction) and as reasonably projected over
the remaining Term of this Lease.
16.2 Landlord's Substitution Option. If Tenant shall have
voluntarily or involuntarily discontinued use of the Leased Property for
its business operations for a period in excess of one year, Landlord
shall have the right, exercisable by thirty (30) days prior written
notice to Tenant, to require Tenant to substitute a Substitute Property
for the Leased Property, (in which event, Tenant shall comply with the
applicable provisions of Section 16.1 within thirty (30) days
thereafter).
16.3 Substitution Procedures. (a) If either Landlord or Tenant
shall initiate a substitution pursuant to Section 16.1 or 16.2, Landlord
shall have a period of thirty (30) days within which to review the
designated properties and such additional information and either accept
or reject the Substitute Properties so presented, unless Tenant is
required by a court order or administrative action to divest or
otherwise dispose of the Leased Property within a shorter time period,
in which case the time period shall be shortened appropriately to meet
the reasonable needs of Tenant, but in no event shall such period be
less than five (5) Business Days after Landlord's actual receipt of
Tenant's notice (subject to further extension for any period of time in
which Landlord is not timely provided with the information provided for<PAGE>
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in this Section 16.3 and Section 16.4 below). Landlord and Tenant shall
use good faith efforts to agree on a Substitute Property.
(b) In the event that, on or before the expiration of the
applicable time period for Landlord's review, Landlord has rejected
both of the Substitute Properties so presented, Tenant shall, for a
period of sixty (60) days after the expiration of such period, have
the right to terminate this Lease, by the giving of written notice
thereof to Landlord, accompanied by an offer to purchase the Leased
Property on the date set forth in such notice, but in no event less
than ninety (90) days thereafter, for a purchase price equal to the
greater of the then Fair Market Value Purchase Price or the Minimum
Repurchase Price, and, subject to the provisions of Article 15,
this Lease shall terminate on such purchase date.
(c) Landlord shall not unreasonably withhold its consent to
an offer by Tenant to substitute a property as set forth in this
Article provided (i) Landlord shall determine the Substitute
Property shall provide Landlord with a yield substantially
equivalent to Landlord's yield from the Leased Property immediately
before such substitution or such damage or destruction, as the case
may be, and as projected over the remainder of the Term, and (ii)
the delivery of an opinion of counsel for Landlord confirming that
(w) the substitution of the Substitute Property for the Leased
Property will qualify as an exchange solely of property of a
like-kind under Section 1031 of the Code, in which, generally,
except for "boot", no gain or loss will be recognized by Landlord,
(x) the substitution will not result in ordinary recapture income
to Landlord pursuant to Section 1250(d)(4) of the Code or any other
provision of the Code, (y) the substitution will result in income,
if any, to Landlord of a type described in Section 856(c)(2) or (3)
of the Code and will not result in income of the types described in
Section 856(c)(4) of the Code or result in the tax imposed under
Section 857(b)(6) of the Code, and (z) the substitution, together
with all other substitutions made or requested by Tenant or an
Affiliated Person pursuant to the Other Leases or other transfers
of all or any portion of the Leased Property or properties leased
under the Other Leases, during the relevant time period, will not
jeopardize the qualification of Landlord as a real estate
investment trust under Sections 856-860 of the Code.
(d) In the event that the then Fair Market Value of the
Substitute Property or group of Substitute Properties minus the
encumbrances assumed by Landlord, or as to which Landlord will take
the Substitute Property or group of Substitute Properties subject,
as of the Substitution Date is greater than the then Fair Market
Value of the Leased Property minus the encumbrances assumed by
Tenant, or as to which the Tenant will take the Leased Property
subject, as of the Substitution Date (or in the case of damage or
destruction, the Fair Market Value immediately prior to such damage
or destruction), Landlord shall pay to Tenant an amount equal to
the difference, subject to the limitation set forth below; in the
event that such value of the Substitute Property or group of
Substitute Properties is less than such value of the Leased
Property, Tenant shall pay to Landlord an amount equal to the<PAGE>
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difference, subject to the limitation set forth below; provided,
however, neither Landlord nor Tenant shall be obligated to
consummate such substitution if such party would be required to
make a payment (the "Cash Adjustment") to the other in excess of an
amount equal to five percent (5%) of the Fair Market Value of the
Leased Property.
(e) The Rent for such Substitute Property shall, in all
respects, provide Landlord with a yield (i.e., annual return on its
equity in such property) substantially equivalent to Landlord's
yield from the Leased Property at the time of such substitution (or
in the case of substitution because of damage or destruction the
yield immediately prior to such damage or destruction) and as
reasonably projected over the remaining Term, taking into account
the Cash Adjustment paid or received by Landlord and any other
relevant factors, as reasonably determined by Landlord.
(f) The Minimum Repurchase Price of the Substitute Property
shall be an amount equal to the Minimum Repurchase Price of the
Leased Property (i) increased by any Cash Adjustment paid by
Landlord pursuant to Paragraph (d) above, or (ii) decreased by any
Cash Adjustment paid by Tenant pursuant to paragraph (d) above.
16.4 Conditions to Substitution. On the Substitution Date, the
Substitute Property shall become the Leased Property hereunder, upon
delivery by Tenant to Landlord of the following:
(a) An Officer's Certificate certifying that (i) the
Substitute Property has been accepted by Tenant for all purposes of
this Lease and there has been no material damage to the
improvements located thereon, nor is any Condemnation pending or
threatened with respect thereto; (ii) all appropriate permits,
licenses and certificates (including, but not limited to, a
permanent, unconditional certificate of occupancy and all
certificates of need, licenses and provider agreements) which are
necessary to permit the use of the Substitute Property in
accordance with the provisions of this Lease have been obtained and
are in full force and effect; (iii) under applicable zoning and use
laws, ordinances, rules and regulations, the Substitute Property
may be used for the purposes contemplated by this Lease and all
necessary subdivision approvals, if any, have been obtained; (iv)
there are no mechanics' or materialmen's liens outstanding or
threatened to the knowledge of Tenant against the Substitute
Property arising out of or in connection with the construction of
the improvements thereon, other than those being contested by
Tenant pursuant to Article 8; (v) to the best knowledge of Tenant,
there exists no Default or Event of Default, and no defense, offset
or claim with respect to any sums payable by Tenant hereunder; and
(vi) any exceptions to Landlord's title to the Substitute Property
do not materially interfere with the intended use of the Substitute
Property by Tenant;
(b) A deed with full warranties or assignment of a leasehold
estate with full warranties (as applicable) conveying to Landlord<PAGE>
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title to the Substitute Property free and clear of any liens or
encumbrances, except those approved by Landlord;
(c) an amendment duly executed, acknowledged and delivered by
Tenant, in form and substance satisfactory to Landlord, amending
this Lease to correct the legal description of the Land and make
such other changes herein as may be necessary or appropriate under
the circumstances;
(d) counterparts of a standard owner's or lessee's (as
applicable) policy of title insurance covering the Substitute
Property (or a valid, binding, unconditional commitment therefor),
dated as of the Substitution Date, in current form and including
mechanics' and materialmen's lien coverage, issued to Landlord by a
title insurance company and in the form reasonably satisfactory to
Landlord, which policy shall (i) insure (x) Landlord's fee title or
leasehold estate to the Substitute Property, subject to no liens or
encumbrances except those approved by Landlord and (y) that any
restrictions affecting the Substitute Property have not been
violated; (ii) be in an amount at least equal to the Fair Market
Value of the Substitute Property; and (iii) contain such
affirmative coverage endorsements as Landlord shall reasonably
request;
(e) certificates of insurance with respect to the Substitute
Property fulfilling the requirements of Article 9;
(f) current appraisals or other evidence satisfactory to
Landlord, in its sole discretion, as to the then current Fair
Market Values and the projected residual values of such Substitute
Property and the Leased Property as to which such substitution is
being made;
(g) all available revenue data relating to the Substitute
Property for the period from the date of opening for business of
the Facility on such Substitute Property to the date of Tenant's
most recent Fiscal Year end, or for the most recent three (3)
years, whichever is less; and
(h) such other certificates, documents, opinions of counsel
and other instruments as may be reasonably required by Landlord.
16.5 Conveyance to Tenant. On the Substitution Date, Landlord
shall convey the Leased Property to Tenant in accordance with the
provisions of Article 15 (except as to payment of any expenses in
connection therewith which shall be governed by Section 16.6) upon
either (a) payment in cash therefor or (b) conveyance to Landlord of the
Substitute Property, as appropriate.
16.6 Expenses. Tenant shall pay or cause to be paid, on demand,
all reasonable costs and expenses paid or incurred by Landlord in
connection with the substitution and conveyance of the Leased Property
and Substitute Property, including, but not limited to, (a) reasonable
fees and expenses of counsel, (b) all printing expenses, (c) the amount
of filing, registration and recording taxes and fees, (d) the cost of<PAGE>
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preparing and recording, if appropriate, a release of the Leased
Property from the lien of any mortgage, (e) brokers' fees and
commissions, (f) documentary stamp and transfer taxes, (g) title
insurance charges and premiums, and (h) escrow fees.
ARTICLE 17
SUBLETTING AND ASSIGNMENT
17.1 Subletting and Assignment. Except as hereinafter provided,
Tenant shall not assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer this Lease or sublease (which term shall be deemed to
include the granting of concessions and licenses and the like) all or
any part of the Leased Property or suffer or permit this Lease or the
leasehold estate hereby created or any other rights arising under this
Lease to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or
by operation of law, or permit the use or occupancy of the Leased
Property by anyone other than Tenant, or the Leased Property to be
offered or advertised for assignment or subletting except as hereinafter
provided. For purposes of this Section 17.1, an assignment of this
Lease shall be deemed to include any transaction pursuant to which
Tenant is merged or consolidated with another entity or pursuant to
which all or substantially all of Tenant's assets are transferred to any
other entity, as if such or transaction were an assignment of this
Lease.
If this Lease is assigned or if the Leased Property or any part
thereof are sublet (or occupied by anybody other than Tenant and its
employees) Landlord, after default by Tenant hereunder, may collect the
rents from such assignee, subtenant or occupant, as the case may be, and
apply the net amount collected to the Rent herein reserved, but no such
collection shall be deemed a waiver of the provisions set forth in the
first paragraph of this Section 17.1, the acceptance by Landlord of such
assignee, subtenant or occupant, as the case may be, as a tenant, or a
release of Tenant from the future performance by Tenant of its
covenants, agreements or obligations contained in this Lease.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting
or assignment in a particular instance shall be deemed to be a waiver of
the obligation to obtain the Landlord's written approval in the case of
any other subletting or assignment. No assignment, subletting or
occupancy shall affect the Primary Intended Use. Any subletting,
assignment or other transfer of Tenant's interest in this Lease in
contravention of this Section 17.1 shall be voidable at Landlord's
option.
If the rent and other sums (including, without limitation, the
reasonable value of any services performed by any assignee or subtenant
in consideration of such assignment or sublease) either initially or
over the term of any assignment or sublease, payable by such assignee or
subtenant on account of an assignment or sublease exceed the Rent called
for hereunder with respect to the space assigned or sublet, Tenant shall<PAGE>
-50-
pay to Landlord as Additional Rent one hundred percent (100%) of such
excess net of the costs and expenses incurred by Tenant in procuring
such sublease payable monthly at the time for payment Minimum Rent.
17.2 Required Sublease Provisions. Any sublease of all or any
portion of the Leased Property shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or
shall be subject or subordinate, and that in the event of termination of
this Lease or reentry or dispossession of Tenant by Landlord under this
Lease, Landlord may, at its option, take over all of the right, title
and interest of Tenant, as sublessor under such sublease, and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to
the then executory provisions of such sublease, except that neither
Landlord nor any Facility Mortgagee, as holder of a mortgage or as
Landlord under this Lease, if such mortgagee succeeds to that position,
shall (a) be liable for any act or omission of Tenant under such
sublease, (b) be subject to any credit, counterclaim, offset or defense
which theretofore accrued to such subtenant against Tenant, (c) be bound
by any previous modification of such sublease or by any previous
prepayment of more than one (1) month's rent, (d) be bound by any
covenant of Tenant to undertake or complete any construction of the
Leased Property or any portion thereof, (e) be required to account for
any security deposit of the subtenant other than any security deposit
actually delivered to Landlord by Tenant, (f) be bound by any obligation
to make any payment to such subtenant or grant any credits, except for
services, repairs, maintenance and restoration provided for under the
sublease to be performed after the date of such attornment, (g) be
responsible for any monies owing by Tenant to the credit of such
Subtenant, or (h) be required to remove any person occupying the Leased
Property or any part thereof; and such sublease shall provide that the
subtenant thereunder shall, at the request of Landlord, execute a
suitable instrument in confirmation of such agreement to attorn. The
provisions of this paragraph shall not be deemed a waiver of the
provisions set forth in the first paragraph of Section 17.1.
17.3 Sublease Limitation. Anything contained in this Lease to the
contrary notwithstanding, Tenant shall not sublet the Leased Property on
any basis such that the rental to be paid by the sublessee thereunder
would be based, in whole or in part, on either (a) the income or profits
derived by the business activities of the sublessee, or (b) any other
formula such that any portion of the sublease rental would fail to
qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
17.4 Assignment and Subletting Procedure. Anything contained in
this Lease to the contrary notwithstanding, if Tenant wishes to enter
into a sublease with respect to any portion of the Leased Property or an
assignment of this Lease, Tenant shall give Landlord notice of such
intent, which notice ("Tenant's Notice") shall state, in the event of a
proposed sublease, the location and amount of area intended to be
covered by such sublease and the term of the proposed sublease, the
proposed effective date of such sublease or assignment, and the identity
of such proposed subtenant or assignee and such other information with
respect thereto as Landlord may reasonably require. Landlord shall not
unreasonably withhold its consent to any proposed assignment or sublease<PAGE>
-51-
provided Tenant shall deliver to Landlord a written instrument, in form
and substance reasonably satisfactory to Landlord, pursuant to which
such assignee agrees directly with Landlord to be bound by all the terms
of this Lease and to be jointly and severally liable with Tenant for all
of Tenant's obligations under this Lease.
ARTICLE 18
CERTIFICATES AND FINANCIAL STATEMENTS
18.1 Estoppel Certificates. At any time and from time to time,
upon not less than twenty (20) days prior written notice by Landlord,
Tenant shall furnish to Landlord an Officer's Certificate certifying
that this Lease is unmodified and in full force and effect (or that this
Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, that, to the
best of Tenant's knowledge and belief after making due inquiry, Tenant
is not in default in the performance or observance of any of the terms
of this Lease and that no event exists which with the giving of notice,
lapse of time, or both, would constitute a default hereunder, or if
Tenant shall be in default or any such event shall exist, specifying in
reasonable detail all such defaults or events, and the steps being taken
to remedy the same, and such additional information as Landlord may
reasonably request. Any such certificate furnished pursuant to this
section may be relied upon by Landlord and any prospective purchaser or
mortgagee of the Leased Property.
18.2 Financial Statements. Tenant shall furnish the following
statements to Landlord:
(a) Within forty-five (45) days after each of the first three
quarters of each Fiscal Year, the most recent Consolidated
Financials of Tenant, together with an Officer's Certificate
certifying to the accuracy of such Consolidated Financials;
(b) Within one hundred twenty (120) days after the end of
each Fiscal Year, the most recent Consolidated Financials of Tenant
for such year, certified by an independent certified public
accountant satisfactory to Landlord;
(c) Promptly after the sending or filing thereof, copies of
all reports which Tenant sends to its security holders generally,
and copies of all periodic reports which Tenant files with the SEC
or any stock exchange on which its shares are listed or traded;
(d) Promptly after the delivery thereof to Tenant, or its
management, a copy of any management letter or written report
prepared by Tenant's certified public accountants with respect to
the financial condition, operations, business or prospects of
Tenant;
(e) At any time and from time to time upon not less than
twenty (20) days notice from Landlord, any Consolidated Financials
or any other financial reporting information required to be filed<PAGE>
-52-
by Landlord with any securities and exchange commission, the SEC or
any successor agency, or any other governmental authority, or
required pursuant to any order issued by any court governmental
authority or arbitrator in any litigation to which Landlord is a
party, for purposes of compliance therewith; and
(f) With reasonable promptness, such other information as to
the financial condition and affairs of Tenant as Landlord may
reasonably request.
18.3 General Operations. Tenant covenants and agrees to furnish
to Landlord:
18.3.1 Reimbursement, Licensure etc. Within thirty (30) days
after receipt or modification thereof, copies of
(a) All licenses authorizing Tenant to operate the
Facility for its Primary Intended Use;
(b) All Medicare and Medicaid certifications, together
with provider agreements and all material correspondence
relating thereto with respect to the Facility (excluding,
however, correspondence which may be subject to any
attorney-client privilege);
(c) A Nursing Home Administrator License for the
individuals employed in such capacity with respect to the
Facility;
(d) All reports of surveys, statements of deficiencies,
plans of correction, and all material correspondence relating
thereto, including, without limitation, all reports and
material correspondence concerning compliance with or
enforcement of licensure, Medicare/Medicaid, and accreditation
requirements, including physical environment and Life Safety
Code survey reports (excluding, however, correspondence which
may be subject to any attorney-client privilege); and
(e) With reasonable promptness, such other confirmation
as to the Licensure and Medicare and Medicaid participation
of Tenant as Landlord may reasonably request from time to
time.
18.3.2 Monthly Reports. Tenant shall prepare and furnish to
Landlord for the Leased Property, within thirty (30) days after the end
of each calendar month during the term of this Agreement, a monthly
report, such report to include a balance sheet, a current month and year
to date income statement, showing each item of actual and projected
income and expense, prepared on an accrual basis and a current month and
year to date cash flow statement, reflecting the operating results of
the Facility; a statement of Net Patient Revenues for such month; and
such additional information as the Company may from time to time
reasonably require. <PAGE>
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ARTICLE 19
LANDLORD ACCESS
19.1 Landlord's Right to Inspect. Tenant shall permit Landlord and
its authorized representatives to inspect the Leased Property during
usual business hours, and to do and make such repairs as Landlord is
permitted or required to make pursuant to the terms of this Lease,
subject to any security, health, safety or patient or business
confidentiality requirements of Tenant or any governmental agency or
Insurance Requirement relating to the Leased Property or imposed by law.
19.2 Landlord's Option to Purchase the Tenant's Personal Property;
Transfer of Licenses. Effective on not less than ninety (90) days'
prior notice given at any time within one hundred eighty (180) days
after the expiration of the Term (or such shorter period as shall be
appropriate if this Lease is terminated prior to its expiration date),
Landlord shall have the option to purchase all (but not less than all)
of Tenant's Personal Property (except motor vehicles), if any, at the
expiration or termination of this Lease, for an amount equal to the then
net market value thereof (current replacement cost as determined by
appraisal less accumulated depreciation on Tenant's books pertaining
thereto), subject to, and with appropriate price adjustments for, all
equipment leases, conditional sale contracts, UCC-1 financing statements
and other encumbrances to which such Personal Property is subject;
provided, however, Landlord shall not have the right to purchase any
Facility Trade Name or logo.
ARTICLE 20
APPRAISAL
20.1 Appraisal Procedure. In the event that it becomes necessary
to determine the Fair Market Value, Fair Market Value Purchase Price or
Fair Market Rental of the Leased Property or a Substitute Property for
any purpose of this Lease, the party required or permitted to give
notice of such required determination (the "Initiating Party") shall
include in such notice the name of a designated Qualified Appraiser
(hereinafter defined) on its behalf. Within 10 days after notice, the
party receiving such notice (the "Responding Party") shall, by written
notice to the other, appoint a second Qualified Appraiser. If the
Responding Party shall fail, neglect or refuse within said ten-day
period to designate another appraiser willing so to act, the appraiser
designated by the Initiating Party shall designate the second Qualified
Appraiser within ten (10) days thereafter. The two appraisers so
designated shall meet within ten (10) days after the second appraiser is
designated, and, if within ten (10) days after the second appraiser is
designated, the two appraisers do not agree upon the Fair Market Value,
Fair Market Value Purchase Price or Fair Market Rental, as the case may
be, of the applicable property as of the relevant date, the two
appraisers shall designate a third Qualified Appraiser, within ten (10)
days thereafter. In the event that the two appraisers are unable to
agree upon the appointment of a third Qualified Appraiser within such
ten (10) day period, either Landlord or Tenant, on behalf of both, may<PAGE>
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then request appointment of such appraiser the then president of the
American Arbitration Association. In the event of a failure, refusal or
inability of any appraiser to act, a new appraiser shall be appointed in
his stead, which appointment shall be made in the same manner as
hereinabove provided for the appointment of such appraiser so failing,
refusing or being unable to act. In the event that all appraisers
cannot agree upon such value ten (10) days as aforesaid, each appraiser
shall submit his appraisal of such value to the other two appraisers in
writing, and such value shall be determined by calculating the average
of the two numerically closest (or, if the values are equidistant, all
three) values determined by the three appraisers.
The costs, other than counsel fees, of such appraisal shall be
borne equally by the parties. Upon determining such value, the
appraisers shall promptly notify Landlord and Tenant in writing of such
determination. If any party shall fail to appear at the hearings
appointed by the appraisers, the appraisers may act in the absence of
such party.
The determination of the board of appraisers (or the single
additional Qualified Appraiser, as appropriate) made in accordance with
the foregoing provisions shall be final and binding upon the parties,
such determination may be entered as an award in arbitration in a court
of competent jurisdiction, and judgment thereon may be entered.
ARTICLE 21
MORTGAGES
21.1 Landlord May Grant Liens. Without the consent of Tenant,
Landlord may, subject to the terms and conditions set forth in this
Section 21.1, from time to time, directly or indirectly, create or
otherwise cause to exist any lien, encumbrance or title retention
agreement ("Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing. Any such Encumbrance, other than one
the proceeds of which are used to finance construction of a Capital
Addition pursuant to the provisions of Sections 6.1 and 6.3, shall
include the right to prepay (whether or not subject to a prepayment
penalty) and shall provide (subject to Section 21.2) that it is subject
to the rights of Tenant under this Lease.
21.2 Subordination of Lease. Subject to Section 21.1 and the last
paragraph of this Section 21.2, this Lease, and all rights of Tenant
hereunder, are and shall be subject and subordinate to any ground or
master lease, and all renewals, extensions, modifications and
replacements thereof, and to all mortgages and deeds of trust, which may
now or hereafter affect the Leased Property or any improvements thereon
and/or any of such leases, whether or not such mortgages or deeds of
trust shall also cover other lands and/or buildings and/or leases, to
each and every advance made or hereafter to be made under such mortgages
and deeds of trust, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and deeds of trust and all
consolidations of such mortgages and deeds of trust. This section shall<PAGE>
-55-
be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall promptly
execute, acknowledge and deliver any instrument that Landlord, the
lessor under any such lease or the holder of any such mortgage or the
trustee or beneficiary of any deed of trust or any of their respective
successors in interest may reasonably request to evidence such
subordination. Any lease to which this Lease is, at the time referred
to, subject and subordinate is herein called "Superior Lease" and the
lessor of a Superior Lease or its successor in interest at the time
referred to, is herein called "Superior Landlord" and any mortgage or
deed of trust to which this Lease is, at the time referred to, subject
and subordinate, is herein called "Superior Mortgage" and the holder,
trustee or beneficiary of a Superior Mortgage is herein called "Superior
Mortgagee".
If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed, or otherwise,
then at the request of such party so succeeding to Landlord's rights
(herein called "Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to
and recognize such Successor Landlord as Tenant's landlord under this
Lease and shall promptly execute and deliver any instrument that such
Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment, this Lease shall continue in full force and effect
as a direct lease between the Successor Landlord and Tenant upon all of
the terms, conditions and covenants as are set forth in this Lease,
except that the Successor Landlord (unless formerly the landlord under
this Lease or its nominee or designee) shall not be (a) liable in any
way to Tenant for any act or omission, neglect or default on the part of
Landlord under this Lease, (b) responsible for any monies owing by or on
deposit with Landlord to the credit of Tenant, (c) subject to any
counterclaim or setoff which theretofore accrued to Tenant against
Landlord, (d) bound by any modification of this Lease subsequent to such
Superior Lease or Mortgage, or by any previous prepayment of Minimum
Rent or Percentage Rent for more than one (1) month, which was not
approved in writing by the Superior Landlord or the Superior Mortgagee
thereto, (e) liable to the Tenant beyond the Successor Landlord's
interest in the Leased Property and the rents, income, receipts,
revenues, issues and profits issuing from the Leased Property, (f)
responsible for the performance of any work to be done by the Landlord
under this Lease to render the Leased Property ready for occupancy by
Tenant, or (g) required to remove any person occupying the Leased
Property or any part thereof, except if such person claims by, through
or under the Successor Landlord. Tenant agrees at any time and from
time to time to execute a suitable instrument in confirmation of
Tenant's agreement to attorn, as aforesaid.
Tenant's obligation to subordinate this Lease and Tenant's rights
hereunder to any Superior Mortgage or Superior Lease shall be
conditioned upon Landlord obtaining from any Superior Mortgagee or
Superior Landlord, an agreement which shall be executed by Tenant and
such Superior Mortgagee or Superior Landlord which shall provide in
substance that so long as no Event of Default exists as would entitle<PAGE>
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Landlord or any such Superior Mortgagee or Superior Landlord to
terminate this Lease or would cause, without any further action of
Landlord or such Superior Mortgagee or Superior Landlord, the
termination of this Lease or would entitle Landlord or such Superior
Mortgagee or Superior Landlord to dispossess Tenant, this Lease shall
not be terminated, nor shall Tenant's use, possession or enjoyment of
the Leased Property, in accordance with the terms and provisions of this
Lease, be interfered with, nor shall the leasehold estate granted by
this Lease be affected in any other manner, in any foreclosure or any
action or proceeding instituted under or in connection with such
Superior Mortgage or Superior Lease, or in the event such Superior
Mortgagee or Superior Landlord takes possession of the Leased Property
pursuant to any provisions of such Superior Mortgage or Superior Lease,
unless Landlord or such Superior Mortgagee or Superior Landlord would
have had such right of termination pursuant to this Lease. Such
agreement shall be in form customarily used by the holder of any such
Superior Mortgage or Superior Lease.
21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the
receipt by Tenant of notice from any person, firm or other entity that
it is a Facility Mortgagee, or that it is the ground lessor under a
lease with Landlord, as ground lessee, which includes the Leased
Property as part of the demised premises, no notice from Tenant to
Landlord shall be effective unless and until a copy of the same is given
to such Facility Mortgagee or ground lessor and the curing of any of
Landlord's defaults by such Facility Mortgagee or ground lessor shall be
treated as performance by Landlord.
ARTICLE 22
INVESTMENT TAX CREDIT
22.1 Investment Tax Credit. Landlord agrees to elect, in
accordance with Section 48(d) of the Code, to treat Tenant as having
purchased all such eligible property in the Leased Property as may be
designated by Tenant in order that Tenant may obtain the benefit of the
credit, if any, allowed or allowable with respect thereto under Section
38 of the Code. Landlord makes no representation or warranty with
respect to the availability of the credit to Tenant or the efficacy of
such election. Landlord's sole responsibility in this regard shall be
to execute such documents as are reasonably required to effect the
election, which documents Tenant shall prepare, at Tenant's sole cost
and expense, and to provide Tenant with such information as may be
reasonably requested by Tenant in connection therewith. In addition,
Landlord agrees it and its assignees will not claim the credit provided
by Section 38 of the Code for any property included in the Leased
Property.<PAGE>
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ARTICLE 23
ADDITIONAL COVENANTS OF TENANT
23.1 Notice of Change of Name, Administrator, Etc. Tenant shall
give prompt notice to Landlord of any change in (a) the name (operating
or otherwise) of Tenant or the Facility, (b) the individual licensed as
administrator of the Facility, (1) the number of beds in any bed
category for which the Facility is licensed or the number of beds in any
bed category available for use at the Facility (except for changes in
the number of certified distinct part beds made for reimbursement
maximization purposes), and (d) the patient and/or child care services
that are offered at the Facility.
23.2 Notice of Litigation, Potential Event of Default, Etc.
Tenant shall give prompt notice to Landlord of any litigation or any
administrative proceeding to which it may hereafter become a party which
involves a potential liability equal to or greater than $250,000, or
which may otherwise result in any material adverse change in the
business, operations, property, prospects, results of operation or
condition, financial or other, of Tenant. Forthwith upon Tenant
obtaining knowledge of any Default or Event of Default, or any event or
condition that would be required to be disclosed in a current report
filed by Tenant on Form 8-K or in Part II of a quarterly report on Form
10-Q if Tenant were required to file such reports under the Securities
Exchange Act of 1934, as amended, Tenant shall give Landlord notice
thereof, which notice shall set forth in reasonable detail the nature
and period of existence thereof and what action Tenant has taken or is
taking or proposes to take with respect thereto.
23.3 Management of Leased Property. Tenant shall not enter into
any management or similar agreement in respect of the Leased Property
without the express prior written consent of Landlord.
23.4 Distributions, Payments to Affiliated Persons, Etc. Tenant
will not declare, order, pay or make, directly or indirectly, any
distribution or any payment to any Affiliated Person as to Tenant
(including payments in the ordinary course of business and payment
pursuant to management agreements with any such Affiliated Person) or
set apart any sum or property therefor, or agree to do so, if, at the
time of such proposed action, or immediately after giving effect
thereto, any event or condition shall exist which constitutes a Default
or an Event of Default.
ARTICLE 24
MISCELLANEOUS
24.1 No Waiver. No failure by Landlord or Tenant to insist upon
the strict performance of any term hereof or to exercise any right,
power or remedy consequent upon a breach thereof, and no acceptance of
full or partial payment of rent during the continuance of any such<PAGE>
-58-
breach, shall constitute a waiver of any such breach or of any such
term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.
24.2 Remedies Cumulative. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord, now
or hereafter provided either in this Lease or by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every
other right, power and remedy and the exercise or beginning of the
exercise by Landlord or Tenant of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise
by Landlord or Tenant of any or all of such other rights, powers and
remedies.
24.3 Acceptance of Surrender. No surrender to Landlord of this
Lease or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in
writing by Landlord and no act by Landlord or any representative or
agent of Landlord, other than such a written acceptance by Landlord,
shall constitute an acceptance of any such surrender.
24.4 No Merger of Title. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the
same person, firm, corporation or other entity may acquire, own or hold,
directly or indirectly (a) this Lease or the leasehold estate created
hereby or any interest in this Lease or such leasehold estate and (b)
the fee estate or ground landlord's interest in the Leased Property.
24.5 Conveyance by Landlord. If Landlord or any successor owner of
the Leased Property shall convey the Leased Property in accordance with
the terms hereof other than as security for a debt, and the grantee or
transferee of the Leased Property shall expressly assume all obligations
of Landlord hereunder arising or accruing from and after the date of
such conveyance or transfer and shall be reasonably capable of
performing the obligations of Landlord hereunder, Landlord or such
successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of Landlord under this Lease
arising or accruing from and after the date of such conveyance or other
transfer as to the Leased Property and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
24.6 Quiet Enjoyment. So long as Tenant shall pay the Rent as the
same becomes due and shall substantially comply with all of the terms of
this Lease and perform its obligations hereunder, Tenant shall peaceably
and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Landlord or anyone claiming
by, through or under Landlord, but subject to all liens and encumbrances
of record as of the date hereof or hereafter consented to by Tenant.
Except as otherwise provided in this Lease, no failure by Landlord to
comply with the foregoing covenant shall give Tenant any right to cancel
or terminate this Lease or abate, reduce or make a deduction from or
offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Tenant hereunder.
Notwithstanding the foregoing, Tenant shall have the right, by separate<PAGE>
-59-
and independent action to pursue any claim it may have against Landlord
as a result of a breach by Landlord of the covenant of quiet enjoyment
contained in this Section.
24.7 Landlord's Liability. THE DECLARATION OF TRUST ESTABLISHING
LANDLORD, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL
AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND,
PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST"
REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES,
BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION. Tenant, its successors and assigns,
shall not assert nor seek to enforce any claim for breach of this Lease
against any of Landlord's assets other than Landlord's interest in the
Leased Property and in the rents, issues and profits thereof, and Tenant
agrees to look solely to such interest for the satisfaction of any
liability or claim against Landlord under this Lease, it being
specifically agreed that in no event whatsoever shall Landlord (which
term shall include, without limitation, any general or limited partner,
trustees, beneficiaries, officers, directors, or stockholders of
Landlord) ever be personally liable for any such liability. In no event
shall Landlord ever be liable to Tenant for any indirect or
consequential damages.
24.8 Landlord's Consent. Where provisions are made in this Lease
for Landlord's consent and Landlord shall fail or refuse to give such
consent, Tenant shall not be entitled to any damages for any withholding
by Landlord of its consent, it being intended that Tenant's sole remedy
shall be an action for specific performance or injunction, and that such
remedy shall be available only in those cases where Landlord has
expressly agreed in writing not to unreasonably withhold its consent.
24.9 Memorandum of Lease. Neither Landlord nor Tenant shall
record this Lease. However, Landlord and Tenant shall promptly, upon
the request of either, enter into a short form memorandum of this Lease,
in form suitable for recording under the laws of the State in which
reference to this Lease, and all options contained herein, shall be
made. Tenant shall pay all costs and expenses of recording such
memorandum of this Lease.
24.10 Notices. (a) Any and all notices, demands, consents,
approvals, offers, elections and other communications required or
permitted under this Lease shall be deemed adequately given if in
writing and the same shall be delivered either in hand, by telecopier
with written acknowledgment of receipt, or by mail or Federal Express or
similar expedited commercial carrier, addressed to the recipient of the
notice, postpaid and registered or certified with return receipt
requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).<PAGE>
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(b) All notices required or permitted to be sent hereunder
shall be deemed to have been given for all purposes of this Lease
upon the date of acknowledged receipt, in the case of a notice by
telecopier, and, in all other cases, upon the date of receipt or
refusal, except that whenever under this Lease a notice is either
received on a day which is not a Business Day or is required to be
delivered on or before a specific day which is not a Business Day,
the day of receipt or required delivery shall automatically be
extended to the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
Health and Rehabilitation Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. David J. Hegarty
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
if to Tenant to:
Connecticut Subacute Corporation II
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. Mark Finklestein
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
(d) By notice given as herein provided, the parties hereto
and their respective successor and assigns shall have the right
from time to time and at any time during the term of this Agreement
to change their respective addresses effective upon receipt by the
other parties of such notice and each shall have the right to
specify as its address any other address within the United States
of America.
24.11 Construction. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination of this Lease shall<PAGE>
-61-
survive such termination. If any term or provision of this Lease or any
application thereof shall be invalid or unenforceable, the remainder of
this Lease and any other application of such term or provisions shall
not be affected thereby. If any late charges or any interest rate
provided for in any provision of this Lease are based upon a rate in
excess of the maximum rate permitted by applicable law, the parties
agree that such charges shall be fixed at the maximum permissible rate.
Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by
the party to be charged. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. The headings in this Lease are
for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Lease represents the entire agreement
among the parties and amends and restates the Original Leases in their
entirety. This Lease may not be amended or modified in any respect
except by the written agreement of Landlord and Tenant.
24.12 Governing Law. This Lease shall be interpreted, construed,
applied and enforced in accordance with the laws of the State applicable
to contracts between residents of the State which are to be performed
entirely within the State, regardless of (i) where this Lease is
executed or delivered; or (ii) where any payment or other performance
required by this Lease is made or required to be made; or (iii) where
any breach of any provision of this Lease occurs, or any cause of action
otherwise accrues; or (iv) where any action or other proceeding is
instituted or pending; or (v) the nationality, citizenship, domicile,
principle place of business, or jurisdiction of organization or
domestication of any party; or (vi) whether the laws of the forum
jurisdiction otherwise would apply the laws of a jurisdiction other than
the State; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the
provisions of this Lease may be brought and prosecuted in such court or
courts located in the State as is provided by law; and the parties
consent to the jurisdiction of said court or courts located in the State
and to service of process by registered mail, return receipt requested,
or by any other manner provided by law.
IN WITNESS WHEREOF, the parties have executed this Lease, as a
sealed instrument, as of the date first above written.
LANDLORD:
HEALTH AND REHABILITATION PROPERTIES TRUST
By: John G. Murray
Its: Treasurer
TENANT:<PAGE>
-62-
CONNECTICUT SUBACUTE CORPORATION II
By: Barry M. Portnoy
Its: Secretary<PAGE>
EXHIBIT A
Other Leases
[See attached copy.]<PAGE>
EXHIBIT B
Permitted Encumbrances
[See attached copy.]<PAGE>
EXHIBIT C
The Land
[See attached copy.]<PAGE>
EXHIBIT D
Minimum Rent
[See attached copy.]<PAGE>
LEASE AGREEMENT
DATED AS OF FEBRUARY 11, 1994,
BY AND BETWEEN
HEALTH AND REHABILITATION PROPERTIES TRUST,
AS LANDLORD,
AND
CONNECTICUT SUBACUTE CORPORATION II, AS TENANT.<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . 1
1.1 Added Value Percentage . . . . . . . . . . . . . 1
1.2 Additional Rent . . . . . . . . . . . . . . . . 1
1.3 Affiliated Person . . . . . . . . . . . . . . . 1
1.4 Assumed Indebtedness . . . . . . . . . . . . . . 2
1.5 Award . . . . . . . . . . . . . . . . . . . . . 2
1.6 Base Net Patient Revenues . . . . . . . . . . . 2
1.7 Base Rate . . . . . . . . . . . . . . . . . . . 2
1.8 Base Year . . . . . . . . . . . . . . . . . . . 2
1.9 Business Day . . . . . . . . . . . . . . . . . . 2
1.10 Capital Addition . . . . . . . . . . . . . . . . 2
1.11 Capital Additions Cost . . . . . . . . . . . . . 3
1.12 Capital Expenditure . . . . . . . . . . . . . . 3
1.13 Cash Adjustment . . . . . . . . . . . . . . . . 4
1.14 Claims . . . . . . . . . . . . . . . . . . . . . 4
1.15 Code . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Commencement Date . . . . . . . . . . . . . . . 4
1.17 Condemnation . . . . . . . . . . . . . . . . . . 4
1.18 Condemnor . . . . . . . . . . . . . . . . . . . 4
1.19 Consolidated Financials . . . . . . . . . . . . 4
1.20 Control . . . . . . . . . . . . . . . . . . . . 4
1.21 Date of Taking . . . . . . . . . . . . . . . . . 4
1.22 Default . . . . . . . . . . . . . . . . . . . . 5
1.23 Encumbrance . . . . . . . . . . . . . . . . . . 5
1.24 Entity . . . . . . . . . . . . . . . . . . . . . 5
1.25 Environmental Laws . . . . . . . . . . . . . . . 5
1.26 Environmental Notice . . . . . . . . . . . . . . 5
1.27 Environmental Obligation . . . . . . . . . . . . 5
1.28 Event of Default . . . . . . . . . . . . . . . . 5
1.29 Excess Net Patient Revenues . . . . . . . . . . 5
1.30 Extended Terms . . . . . . . . . . . . . . . . . 5
1.31 Facility . . . . . . . . . . . . . . . . . . . . 5
1.32 Facility Mortgage . . . . . . . . . . . . . . . 5
1.33 Facility Mortgagee . . . . . . . . . . . . . . . 5
1.34 Facility Trade Names . . . . . . . . . . . . . . 5
1.35 Fair Market Added Value . . . . . . . . . . . . 6
1.36 Fair Market Rental . . . . . . . . . . . . . . . 6
1.37 Fair Market Value . . . . . . . . . . . . . . . 6
1.38 Fair Market Value Purchase Price . . . . . . . . 6
1.39 Fiscal Year . . . . . . . . . . . . . . . . . . 6
1.40 Fixed Term . . . . . . . . . . . . . . . . . . . 6
1.41 Fixtures . . . . . . . . . . . . . . . . . . . . 6
1.42 Hazardous Substances . . . . . . . . . . . . . . 6
1.43 Immediate Family . . . . . . . . . . . . . . . . 7
1.44 Impositions . . . . . . . . . . . . . . . . . . 7
1.45 Initiating Party . . . . . . . . . . . . . . . . 7
1.46 Insurance Requirements . . . . . . . . . . . . . 7
1.47 Land . . . . . . . . . . . . . . . . . . . . . . 7
1.48 Landlord . . . . . . . . . . . . . . . . . . . . 8
1.49 Landlord Default. . . . . . . . . . . . . . . . . 8<PAGE>
1.50 Lease . . . . . . . . . . . . . . . . . . . . . 8
1.51 Leased Improvements . . . . . . . . . . . . . . 8
1.52 Leased Personal Property . . . . . . . . . . . . 8
1.53 Leased Property . . . . . . . . . . . . . . . . 8
1.54 Legal Requirements . . . . . . . . . . . . . . . 8
1.55 Lending Institution . . . . . . . . . . . . . . 8
1.56 Minimum Rent . . . . . . . . . . . . . . . . . . 8
1.57 Minimum Repurchase Price . . . . . . . . . . . . 8
1.58 Net Patient Revenues . . . . . . . . . . . . . . 9
1.59 Non-Capital Additions . . . . . . . . . . . . . 10
1.60 Officer's Certificate . . . . . . . . . . . . . 10
1.61 Other Leases . . . . . . . . . . . . . . . . . . 10
1.62 Overdue Rate . . . . . . . . . . . . . . . . . . 10
1.63 Parent . . . . . . . . . . . . . . . . . . . . . 10
1.64 Percentage Rent . . . . . . . . . . . . . . . . 10
1.65 Permitted Encumbrances . . . . . . . . . . . . . 10
1.66 Person . . . . . . . . . . . . . . . . . . . . . 10
1.67 Primary Intended Use . . . . . . . . . . . . . . 10
1.68 Qualified Appraiser . . . . . . . . . . . . . . 11
1.69 Records . . . . . . . . . . . . . . . . . . . . 10
1.70 Rent . . . . . . . . . . . . . . . . . . . . . . 10
1.71 Responding Party . . . . . . . . . . . . . . . . 11
1.72 SEC . . . . . . . . . . . . . . . . . . . . . . 11
1.73 State . . . . . . . . . . . . . . . . . . . . . 11
1.74 Subsidiary . . . . . . . . . . . . . . . . . . . 11
1.75 Substitute Properties . . . . . . . . . . . . . 11
1.76 Substitution Date . . . . . . . . . . . . . . . 11
1.77 Successor Landlord . . . . . . . . . . . . . . . 11
1.78 Superior Lease . . . . . . . . . . . . . . . . . 11
1.79 Superior Landlord . . . . . . . . . . . . . . . 11
1.80 Superior Mortgage . . . . . . . . . . . . . . . 11
1.81 Superior Mortgagee . . . . . . . . . . . . . . . 11
1.82 Tenant . . . . . . . . . . . . . . . . . . . . . 11
1.83 Tenant's Personal Property . . . . . . . . . . . 11
1.84 Term . . . . . . . . . . . . . . . . . . . . . . 11
1.85 Test Rate . . . . . . . . . . . . . . . . . . . 12
1.86 Trustees . . . . . . . . . . . . . . . . . . . . 12
1.87 Unavoidable Delays . . . . . . . . . . . . . . . 12
1.88 Unsuitable for Its Primary Intended Use . . . . 12
ARTICLE 2 PREMISES AND TERM . . . . . . . . . . . . . . 12
2.1 Premises . . . . . . . . . . . . . . . . . . . . 12
2.2 Condition of Premises . . . . . . . . . . . . . 13
2.3 Fixed Term . . . . . . . . . . . . . . . . . . . 14
2.4 Extended Terms . . . . . . . . . . . . . . . . . 14
ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . 15
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . 15
3.1.1 Minimum Rent . . . . . . . . . . . . . . 15
3.1.2 Percentage Rent . . . . . . . . . . . . . 15
3.1.3 Additional Rent . . . . . . . . . . . . . 17
3.2 Late Payment of Rent . . . . . . . . . . . . . . 19
3.3 Net Lease . . . . . . . . . . . . . . . . . . . 19<PAGE>
3.4 No Termination, Abatement, Etc . . . . . . . . . 19
ARTICLE 4 USE OF THE LEASED PROPERTY . . . . . . . . . . 20
4.1 Permitted Use . . . . . . . . . . . . . . . . . 20
4.1.1 Primary Intended Use . . . . . . . . . . 20
4.1.2 Necessary Approvals . . . . . . . . . . . 21
4.1.3 Continuous Operation, Etc . . . . . . . . 21
4.1.4 Lawful Use, Etc . . . . . . . . . . . . . 21
4.2 Compliance with Legal and Insurance
Requirements, Instruments, Etc . . . . . . . . 21
4.3 Compliance with Medicaid and Medicare
Requirements . . . . . . . . . . . . . . . . . 21
4.4 Environmental Matters . . . . . . . . . . . . . 22
ARTICLE 5 MAINTENANCE AND REPAIRS, ETC . . . . . . . . . 23
5.1 Maintenance and Repair . . . . . . . . . . . . . 23
5.1.1 Tenant's Obligations . . . . . . . . . . 23
5.1.2 Landlord's Obligations . . . . . . . . . 23
5.2 Capital Expenditure Cost Sharing . . . . . . . . 23
5.3 Tenant's Personal Property . . . . . . . . . . . 24
5.4 Yield Up . . . . . . . . . . . . . . . . . . . . 24
5.5 Encroachments, Restrictions, Etc . . . . . . . . 25
ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . 25
6.1 Construction of Capital Additions to the Leased
Property . . . . . . . . . . . . . . . . . . . 25
6.2 Capital Additions Financed by Tenant . . . . . . 27
6.3 Information Regarding Capital Additions . . . . 29
6.4 Non-Capital Additions . . . . . . . . . . . . . 30
6.5 Salvage . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . 30
7.1 Liens . . . . . . . . . . . . . . . . . . . . . 30
7.2 Landlord's Lien . . . . . . . . . . . . . . . . 31
7.3 Mechanic's Liens . . . . . . . . . . . . . . . . 32
ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . 32
ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . 33
9.1 General Insurance Requirements . . . . . . . . . 33
9.2 Waiver of Subrogation . . . . . . . . . . . . . 34
9.3 Form Satisfactory, Etc . . . . . . . . . . . . . 35
9.4 No Separate Insurance . . . . . . . . . . . . . 36
9.5 Indemnification of Landlord . . . . . . . . . . 36
9.6 Indemnification of Tenant . . . . . . . . . . . 36
ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . 37<PAGE>
10.1 Insurance Proceeds . . . . . . . . . . . . . . . 37
10.2 Reconstruction in the Event of Damage or
Destruction . . . . . . . . . . . . . . . . . 37
10.2.1 Material Damage or Destruction of Premises 37
10.2.2 Partial Damage or Destruction . . . . . 38
10.3 Insufficient Insurance Proceeds . . . . . . . . 39
10.4 Disbursement of Proceeds . . . . . . . . . . . . 39
10.5 Tenant's Property . . . . . . . . . . . . . . . 40
10.6 Restoration of Tenant's Property . . . . . . . . 40
10.7 No Abatement of Rent . . . . . . . . . . . . . . 40
10.8 Damage Near End of Term . . . . . . . . . . . . 40
ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . 41
11.1 Total Condemnation . . . . . . . . . . . . . . . 41
11.2 Partial Condemnation . . . . . . . . . . . . . . 41
11.3 Temporary Condemnation . . . . . . . . . . . . . 41
11.4 Tenant's Option . . . . . . . . . . . . . . . . 41
11.5 Allocation of Award . . . . . . . . . . . . . . 42
11.6 Abatement Procedures . . . . . . . . . . . . . . 42
ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . 43
12.1 Events of Default. . . . . . . . . . . . . . . . 43
12.2 Remedies . . . . . . . . . . . . . . . . . . . . 45
12.3 Waiver . . . . . . . . . . . . . . . . . . . . . 47
12.4 Application of Funds . . . . . . . . . . . . . . 47
12.5 Failure to Conduct Business . . . . . . . . . . 47
12.6 Landlord's Right to Cure Tenant's Default . . . 47
12.7 Trade Names . . . . . . . . . . . . . . . . . . 47
ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . 48
ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . 48
ARTICLE 15 PURCHASE OF PREMISES . . . . . . . . . . . . 49
ARTICLE 16 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY 50
16.1 Tenant's Substitution Option . . . . . . . . . . 50
16.2 Landlord's Substitution Option . . . . . . . . . 50
16.3 Substitution Procedures . . . . . . . . . . . . 51
16.4 Conditions to Substitution . . . . . . . . . . . 53
16.5 Conveyance to Tenant . . . . . . . . . . . . . . 54
16.6 Expenses . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 17 SUBLETTING AND ASSIGNMENT . . . . . . . . . . 55
17.1 Subletting and Assignment . . . . . . . . . . . 55
17.2 Required Sublease Provisions . . . . . . . . . . 56
17.3 Sublease Limitation . . . . . . . . . . . . . . 56
17.4 Assignment and Subletting Procedure . . . . . . 56
ARTICLE 18 CERTIFICATES AND FINANCIAL STATEMENTS . . . . 57<PAGE>
18.1 Estoppel Certificates . . . . . . . . . . . . . 57
18.2 Financial Statements . . . . . . . . . . . . . . 57
18.3 General Operations . . . . . . . . . . . . . . . 58
18.3.1 Reimbursement, Licensure, Etc. . . . . . 58
18.3.2 Monthly Reports . . . . . . . . . . . . 59
ARTICLE 19 LANDLORD ACCESS . . . . . . . . . . . . . . . 59
19.1 Landlord's Right to Inspect . . . . . . . . . . 59
19.2 Landlord's Option to Purchase the Tenant's
Personal Property; Transfer of Licenses . . . 59
ARTICLE 20 APPRAISAL . . . . . . . . . . . . . . . . . . 60
20.1 Appraisal Procedure . . . . . . . . . . . . . . 60
ARTICLE 21 MORTGAGES . . . . . . . . . . . . . . . . . . 61
21.1 Landlord May Grant Liens . . . . . . . . . . . . 61
21.2 Subordination of Lease . . . . . . . . . . . . . 61
21.3 Notice to Mortgagee and Ground Landlord . . . . 63
ARTICLE 22 INVESTMENT TAX CREDIT . . . . . . . . . . . . 63
22.1 Investment Tax Credit . . . . . . . . . . . . . 63
ARTICLE 23 ADDITIONAL COVENANTS OF TENANT
23.1 Notice of Change of Name, Administrator, Etc. 64
23.2 Notice of Litigation, Potential Event of
Default, Etc. . . . . . . . . . . . . . . . . 64
23.3 Management of Leased Property . . . . . . . . . 64
23.4 Distributions, Payments to Affiliated Persons,
Etc. . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 24 MISCELLANEOUS . . . . . . . . . . . . . . . . 65
24.1 No Waiver . . . . . . . . . . . . . . . . . . . 65
24.2 Remedies Cumulative . . . . . . . . . . . . . . 65
24.3 Acceptance of Surrender . . . . . . . . . . . . 65
24.4 No Merger of Title . . . . . . . . . . . . . . . 65
24.5 Conveyance by Landlord . . . . . . . . . . . . . 65
24.6 Quiet Enjoyment . . . . . . . . . . . . . . . . 66
24.7 Landlord's Liability . . . . . . . . . . . . . . 66
24.8 Landlord's Consent . . . . . . . . . . . . . . . 66
24.9 Memorandum of Lease . . . . . . . . . . . . . . 67
24.10 Notices . . . . . . . . . . . . . . . . . . . . 67
24.11 Construction . . . . . . . . . . . . . . . . . . 68
24.12 Governing Law . . . . . . . . . . . . . . . . . 68
EXHIBITS
A - Other Leases
B - Permitted Encumbrances
C - The Land
D - Minimum Rent<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated as of February 11, 1994, is made by and
between HEALTH AND REHABILITATION PROPERTIES TRUST, a Maryland real
estate investment trust, as landlord ("Landlord"), having its principal
office at 400 Centre Street, Newton, Massachusetts, and CONNECTICUT
SUBACUTE CORPORATION II, a Delaware corporation, as tenant ("Tenant"),
having an office at 400 Centre Street, Newton, Massachusetts 02158.
W I T N E S S E T H :
WHEREAS, Landlord owns the Leased Property (this and other
capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in Article 1) and Landlord wishes to
lease the Leased Property to Tenant and Tenant wishes to lease the
Leased Property from Landlord, subject to and upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt
and legal sufficiency of which are hereby acknowledged, Landlord and
Tenant hereby agree as follows:
ARTICLE 1
DEFINITIONS
Each reference in this Lease to any of the following terms shall be
construed to incorporate the definitions hereinafter set forth and
include the plural as well as the singular. All accounting terms not
otherwise defined herein shall have the meanings assigned to them in
accordance with generally accepted accounting principles.
1.1 "Added Value Percentage" shall have the meaning given such
term in Section 6.2(a).
1.2 "Additional Rent" shall have the meaning given such term in
Section 3.1.3.
1.3 "Affiliated Person" shall mean, with respect to any Person,
(a) in the case of any such Person which is a partnership, any partner
in such partnership; (b) in the case of any such Person which is a
limited liability company, any member of such company; (c) any other
Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent of
the Persons referred to in the preceding clauses (a) and (b); (d) any
other Person otherwise directly or indirectly controlling or under
common control with such Person or one or more of the Persons referred
to in the preceding clauses (a), (b) and (c); and (e) any other Person
who is a member of the Immediate Family of such Person or any Person
referred to in the preceding clauses (a) through (d).<PAGE>
1.4 "Assumed Indebtedness" shall mean any indebtedness or other
obligations existing at the time of acquisition of the Leased Property
by Landlord secured by a mortgage, deed of trust or other security
agreement creating a lien on the Leased Property and assumed by
Landlord, and any indebtedness resulting from the refinancing thereof,
and/or any subsequent indebtedness resulting from Landlord's financing
of, or Landlord's reimbursement of Tenant's financing of, any Capital
Additions during the Term, except any indebtedness or other obligations
of Tenant not assumed by Landlord prior to or during the Term.
1.5 "Award" shall mean all compensation, sums or other value
awarded, paid or received by virtue of a total or partial Condemnation
of the Leased Property (after deduction of all reasonable legal fees and
other reasonable costs and expenses incurred by Landlord in connection
with obtaining any such award).
1.6 "Base Net Patient Revenues" shall mean Net Patient Revenues
for the Base Year.
1.7 "Base Rate" shall mean the rate of interest, determined daily
and expressed as a percentage, announced by Citibank, N.A., in New York,
New York, from time to time, as Citibank, N.A.'s "base rate" or "prime
rate", so-called, or, if at any time Citibank, N.A. ceases to announce
such a rate, as announced by the largest national or state chartered
banking institution other than Citibank, N.A. then having its principal
office in New York, New York and announcing such a rate. If at any time
neither Citibank, N.A. nor any of the five largest other national or
state chartered banking institutions having their principal offices in
New York, New York is announcing such a floating rate, "Base Rate" shall
mean a rate of interest, determined daily, which is two (2) percentage
points above the 14-day moving average closing trading price of 90-day
Treasury Bills.
1.8 "Base Year" shall mean the twelve-month period beginning June
1, 1999 and ending May 31, 2000.
1.9 "Business Day" shall mean any day other than Saturday, Sunday,
or any other day on which banking institutions in The Commonwealth of
Massachusetts or in New York, New York are authorized by law or
executive action to close.
1.10 "Capital Addition" shall mean one or more new buildings, or
one or more additional structures annexed to any portion of any of the
Leased Improvements, or the material expansion of existing improvements,
which are constructed on any parcel or portion of the Land during the
Term, including, but not limited to, the construction of a new wing or
new story, the renovation of existing improvements on the Leased
Property in order to provide a functionally new facility needed to
provide services not previously offered, or any expansion, construction,
renovation or conversion in order to increase the bed capacity of the
Facility, to change the purpose for which such beds are utilized or to
improve the quality of the Facility.
1.11 "Capital Additions Cost" shall mean the cost of any Capital
Addition proposed to be made by Tenant, whether paid for by Tenant or
Landlord. Such cost shall include (a) the cost of construction of the<PAGE>
-3-
Capital Addition, including, site preparation and improvement,
materials, labor, supervision, developer and administrative fees, legal
fees, and related design, engineering and architectural services, the
cost of any fixtures, the cost of construction financing (including, but
not limited to, capitalized interest) and other miscellaneous costs
approved by Landlord, (b) if agreed to by Landlord in writing, in
advance, the cost of any land contiguous to the Leased Property which is
to become a part of the Leased Property purchased for the purpose of
placing thereon the Capital Addition or any portion thereof or for
providing means of access thereto, or parking facilities therefor,
including the cost of surveying the same, (c) the cost of insurance,
real estate taxes, water and sewage charges and other carrying charges
for such Capital Addition during construction, (d) title insurance
charges, (e) reasonable attorneys' fees, (f) filing and registration
fees and recording taxes, (g) documentary stamp or transfer taxes, and
(h) all actual and reasonable costs and expenses of Landlord and any
Lending Institution committed to finance the Capital Addition,
including, but not limited to, (i) reasonable attorneys' fees, (ii)
printing expenses, (iii) filing, registration and recording taxes and
fees, (iv) documentary stamp or transfer taxes, (v) title insurance
charges and appraisal fees, (vi) rating agency fees, and (vii) loan
commitment fees.
1.12 "Capital Expenditure" shall mean any single required
improvement, alteration, replacement or repair of the Leased Property,
or any part thereof, (a) having a cost in excess of One Hundred Thousand
Dollars ($100,000.00) (which amount shall be increased each year of the
Lease by the product determined by multiplying such amount by the
percentage increase in the Consumer Price Index, Urban Wage Earners and
Clerical Workers, All Items, Base 1982-84=100, published by the U.S.
Department of Labor, All Cities, or such comparable index published by
the U.S. Department of Labor or its successor agency), and (b) having a
useful life in excess of the longer of (i) twelve (12) months, or (ii)
the remaining period of the Term, except capital improvements
necessitated by destruction or Condemnation of the Leased Property, or
any portion thereof.
1.13 "Cash Adjustment" shall have the meaning given such term in
Section 16.3(d).
1.14 "Claims" shall have the meaning given such term in Article 8.
1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to
the extent applicable, the Treasury Regulations promulgated thereunder,
each as from time to time amended.
1.16 "Commencement Date" shall mean the date of this Lease.
1.17 "Condemnation" shall mean (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are
pending, and (c) a taking or voluntary conveyance of all or part of the
Leased Property, or any interest therein, or right accruing thereto or
use thereof, as the result or in settlement of any Condemnation or other<PAGE>
-4-
eminent domain proceeding affecting any portion of the Leased Property,
whether or not the same shall have actually been commenced.
1.18 "Condemnor" shall mean any public or quasi-public authority,
or private corporation or individual having the power of Condemnation.
1.19 "Consolidated Financials" shall mean, for any Fiscal Year or
other accounting period of Tenant and its consolidated Subsidiaries,
statements of earnings, retained earnings and changes in financial
position for such period and for the period from the beginning of the
applicable Fiscal Year to the end of such period and the balance sheet
as at the end of such period, together with the notes thereto, all in
reasonable detail, and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding
Fiscal Year, and prepared in accordance with generally accepted
accounting principles, consistently applied.
1.20 "Control" and any variations thereof shall mean, with respect
to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, through the ownership of voting securities, partnership
interests or other equity interests.
1.21 "Date of Taking" shall mean the date the Condemnor has the
right to possession of the Leased Property, or any portion thereof, in
connection with a Condemnation.
1.22 "Default" shall mean any event, act or omission which with the
giving of notice and/or lapse of time could constitute an Event of
Default.
1.23 "Encumbrance" shall have the meaning given such term in
Section 21.1.
1.24 "Entity" shall mean any corporation, general or limited
partnership, limited liability company, stock company or association,
joint venture, association, company, trust, bank, trust company, land
trust, business trust, any government or agency or political subdivision
thereof or any other entity.
1.25 "Environmental Laws" shall mean all applicable Federal, state
or local statutes, laws, ordinances, rules and regulations, licensing
requirements or conditions, whether now existing or hereafter arising,
relating to Hazardous Substances.
1.26 "Environmental Notice" shall have the meaning given such term
in Section 4.4.
1.27 "Environmental Obligation" shall mean any cost, expense, loss
or damage arising under any Environmental Law or in connection with any
Hazardous Substance.
1.28 "Event of Default" shall have the meaning given such term in
Section 12.1.<PAGE>
-5-
1.29 "Excess Net Patient Revenues" shall mean the amount of Net
Patient Revenues for any measuring period in excess of the Base Net
Patient Revenues for the equivalent period of the Base Year.
1.30 "Extended Terms" shall have the meaning given such term in
Section 2.4.
1.31 "Facility" shall mean the licensed nursing home being operated
on the Leased Property.
1.32 "Facility Mortgage" shall mean any mortgage, deed of trust or
other security agreement securing any Assumed Indebtedness or any other
encumbrance placed upon the Leased Property in accordance with Article
21.
1.33 "Facility Mortgagee" shall mean the holder of any Facility
Mortgage.
1.34 "Facility Trade Names" shall mean any of the names under which
Tenant operates, or has operated, the Facility at any time during the
Term.
1.35 "Fair Market Added Value" shall mean the Fair Market Value of
the Leased Property (including all Capital Additions) less the Fair
Market Value of the Leased Property determined as if no Capital
Additions financed by Tenant had been constructed.
1.36 "Fair Market Rental" shall mean the rental which a willing
tenant not compelled to rent would pay a willing landlord not compelled
to lease for the use and occupancy of the Leased Property, or applicable
portion thereof, on the terms and conditions of this Lease, for the term
in question, and determined in accordance with the appraisal procedures
set forth in Article 20 or in such other manner as shall be mutually
acceptable to Landlord and Tenant.
1.37 "Fair Market Value" shall mean the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell
for the Leased Property, (a) assuming the same is unencumbered by this
Lease, (b) determined in accordance with the appraisal procedures set
forth in Article 20 or in such other manner as shall be mutually
acceptable to Landlord and Tenant, (c) assuming such seller shall pay
the closing costs generally paid by a seller of real property in the
state in which such property is located and that such buyer shall pay
closing costs generally paid by a buyer of real property in the state in
which such property is located, and (d) not taking into account any
reduction in value resulting from any indebtedness to which such
property is subject, except the positive or negative effect on the value
of such property attributable to the interest rate, amortization
schedule, maturity date, prepayment penalty and other terms and
conditions of any lien or encumbrance which is not removed at or prior
to the closing of the transaction as to which such Fair Market Value
determination is being made.
1.38 "Fair Market Value Purchase Price" shall mean the Fair Market
Value of the Leased Property less the Fair Market Added Value.<PAGE>
-6-
1.39 "Fiscal Year" shall mean each twelve (12) month period from
June 1 to May 31.
1.40 "Fixed Term" shall have the meaning given such term in Section
2.3.
1.41 "Fixtures" shall have the meaning given such term in Section
2.1(d).
1.42 "Hazardous Substances" shall mean hazardous substances (as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, as now in effect or as hereafter from time to time
amended), hazardous wastes (as defined by the Resource Conservation and
Recovery Act, as now in effect or as hereafter from time to time
amended), any hazardous waste, hazardous substance, pollutant or
contaminant, oils, radioactive materials, asbestos in any form or
condition, or any pollutant or contaminant or hazardous, dangerous or
toxic chemicals, materials or substances within the meaning of any other
applicable Federal, state or local law, regulation, ordinance or
requirements relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or
materials, all as now in effect or hereafter from time to time amended.
1.43 "Immediate Family" shall mean, with respect to any Person,
his spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law,
brothers-in-law, sisters-in-law, nephews and nieces.
1.44 "Impositions" shall mean all taxes, assessments, and ad
valorem, sales, and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same are imposed on either
Landlord or Tenant with respect to the Leased Property and/or the
business conducted thereon by Tenant and other charges and impositions
(including, but not limited to, fire protection service fees and similar
charges) levied, assessed or imposed at any time during the Term by any
governmental authority upon or against the Leased Property, or taxes in
lieu thereof, and additional types of taxes to supplement real estate
taxes due to legal limits imposed thereon. If, at any time during the
Term, any tax or excise on rents or other taxes, however described, are
levied or assessed against Landlord with respect to the rent reserved
hereunder, either wholly or partially in substitution for, or in
addition to, real estate taxes assessed or levied on the Leased
Property, such tax or excise on rents shall be included in Impositions;
provided, however, that Impositions shall not include franchise, estate,
inheritance, succession, capital levy, transfer, income or excess
profits taxes assessed on Landlord. Impositions shall include any
estimated payment, whether voluntary or required, made by Landlord on
account of a fiscal tax period for which the actual and final amount of
taxes for such period has not been determined by the governmental
authority as of the date of any such estimated payment.
1.45 "Initiating Party" shall have the meaning given such term in
Section 20.1.<PAGE>
-7-
1.46 "Insurance Requirements" shall mean all terms of any insurance
policy required by this Lease and all requirements of the issuer of any
such policy.
1.47 "Land" shall have the meaning given such term in Section
2.1(a).
1.48 "Landlord" shall have the meaning given such term in the
preambles to this Lease.
1.49 "Landlord Default" shall have the meaning given such term in
Article 14.
1.50 "Lease" shall mean this Lease Agreement, including Exhibits A
through D hereto, as it and they may be amended from time to time as
herein provided.
1.51 "Leased Improvements" shall have the meaning given such term
in Section 2.1(b).
1.52 "Leased Personal Property" shall have the meaning given such
term in Section 2.1(e).
1.53 "Leased Property" shall have the meaning given such term in
Section 2.1.
1.54 "Legal Requirements" shall mean all federal, state, county,
municipal and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions, including,
but not limited to, Environmental Laws, affecting the Leased Property or
the maintenance, construction, use or alteration thereof, whether now or
hereafter enacted, including those which may (a) require repairs,
modifications or alterations in or to the Leased Property or any portion
thereof or (b) in any way adversely affect the use and enjoyment
thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to
Tenant (other than encumbrances hereinafter created by Landlord without
the consent of Tenant), at any time in force affecting the Leased
Property.
1.55 "Lending Institution" shall mean any insurance company,
federally insured commercial or savings bank, national banking
association, savings and loan association, employees' welfare, pension
or retirement fund or system, corporate profit sharing or pension trust,
college or university, or real estate investment trust, including any
corporation qualified to be treated for federal tax purposes as a real
estate investment trust, having a net worth of at least $10,000,000.
1.56 "Minimum Rent" shall mean the amount set forth in Exhibit D.
1.57 "Minimum Repurchase Price" shall mean that portion of the
aggregate purchase price of the Leased Property paid by Landlord in cash
or in kind, plus the aggregate of unpaid principal balance of all
encumbrances against the Leased Property at the time of purchase thereof<PAGE>
-8-
by Tenant, plus any amounts paid by Landlord to reduce the principal
balance of any Assumed Indebtedness, less all proceeds received by
Landlord from any refinancing of the Leased Property (after payment of
the debt refinanced and net of any costs and expenses incurred in
connection with such refinancing, including, without limitation, loan
points, commitment fees and commissions) and less the net amount (after
deduction of all reasonable legal fees and other costs and expenses,
including, without limitation, expert witness fees, incurred by Landlord
in connection with obtaining any such award) of all awards received by
Landlord from any partial Condemnation of the Leased Property or any
portion thereof which are not applied to restoration.
1.58 "Net Patient Revenues" shall mean all revenues received or
receivable from or by reason of the operation of the Facility, or any
portion thereof, or any other use of the Leased Property, or any portion
thereof, including, without limitation, all patient revenues received or
receivable for the use of or otherwise by reason of all rooms, beds and
other facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Leased Property, or any
portion thereof, including, without limitation, and except as provided
below, any other arrangements with third parties relating to the
possession or use of any portion of any portion of the Leased Property;
provided, however, Net Patient Revenues shall not include: (a) revenue
from professional fees or charges by physicians and providers (other
than Tenant or Tenant's employees) of ancillary services, when and to
the extent such charges are paid over to such physicians or providers of
ancillary services, or are separately billed and not included in
comprehensive fees; (b) nonoperating revenues such as interest income or
income from the sale of assets not sold in the ordinary course of
business; (c) contractual allowances (relating to any period during the
Term) for billings not paid by or received from the appropriate
governmental agencies or third party providers; (d) allowances according
to generally accepted accounting principles for uncollectible accounts,
including credit card accounts and charity care or other administrative
discounts; (e) all proper patient billing credits and adjustments
according to generally accepted accounting principles relating to health
care accounting; (f) federal, state or local sales or excise taxes and
any tax based on or measured by such revenues which is added to or made
a part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated separately;
(g) provider discounts for hospital or other medical facility
utilization contracts and credit card discounts; (h) revenues
attributable to Capital Additions financed by Tenant as provided in
Section 6.2; (i) revenues attributable to services actually provided off
the Leased Property, such as home health care; and (j) any amounts
actually paid by Tenant for the cost of any federal, state or local
governmental programs imposed specially to provide or finance indigent
patient care. To the extent the Leased Property or any portion thereof
is subleased by Tenant, Net Patient Revenues shall include (x) the Net
Patient Revenues generated from the operations conducted on such
subleased portion of the Leased Property and (y) the rent received or
receivable by Tenant from or under any such sublease to the extent such
rent is not based on Net Patient Revenues and, therefore, has not
already been included in the calculation of Net Patient Revenues
pursuant to clause (x) preceding.<PAGE>
-9-
1.59 "Non-Capital Additions" shall have the meaning given such term
in Section 6.4.
1.60 "Officer's Certificate" shall mean a certificate signed by the
chief financial officer or another officer of Tenant authorized by the
board of directors or by-laws of Tenant, or any other Person whose power
and authority to act has been so authorized.
1.61 "Other Leases" shall mean the Leases described in Exhibit A,
attached hereto and made a part hereof.
1.62 "Overdue Rate" shall mean a rate equal to the lesser of the
Base Rate plus two percent (2%) and the maximum rate then permitted
under applicable law.
1.63 "Parent" shall mean, with respect to any Person, any Person
which owns directly, or indirectly, through one or more Subsidiaries,
twenty percent (20%) or more of the voting or beneficial interests in
such Person or otherwise Controls such Person.
1.64 "Percentage Rent" shall have the meaning given such term in
Section 3.1.2(a).
1.65 "Permitted Encumbrances" shall mean the matters set forth in
Exhibit B, attached hereto and made a part hereof.
1.66 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns
of such Person where the context so admits.
1.67 "Primary Intended Use" shall have the meaning given such term
in Section 4.1.1.
1.68 "Qualified Appraiser" shall mean any disinterested person who
is a member in good standing of the American Institute of Real Estate
Appraisers or the American Society of Real Estate Counselors (or the
successor to either of such organizations) and who has had not less than
ten (10) years experience in appraising and valuing, commercial
buildings in the State.
1.69 "Records" shall have the meaning given such term in Section
7.2.
1.70 "Rent" shall mean, collectively, the Minimum Rent, Percentage
Rent and Additional Rent.
1.71 "Responding Party" shall have the meaning given such term in
Section 20.1.
1.72 "SEC" shall mean the Securities and Exchange Commission.
1.73 "State" shall mean the State, Commonwealth, Possession or
Territory in which the Leased Property is located.<PAGE>
-10-
1.74 "Subsidiary" shall mean, with respect to any Person, any
Entity in which such Person shall own, directly or indirectly, through
one or more Subsidiaries, twenty percent (20%) or more of the voting or
beneficial interests or any other entity Controlled by such Person.
1.75 "Substitute Properties" shall have the meaning given such term
in Section 16.1.
1.76 "Substitution Date" shall have the meaning given such term in
Section 16.1.
1.77 "Successor Landlord" shall have the meaning given such term in
Section 21.2.
1.78 "Superior Lease" shall have the meaning given such term in
Section 21.2.
1.79 "Superior Landlord" shall have the meaning given such term in
Section 21.2.
1.80 "Superior Mortgage" shall have the meaning given such term in
Section 21.2.
1.81 "Superior Mortgagee" shall have the meaning given such term in
Section 21.2.
1.82 "Tenant" shall have the meaning given such term in the
preambles to this Lease.
1.83 "Tenant's Personal Property" shall mean all motor vehicles and
consumable inventory and supplies, furniture, equipment and machinery
and all other personal property of Tenant located on the Leased Property
or used in Tenant's business on the Leased Property and all
modifications, replacements, alterations and additions to the Leased
Personal Property installed at the expense of Tenant, other than any
items included within the definition of Fixtures or Leased Personal
Property and expressly excluding Tenant's accounts receivable.
1.84 "Term" shall mean, collectively, the Fixed Term and any
Extended Terms, to the extent properly exercised pursuant to the
provisions of Section 2.4, unless sooner terminated pursuant to the
provisions of this Lease.
1.85 "Test Rate" shall mean the minimum interest rate necessary to
avoid imputation of original issue discount income under Sections 483 or
1272 of the Code or any similar provision.
1.86 "Trustees" shall mean the trustees of Landlord.
1.87 "Unavoidable Delays" shall mean delays due to strikes, lock-
outs, inability to procure materials, power failure, acts of God,
governmental restrictions, enemy action, civil commotion, fire,
unavoidable casualty or other causes beyond the reasonable control of
the party responsible for performing an obligation hereunder, but in no
event to exceed sixty (60) days so long as the affected party shall use<PAGE>
-11-
reasonable efforts to alleviate the cause of such delay and thereafter
promptly perform such obligation; provided, however, that (x) in no
event shall Tenant's obligation to pay the Rent be affected by
Unavoidable Delays, and (y) in no event shall lack of funds be deemed a
cause beyond the control of either party.
1.88 "Unsuitable for Its Primary Intended Use" shall mean a state
or condition of the Facility such that by reason of damage or
destruction, or a partial Condemnation, in the good faith judgment of
Landlord and Tenant, reasonably exercised, the Facility cannot be
operated on a commercially practicable basis for its Primary Intended
Use taking into account, among other relevant factors, the number of
usable beds, the amount of square footage, or revenues affected by such
damage or destruction or partial taking.
ARTICLE 2
PREMISES AND TERM
2.1 Premises. Upon and subject to the terms and conditions herein
set forth, Landlord leases to Tenant and Tenant leases from Landlord all
of the following (collectively, the "Leased Property"):
(a) those certain tracts, pieces and parcels of land as more
particularly described in Exhibit C, attached hereto and made a
part hereof (collectively, the "Land");
(b) all buildings, structures, Fixtures and other
improvements of every kind, including, but not limited to,
alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently
situated upon the Land and Capital Additions financed by Landlord
(collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the
Land and the Leased Improvements;
(d) all equipment, machinery, fixtures and other items of
property, now or hereafter permanently affixed to or incorporated
into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air
and water pollution control, waste disposal, air-cooling and air-
conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, all of which, to the greatest extent
permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's
Personal Property (collectively, the "Fixtures");
(e) all machinery, equipment, furniture, furnishings,
moveable walls or partitions, computers or trade fixtures or other<PAGE>
-12-
personal property used or useful in Tenant's business on or in the
Leased Improvements, and located on or in the Leased Improvements
on the Commencement Date, except items, if any, included within the
category of Fixtures, but specifically excluding all items included
within the category of Tenant's Personal Property (collectively the
"Leased Personal Property"); and
(f) all existing leases of space (including any security
deposits held pursuant thereto), if any, in the Leased Improvements
to tenants thereof.
2.2 Condition of Premises. On the Commencement Date, Landlord
shall deliver and Tenant shall accept the Leased Property in "as is"
condition, subject to the rights of parties in possession, the existing
state of title, including all covenants, conditions, restrictions,
easements and other matters of record, all applicable Legal
Requirements, the lien of financing instruments, mortgages and deeds of
trust, and such other matters which would have been disclosed by an
inspection of the Leased Property and the record title thereto or by an
accurate survey thereof. LANDLORD MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART
THEREOF, EITHER AS THE FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, WITH RESPECT TO THE
LEASED PROPERTY OR ANY PORTION THEREOF IT BEING AGREED THAT ALL SUCH
RISKS SHALL BE BORNE BY TENANT. To the extent permitted by law,
however, Landlord grants and assigns to Tenant all of Landlord's rights
to proceed against any predecessor in title for breaches of warranties
or representations or for latent defects in the Leased Property.
Landlord shall cooperate with Tenant in the prosecution of any such
claims, in Landlord's or Tenant's name, all at Tenant's sole cost and
expense. Tenant shall indemnify, and hold harmless Landlord from and
against any loss, cost, damage or liability (including attorneys' fees)
incurred by Landlord in connection with such cooperation.
2.3 Fixed Term. The initial term of this Lease (the "Fixed Term")
shall commence on the date hereof and, unless sooner terminated in
accordance with the terms and conditions of this Lease, shall expire on
December 31, 1998.
2.4 Extended Terms. Provided no Default or Event of Default shall
have occurred and be continuing and Tenant shall simultaneously exercise
its right to extend the term of all of the Other Leases, Tenant shall
have the right to extend the Fixed Term for two additional periods of
ten (10) years each (the "Extended Terms").
Each Extended Term shall commence on the day succeeding the
expiration of the Fixed Term or the preceding Extended Term, as the case
may be, and shall end on the day immediately preceding the tenth
anniversary of the commencement of such Extended Term. All of the
terms, covenants and provisions of this Lease shall apply to each such
Extended Term, except that (a) the Minimum Rent for the second such
Extended Term shall be the greater of (x) the Minimum Rent payable
during the first such Extended Term and (y) the Fair Market Rental for
the Leased Property determined as of the commencement of such Extended<PAGE>
-13-
Term, and (b) Tenant shall have no further right to extend the Term
beyond the Extended Terms hereinabove provided. If Tenant shall elect
to exercise either of the aforesaid options, it shall do so by giving
Landlord written notice thereof not later than one (1) year prior to the
expiration of the then current term of this Lease (Fixed or Extended, as
applicable); it being understood and agreed that time is of the essence
with respect to the giving of such notice. If Tenant shall fail to give
any such notice, this Lease shall automatically terminate at the end of
the term then in effect and Tenant shall have no further option to
extend the term of this Lease. If Tenant shall give such notice, the
extension of this Lease shall be automatically effected, without the
execution of any additional documents. <PAGE>
-14-
ARTICLE 3
RENT
3.1 Rent. Tenant shall pay to Landlord, by check or wire transfer
of immediately available federal funds, as Tenant may elect, without
offset, abatement, demand or deduction, Minimum Rent, Percentage Rent
and Additional Rent, during the Term, as herein provided.
3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal
monthly installments, in advance, on the first day of each and every
calendar month during the Term. Minimum Rent for any partial month
shall be pro-rated on a daily basis.
3.1.2 Percentage Rent.
(a) Amount. Commencing June 1, 2000, for each Fiscal Year
during the Term, Tenant shall pay to Landlord, as additional rent,
percentage rent ("Percentage Rent") in an amount equal to three
percent (3%) of Excess Net Patient Revenues for such Fiscal Year.
Percentage Rent shall be calculated and paid quarterly in arrears
on the basis of cumulative Excess Net Patient Revenues as the last
day of each quarter occurring during the applicable Fiscal Year,
less the Percentage Rent, if any, previously paid to Landlord for
such Fiscal Year.
(b) Payment of Percentage Rent. Tenant shall calculate and
deliver Percentage Rent to Landlord within forty-five (45) days
after the end of each quarter of any Fiscal Year (or, in the case
of the final quarter in any Fiscal Year, ninety (90) days
thereafter), together with an Officer's Certificate, setting forth
the calculation of Percentage Rent for such quarter.
(c) Reconciliation of Additional Rent. Within ninety (90)
days after the end of each Fiscal Year, Tenant shall deliver to
Landlord an Officer's Certificate, together with certified audits
with respect to Net Patient Revenues for the Facility and the
facilities leased under the Other Leases, in form and substance
reasonably satisfactory to Landlord, of Tenant's financial
operations prepared by accountants reasonably satisfactory to
Landlord, setting forth the Net Patient Revenues and Excess Net
Patient Revenues for the immediately preceding Fiscal Year,
together with such additional information with respect thereto as
Landlord may reasonably request.
If the Percentage Rent for any Fiscal Year as shown in the
applicable Officer's Certificate and accompanying financial
statements is less than the amount previously paid with respect
thereto, Landlord shall, at Landlord's option, refund any excess
payment to Tenant or grant Tenant a credit against the next due
payment of Percentage Rent in the amount of such difference. If
the Percentage Rent for any Fiscal Year as shown in the applicable
Officer's Certificate exceeds the amount previously paid with
respect thereto, Tenant shall pay such excess to Landlord at such
time as such Officer's Certificate is delivered.<PAGE>
-15-
Any difference between the Percentage Rent for any Fiscal Year
as shown in such Officer's Certificate and the total amount of
quarterly payments for such Fiscal Year previously paid, whether in
favor of Landlord or Tenant, shall bear interest at the Base Rate,
which interest shall accrue from the close of such Fiscal Year
until the amount of such difference shall be paid or otherwise
discharged.
A final reconciliation of Percentage Rent, taking into account
among other relevant adjustments, any contractual allowances which
are accrued after the expiration or sooner termination of this
Lease, but which related to Net Patient Revenues accrued prior to
such termination, and Tenant's good faith best estimate of the
amount of any unresolved contractual allowances shall be made not
later than two (2) years after such termination and Tenant shall
advise Landlord within sixty (60) days after such termination of
Tenant's best estimate at that time of the approximate amount of
such adjustments, which estimate shall not be binding on Tenant.
(d) Confirmation of Percentage Rent. Tenant shall utilize,
or cause to be utilized, an accounting system for the conduct of
its business at the Leased Property in accordance with its usual
and customary practices and in accordance with generally accepted
accounting principles, consistently applied, which will accurately
record all Net Patient Revenues, and shall employ independent
accountants reasonably acceptable to Landlord, and Tenant shall
retain, for at least four (4) years after the expiration of each
Fiscal Year (and in any event until the final reconciliation
described in subparagraph (c) above for such Fiscal Year has been
made), reasonably adequate records conforming to such accounting
system showing all Net Patient Revenues for such Fiscal Year.
Landlord, at its own expense, except as provided below, shall have
the right, from time to time by its accountants or representatives,
to audit the information set forth in the Officer's Certificate
referred to in subparagraph (b) above and, in connection with such
audit, to examine Tenant's records with respect thereto (including
supporting data and sales and excise tax returns), subject to any
prohibitions or limitations on disclosure of any such data under
applicable law or regulations, including, without limitation, any
duly enacted "Patients' Bill of Rights" or similar legislation and
such other limitations as may be necessary to preserve the
confidentiality of the Facility-patient relationship and the
physician-patient privilege. If any such audit shall disclose a
deficiency in the payment of Percentage Rent and either Tenant
agrees with the result of such audit or the matter is otherwise
determined or compromised, Tenant shall forthwith pay to Landlord
the amount of the deficiency, as finally agreed or determined,
together with interest thereon at the Base Rate. If any such audit
discloses that the Net Patient Revenues actually received by Tenant
for any Fiscal Year exceed those reported by Tenant by more than
three percent (3%), Tenant shall pay the reasonable cost of such
audit. Any proprietary information obtained by Landlord pursuant
to the provisions of this section shall be treated as confidential,
except such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties<PAGE>
-16-
and Landlord may disclose such information to prospective
purchasers or lenders.
3.1.3 Additional Rent. In addition to the Minimum Rent and
Percentage Rent, Tenant shall pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions
which Tenant assumes or agrees to pay under this Lease (collectively,
"Additional Rent"), including, but not limited to the following:
(a) Impositions. Subject to Article 8, Tenant shall pay, or
cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be
made directly to the taxing authorities where feasible, and shall
promptly, upon request, furnish to Landlord copies of official
receipts or other satisfactory proof evidencing such payments. If
any such Imposition may, at the option of the taxpayer, lawfully be
paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Tenant may exercise the option
to pay the same (and any accrued interest on the unpaid balance of
such Imposition) in installments and, in such event, shall pay such
installments during the Term as the same become due and before any
fine, penalty, premium, further interest or cost may be added
thereto. Landlord, at its expense, shall, to the extent required or
permitted by applicable law, prepare and file all tax returns in
respect of Landlord's net income, gross receipts, sales and use,
single business, transaction privilege, rent, ad valorem, franchise
taxes and taxes on its capital stock, and Tenant, at its expense,
shall, to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports in
respect of any Imposition as may be required by governmental
authorities. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Tenant, the same shall be paid
over to or retained by Tenant if no Default or Event of Default
shall have occurred and be continuing. Landlord and Tenant shall,
upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any
property covered by this Lease as personal property, Tenant shall
file all personal property tax returns in such jurisdictions where
it may legally so file. Each party shall, to the extent it
possesses the same, provide the other, upon request, with cost and
depreciation records necessary for filing returns for any property
so classified as personal property. Where Landlord is legally
required to file personal property tax returns, Landlord shall
provide Tenant with copies of assessment notices in sufficient time
for Tenant to file a protest. All Impositions assessed against
such personal property shall be (irrespective of whether Landlord
or Tenant shall file the relevant return) paid by Tenant not later
than thirty (30) days prior to the last date on which the same may
be made without interest or penalty. If the provisions of any
Facility Mortgage requires deposits on account of Impositions to be
made with such Facility Mortgagee, provided the Facility Mortgagee
has not elected to waive such provision, Tenant shall either pay
Landlord the monthly amounts required and Landlord shall transfer<PAGE>
-17-
such amounts to such Facility Mortgagee or, pursuant to written
direction by Landlord, Tenant shall make such deposits directly
with such Facility Mortgagee.
Landlord shall give prompt written notice to Tenant of all
Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge; provided, however, Landlord's failure to give
any such notice shall in no way diminish Tenant's obligation
hereunder to pay such Impositions.
Impositions imposed in respect of the tax-fiscal period during
which the Term commences and/or terminates shall be prorated
between Landlord and Tenant, whether or not such Imposition is
imposed before or after such termination.
(b) Utility Charges. Tenant shall pay or cause to be paid
all charges for electricity, power, gas, oil, water and other
utilities used at the Leased Property during the Term.
(c) Insurance Premiums. Tenant shall pay or cause to be paid
all premiums for the insurance coverage required to be maintained
pursuant to Article 9.
(d) Other Charges. Tenant shall pay or cause to be paid all
other amounts, liabilities and obligations which Tenant assumes or
agrees to pay under this Lease.
3.2 Late Payment of Rent. If any installment of Minimum Rent,
Percentage Rent or Additional Rent (but only as to those items of
Additional Rent which are payable directly to Landlord) shall not be
paid when due, Tenant shall pay Landlord, on demand, as Additional Rent,
a late charge (to the extent permitted by law) computed, during the
first ten (10) days such payment is delinquent at the greater of the
Base Rate and eleven and one-half percent (11.5%) per annum and,
thereafter, at the Overdue Rate, on the amount of such installment, from
the date such installment was due until the date paid. To the extent
that Tenant pays any Additional Rent directly to Landlord pursuant to
any requirement of this Lease, Tenant shall be relieved of its
obligation to pay such Additional Rent to the entity to which they would
otherwise be due.
In the event of any failure by Tenant to pay any Additional Rent
when due, Tenant shall promptly pay and discharge, as Additional Rent,
every fine, penalty, interest and cost which may be added for non-
payment or late payment of such items. Landlord shall have all legal,
equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of non-payment of the
Additional Rent as in the case of non-payment of the Minimum Rent.
3.3 Net Lease. The Rent shall be absolutely net to Landlord, so
that this Lease shall yield to Landlord the full amount of the
installments of Minimum Rent, Percentage Rent and Additional Rent
throughout the Term, subject to any other provisions of this Lease which
expressly provide for adjustment or abatement of Rent or other charges.<PAGE>
-18-
3.4 No Termination, Abatement, Etc. Except as otherwise
specifically provided in this Lease, Tenant, to the maximum extent
permitted by law, shall remain bound by this Lease in accordance with
its terms and shall neither take any action without the consent of
Landlord to modify, surrender or terminate the same, nor seek, nor be
entitled to any abatement, deduction, deferment or reduction of the
Rent, or set-off against the Rent, nor shall the respective obligations
of Landlord and Tenant be otherwise affected by reason of (a) any damage
to, or destruction of, the Leased Property or any portion thereof from
whatever cause or any Condemnation; (b) the lawful or unlawful
prohibition of, or restriction upon Tenant's use of the Leased Property,
or any portion thereof, or the interference with such use by any Person
or by reason of eviction by paramount title; (c) any claim which Tenant
may have against Landlord by reason of any Landlord Default; (d) any
bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting
Landlord or any assignee or transferee of Landlord; or (e) for any other
cause whether similar or dissimilar to any of the foregoing. Tenant
hereby waives all rights arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law to modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any
portion thereof or which may entitle Tenant to any abatement, reduction,
suspension or deferment of the Rent or other sums payable or other
obligations to be performed by Tenant hereunder, except as otherwise
specifically provided in this Lease. The obligations of Landlord and
Tenant hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Tenant hereunder
shall continue to be payable in all events unless the obligations to pay
the same shall be terminated pursuant to the express provisions of this
Lease.
ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use.
4.1.1 Primary Intended Use. Tenant shall continuously use or
cause to be used the Leased Property as a nursing home or subacute
facility and/or other facility offering any higher level health care
services and for such other uses as may be necessary or incidental
thereto (the particular use to which the Leased Property is put at any
particular time, its "Primary Intended Use"). Tenant shall not use the
Leased Property or any portion thereof for other than its Primary
Intended Use without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed; provided,
however, that such consent shall not be deemed to be unreasonably
withheld if, in the reasonable opinion of Landlord, the proposed use
will significantly alter the character or purpose or detract from the
value or operating efficiency of the Leased Property or significantly
impair the revenue-producing capability of the Leased Property or
adversely affect the ability of Tenant to comply with this Lease. No
use shall be made or permitted to be made of the Leased Property and no
acts shall be done thereon which will cause the cancellation of any<PAGE>
-19-
insurance policy covering the Leased Property or any part thereof, nor
shall Tenant sell or otherwise provide to residents or patients therein,
or permit to be kept, used or sold in or about the Leased Property, or
any portion thereof, any article which may be prohibited by law or by
the standard form of fire insurance policies, or any other insurance
policies required to be carried hereunder, or fire underwriter's
regulations.
4.1.2 Necessary Approvals. Tenant shall proceed with all due
diligence and exercise best efforts to obtain and maintain all approvals
necessary to use and operate the Leased Property and the Facility for
the Primary Intended Use under applicable local, state and federal law
and, without limiting the generality of the foregoing, shall use its
best efforts to maintain appropriate certifications for reimbursement
licensure.
4.1.3 Continuous Operation, Etc. Tenant shall use its best
efforts to operate continuously the Leased Property as a provider of
health care services in accordance with the Primary Intended Use.
Tenant shall not take, or omit to take, any action, the taking or
omission of which may materially impair the value or the usefulness of
the Leased Property for the Primary Intended Use.
4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or
permit the use of the Leased Property and Tenant's Personal Property for
any unlawful purpose. Tenant shall not commit or suffer to be committed
any waste on the Leased Property or the Facility, nor shall Tenant cause
or permit any nuisance thereon or therein. Tenant shall neither suffer
nor permit the Leased Property or any portion thereof, including any
Capital Addition, whether or not financed by Landlord, or Tenant's
Personal Property, to be used in such a manner as might reasonably tend
to impair Landlord's (or Tenant's, as the case may be) title thereto or
to any portion thereof, or may reasonably make possible any claim for
adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
4.2 Compliance with Legal and Insurance Requirements, Instruments,
Etc. Subject to the provisions of Article 8, Tenant, at its sole
expense, shall promptly (i) comply with all Legal Requirements and
Insurance Requirements in respect of the use, operation, maintenance,
repair, alteration and restoration of the Leased Property and Tenant's
Personal Property, and (ii) procure, maintain and comply with all
appropriate licenses, certificates of need, permits, provider agreements
and other authorizations required for any use of the Leased Property and
Tenant's Personal Property then being made, and for the proper erection,
installation, operation and maintenance of the Leased Property or any
part thereof, including, without limitation, any Capital Additions.
4.3 Compliance with Medicaid and Medicare Requirements. Tenant
shall, at its sole cost and expense, make whatever improvements (capital
or ordinary) as are required to conform the Leased Property to such
standards as may, from time to time, be required by Federal Medicare
(Title 18) or Medicaid (Title 19) skilled and/or intermediate care
nursing programs, if applicable, or any other applicable programs or
legislation, or capital improvements required by any other governmental<PAGE>
-20-
agency having jurisdiction over the Leased Property as a condition of
the continued operation of the Leased Property for the Primary Intended
Use.
4.4 Environmental Matters. Tenant shall not store, spill upon,
dispose of or transfer to or from the Leased Property any Hazardous
Substance, except that Tenant may store, transfer and dispose of
Hazardous Substances in compliance with all Environmental Laws. Tenant
shall maintain the Leased Property at all times free of any Hazardous
Substance (except such Hazardous Substances as are maintained in
compliance with all Environmental Laws). Tenant shall promptly: (a)
notify Landlord in writing of any change in the nature or extent of such
Hazardous Substances maintained, (b) transmit to Landlord a copy of any
report which is required to be filed with respect to the Leased Property
pursuant to any Environmental Law, (c) transmit to Landlord copies of
any citations, orders, notices or other governmental communications
received by Tenant or its agents or representatives with respect thereto
(collectively, "Environmental Notice"), (d) observe and comply with any
and all Environmental Laws relating to the use, maintenance and disposal
of Hazardous Substances and all orders or directives from any official,
court or agency of competent jurisdiction relating to the use or
maintenance or requiring the removal, treatment, containment or other
disposition thereof, and (e) pay or otherwise dispose of any fine,
charge or Imposition related thereto, unless Tenant shall contest the
same in accordance with Article 8.
If at any time prior to the termination of this Lease, Hazardous
Substances are discovered on the Leased Property, Tenant hereby agrees
to take all actions, and to incur any and all expenses, as may be
reasonably necessary and as may be required by any municipal, State or
Federal agency or other governmental entity or agency having
jurisdiction thereof, (a) to clean up and remove from and about the
Leased Property all Hazardous Substances thereon, (b) to contain and
prevent any further release or threat of release of Hazardous Substances
on or about the Leased Property and (c) to eliminate any further release
or threat of release of Hazardous Substances on or about the Leased
Property.
Tenant shall indemnify and hold harmless Landlord and each Facility
Mortgagee from and against all liabilities, obligations, claims,
damages, penalties, costs and expenses (including, without limitation,
reasonable attorney's fees and expenses) imposed upon, incurred by or
asserted against any of them by reason of any failure by Tenant or any
Person claiming under Tenant to perform or comply with any of the terms
of this Section 4.4.<PAGE>
-21-
ARTICLE 5
MAINTENANCE AND REPAIRS, ETC.
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations. Tenant shall, at its sole cost
and expense, keep the Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto (and Tenant's Personal Property)
in good order and repair, reasonable wear and tear excepted, (whether or
not the need for such repairs occurs as a result of Tenant's use, any
prior use, the elements or the age of the Leased Property or Tenant's
Personal Property, or any portion thereof), and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind
and nature, whether interior or exterior, structural or nonstructural,
ordinary or extraordinary, foreseen or unforeseen or arising by reason
of a condition existing prior to the commencement of the Term (concealed
or otherwise). All repairs shall be at least equivalent in quality to
the original work.
5.1.2 Landlord's Obligations. Landlord shall not, under any
circumstances, be required to build or rebuild any improvement on the
Leased Property, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Leased
Property, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to
maintain the Leased Property in any way, except as specifically provided
herein. Tenant hereby waives, to the extent permitted by law, the right
to make repairs at the expense of Landlord pursuant to any law in effect
at the time of the execution of this Lease or hereafter enacted.
Landlord shall have the right to give, record and post, as appropriate,
notices of nonresponsibility under any mechanic's lien laws now or
hereafter existing.
5.2 Capital Expenditure Cost Sharing. Replacement of or major
repairs to all structural or mechanical systems shall be undertaken by
Tenant, at its sole cost and expense in the exercise of its reasonable
business judgment, pursuant to and in accordance with plans and
specifications approved in advance by Landlord; provided, however, that
if the useful life of any improvement or repair for which a Capital
Expenditure is made extends beyond the termination of the Term (other
than any early termination resulting from the occurrence of an Event of
Default), provided Tenant shall have obtained Landlord's prior written
consent with respect to the making thereof, the cost of such replacement
or repair shall be apportioned between Landlord and Tenant so that
Landlord shall pay for that portion of the useful life of such item
occurring on or after such termination date. Landlord shall have no
obligation to reimburse Tenant for Landlord's share of the cost of such
replacement or repair until the date of the termination of this Lease.
Notwithstanding the foregoing, Landlord agrees to make any such payment
to Tenant within sixty (60) days after Tenant's written request
therefor.
<PAGE>
-22-
5.3 Tenant's Personal Property. Tenant may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any
parcels of the Land or in any of the Leased Improvements, any items of
Tenant's Personal Property, and Tenant may, subject to the conditions
set forth below, remove the same upon the expiration or sooner
termination of the Term. Tenant shall provide and maintain during the
entire Term all such Tenant's Personal Property as shall be necessary in
order to operate the Facility in compliance with all licensure and
certification requirements, applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the
industry for the Primary Intended Use. All of Tenant's Personal
Property not removed by Tenant on or prior to the expiration or earlier
termination of this Lease shall be considered abandoned by Tenant and
may be appropriated, sold, destroyed or otherwise disposed of by
Landlord without the necessity of first giving notice thereof to Tenant,
without any payment to Tenant and without any obligation to account
therefor. Tenant shall, at its expense, restore the Leased Property to
the condition required by Section 5.4, including repair of all damage to
the Leased Property caused by the removal of Tenant's Personal Property,
whether effected by Tenant or Landlord.
If Tenant uses any item of tangible personal property (other than
motor vehicles) on, or in connection with, the Leased Property which
belongs to anyone other than Tenant, Tenant shall use its best efforts
to require the agreement permitting such use to provide that Landlord or
its designee may assume Tenant's rights under such agreement upon
management of the Facility by Landlord or its designee.
5.4 Yield Up. Upon the expiration or sooner termination of this
Lease, Tenant shall vacate and surrender the Leased Property to Landlord
in the condition in which the Leased Property was on the Commencement
Date, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease, ordinary wear and
tear excepted.
In addition, upon the expiration or earlier termination of this
Lease, Tenant shall, at Landlord's reasonable cost and expense, use its
best efforts to transfer to and cooperate with Landlord or Landlord's
nominee in connection with the processing of all applications for
licenses, operating permits and other governmental authorizations and
all contracts, including, contracts with governmental or quasi-
governmental entities, which may be necessary for the operation of the
Facility. If requested by Landlord, Tenant shall continue to manage the
Facility after the termination of this Lease and for so long thereafter
as is necessary to obtain all necessary licenses, operating permits and
other governmental authorizations, on such reasonable terms (which shall
include an agreement to reimburse Tenant for its reasonable out-of-
pocket costs and expenses and reasonable administrative costs) as
Landlord shall request.
5.5 Encroachments, Restrictions, Etc. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or
other agreement affecting the Leased Property, or any part thereof, or<PAGE>
-23-
shall impair the rights of others under any easement or right-of-way to
which the Leased Property is subject, upon the request of Landlord or of
any person affected by any such encroachment, violation or impairment,
Tenant shall, at its sole cost and expense, subject to its right to
contest the existence of any encroachment, violation or impairment and
in such case, in the event of an adverse final determination, either (a)
obtain, in form and substance satisfactory to Landlord, valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant, or (b), subject to Landlord's
approval (which shall not be unreasonably withheld or delayed), make
such changes in the Leased Improvements and take such other actions, as
Tenant, in the good faith exercise of its judgment, deems reasonably
practicable, to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements and, in any event, take all such actions as may be
necessary in order to ensure the continued operation of the Leased
Improvements for the Primary Intended Use substantially in the manner
and to the extent the Leased Improvements were operated prior to the
assertion of such violation, impairment or encroachment. Any such
alteration shall be made in conformity with the applicable requirements
of this Article 5. Tenant's obligations under this Section 5.5 shall be
in addition to and shall in no way discharge or diminish any obligation
of any insurer under any policy of title or other insurance and Tenant
shall be entitled to a credit for any sums recovered by Landlord under
any such policy of title or other insurance.
ARTICLE 6
CAPITAL ADDITIONS, ETC.
6.1 Construction of Capital Additions to the Leased Property.
Provided no Default or Event of Default shall have occurred and be
continuing, Tenant shall have the right, subject to obtaining Landlord's
prior written consent (which consent shall not be unreasonably withheld
or delayed), upon and subject to the terms and conditions set forth
below, to construct or install Capital Additions on the Leased Property.
Landlord's consent shall not be deemed to be unreasonably withheld if
such Capital Addition will significantly alter the character or purpose
or detract from the value or operating efficiency or the
revenue-producing capability of the Leased Property, or adversely affect
the ability of Tenant to comply with this Lease. Any withholding of
consent shall be express and shall be effected within thirty (30) days
after receipt by Landlord of such documents or information as Landlord
may reasonably require, notice of which requirements shall be sent to
Tenant within thirty (30) days after Tenant's request. Failure to give
notice of the withholding of such consent within such thirty (30) day
period shall be deemed approval. Prior to commencing construction of
any Capital Addition, Tenant shall submit to Landlord, in writing, a
proposal setting forth, in reasonable detail, any proposed Capital
Addition and shall provide Landlord with such plans and specifications,
permits, licenses, contracts and other information concerning the
proposed Capital Addition as Landlord may reasonably request. Without
limiting the generality of the foregoing, such proposal shall indicate<PAGE>
-24-
the approximate projected cost of constructing such Capital Addition,
the use or uses to which it will be put and a good faith estimate of the
change, if any, in the Net Patient Revenues that Tenant anticipates will
result from such Capital Addition. Prior to commencing construction of
any Capital Addition, Tenant shall request in writing that Landlord
provide funds to pay for such Capital Addition. If, within sixty (60)
days after receipt of such request, Landlord shall not elect to provide
such financing on terms reasonably acceptable to Tenant (and, for
purposes of this Section 6.1, the failure of Landlord to respond within
such 60 day period shall be deemed an election not to provide such
funding), the provisions of Section 6.2 shall apply. Landlord's notice
of its election to provide such financing shall set forth the terms and
conditions of such proposed financing, including the terms of any
amendment to this Lease (including, without limitation, an increase in
Minimum Rent to compensate Landlord for the additional funds advanced).
In no event shall the portion of the projected Capital Additions Cost
comprised of land, if any, materials, labor charges and fixtures be less
than eighty percent (80%) of the total amount of such cost. Tenant may
withdraw its request by written notice to Landlord at any time before
Tenant's written acceptance of Landlord's terms and conditions. If
Landlord declines to finance a Capital Addition or if Landlord's
proposed financing terms are unacceptable to Tenant, Tenant may solicit
and negotiate a commitment for such financing from another Person,
provided Landlord shall approve all the terms and conditions of such
financing (which approval shall not be unreasonably withheld or
delayed). If Landlord shall finance the proposed Capital Addition,
Tenant shall pay to Landlord, as Additional Rent, all reasonable costs
and expenses paid or incurred by Landlord and any Lending Institution
which has committed to provide financing for such Capital Addition to
Landlord in connection therewith, including, but not limited to, (a) the
reasonable attorneys' fees and expenses, (b) all printing expenses, (c)
all filing, registration and recording taxes and fees, (d) documentary
stamp taxes, (e) title insurance charges, appraisal fees, and rating
agency fees, and (f) commitment fees.
No Capital Addition shall be made which would tie in or connect any
Leased Improvement or any Leased Property with any other improvements on
property adjacent to such Leased Property (and not part of the Land)
including, without limitation, tie-ins of buildings or other structures
or utilities, unless Tenant shall have obtained the prior written
approval of Landlord, which approval may be withheld by Landlord in
Landlord's sole discretion. Any Capital Additions shall, upon the
expiration or sooner termination of this Lease, become the property of
Landlord, free and clear of all encumbrances, subject to the provisions
of Section 6.2.
6.2 Capital Additions Financed by Tenant. Provided that Tenant
has obtained the prior written consent of Landlord in each instance
(which approval shall not be unreasonably withheld or delayed), Tenant
may arrange for financing for Capital Additions from third party lend-
ers; provided, however that (i) the terms and conditions of any such
financing shall be subject to the prior approval of Landlord and (ii)
any security interests in any property of Tenant, including, without
limitation, the Leased Property, shall be expressly and fully
subordinated to this Lease and to the interest of Landlord in the Leased<PAGE>
-25-
Property and to the rights of any Facility Mortgagee. If, pursuant to
the provisions of this Lease, Tenant provides or arranges financing with
respect to any Capital Addition, this Lease shall be and hereby is
amended to provide as follows:
(a) Upon completion of any such Capital Addition, Net Patient
Revenues attributable to such Capital Addition shall be excluded
from Net Patient Revenues of the Leased Property for purposes of
calculating Percentage Rent. The Net Patient Revenues attributable
to any such Capital Addition shall be deemed to be an amount (the
"Added Value Percentage") which bears the same proportion to the
total Net Patient Revenues from the entire Leased Property
(including all Capital Additions) as the Fair Market Added Value of
such Capital Addition bears to the Fair Market Value of the entire
Leased Property (including all Capital Additions) immediately after
completion of such Capital Addition. The Added Value Percentage
for Capital Additions financed by Tenant shall remain in effect
until any subsequent Capital Addition financed by Tenant is
completed.
(b) There shall be no adjustment in the Minimum Rent by
reason of any such Capital Addition.
(c) Upon the expiration or earlier termination of this Lease
(but if this Lease is terminated by reason of an Event of Default,
only after Landlord is fully compensated for all damages resulting
therefrom), Landlord shall compensate Tenant for all Capital
Additions financed by Tenant in any of the following ways
determined in Landlord's sole discretion:
(i) By purchasing such Capital Additions from Tenant for cash in
the amount of the then Fair Market Added Value of such Capital
Additions;
(ii) By purchasing such Capital Additions from Tenant by delivering
to Tenant Landlord's purchase money promissory note in the
amount of the Fair Market Added Value, which note shall be due
and payable as to both principal and interest on the second
anniversary of the making thereof, shall be on then
commercially reasonable terms and shall be secured by a
mortgage on the Leased Property and such Capital Additions
subject to all existing mortgages and encumbrances on the
Leased Property and such Capital Additions at the time of such
purchase;
(iii) By assigning to Tenant the right to receive an amount equal to
the Added Value Percentage (determined as of the date of the
expiration or earlier termination of this Lease) of all rent
and other consideration receivable by Landlord under any
re-letting or other disposition of the Leased Property and
such Capital Additions, after deducting from such rent all
costs and expenses incurred by Landlord in connection with
such re-letting or other disposition of the Leased Property
and such Capital Additions and all costs and expenses of
operating and maintaining the Leased Property and such Capital<PAGE>
-26-
Additions during the term of any such new lease which are not
borne by the tenant thereunder, with the provisions of this
Section 6.2(c) to remain in effect until the sale or other
final disposition of the Leased Property and such Capital
Additions, at which time the Fair Market Added Value of such
Capital Addition shall be immediately due and payable, such
obligation to be secured by a mortgage on the Leased Property
and such Capital Additions, subject to all existing mortgages
and encumbrances on the Leased Property at the time of such
purchase and assignment; or
(iv) By making such other arrangement regarding such compensation
as shall be mutually acceptable to Landlord and Tenant.
6.3 Information Regarding Capital Additions. Regardless of the
source of financing of any proposed Capital Addition, Tenant shall
provide Landlord with such information as Landlord may from time to time
reasonably request with respect to such Capital Addition, including,
without limitation, the following:
(a) Evidence that such Capital Addition will be, and upon
completion has been, completed in compliance with the applicable
requirements of State and federal law with respect to capital
expenditures for nursing facilities;
(b) Upon completion of such Capital Addition, a copy of the
certificate of occupancy for the Facility updated, if required;
(c) Such information, certificates, licenses, permits or
other documents necessary to confirm that Tenant will be able to
use the Capital Addition upon completion thereof in accordance with
the Primary Intended Use, including all required federal, State or
local government licenses and approvals;
(d) An Officer's Certificate and a certificate from Tenant's
architect setting forth, in reasonable detail, the projected (or
actual, if available) Capital Additions Cost and invoices and lien
waivers from Tenant's contractors for such work;
(e) A deed conveying to Landlord title to any land acquired
for the purpose of constructing the Capital Addition free and clear
of any liens or encumbrances, except those approved by Landlord
and, upon completion of the Capital Addition, a final as-built
survey thereof reasonably satisfactory to Landlord;
(f) Endorsements to any outstanding policy of title insurance
covering the Leased Property or commitments therefor, satisfactory
in form and substance to Landlord, (i) updating the same without
any additional exceptions except as approved by Landlord, and (ii)
increasing the coverage thereof by an amount equal to the Fair
Market Value of the Capital Addition (except to the extent covered
by the owner's policy of title insurance referred to in
subparagraph (g) below);<PAGE>
-27-
(g) If appropriate, (i) an owner's policy of title insurance
insuring fee simple title to any land conveyed to Landlord pursuant
to subparagraph (e) above, free and clear of all liens and
encumbrances, except those approved by Landlord, and (ii) a
lender's policy of title insurance, reasonably satisfactory in form
and substance to Landlord and the Lending Institution advancing any
portion of the Capital Additions Cost;
(h) An appraisal of the Leased Property by a Qualified
Appraiser, acceptable to Landlord, and an Officer's Certificate
stating that the value of the Leased Property upon completion of
the Capital Addition exceeds the Fair Market Value thereof prior to
the commencement of such Capital Addition by an amount not less
than 80% of the Capital Additions Cost; and
(i) Prints of architectural and engineering drawings relating
to such Capital Addition and such other certificates, documents,
opinions of counsel, appraisals, surveys, certified copies of duly
adopted resolutions of the board of directors of Tenant authorizing
the execution and delivery of any lease amendment or other
instruments reasonably required by Landlord and any Lending
Institution advancing or reimbursing Tenant for any portion of the
Capital Additions Cost.
6.4 Non-Capital Additions. Tenant shall have the right, at
Tenant's sole cost and expense, to make additions, modifications or
improvements to the Leased Property which are not Capital Additions
("Non-Capital Additions") from time to time as Tenant, in its reasonable
discretion, may deem desirable for the Primary Intended Use, provided
that such action will not adversely alter the character or purpose or
detract from the value, operating efficiency or revenue-producing
capability of the Leased Property, or adversely affect the ability of
Tenant to comply with the provisions of this Lease. All such Non-
Capital Additions shall, upon expiration or earlier termination of this
Lease, become the property of Landlord, free and clear of all
encumbrances other than Permitted Encumbrances.
6.5 Salvage. All materials which are scrapped or removed in
connection with the making of either Capital Additions or repairs
required by Article 5 shall be the property of the party paying or
providing the financing for such work.
ARTICLE 7
LIENS
7.1 Liens. Subject to Article 8, Tenant shall not, directly or
indirectly, create or allow to remain and shall promptly discharge, at
its expense, any lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, other than (a) this Lease,
(b) the Permitted Encumbrances, (c) restrictions, liens and other
encumbrances which are consented to in writing by Landlord, (d) liens
for those taxes of Landlord which Tenant is not required to pay<PAGE>
-28-
hereunder, (e) subleases permitted by Article 17, (f) liens for
Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (i) the same are not yet payable, or (ii) are
payable without fine or penalty and such liens are being contested in
accordance with Article 8, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums disputed, provided that (i)
the payment of such sums shall not be postponed under any related
contract for more than sixty (60) days after the completion of the
action giving rise to such lien and a reserve or another appropriate
provision as shall be required by law or generally accepted accounting
principles shall have been made therefor, and (ii) any such liens are
being contested in accordance with Article 8, and (h) any liens which
are the responsibility of Landlord pursuant to Article 21.
7.2 Landlord's Lien. In addition to any statutory landlord's lien
and in order to secure payment of the Rent and all other sums payable
hereunder by Tenant, and to secure payment of any loss, cost or damage
which Landlord may suffer by reason of Tenant's breach of this Lease,
Tenant hereby grants unto Landlord a security interest in and an express
contractual lien upon Tenant's Personal Property (except motor vehicles
sold from time to time in the ordinary course of Tenant's operations),
and all ledger sheets, files, records, documents and instruments
(including, without limitation, computer programs, tapes and related
electronic data processing) relating to the operation of the Facility
(collectively, the "Records") and all proceeds therefrom; and Tenant's
Personal Property shall not be removed from the Leased Property without
the Landlord's prior written consent, unless no Default or Event of
Default shall have occurred and be continuing.
Upon Landlord's request, Tenant shall execute and deliver to
Landlord security agreements and financing statements in form sufficient
to perfect the security interests of Landlord in Tenant's Personal
Property and the proceeds thereof in accordance with the provisions of
the applicable laws of the State and otherwise in form and substance
reasonably satisfactory to Landlord. Tenant hereby grants Landlord an
irrevocable limited power of attorney, coupled with an interest, to
execute all such financing statements in Tenant's name, place and stead.
The security interest herein granted is in addition to any statutory
lien for the Rent.
Landlord agrees, at Tenant's request, to execute such documents as
Tenant may reasonably require to subordinate the lien granted pursuant
to this Section 7.2 in Tenant's Personal Property (but not the Records)
to the lien of any Person providing purchase money financing with
respect thereto.
7.3 Mechanic's Liens. Except as permitted with respect to Capital
Additions, nothing contained in this Lease and no action or inaction by
Landlord shall be construed as (a) constituting the consent or request
of Landlord, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the
Leased Property or any part thereof, or (b) giving Tenant any right,
power or permission to contract for or permit the performance of any<PAGE>
-29-
labor or services or the furnishing of any materials or other property
in such fashion as would permit the making of any claim against Landlord
in respect thereof or to make any agreement that may create, or in any
way be the basis for any right, title, interest, lien, claim or other
encumbrance upon the Leased Property, or any portion thereof.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of
any Imposition, Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim (collectively "Claims")
by appropriate legal proceedings conducted in good faith and with due
diligence, provided that (a) the foregoing shall in no way be construed
as relieving, modifying or extending Tenant's obligation to pay any
Claims as finally determined or prior to the time the Leased Property
may be sold in satisfaction thereof, (b) such contest shall not cause
Landlord or Tenant to be in default under any mortgage or deed of trust
encumbering the Leased Property or any interest therein or result in or
reasonably be expected to result in a lien attaching to the Leased
Property, and (c) Tenant shall indemnify and hold harmless Landlord from
and against any cost, claim, damage, penalty or expense, including
reasonable attorneys' fees, incurred by Landlord in connection therewith
or as a result thereof. Upon Landlord's request, Tenant shall either
(a) provide a bond or other assurance reasonably satisfactory to
Landlord that all Claims which may be assessed against the Leased
Property, together with all interest and penalties thereon will be paid,
or (b) deposit within the time otherwise required for payment with a
bank or trust company, as trustee, as security for the payment of such
Claims, an amount sufficient to pay the same, together with interest and
penalties in connection therewith and all Claims which may be assessed
against or become a Claim against the Leased Property, or any part
thereof, in connection with any such contest. Tenant shall furnish
Landlord and any Facility Mortgagee with reasonable evidence of such
deposit within five (5) days after request therefor. Landlord agrees to
join in any such proceedings if required legally to prosecute such
contest; provided, however, that Landlord shall not thereby be subjected
to any liability therefor (including, for the payment of any costs or
expenses in connection therewith). Tenant shall be entitled to any
refund of any Claims and such charges and penalties or interest thereon
which have been paid by Tenant or paid by Landlord and for which
Landlord has been fully reimbursed by Tenant. If Tenant shall fail (a)
to pay any Claims when due, (b) to provide security therefor as provided
in this Article 8, or (c) to prosecute any such contest diligently and
in good faith, Landlord may, upon reasonable notice to Tenant (which
notice may be oral and shall not be required if Landlord shall determine
the same is not practicable), pay such charges, together with interest
and penalties due with respect thereto, and Tenant shall reimburse
Landlord therefor, upon demand, as Additional Rent.
ARTICLE 9<PAGE>
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INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements. Tenant shall at all times
during the Term and any other time Tenant shall be in possession of the
Leased Property, keep the Leased Property, and all property located in
or on the Leased Property, including Tenant's Personal Property, insured
against the risks in the amounts as follows:
(a) Comprehensive general liability insurance, including
bodily injury and property damage (on an occurrence basis and in
the broadest form available, including without limitation broad
form contractual liability, fire legal liability independent
contractor's hazard and completed operations coverage) under which
Tenant is named as an insured and Landlord and any Facility
Mortgagee (and such others as are in privity of estate with
Landlord, as set out in a notice from time to time) are named as
additional insureds as their interests may appear, in an amount
which shall, at the beginning of the Term, be at least equal to
$5,000,000 per occurrence in respect of bodily injury and death and
$1,000,000 per occurrence in respect of property damage, and which,
from time to time during the Term, shall be for such higher limits,
if any, as are customarily carried in the area in which the Leased
Property is located at property similar to the Leased Property and
used for similar purposes;
(b) "All-risk" property insurance on a "replacement cost"
basis with the usual extended coverage endorsements covering the
Leased Property and Tenant's Personal Property;
(c) Business interruption and loss of rental under a rental
value insurance policy covering risk of loss during the lesser of
the first twelve (12) months of reconstruction or the actual
reconstruction period necessitated by the occurrence of any of the
hazards described in paragraphs (a) and (b) above, in such amounts
as may be customary for comparable properties in the area and in an
amount sufficient to prevent Landlord or Tenant from becoming a
co-insurer;
(d) Claims arising out of malpractice in an amount not less
than Five Million Dollars ($5,000,000) for each person and for each
occurrence with respect to the Leased Property, provided the same
is available at rates which are economically practical in relation
to the risk covered, as determined by Tenant and approved by
Landlord (it being agreed that, in the event the same is not
available at rates which are economically practical in relation to
the risks covered, Tenant shall provide such malpractice insurance
by means of the maintenance of a program of self insurance, which,
in accordance with generally accepted accounting principles
consistently applied, satisfies the insurance requirements of this
paragraph (d) and, in such event, Tenant shall submit to Landlord
such records and other evidence thereof as Landlord may from time
to time reasonably request to confirm the maintenance of such a
program);
<PAGE>
-31-
(e) Flood (if the Leased Property which is located in whole
or in part within a designated flood plain area) and such other
hazards and in such amounts as may be customary for comparable
properties in the area, provided the same is available at rates
which are economically practical in relation to the risks covered,
as determined by Tenant and approved by Landlord;
(f) Worker's compensation insurance coverage for all persons
employed by Tenant on the Leased Property with statutory limits and
otherwise with limits of and provisions in accordance with the
requirements of applicable local, state and federal law; and
(g) Such additional insurance as may be reasonably required,
from time to time, by Landlord or any Facility Mortgagee.
9.2 Waiver of Subrogation. Landlord and Tenant agree that
(insofar as and to the extent that such agreement may be effective
without invalidating or making it impossible to secure insurance
coverage from responsible insurance companies doing business in the
State) with respect to any property loss which is covered by insurance
then being carried by Landlord or Tenant or would be covered by
insurance if insurance were maintained in accordance with the applicable
provisions of this Lease, respectively, the party carrying such
insurance and suffering said loss releases the other of and from any and
all claims with respect to such loss; and they further agree that their
respective insurance companies shall have no right of subrogation
against the other on account thereof, even though extra premium may
result therefrom. In the event that any extra premium is payable by
Tenant as a result of this provision, Landlord shall not be liable for
reimbursement to Tenant for such extra premium.
9.3 Form Satisfactory, Etc. All policies of insurance required
under this Article 9 shall be written in a form reasonably satisfactory
to Landlord and by insurance companies authorized to do business in the
State, insurance, which companies shall be reasonably satisfactory to
Landlord. All policies of insurance required under this Article 9 shall
include no deductible in excess of $250,000 and shall name Landlord and
any Facility Mortgagee as additional insureds, as their interests may
appear. Losses shall be payable to Landlord or Tenant as provided in
Article 10. Any loss adjustment shall require the written consent of
Landlord, Tenant and each Facility Mortgagee. Evidence of insurance
shall be deposited with Landlord and, if requested, any Facility
Mortgagee. If any provisions of any Facility Mortgage requires deposits
of premiums for insurance to be made with such Facility Mortgagee,
provided that the Facility Mortgagee has not elected to waive such
provision, Tenant shall either pay Landlord monthly the amounts required
and Landlord shall transfer such amounts to such Facility Mortgagee, or,
pursuant to written direction by Landlord, Tenant shall make such
deposits directly with such Facility Mortgagee. Tenant shall pay all
insurance premiums, and deliver policies or certificates thereof to
Landlord prior to their effective date (and, with respect to any renewal
policy, ten (10) days prior to the expiration of the existing policy),
and in the event Tenant shall fail either to effect such insurance as
herein required, to pay the premiums therefor or to deliver such
policies or certificates to Landlord at the times required Landlord<PAGE>
-32-
shall have the right, but not the obligation, to effect such insurance
and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest
accrued thereon at the Base Rate from the date such payment is made
until the date repaid. All such policies shall provide Landlord (and
any Facility Mortgagee, if required by the same) thirty (30) days' prior
written notice of any materially alter on, expiration or cancellation of
such policy.
9.4 No Separate Insurance. Tenant shall not take out separate
insurance, concurrent in form or contributing in the event of loss with
that required by this Article 9 or increase the amount of any existing
insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of
such insurance, including, Landlord and all Facility Mortgagees, are
included therein as additional insureds, and the loss is payable under
such insurance in the same manner as losses are payable under this
Lease. In the event Tenant shall take out any such separate insurance
or increase any of the amounts of the then existing insurance, Tenant
shall give Landlord prompt written notice thereof.
9.5 Indemnification of Landlord. Tenant shall indemnify and hold
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees), to the maximum extent
permitted by law, imposed upon or incurred by or asserted against
Landlord by reason of: (a) any accident, injury to or death of persons
or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, including, without limitation, any
claims of malpractice, (b) any past, present or future use, misuse,
non-use, condition, management, maintenance or repair by Tenant or
anyone claiming under Tenant of the Leased Property or Tenant's Personal
Property or any litigation, proceeding or claim by governmental entities
or other third parties to which Landlord is made a party or participant
related to the Leased Property or Tenant's Personal Property or such
use, misuse, non-use, condition, management, maintenance, or repair
thereof including, failure to perform obligations (other than
Condemnation proceedings) to which Landlord is made a party, (c) any
Impositions (which are the obligations of Tenant to pay pursuant to the
applicable provisions of this Lease), and (d) any failure on the part of
Tenant or anyone claiming under Tenant to perform or comply with any of
the terms of this Lease. Tenant shall pay all amounts payable under
this Section 9.5 within ten (10) days after demand therefor, and if not
timely paid, such amounts shall bear interest at the overdue rate from
the date of determination to the date of payment. Tenant, at its
expense, shall contest, resist and defend any such claim, action or
proceeding asserted or instituted against Landlord or may compromise or
otherwise dispose of the same as Tenant sees fit.
9.6 Indemnification of Tenant. Landlord shall indemnify and hold
harmless Tenant from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Tenant as a result of the gross
negligence or willful misconduct of Landlord.
<PAGE>
-33-
ARTICLE 10
CASUALTY
10.1 Insurance Proceeds. All proceeds payable by reason of any
loss or damage to the Leased Property and insured under any policy of
insurance required by Article 9 shall be paid to Landlord and held in
trust by Landlord in an interest-bearing account (subject to the
provisions of Section 10.2) and shall be paid out by Landlord from time
to time for the reasonable costs of reconstruction or repair of the
Leased Property necessitated by damage or destruction. Any excess
proceeds of insurance remaining after the completion of the restoration
shall be paid to Tenant. In the event neither Landlord nor Tenant is
required or elects to restore the Leased Property and this Lease is
terminated without purchase or substitution by Tenant pursuant to
Section 10.2, all insurance proceeds therefrom shall be retained by
Landlord. All salvage resulting from any risk covered by insurance
shall belong to Landlord, except any salvage related to Capital
Additions paid for by Tenant or Tenant's Personal Property shall belong
to Tenant.
10.2 Reconstruction in the Event of Damage or Destruction.
10.2.1 Material Damage or Destruction of Premises. Except as
provided in Section 10.8, if, during the Term, the Leased Property shall
be totally or partially damaged or destroyed by fire or other casualty
and the Facility is thereby rendered Unsuitable for Its Primary Intended
Use, Tenant shall, at Tenant's option, exercisable by written notice to
Landlord within thirty (30) days after the date of such damage or
destruction, elect either (a) to restore the Facility to substantially
the same condition as existed immediately before such damage or
destruction, or (b) to offer (i) to purchase the Leased Property from
Landlord for a purchase price equal to the greater of the Minimum
Repurchase Price or the Fair Market Value Purchase Price of the Leased
Property immediately prior to such damage or destruction, or (ii) to
substitute a new property for the Leased Property in accordance with the
provisions of Article 16. Failure of Tenant to give Landlord written
notice of any such election within such 30-day period shall be deemed an
election by Tenant to restore the Facility. In the event Tenant shall
proceed in accordance with clause (b) preceding and Landlord does not
accept Tenant's offer to purchase the Leased Property or substitute
another property for the Leased Property within thirty (30) days after
receipt of Tenant's notice thereof, Tenant may either (a) withdraw such
offer and proceed promptly to restore the Facility to substantially the
same conditions as existed immediately before the damage or destruction,
or (b) terminate this Lease without further liability hereunder and
Landlord shall be entitled to retain the insurance proceeds. In the
event Tenant shall acquire the Leased Property or substitute a new
property therefor, the insurance proceeds payable on account of such
damage shall be paid to Tenant.
10.2.2 Partial Damage or Destruction. Except as provided in
Section 10.8, if, during the Term, all or any portion of the Leased
Property shall be totally or partially destroyed by fire or other
casualty and the Facility is not thereby rendered Unsuitable for its<PAGE>
-34-
Primary Intended Use, Tenant shall promptly restore the Facility to
substantially the same condition as existed immediately before such
damage or destruction; provided, however, that if Tenant cannot, using
diligent efforts, obtain all government approvals, including building
permits, licenses, conditional use permits and certificates of need,
necessary to perform all required repair and restoration and to operate
the Facility for its Primary Intended Use in substantially the same
manner as existed immediately prior to such damage or destruction within
one hundred eighty (180) days after the date of such fire or casualty,
Tenant shall, within thirty (30) days thereafter elect, by written
notice to Landlord, either (a) to substitute a new property or
properties for the Leased Property in accordance with the provisions of
Article 16, or (b) purchase the Leased Property for a purchase price
equal to the greater of the then Minimum Repurchase Price or the Fair
Market Value Purchase Price of the Leased Property immediately prior to
such damage or destruction. Failure of Tenant to give such notice
within such period shall be deemed an election by Tenant to purchase the
Leased Property. Within thirty (30) days after receipt of Tenant's
notice, Landlord shall give Tenant written notice as to whether Landlord
accepts such offer. Failure of Landlord to give such notice shall be
deemed an election by Landlord to accept Tenant's offer. If Landlord
shall reject such offer, Tenant shall elect, by written notice to
Landlord, given within thirty (30) days thereafter, either (a) to
withdraw such offer, in which event this Lease shall remain in full
force and effect with and Tenant shall proceed to restore the Facility
as soon as reasonably practicable to substantially the same condition as
existed immediately before such damage or destruction, or (b) terminate
this Lease. Failure of Tenant to give such notice within such period
shall be deemed an election by Tenant to restore the Leased Property.
In the event Landlord shall accept Tenant's offer to purchase
the Leased Property, this Lease shall terminate with respect thereto
upon payment of the purchase price. In the event Landlord shall accept
Tenant's offer to substitute a new property or properties, this Lease
shall be deemed modified to substitute such new property for the Leased
Property (effective as of the date of such substitution pursuant to
Article 16) and all insurance proceeds pertaining to the Leased Property
shall be paid to Tenant. Landlord and Tenant shall promptly execute
appropriate instruments to confirm the foregoing, although the failure
to do so shall not affect this Lease.
10.3 Insufficient Insurance Proceeds. If the cost of the repair
or restoration exceeds the amount of insurance proceeds received by
Landlord pursuant to Article 9, Tenant shall contribute any excess
amounts needed to complete such restoration. Such difference shall be
paid by Tenant to Landlord and held by Landlord in trust in an interest
bearing account, together with any other insurance proceeds, for
application to the cost of repair and restoration in accordance with
Section 10.4.
10.4 Disbursement of Proceeds. In the event Tenant is required to
restore the Leased Property pursuant to Sections 10.1 or 10.2, Tenant
shall, at its sole cost and expense, commence promptly and continue
diligently to perform, or cause to be performed, the repair and restora-
tion of the Leased Property so as to restore the Leased Property in full<PAGE>
-35-
compliance with all Legal Requirements and otherwise in compliance with
any other applicable provisions of this Lease, so that the Leased
Property shall be at least equal in value and general utility to its
general utility and value immediately prior to such damage or
destruction. Subject to the terms hereof, Landlord shall advance the
insurance proceeds (other than proceeds of business interruption
insurance which shall be advanced as provided below) and the amounts
paid to it pursuant to Section 10.3 to Tenant regularly during the
repair and restoration period so as to permit payment for the cost of
such restoration and repair. Any such advances shall be for not less
than $50,000 (or such lesser amount as equals the entire balance of the
repair and restoration costs) and Tenant shall submit to Landlord a
written requisition and substantiation therefor on AIA Forms G702 and
G703 (or on such other form or forms as may be acceptable to Landlord).
Landlord may, at its option, condition advancement of such insurance
proceeds and other amounts on (i) the absence of any Default or Event of
Default, (ii) its approval of plans and specifications of an architect
satisfactory to Landlord (which approval shall not be unreasonably with-
held or delayed), (iii) general contractors' estimates, (iv) architect's
certificates, (v) unconditional lien waivers of general contractors,
(vi) evidence of approval by all governmental authorities and other
regulatory bodies whose approval is required and (vii) such other
certificates as Landlord may, from time to time, reasonably require.
Provided no Default or Event of Default has occurred and is continuing,
on the first day of each calendar month during which proceeds of
business interruption insurance are disbursed to Landlord under the
policy of business interruption insurance maintained pursuant to Article
9, Landlord shall disburse proceeds of business interruption insurance
received by it to Tenant upon notice from Tenant accompanied by a
certification from Tenant that such moneys will be used for costs or
expenses of owning or operating the Leased Property.
Landlord's obligation to disburse insurance proceeds under this
Article 10 shall be subject to the release of such proceeds by any
Facility Mortgagee.
10.5 Tenant's Property. All insurance proceeds payable by reason
of any loss of or damage to any of Tenant's Personal Property or Capital
Additions financed by Tenant shall be paid to Tenant and Tenant shall
hold such proceeds in trust to pay the cost of repairing or replacing
damaged Tenant's Personal Property or Capital Additions paid for or
financed by Tenant.
10.6 Restoration of Tenant's Property. If Tenant shall be
required or elect to restore the Facility as hereinabove provided,
Tenant shall either (a) restore all alterations and improvements made
by Tenant, Tenant's Personal Property and all Capital Additions paid for
or financed by Tenant, or (b) replace such alterations and improvements,
Tenant's Personal Property, and/or Capital Additions with improvements
or items of the same or better quality and utility in the operation of
the Facility.
10.7 No Abatement of Rent. Unless this Lease shall be terminated
as herein provided, during the first twelve (12) months of any period
required for repair or restoration, this Lease shall remain in full<PAGE>
-36-
force and effect and Tenant's obligation to make rental payments and to
pay all other charges required by this Lease shall remain unabated
during the Term notwithstanding any damage affecting the Leased
Property. Thereafter, payments of Minimum Rent shall be adjusted in the
manner provided in Section 11.6. If any fire or other casualty impairs
the revenue producing capacity of the Facility, projected Net Patient
Revenues attributable to the Facility shall be determined by Landlord in
its reasonable discretion.
10.8 Damage Near End of Term. Notwithstanding any provisions of
this Article 10 to the contrary, if (a) damage to or destruction of the
Facility occurs during the last twelve (12) months of the Term, (b)
Tenant has not elected to extend the Term, (c) no Default or Event of
Default shall have occurred and be continuing, and (d) such damage or
destruction cannot be fully repaired and restored within one hundred
eighty (180) days immediately following the date of loss, Tenant shall
have the right to terminate this Lease by the giving of written notice
thereof to Landlord within thirty (30) days after the date of casualty.
Failure of Tenant to give such notice within such 30-day period shall be
a waiver of Tenant's right to terminate this Lease pursuant to this
section.
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation. If the whole of the Leased Property
shall be taken by Condemnation, this Lease shall terminate as of the
Date of Taking. In the event a Condemnation of less than the whole of
the Leased Property renders the Leased Property Unsuitable for Its
Primary Intended Use, Tenant and Landlord shall each have the option, by
written notice to the other, given at any time prior to the date title
vests in a third party, to terminate this Lease as of the Date of
Taking, whereupon this Lease shall terminate as of such date.
11.2 Partial Condemnation. In the event of a Condemnation of less
than the whole of the Leased Property such that Leased Property is still
suitable for its Primary Intended Use, or if neither Tenant nor Landlord
shall terminate this Lease as provided in Section 11.1, Tenant, at its
sole cost and expense, shall, with all reasonable dispatch, restore the
untaken portion of the Leased Improvements so that such Leased
Improvements shall constitute a complete architectural unit of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to
such Condemnation. Landlord shall, subject to and in accordance with
the applicable provisions of Section 10.4, contribute to the cost of
restoration that part of its Award allocable to such restoration. In
such event, the Minimum Rent shall be permanently reduced as set forth
in Section 11.6.
11.3 Temporary Condemnation. In the event of any temporary
Condemnation of all or any part of the Leased Property or Tenant's
interest under this Lease, this Lease shall continue in full force and
effect and Tenant shall continue to pay, in the manner and on the terms<PAGE>
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herein specified, the full amount of the Rent. To the extent reasonably
practicable, Tenant shall continue to perform and observe all of the
other terms and conditions thereof, on the part of Tenant to be
performed and observed. The entire amount of any Award made for such
temporary Taking or Condemnation allocable to the Term, whether paid by
way of damages, rent or otherwise, shall be paid to Tenant. Tenant
shall, upon the termination of any such period of temporary
Condemnation, at its sole cost and expense (but only to the extent of
the Award payable to Tenant), restore the Leased Property as nearly as
may be reasonably possible, to the condition that existed immediately
prior to such Condemnation, unless such period of temporary use or
occupancy shall extend beyond the expiration of the Term, in which case
Tenant shall not be required to make such restoration.
11.4 Tenant's Option. In the event of the termination of this
Lease as provided in Section 11.1, Tenant shall have the right,
exercisable by written notice to Landlord given within thirty (30) days
after receipt by Tenant of notice of Condemnation, to elect (a) to
acquire the Leased Property from Landlord for a purchase price equal to
the greater of its Minimum Repurchase Price or the Fair Market Value
Purchase Price of the Leased Property immediately prior to such
Condemnation, in which event, upon the closing of such acquisition,
Tenant shall have the right to receive the entire Award, or (b) to
substitute a new property therefor in accordance with the provisions of
Article 16, in which event Tenant shall receive the entire Award.
Failure of Tenant to give such notice within such 30-day period shall be
deemed a waiver of Tenant's rights pursuant to this Section 11.4. In
the event Landlord shall, by written notice to Tenant given within
thirty (30) days after receipt of Tenant's election notice, reject
Tenant's offer so to purchase or substitute, Tenant shall restore the
Leased Property to substantially the same condition as existed
immediately before such Condemnation in accordance with the applicable
provisions of this Lease and, in such event, Landlord shall, subject to
and in accordance with the applicable provisions of Section 10.4,
contribute to the cost of restoration that part of its Award allocable
to such restoration.
11.5 Allocation of Award. Except as provided in the second
sentence of this Section 11.5, the total Award shall be solely the
property of and payable to Landlord. Any portion of the Award made for
the taking of Tenant's leasehold interest in the Leased Property,
Capital Additions paid for or financed by Tenant, loss of business at
the Leased Property during the remainder of the Term, the taking of
Tenant's Personal Property, or Tenant's removal and relocation expenses
shall be the sole property of and payable to Tenant. In any
Condemnation proceedings, Landlord and Tenant shall each seek its own
Award in conformity herewith, at its own expense.
11.6 Abatement Procedures. In the event of a partial Condemnation
as described in Section 11.2, this Lease shall not terminate, but the
Minimum Rent shall be abated and Base Net Patient Revenues shall be
reduced in the manner and to the extent that is fair, just and equitable
to both Tenant and Landlord, taking into consideration, among other
relevant factors, the number of usable beds, the amount of square
footage, or the revenues affected by such partial or temporary taking or<PAGE>
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damage or destruction. If Landlord and Tenant are unable to agree upon
the amount of such abatement within thirty (30) days after such
Condemnation or damage, the matter may be submitted by either party to a
court of competent jurisdiction for resolution or, if the parties so
agree, the matter may be submitted by the parties for resolution by
arbitration in accordance with the rules of the American Arbitration
Association.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this
Lease:
(a) Should Tenant fail to make any payment of the Rent or any
other sum payable hereunder when due and such failure shall
continue for ten (10) days after written notice thereof;
(b) Should Tenant fail to observe or perform any other term,
covenant or condition of this Lease and such failure shall continue
for thirty (30) days after written notice thereof; provided,
however, if such failure cannot with due diligence be cured within
such thirty (30) day period, an Event of Default shall not be
deemed to have occurred for such additional period (not to exceed
120 days in the aggregate) required to cure the same so long as
Tenant commences sure cure within such thirty (30) day period and
thereafter diligently prosecutes such cure to completion;
(c) Should Tenant: (i) admit in writing its inability, or be
unable, to pay its debts generally as they become due; (ii) file a
petition in bankruptcy or a petition to take advantage of any
insolvency law; (iii) make a general assignment for the benefit of
its creditors; (iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or
(v) file a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof;
(d) Should Tenant be adjudicated a bankrupt or have an order
for relief thereunder entered against it or a court of competent
jurisdiction shall enter an order or decree appointing a receiver
of Tenant or of the whole or substantially all of its property, or
approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be
vacated or set aside within sixty (60) days from the date of entry
thereof;
(e) Should Tenant be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution, or, in any<PAGE>
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manner, permit the sale or divestiture of substantially all of its
assets;
(f) Should the estate or interest of Tenant in the Leased
Property or any part thereof shall be levied upon or attached in
any proceeding and the same shall not be vacated or discharged
within thirty (30) days after commencement thereof (unless Tenant
shall be contesting such lien or attachment in accordance with
Article 8);
(g) Except as a result of damage, destruction, strikes, lock-
outs or a partial or complete Condemnation, should Tenant
voluntarily cease operations on the Leased Property for a period in
excess of thirty (30) days; or
(h) Should any representation or warranty of Tenant contained
in this Lease or any certificate or document delivered in
connection herewith be untrue when made or at any time during the
Term in any material respect which materially and adversely affects
Landlord, and the same shall not be cured within ninety (90) days
after written notice thereof.
Upon the occurrence of any Event of Default, Landlord and the agents and
servants of Landlord lawfully may, in addition to and not in derogation
of any remedies for any preceding breach of covenant, immediately or at
any time thereafter, without demand or notice and with or without
process of law (forcibly, if necessary), enter into and upon the Leased
Property or any part thereof in the name of the whole or mail a notice
of termination addressed to Tenant, and repossess the same and expel
Tenant and those claiming through or under Tenant and remove its and
their effects (forcibly, if necessary), without being deemed guilty of
any manner of trespass and without prejudice to any remedies which might
otherwise be used for arrears of rent or prior breach of covenant, and,
upon such entry or mailing as aforesaid, this Lease shall terminate,
Tenant hereby waiving all statutory rights to the Leased Property
(including, without limitation, rights of redemption, if any, to the
extent such rights may be lawfully waived) and Landlord, without notice
to Tenant, may store Tenant's effects, and those of any person claiming
through or under Tenant, at Tenant's sole expense and risk, and, if
Landlord so elects, may sell such effects at public auction or private
sale and apply the net proceeds to the payment of all sums due to
Landlord from Tenant, if any, and pay over the balance, if any, to
Tenant.
Upon the occurrence of an Event of Default, Landlord may, in
addition to any other remedies provided herein, enter upon the Leased
Property and take possession of any and all of Tenant's Personal
Property and the Records (subject to any prohibitions or limitations to
disclosure of any such data as described in Section 3.1.2(d)) on the
Leased Property, without liability for trespass or conversion (Tenant
hereby waiving any right to notice or hearing prior to such taking of
possession by Landlord) and sell the same at public or private sale,
after giving Tenant reasonable notice of the time and place of any
public or private sale, at which sale Landlord or its assigns may
purchase all or any portion of such Personal Property unless otherwise<PAGE>
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prohibited by law. Unless otherwise provided by law, and without
intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice
is given in the manner prescribed in this Lease at least ten (10) days
before the day of sale. The proceeds from any such disposition, less
all expenses incurred in connection with the taking of possession,
holding and selling of such property (including, reasonable attorneys'
fees) shall be deducted from the proceeds of such sale. Any surplus
shall be paid to Tenant or as otherwise required by law and Tenant shall
pay any deficiency to Landlord, as Additional Rent, upon demand.
12.2 Remedies. In the event of any termination pursuant to Section
12.1, Tenant shall pay the Rent and other charges payable hereunder up
to the time of such termination and, thereafter, Tenant, until the end
of what would have been the Term of this Lease in the absence of such
termination, and whether or not the Leased Property, or any portion
thereof, shall have been re-let, shall be liable to Landlord for, and
shall pay to Landlord, as current damages, the Rent and other charges
which would be payable hereunder for the remainder of the Term had such
termination not occurred, less the net proceeds, if any, of any
reletting of the Leased Property, after deducting all expenses in
connection with such re-letting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorneys'
fees, advertising, expenses of employees, alteration costs and expenses
of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days on which the Minimum Rent would
have been payable hereunder if this Lease had not been terminated.
Percentage Rent for the purposes of this Section 12.2 shall be deemed to
be a sum equal to the amount of the Percentage Rent (determined on an
annualized basis) payable for the Fiscal Year immediately preceding the
Fiscal Year in which the termination, re-entry or repossession takes
place. If, however, such termination, re-entry or repossession occurs
during the first full Fiscal Year after the Base Year, the Percentage
Rent shall be an amount reasonably determined by Landlord.
At any time after such termination, whether or not Landlord shall
have collected any such current damages, as liquidated final damages and
in lieu of all such current damages beyond the date of such demand, at
Landlord's election, Tenant shall pay to Landlord either (a) an amount
equal to the excess, if any, of the Rent and other charges which would
be payable hereunder from the date of such demand (assuming that, for
the purposes of this paragraph, annual payments by Tenant on account of
Impositions would be the same as payments required for the immediately
preceding twelve calendar months, or if less than twelve calendar months
have expired since the Commencement Date, the payments required for such
lesser period projected to an annual amount and Percentage Rent shall be
determined in the manner set forth above) for what would be the then
unexpired term of this Lease if the same remained in effect, over the
Fair Market Rental for the same period, or (b) an amount equal to the
lesser of (i) the Rent and other charges that would have been payable
for the balance of the Term had it not been terminated, or (ii) the
aggregate of the Minimum Rent, Percentage Rent and other charges accrued
in the twelve (12) months ended next prior to such termination (without
reduction for any free rent or other concession or abatement). In the
event this Lease is so terminated prior the expiration of the first full<PAGE>
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year of the Term, the liquidated damages which Landlord may elect to
recover pursuant to clause (b) (ii) of this paragraph shall be
calculated as if such termination had occurred on the first anniversary
of the Commencement Date. Nothing contained in this Lease shall,
however, limit or prejudice the right of Landlord to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater than, equal to, or less than the
amount of the loss or damages referred to above.
In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (a)
relet the Leased Property or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms which may at
Landlord's option, be equal to, less than or exceed the period which
would otherwise have constituted the balance of the Term and may grant
concessions or free rent to the extent that Landlord considers advisable
and necessary to relet the same, and (b) may make such reasonable
alterations, repairs and decorations in the Leased Property as Landlord,
in its sole judgment, considers advisable and necessary for the purpose
of reletting the Leased Property; and the making of such alterations,
repairs and decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to relet the Leased
Property, or any portion thereof, or, in the event that the Leased
Property is relet, for failure to collect the rent under such reletting.
To the fullest extent permitted by law, Tenant hereby expressly waives
any and all rights of redemption granted under any present or future
laws in the event of Tenant being evicted or dispossessed, or in the
event of Landlord obtaining possession of the Leased Property, by reason
of the violation by Tenant of any of the covenants and conditions of
this Lease.
12.3 Waiver. If this Lease is terminated pursuant to Section 12.1
or 12.2, Tenant waives, to the extent permitted by law, (a) any right to
a trial by jury in the event of summary proceedings to enforce the
remedies set forth in this Article 12, and (b) the benefit of any laws
now or hereafter in force exempting property from liability for rent or
for debt.
12.4 Application of Funds. Any payments received by Landlord
under any of the provisions of this Lease during the existence or
continuance of any Event of Default (and any payment made to Landlord
rather than Tenant due to the existence of an Event of Default) shall be
applied to Tenant's obligations in such order as Landlord may determine
or as may be prescribed by the laws of the State.
12.5 Failure to Conduct Business. For the purpose of determining
rental loss damages or Percentage Rent, in the event Tenant shall fail
to conduct its business at the Leased Property for its Primary Intended
Use, exact damages or the amount of Percentage Rent being
unascertainable, the Percentage Rent for such period shall be deemed to
by an amount reasonably determined by Landlord.<PAGE>
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12.6 Landlord's Right to Cure Tenant's Default. If an Event of
Default shall have occurred and be continuing, Landlord, after written
notice to Tenant (provided that no such notice shall be required if
Landlord shall reasonably determine immediate action is necessary to
protect person or property), without waiving or releasing any obligation
of Tenant, and without waiving or releasing any Event of Default, may
(but shall not be obligated to), at any time thereafter, make such
payment or perform such act for the account and at the expense of
Tenant, and may, to the extent permitted by law, enter upon the Leased
Property, or any portion thereof, for such purpose and take all such
action thereon as, in Landlord's opinion, may be necessary or
appropriate therefor, including, the management of the Facility by
Landlord or its designee, and Tenant hereby irrevocably appoints, in the
event of such election by Landlord, Landlord or its designee as manager
of the Facility and its attorney in fact for such purpose, irrevocably
and coupled with an interest, in the name, place and stead of Tenant.
All costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by Landlord in connection therewith, together
with interest thereon (to the extent permitted by law) at the Overdue
Rate from the date such sums are paid by Landlord until repaid, shall be
paid by Tenant to Landlord, on demand.
12.7 Trade Names. If this Lease is terminated for any reason,
Landlord shall, upon the request of Tenant, cause the name of the
business conducted upon the Leased Property to be changed to a name
other than a Facility Trade Name or any approximation or abbreviation
thereof and sufficiently dissimilar to such name as to be unlikely to
cause confusion with such name; provided, however, that Tenant shall not
thereafter use a Facility Trade Name in the same market in which the
Facility is located in connection with any business that competes with
the Facility.
ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration of the Term shall
be treated as a daily tenancy at sufferance at a rate equal to two (2)
times the Minimum Rent and Percentage Rent then in effect plus
Additional Rent and other charges herein provided (prorated on a daily
basis). Tenant shall also pay to Landlord all damages, direct and/or
consequential (foreseeable and unforeseeable), sustained by reason of
any such holding over. Otherwise, such holding over shall be on the
terms and conditions set forth in this Lease, to the extent applicable.
ARTICLE 14
LANDLORD'S DEFAULT
If Landlord shall default in the performance or observance of any
of its covenants or obligations set forth in this Lease and such default
shall continue for a period of thirty (30) days after written notice<PAGE>
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thereof, or such additional period as may be reasonably required to
correct the same (except if such default shall constitute an immediate
threat to life or property, five (5) Business Days) Tenant may declare
the occurrence of a "Landlord Default" by a second notice to Landlord.
Thereafter, Tenant may forthwith cure the same and, subject to the
provisions of the following paragraph, invoice Landlord for costs and
expenses (including reasonable attorneys' fees and court costs) incurred
by Tenant in curing the same, together with interest from the date
Landlord receives Tenant's invoice, at a rate equal to the Base Rate.
Tenant shall have no right to terminate this Lease for any default by
Landlord hereunder and no right, for any such default, to offset or
counterclaim against any rent or other charges due hereunder.<PAGE>
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If Landlord shall in good faith dispute the occurrence of any
Landlord Default and Landlord, before the expiration of the applicable
cure period, shall give written notice thereof to Tenant, setting forth,
in reasonable detail, the basis therefor, no Landlord Default shall be
deemed to have occurred and Landlord shall have no obligation with
respect thereto until final adverse determination thereof. If Tenant
and Landlord shall fail, in good faith, to resolve the dispute within
five (5) days after Landlord's notice of dispute, either may submit the
matter to arbitration for resolution in accordance with the commercial
arbitration rules of the American Arbitration Association. Such
arbitration shall be final and binding on Landlord and Tenant and
judgment thereon may be entered into any court of competent
jurisdiction. Within five (5) days after submission to arbitration,
Landlord and Tenant shall submit all information required for such
arbitration and shall take all other actions required for such
arbitration to proceed and the arbitrators shall be instructed to render
a determination as soon as possible and in any event not later than
thirty (30) days after submission.
ARTICLE 15
PURCHASE OF PREMISES
In the event Tenant shall purchase the Leased Property from
Landlord pursuant to any of the terms of this Lease, Landlord shall,
upon receipt from Tenant of the applicable purchase price, together with
full payment of any unpaid Rent and other charges due and payable with
respect to any period ending on or before the date of the purchase,
deliver to Tenant a title insurance policy, together with an appropriate
deed or other instruments, conveying the entire interest of Landlord in
and to the Leased Property to Tenant, free and clear of all encumbrances
other than (a) those Tenant has agreed hereunder to pay or discharge,
(b) those liens, if any, which Tenant has agreed in writing to accept
and take title subject to, (c) the Permitted Encumbrances, and (d) any
other encumbrances permitted to be imposed on the Leased Property (x)
pursuant to the terms of this Lease or (y) otherwise permitted to be
imposed under the provisions of Section 21.1 which are assumable at no
cost to Tenant or to which Tenant may take subject without cost to
Tenant. The difference between the applicable purchase price and the
total of the encumbrances assumed or taken subject to shall be paid in
cash to Landlord or as Landlord may direct, in federal or other
immediately available funds. The closing of any such sale shall be
contingent upon and subject to Tenant's obtaining all required
governmental consents and approvals for such transfer and if such sale
shall fail to be consummated by reason of the inability of Tenant to
obtain all such approvals and consents, any options to extend the Term
of this Lease which otherwise would have expired during the escrow
period of such proposed sale shall be deemed to remain in effect for 30
days after termination thereof. All expenses of such conveyance,
including, without limitation, the cost of title examination or standard
coverage title insurance, usually paid by a purchaser of real property
in the State shall be paid by Tenant; all expenses of such conveyance
usually paid by a seller of real property in the State shall be paid by
Landlord.<PAGE>
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ARTICLE 16
SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY
16.1 Tenant's Substitution Option. Provided (a) in the good faith
judgment of Tenant, the Leased Property shall become Unsuitable for its
Primary Intended Use, (b) no Default or Event of Default shall have
occurred and be continuing, and (c) not less than one (1) year shall
remain in the Term, Tenant shall have the right, subject to the
conditions set forth in this Article 16, upon not less than thirty (30)
days prior written notice to Landlord, to substitute one or more
properties (collectively, the "Substitute Properties" or individually,
"Substitute Property") on the date specified in such notice (the
"Substitution Date"); provided, however, that if Tenant is required by
court order or administrative action to divest or otherwise dispose of
the Leased Property in less than thirty (30) days and Tenant shall have
given Landlord prior written notice of the filing of such court or
administrative action and kept Landlord reasonably apprised of the
status thereof, the time period shall be shortened appropriately to meet
the reasonable needs of Tenant, but in no event less than ten (10)
Business Days after the receipt by Landlord of such notice. Such notice
shall include (a) an Officer's Certificate, setting forth in reasonable
detail the reason(s) for the substitution and the proposed Substitution
Date, and (b) designate not less than two properties (or groups of
properties), each of which properties (or groups of properties) shall
provide Landlord with a yield (i.e., annual return on its equity in such
property) substantially equivalent to Landlord's yield from the Leased
Property at the time of such proposed substitution (or in the case of
substitution because of damage or destruction, the yield immediately
prior to such damage or destruction) and as reasonably projected over
the remaining Term of this Lease.
16.2 Landlord's Substitution Option. If Tenant shall have
voluntarily or involuntarily discontinued use of the Leased Property for
its business operations for a period in excess of one year, Landlord
shall have the right, exercisable by thirty (30) days prior written
notice to Tenant, to require Tenant to substitute a Substitute Property
for the Leased Property, (in which event, Tenant shall comply with the
applicable provisions of Section 16.1 within thirty (30) days
thereafter).
16.3 Substitution Procedures. (a) If either Landlord or Tenant
shall initiate a substitution pursuant to Section 16.1 or 16.2, Landlord
shall have a period of thirty (30) days within which to review the
designated properties and such additional information and either accept
or reject the Substitute Properties so presented, unless Tenant is
required by a court order or administrative action to divest or
otherwise dispose of the Leased Property within a shorter time period,
in which case the time period shall be shortened appropriately to meet
the reasonable needs of Tenant, but in no event shall such period be
less than five (5) Business Days after Landlord's actual receipt of
Tenant's notice (subject to further extension for any period of time in
which Landlord is not timely provided with the information provided for<PAGE>
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in this Section 16.3 and Section 16.4 below). Landlord and Tenant shall
use good faith efforts to agree on a Substitute Property.
(b) In the event that, on or before the expiration of the
applicable time period for Landlord's review, Landlord has rejected
both of the Substitute Properties so presented, Tenant shall, for a
period of sixty (60) days after the expiration of such period, have
the right to terminate this Lease, by the giving of written notice
thereof to Landlord, accompanied by an offer to purchase the Leased
Property on the date set forth in such notice, but in no event less
than ninety (90) days thereafter, for a purchase price equal to the
greater of the then Fair Market Value Purchase Price or the Minimum
Repurchase Price, and, subject to the provisions of Article 15,
this Lease shall terminate on such purchase date.
(c) Landlord shall not unreasonably withhold its consent to
an offer by Tenant to substitute a property as set forth in this
Article provided (i) Landlord shall determine the Substitute
Property shall provide Landlord with a yield substantially
equivalent to Landlord's yield from the Leased Property immediately
before such substitution or such damage or destruction, as the case
may be, and as projected over the remainder of the Term, and (ii)
the delivery of an opinion of counsel for Landlord confirming that
(w) the substitution of the Substitute Property for the Leased
Property will qualify as an exchange solely of property of a
like-kind under Section 1031 of the Code, in which, generally,
except for "boot", no gain or loss will be recognized by Landlord,
(x) the substitution will not result in ordinary recapture income
to Landlord pursuant to Section 1250(d)(4) of the Code or any other
provision of the Code, (y) the substitution will result in income,
if any, to Landlord of a type described in Section 856(c)(2) or (3)
of the Code and will not result in income of the types described in
Section 856(c)(4) of the Code or result in the tax imposed under
Section 857(b)(6) of the Code, and (z) the substitution, together
with all other substitutions made or requested by Tenant or an
Affiliated Person pursuant to the Other Leases or other transfers
of all or any portion of the Leased Property or properties leased
under the Other Leases, during the relevant time period, will not
jeopardize the qualification of Landlord as a real estate
investment trust under Sections 856-860 of the Code.
(d) In the event that the then Fair Market Value of the
Substitute Property or group of Substitute Properties minus the
encumbrances assumed by Landlord, or as to which Landlord will take
the Substitute Property or group of Substitute Properties subject,
as of the Substitution Date is greater than the then Fair Market
Value of the Leased Property minus the encumbrances assumed by
Tenant, or as to which the Tenant will take the Leased Property
subject, as of the Substitution Date (or in the case of damage or
destruction, the Fair Market Value immediately prior to such damage
or destruction), Landlord shall pay to Tenant an amount equal to
the difference, subject to the limitation set forth below; in the
event that such value of the Substitute Property or group of
Substitute Properties is less than such value of the Leased
Property, Tenant shall pay to Landlord an amount equal to the<PAGE>
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difference, subject to the limitation set forth below; provided,
however, neither Landlord nor Tenant shall be obligated to
consummate such substitution if such party would be required to
make a payment (the "Cash Adjustment") to the other in excess of an
amount equal to five percent (5%) of the Fair Market Value of the
Leased Property.
(e) The Rent for such Substitute Property shall, in all
respects, provide Landlord with a yield (i.e., annual return on its
equity in such property) substantially equivalent to Landlord's
yield from the Leased Property at the time of such substitution (or
in the case of substitution because of damage or destruction the
yield immediately prior to such damage or destruction) and as
reasonably projected over the remaining Term, taking into account
the Cash Adjustment paid or received by Landlord and any other
relevant factors, as reasonably determined by Landlord.
(f) The Minimum Repurchase Price of the Substitute Property
shall be an amount equal to the Minimum Repurchase Price of the
Leased Property (i) increased by any Cash Adjustment paid by
Landlord pursuant to Paragraph (d) above, or (ii) decreased by any
Cash Adjustment paid by Tenant pursuant to paragraph (d) above.
16.4 Conditions to Substitution. On the Substitution Date, the
Substitute Property shall become the Leased Property hereunder, upon
delivery by Tenant to Landlord of the following:
(a) An Officer's Certificate certifying that (i) the
Substitute Property has been accepted by Tenant for all purposes of
this Lease and there has been no material damage to the
improvements located thereon, nor is any Condemnation pending or
threatened with respect thereto; (ii) all appropriate permits,
licenses and certificates (including, but not limited to, a
permanent, unconditional certificate of occupancy and all
certificates of need, licenses and provider agreements) which are
necessary to permit the use of the Substitute Property in
accordance with the provisions of this Lease have been obtained and
are in full force and effect; (iii) under applicable zoning and use
laws, ordinances, rules and regulations, the Substitute Property
may be used for the purposes contemplated by this Lease and all
necessary subdivision approvals, if any, have been obtained; (iv)
there are no mechanics' or materialmen's liens outstanding or
threatened to the knowledge of Tenant against the Substitute
Property arising out of or in connection with the construction of
the improvements thereon, other than those being contested by
Tenant pursuant to Article 8; (v) to the best knowledge of Tenant,
there exists no Default or Event of Default, and no defense, offset
or claim with respect to any sums payable by Tenant hereunder; and
(vi) any exceptions to Landlord's title to the Substitute Property
do not materially interfere with the intended use of the Substitute
Property by Tenant;
(b) A deed with full warranties or assignment of a leasehold
estate with full warranties (as applicable) conveying to Landlord<PAGE>
-48-
title to the Substitute Property free and clear of any liens or
encumbrances, except those approved by Landlord;
(c) an amendment duly executed, acknowledged and delivered by
Tenant, in form and substance satisfactory to Landlord, amending
this Lease to correct the legal description of the Land and make
such other changes herein as may be necessary or appropriate under
the circumstances;
(d) counterparts of a standard owner's or lessee's (as
applicable) policy of title insurance covering the Substitute
Property (or a valid, binding, unconditional commitment therefor),
dated as of the Substitution Date, in current form and including
mechanics' and materialmen's lien coverage, issued to Landlord by a
title insurance company and in the form reasonably satisfactory to
Landlord, which policy shall (i) insure (x) Landlord's fee title or
leasehold estate to the Substitute Property, subject to no liens or
encumbrances except those approved by Landlord and (y) that any
restrictions affecting the Substitute Property have not been
violated; (ii) be in an amount at least equal to the Fair Market
Value of the Substitute Property; and (iii) contain such
affirmative coverage endorsements as Landlord shall reasonably
request;
(e) certificates of insurance with respect to the Substitute
Property fulfilling the requirements of Article 9;
(f) current appraisals or other evidence satisfactory to
Landlord, in its sole discretion, as to the then current Fair
Market Values and the projected residual values of such Substitute
Property and the Leased Property as to which such substitution is
being made;
(g) all available revenue data relating to the Substitute
Property for the period from the date of opening for business of
the Facility on such Substitute Property to the date of Tenant's
most recent Fiscal Year end, or for the most recent three (3)
years, whichever is less; and
(h) such other certificates, documents, opinions of counsel
and other instruments as may be reasonably required by Landlord.
16.5 Conveyance to Tenant. On the Substitution Date, Landlord
shall convey the Leased Property to Tenant in accordance with the
provisions of Article 15 (except as to payment of any expenses in
connection therewith which shall be governed by Section 16.6) upon
either (a) payment in cash therefor or (b) conveyance to Landlord of the
Substitute Property, as appropriate.
16.6 Expenses. Tenant shall pay or cause to be paid, on demand,
all reasonable costs and expenses paid or incurred by Landlord in
connection with the substitution and conveyance of the Leased Property
and Substitute Property, including, but not limited to, (a) reasonable
fees and expenses of counsel, (b) all printing expenses, (c) the amount
of filing, registration and recording taxes and fees, (d) the cost of<PAGE>
-49-
preparing and recording, if appropriate, a release of the Leased
Property from the lien of any mortgage, (e) brokers' fees and
commissions, (f) documentary stamp and transfer taxes, (g) title
insurance charges and premiums, and (h) escrow fees.
ARTICLE 17
SUBLETTING AND ASSIGNMENT
17.1 Subletting and Assignment. Except as hereinafter provided,
Tenant shall not assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer this Lease or sublease (which term shall be deemed to
include the granting of concessions and licenses and the like) all or
any part of the Leased Property or suffer or permit this Lease or the
leasehold estate hereby created or any other rights arising under this
Lease to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or
by operation of law, or permit the use or occupancy of the Leased
Property by anyone other than Tenant, or the Leased Property to be
offered or advertised for assignment or subletting except as hereinafter
provided. For purposes of this Section 17.1, an assignment of this
Lease shall be deemed to include any transaction pursuant to which
Tenant is merged or consolidated with another entity or pursuant to
which all or substantially all of Tenant's assets are transferred to any
other entity, as if such or transaction were an assignment of this
Lease.
If this Lease is assigned or if the Leased Property or any part
thereof are sublet (or occupied by anybody other than Tenant and its
employees) Landlord, after default by Tenant hereunder, may collect the
rents from such assignee, subtenant or occupant, as the case may be, and
apply the net amount collected to the Rent herein reserved, but no such
collection shall be deemed a waiver of the provisions set forth in the
first paragraph of this Section 17.1, the acceptance by Landlord of such
assignee, subtenant or occupant, as the case may be, as a tenant, or a
release of Tenant from the future performance by Tenant of its
covenants, agreements or obligations contained in this Lease.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting
or assignment in a particular instance shall be deemed to be a waiver of
the obligation to obtain the Landlord's written approval in the case of
any other subletting or assignment. No assignment, subletting or
occupancy shall affect the Primary Intended Use. Any subletting,
assignment or other transfer of Tenant's interest in this Lease in
contravention of this Section 17.1 shall be voidable at Landlord's
option.
If the rent and other sums (including, without limitation, the
reasonable value of any services performed by any assignee or subtenant
in consideration of such assignment or sublease) either initially or
over the term of any assignment or sublease, payable by such assignee or
subtenant on account of an assignment or sublease exceed the Rent called
for hereunder with respect to the space assigned or sublet, Tenant shall<PAGE>
-50-
pay to Landlord as Additional Rent one hundred percent (100%) of such
excess net of the costs and expenses incurred by Tenant in procuring
such sublease payable monthly at the time for payment Minimum Rent.
17.2 Required Sublease Provisions. Any sublease of all or any
portion of the Leased Property shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or
shall be subject or subordinate, and that in the event of termination of
this Lease or reentry or dispossession of Tenant by Landlord under this
Lease, Landlord may, at its option, take over all of the right, title
and interest of Tenant, as sublessor under such sublease, and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to
the then executory provisions of such sublease, except that neither
Landlord nor any Facility Mortgagee, as holder of a mortgage or as
Landlord under this Lease, if such mortgagee succeeds to that position,
shall (a) be liable for any act or omission of Tenant under such
sublease, (b) be subject to any credit, counterclaim, offset or defense
which theretofore accrued to such subtenant against Tenant, (c) be bound
by any previous modification of such sublease or by any previous
prepayment of more than one (1) month's rent, (d) be bound by any
covenant of Tenant to undertake or complete any construction of the
Leased Property or any portion thereof, (e) be required to account for
any security deposit of the subtenant other than any security deposit
actually delivered to Landlord by Tenant, (f) be bound by any obligation
to make any payment to such subtenant or grant any credits, except for
services, repairs, maintenance and restoration provided for under the
sublease to be performed after the date of such attornment, (g) be
responsible for any monies owing by Tenant to the credit of such
Subtenant, or (h) be required to remove any person occupying the Leased
Property or any part thereof; and such sublease shall provide that the
subtenant thereunder shall, at the request of Landlord, execute a
suitable instrument in confirmation of such agreement to attorn. The
provisions of this paragraph shall not be deemed a waiver of the
provisions set forth in the first paragraph of Section 17.1.
17.3 Sublease Limitation. Anything contained in this Lease to the
contrary notwithstanding, Tenant shall not sublet the Leased Property on
any basis such that the rental to be paid by the sublessee thereunder
would be based, in whole or in part, on either (a) the income or profits
derived by the business activities of the sublessee, or (b) any other
formula such that any portion of the sublease rental would fail to
qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
17.4 Assignment and Subletting Procedure. Anything contained in
this Lease to the contrary notwithstanding, if Tenant wishes to enter
into a sublease with respect to any portion of the Leased Property or an
assignment of this Lease, Tenant shall give Landlord notice of such
intent, which notice ("Tenant's Notice") shall state, in the event of a
proposed sublease, the location and amount of area intended to be
covered by such sublease and the term of the proposed sublease, the
proposed effective date of such sublease or assignment, and the identity
of such proposed subtenant or assignee and such other information with
respect thereto as Landlord may reasonably require. Landlord shall not
unreasonably withhold its consent to any proposed assignment or sublease<PAGE>
-51-
provided Tenant shall deliver to Landlord a written instrument, in form
and substance reasonably satisfactory to Landlord, pursuant to which
such assignee agrees directly with Landlord to be bound by all the terms
of this Lease and to be jointly and severally liable with Tenant for all
of Tenant's obligations under this Lease.
ARTICLE 18
CERTIFICATES AND FINANCIAL STATEMENTS
18.1 Estoppel Certificates. At any time and from time to time,
upon not less than twenty (20) days prior written notice by Landlord,
Tenant shall furnish to Landlord an Officer's Certificate certifying
that this Lease is unmodified and in full force and effect (or that this
Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, that, to the
best of Tenant's knowledge and belief after making due inquiry, Tenant
is not in default in the performance or observance of any of the terms
of this Lease and that no event exists which with the giving of notice,
lapse of time, or both, would constitute a default hereunder, or if
Tenant shall be in default or any such event shall exist, specifying in
reasonable detail all such defaults or events, and the steps being taken
to remedy the same, and such additional information as Landlord may
reasonably request. Any such certificate furnished pursuant to this
section may be relied upon by Landlord and any prospective purchaser or
mortgagee of the Leased Property.
18.2 Financial Statements. Tenant shall furnish the following
statements to Landlord:
(a) Within forty-five (45) days after each of the first three
quarters of each Fiscal Year, the most recent Consolidated
Financials of Tenant, together with an Officer's Certificate
certifying to the accuracy of such Consolidated Financials;
(b) Within one hundred twenty (120) days after the end of
each Fiscal Year, the most recent Consolidated Financials of Tenant
for such year, certified by an independent certified public
accountant satisfactory to Landlord;
(c) Promptly after the sending or filing thereof, copies of
all reports which Tenant sends to its security holders generally,
and copies of all periodic reports which Tenant files with the SEC
or any stock exchange on which its shares are listed or traded;
(d) Promptly after the delivery thereof to Tenant, or its
management, a copy of any management letter or written report
prepared by Tenant's certified public accountants with respect to
the financial condition, operations, business or prospects of
Tenant;
(e) At any time and from time to time upon not less than
twenty (20) days notice from Landlord, any Consolidated Financials
or any other financial reporting information required to be filed<PAGE>
-52-
by Landlord with any securities and exchange commission, the SEC or
any successor agency, or any other governmental authority, or
required pursuant to any order issued by any court governmental
authority or arbitrator in any litigation to which Landlord is a
party, for purposes of compliance therewith; and
(f) With reasonable promptness, such other information as to
the financial condition and affairs of Tenant as Landlord may
reasonably request.
18.3 General Operations. Tenant covenants and agrees to furnish
to Landlord:
18.3.1 Reimbursement, Licensure etc. Within thirty (30) days
after receipt or modification thereof, copies of
(a) All licenses authorizing Tenant to operate the
Facility for its Primary Intended Use;
(b) All Medicare and Medicaid certifications, together
with provider agreements and all material correspondence
relating thereto with respect to the Facility (excluding,
however, correspondence which may be subject to any
attorney-client privilege);
(c) A Nursing Home Administrator License for the
individuals employed in such capacity with respect to the
Facility;
(d) All reports of surveys, statements of deficiencies,
plans of correction, and all material correspondence relating
thereto, including, without limitation, all reports and
material correspondence concerning compliance with or
enforcement of licensure, Medicare/Medicaid, and accreditation
requirements, including physical environment and Life Safety
Code survey reports (excluding, however, correspondence which
may be subject to any attorney-client privilege); and
(e) With reasonable promptness, such other confirmation
as to the Licensure and Medicare and Medicaid participation
of Tenant as Landlord may reasonably request from time to
time.
18.3.2 Monthly Reports. Tenant shall prepare and furnish to
Landlord for the Leased Property, within thirty (30) days after the end
of each calendar month during the term of this Agreement, a monthly
report, such report to include a balance sheet, a current month and year
to date income statement, showing each item of actual and projected
income and expense, prepared on an accrual basis and a current month and
year to date cash flow statement, reflecting the operating results of
the Facility; a statement of Net Patient Revenues for such month; and
such additional information as the Company may from time to time
reasonably require. <PAGE>
-53-
ARTICLE 19
LANDLORD ACCESS
19.1 Landlord's Right to Inspect. Tenant shall permit Landlord and
its authorized representatives to inspect the Leased Property during
usual business hours, and to do and make such repairs as Landlord is
permitted or required to make pursuant to the terms of this Lease,
subject to any security, health, safety or patient or business
confidentiality requirements of Tenant or any governmental agency or
Insurance Requirement relating to the Leased Property or imposed by law.
19.2 Landlord's Option to Purchase the Tenant's Personal Property;
Transfer of Licenses. Effective on not less than ninety (90) days'
prior notice given at any time within one hundred eighty (180) days
after the expiration of the Term (or such shorter period as shall be
appropriate if this Lease is terminated prior to its expiration date),
Landlord shall have the option to purchase all (but not less than all)
of Tenant's Personal Property (except motor vehicles), if any, at the
expiration or termination of this Lease, for an amount equal to the then
net market value thereof (current replacement cost as determined by
appraisal less accumulated depreciation on Tenant's books pertaining
thereto), subject to, and with appropriate price adjustments for, all
equipment leases, conditional sale contracts, UCC-1 financing statements
and other encumbrances to which such Personal Property is subject;
provided, however, Landlord shall not have the right to purchase any
Facility Trade Name or logo.
ARTICLE 20
APPRAISAL
20.1 Appraisal Procedure. In the event that it becomes necessary
to determine the Fair Market Value, Fair Market Value Purchase Price or
Fair Market Rental of the Leased Property or a Substitute Property for
any purpose of this Lease, the party required or permitted to give
notice of such required determination (the "Initiating Party") shall
include in such notice the name of a designated Qualified Appraiser
(hereinafter defined) on its behalf. Within 10 days after notice, the
party receiving such notice (the "Responding Party") shall, by written
notice to the other, appoint a second Qualified Appraiser. If the
Responding Party shall fail, neglect or refuse within said ten-day
period to designate another appraiser willing so to act, the appraiser
designated by the Initiating Party shall designate the second Qualified
Appraiser within ten (10) days thereafter. The two appraisers so
designated shall meet within ten (10) days after the second appraiser is
designated, and, if within ten (10) days after the second appraiser is
designated, the two appraisers do not agree upon the Fair Market Value,
Fair Market Value Purchase Price or Fair Market Rental, as the case may
be, of the applicable property as of the relevant date, the two
appraisers shall designate a third Qualified Appraiser, within ten (10)
days thereafter. In the event that the two appraisers are unable to
agree upon the appointment of a third Qualified Appraiser within such
ten (10) day period, either Landlord or Tenant, on behalf of both, may<PAGE>
-54-
then request appointment of such appraiser the then president of the
American Arbitration Association. In the event of a failure, refusal or
inability of any appraiser to act, a new appraiser shall be appointed in
his stead, which appointment shall be made in the same manner as
hereinabove provided for the appointment of such appraiser so failing,
refusing or being unable to act. In the event that all appraisers
cannot agree upon such value ten (10) days as aforesaid, each appraiser
shall submit his appraisal of such value to the other two appraisers in
writing, and such value shall be determined by calculating the average
of the two numerically closest (or, if the values are equidistant, all
three) values determined by the three appraisers.
The costs, other than counsel fees, of such appraisal shall be
borne equally by the parties. Upon determining such value, the
appraisers shall promptly notify Landlord and Tenant in writing of such
determination. If any party shall fail to appear at the hearings
appointed by the appraisers, the appraisers may act in the absence of
such party.
The determination of the board of appraisers (or the single
additional Qualified Appraiser, as appropriate) made in accordance with
the foregoing provisions shall be final and binding upon the parties,
such determination may be entered as an award in arbitration in a court
of competent jurisdiction, and judgment thereon may be entered.
ARTICLE 21
MORTGAGES
21.1 Landlord May Grant Liens. Without the consent of Tenant,
Landlord may, subject to the terms and conditions set forth in this
Section 21.1, from time to time, directly or indirectly, create or
otherwise cause to exist any lien, encumbrance or title retention
agreement ("Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing. Any such Encumbrance, other than one
the proceeds of which are used to finance construction of a Capital
Addition pursuant to the provisions of Sections 6.1 and 6.3, shall
include the right to prepay (whether or not subject to a prepayment
penalty) and shall provide (subject to Section 21.2) that it is subject
to the rights of Tenant under this Lease.
21.2 Subordination of Lease. Subject to Section 21.1 and the last
paragraph of this Section 21.2, this Lease, and all rights of Tenant
hereunder, are and shall be subject and subordinate to any ground or
master lease, and all renewals, extensions, modifications and
replacements thereof, and to all mortgages and deeds of trust, which may
now or hereafter affect the Leased Property or any improvements thereon
and/or any of such leases, whether or not such mortgages or deeds of
trust shall also cover other lands and/or buildings and/or leases, to
each and every advance made or hereafter to be made under such mortgages
and deeds of trust, and to all renewals, modifications, replacements and
extensions of such leases and such mortgages and deeds of trust and all
consolidations of such mortgages and deeds of trust. This section shall<PAGE>
-55-
be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall promptly
execute, acknowledge and deliver any instrument that Landlord, the
lessor under any such lease or the holder of any such mortgage or the
trustee or beneficiary of any deed of trust or any of their respective
successors in interest may reasonably request to evidence such
subordination. Any lease to which this Lease is, at the time referred
to, subject and subordinate is herein called "Superior Lease" and the
lessor of a Superior Lease or its successor in interest at the time
referred to, is herein called "Superior Landlord" and any mortgage or
deed of trust to which this Lease is, at the time referred to, subject
and subordinate, is herein called "Superior Mortgage" and the holder,
trustee or beneficiary of a Superior Mortgage is herein called "Superior
Mortgagee".
If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed, or otherwise,
then at the request of such party so succeeding to Landlord's rights
(herein called "Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to
and recognize such Successor Landlord as Tenant's landlord under this
Lease and shall promptly execute and deliver any instrument that such
Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment, this Lease shall continue in full force and effect
as a direct lease between the Successor Landlord and Tenant upon all of
the terms, conditions and covenants as are set forth in this Lease,
except that the Successor Landlord (unless formerly the landlord under
this Lease or its nominee or designee) shall not be (a) liable in any
way to Tenant for any act or omission, neglect or default on the part of
Landlord under this Lease, (b) responsible for any monies owing by or on
deposit with Landlord to the credit of Tenant, (c) subject to any
counterclaim or setoff which theretofore accrued to Tenant against
Landlord, (d) bound by any modification of this Lease subsequent to such
Superior Lease or Mortgage, or by any previous prepayment of Minimum
Rent or Percentage Rent for more than one (1) month, which was not
approved in writing by the Superior Landlord or the Superior Mortgagee
thereto, (e) liable to the Tenant beyond the Successor Landlord's
interest in the Leased Property and the rents, income, receipts,
revenues, issues and profits issuing from the Leased Property, (f)
responsible for the performance of any work to be done by the Landlord
under this Lease to render the Leased Property ready for occupancy by
Tenant, or (g) required to remove any person occupying the Leased
Property or any part thereof, except if such person claims by, through
or under the Successor Landlord. Tenant agrees at any time and from
time to time to execute a suitable instrument in confirmation of
Tenant's agreement to attorn, as aforesaid.
Tenant's obligation to subordinate this Lease and Tenant's rights
hereunder to any Superior Mortgage or Superior Lease shall be
conditioned upon Landlord obtaining from any Superior Mortgagee or
Superior Landlord, an agreement which shall be executed by Tenant and
such Superior Mortgagee or Superior Landlord which shall provide in
substance that so long as no Event of Default exists as would entitle<PAGE>
-56-
Landlord or any such Superior Mortgagee or Superior Landlord to
terminate this Lease or would cause, without any further action of
Landlord or such Superior Mortgagee or Superior Landlord, the
termination of this Lease or would entitle Landlord or such Superior
Mortgagee or Superior Landlord to dispossess Tenant, this Lease shall
not be terminated, nor shall Tenant's use, possession or enjoyment of
the Leased Property, in accordance with the terms and provisions of this
Lease, be interfered with, nor shall the leasehold estate granted by
this Lease be affected in any other manner, in any foreclosure or any
action or proceeding instituted under or in connection with such
Superior Mortgage or Superior Lease, or in the event such Superior
Mortgagee or Superior Landlord takes possession of the Leased Property
pursuant to any provisions of such Superior Mortgage or Superior Lease,
unless Landlord or such Superior Mortgagee or Superior Landlord would
have had such right of termination pursuant to this Lease. Such
agreement shall be in form customarily used by the holder of any such
Superior Mortgage or Superior Lease.
21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the
receipt by Tenant of notice from any person, firm or other entity that
it is a Facility Mortgagee, or that it is the ground lessor under a
lease with Landlord, as ground lessee, which includes the Leased
Property as part of the demised premises, no notice from Tenant to
Landlord shall be effective unless and until a copy of the same is given
to such Facility Mortgagee or ground lessor and the curing of any of
Landlord's defaults by such Facility Mortgagee or ground lessor shall be
treated as performance by Landlord.
ARTICLE 22
INVESTMENT TAX CREDIT
22.1 Investment Tax Credit. Landlord agrees to elect, in
accordance with Section 48(d) of the Code, to treat Tenant as having
purchased all such eligible property in the Leased Property as may be
designated by Tenant in order that Tenant may obtain the benefit of the
credit, if any, allowed or allowable with respect thereto under Section
38 of the Code. Landlord makes no representation or warranty with
respect to the availability of the credit to Tenant or the efficacy of
such election. Landlord's sole responsibility in this regard shall be
to execute such documents as are reasonably required to effect the
election, which documents Tenant shall prepare, at Tenant's sole cost
and expense, and to provide Tenant with such information as may be
reasonably requested by Tenant in connection therewith. In addition,
Landlord agrees it and its assignees will not claim the credit provided
by Section 38 of the Code for any property included in the Leased
Property.<PAGE>
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ARTICLE 23
ADDITIONAL COVENANTS OF TENANT
23.1 Notice of Change of Name, Administrator, Etc. Tenant shall
give prompt notice to Landlord of any change in (a) the name (operating
or otherwise) of Tenant or the Facility, (b) the individual licensed as
administrator of the Facility, (1) the number of beds in any bed
category for which the Facility is licensed or the number of beds in any
bed category available for use at the Facility (except for changes in
the number of certified distinct part beds made for reimbursement
maximization purposes), and (d) the patient and/or child care services
that are offered at the Facility.
23.2 Notice of Litigation, Potential Event of Default, Etc.
Tenant shall give prompt notice to Landlord of any litigation or any
administrative proceeding to which it may hereafter become a party which
involves a potential liability equal to or greater than $250,000, or
which may otherwise result in any material adverse change in the
business, operations, property, prospects, results of operation or
condition, financial or other, of Tenant. Forthwith upon Tenant
obtaining knowledge of any Default or Event of Default, or any event or
condition that would be required to be disclosed in a current report
filed by Tenant on Form 8-K or in Part II of a quarterly report on Form
10-Q if Tenant were required to file such reports under the Securities
Exchange Act of 1934, as amended, Tenant shall give Landlord notice
thereof, which notice shall set forth in reasonable detail the nature
and period of existence thereof and what action Tenant has taken or is
taking or proposes to take with respect thereto.
23.3 Management of Leased Property. Tenant shall not enter into
any management or similar agreement in respect of the Leased Property
without the express prior written consent of Landlord.
23.4 Distributions, Payments to Affiliated Persons, Etc. Tenant
will not declare, order, pay or make, directly or indirectly, any
distribution or any payment to any Affiliated Person as to Tenant
(including payments in the ordinary course of business and payment
pursuant to management agreements with any such Affiliated Person) or
set apart any sum or property therefor, or agree to do so, if, at the
time of such proposed action, or immediately after giving effect
thereto, any event or condition shall exist which constitutes a Default
or an Event of Default.
ARTICLE 24
MISCELLANEOUS
24.1 No Waiver. No failure by Landlord or Tenant to insist upon
the strict performance of any term hereof or to exercise any right,
power or remedy consequent upon a breach thereof, and no acceptance of
full or partial payment of rent during the continuance of any such<PAGE>
-58-
breach, shall constitute a waiver of any such breach or of any such
term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.
24.2 Remedies Cumulative. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord, now
or hereafter provided either in this Lease or by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every
other right, power and remedy and the exercise or beginning of the
exercise by Landlord or Tenant of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise
by Landlord or Tenant of any or all of such other rights, powers and
remedies.
24.3 Acceptance of Surrender. No surrender to Landlord of this
Lease or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in
writing by Landlord and no act by Landlord or any representative or
agent of Landlord, other than such a written acceptance by Landlord,
shall constitute an acceptance of any such surrender.
24.4 No Merger of Title. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the
same person, firm, corporation or other entity may acquire, own or hold,
directly or indirectly (a) this Lease or the leasehold estate created
hereby or any interest in this Lease or such leasehold estate and (b)
the fee estate or ground landlord's interest in the Leased Property.
24.5 Conveyance by Landlord. If Landlord or any successor owner of
the Leased Property shall convey the Leased Property in accordance with
the terms hereof other than as security for a debt, and the grantee or
transferee of the Leased Property shall expressly assume all obligations
of Landlord hereunder arising or accruing from and after the date of
such conveyance or transfer and shall be reasonably capable of
performing the obligations of Landlord hereunder, Landlord or such
successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of Landlord under this Lease
arising or accruing from and after the date of such conveyance or other
transfer as to the Leased Property and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
24.6 Quiet Enjoyment. So long as Tenant shall pay the Rent as the
same becomes due and shall substantially comply with all of the terms of
this Lease and perform its obligations hereunder, Tenant shall peaceably
and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Landlord or anyone claiming
by, through or under Landlord, but subject to all liens and encumbrances
of record as of the date hereof or hereafter consented to by Tenant.
Except as otherwise provided in this Lease, no failure by Landlord to
comply with the foregoing covenant shall give Tenant any right to cancel
or terminate this Lease or abate, reduce or make a deduction from or
offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Tenant hereunder.
Notwithstanding the foregoing, Tenant shall have the right, by separate<PAGE>
-59-
and independent action to pursue any claim it may have against Landlord
as a result of a breach by Landlord of the covenant of quiet enjoyment
contained in this Section.
24.7 Landlord's Liability. THE DECLARATION OF TRUST ESTABLISHING
LANDLORD, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL
AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND,
PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST"
REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES,
BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION. Tenant, its successors and assigns,
shall not assert nor seek to enforce any claim for breach of this Lease
against any of Landlord's assets other than Landlord's interest in the
Leased Property and in the rents, issues and profits thereof, and Tenant
agrees to look solely to such interest for the satisfaction of any
liability or claim against Landlord under this Lease, it being
specifically agreed that in no event whatsoever shall Landlord (which
term shall include, without limitation, any general or limited partner,
trustees, beneficiaries, officers, directors, or stockholders of
Landlord) ever be personally liable for any such liability. In no event
shall Landlord ever be liable to Tenant for any indirect or
consequential damages.
24.8 Landlord's Consent. Where provisions are made in this Lease
for Landlord's consent and Landlord shall fail or refuse to give such
consent, Tenant shall not be entitled to any damages for any withholding
by Landlord of its consent, it being intended that Tenant's sole remedy
shall be an action for specific performance or injunction, and that such
remedy shall be available only in those cases where Landlord has
expressly agreed in writing not to unreasonably withhold its consent.
24.9 Memorandum of Lease. Neither Landlord nor Tenant shall
record this Lease. However, Landlord and Tenant shall promptly, upon
the request of either, enter into a short form memorandum of this Lease,
in form suitable for recording under the laws of the State in which
reference to this Lease, and all options contained herein, shall be
made. Tenant shall pay all costs and expenses of recording such
memorandum of this Lease.
24.10 Notices. (a) Any and all notices, demands, consents,
approvals, offers, elections and other communications required or
permitted under this Lease shall be deemed adequately given if in
writing and the same shall be delivered either in hand, by telecopier
with written acknowledgment of receipt, or by mail or Federal Express or
similar expedited commercial carrier, addressed to the recipient of the
notice, postpaid and registered or certified with return receipt
requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).<PAGE>
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(b) All notices required or permitted to be sent hereunder
shall be deemed to have been given for all purposes of this Lease
upon the date of acknowledged receipt, in the case of a notice by
telecopier, and, in all other cases, upon the date of receipt or
refusal, except that whenever under this Lease a notice is either
received on a day which is not a Business Day or is required to be
delivered on or before a specific day which is not a Business Day,
the day of receipt or required delivery shall automatically be
extended to the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
Health and Rehabilitation Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. David J. Hegarty
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
if to Tenant to:
Connecticut Subacute Corporation II
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. Mark Finklestein
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
(d) By notice given as herein provided, the parties hereto
and their respective successor and assigns shall have the right
from time to time and at any time during the term of this Agreement
to change their respective addresses effective upon receipt by the
other parties of such notice and each shall have the right to
specify as its address any other address within the United States
of America.
24.11 Construction. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination of this Lease shall<PAGE>
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survive such termination. If any term or provision of this Lease or any
application thereof shall be invalid or unenforceable, the remainder of
this Lease and any other application of such term or provisions shall
not be affected thereby. If any late charges or any interest rate
provided for in any provision of this Lease are based upon a rate in
excess of the maximum rate permitted by applicable law, the parties
agree that such charges shall be fixed at the maximum permissible rate.
Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by
the party to be charged. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. The headings in this Lease are
for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Lease represents the entire agreement
among the parties and amends and restates the Original Leases in their
entirety. This Lease may not be amended or modified in any respect
except by the written agreement of Landlord and Tenant.
24.12 Governing Law. This Lease shall be interpreted, construed,
applied and enforced in accordance with the laws of the State applicable
to contracts between residents of the State which are to be performed
entirely within the State, regardless of (i) where this Lease is
executed or delivered; or (ii) where any payment or other performance
required by this Lease is made or required to be made; or (iii) where
any breach of any provision of this Lease occurs, or any cause of action
otherwise accrues; or (iv) where any action or other proceeding is
instituted or pending; or (v) the nationality, citizenship, domicile,
principle place of business, or jurisdiction of organization or
domestication of any party; or (vi) whether the laws of the forum
jurisdiction otherwise would apply the laws of a jurisdiction other than
the State; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the
provisions of this Lease may be brought and prosecuted in such court or
courts located in the State as is provided by law; and the parties
consent to the jurisdiction of said court or courts located in the State
and to service of process by registered mail, return receipt requested,
or by any other manner provided by law.
IN WITNESS WHEREOF, the parties have executed this Lease, as a
sealed instrument, as of the date first above written.
LANDLORD:
HEALTH AND REHABILITATION PROPERTIES TRUST
By: John G. Murray
Its: Treasurer
TENANT:<PAGE>
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CONNECTICUT SUBACUTE CORPORATION II
By: Barry M. Portnoy
Its: Secretary<PAGE>
EXHIBIT A
Other Leases
[See attached copy.]<PAGE>
EXHIBIT B
Permitted Encumbrances
[See attached copy.]<PAGE>
EXHIBIT C
The Land
[See attached copy.]<PAGE>
EXHIBIT D
Minimum Rent
[See attached copy.]<PAGE>
Exhibit 10.21
MASTER LEASE AGREEMENT
DATED AS OF JANUARY __, 1995
BY AND BETWEEN
HEALTH AND RETIREMENT PROPERTIES TRUST,
AS LANDLORD,
AND
VERMONT SUBACUTE CORPORATION
AND
NEW HAMPSHIRE SUBACUTE CORPORATION,
AS TENANTS<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
1.1 "Additional Rent" . . . . . . . . . . . . . . . . . . . 1
1.2 "Additional Charges" . . . . . . . . . . . . . . . . . 2
1.3 "Additional Properties . . . . . . . . . . . . . . . . . 2
1.4 "Adjusted Purchase Price" . . . . . . . . . . . . . . . 2
1.5 "Affiliated Person" . . . . . . . . . . . . . . . . . . 2
1.6 "Agreement" . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Applicable Laws" . . . . . . . . . . . . . . . . . . . 2
1.8 "Award" . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 "Base Net Patient Revenues" . . . . . . . . . . . . . . 3
1.11 "Business Day" . . . . . . . . . . . . . . . . . . . . 3
1.12 "Capital Addition" . . . . . . . . . . . . . . . . . . 4
1.13 "Capital Additions Cost" . . . . . . . . . . . . . . . 4
1.14 "Change in Control" . . . . . . . . . . . . . . . . . . 4
1.15 "Code" . . . . . . . . . . . . . . . . . . . . . . . . 5
1.16 "Collective Leased Properties" . . . . . . . . . . . . 5
1.17 "Commencement Date" . . . . . . . . . . . . . . . . . . 5
1.18 "Condemnation" . . . . . . . . . . . . . . . . . . . . 5
1.19 "Condemnor" . . . . . . . . . . . . . . . . . . . . . . 5
1.21 "Declaration . . . . . . . . . . . . . . . . . . . . . . 5
1.22 "Default" . . . . . . . . . . . . . . . . . . . . . . . 5
1.23 "Distribution" . . . . . . . . . . . . . . . . . . . . 5
1.24 "Encumbrance" . . . . . . . . . . . . . . . . . . . . . 6
1.25 "Entity . . . . . . . . . . . . . . . . . . . . . . . . 6
1.26 "Environment" . . . . . . . . . . . . . . . . . . . . . 6
1.27 "Environmental Obligation" . . . . . . . . . . . . . . 6
1.28 "Environmental Notice" . . . . . . . . . . . . . . . . 6
1.29 "Environmental Report" . . . . . . . . . . . . . . . . 6
1.30 "Event of Default" . . . . . . . . . . . . . . . . . . 6
1.31 "Excess Net Patient Revenues" . . . . . . . . . . . . . 6
1.32 "Extended Terms" . . . . . . . . . . . . . . . . . . . 6
1.33 "Facility" . . . . . . . . . . . . . . . . . . . . . . 6
1.34 "Facility Mortgage" . . . . . . . . . . . . . . . . . . 6
1.35 "Facility Mortgagee" . . . . . . . . . . . . . . . . . 6
1.36 "Facility Trade Name" . . . . . . . . . . . . . . . . . 6
1.37 "Fair Market Added Value" . . . . . . . . . . . . . . . 7
1.39 "Fair Market Rental" . . . . . . . . . . . . . . . . . 7
1.40 "Fair Market Value" . . . . . . . . . . . . . . . . . . 7
1.41 "Fair Market Value Purchase Price" . . . . . . . . . . 7
1.42 "Financial Officer's Certificate" . . . . . . . . . . . 7
1.43 "Financials" . . . . . . . . . . . . . . . . . . . . . 7
1.44 "Fiscal Year" . . . . . . . . . . . . . . . . . . . . . 8
1.45 "Fixed Term" . . . . . . . . . . . . . . . . . . . . . 8
1.46 "Fixtures" . . . . . . . . . . . . . . . . . . . . . . 8
1.47 "GAAP" . . . . . . . . . . . . . . . . . . . . . . . . 8
1.48 "Government Agencies . . . . . . . . . . . . . . . . . . 8
1.49 "Guarantor" . . . . . . . . . . . . . . . . . . . . . . 8
1.50 "Guaranty" . . . . . . . . . . . . . . . . . . . . . . 8
1.51 "Hazardous Substances" . . . . . . . . . . . . . . . . 8
1.52 "Immediate Family . . . . . . . . . . . . . . . . . . . 9
1.53 "Impositions" . . . . . . . . . . . . . . . . . . . . . 9<PAGE>
-ii-
1.54 "Incidental Documents" . . . . . . . . . . . . . . . . 10
1.55 "Indebtedness" . . . . . . . . . . . . . . . . . . . . 10
1.56 "Independent Trustees" . . . . . . . . . . . . . . . . 10
1.57 "Insurance Requirements" . . . . . . . . . . . . . . . 10
1.58 "Investment" . . . . . . . . . . . . . . . . . . . . . 10
1.59 "Land" . . . . . . . . . . . . . . . . . . . . . . . . 11
1.60 "Landlord" . . . . . . . . . . . . . . . . . . . . . . 11
1.61 "Lease Year" . . . . . . . . . . . . . . . . . . . . . 11
1.62 "Leased Improvements" . . . . . . . . . . . . . . . . . 11
1.63 "Leased Personal Property" . . . . . . . . . . . . . . 11
1.64 "Leased Property" . . . . . . . . . . . . . . . . . . . 11
1.65 "Legal Requirements" . . . . . . . . . . . . . . . . . 11
1.66 "Lending Institution" . . . . . . . . . . . . . . . . . 11
1.67 "Lien" . . . . . . . . . . . . . . . . . . . . . . . . 12
1.68 "Management Agreement" . . . . . . . . . . . . . . . . 12
1.69 "Manager" . . . . . . . . . . . . . . . . . . . . . . . 12
1.70 "Market Area . . . . . . . . . . . . . . . . . . . . . . 12
1.71 "Minimum Rent" . . . . . . . . . . . . . . . . . . . . 12
1.72 "Net Patient Revenues" . . . . . . . . . . . . . . . . 12
1.73 "New Hampshire Leased Property . . . . . . . . . . . . . 13
1.74 "New Hampshire Subacute . . . . . . . . . . . . . . . . 13
1.75 "Notice" . . . . . . . . . . . . . . . . . . . . . . . 13
1.76 "Nursing Home Administrator License . . . . . . . . . . 13
1.77 "Officer's Certificate" . . . . . . . . . . . . . . . . 13
1.78 "Option Purchase Price . . . . . . . . . . . . . . . . . 13
1.79 "Overdue Rate" . . . . . . . . . . . . . . . . . . . . 13
1.80 "Parent . . . . . . . . . . . . . . . . . . . . . . . . 13
1.81 "Permitted Encumbrances" . . . . . . . . . . . . . . . 13
1.82 "Person" . . . . . . . . . . . . . . . . . . . . . . . 14
1.83 "Pledge and Security Agreement . . . . . . . . . . . . . 14
1.84 "Purchase Agreement . . . . . . . . . . . . . . . . . . 14
1.85 "Primary Intended Use" . . . . . . . . . . . . . . . . 14
1.86 "Qualified Appraiser . . . . . . . . . . . . . . . . . . 14
1.87 "Records" . . . . . . . . . . . . . . . . . . . . . . . 14
1.88 "Regulated Medical Wastes . . . . . . . . . . . . . . . 14
1.89 "Rent" . . . . . . . . . . . . . . . . . . . . . . . . 14
1.90 "SEC" . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.91 "State" . . . . . . . . . . . . . . . . . . . . . . . . 14
1.92 "Stock Pledge Agreement" . . . . . . . . . . . . . . . 15
1.93 "Subordinated Creditor" . . . . . . . . . . . . . . . . 15
1.94 "Subordination Agreement" . . . . . . . . . . . . . . . 15
1.95 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . 15
1.96 "Tangible Net Worth" . . . . . . . . . . . . . . . . . 15
1.97 "Tenant" . . . . . . . . . . . . . . . . . . . . . . . 15
1.98 "Tenant's Capital Additions" . . . . . . . . . . . . . 15
1.99 "Tenant's Personal Property" . . . . . . . . . . . . . 15
1.100 "Term" . . . . . . . . . . . . . . . . . . . . . . . . 16
1.101 "Trustees" . . . . . . . . . . . . . . . . . . . . . . 16
1.102 "Unsuitable for Its Primary Intended Use" . . . . . . 16
1.103 "Vermont Subacute . . . . . . . . . . . . . . . . . . . 16
1.104 "Work" . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 2 COLLECTIVE LEASED PROPERTIES AND TERM . . . . . . . 16
2.1 Collective Leased Properties . . . . . . . . . . . . . . 16<PAGE>
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2.2 Condition of Collective Leased Properties . . . . . . . . 17
2.3 Fixed Term . . . . . . . . . . . . . . . . . . . . . . . 18
2.4 Extended Term . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 3 RENT . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1.1 Minimum Rent . . . . . . . . . . . . . . . . . . . 19
3.1.2 Additional Rent . . . . . . . . . . . . . . . . . 19
3.1.3 Additional Charges . . . . . . . . . . . . . . . . 22
3.2 Late Payment of Rent . . . . . . . . . . . . . . . . . . 24
3.3 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4 No Termination, Abatement, Etc. . . . . . . . . . . . . . 24
ARTICLE 4 USE OF THE COLLECTIVE LEASED PROPERTIES . . . . . . 25
4.1 Permitted Use . . . . . . . . . . . . . . . . . . . . . . 25
4.1.1 Primary Intended Use . . . . . . . . . . . . . . . 25
4.1.2 Necessary Approvals . . . . . . . . . . . . . . . 26
4.1.3 Lawful Use, Etc. . . . . . . . . . . . . . . . . . 26
4.2 Compliance with Legal and Insurance
Requirements, Etc. . . . . . . . . . . . . . . . . . . 27
4.3 Compliance with Medicaid and Medicare
Requirements . . . . . . . . . . . . . . . . . . . . . 27
4.4 Environmental Matters . . . . . . . . . . . . . . . . . . 27
4.4.1 Restriction on Use, Etc. . . . . . . . . . . . . . 27
4.4.2 Environment Report . . . . . . . . . . . . . . . . 28
4.4.4 Survival . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 5 MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . 30
5.1 Maintenance and Repair . . . . . . . . . . . . . . . . . 30
5.1.1 Tenant's Obligations . . . . . . . . . . . . . . . 30
5.1.2 Landlord's Obligations . . . . . . . . . . . . . . 31
5.1.3 Nonresponsibility of Landlord; No Mechanics
Liens . . . . . . . . . . . . . . . . . . . . . . 31
5.2 Tenant's Personal Property . . . . . . . . . . . . . . . 32
5.3 Yield Up . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4 Encroachments, Restrictions, Etc. . . . . . . . . . . . . 33
5.5 Landlord to Grant Easements, Etc. . . . . . . . . . . . . 34
ARTICLE 6 CAPITAL ADDITIONS, ETC. . . . . . . . . . . . . . . 34
6.1 Construction of Capital Additions to the
Leased Property . . . . . . . . . . . . . . . . . . . . 34
6.2 Capital Additions Financed or Paid For by Tenant . . . . 35
6.2.1 Financing of Capital Additions . . . . . . . . . . 35
6.2.2 Purchase by Landlord . . . . . . . . . . . . . . . 35
6.3 Capital Additions Financed by Landlord . . . . . . . . . 37
6.4 Non-Capital Additions . . . . . . . . . . . . . . . . . . 38
6.5 Salvage . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 7 LIENS . . . . . . . . . . . . . . . . . . . . . . . 39
7.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 39<PAGE>
-iv-
7.2 Landlord's Lien . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 8 PERMITTED CONTESTS . . . . . . . . . . . . . . . . . 40
ARTICLE 9 INSURANCE AND INDEMNIFICATION . . . . . . . . . . . 41
9.1 General Insurance Requirements . . . . . . . . . . . . . 41
9.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . 42
9.3 Waiver of Subrogation . . . . . . . . . . . . . . . . . . 43
9.4 Form Satisfactory, Etc . . . . . . . . . . . . . . . . . 43
9.5 Blanket Policy . . . . . . . . . . . . . . . . . . . . . 44
9.6 No Separate Insurance . . . . . . . . . . . . . . . . . . 44
9.7 Indemnification of Landlord . . . . . . . . . . . . . . . 44
ARTICLE 10 CASUALTY . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . 45
10.2 Damage or Destruction . . . . . . . . . . . . . . . . . 45
10.2.1 Damage or Destruction of Leased Property . . . . 45
10.2.2 Partial Damage or Destruction . . . . . . . . . . 46
10.2.3 Insufficient Insurance Proceeds . . . . . . . . . 46
10.2.4 Disbursement of Proceeds . . . . . . . . . . . . 46
10.3 Damage Near End of Term . . . . . . . . . . . . . . . . 48
10.4 Tenant's Property . . . . . . . . . . . . . . . . . . . 48
10.5 Restoration of Tenant's Property . . . . . . . . . . . . 48
10.6 No Abatement of Rent . . . . . . . . . . . . . . . . . . 48
10.7 Termination of Option to Purchase . . . . . . . . . . . 49
10.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 11 CONDEMNATION . . . . . . . . . . . . . . . . . . . . 49
11.1 Total Condemnation, Etc . . . . . . . . . . . . . . . . 49
11.2 Partial Condemnation . . . . . . . . . . . . . . . . . . 49
11.3 Abatement of Rent . . . . . . . . . . . . . . . . . . . 50
11.4 Temporary Condemnation . . . . . . . . . . . . . . . . . 51
11.5 Allocation of Award . . . . . . . . . . . . . . . . . . 51
11.6 Termination of Rights of Option to Purchase. . . . . . . 51
ARTICLE 12 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . 52
12.1 Events of Default . . . . . . . . . . . . . . . . . . . 52
12.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 55
12.3 Tenant's Waiver . . . . . . . . . . . . . . . . . . . . 57
12.4 Application of Funds . . . . . . . . . . . . . . . . . . 58
12.5 Landlord's Right to Cure Tenant's Default . . . . . . . 58
12.6 Trade Names . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 13 HOLDING OVER . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 14 LANDLORD'S DEFAULT . . . . . . . . . . . . . . . . . 59
ARTICLE 15 PURCHASE OF LEASED PROPERTY . . . . . . . . . . . . 60
ARTICLE 16 SUBLETTING AND ASSIGNMENT . . . . . . . . . . . . . 60
16.1 Subletting and Assignment . . . . . . . . . . . . . . . 60<PAGE>
-v-
16.2 Required Sublease Provisions . . . . . . . . . . . . . . 61
16.3 Permitted Sublease . . . . . . . . . . . . . . . . . . . 62
16.4 Sublease Limitation . . . . . . . . . . . . . . . . . . 63
ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL
STATEMENTS . . . . . . . . . . . . . . . . . . . . 63
17.1 Estoppel Certificates . . . . . . . . . . . . . . . . . 63
17.2 Financial Statements . . . . . . . . . . . . . . . . . . 63
17.3 General Operations . . . . . . . . . . . . . . . . . . . 65
17.3.1 Reimbursement, Licensure, Etc . . . . . . . . . . 65
17.3.2 Annual Budgets . . . . . . . . . . . . . . . . . 65
ARTICLE 18 LANDLORD'S RIGHT TO INSPECT . . . . . . . . . . . . 66
ARTICLE 19 APPRAISAL . . . . . . . . . . . . . . . . . . . . . 66
19.1 Appraisal Procedure . . . . . . . . . . . . . . . . . . 66
19.2 Landlord's Right to Appraisal . . . . . . . . . . . . . 68
ARTICLE 20 OPTION TO PURCHASE . . . . . . . . . . . . . . . . . 68
20.1 Landlord's Option to Purchase Tenant's
Personal Property; Transfer of Licenses . . . . . . . 68
20.2 Tenant's Option to Purchase the Leased Property . . . . 69
20.3 First Refusal to Purchase . . . . . . . . . . . . . . . 69
ARTICLE 21 FACILITY MORTGAGES . . . . . . . . . . . . . . . . . 71
21.1 Landlord May Grant Liens . . . . . . . . . . . . . . . . 71
21.2 Subordination of Lease . . . . . . . . . . . . . . . . . 71
21.3 Notice to Mortgagee and Ground Landlord . . . . . . . . 72
ARTICLE 22 ADDITIONAL COVENANTS OF TENANT . . . . . . . . . . . 73
22.1 Prompt Payment of Indebtedness . . . . . . . . . . . . 73
22.2 Conduct of Business . . . . . . . . . . . . . . . . . . 73
22.3 Maintenance of Accounts and Records . . . . . . . . . . 73
22.4 Notice of Change of Name, Administrator, Etc . . . . . 73
22.5 Notice of Litigation, Potential Event
of Default, Etc. . . . . . . . . . . . . . . . . . . 74
22.6 Indebtedness of Tenant . . . . . . . . . . . . . . . . 74
22.7 Distributions, Payments to Affiliated
Persons, Etc . . . . . . . . . . . . . . . . . . . . 75
22.8 Investments . . . . . . . . . . . . . . . . . . . . . . 75
22.9 Prohibited Transactions . . . . . . . . . . . . . . . . 76
22.10 Management of Collective Leased Properties . . . . . . 76
22.11 Liens and Encumbrances . . . . . . . . . . . . . . . . 77
22.12 Merger; Sale of Assets; Etc . . . . . . . . . . . . . . 77
22.13 Guaranties . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE 23 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 78
23.1 Limitation on Payment of Rent . . . . . . . . . . . . . 78
23.2 No Waiver . . . . . . . . . . . . . . . . . . . . . . . 78<PAGE>
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23.3 Remedies Cumulative . . . . . . . . . . . . . . . . . . 78
23.4 Severability . . . . . . . . . . . . . . . . . . . . . 78
23.5 Acceptance of Surrender . . . . . . . . . . . . . . . . 79
23.6 No Merger of Title . . . . . . . . . . . . . . . . . . 79
23.7 Conveyance by Landlord . . . . . . . . . . . . . . . . 79
23.8 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . 79
23.9 NON-LIABILITY OF TRUSTEES . . . . . . . . . . . . . . . 80
23.10 Landlord's Consent of Trustees . . . . . . . . . . . . 80
23.11 Memorandum of Lease . . . . . . . . . . . . . . . . . . 80
23.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . 80
23.13 Construction . . . . . . . . . . . . . . . . . . . . . 81
23.14 Counterparts; Headings . . . . . . . . . . . . . . . . 82
23.15 Landlord Financing. . . . . . . . . . . . . . . . . . . 82
23.16 Applicable Law, Etc . . . . . . . . . . . . . . . . . . 82
23.17 Allocation of Minimum Rent . . . . . . . . . . . . . . 83
23.18 Additional Leased Properties. . . . . . . . . . . . . . 83
EXHIBITS
A-1 - A-8 - Legal Descriptions
B - Purchase Price
C Minimum Rent Allocation<PAGE>
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is entered into as of this ___ day of
January 1995, by and between HEALTH AND RETIREMENT PROPERTIES TRUST, a
Maryland real estate investment trust, having its principal office at
400 Centre Street, Newton, Massachusetts 02158 ("Landlord"), Vermont
Subacute Corporation, a Delaware corporation, having its principal
office at 150 South Champlain Street, Burlington, Vermont 05401
("Vermont Subacute"), and New Hampshire Subacute Corporation, a Delaware
corporation, having its principal office at 40 Whitehall Road,
Rochester, New Hampshire 03867 ("New Hampshire Subacute").
W I T N E S E T H :
WHEREAS, Landlord owns fee simple title to the Collective Leased
Properties (this and other capitalized terms used and not otherwise
defined herein having the meanings ascribed to such terms in Article 1);
and
WHEREAS, Landlord wishes to lease the Collective Leased Properties
to Tenant and Tenant wishes to lease the Collective Leased Properties
from Landlord, all subject to and upon the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt
and legal sufficiency of which are hereby acknowledged, Landlord and
Tenant hereby agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined
in this Article shall have the meanings assigned to them in this Article
and include the plural as well as the singular, (ii) all accounting
terms not otherwise defined herein shall have the meanings assigned to
them in accordance with GAAP, (iii) all references in this Agreement to
designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Agreement,
and (iv) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
1.1 "Additional Rent" shall have the meaning given such term in
Section 3.1.2(a).
1.2 "Additional Charges" shall have the meaning given such term in
Section 3.1.3.<PAGE>
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1.3 "Additional Properties" shall have the meaning given such term
in Section 23.18 hereof.
1.4 "Adjusted Purchase Price" shall mean, with respect to any
Leased Property, the Purchase Price of such Leased Property plus any
amounts disbursed or advanced by Landlord to finance, or to reimburse
Tenant for its financing of, any Capital Addition to such Leased
Property less the amount of any Award or the proceeds of any insurance
received by Landlord in connection with a partial Condemnation or a
partial casualty involving the applicable Leased Property as described
in Section 11.2 or 10.2.2, and not applied by Landlord to the
restoration of the applicable Leased Property as provided therein.
1.5 "Affiliated Person" shall mean, with respect to any Person,
(a) in the case of any such Person which is a partnership, any partner
in such partnership, (b) in the case of any such Person which is a
limited liability company, any member of such company, (c) any other
Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with
respect to such Person or to one or more of the Persons referred to in
the preceding clauses (a) and (b), (d) any other Person who is an
officer, director, trustee or employee of, or partner in, such Person or
any Person referred to in the preceding clauses (a), (b) and (c), and
(e) any other Person who is a member of the Immediate Family of such
Person or of any Person referred to in the preceding clauses (a) through
(d).
1.6 "Agreement" shall mean this Master Lease Agreement, including
Exhibits A-1 to A-8, B and C hereto, as it and they may be amended from
time to time as herein provided.
1.7 "Applicable Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders
(whether now existing or hereafter enacted or promulgated irrespective
of whether its enactment is foreseeable or contemplated), of all courts
of competent jurisdiction and Government Agencies, and all applicable
judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings and determinations, relating to
injury to, or the protection of, real or personal property or human
health (except those requirements which, by definition, are solely the
responsibility of employers) or the Environment, including, without
limitation, all valid and lawful requirements of courts and other
Government Agencies pertaining to reporting, licensing, permitting,
investigation, remediation and removal of underground improvements
(including, without limitation, treatment or storage tanks, or water,
gas or oil wells), or emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pesticides,
petroleum or petroleum products, pollutants, contaminants or hazardous
or toxic substances, materials or wastes whether solid, liquid or
gaseous in nature, into the Environment, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Substances or Regulated Medical Wastes,
underground improvements (including, without limitation, treatment or<PAGE>
-3-
storage tanks, or water, gas or oil wells), or pollutants, contaminants
or hazardous or toxic substances, materials or wastes, whether solid,
liquid or gaseous in nature.
1.8 "Award" shall mean all compensation, sums or other value
awarded, paid or received by virtue of a total or partial Condemnation
of any of the Collective Leased Properties (after deduction of all
reasonable legal fees and other reasonable costs and expenses,
including, without limitation, expert witness fees, incurred by
Landlord, in connection with obtaining any such award).
1.9 "Base Interest Rate" shall mean the annual floating rate of
interest, determined daily and expressed as a percentage, from time to
time announced by The First National Bank of Boston as its "prime" or
"base" rate, so called, or if at any time The First National Bank of
Boston ceases to announce such a rate, as announced by the largest
national or state chartered banking institution other than The First
National Bank of Boston then having its principal office in the City of
Boston and announcing such a rate.
1.10 "Base Net Patient Revenues" shall mean Net Patient Revenues
for the twelve (12) month period commencing April 1, 1995 and ending on
March 31, 1996; provided, however, that in the event that, with respect
to any Lease Year, or portion thereof, for any reason (including,
without limitation, a taking or casualty with respect to any of the
Collective Leased Properties) there shall be a reduction in the number
of skilled nursing home beds at the Facilities or a change in the
services provided at the Facilities from the number of such beds or the
services provided during such twelve (12) month period, in determining
Additional Rent payable with respect to such Lease Year, Base Net
Patient Revenues shall be reduced on a pro rata basis (which shall mean,
in the case of a change in the services provided at a Facility, Base Net
Patient Revenues shall be reduced based upon the relative percentage
reduction in rate made in connection with such change in services).
1.11 "Business Day" shall mean any day other than Saturday,
Sunday, or any other day on which banking institutions in The
Commonwealth of Massachusetts or the State are authorized by law or
executive action to close.
1.12 "Capital Addition" shall mean one or more new buildings, or
one or more additional structures annexed to any portion of any of the
Leased Improvements with respect to any of the Collective Leased
Properties, or the material expansion of existing improvements, which
are constructed on any parcel or portion of the Land during the Term,
including the construction of a new wing or new story, the renovation of
existing improvements on any of the Collective Leased Properties in
order to provide a functionally new facility needed to provide services
not previously offered, or any expansion, construction, renovation or
conversion in order to increase the bed capacity of any Facility to
change the purpose for which such beds are utilized or to improve
materially the quality of any Facility.<PAGE>
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1.13 "Capital Additions Cost" shall mean the cost of any Capital
Addition proposed to be made by Tenant at any of the Collective Leased
Properties, whether paid for by Tenant or Landlord. Such cost shall
include (a) the cost of construction of the Capital Addition, including
site preparation and improvement, materials, labor, supervision,
developer and administrative fees, legal fees, and related design,
engineering and architectural services, the cost of any fixtures, the
cost of equipment and other personalty, the cost of construction
financing (including, but not limited to, capitalized interest) and
other miscellaneous costs approved by Landlord, (b) if agreed to by
Landlord in writing, in advance, the cost of any land (including all
related acquisition costs incurred by Tenant) contiguous to the
applicable Leased Property which is to become a part of such Leased
Property purchased for the purpose of placing thereon a Capital Addition
or any portion thereof or for providing means of access thereto, or
parking facilities therefor, including the cost of surveying the same,
(c) the cost of insurance, real estate taxes, water and sewage charges
and other carrying charges for such Capital Addition during
construction, (d) title insurance charges, (e) reasonable attorneys'
fees and expenses, (f) filing, registration and recording taxes and
fees, (g) documentary stamp or transfer taxes, and (h) all actual and
reasonable costs and expenses of Landlord and Tenant and, if agreed to
by Landlord in writing, in advance, any Lending Institution committed to
finance the Capital Addition, including, but not limited to, all (i)
reasonable attorneys' fees and expenses, (ii) printing expenses, (iii)
filing, registration and recording taxes and fees, (iv) documentary
stamp or transfer taxes, (v) title insurance charges and appraisal fees,
(vi) rating agency fees, and (vii) commitment fees charged by any
Lending Institution advancing or offering to advance any portion of any
financing to which Landlord has consented in writing for such Capital
Addition.
1.14 "Change in Control" shall mean the acquisition by any Person,
or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the SEC) of 5% or more, or rights,
options or warrants to acquire 5% or more, of the outstanding shares of
voting stock of Tenant or any Guarantor, as the case may be, or the
merger or consolidation of Tenant or any Guarantor, as the case may be
with or into any other Person or any one or more sales or conveyances to
any Person of all or substantially all of the assets of Tenant or any
Guarantor, as the case may be.
1.15 "Code" shall mean the Internal Revenue Code of 1986 and, to
the extent applicable, the Treasury Regulations promulgated thereunder,
each as from time to time amended.
1.16 "Collective Leased Properties" shall have the meaning given
such term in Section 2.1.
1.17 "Commencement Date" shall mean the date of this Agreement.<PAGE>
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1.18 "Condemnation" shall mean, with respect to any of the
Collective Leased Properties, (a) the exercise of any governmental power
with respect to such Leased Property, whether by legal proceedings or
otherwise, by a Condemnor of its power of condemnation, (b) a voluntary
sale or transfer of such Leased Property by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for
condemnation are pending, and (c) a taking or voluntary conveyance of
all or part of such Leased Property, or any interest therein, or right
accruing thereto or use thereof, as the result or in settlement of any
Condemnation or other eminent domain proceeding affecting such Leased
Property, whether or not the same shall have actually been commenced.
1.19 "Condemnor" shall mean any public or quasi-public authority,
or private corporation or individual, having the power of Condemnation.
1.20 "Connecticut Subacute" shall mean Connecticut Subacute
Corporation, a Delaware corporation.
1.21 "CSC-II" shall mean Connecticut Subacute Corporation II, a
Delaware corporation.
1.22 "Declaration" shall mean the Declaration of Trust establishing
Landlord, dated October 9, 1986, as amended.
1.23 "Default" shall mean any event or condition which with the
giving of notice and/or lapse of time may ripen into an Event of
Default.
1.24 "Distribution" shall mean (a) any declaration or payment of
any dividend (except dividends payable in common stock of Tenant) on or
in respect of any shares of any class of capital stock of Tenant, (b)
any purchase, redemption retirement or other acquisition of any shares
of any class of capital stock of a corporation, (c) any other
distribution on or in respect of any shares of any class of capital
stock of a corporation, (d) any return of capital to shareholders, or
(e) any payment with respect to any indebtedness of any Guarantor to any
Affiliated Person of such or any other Guarantor.
1.25 "Encumbrance" shall have the meaning given such term in
Section 21.1.
1.26 "Entity" shall mean any corporation, general or limited
partnership, limited liability company or partnership, stock company or
association, joint venture, association, company, trust, bank, trust
company, land trust, business trust, cooperative, any government or
agency or political subdivision thereof or any other entity.
1.27 "Environment" shall mean soil, surface waters, ground waters,
land, stream, sediments, surface or subsurface strata and ambient air.
1.28 "Environmental Obligation" shall have the meaning given such
term in Section 4.4.1.<PAGE>
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1.29 "Environmental Notice" shall have the meaning given such term
in Section 4.4.1.
1.30 "Environmental Report" shall have the meaning given such term
in Section 4.4.2.
1.31 "Event of Default" shall have the meaning given such term in
Section 12.1.
1.32 "Excess Net Patient Revenues" shall mean, with respect to any
Lease Year, or portion thereof, the amount of Net Patient Revenues for
such Lease Year, or portion thereof, in excess of Base Net Patient
Revenues for the equivalent period.
1.33 "Extended Terms" shall have the meaning given such term in
Section 2.4.
1.34 "Facility" shall mean, with respect to any of the Collective
Leased Properties, the facility offering health care or related services
being operated or proposed to be operated on such Leased Property.
1.35 "Facility Mortgage" shall mean, with respect to any of the
Collective Leased Properties, any Encumbrance placed upon such Leased
Property in accordance with Article 21.
1.36 "Facility Mortgagee" shall mean the holder of any Facility
Mortgage.
1.37 "Facility Trade Name" shall mean, with respect to any
Facility, any name under which Tenant has conducted the business of
operating such Facility at any time during the Term.
1.38 "Fair Market Added Value" shall mean, with respect to any of
the Collective Leased Properties, the Fair Market Value of such Leased
Property (including all Capital Additions) less the Fair Market Value of
such Leased Property determined as if no Tenant's Capital Additions had
been constructed.
1.39 "Fair Market Added Value Percentage" shall mean the percentage
that the Fair Market Added Value bears to the Fair Market Value Purchase
Price.
1.40 "Fair Market Rental" shall mean, with respect to any of the
Collective Leased Properties, the rental which a willing tenant not
compelled to rent would pay a willing landlord not compelled to lease
for the use and occupancy of such Leased Property (including all Capital
Additions other than Tenant's Capital Additions) on the terms and condi-
tions of this Agreement for the term in question, assuming Tenant is not
in default hereunder and determined by agreement between Landlord and
Tenant or, failing agreement, in accordance with the appraisal
procedures set forth in Article 19. <PAGE>
-7-
1.41 "Fair Market Value" shall mean, with respect to any of the
Collective Leased Properties, the price that a willing buyer not
compelled to buy would pay a willing seller not compelled to sell for
such Leased Property (without taking into account any reduction in value
resulting from any indebtedness to which such Leased Property is
subject), assuming the same is unencumbered by this Agreement and
determined by agreement between Landlord and Tenant or, failing
agreement, the appraisal procedures set forth in Article 19.
1.42 "Fair Market Value Purchase Price" shall mean, with respect
to any of the Collective Leased Properties, the Fair Market Value of
such Leased Property less the Fair Market Added Value.
1.43 "Financial Officer's Certificate" shall mean, as to any
Person, a certificate of the chief financial officer of such Person,
duly authorized, accompanying the financial statements required to be
delivered by such Person pursuant to Section 17.2, in which such officer
shall certify (a) that such statements have been properly prepared in
accordance with GAAP and are true, correct and complete in all material
respects and fairly present the financial condition of such Person at
and as of the dates thereof and the results of its and their operations
for the periods covered thereby, and (b) certify that such officer has
reviewed this Agreement and has no knowledge of any Default or Event of
Default hereunder.
1.44 "Financials" shall mean, for any Fiscal Year or other
accounting period of any Tenant or Guarantor, annual audited and
quarterly unaudited financial statements for such Tenant or Guarantor,
including such Tenant's or Guarantor's balance sheet and the related
statements of income and cash flows, all in reasonable detail, and
setting forth in comparative form the corresponding figures for the
corresponding period in the preceding Fiscal Year, and prepared in
accordance with GAAP throughout the periods reflected.
1.45 "Fiscal Year" shall mean the twelve (12) month period from
January 1 to December 31.
1.46 "Fixed Term" shall have the meaning given such term in
Section 2.3.
1.47 "Fixtures" shall have the meaning given such term in Section
2.1(d).
1.48 "GAAP" shall mean generally accepted accounting principles
consistently applied.
1.49 "Government Agencies" shall mean any court, agency,
authority, board (including, without limitation, environmental
protection, planning and zoning), bureau, commission, department, office
or instrumentality of any nature whatsoever of any governmental or
quasi-governmental unit of the United States or the State or any county
or any political subdivision of any of the foregoing, whether now or<PAGE>
-8-
hereafter in existence, having jurisdiction over Tenant or the
Collective Leased Properties or any portion thereof or the Facilities
operated thereon.
1.50 "Guarantor" shall mean, collectively, each and every
guarantor of Tenant's obligations under this Agreement, including,
without limitation, Connecticut Subacute, CSC II and the other
Guarantors specified in Section 22.14 hereof, and each such guarantor's
successors and assigns.
1.51 "Guaranty" shall mean any guaranty agreement executed by a
Guarantor in favor of Landlord, of Tenant's obligations hereunder,
together with all modifications, amendments or supplements thereto.
1.52 "Hazardous Substances" shall mean any substance:
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal, state
or local statute, regulation, rule, ordinance, order, action or
policy; or
(b) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "pollutant" or
"contaminant" under any present or future federal, state or local
statute, regulation, rule or ordinance or amendments thereto
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. et seq.) and
the Resource Conservation and Recovery Act (42 U.S.C. section 6901
et seq.) and the regulations promulgated thereunder; or
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any governmental
authority, agency, department, commission, board, agency or
instrumentality of the United States, any state of the United
States, or any political subdivision thereof; or
(d) the presence of which on any of the Collective Leased
Properties causes or threatens to cause a nuisance upon such Leased
Property or to adjacent properties or poses or threatens to pose a
hazard to any of the Collective Leased Properties or to the health
or safety of persons on or about any of the Collective Leased
Properties; or
(e), without limitation, which contains gasoline, diesel fuel
or other petroleum hydrocarbons or volatile organic compounds; or
(f), without limitation, which contains polychlorinated
biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation;
or<PAGE>
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(g), without limitation, which contains or emits radioactive
particles, waves or material; or
(h), without limitation, constitutes Regulated Medical Wastes.
1.53 "Immediate Family" shall mean, with respect to any
individual, such individual's spouse, parents, brothers, sisters,
children (natural or adopted), children-in-law, stepchildren,
grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-
in-law, nephews and nieces.
1.54 "Impositions" shall mean, with respect to any of the
Collective Leased Properties, collectively, all taxes (including,
without limitation, all taxes imposed under the laws of the State, as
such laws may be amended from time to time, and all ad valorem, sales
and use, single business, gross receipts, transaction privilege, rent or
similar taxes as the same relate to or are imposed upon Landlord, Tenant
or the business conducted upon such Leased Property), assessments
(including, without limitation, all assessments for public improvements
or benefit, whether or not commenced or completed prior to the date
hereof and whether or not to be completed within the Term), ground
rents, water, sewer or other rents and charges, excises, tax levies,
fees (including, without limitation, license, permit, inspection,
authorization and similar fees) and all other governmental charges, in
each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of such Leased
Property or the business conducted thereon by Tenant (including all
interest and penalties thereon due to any failure in payment by Tenant),
which at any time prior to, during or in respect of the Term hereof may
be assessed or imposed on or in respect of or be a lien upon (a)
Landlord's interest in such Leased Property, (b) such Leased Property or
any part thereof or any rent therefrom or any estate, right, title or
interest therein, or (c) any occupancy, operation, use or possession of,
or sales from, or activity conducted on, or in connection with such
Leased Property or the leasing or use of such Leased Property or any
part thereof by Tenant; provided, however, that nothing contained herein
shall be construed to require Tenant to pay (i) any tax based on net
income imposed on Landlord, (ii) any net revenue tax of Landlord, (iii)
any transfer fee or other tax imposed with respect to the sale, exchange
or other disposition by Landlord of the applicable Leased Property or
the proceeds thereof (other than in connection with the sale, exchange
or other disposition to, or in connection with a transaction involving,
Tenant), or (iv) any single business, gross receipts (other than a tax
on any rent received by Landlord from Tenant), transaction privilege,
rent or similar taxes as the same relate to or are imposed upon
Landlord, except to the extent that any tax, assessment, tax levy or
charge, which Tenant is obligated to pay pursuant to the first sentence
of this definition and which is in effect at any time during the Term
hereof is totally or partially repealed, and a tax, assessment, tax levy
or charge set forth in clause (i) or (ii) preceding is levied, assessed
or imposed expressly in lieu thereof.<PAGE>
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1.55 "Incidental Documents" shall mean, collectively, the Stock
Pledge Agreement and the Pledge and Security Agreement.
1.56 "Indebtedness" shall mean all obligations, contingent or
otherwise, which in accordance with GAAP should be reflected on the
obligor's balance sheet as liabilities.
1.57 "Independent Trustees" shall mean Trustees who, in their
individual capacity, are not Affiliated Persons as to Tenant and do not
perform any services for Landlord except as Trustees.
1.58 "Insurance Requirements" shall mean all terms of any
insurance policy required by this Agreement and all requirements of the
issuer of any such policy.
1.59 "Investment" shall mean all loans, advances, extensions of
credit (except for accounts and notes receivable for merchandise sold or
services furnished in the ordinary course of business, and amounts paid
in advance on account of the purchase price of merchandise to be
delivered to the payor within one year of the date of the advance), or
purchases of stock, notes, bonds or other securities or evidences of
indebtedness or capital contribution to any Person, whether in cash or
other property. The amount of an Investment shall be its cost (the
amount of cash or the fair market value of other property given in
exchange therefor), whether or not written or charged off or sold or
otherwise disposed of, except to the extent such cost shall have been
paid to Tenant by a Person in which Tenant had no present or prospective
financial interest at the time of such payment.
1.60 "Land" shall have the meaning given such term in Section
2.1(a).
1.61 "Landlord" shall have the meaning given such term in the
preambles to this Agreement.
1.62 "Lease Year" shall mean any calendar year or portion thereof,
commencing with the 1995 calendar year, during the Term.
1.63 "Leased Improvements" shall have the meaning given such term
in Section 2.1(b).
1.64 "Leased Personal Property" shall have the meaning given such
term in Section 2.1(e).
1.65 "Leased Property" shall mean any one of the Collective Leased
Properties.
1.66 "Legal Requirements" shall mean, with respect to any of the
Collective Leased Properties, all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting such Leased
Property or the maintenance, construction, alteration or operation<PAGE>
-11-
thereof, whether now or hereafter enacted or in existence, including,
without limitation, (a) all permits, licenses, certificates of need,
authorizations and regulations necessary to operate such Leased Property
for its Primary Intended Use, and (b) all covenants, agreements,
restrictions and encumbrances contained in any instruments at any time
in force affecting such Leased Property, including those which may (i)
require material repairs, modifications or alterations in or to such
Leased Property or (ii) in any way adversely affect the use and
enjoyment thereof.
1.67 "Lending Institution" shall mean any insurance company,
federally insured commercial or savings bank, national banking
association, savings and loan association, employees' welfare, pension
or retirement fund or system, corporate profit sharing or pension trust,
college or university, or real estate investment trust, including any
corporation qualified to be treated for federal tax purposes as a real
estate investment trust, such trust having a net worth of at least
$100,000,000.
1.68 "Lien" shall mean any mortgage, security interest, pledge,
collateral assignment, or other encumbrance, lien or charge of any kind,
or any transfer any of property or assets for the purpose of subjecting
the same to the payment of Indebtedness or performance of any other
obligation in priority to payment of its general creditors.
1.69 "Management Agreement" shall mean any agreement whether
written or oral entered into between Tenant and any other party
(including any Affiliated Person as to Tenant) pursuant to which
management services are provided to any Facility, together with all
amendments, modifications or supplements thereto.
1.70 "Manager" shall mean the management party under any
Management Agreement.
1.71 "Market Area" shall mean an area within a (10) mile radius of
the applicable Leased Property.
1.72 "Minimum Rent" shall mean the monthly sum of Three Hundred
Six Thousand Two Hundred Fifty and 00/100 Dollars ($306,250.00).
1.73 "Net Patient Revenues" shall mean all revenues (determined on
an accrual basis in accordance with GAAP) received or receivable from or
by reason of the operation of the Facilities, or any portion thereof, or
any other use of the Collective Leased Properties, or any portion
thereof, including, without limitation, all patient revenues received or
receivable for the use of or otherwise by reason of all rooms, beds and
other facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Collective Leased Properties,
or any portion thereof, including, without limitation, and except as
provided below, any other arrangements with third parties relating to
the possession or use of any portion of the Collective Leased
Properties; provided, however, that Net Patient Revenues shall not<PAGE>
-12-
include: (a) allowances according to GAAP for uncollectible accounts,
including credit accounts and charity care and other administrative
discounts; (b) revenue from professional fees or charges by physicians
and unaffiliated providers of ancillary services, when and to the extent
such charges are paid over to such physicians or unaffiliated providers
of ancillary services, or are separately billed and not included in
comprehensive fees; (c) non-operating revenues such as interest income
or income from the sale of assets not sold in the ordinary course of
business; (d) revenues attributable to services actually provided
off-site or otherwise away from such Facility, such as home health care,
to persons that are not patients at such Facility; and (e) all revenues
attributable to Tenant's Capital Additions (as such revenues are
calculated in accordance with Section 6.2.2(a)).
1.74 "New Hampshire Leased Property" shall mean the Leased
Property known as and located at Rochester Manor, Rochester, New
Hampshire.
1.75 "New Hampshire Subacute" shall have the meaning given such
term in the preambles to this Agreement.
1.76 "Notice" shall mean a notice given in accordance with Section
23.12.
1.77 "Nursing Home Administrator License" shall mean any and all
licenses, permits and approvals required under Applicable Law to
authorize any individual or individuals to act as administrator of any
Facility.
1.78 "Officer's Certificate" shall mean a certificate signed by an
officer of Tenant duly authorized by the board of directors of Tenant.
1.79 "Option Purchase Price" shall mean, with respect to any of
the Collective Leased Properties the greater of (x) the Fair Market
Value Purchase Price of such Leased Property and (y) the purchase price
for the applicable Leased Property as set forth in Exhibit B plus any
amounts disbursed or advanced by Landlord to finance, or to reimburse
Tenant for its financing of, any Capital Addition to such Leased
Property, less the amount of any Award or the proceeds of any insurance
received by Landlord in connection with a partial Condemnation or a
partial casualty involving such Leased Property as described in Section
11.2 or 10.2.2, and not applied by Landlord to the restoration of such
Leased Property as provided therein.
1.80 "Overdue Rate" shall mean, on any date, a per annum rate of
interest equal to the lesser of eighteen percent (18%) and the maximum
rate then permitted under applicable law.
1.81 "Parent" shall mean, with respect to any Person, any Person
which owns directly, or indirectly through one or more Subsidiaries or
Affiliated Persons, five percent (5%) or more of the voting or
beneficial interest in, or otherwise has the right or power (whether by<PAGE>
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contract, through ownership of securities or otherwise) to control, such
Person.
1.82 "Permitted Encumbrances" shall mean, with respect to any of
the Collective Leased Properties, all rights, restrictions, and
easements of record set forth on Schedule B to the applicable owner's or
leasehold title insurance policy issued to Landlord on the date hereof,
plus any other such encumbrances as may have been consented to in
writing by Landlord from time to time.
1.83 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns
of such Person where the context so admits.
1.84 "Pledge and Security Agreement" shall mean the Pledge and
Security Agreement, dated as of the date hereof, made by Tenant for the
benefit of Landlord.
1.85 "Purchase Agreement" shall have the meaning given such term
in Section 23.18 hereof.
1.86 "Primary Intended Use" shall have the meaning given such term
in Section 4.1.1.
1.87 "Qualified Appraiser" shall mean an appraiser who is not in
control of, controlled by or under common control with either Landlord
or Tenant and has not been an employee of Landlord or Tenant or any
Affiliated Person with respect to either of Landlord or Tenant at any
time, who is qualified to appraise commercial real estate in the State
and is a member of the American Institute of Real Estate Appraisers (or
any successor association or body of comparable standing if such
Institute is not then in existence) and who has held his or her
certificate as an M.A.I. or its equivalent for a period of not less than
three (3) years, and has been actively engaged in the appraisal of
commercial real estate in such area for a period of not less than five
(5) years, immediately preceding his or her appointment hereunder.
1.88 "Records" shall have the meaning given such term in Section
7.2.
1.89 "Regulated Medical Wastes" shall mean all materials generated
by Tenant, subtenants, patients, occupants or the operators of the
Collective Leased Properties which are now or may hereafter be subject
to regulation pursuant to the Material Waste Tracking Act of 1988, or
any Applicable Laws promulgated by any Government Agencies.
1.90 "Rent" shall mean, collectively, the Minimum Rent, Additional
Rent and Additional Charges.
1.91 "SEC" shall mean the Securities and Exchange Commission.<PAGE>
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1.92 "State" shall mean (i) with respect to the Vermont Leased
Properties, the State of Vermont, and (ii) with respect to the New
Hampshire Leased Property, the State of New Hampshire.
1.93 "Stock Pledge Agreement" shall mean the Stock Pledge and
Security Agreement, dated as of the date hereof, made by Guarantor to
Landlord.
1.94 "Subordinated Creditor" shall mean any creditor of Tenant
which is a party to a Subordination Agreement in favor of Landlord.
1.95 "Subordination Agreement" shall mean any agreement executed
by a Subordinated Creditor pursuant to which the payment and performance
of Tenant's obligations to such Subordinated Creditor are subordinated
to the payment and performance of Tenant's obligations to Landlord under
this Agreement.
1.96 "Subsidiary" shall mean, with respect to any Person, any
Entity (a) in which such Person owns directly, or indirectly through one
or more Subsidiaries, five percent (5%) or more of the voting or
beneficial interest or (b) which such Person otherwise has the right or
power to control (whether by contract, through ownership of securities
or otherwise).
1.97 "Tangible Net Worth" shall mean the excess of total assets
over total liabilities, total assets and total liabilities each to be
determined in accordance with GAAP, excluding, however, from the
determination of total assets: (a) goodwill, organizational expenses,
research and development expenses, trademarks, trade names, copyrights,
patents, patent applications, licenses and rights in any thereof, and
other similar intangibles; (b) all deferred charges or unamortized debt
discount and expense; (c) all reserves carried and not deducted from
assets; (d) treasury stock and capital stock, obligations or other
securities of, or capital contributions to, or investments in, any
Subsidiary; (e) securities which are not readily marketable; (f) any
write-up in the book value of any asset resulting from a revaluation
thereof subsequent to the Commencement Date; and (g) any items not
included in clauses (a) through (g) above that are treated as
intangibles in conformity with GAAP.
1.98 "Tenant" shall mean (i) with respect to the Vermont Leased
Properties, Vermont Subacute, and (ii) with respect to the New Hampshire
Leased Property, New Hampshire Subacute.
1.99 "Tenant's Capital Additions" shall have the meaning given
such term in Section 6.2.2.
1.100 "Tenant's Personal Property" shall mean all motor vehicles
and consumable inventory and supplies, furniture, furnishings, movable
walls and partitions, equipment and machinery and all other personal
property of Tenant now owned or hereafter acquired by Tenant on and
after the date hereof and located at any of the Collective Leased<PAGE>
-15-
Properties or used in Tenant's business at any of the Collective Leased
Properties and all modifications, replacements, alterations and ad-
ditions to such personal property installed at the expense of Tenant,
other than any items included within the definition of Fixtures or
Leased Personal Property.
1.101 "Term" shall mean, collectively, the Fixed Term and the
Extended Terms, to the extent properly exercised pursuant to the provi-
sions of Section 2.4, unless sooner terminated pursuant to the
provisions of this Agreement.
1.102 "Trustees" shall mean the trustees of Landlord.
1.103 "Unsuitable for Its Primary Intended Use" shall mean, with
respect to any Facility, a state or condition of such Facility such that
(a) following any damage or destruction involving such Leased Property,
such Leased Property cannot reasonably be expected to be restored to
substantially the same condition as existed immediately before such
damage or destruction, and as otherwise required by Section 10.2.4,
within six (6) months following such damage or destruction or such
shorter period of time as to which business interruption insurance is
available to cover Rent and other costs related to such Leased Property
following such damage or destruction, or (b) as the result of a partial
taking by Condemnation, such Facility cannot be operated, in the good
faith judgment of Landlord, on a commercially practicable basis for its
Primary Intended Use taking into account, among other relevant factors,
the number of usable beds, the amount of square footage, or the revenues
affected by such damage or destruction or partial taking.
1.104 "Vermont Subacute" shall have the meaning given such term in
the preambles to this Agreement.
1.105 "Work" shall have the meaning given such term in Section
10.2.4.
ARTICLE 2
COLLECTIVE LEASED PROPERTIES AND TERM
2.1 Collective Leased Properties.
Upon and subject to the terms and conditions hereinafter set forth,
Landlord leases to Tenant and Tenant leases from Landlord all of the
following (collectively, the "Collective Leased Properties"):
(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibits A-1 to A-8, attached hereto
and made a part hereof (the "Land");
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and<PAGE>
-16-
connecting tunnels, sidewalks, utility pipes, conduits and
lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures presently
situated upon the Land and all Capital Additions other than
Tenant's Capital Additions (collectively, the "Leased Improve-
ments");
(c) all easements, rights and appurtenances relating to the Land
and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of
property, now or hereafter permanently affixed to or
incorporated into the Leased Improvements, including, without
limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection
equipment, all of which, to the maximum extent permitted by
law, are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding
all items included within the category of Tenant's Personal
Property (collectively, the "Fixtures");
(e) all machinery, equipment, furniture, furnishings, moveable
walls or partitions, computers or trade fixtures or other
personal property of any kind or description used or useful in
Tenant's business on or in the Leased Improvements, and
located on or in the Leased Improvements, and all
modifications, replacements, alterations and additions to such
personal property, except items, if any, included within the
category of Fixtures, but specifically excluding all items
included within the category of Tenant's Personal Property
(collectively, the "Leased Personal Property"); and
(f) all leases of space (including any security deposits held by
Tenant pursuant thereto) in the Leased Improvements to tenants
thereof.
2.2 Condition of Collective Leased Properties. Tenant
acknowledges receipt and delivery of possession of the Collective Leased
Properties and Tenant accepts the Collective Leased Properties in their
"as is" condition, subject to the rights of all occupants and parties in
possession, the existing state of title, including all covenants, condi-
tions, restrictions, reservations, mineral leases, easements and other
matters of record or that are visible or apparent on the Collective
Leased Properties, all applicable Legal Requirements, the lien of
financing instruments, mortgages and deeds of trust, and such other
matters which would be disclosed by an inspection of the Collective
Leased Properties and the record title thereto or by an accurate survey
thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE COLLECTIVE LEASED<PAGE>
-17-
PROPERTIES AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF
SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF
LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND
TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE
CONDITION OF THE COLLECTIVE LEASED PROPERTIES. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE
COLLECTIVE LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS
FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE
OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY
TENANT. To the maximum extent permitted by law, however, Landlord
hereby assigns to Tenant all of Landlord's rights to proceed against any
predecessor in title for breaches of warranties or representations or
for latent defects in the Collective Leased Properties. Landlord shall
fully cooperate with Tenant in the prosecution of any such claims, in
Landlord's or Tenant's name, all at Tenant's sole cost and expense.
Tenant shall indemnify, defend, and hold harmless Landlord from and
against any loss, cost, damage or liability (including reasonable
attorneys' fees) incurred by Landlord in connection with such
cooperation.
2.3 Fixed Term.
The initial term of this Agreement (the "Fixed Term") shall be
approximately thirteen (13) years, eleven (11) months. The Fixed Term
shall commence on the Commencement Date and shall expire December 31,
2008.
2.4 Extended Term.
Provided that no Default or Event of Default shall have occurred
and be continuing and this Agreement shall be in full force and effect,
Tenant shall have the right to extend the Term for three (3) consecutive
ten (10) year renewal terms (collectively, the "Extended Terms") for
all, and not less than all, of the Collective Leased Properties.
Each Extended Term shall commence on the day succeeding the
expiration of the Fixed Term or the preceding Extended Term, as the case
may be. All of the terms, covenants and provisions of this Agreement
shall apply to each such Extended Term, except that Tenant shall have no
right to extend the Term beyond the expiration of the Extended Terms.
If Tenant shall elect to exercise either of the aforesaid options, it
shall do so by giving Landlord Notice thereof not later than one year
prior to the scheduled expiration of the then current Term of this
Agreement (Fixed or Extended, as the case may be), it being understood
and agreed that time shall be of the essence with respect to the giving
of such Notice. Tenant may not exercise its option for more than one
such Extended Term at a time. If Tenant shall fail to give any such
Notice, this Agreement shall automatically terminate at the end of the
Term then in effect and Tenant shall have no further option to extend
the Term of this Agreement. If Tenant shall give such Notice, the
extension of this Agreement shall be automatically effected without the<PAGE>
-18-
execution of any additional documents; it being understood and agreed,
however, that Tenant and Landlord shall execute such documents and
agreements as either party shall reasonably require to evidence the
same. Notwithstanding the provisions of the foregoing sentence, if,
subsequent to the giving of such Notice, an Event of Default shall
occur, unless Landlord shall otherwise consent in writing, the extension
of this Agreement shall cease to take effect and this Agreement shall
automatically terminate at the end of the Term then in effect and Tenant
shall have no further option to extend the Term of this Agreement.
ARTICLE 3
RENT
3.1 Rent.
Tenant shall pay to Landlord, in lawful money of the United States
of America which shall be legal tender for the payment of public and
private debts, without offset, abatement, demand or deduction, Minimum
Rent, Additional Rent and Additional Charges, during the Term, except as
hereinafter expressly provided. All payments to Landlord shall be made
by wire transfer of immediately available federal funds or by other
means acceptable to Landlord in its sole discretion. Rent for any
partial month shall be prorated on a per diem basis based on a 360 day
year and the actual number of days elapsed.
3.1.1 Minimum Rent. Minimum Rent shall be paid in advance on
the first day of each calendar month; provided, however, that the first
monthly payment of Minimum Rent shall be payable on the Commencement
Date.
3.1.2 Additional Rent:
(a) Amount. For each Lease Year or portion thereof during
the Term, commencing with the Lease Year beginning January 1, 1996,
Tenant shall pay additional rent ("Additional Rent") for each
Leased Property with respect to each such Lease Year equal to the
greater of (i) the lesser of (x) three percent (3%) of Excess Net
Patient Revenues for such Leased Property for such Lease Year and
(y) the product of (A) the purchase price for such Leased Property
as set forth in Exhibit B, multiplied by (B) three percent (3%);
and (ii) Additional Rent payable for the immediately preceding
Lease Year with respect to such Leased Property.
(b) Quarterly Installments. Installments of Additional Rent
for any such Lease Year or portion thereof shall be calculated and
paid quarterly in arrears on or before each April 30, July 31,
October 30 and January 31 during the term based on the amount of
Additional Rent payable for the preceding calendar quarter.<PAGE>
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(c) Date of Payment of Additional Rent. Tenant shall deliver
to Landlord an Officer's Certificate setting forth the calculation
of Additional Rent due and payable for the Collective Leased
Properties for each quarter of any Lease Year. Each quarterly
payment of Additional Rent is due and payable and shall be
delivered to Landlord, together with such Officer's Certificate,
together with the applicable installment of the Minimum Rent and
shall be payable in the manner hereinabove provided for payment of
Minimum Rent.
(d) Reconciliation of Additional Rent. In addition, on or
before March 31, of each year, commencing with March 31, 1996,
Tenant shall deliver to Landlord certified audits of Tenant's
financial operations for the preceding Lease Year, together with a
certificate from Ernst & Young or other certified public
accountants reasonably acceptable to Landlord, in form reasonably
acceptable to Landlord, setting forth the Net Patient Revenues for
such preceding Lease Year and such other matters as Landlord may
from time to time reasonably request.
If the annual Additional Rent for the applicable Leased
Property for such preceding Lease Year as shown in the year-end
certificate exceeds the amount previously paid with respect thereto
by Tenant, Tenant shall pay such excess to Landlord at such time as
the certificate is delivered, together with interest at the Base
Interest Rate, which interest shall accrue from the close of such
preceding Lease Year until the date that such certificate is
required to be delivered, and thereafter such interest shall accrue
at the Overdue Rate, until the amount of such difference shall be
paid or otherwise discharged.
(e) Confirmation of Additional Rent. Tenant shall utilize,
or cause to be utilized, an accounting system for the Collective
Leased Properties in accordance with its usual and customary
practices and in accordance with GAAP, which will accurately record
all Net Patient Revenues, and shall employ independent accountants
reasonably acceptable to Landlord, and Tenant shall retain, for at
least five (5) years after the expiration of each Lease Year,
reasonably adequate records conforming to such accounting system
showing all Net Patient Revenues for such Lease Year. Landlord, at
its own expense except as provided hereinbelow, shall have the
right from time to time by its accountants or representatives to
audit the information set forth in the Officer's Certificate
referred to in subparagraph (c) above or the year-end certificate
referred to in subparagraph (d) above and, in connection with such
audits, to examine Tenant's books and records with respect thereto
(including supporting data and sales and excise tax returns)
subject to any prohibitions or limitations on disclosure of any
such data under applicable law or regulations, including without
limitation any duly enacted "Patients' Bill of Rights" or similar
legislation, including such limitations as may be necessary to
preserve the confidentiality of the facility-patient relationship<PAGE>
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and the physician-patient privilege and/or other similar privilege
or confidentiality obligations. If any such audit discloses a
deficiency in the payment of Additional Rent, and either Tenant
agrees with the result of such audit or the matter is otherwise
compromised with Landlord, Tenant shall forthwith pay to Landlord
the amount of the deficiency, as finally agreed or determined,
together with interest at the Base Interest Rate, from the date
when said payment should have been made to the date of payment
thereof; provided, however, that as to any audit that is commenced
more than two (2) years after the date Net Patient Revenues for any
Lease Year are reported by Tenant to Landlord, the deficiency, if
any, with respect to such Net Patient Revenues shall bear interest
as permitted herein only from the date such determination of
deficiency is made unless such deficiency is the result of gross
negligence or willful misconduct on the part of Tenant. If any
such audit discloses that the Net Patient Revenues actually
received by Tenant for any Lease Year exceed those reported by
Tenant by more than three percent (3%), Tenant shall pay the
reasonable cost of such audit and examination. If any such audit
discloses that Tenant paid more Additional Rent for any Lease Year
than was due hereunder, and either Landlord agrees with the result
of such audit or the matter is otherwise determined, provided no
Default or Event of Default has occurred and is continuing,
Landlord shall grant Tenant a credit equal to the amount of such
overpayment against Additional Rent next coming due in the amount
of such difference, as finally agreed or determined. If such a
credit cannot be made because the Term has expired before the
credit can be effected, Landlord shall pay, by check, the amount of
such difference to Tenant.
Any proprietary information obtained by Landlord pursuant to
the provisions of this Agreement shall be treated as confidential,
except that such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties
and except further that Landlord may disclose such information to
its prospective lenders. The obligations of Tenant contained in
this Section 3.1.2 shall survive the expiration or earlier
termination of this Agreement.
3.1.3 Additional Charges.
In addition to the Minimum Rent and Additional Rent payable
hereunder, Tenant shall pay and discharge as and when due and pay-
able the following (collectively, "Additional Charges"):
(a) Impositions. Subject to Article 8 relating to Permitted
Contests, Tenant shall pay, or cause to be paid, all Impositions
before any fine, penalty, interest or cost (other than any
opportunity cost as a result of a failure to take advantage of any
discount for early payment) may be added for non-payment, such
payments to be made directly to the taxing authorities where
feasible, and shall promptly, upon request, furnish to Landlord<PAGE>
-21-
copies of official receipts or other satisfactory proof evidencing
such payments. If any such Imposition may, at the option of the
taxpayer, lawfully be paid in installments (whether or not interest
shall accrue on the unpaid balance of such Imposition), Tenant may
exercise the option to pay the same (and any accrued interest on
the unpaid balance of such Imposition) in installments and, in such
event, shall pay such installments during the Term as the same
become due and before any fine, penalty, premium, further interest
or cost may be added thereto. Landlord, at its expense, shall, to
the extent required or permitted by applicable law, prepare and
file all tax returns in respect of Landlord's net income, gross
receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes and taxes on its capital stock,
and Tenant, at its expense, shall, to the extent required or
permitted by applicable laws and regulations, prepare and file all
other tax returns and reports in respect of any Imposition as may
be required by Government Agencies. Provided no Default or Event
of Default shall have occurred and be continuing, if any refund
shall be due from any taxing authority in respect of any Imposition
paid by Tenant, the same shall be paid over to or retained by
Tenant. Landlord and Tenant shall, upon request of the other,
provide such data as is maintained by the party to whom the request
is made with respect to the Collective Leased Properties as may be
necessary to prepare any required returns and reports. In the
event Government Agencies classify any property covered by this
Agreement as personal property, Tenant shall file all personal
property tax returns in such jurisdictions where it may legally so
file. Each party shall, to the extent it possesses the same,
provide the other, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as
personal property. Where Landlord is legally required to file
personal property tax returns, Landlord shall provide Tenant with
copies of assessment notices in sufficient time for Tenant to file
a protest. All Impositions assessed against such personal property
shall be (irrespective of whether Landlord or Tenant shall file the
relevant return) paid by Tenant not later than the last date on
which the same may be made without interest or penalty. If the
provisions of any Facility Mortgage require deposits on account of
Impositions to be made with such Facility Mortgagee, provided the
Facility Mortgagee has not elected to waive such provision, Tenant
shall either pay Landlord the monthly amounts required at the time
and place that payments of Minimum Rent are required and Landlord
shall transfer such amounts to such Facility Mortgagee or, pursuant
to written direction by Landlord, Tenant shall make such deposits
directly with such Facility Mortgagee.
Landlord shall give prompt Notice to Tenant of all Impositions
payable by Tenant hereunder of which Landlord at any time has
knowledge; provided, however, that Landlord's failure to give any
such notice shall in no way diminish Tenant's obligation hereunder
to pay such Impositions.<PAGE>
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(b) Utility Charges. Tenant shall pay or cause to be paid
all charges for electricity, power, gas, oil, water and other
utilities used in connection with the Collective Leased Properties.
(c) Insurance Premiums. Tenant shall pay or cause to be paid
all premiums for the insurance coverage required to be maintained
pursuant to Article 9.
(d) Other Charges. Tenant shall pay or cause to be paid all
other amounts, liabilities and obligations which Tenant assumes or
agrees to pay under this Agreement, including, without limitation,
all agreements to indemnify Landlord under Sections 4.4 and 9.7.
(e) Reimbursement for Additional Charges. If Tenant pays or
causes to be paid property taxes or similar Additional Charges
attributable to periods after the end of the Term, whether upon
expiration or sooner termination of this Agreement (other than
termination following an Event of Default) and Tenant has not
exercised its right to purchase the Collective Leased Properties as
provided herein, Tenant may, within sixty (60) days of the end of
the Term, provide Notice to Landlord of its estimate of such
amounts. Landlord shall promptly reimburse Tenant for all payments
of such taxes and other similar Additional Charges that are
attributable to any period after the Term of this Agreement (unless
this Agreement shall have been terminated following an Event of
Default).
3.2 Late Payment of Rent.
If any installment of Minimum Rent, Additional Rent or Additional
Charges (but only as to those Additional Charges which are payable
directly to Landlord) shall not be paid on its due date, Tenant shall
pay Landlord, on demand, as Additional Charges, a late charge (to the
extent permitted by law) computed at the Overdue Rate on the amount of
such installment, from the due date of such installment to the date of
payment thereof. To the extent that Tenant pays any Additional Charges
directly to Landlord or any Facility Mortgagee pursuant to any
requirement of this Agreement, Tenant shall be relieved of its
obligation to pay such Additional Charges to the Entity to which they
would otherwise be due.
In the event of any failure by Tenant to pay any Additional Charges
when due, Tenant shall promptly pay and discharge, as Additional
Charges, every fine, penalty, interest and cost which may be added for
non-payment or late payment of such items. Landlord shall have all
legal, equitable and contractual rights, powers and remedies provided
either in this Agreement or by statute or otherwise in the case of non-
payment of the Additional Charges as in the case of non-payment of the
Minimum Rent and Additional Rent.<PAGE>
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3.3 Net Lease.
The Minimum Rent and Additional Rent shall be absolutely net to
Landlord so that this Agreement shall yield to Landlord the full amount
of the installments or amounts of Minimum Rent and Additional Rent
throughout the Term, subject to any other provisions of this Agreement
which expressly provide for adjustment or abatement of such Rent.
3.4 No Termination, Abatement, Etc.
Except as otherwise specifically provided in this Agreement,
Tenant, to the maximum extent permitted by law, shall remain bound by
this Agreement in accordance with its terms and shall neither take any
action without the consent of Landlord to modify, surrender or terminate
this Agreement, nor seek, nor be entitled to any abatement, deduction,
deferment or reduction of the Rent, or set-off against the Rent, nor
shall the respective obligations of Landlord and Tenant be otherwise
affected by reason of (a) any damage to or destruction of any of the
Collective Leased Properties or any portion thereof from whatever cause
or any Condemnation, (b) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of any of the Collective Leased
Properties, or any portion thereof, or the interference with such use by
any Person or by reason of eviction by paramount title; (c) any claim
which Tenant may have against Landlord by reason of any default or
breach of any warranty by Landlord under this Agreement or any other
agreement between Landlord and Tenant, or to which Landlord and Tenant
are parties; (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee of
Landlord; or (e) for any other cause whether similar or dissimilar to
any of the foregoing. Tenant hereby waives all rights arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it
by law, to (a) modify, surrender or terminate this Agreement or quit or
surrender any of the Collective Leased Properties or any portion
thereof, or (b) entitle Tenant to any abatement, reduction, suspension
or deferment of the Rent or other sums payable or other obligations to
be performed by Tenant hereunder, except as otherwise specifically
provided in this Agreement. The obligations of Tenant hereunder shall
be separate and independent covenants and agreements, and the Rent and
all other sums payable by Tenant hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Agreement.
ARTICLE 4
USE OF THE COLLECTIVE LEASED PROPERTIES
4.1 Permitted Use.
4.1.1 Primary Intended Use. <PAGE>
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Tenant shall, at all times during the Term and at any other
time that Tenant shall be in possession of any Leased Property,
continuously use each of the Collective Leased Properties as a
licensed nursing home (or, in the case of the Leased Property known
as Hanson Court, Springfield, Vermont, as a so-called "residential
care facility") and for such other uses as may be incidental or
necessary thereto (such use being hereinafter referred to as such
Leased Property's "Primary Intended Use"). Tenant shall not use
any of the Collective Leased Properties or any portion thereof for
any other use without the prior written consent of Landlord. No
use shall be made or permitted to be made of any of the Collective
Leased Properties and no acts shall be done thereon which will
cause the cancellation of any insurance policy covering any of the
Collective Leased Properties or any part thereof (unless another
adequate policy is available), nor shall Tenant sell or otherwise
provide to residents or patients therein, or permit to be kept,
used or sold in or about any of the Collective Leased Properties
any article which may be prohibited by law or by the standard form
of fire insurance policies, or any other insurance policies
required to be carried hereunder, or fire underwriter's regula-
tions. Tenant shall, at its sole cost, comply with all of the
requirements pertaining to the Collective Leased Properties of any
insurance board, association, organization or company necessary for
the maintenance of insurance, as herein provided, covering the
Collective Leased Properties and Tenant's Personal Property,
including, without limitation, the Insurance Requirements. Tenant
shall not take or omit to take any action, the taking or omission
of which may materially impair the value or the usefulness of any
of the Collective Leased Properties or any part thereof for its
Primary Intended Use.
4.1.2 Necessary Approvals.
Tenant shall proceed with all due diligence and exercise best
efforts to obtain and maintain all approvals necessary to use and
operate, for its Primary Intended Use, each of the Collective
Leased Properties and each Facility located thereon under
applicable law and, without limiting the foregoing, shall use its
best efforts to maintain appropriate certifications for
reimbursement and licensure.
4.1.3 Lawful Use, Etc.
Tenant shall not use or suffer or permit the use of any of the
Collective Leased Properties or Tenant's Personal Property for any
unlawful purpose. Tenant shall not commit or suffer to be
committed any waste on any of the Collective Leased Properties, or
in any Facility, nor shall Tenant cause or permit any nuisance
thereon or therein. Tenant shall neither suffer nor permit any of
the Collective Leased Properties or any portion thereof, including
any Capital Addition, or Tenant's Personal Property, to be used in
such a manner as (i) might reasonably tend to impair Landlord's (or<PAGE>
-25-
Tenant's, as the case may be) title thereto or to any portion
thereof, or (ii) may reasonably make possible a claim or claims for
adverse usage or adverse possession by the public, as such, or of
implied dedication of the applicable Leased Property or any portion
thereof.
4.2 Compliance with Legal and Insurance Requirements, Etc.
Subject to the provisions of Article 8, Tenant, at its sole
expense, shall (i) comply with Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair,
alteration and restoration of all of the Collective Leased Properties,
and (ii) procure, maintain and comply with all appropriate licenses,
certificates of need, permits, provider agreements and other
authorizations and agreements required for any use of the Collective
Leased Properties and Tenant's Personal Property then being made, and
for the proper erection, installation, operation and maintenance of the
Collective Leased Properties or any part thereof, including, without
limitation, any Capital Additions.
4.3 Compliance with Medicaid and Medicare Requirements.
Tenant shall, at its sole cost and expense, make whatever improve-
ments (capital or ordinary) as are required to conform each of the
Collective Leased Properties to such standards as may, from time to
time, be required by Federal Medicare (Title 18) or Medicaid (Title 19)
skilled and/or intermediate care nursing programs, to the extent Tenant
is a participant in such programs, or any other applicable programs or
legislation, or capital improvements required by any other governmental
agency having jurisdiction over such Leased Property as a condition of
the continued operation of such Leased Property for its Primary Intended
Use.
4.4 Environmental Matters.
4.4.1 Restriction on Use, Etc.
Tenant shall not store, spill upon, dispose of or transfer to
or from the Collective Leased Properties any Hazardous Substance,
except that Tenant may store, transfer and dispose of Hazardous
Substances in compliance with all Applicable Laws. Tenant shall
maintain the Collective Leased Properties at all times free of any
Hazardous Substance (except such Hazardous Substances as are
maintained in compliance with all Applicable Laws). Tenant shall
promptly: (a) notify Landlord in writing of any change in the
nature or extent of Hazardous Substances at any of the Collective
Leased Properties, (b) transmit to Landlord a copy of any Community
Right to Know report which is required to be filed by Tenant with
respect to any of the Collective Leased Properties pursuant to SARA
Title III or any other Applicable Law, (c) transmit to Landlord
copies of any citations, orders, notices or other governmental com-
munications received by Tenant or its agents or representatives
with respect thereto (collectively, "Environmental Notice"), which<PAGE>
-26-
Environmental Notice requires a written response or any action to
be taken and/or if such Environmental Notice gives notice of and/or
could give rise to a violation of any Applicable Law and/or could
give rise to any cost, expense, loss or damage (an "Environmental
Obligation"), (d) observe and comply with all Applicable Laws
relating to the use, maintenance and disposal of Hazardous
Substances and all orders or directives from any official, court or
agency of competent jurisdiction relating to the use or maintenance
or requiring the removal, treatment, containment or other
disposition thereof, and (e) pay or otherwise dispose of any fine,
charge or Imposition related thereto, unless Tenant shall contest
the same in good faith and by appropriate proceedings and the right
to use and the value of any of the Collective Leased Properties is
not materially and adversely affected thereby.
If, at any time prior to the termination of this Agreement,
Hazardous Substances are discovered on any of the Collective Leased
Properties, Tenant shall take all actions and incur any and all
expenses, as may be reasonably necessary and as may be required by any
Government Agency, (i) to clean up and remove from and about the
Collective Leased Properties all Hazardous Substances thereon, (ii) to
contain and prevent any further release or threat of release of
Hazardous Substances on or about the Collective Leased Properties and
(iii) to use good faith efforts to eliminate any further release or
threat of release of Hazardous Substances on or about the Collective
Leased Properties.
4.4.2 Environment Report.
Six (6) months prior to expiration of the Term, Tenant, at its
sole cost and expense, shall designate a qualified environmental
engineer, satisfactory to Landlord in its sole discretion, which
engineer shall conduct an environmental investigation of the
Collective Leased Properties and prepare an environmental site
assessment report (the "Environmental Report") with respect
thereto. The scope of such Environmental Report shall include,
without limitation, review of relevant records, interviews with
persons knowledgeable about the Collective Leased Properties and
relevant governmental agencies, a site inspection of the Collective
Leased Properties, any buildings, the fencelines of the Collective
Leased Properties and adjoining properties (Phase I) and shall
otherwise be satisfactory in form and substance to Landlord. If
such investigation, in the opinion of the performing engineer,
indicates that any of the Collective Leased Properties are not
environmentally sound and free from oil, asbestos, radon and other
Hazardous Substances (except in compliance with Applicable Laws),
such investigation shall also include a more detailed physical site
inspection, appropriate testing, subsurface and otherwise, and
review of historical records (Phase II) to demonstrate the
compliance of such of the Collective Leased Properties with
Applicable Laws and the absence of Hazardous Substances.<PAGE>
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All preliminary drafts of the Environmental Report, and supplements
and amendments thereto, shall be provided to Landlord contemporaneously
with delivery thereof to Tenant. With respect to any recommendations
contained in the Environmental Report, violations of Applicable Laws
and/or the existence of any conditions at any of the Collective Leased
Properties which could give rise to an Environmental Obligation, Tenant
shall promptly give Notice thereof to Landlord, together with a
description, setting forth in reasonable detail, all actions Tenant
proposes to take in connection therewith and Tenant shall promptly take
all actions, and incur any and all expenses, as may be reasonably
necessary and as may be required by any Government Agency and as may be
required by Landlord, (i) to clean up, remove or remediate from and
about the Collective Leased Properties all Hazardous Substances thereon,
(ii) to contain, prevent and eliminate any further release or threat of
release of Hazardous Substances on or about the Collective Leased
Properties, and (iii) otherwise to eliminate such violation or condition
from the Collective Leased Properties to the reasonable satisfaction of
Landlord.
4.4.3 Indemnification of Landlord.
Tenant shall protect, indemnify and hold harmless Landlord and
each Facility Mortgagee, their trustees, officers, agents,
employees and beneficiaries, and any of their respective successors
or assigns (hereafter the "Indemnitees," and when referred to
singly, an "Indemnitee") for, from and against any and all debts,
liens, claims, causes of action, administrative orders or notices,
costs, fines, penalties or expenses (including, without limitation,
attorney's fees and expenses) imposed upon, incurred by or asserted
against any Indemnitee resulting from, either directly or
indirectly, the presence in, upon or under the soil or ground water
of any of the Collective Leased Properties or any properties
surrounding any of the Collective Leased Properties of any
Hazardous Substances in violation of any Applicable Law or
otherwise by reason of any failure by Tenant or any Person to
perform or comply with any of the terms of this Section 4.4.
Tenant's duty herein includes, but is not limited to, costs
associated with personal injury or property damage claims as a
result of the presence of Hazardous Substances in, upon or under
the soil or ground water of any of the Collective Leased Properties
in violation of any Applicable Law. Upon Notice from Landlord,
Tenant shall undertake the defense, at Tenant's sole cost and
expense, of any indemnification duties set forth herein.
Tenant shall, upon demand, pay to Landlord, as an Additional
Charge, any cost, expense, loss or damage (including, without
limitation, reasonable attorneys' fees) incurred by Landlord and arising
from a failure of Tenant strictly to observe and perform the foregoing
requirements, which amounts shall bear interest from the date incurred
until paid by Tenant to Landlord at the Overdue Rate.
4.4.4 Survival<PAGE>
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The provisions of this Section 4.4 shall survive the
expiration or sooner termination of this Agreement.
ARTICLE 5
MAINTENANCE AND REPAIRS
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations.
Tenant shall, at its sole cost and expense, keep each of the
Collective Leased Properties and all private roadways, sidewalks
and curbs appurtenant thereto (and Tenant's Personal Property) in
good order and repair, reasonable wear and tear excepted (whether
or not the need for such repairs occurs as a result of Tenant's
use, any prior use, the elements or the age of the Collective
Leased Properties or Tenant's Personal Property, or any portion
thereof), and shall promptly make all necessary and appropriate
repairs and replacements thereto of every kind and nature, whether
interior or exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the commencement of the Term (concealed
or otherwise); provided, however, that Tenant shall be permitted to
prosecute claims against Landlord's predecessors in title for
breach of any representation or warranty made to or on behalf of
Landlord or for any latent defects in the Collective Leased
Properties. All repairs shall be made in a good, workmanlike and
first-class manner, in accordance with all applicable federal,
state and local statutes, ordinances, by-laws, codes, rules and
regulations relating to any such work. Tenant shall not take or
omit to take any action, the taking or omission of which would
materially impair the value or the usefulness of any of the
Collective Leased Properties or any part thereof for its respective
Primary Intended Use. Tenant's obligations under this Section
5.1.1 as to any of the Collective Leased Properties shall be
limited, in the event of any casualty or Condemnation involving
such Leased Property, as set forth in Sections 10.2 and 11.2.
Notwithstanding any provisions of this Section 5.1 to the contrary,
Tenant's obligations with respect to Hazardous Substances are as
set forth in Section 4.4.
5.1.2 Landlord's Obligations.
Landlord shall not, under any circumstances, be required to
build or rebuild any improvement on the Collective Leased
Properties, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the
Collective Leased Properties, whether ordinary or extraordinary,
structural or nonstructural, foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto, or to maintain the<PAGE>
-29-
Collective Leased Properties in any way, except as specifically
provided herein. Tenant hereby waives, to the maximum extent
permitted by law, the right to make repairs at the expense of
Landlord pursuant to any law in effect on the date hereof or
hereafter enacted. Landlord shall have the right to give, record
and post, as appropriate, notices of nonresponsibility under any
mechanic's lien laws now or hereafter existing.
5.1.3 Nonresponsibility of Landlord; No Mechanics
Liens.
Landlord's interest in the Collective Leased Properties shall
not be subject to liens for Capital Additions made by Tenant and
Tenant shall have no power or authority to create any lien or
permit any lien to attach to any of the Collective Leased
Properties or the present estate, reversion or other estate of
Landlord in the Collective Leased Properties or on the building or
other improvements thereon as a result of Capital Additions made by
Tenant or for any other cause or reason. All materialmen,
contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Collective Leased
Properties, or any part thereof, are hereby charged with notice
that such liens are expressly prohibited and that they must look
solely to Tenant to secure payment for any work done or material
furnished for Capital Additions by Tenant or for any other purpose
during the term of this Agreement.
Nothing contained in this Agreement shall be deemed or
construed in any way as constituting the consent or request of
Landlord, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialmen for the
performance of any labor or the furnishing of any materials for any
alteration, addition, improvement or repair to any of the
Collective Leased Properties or any part thereof or as giving
Tenant any right, power or authority to contract for or permit the
rendering of any services or the furnishing of any materials that
would give rise to the filing of any lien against any of the
Collective Leased Properties or any part thereof nor to subject
Landlord's estate in any of the Collective Leased Properties or any
part thereof to liability under any Mechanic's Lien Law of the
State in any way, it being expressly understood Landlord's estate
shall not be subject to any such liability.
5.2 Tenant's Personal Property.
Tenant may (and shall as provided hereinbelow), at its expense,
install, affix or assemble or place on any parcels of the Land or in any
of the Leased Improvements, any items of Tenant's Personal Property, and
Tenant may, subject to the conditions set forth below, remove the same
at any time, provided that no Default or Event of Default has occurred
and is continuing. Tenant shall provide and maintain throughout the
Term all such Tenant's Personal Property as shall be necessary in order<PAGE>
-30-
to operate all of the Facilities located at the Collective Leased
Properties in compliance with all applicable licensure and certification
requirements, in compliance with applicable Legal Requirements and
Insurance Requirements and otherwise in accordance with customary
practice in the industry for such Primary Intended Use. All of Tenant's
Personal Property not removed by Tenant on or prior to the expiration or
earlier termination of this Agreement shall be considered abandoned by
Tenant and may be appropriated, sold, destroyed or otherwise disposed of
by Landlord without the necessity of first giving notice thereof to
Tenant, without any payment to Tenant and without any obligation to ac-
count therefor. Tenant shall, at its expense, restore each of the
Collective Leased Properties to the condition required by Section 5.3,
including repair of all damage to the Collective Leased Properties
caused by the removal of Tenant's Personal Property, whether effected by
Tenant or Landlord.
If Tenant uses any item of tangible personal property (other than
motor vehicles) on, or in connection with, any Leased Property which
belongs to anyone other than Tenant, Tenant shall use its best efforts
to require the agreement permitting such use to provide that Landlord or
its designee may assume Tenant's rights under such agreement upon
management or operation of the applicable Facility by Landlord or its
designee.
5.3 Yield Up.
Upon the expiration or sooner termination of this Agreement, Tenant
shall vacate and surrender each of the Collective Leased Properties to
Landlord in the condition in which each of the Collective Leased
Properties was in on the Commencement Date, except as repaired, rebuilt,
restored, altered or added to as permitted or required by the provisions
of this Agreement, reasonable wear and tear excepted (and casualty
damage and Condemnation, in the event that this Agreement is terminated
with respect to any of the Collective Leased Properties following a
casualty or total Condemnation in accordance with Article 10 or Article
11).
In addition, upon the expiration or earlier termination of this
Agreement, Tenant shall, at Landlord's sole cost and expense, use its
best efforts to transfer to and cooperate with Landlord or Landlord's
nominee in connection with the processing of all applications for
licenses, operating permits and other governmental authorizations and
all contracts, including contracts with governmental or quasi-
governmental entities which may be necessary for the operation of the
Facilities located on the Collective Leased Properties. If requested by
Landlord, Tenant will continue to manage any such Facility after the
expiration of the Term and for as long thereafter as is necessary to
obtain all necessary licenses, operating permits and other governmental
authorizations, on such reasonable terms (which shall include an
agreement to reimburse Tenant for its reasonable out-of-pocket costs and
expenses, and reasonable administrative costs) as Landlord shall
request.<PAGE>
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5.4 Encroachments, Restrictions, Etc.
If any of the Leased Improvements shall, at any time, encroach upon
any property, street or right-of-way adjacent to the affected Leased
Property, or shall violate the agreements or conditions contained in any
lawful restrictive covenant or other agreement affecting any of the
Collective Leased Properties, or any part thereof, or shall impair the
rights of others under any easement or right-of-way to which any of the
Collective Leased Properties is subject, upon the request of Landlord
(but only as to any encroachment, violation or impairment that is not a
Permitted Encumbrance) or of any Person affected by any such
encroachment, violation or impairment, Tenant shall, at its sole cost
and expense, subject to its right to contest the existence of any
encroachment, violation or impairment in accordance with the provisions
of Article 8, either (a) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each
such encroachment, violation or impairment, whether the same shall
affect Landlord or Tenant, or (b) make such changes in the Leased
Improvements and take such other actions, as are reasonably practicable
to remove such encroachment and to end such violation or impairment,
including, if necessary, the alteration of any of the Leased
Improvements and, in any event, take all such actions as may be
necessary in order to ensure the continued operation of the affected
Leased Improvements for their respective Primary Intended Use
substantially in the manner and to the extent such Leased Improvements
were operated prior to the assertion of such violation, impairment or
encroachment. Any such alteration shall be made in conformity with the
applicable requirements of this Article 5. Tenant's obligations under
this Section 5.4 shall be in addition to and shall in no way discharge
or diminish any obligation of any insurer under any policy of title or
other insurance.
5.5 Landlord to Grant Easements, Etc.
Landlord shall from time to time, so long as no Default or Event of
Default shall have occurred and be continuing, at the request of Tenant
and at Tenant's sole cost and expense, (a) grant easements and other
rights in the nature of easements with respect to any of the Collective
Leased Properties to third parties, (b) release existing easements or
other rights in the nature of easements which are for the benefit of any
of the Collective Leased Properties, (c) dedicate or transfer unimproved
portions of any of the Collective Leased Properties for road, highway or
other public purposes, (d) execute petitions to have any of the
Collective Leased Properties annexed to any municipal corporation or
utility district, (e) execute amendments to any covenants and restric-
tions affecting any of the Collective Leased Properties and (f) execute
and deliver to any Person any instrument appropriate to confirm or
effect such grants, release, dedications, transfers, petitions and
amendments (to the extent of its interests in such Leased Property);
provided, however, that Landlord shall have first determined that such
grant, release, dedication, transfer, petition or amendment is not
detrimental to the operation of the applicable Leased Property for its<PAGE>
-32-
Primary Intended Use and does not materially reduce the value of such
Leased Property, and Landlord shall have received an Officer's
Certificate confirming such determination, together with such additional
information as Landlord may request.
ARTICLE 6
CAPITAL ADDITIONS, ETC.
6.1 Construction of Capital Additions to the Leased
Property.
Tenant shall not construct or install Capital Additions on any of
the Collective Leased Properties without obtaining Landlord's prior
written consent, provided that no consent shall be required for any
Capital Addition so long as (a) the Capital Additions Costs for such
Capital Addition are less than $100,000, (b) such construction or
installation would not adversely affect or violate any Legal Requirement
or Insurance Requirement applicable to the applicable Leased Property
and (c) Landlord shall have received an Officer's Certificate certifying
as to the satisfaction of the conditions set out in clauses (a) and (b)
above. If Landlord's consent is required, prior to commencing construc-
tion of any Capital Addition, Tenant shall submit to Landlord, in
writing, a proposal setting forth, in reasonable detail, any proposed
Capital Addition and shall provide to Landlord such plans and
specifications, permits, licenses, contracts and other information
concerning the proposed Capital Addition as Landlord may request.
Landlord shall have thirty (30) days to review all materials submitted
to Landlord in connection with any such proposal. Failure of Landlord
to respond to Tenant's proposal within thirty-five (35) days after
receipt of all information and materials requested by Landlord in
connection with the proposed Capital Addition shall be deemed to
constitute approval of such proposed Capital Addition. Without limiting
the generality of the foregoing, such proposal shall indicate the
approximate projected cost of constructing such Capital Addition and the
use or uses to which it will be put. No Capital Addition shall be made
which would tie in or connect any Leased Improvement on the applicable
Leased Property with any other improvements on property adjacent to such
Leased Property (and not part of the Land) including, without
limitation, tie-ins of buildings or other structures or utilities.
Tenant shall not finance the cost of any construction of any Capital
Addition without the prior written consent of Landlord, which consent
may be withheld by Landlord in Landlord's sole discretion. Any Capital
Additions (including Tenant's Capital Additions) shall, upon the
expiration or sooner termination of this Agreement, pass to and become
the property of Landlord, free and clear of all encumbrances other than
Permitted Encumbrances but subject to Landlord's obligation to
compensate Tenant for Tenant's Capital Additions as provided below.
6.2 Capital Additions Financed or Paid For by Tenant.<PAGE>
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6.2.1 Financing of Capital Additions.
Provided that Tenant has obtained the prior written consent of
Landlord in each instance, Tenant may arrange for financing for
Capital Additions from a Lending Institution; provided, however,
that (i) the terms and conditions of any such financing shall be
subject to the prior approval of Landlord; and (ii) if Landlord
consents to the grant thereof, which consent may be given or
withheld in the sole discretion of Landlord, any security interests
in any property of Tenant, including, without limitation, the
applicable Leased Property, shall be expressly and fully
subordinated to this Agreement and to the interest of Landlord in
the applicable Leased Property and to the rights of any Facility
Mortgagee.
6.2.2 Purchase by Landlord.
If, pursuant to the provisions of this Agreement, Tenant
either pays for or arranges financing (to the extent permitted in
Section 6.2.1) to pay for the costs of construction or installation
of any Capital Addition ("Tenant's Capital Additions") (but
excluding, in any event, any Capital Addition financed by or
through Landlord) upon the expiration or earlier termination of
this Agreement (but if this Agreement is terminated by reason of an
Event of Default, only after Landlord is fully compensated for all
damages resulting therefrom), Landlord shall compensate Tenant for
all Tenant's Capital Additions in any of the following ways
determined in Landlord's sole discretion:
(a) By purchasing such Tenant's Capital Additions from Tenant
for cash in the amount of the then Fair Market Added Value of such
Tenant's Capital Additions; or
(b) By purchasing such Tenant's Capital Additions from Tenant
by delivering to Tenant Landlord's purchase money promissory note
in the amount of the Fair Market Added Value, which note shall be
on then commercially reasonable terms and secured by a mortgage or
deed of trust on the applicable Leased Property and such Tenant's
Capital Additions subject to all existing mortgages and
encumbrances on such Leased Property and such Tenant's Capital
Additions at the time of such purchase; or
(c) Upon termination of this Agreement by reason of an Event
of Default, by assigning to Tenant the right to receive an amount
equal to the Fair Market Added Value Percentage (determined as of
the date of such termination of this Agreement) of all rent and
other consideration receivable by Landlord under any re-letting or
other disposition of the applicable Leased Property and such
Tenant's Capital Additions, after deducting from such rent all
costs and expenses incurred by Landlord in connection with such
reletting or other disposition of the Collective Leased Properties
and such Tenant's Capital Additions and all costs and expenses of<PAGE>
-34-
operating and maintaining the Collective Leased Properties and such
Tenant's Capital Additions during the term of any such new lease
which are not borne by the tenant thereunder, with the provisions
of this Section 6.2.2 to remain in effect until the sale or other
final disposition of the applicable Leased Property and such
Tenant's Capital Additions, at which time the Fair Market Added
Value of such Tenant's Capital Addition shall be immediately due
and payable, such obligation to be secured by a mortgage on the
applicable Leased Property and such Tenant's Capital Additions,
subject to all existing mortgages and encumbrances on the Leased
Property at the time of such purchase and assignment; or
(d) By making such other arrangement regarding such
compensation as shall be mutually acceptable to Landlord and
Tenant.
6.3 Capital Additions Financed by Landlord.
If Landlord shall, at the request of Tenant and in Landlord's sole
discretion, elect to finance any proposed Capital Addition, Tenant shall
provide Landlord with such information as Landlord may from time to time
request, including, without limitation, the following:
(a) Evidence that such Capital Addition will be, and, upon
completion, has been, completed in compliance with the applicable
requirements of State and federal law with respect to capital
expenditures for health care facilities;
(b) Copies of all building, zoning and land use permits and
approvals and upon completion of such Capital Addition, a copy of
the certificate of occupancy for such Capital Addition, if
required;
(c) Such information, certificates, licenses, permits or
other documents necessary to confirm that Tenant will be able to
use the Capital Addition upon completion thereof in accordance with
the Primary Intended Use, including all required federal, State or
local government licenses and approvals;
(d) An Officer's Certificate and a certificate from Tenant's
architect setting forth, in reasonable detail, the projected (or
actual, if available) Capital Additions Cost and invoices and lien
waivers from Tenant's contractors for such work;
(e) A deed conveying to Landlord title to any land acquired
for the purpose of constructing the Capital Addition free and clear
of any liens or encumbrances, except those approved by Landlord,
and, upon completion of the Capital Addition, a final as-built
survey thereof reasonably satisfactory to Landlord;
(f) Endorsements to any outstanding policy of title insurance
covering the applicable Leased Property or commitments therefor,<PAGE>
-35-
satisfactory in form and substance to Landlord, (i) updating the
same without any additional exceptions except as approved by
Landlord, and (ii) increasing the coverage thereof by an amount
equal to the Fair Market Value of the Capital Addition (except to
the extent covered by the owner's policy of title insurance
referred to in subparagraph (g) below);
(g) If appropriate, (i) an owner's policy of title insurance
insuring fee simple title to any land conveyed to Landlord pursuant
to subparagraph (e) above, free and clear of all liens and
encumbrances, except those approved by Landlord, and (ii) a
lender's policy of title insurance, reasonably satisfactory in form
and substance to Landlord and any Facility Mortgagee;
(h) An appraisal of the applicable Leased Property by a
Qualified Appraiser, acceptable to Landlord, and/or an Officer's
Certificate stating that the value of the applicable Leased
Property upon completion of the Capital Addition exceeds the Fair
Market Value thereof prior to the commencement of such Capital
Addition by an amount not less than 80% of the Capital Additions
Cost; and
(i) Prints of architectural and engineering drawings relating
to such Capital Addition and such other certificates, documents,
opinions of counsel, appraisals, surveys, certified copies of duly
adopted resolutions of the board of directors of Tenant authorizing
the execution and delivery of any lease amendment or other
instruments required by Landlord, any Facility Mortgagee and any
Lending Institution advancing or reimbursing Landlord or Tenant for
any portion of the Capital Additions Cost.
If Landlord shall finance the proposed Capital Addition, (i)
Landlord may elect to obtain repayment of amounts so financed by an
increase in the Rent payable hereunder, and (ii) Tenant shall pay to
Landlord all reasonable costs and expenses paid or incurred by Landlord
and any Facility Mortgagee or Lending Institution which has committed to
finance such Capital Addition in connection therewith, including, but
not limited to, (a) the reasonable attorneys' fees and expenses, (b) all
printing expenses, (c) all filing, registration and recording taxes and
fees, (d) documentary stamp taxes, (e) title insurance charges,
appraisal fees, and rating agency fees, and (f) commitment fees.
6.4 Non-Capital Additions.
Tenant shall have the right, at Tenant's sole cost and expense, to
make additions, modifications or improvements to the Collective Leased
Properties which are not Capital Additions ("Non-Capital Additions")
from time to time as Tenant, in its discretion, may deem desirable for
the applicable Primary Intended Use provided that any such Non-Capital
Addition will not materially alter the character or purpose or
materially detract from the value, operating efficiency or
revenue-producing capability of the applicable Leased Property or<PAGE>
-36-
adversely affect the ability of Tenant to comply with the provisions of
this Agreement, and, without limiting the foregoing, will not adversely
affect or violate any Legal Requirement or Insurance Requirement
applicable to the applicable Leased Property. All such Non-Capital
Additions shall, upon expiration or earlier termination of this
Agreement, pass to and become the property of Landlord, free and clear
of all liens and encumbrances, other than Permitted Encumbrances.
6.5 Salvage.
All materials which are scrapped or removed in connection with the
making of either Capital Additions or Non-Capital Additions or repairs
required by Article 5 shall be or become the property of the party that
paid for such work.
ARTICLE 7
LIENS
7.1 Liens.
Subject to Article 8, Tenant shall not, directly or indirectly,
create or allow to remain and shall promptly discharge, at its expense,
any lien, encumbrance, attachment, title retention agreement or claim
upon the Collective Leased Properties or Tenant's leasehold interest
therein or any attachment, levy, claim or encumbrance in respect of the
Rent, other than (a) Permitted Encumbrances, (b) restrictions, liens and
other encumbrances which are consented to in writing by Landlord, (c)
liens for those taxes of Landlord which Tenant is not required to pay
hereunder, (d) subleases permitted by Article 17, (e) liens for
Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (i) the same are not yet payable, or (ii) are
being contested in accordance with Article 8, (f) liens of mechanics,
laborers, materialmen, suppliers or vendors incurred in the ordinary
course of business that are not yet due and payable or are for sums that
are being contested in accordance with Article 8, and (g) any Facility
Mortgages or other liens which are the responsibility of Landlord
pursuant to the provisions of Article 22.
7.2 Landlord's Lien.
In addition to any statutory landlord's lien and in order to secure
payment of the Rent and all other sums payable hereunder by Tenant, and
to secure payment of any loss, cost or damage which Landlord may suffer
by reason of Tenant's breach of this Agreement, Tenant hereby grants
unto Landlord a security interest in and an express contractual lien
upon Tenant's Personal Property (except motor vehicles), and all ledger
sheets, files, records, documents and instruments (including, without
limitation, computer programs, tapes and related electronic data
processing) relating to the operation of the Facilities (the "Records")
and all proceeds therefrom, subject to any Permitted Encumbrances; and<PAGE>
-37-
such Tenant's Personal Property shall not be removed from the Collective
Leased Properties at any time when a Default or an Event of Default has
occurred and is continuing.
Upon Landlord's request, Tenant shall execute and deliver to
Landlord financing statements in form sufficient to perfect the security
interest of Landlord in Tenant's Personal Property and the proceeds
thereof in accordance with the provisions of the applicable laws of the
State. Tenant hereby grants Landlord an irrevocable limited power of
attorney, coupled with an interest, to execute all such financing
statements in Tenant's name, place and stead. The security interest
herein granted is in addition to any statutory lien for the Rent.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of
any Imposition, Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim (collectively, "Claims")
as to any of the Collective Leased Properties, by appropriate legal
proceedings, conducted in good faith and with due diligence, provided
that (a) the foregoing shall in no way be construed as relieving,
modifying or extending Tenant's obligation to pay any Claims as finally
determined, (b) such contest shall not cause Landlord or Tenant to be in
default under any mortgage or deed of trust encumbering such Leased
Property or any interest therein or result in or reasonably be expected
to result in a lien attaching to such Leased Property, (c) no part of
such Leased Property nor any Rent therefrom shall be in any immediate
danger of sale, forfeiture, attachment or loss, and (d) Tenant shall
indemnify and hold harmless Landlord from and against any cost, claim,
damage, penalty or reasonable expense, including reasonable attorneys'
fees, incurred by Landlord in connection therewith or as a result
thereof. Upon Landlord's request, Tenant shall either (i) provide a
bond or other assurance reasonably satisfactory to Landlord that all
Claims which may be assessed against any of the Collective Leased
Properties, together with all interest and penalties thereon will be
paid, or (ii) deposit within the time otherwise required for payment
with a bank or trust company, as trustee, as security for the payment of
such Claims, an amount sufficient to pay the same, together with
interest and penalties in connection therewith and all Claims which may
be assessed against or become a Claim on any of the Collective Leased
Properties, or any part thereof, in connection with any such contest.
Tenant shall furnish Landlord and any Facility Mortgagee with reasonable
evidence of such deposit within five (5) days after request therefor.
Landlord agrees to join in any such proceedings if required legally to
prosecute such contest, provided that Landlord shall not thereby be
subjected to any liability therefor (including, without limitation, for
the payment of any costs or expenses in connection therewith). Tenant
shall be entitled to any refund of any Claims and such charges and
penalties or interest thereon which have been paid by Tenant or paid by<PAGE>
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Landlord and for which Landlord has been fully reimbursed by Tenant. If
Tenant shall fail (x) to pay any Claims when finally determined, (y) to
provide security therefor as provided in this Article 8, or (z) to
prosecute any such contest diligently and in good faith, Landlord may,
upon reasonable notice to Tenant (which notice may be oral and shall not
be required if Landlord shall reasonably determine that the same is not
practicable), pay such charges, together with interest and penalties due
with respect thereto, and Tenant shall reimburse Landlord therefor, upon
demand, as Additional Charges.
ARTICLE 9
INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements.
Tenant shall, at all times during the Term and at any other time
Tenant shall be in possession of any of the Collective Leased
Properties, keep each of the Collective Leased Properties and all
property located therein or thereon, including Tenant's Personal
Property, insured against the risks and in the amounts as follows and
shall maintain the following insurance:
(a) "All-risk" property insurance, including insurance
against loss or damage by fire, vandalism and malicious mischief,
explosion of steamboilers, pressure vessels or other similar
apparatus, now or hereafter installed in the Facility located at
such Leased Property, extended coverage perils, earthquake and all
physical loss perils insurance, including, but not limited to,
sprinkler leakage, in an amount equal to one hundred percent (100%)
of the then full Replacement Cost thereof (as defined in Section
9.2) with the usual extended coverage endorsements, including a
Replacement Cost Endorsement and Builder's Risk Coverage during the
continuance of any construction at such Leased Property;
(b) Business interruption and blanket earnings plus extra
expense under a rental value insurance policy covering risk of loss
during the lesser of the first twelve (12) months of reconstruction
or the actual reconstruction period necessitated by the occurrence
of any of the hazards described in subparagraphs (a) and (b) above,
in such amounts as may be customary for comparable properties in
the area and in an amount sufficient to prevent Landlord or Tenant
from becoming a co-insurer;
(c) Comprehensive general liability insurance, including
bodily injury and property damage (on an occurrence basis and on a
1988 1SO CGL form or its equivalent or otherwise in the broadest
form available, including, without limitation, broad form
contractual liability, fire legal liability independent
contractor's hazard and completed operations coverage) and, with
respect to the Collective Leased Properties, claims arising out of<PAGE>
-39-
malpractice in an amount not less than Five Million Dollars
($5,000,000) per occurrence, Ten Million Dollars ($10,000,000) in
the aggregate and umbrella coverage of all such claims in an amount
not less than Twenty Million Dollars ($20,000,000);
(d) Flood (when the applicable Leased Property is located in
whole or in part within an area identified as an area having
special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968, as
amended, or the Flood Disaster Protection Act of 1973, as amended
(or any successor acts thereto)) and such other hazards and in such
amounts as may be customary for comparable properties in the area;
(e) Worker's compensation insurance coverage for all persons
employed by Tenant on the applicable Leased Property with statutory
limits and otherwise with limits of and provisions in accordance
with the requirements of applicable local, State and federal law,
and employer's liability insurance in such amounts as Landlord and
any Facility Mortgagee shall reasonably require; and
(f) Such additional insurance as may be reasonably required,
from time to time, by Landlord or any Facility Mortgagee.
9.2 Replacement Cost.
"Replacement Cost" as used herein, shall mean the actual
replacement cost of the property requiring replacement from time to
time, including an increased cost of construction endorsement, less
exclusions provided in the standard form of fire insurance policy. In
the event either party believes that the then full Replacement Cost has
increased or decreased at any time during the Term, such party, at its
own cost, shall have the right to have such full Replacement Cost
redetermined by an accredited appraiser approved by the other, which
approval shall not be unreasonably withheld or delayed. The party
desiring to have the full Replacement Cost so redetermined shall
forthwith, on receipt of such determination by such appraiser, give
written notice thereof to the other. The determination of such
appraiser shall be final and binding on the parties hereto, and Tenant
shall forthwith conform the amount of the insurance carried to the
amount so determined by the appraiser.
9.3 Waiver of Subrogation.
Landlord and Tenant agree that (insofar as and to the extent that
such agreement may be effective without invalidating or making it
impossible to secure insurance coverage from responsible insurance
companies doing business in the State) with respect to any property loss
which is covered by insurance then being carried by Landlord or Tenant,
respectively, the party carrying such insurance and suffering said loss
releases the other of and from any and all claims with respect to such
loss; and they further agree that their respective insurance companies
shall have no right of subrogation against the other on account thereof,<PAGE>
-40-
even though extra premium may result therefrom. In the event that any
extra premium is payable by Tenant as a result of this provision,
Landlord shall not be liable for reimbursement to Tenant for such extra
premium.
9.4 Form Satisfactory, Etc.
All insurance policies and endorsements required pursuant to this
Article 9 shall be fully paid for, nonassessable and shall contain such
provisions and expiration dates and be in such form and amounts and
issued by insurance carriers authorized to do business in the State,
having a general policy holder's rating of A or A+ in Best's latest
rating guide, and as otherwise shall be approved by Landlord. Without
limiting the foregoing, such policies shall include no deductible and,
with the exception of the insurance described in Section 9.1(f), shall
name Landlord and any Facility Mortgagee as additional insureds, as
their interests may appear. All losses shall be payable to Landlord,
any Facility Mortgagee or Tenant as provided in Article 10. Any loss
adjustment shall require the prior written consent of Landlord, Tenant,
and each Facility Mortgagee. Tenant shall pay all insurance premiums
and deliver policies or certificates thereof to Landlord prior to their
effective date (and, with respect to any renewal policy, thirty (30)
days prior to the expiration of the existing policy) and, in the event
Tenant shall fail to effect such insurance as herein required, to pay
the premiums therefor or to deliver such policies or certificates to
Landlord or any Facility Mortgagee at the times required, Landlord shall
have the right, but not the obligation, to acquire such insurance and
pay the premiums therefor, which amounts shall be payable to Landlord,
upon demand, as Additional Charges, together with interest accrued
thereon at the Overdue Rate from the date such payment is made until the
date repaid. All such policies shall provide Landlord (and any Facility
Mortgagee, if required by the same) thirty (30) days' prior written
notice of any modification, expiration or cancellation of such policy.
9.5 Blanket Policy.
Notwithstanding anything to the contrary contained in this Article
9, Tenant's obligation to maintain the insurance herein required may be
brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant, provided, that (a) the
coverage thereby afforded will not be reduced or diminished from that
which would exist under a separate policy meeting all other requirements
of this Agreement, and (b) the requirements of this Article 9 are
otherwise satisfied. Without limiting the foregoing, the amounts of
insurance that are required to be maintained pursuant to Section 9.1
shall be on a Facility by Facility basis, and shall not be subject to an
aggregate limit.
9.6 No Separate Insurance.
Tenant shall not take out separate insurance, concurrent in form or
contributing in the event of loss with that required by this Article 9,<PAGE>
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or increase the amount of any existing insurance by securing an
additional policy or additional policies, unless all parties having an
insurable interest in the subject matter of such insurance, including
Landlord and all Facility Mortgagees, are included therein as additional
insureds and the loss is payable under such insurance in the same manner
as losses are payable under this Agreement. In the event Tenant shall
take out any such separate insurance or increase any of the amounts of
the then existing insurance, Tenant shall give Landlord prompt Notice
thereof.
9.7 Indemnification of Landlord.
Notwithstanding the existence of any insurance provided for herein
and without regard to the policy limits of any such insurance, Tenant
shall protect, indemnify and hold harmless Landlord for, from and
against all liabilities, obligations, claims, damages, penalties, causes
of action, costs and reasonable expenses (including, without limitation,
reasonable attorneys' fees), to the maximum extent permitted by law,
imposed upon or incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of persons or loss of or damage to
property occurring on or about the Collective Leased Properties or
adjoining sidewalks or rights of way, including, without limitation, any
claims of malpractice, (b) any past, present or future use, misuse,
non-use, condition, management, maintenance or repair by Tenant or
anyone claiming under Tenant of the Collective Leased Properties or
Tenant's Personal Property or any litigation, proceeding or claim by
governmental entities or other third parties to which Landlord is made a
party or participant relating to the Collective Leased Properties or
Tenant's Personal Property or such use, misuse, non-use, condition,
management, maintenance, or repair thereof including, failure to perform
obligations (other than Condemnation proceedings) to which Landlord is
made a party, (c) any Impositions (which are the obligations of Tenant
to pay pursuant to the applicable provisions of this Agreement), and (d)
any failure on the part of Tenant or anyone claiming under Tenant to
perform or comply with any of the terms of this Agreement. Tenant shall
pay all amounts payable under this Section 9.7 within ten (10) days
after demand therefor and, if not timely paid, such amounts shall bear
interest at the Overdue Rate from the date of determination to the date
of payment. Tenant, at its expense, shall contest, resist and defend
any such claim, action or proceeding asserted or instituted against
Landlord or may compromise or otherwise dispose of the same, with
Landlord's prior written consent (which consent may not be unreasonably
withheld or delayed). The obligations of Tenant under this Section 9.7
are in addition to the obligations set forth in Section 4.4 and shall
survive the termination of this Agreement.<PAGE>
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ARTICLE 10
CASUALTY
10.1 Insurance Proceeds.
All proceeds payable by reason of any loss or damage to the
Collective Leased Properties, or any portion thereof, and insured under
any policy of insurance required by Article 9 (including, without
limitation, proceeds of any business interruption insurance) shall be
paid directly to Landlord and retained by Landlord (subject to the
provisions of Section 10.2). If Tenant is required to reconstruct or
repair any of the Collective Leased Properties as provided herein, such
proceeds shall be paid out by Landlord from time to time for the
reasonable costs of reconstruction or repair of such Leased Property
necessitated by such damage or destruction, subject to the provisions of
Section 10.2.4. Provided no Default or Event of Default has occurred
and is continuing, any excess proceeds of insurance remaining after the
completion of the restoration shall be paid to Tenant. In the event
that the provisions of Section 10.2.1 are applicable, the insurance
proceeds shall be retained by the party entitled thereto pursuant to
Section 10.2.1. All salvage resulting from any risk covered by insur-
ance shall belong to Landlord, except any salvage related to Tenant's
Capital Additions and Tenant's Personal Property shall belong to Tenant.
10.2 Damage or Destruction.
10.2.1 Damage or Destruction of Leased Property.
If, during the Term, any of the Collective Leased Properties
shall be totally or partially destroyed and the Facility located
thereon is thereby rendered Unsuitable for Its Primary Intended
Use, Tenant shall, unless Landlord shall otherwise elect, purchase
such Leased Property from Landlord for a purchase price equal to
the greater of (i) the Adjusted Purchase Price of such Leased
Property and (ii) the Fair Market Value Purchase Price of such
Leased Property immediately prior to such damage or destruction.
In the event Tenant purchases such Leased Property as provided in
this Section 10.2.1, the insurance proceeds payable on account of
such damage shall be paid to Tenant. If Tenant purchases the
applicable Leased Property as provided herein, the closing with
respect thereto shall occur on a date designated by Landlord by
Notice to Tenant (but in no event prior to thirty (30) days after
such Notice), this Agreement shall terminate as to the applicable
Leased Property upon payment of the purchase price therefor, and
Landlord shall remit to Tenant all insurance proceeds pertaining to
the applicable Leased Property then held by Landlord. Upon
termination of this Agreement with respect to such Leased Property
as hereinabove provided, the Minimum Rent thereafter payable
hereunder shall be reduced by an amount reasonably determined by
Landlord to be that portion of the Minimum Rent allocable to such
Leased Property.<PAGE>
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10.2.2 Partial Damage or Destruction.
If, during the Term, any of the Collective Leased Properties
shall be totally or partially destroyed but the Facility located
thereon is not rendered Unsuitable for Its Primary Intended Use,
Tenant shall promptly restore such Facility as provided in Section
10.2.4.
10.2.3 Insufficient Insurance Proceeds.
If the cost of the repair or restoration of the applicable
Leased Property exceeds the amount of insurance proceeds received
by Landlord pursuant to Article 9, upon the demand of Landlord,
Tenant shall contribute any excess amounts needed to restore such
Leased Property. Such difference shall be paid by Tenant to
Landlord and held by Landlord, together with any other insurance
proceeds, for application to the cost of repair and restoration.
10.2.4 Disbursement of Proceeds.
In the event Tenant is required to restore the applicable
Leased Property pursuant to Section 10.2, Tenant shall, at its sole
cost and expense, commence promptly and continue diligently to
perform the repair and restoration of such Leased Property
(hereinafter called the "Work"), or shall cause the same to be
done, so as to restore such Leased Property in full compliance with
all Legal Requirements and so that such Leased Property shall be at
least equal in value and general utility to its general utility and
value immediately prior to such damage or destruction. Subject to
the terms hereof, Landlord shall advance the insurance proceeds
(other than proceeds of business interruption insurance which shall
be advanced as provided below) and the amounts paid to it pursuant
to Section 10.2.3 to Tenant regularly during the repair and
restoration period so as to permit payment for the cost of any such
restoration and repair. Any such advances shall be for not less
than $100,000 (or such lesser amount as equals the entire balance
of the repair and restoration) and Tenant shall submit to Landlord
a written requisition and substantiation therefor on AIA Forms G702
and G703 (or on such other form or forms as may be acceptable to
Landlord). Landlord may, at its option, condition advancement of
said insurance proceeds and other amounts on (i) the absence of any
Default or Event of Default, (ii) its approval of plans and
specifications of an architect satisfactory to Landlord, (iii)
general contractors' estimates, (iv) architect's certificates, (v)
unconditional lien waivers of general contractors, (vi) evidence of
approval by all governmental authorities and other regulatory
bodies whose approval is required and (vii) such other certificates
as Landlord may, from time to time, reasonably require. Except as
provided in the following sentence and provided no Default or Event
of Default has occurred and is continuing, on the first day of each
calendar month during which proceeds of business interruption
insurance are disbursed to Landlord under the policy of business<PAGE>
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interruption insurance maintained pursuant to Article 9, Landlord
shall disburse proceeds of business interruption insurance received
by it to Tenant upon Notice from Tenant accompanied by a
certification from Tenant that such moneys will be used for costs
or expenses of owning or operating the applicable Leased Property.
Proceeds of business interruption insurance shall be applied by
Landlord, on the first day of the calendar month following such
disbursement, first to the payment of all Minimum Rent, Additional
Rent and Additional Charges then due and payable and to become due
and payable for the period for which such proceeds have been paid
by the insurance provider, and the balance, if any, to Tenant as
provided in the preceding sentence. If, at any time, the amount of
such proceeds will be insufficient to pay all Minimum Rent,
Additional Rent and Additional Charges due or to come due during
such period, Landlord may, in its sole discretion, suspend
disbursement of any proceeds to Tenant.
Landlord's obligation to disburse insurance proceeds under
this Article 10 shall be subject to the release of such proceeds by
the applicable Facility Mortgagee to Landlord.
Tenant's obligation to restore the applicable Leased Property
pursuant to this Article 10 shall be subject to the release of
available insurance proceeds by the applicable Facility Mortgagee
to Landlord.
10.3 Damage Near End of Term.
Notwithstanding any provisions of Section 10.1 or 10.2 to the
contrary, if damage to or destruction of any of the Collective Leased
Properties occurs during the last twelve (12) months of the second
Extended Term and if such damage or destruction cannot reasonably be
expected to be fully repaired and restored prior to the date that is six
(6) months prior to the end of such Extended Term, the provisions of
Section 10.2.1 shall apply as if such Leased Property had been totally
or partially destroyed and the Facility located thereon rendered
Unsuitable for its Primary Intended Use.
10.4 Tenant's Property.
All insurance proceeds payable by reason of any loss of or damage
to any of Tenant's Personal Property or Tenant's Capital Additions shall
be paid to Tenant and, to the extent necessary to repair or replace
Tenant's Capital Additions or Tenant's Personal Property in accordance
with Section 10.5, Tenant shall hold such proceeds in trust to pay the
cost of repairing or replacing damaged Tenant's Personal Property or
Tenant's Capital Additions.
10.5 Restoration of Tenant's Property.
If Tenant is required to restore the applicable Leased Property as
hereinabove provided, Tenant shall either (a) restore all alterations<PAGE>
-45-
and improvements made by Tenant, Tenant's Personal Property and all
Tenant's Capital Additions, or (b) replace such alterations and
improvements, Tenant's Personal Property, and/or Tenant's Capital
Additions with improvements or items of the same or better quality and
utility in the operation of such Leased Property.
10.6 No Abatement of Rent.
This Agreement shall remain in full force and effect and Tenant's
obligation to make all payments of Rent and to pay all other charges as
and when required under this Agreement shall, except as otherwise
provided in Section 10.2.1, remain unabated during the Term
notwithstanding any damage involving any of the Collective Leased
Properties (provided that Landlord shall credit against such payments
any amounts paid to Landlord as a consequence of such damage under any
business interruption insurance obtained by Tenant hereunder). The
provisions of this Article 10 shall be considered an express agreement
governing any cause of damage or destruction to the applicable Leased
Property and, to the maximum extent permitted by law, no local or State
statute, laws, rules, regulation or ordinance in effect during the Term
which provide for such a contingency shall have any application in such
case.
10.7 Termination of Option to Purchase.
Any termination of this Agreement with respect to one or more of
the Collective Leased Properties pursuant to this Article 10 shall cause
any options to purchase granted to Tenant under this Agreement with
respect thereto to be terminated and to be without further force or
effect.
10.8 Waiver.
Tenant hereby waives any statutory rights of termination which may
arise by reason of any damage or destruction of any of the Collective
Leased Properties.
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc.
If either (i) the whole of any of the Collective Leased Properties
shall be taken by Condemnation or (ii) a Condemnation of less than the
whole of any of the Collective Leased Properties renders such Leased
Property Unsuitable for Its Primary Intended Use, this Agreement shall
terminate with respect to such Leased Property, Tenant and Landlord
shall seek the Award for their interests in such Leased Property as
provided in Section 11.5 and the Minimum Rent thereafter payable shall
be reduced by an amount reasonably determined by Landlord to be that<PAGE>
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portion of the Minimum Rent allocable to such Leased Property. If the
Award received by Landlord for Landlord's interest in such Leased
Property is less than the greater of (x) the Adjusted Purchase Price or
(y) the Fair Market Value Purchase Price of such Leased Property
immediately prior to such Condemnation, Tenant shall contribute and pay
to Landlord the amount of such shortfall.
11.2 Partial Condemnation.
In the event of a Condemnation of less than the whole of any of the
Collective Leased Properties such that such Leased Property is still
suitable for its Primary Intended Use, Tenant shall, at its sole cost
and expense, commence promptly and continue diligently to restore the
untaken portion of the Leased Improvements on such Leased Property so
that such Leased Improvements shall constitute a complete architectural
unit of the same general character and condition (as nearly as may be
possible under the circumstances) as the Leased Improvements existing
immediately prior to such Condemnation, in full compliance with all
Legal Requirements. Subject to the terms hereof, Landlord shall
contribute to the cost of restoration that part of the Award necessary
to complete such repair or restoration, together with severance and
other damages awarded for the taken Leased Improvements, to Tenant
regularly during the restoration period so as to permit payment for the
cost of such repair or restoration. Landlord may, at its option, condi-
tion advancement of such Award and other amounts on (i) the absence of
any Default or Event of Default, (ii) its approval of plans and
specifications of an architect satisfactory to Landlord (which approval
shall not be unreasonably withheld or delayed), (iii) general contrac-
tors' estimates, (iv) architect's certificates, (v) unconditional lien
waivers of general contractors, (vi) evidence of approval by all
governmental authorities and other regulatory bodies whose approval is
required and (vii) such other certificates as Landlord may, from time to
time, reasonably require. Landlord's obligation under this Section 11.2
to disburse the Award and such other amounts shall be subject to (x) the
collection thereof by Landlord and (y) the satisfaction of any
applicable requirements of any Facility Mortgage, and the release of
such Award by the applicable Facility Mortgagee. Tenant's obligation to
restore the applicable Leased Property shall be subject to the release
of the Award by the applicable Facility Mortgagee to Landlord. If the
cost of the restoration of the applicable Leased Property exceeds that
part of the Award necessary to complete such restoration, together with
severance and other damages awarded for the taken Leased Improvements,
Tenant shall contribute upon the demand of Landlord any excess amounts
needed to restore such Leased Property. Such difference shall be paid
by Tenant to Landlord and held by Landlord, together with such part of
the Award and such severance and other damages, for application to the
cost of restoration.
11.3 Abatement of Rent.
Other than as specifically provided in this Agreement, this
Agreement shall remain in full force and effect and Tenant's obligation<PAGE>
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to make all payments of Rent and to pay all other charges as and when
required under this Agreement shall remain unabated during the Term
notwithstanding any Condemnation involving the Collective Leased
Properties. The provisions of this Article 11 shall be considered an
express agreement governing any Condemnation involving any or all of the
Collective Leased Properties and, to the maximum extent permitted by
law, no local or State statute, law, rule, regulation or ordinance in
effect during the Term which provides for such a contingency shall have
any application in such case.
11.4 Temporary Condemnation.
In the event of any temporary Condemnation of all or any part of
the Collective Leased Properties or Tenant's interest therein, this
Agreement shall continue in full force and effect, and Tenant shall
continue to pay, in the manner and on the terms herein specified, the
full amount of the Rent. Tenant shall continue to perform and observe
all of the other terms and conditions this Agreement on the part of the
Tenant to be performed and observed. Provided no Default or Event of
Default has occurred and is continuing, the entire amount of any Award
made for such temporary Condemnation allocable to the Term, whether paid
by way of damages, rent or otherwise, shall be paid to Tenant. Tenant
shall, promptly upon the termination of any such period of temporary
Condemnation, at its sole cost and expense, restore such Leased Property
to the condition that existed immediately prior to such Condemnation, in
full compliance with all Legal Requirements, unless such period of
temporary Condemnation shall extend beyond the expiration of the Term,
in which event Tenant shall not be required to make such restoration.
For purposes of this Section 11.4, a Condemnation shall be deemed to be
temporary if the period of such Condemnation is not expected to, and
does not, exceed twenty-four (24) months.
11.5 Allocation of Award.
Except as provided in the second sentence of this Section 11.5, the
total Award shall be solely the property of and payable to Landlord.
Any portion of the Award made for the taking of Tenant's leasehold
interest in the applicable Leased Property, Tenant's Capital Additions,
loss of business during the remainder of the Term, the taking of
Tenant's Personal Property, or Tenant's removal and relocation expenses
shall be the sole property of and payable to Tenant (subject to the
provisions of Section 11.2). In any Condemnation proceedings, Landlord
and Tenant shall each seek its own Award in conformity herewith, at its
own expense.
11.6 Termination of Rights of Option to Purchase.
Any termination of this Agreement with respect to any of the
Collective Leased Properties pursuant to this Article 11 shall cause any
options to purchase granted to Tenant with respect thereto to be
terminated and to be without further force or effect.<PAGE>
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ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" hereunder:
(a) should Tenant shall fail to make any payment of the Rent
or any other sum (including, but not limited to, payment of the
purchase price for any of the Collective Leased Properties which
Tenant shall be obligated or elects to purchase pursuant to the
terms of this Agreement) payable hereunder when due and such
failure shall continue for a period of ten (10) days after the date
due; or
(b) should Tenant shall fail to maintain the insurance
coverages required under Article 9; or
(c) should Tenant default in the due observance or
performance of any of the terms, covenants or agreements contained
herein to be performed or observed by it (other than as specified
in clauses (a) and (b) above) or should any Guarantor default in
the due observance or performance of any of the terms, covenants or
agreements contained in any Guaranty or other Incidental Document,
and, in either case, such default shall continue for a period of
fifteen (15) days after Notice thereof from Landlord to Tenant
(provided that no such notice shall be required if Landlord shall
reasonably determine immediate action is necessary to protect
person or property); provided, however, that if such default is
susceptible of cure but such cure cannot be accomplished with due
diligence within such period of time and if, in addition, Tenant or
such Guarantor commences to cure such default within fifteen (15)
days after Notice thereof from Landlord and thereafter prosecutes
the curing of such default with all due diligence, such period of
time shall be extended to such period of time (not to exceed an
additional thirty (30) days in the aggregate) as may be necessary
to cure such default with all due diligence; or
(d) should any obligation of Tenant or any Guarantor, or of
any Affiliated Person as to either of them, in respect of any
Indebtedness for money borrowed or for the deferred purchase price
of any material property or services, or any guaranty relating
thereto, be declared to be or become due and payable prior to the
stated maturity thereof, or should there occur and be continuing
with respect to any such Indebtedness or deferred purchase price
any default under any instrument or agreement evidencing or
securing the same, the effect of which is to permit the holder or
holders of such instrument or agreement or a trustee, agent or
other representative on behalf of such holder or holders, to cause<PAGE>
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such any such obligations to become due prior to its stated
maturity; or
(e) should a default or event of default occur and be
continuing beyond the expiration of any applicable cure period
under any Guaranty or any of the Incidental Documents; or
(f) should there occur a final unappealable determination by
applicable State authorities of the revocation or limitation of any
license, permit, certification or approval required for the lawful
operation of any of the Facilities in accordance with its Primary
Intended Use or the loss or limitation of any license, permit,
certification or approval under any other circumstances under which
Tenant is required to cease its operation of such Facility in
accordance with its Primary Intended Use at the time of such loss
or limitation; or
(g) should any representation or warranty made by or on
behalf of Tenant or any other Person under or in connection with
this Agreement, any Guaranty, any Incidental Document or in any
document, certificate or agreement delivered in connection herewith
or therewith prove to have been false or misleading in any material
respect on the date when made or deemed made; or
(h) should Tenant, any Guarantor or any Affiliated Person as
to either of them generally not be paying its debts as they become
due, or should Tenant, any Guarantor or any Affiliated Person as to
either of them, make a general assignment for the benefit of
creditors; or
(i) should any petition be filed by or against Tenant, any
Guarantor or any Affiliated Person as to either of them under the
Federal bankruptcy laws, or should any other proceeding be
instituted by or against Tenant, such Guarantor or Affiliated
Person seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee,
custodian or other similar official for Tenant, such Guarantor or
Affiliated Person, or for any substantial part of the property of
Tenant, such Guarantor or Affiliated Person, and such proceeding is
not dismissed within ninety (90) days after institution thereof, or
should Tenant, such Guarantor or Affiliated Person take any action
to authorize or effect any of the actions set forth above in this
paragraph; or
(j) should Tenant, any Guarantor or any Affiliated Person as
to either of them cause or institute any proceeding for its
dissolution or termination; or<PAGE>
-50-
(k) should Tenant voluntarily cease operation of any of the
Collective Leased Properties for its Primary Intended Use for a
period in excess of thirty (30) consecutive days, except as a
result of damage, destruction or partial or complete Condemnation;
or
(l) should a default shall occur under any mortgage which is
secured by Tenant's leasehold interest hereunder or the mortgagee
under any such mortgage accelerates the indebtedness secured
thereby or commence a foreclosure action in connection with said
mortgage; or
(m) should the estate or interest of Tenant in any of the
Collective Leased Properties or any part thereof be levied upon or
attached in any proceeding and the same shall not be vacated or
discharged within the later of (x) one hundred and twenty (120)
days after commencement thereof, unless the amount in dispute is
less than $10,000, in which case Tenant shall give notice to
Landlord of the dispute but Tenant may defend in any suitable way,
and (y) thirty (30) days after receipt by Tenant of Notice thereof
from Landlord (unless Tenant shall be contesting such lien or
attachment in good faith in accordance with Article 8); or
(n) should any Provider Agreement material to the operation
or financial condition of Tenant or any Facility be terminated
prior to the stated expiration of the term thereof or, without the
prior written consent of Landlord in each instance (which consent
may be withheld in Landlord's sole and absolute discretion), not be
renewed or extended or replaced upon the expiration of the stated
term thereof and such termination may have a material adverse
effect upon the operations, business prospects, property, or assets
of, liabilities, or the condition of, revenues generated by, the
applicable Facility or Tenant; or
(o) should a final unappealable determination shall be made
by any Government Agencies that Tenant has failed to comply with
applicable Medicare and/or Medicaid regulations in the operation of
any Facility, as a result of which failure Tenant is declared
ineligible to receive reimbursements under the Medicare and/or
Medicaid programs with respect to one or more of the Facilities; or
(p) should there occur any Change in Control of Tenant or any
Guarantor;
then, and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement with respect to any or all
of the Collective Leased Properties by giving Notice thereof to Tenant
and upon the expiration of the time, if any, fixed in such Notice, this
Agreement shall terminate and all rights of Tenant under this Agreement
shall cease with respect to such of the Collective Leased Properties as
shall have been identified in such Notice. Landlord shall have and may<PAGE>
-51-
exercise all rights and remedies available at law and in equity to
Landlord as a result of Tenant's breach of this Agreement.
Upon the occurrence of an Event of Default, Landlord may, in
addition to any other remedies provided herein, enter upon the
Collective Leased Properties or any portion thereof and take possession
of any and all of Tenant's Personal Property and the Records (subject to
any prohibitions or limitations to disclosure of any such data as
described in Section 3.1.2(e)) on any such Leased Property, without
liability for trespass or conversion (Tenant hereby waiving any right to
notice or hearing prior to such taking of possession by Landlord) and
sell the same at public or private sale, after giving Tenant reasonable
Notice of the time and place of any public or private sale, at which
sale Landlord or its assigns may purchase all or any portion of Tenant's
Personal Property unless otherwise prohibited by law. Unless otherwise
provided by law and without intending to exclude any other manner of
giving Tenant reasonable notice, the requirement of reasonable Notice
shall be met if such Notice is given at least five (5) days before the
date of sale. The proceeds from any such disposition, less all expenses
incurred in connection with the taking of possession, holding and
selling of such property (including, reasonable attorneys' fees) shall
be applied as a credit against the indebtedness which is secured by the
security interest granted in Section 7.2. Any surplus shall be paid to
Tenant or as otherwise required by law and Tenant shall pay any
deficiency to Landlord, as Additional Charges, upon demand.
12.2 Remedies.
None of (a) the termination of this Agreement with respect to any
or all of the Collective Leased Properties pursuant to Section 12.1, (b)
the repossession of any or all of the Collective Leased Properties or
any portion thereof, (c) the failure of Landlord to re-let any or all of
the Collective Leased Properties or any portion thereof, nor (d) the
reletting of all or any of portion of the Collective Leased Properties,
shall relieve Tenant of its liability and obligations hereunder, all of
which shall survive any such termination, repossession or re-letting.
In the event of any such termination, Tenant shall forthwith pay to
Landlord all Rent due and payable with respect to the any of the
Collective Leased Properties as to which this Agreement is so terminated
through and including the date of such termination and, if this
Agreement shall be terminated with respect to less than all of the
Collective Leased Properties, the allocation of the Rent with respect to
the Collective Leased Properties as to which this Agreement shall have
been terminated shall be made in such manner as Landlord, in Landlord's
sole and absolute discretion, shall determine. Thereafter, Tenant,
until the end of what would have been the Term of this Agreement in the
absence of such termination, and whether or not any of the Collective
Leased Properties as to which this Agreement is so terminated or any
portion thereof shall have been re-let, shall be liable to Landlord for,
and shall pay to Landlord, as current damages, the Rent and other
charges which would be payable hereunder for the remainder of the Term
had such termination not occurred, less the net proceeds, if any, of any<PAGE>
-52-
re-letting of the applicable Leased Property, after deducting all
expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, advertising, expenses of employees,
alteration costs and expenses of preparation for such reletting, and, if
this Agreement shall be terminated with respect to less than all of the
Collective Leased Properties, the allocation of the Rent with respect to
the Collective Leased Properties as to which this Agreement shall have
been terminated shall be made in such manner as Landlord, in Landlord's
sole and absolute discretion, shall determine. Tenant shall pay such
current damages to Landlord monthly on the days on which the Minimum
Rent would have been payable hereunder if this Agreement had not been so
terminated with respect to such of the Collective Leased Properties.
At any time after such termination, whether or not Landlord shall
have collected any such current damages, as liquidated final damages
beyond the date of such termination, at Landlord's election, Tenant
shall pay to Landlord either (a) an amount equal to the excess, if any,
of the Rent and other charges which would be payable hereunder from the
date of such termination (assuming that, for the purposes of this
paragraph, annual payments by Tenant on account of Impositions would be
the same as payments required for the immediately preceding twelve
calendar months, or if less than twelve calendar months have expired
since the Commencement Date, the payments required for such lesser
period projected to an annual amount) for what would be the then
unexpired term of this Agreement if the same remained in effect, over
the Fair Market Rental for the same period, or (b) an amount equal to
the lesser of (i) the Rent and other charges that would have been
payable for the balance of the Term had it not been terminated, and (ii)
the aggregate of the Rent and other charges accrued in the twelve (12)
months ended next prior to such termination (without reduction for any
free rent or other concession or abatement); provided, however, that if
this Agreement shall have been terminated with respect to less than all
of the Collective Leased Properties, the allocation of the Rent with
respect to the Collective Leased Properties as to which this Agreement
shall have been terminated shall be made in such manner as Landlord, in
Landlord's sole and absolute discretion, shall determine. In the event
this Agreement is so terminated prior to the expiration of the first
full year of the Term, the liquidated damages which Landlord may elect
to recover pursuant to clause (b) (ii) of this paragraph shall be
calculated as if such termination had occurred on the first anniversary
of the Commencement Date. Nothing contained in this Agreement shall,
however, limit or prejudice the right of Landlord to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater than, equal to, or less than the
amount of the loss or damages referred to above.
In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (a)
relet any of the Collective Leased Properties as to which this Agreement<PAGE>
-53-
is so terminated or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms which may at Landlord's
option, be equal to, less than or exceed the period which would
otherwise have constituted the balance of the Term and may grant
concessions or free rent to the extent that Landlord considers advisable
and necessary to relet the same, and (b) may make such reasonable
alterations, repairs and decorations in any applicable Leased Property
or any portion thereof as Landlord, in its sole and absolute discretion,
considers advisable and necessary for the purpose of reletting any such
Leased Property; and the making of such alterations, repairs and
decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Landlord shall in no event be liable
in any way whatsoever for any failure to relet all or any portion of the
Collective Leased Properties, or, in the event that any of the
Collective Leased Properties is relet, for failure to collect the rent
under such reletting. To the maximum extent permitted by law, Tenant
hereby expressly waives any and all rights of redemption granted under
any present or future laws in the event of Tenant being evicted or
dispossessed, or in the event of Landlord obtaining possession of any of
the Collective Leased Properties, by reason of the violation by Tenant
of any of the covenants and conditions of this Agreement.
12.3 Tenant's Waiver.
IF THIS AGREEMENT IS TERMINATED WITH RESPECT TO ANY OF THE
COLLECTIVE LEASED PROPERTIES PURSUANT TO SECTION 12.1 OR 12.2, TENANT
WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN
THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN
THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE
EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.
12.4 Application of Funds.
Any payments received by Landlord under any of the provisions of
this Agreement during the existence or continuance of any Default or
Event of Default (and any payment made to Landlord rather than Tenant
due to the existence of any Default or Event of Default) shall be
applied to Tenant's obligations under this Agreement in such order as
Landlord may determine or as may be prescribed by the laws of the State.
12.5 Landlord's Right to Cure Tenant's Default.
If an Event of Default shall have occurred and be continuing,
Landlord, after Notice to Tenant (which Notice shall not be required if
Landlord shall reasonably determine immediate action is necessary to
protect person or property), without waiving or releasing any obligation
of Tenant and without waiving or releasing any Event of Default, may
(but shall not be obligated to), at any time thereafter, make such
payment or perform such act for the account and at the expense of
Tenant, and may, to the maximum extent permitted by law, enter upon any
of the Collective Leased Properties or any portion thereof for such
purpose and take all such action thereon as, in Landlord's sole and<PAGE>
-54-
absolute discretion, may be necessary or appropriate therefor, including
the management of the Facility located thereon by Landlord or its
designee, and Tenant hereby irrevocably appoints, in the event of such
election by Landlord, Landlord or its designee as manager of any such
Facility and its attorney in fact for such purpose, irrevocably and
coupled with an interest, in the name, place and stead of Tenant. No
such entry shall be deemed an eviction of Tenant. All reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, together with interest
thereon (to the extent permitted by law) at the Overdue Rate from the
date such sums are paid by Landlord until repaid, shall be paid by
Tenant to Landlord, on demand.
12.6 Trade Names.
If this Agreement is terminated with respect to any of the
Collective Leased Properties for any reason, Tenant shall not use a
Facility Trade Name in the same market in which the Facility located
thereon is located in connection with any business that competes with
such Facility.
ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration or sooner
termination of this Agreement shall be treated as a daily tenancy at
sufferance at a rate equal to two (2) times the Minimum Rent and the
Additional Rent then in effect plus Additional Charges and other charges
herein provided (prorated on a daily basis). Tenant shall also pay to
Landlord all damages (direct or indirect) sustained by reason of any
such holding over. Otherwise, such holding over shall be on the terms
and conditions set forth in this Agreement, to the extent applicable.
Nothing contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the expiration
or earlier termination of this Agreement.
ARTICLE 14
LANDLORD'S DEFAULT
If Landlord shall default in the performance or observance of any
of its covenants or obligations set forth in this Agreement and such
default shall continue for a period of thirty (30) days after Notice
thereof from Tenant to Landlord and any applicable Facility Mortgagee,
or such additional period as may be reasonably required to correct the
same, Tenant may declare the occurrence of a "Landlord Default" by a
second Notice to Landlord and to such Facility Mortgagee. Thereafter,
Tenant may forthwith cure the same and, subject to the provisions of the
following paragraph, invoice Landlord for costs and expenses (including<PAGE>
-55-
reasonable attorneys' fees and court costs) incurred by Tenant in curing
the same, together with interest thereon from the date Landlord receives
Tenant's invoice, at the Overdue Rate. Tenant shall have no right to
terminate this Agreement for any default by Landlord hereunder and no
right, for any such default, to offset or counterclaim against any Rent
or other charges due hereunder.
If Landlord shall in good faith dispute the occurrence of any
Landlord Default and Landlord, before the expiration of the applicable
cure period, shall give Notice thereof to Tenant, setting forth, in
reasonable detail, the basis therefor, no Landlord Default shall be
deemed to have occurred and Landlord shall have no obligation with
respect thereto until final adverse determination thereof. If Tenant
and Landlord shall fail, in good faith, to resolve any such dispute
within ten (10) days after Landlord's Notice of dispute, either may
submit the matter for resolution to a court of competent jurisdiction.
ARTICLE 15
PURCHASE OF LEASED PROPERTY
In the event Tenant shall purchase any of the Collective Leased
Properties from Landlord pursuant to the terms of this Agreement,
Landlord shall, upon receipt from Tenant of the applicable purchase
price, together with full payment of any unpaid Rent and other charges
due and payable with respect to any period ending on or before the date
of the purchase, and so long as no Default or Event of Default shall
have occurred and be continuing at such time, deliver to Tenant an
appropriate deed or other instruments, conveying the entire interest of
Landlord in and to such Leased Property to Tenant, free and clear of all
encumbrances created through the act or omission of Landlord other than
(i) Permitted Encumbrances and such other liens, if any, which Tenant
has agreed in writing to accept and take title subject to, and (ii)
encumbrances imposed on such Leased Property under Section 5.5. The
difference between the applicable purchase price and the total cost of
discharging the encumbrances described in clause (i) preceding shall be
paid to Landlord or as Landlord may direct, by wire transfer of im-
mediately available federal funds. Such Leased Property shall be
conveyed to Tenant on an "as is" basis and in its "as-is" physical
condition. The closing of any such sale shall be subject to all terms
and conditions with respect thereto set forth in this Agreement and
shall, unless waived by Tenant, be contingent upon and subject to
Tenant's obtaining all required governmental consents and approvals for
such transfer. All expenses of such conveyance, including, without
limitation, all transfer and sales taxes, documentary fees, the fees and
expenses of counsel to Landlord and the cost of any title examination or
title insurance, shall be paid by Tenant.<PAGE>
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ARTICLE 16
SUBLETTING AND ASSIGNMENT
16.1 Subletting and Assignment.
Except as provided in Section 16.3 below, Tenant shall not, without
the prior written consent of a majority of the Independent Trustees and
a majority of the Trustees (which consent may be given or withheld in
their sole and absolute discretion), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer this Agreement or sublease
(which term shall be deemed to include the granting of concessions,
licenses and the like), all or any part of the Collective Leased
Properties or suffer or permit this Agreement or the leasehold estate
created hereby or any other rights arising under this Agreement to be
assigned, transferred, mortgaged, pledged, hypothecated or encumbered,
in whole or in part, whether voluntarily, involuntarily or by operation
of law, or permit the use or occupancy of any of the Collective Leased
Properties by anyone other than Tenant, or any of the Collective Leased
Properties to be offered or advertised for assignment or subletting.
For purposes of this Section 16.1, an assignment of this Agreement shall
be deemed to include any Change in Control of Tenant or any transaction
pursuant to which Tenant is merged or consolidated with another entity
or pursuant to which all or substantially all of Tenant's assets are
transferred to any other entity, as if such Change in Control or
transaction were an assignment of this Agreement.
If this Agreement is assigned or if any of the Collective Leased
Properties or any part thereof are sublet (or occupied by anybody other
than Tenant and its employees) Landlord may collect the rents from such
assignee, subtenant or occupant, as the case may be, and apply the net
amount collected to the Rent herein reserved, but no such collection
shall be deemed a waiver of the provisions set forth in the first
paragraph of this Section 16.1, the acceptance by Landlord of such
assignee, subtenant or occupant, as the case may be, as a tenant, or a
release of Tenant from the future performance by Tenant of its
covenants, agreements or obligations contained in this Agreement.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting
or assignment in a particular instance shall be deemed to be a waiver of
the prohibition set forth in this Section 16.1. No assignment,
subletting or occupancy shall affect any Primary Intended Use. Any
subletting, assignment or other transfer of Tenant's interest under this
Agreement in contravention of this Section 16.1 shall be voidable at
Landlord's option.
16.2 Required Sublease Provisions.
Any sublease of all or any portion of any of the Collective Leased
Properties shall provide (a) that it is subject and subordinate to this
Agreement and to the matters to which this Agreement is or shall be<PAGE>
-57-
subject or subordinate; (b) that in the event of termination of this
Agreement or reentry or dispossession of Tenant by Landlord under this
Agreement, Landlord may, at its option, terminate such sublease or take
over all of the right, title and interest of Tenant, as sublessor under
such sublease, and such subtenant shall, at Landlord's option, attorn to
Landlord pursuant to the then executory provisions of such sublease,
except that neither Landlord nor any Facility Mortgagee, as holder of a
mortgage or as Landlord under this Agreement, if such mortgagee succeeds
to that position, shall (i) be liable for any act or omission of Tenant
under such sublease, (ii) be subject to any credit, counterclaim, offset
or defense which theretofore accrued to such subtenant against Tenant,
(iii) be bound by any previous modification of such sublease not
consented to in writing by Landlord or by any previous prepayment of
more than one (1) month's Rent, (iv) be bound by any covenant of Tenant
to undertake or complete any construction of such Leased Property or any
portion thereof, (v) be required to account for any security deposit of
the subtenant other than any security deposit actually delivered to
Landlord by Tenant, (vi) be bound by any obligation to make any payment
to such subtenant or grant any credits, except for services, repairs,
maintenance and restoration provided for under the sublease that are
performed after the date of such attornment, (vii) be responsible for
any monies owing by Tenant to the credit of such subtenant, or (viii) be
required to remove any Person occupying any portion of the Collective
Leased Properties; and (c), in the event that such subtenant receives a
written Notice from Landlord or any Facility Mortgagee stating that an
Event of Default has occurred and is continuing, such subtenant shall
thereafter be obligated to pay all rentals accruing under such sublease
directly to the party giving such Notice or as such party may direct.
All rentals received from such subtenant by Landlord or the Facility
Mortgagee, as the case may be, shall be credited against the amounts
owing by Tenant under this Agreement and such sublease shall provide
that the subtenant thereunder shall, at the request of Landlord, execute
a suitable instrument in confirmation of such agreement to attorn. An
original counterpart of each such sublease and assignment and
assumption, duly executed by Tenant and such subtenant or assignee, as
the case may be, in form and substance reasonably satisfactory to
Landlord, shall be delivered promptly to Landlord and (a) in the case of
an assignment, the assignee shall assume in writing and agree to keep
and perform all of the terms of this Agreement on the part of Tenant to
be kept and performed and shall be, and become, jointly and severally
liable with Tenant for the performance thereof and (b) in case of either
an assignment or subletting, Tenant shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and
for the performance and observance of all of the covenants and condi-
tions to be performed by Tenant hereunder.
The provisions of this Section 16.2 shall not be deemed a waiver of
the provisions set forth in the first paragraph of Section 16.1.
16.3 Permitted Sublease. <PAGE>
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Notwithstanding the foregoing, but subject to the provisions of
Section 16.4 and any other express conditions or limitations set forth
herein, Tenant may, in each instance after Notice to Landlord, sublease
space at any of the Collective Leased Properties for laundry, commissary
or child care purposes or similar concessions in furtherance of the
applicable Primary Intended Use, so long as such sublease will not
reduce the number of licensed beds at the applicable Facility, will not
violate or affect any Legal Requirement or Insurance Requirement, and
Tenant shall provide such additional insurance coverage applicable to
the activities to be conducted in such subleased space as Landlord and
any Facility Mortgagee may require.
16.4 Sublease Limitation.
Anything contained in this Agreement to the contrary
notwithstanding, Tenant shall not sublet any of the Collective Leased
Properties on any basis such that the rental to be paid by any sublessee
thereunder would be based, in whole or in part, on either (a) the income
or profits derived by the business activities of such sublessee, or (b)
any other formula such that any portion of such sublease rental would
fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or any similar or successor provision
thereto.
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
17.1 Estoppel Certificates
At any time and from time to time, upon not less than ten (10) days
prior Notice by Landlord, Tenant shall furnish to Landlord an Officer's
Certificate certifying that this Agreement is unmodified and in full
force and effect (or that this Agreement is in full force and effect as
modified and setting forth the modifications), the date to which the
Rent has been paid, that no Default or an Event of Default has occurred
and is continuing or, if a Default or an Event of Default shall exist,
specifying in reasonable detail the nature thereof, and the steps being
taken to remedy the same, and such additional information as Landlord
may reasonably request. Any such certificate furnished pursuant to this
Section 17.1 may be relied upon by Landlord, any Facility Mortgagee and
any prospective purchaser or mortgagee of any of the Collective Leased
Properties.
17.2 Financial Statements.
Tenant shall furnish the following statements to Landlord:
(a) within forty-five (45) days after each of the first three
quarters of any Fiscal Year, the most recent Financials and the
most recent unaudited financial statements of Tenant and Guarantor<PAGE>
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prepared, in the case of Tenant on a Facility by Facility basis,
and in each case accompanied by the Financial Officer's
Certificate;
(b) within one hundred twenty (120) days after the end of
each Fiscal Year, the most recent Financials for such Fiscal Year,
including the most recent financial statements of Tenant and
Guarantor, prepared, in the case of Tenant, on a Facility by
Facility basis, and in each case certified by an independent
certified public accountant reasonably satisfactory to Landlord and
accompanied by a Financial Officer's Certificate;
(c) within thirty (30) days after the end of each calendar
month, an unaudited statement of income prepared on a Facility by
Facility basis, including occupancy percentages and payor mix,
accompanied by a Financial Officer's Certificate;
[(d) promptly after the sending or filing thereof, copies of
all reports which Tenant and/or any Guarantor sends to its security
holders generally, and copies of all periodic reports which Tenant
and/or any Guarantor files with the SEC or any stock exchange on
which its shares are listed or traded;]
(e) promptly after the delivery thereof to Tenant or any
Guarantor, or either of their management, a copy of any management
letter or written report prepared by the certified public
accountants with respect to the financial condition, operations,
business or prospects of Tenant or such Guarantor, as the case may
be;
(f) at any time and from time to time upon not less than
twenty (20) days Notice from Landlord, any Financials or any other
financial reporting information required to be filed by Landlord
with any securities and exchange commission, the SEC or any
successor agency, or any other governmental authority, or required
pursuant to any order issued by any court, governmental authority
or arbitrator in any litigation to which Landlord is a party, for
purposes of compliance therewith;
(g) Within forty-five (45) days after each quarter of each
Fiscal Year, an occupancy and rate report with respect to each of
the Facilities, together with an Officer's Certificate certifying
to the accuracy of such occupancy and rate reports; and
(h) promptly, upon Notice from Landlord, such other
information concerning the business, financial condition and
affairs of Tenant and any Guarantor as Landlord may request from
time to time.
Landlord may at any time, and from time to time, provide any Facility
Mortgagee with copies of any of the foregoing statements.<PAGE>
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17.3 General Operations.
Tenant covenants and agrees to furnish to Landlord:
17.3.1 Reimbursement, Licensure, Etc.
Within thirty (30) days after receipt or modification thereof,
copies of
(a) all licenses authorizing Tenant to operate each Facility
for its Primary Intended Use;
(b) all Medicare and Medicaid certifications, together with
provider agreements and all material correspondence relating
thereto with respect to each Facility (excluding, however,
correspondence which may be subject to any attorney-client
privilege);
(c) a Nursing Home Administrator License for the individual
employed in such capacity with respect to each Facility;
(d) all reports of surveys, statements of deficiencies, plans
of correction, and all material correspondence relating thereto,
including, without limitation, all reports and material
correspondence concerning compliance with or enforcement of
licensure, Medicare/Medicaid, and accreditation requirements,
including physical environment and Life Safety Code survey reports
(excluding, however, correspondence which may be subject to any
attorney-client privilege); and
(e) with reasonable promptness, such other confirmation as to
the licensure and Medicare and Medicaid participation of Tenant as
Landlord may reasonably request from time to time.
17.3.2 Annual Budgets.
Not less than thirty (30) days prior to commencement of any
Fiscal Year, proposed annual income and ordinary expense and
capital improvement budgets setting forth projected income and
costs and expenses projected to be incurred by Tenant in managing,
owning, maintaining and operating the Facilities during the next
succeeding Fiscal Year.
ARTICLE 18
LANDLORD'S RIGHT TO INSPECT
Tenant shall permit Landlord and its authorized representatives to
inspect the Collective Leased Properties during usual business hours
upon not less than twenty-four (24) hours' notice (provided that no such
notice shall be required if Landlord shall reasonably determine<PAGE>
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immediate action is necessary to protect person or property), and to
make such repairs as Landlord is permitted or required to make pursuant
to the terms of this Agreement, provided that any inspection or repair
by Landlord or its representatives will not unreasonably interfere with
Tenant's use and operation of the applicable Leased Property and further
provided that in the event of an emergency, as determined by Landlord in
its sole discretion, prior Notice shall not be necessary.
ARTICLE 19
APPRAISAL
19.1 Appraisal Procedure.
In the event that it becomes necessary to determine the Fair Market
Value or Fair Market Rental of any of the Collective Leased Properties
for any purpose of this Agreement and the parties cannot agree thereon,
such Fair Market Value or Fair Market Rental, as the case may be, shall
be determined upon the written demand of either party in accordance with
the following procedure.
The party requesting an appraisal, by Notice given to the other,
shall propose and unilaterally approve a Qualified Appraiser. The other
party, by Notice given within fifteen (15) days after receipt of such
Notice appointing the first Qualified Appraiser, may appoint a second
Qualified Appraiser. If the other party fails to appoint the second
Qualified Appraiser within such fifteen (15) day period, such party
shall have waived its right to appoint a Qualified Appraiser, the first
Qualified Appraiser shall appoint a second Qualified Appraiser within
fifteen (15) days thereafter and the Fair Market Value or Fair Market
Rental, as the case may be, shall be determined by the Qualified
Appraisers as set forth below.
The two Qualified Appraisers shall thereupon endeavor to agree upon
the Fair Market Value or Fair Market Rental, as the case may be. If the
two Qualified Appraisers so named cannot agree upon such value or
rental, as the case may be, within thirty (30) days after the
designation of the second such appraiser, each such appraiser shall,
within five (5) days after the expiration of such thirty (30) day
period, submit his appraisal of fair market value to the other appraiser
in writing, and if the fair market values set forth in such appraisals
vary by five percent (5%) or less of the greater value, the fair market
value shall be determined by calculating the average of the two fair
market values determined by the two appraisers.
If the fair market values set forth in the two appraisals vary by
more than five percent (5%) of the greater value, the two Qualified
Appraisers shall select a third Qualified Appraiser within an additional
fifteen (15) days following the expiration of the aforesaid five (5) day
period. If the two appraisers are unable to agree upon the appointment
of a third appraiser within such fifteen (15) day period, either party<PAGE>
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may, upon written notice to the other, request that such appointment be
made by the then President (or equivalent officer) of the State's
Chapter of the American Institute of Real Estate Appraisers, or his or
her designee or, if there is no such organization or if such individual
declines to make such appointment, by any state or Federal court of
competent jurisdiction for the State.
In the event that all three of the appraisers cannot agree upon
Fair Market Value or Fair Market Rental, as the case may be, within
twenty (20) days following the selection of the third appraiser, each
appraiser shall, within ten (10) days thereafter, submit his appraisal
of fair market value to the other two appraisers in writing, and the
fair market value shall be determined by calculating the average of the
two numerically closest values (or, if the values are equidistant, the
average of all three values) determined by the three appraisers.
In the event that any appraiser appointed hereunder does not or is
unable to perform his or her obligation hereunder, then the party or the
appraisers appointing such appraiser shall have the right to propose and
approve unilaterally a substitute Qualified Appraiser, but if the party
or the appraisers who have the right to appoint a substitute Qualified
Appraiser fail to do so within ten (10) days after written notice from
the other party (or either party in the event such appraiser was
appointed by the other appraisers) either party may, upon written notice
to the party having the right to appoint a substitute Qualified
Appraiser, request that such appointment be made by such officer of the
American Institute of Real Estate Appraisers or court of competent
jurisdiction as described above; provided, however, that a party who has
the right to appoint an appraiser or a substitute appraiser shall have
the right to make such appointment only up until the time such
appointment is made by such officer or court.
In connection with the appraisal process, Tenant shall provide the
appraisers full access during normal business hours to examine the
applicable Leased Property, the books, records and files of Tenant and
all agreements, leases and other operating agreements relating to the
applicable Leased Property.
The costs (other than Landlord's counsel fees) of each such ap-
praisal shall be borne by Tenant and shall be included as part of the
Additional Charges. Upon determining such value, the appraisers shall
promptly notify Landlord and Tenant in writing of such determination.
If any party shall fail to appear at the hearings appointed by the
appraisers, the appraisers may act in the absence of such party.
The determination of the Qualified Appraisers made in accordance
with the foregoing provisions shall be final and binding upon the
parties, such determination may be entered as an award in arbitration in
a court of competent jurisdiction, and judgment thereon may be entered.
19.2 Landlord's Right to Appraisal. <PAGE>
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Landlord shall have the right, exercisable twice at any time during
the Term, to appoint a Qualified Appraiser to perform a complete
appraisal of any or all of the Collective Leased Properties, (each such
appraisal to include complete valuations of any such Leased Property
based upon (a) the "Cost Approach", (b) the "Market Approach" and (c)
the "Income Approach"), which appraisal shall meet all requirements of
any state or Federal bank regulatory authority that Landlord considers
relevant or any Facility Mortgagee. The costs of each such appraisal
shall be borne by Tenant and shall be included as part of the Additional
Charges.
ARTICLE 20
OPTION TO PURCHASE
20.1 Landlord's Option to Purchase Tenant's Personal Property;
Transfer of Licenses.
Effective on not less than fifteen (15) days' prior Notice given at
least sixty (60) days prior to expiration of the Term (or such shorter
period as shall be appropriate if this Agreement is terminated with
respect to any of the Collective Leased Properties prior to its
expiration date), Landlord shall have the option to purchase all or any
portion of Tenant's Personal Property with respect to any of the
Collective Leased Properties, at the expiration or sooner termination of
this Agreement with respect to such Leased Property, for an amount equal
to Tenant's net book value thereof, subject to, and with appropriate
price adjustments for, all equipment leases, conditional sale contracts,
security interests and other encumbrances to which such Tenant's
Personal Property is subject. Tenant's Personal Property shall be
conveyed to Landlord on an "as-is" basis, in its then current condition
and state of repair. Tenant shall provide Landlord with warranties of
title, reflecting no encumbrances as to which adjustments to the
purchase price thereof, as required by the previous sentence, have not
been made. Failure of Landlord to notify Tenant of its election to
purchase Tenant's Personal Property at any of the Collective Leased
Properties by the fifteenth (15th) day prior to the expiration of this
Agreement (or such shorter period as may be appropriate if this
Agreement is terminated with respect to any of the Collective Leased
Properties prior to its expiration date) shall be deemed to constitute a
waiver of Landlord's right to purchase Tenant's Personal Property with
respect to such Leased Property. Upon the expiration or sooner
termination of this Agreement, or upon management of any Facility by
Landlord or its designee, Tenant shall use all reasonable efforts to
transfer and assign to Landlord or its designee, or assist Landlord or
its designee in obtaining, any contracts, licenses, and certificates
required for the then operation of such Facility.
20.2 Tenant's Option to Purchase the Leased Property. <PAGE>
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Provided, no Default or Event of Default has occurred and is
continuing at the time of exercise of the purchase option provided for
in this Section 20.2 or at the time of payment of the purchase price
provided for in this Section 20.2 and this Agreement shall be in full
force and effect, Tenant shall have the option to purchase all, but not
less than all, of the Collective Leased Properties for a purchase price
equal to the sum of the Option Purchase Prices for all of the Collective
Leased Properties. If Tenant wishes to exercise the aforesaid option,
it shall do so by giving Landlord Notice thereof not less than one (1)
year prior to the expiration of the then current term of this Agreement
(Fixed or Extended, as the case may be). Such Notice shall be
accompanied by a nonrefundable deposit made by certified check payable
to the order of Landlord in an amount equal to five percent (5%) of the
Option Purchase Price. It is expressly understood and agreed that time
shall be of the essence with respect to the giving of such Notice and
the making of such deposit and the failure of Tenant to give such Notice
or deliver such deposit within the time and in the manner hereinabove
provided shall be a waiver of Tenant's right to purchase the Collective
Leased Properties pursuant to this Section 20.2. Any purchase of the
Collective Leased Properties by Tenant shall be made in accordance with
the provisions of Article 15 and the closing date for such purchase
shall be the date of expiration of the then current term of this
Agreement (Fixed or Extended, as the case may be).
20.3 First Refusal to Purchase.
Provided, no Default or Event of Default has occurred and is
continuing at the time of exercise of the first refusal to purchase
provided for in this Section 20.3 or at the time of payment of the
purchase price provided for in this Section 20.3 and this Agreement
shall be in full force and effect, Tenant shall have a right of first
refusal to purchase all, but not less than all, of the Collective Leased
Properties as Landlord shall propose to sell upon the same price, terms
and conditions as Landlord shall propose to sell such Collective Leased
Properties, or upon the same price, terms and conditions of any written
offer from a third party to purchase such Collective Leased Properties
which Landlord intends to accept (or has accepted subject to Tenant's
right of first refusal herein provided). If, during the Term or any
Extended Term hereof, Landlord reaches such agreement with a third party
or proposes to offer all or any portion of the Collective Leased
Properties for sale, Landlord shall promptly give Notice to Tenant of
the purchase price and all other material terms and conditions of such
agreement or proposed sale and Tenant shall have thirty (30) days
thereafter to exercise Tenant's right of first refusal to purchase by
Notice to Landlord thereof. Such Notice shall be accompanied by a
nonrefundable deposit made by certified check payable to the order of
Landlord in an amount equal to five percent (5%) of the purchase price
provided for in such proposal, offer or agreement. It is expressly
understood and agreed that time shall be of the essence with respect to
the giving of such Notice and the making of such deposit and the failure
of Tenant to give such Notice or deliver such deposit within the time
and in the manner hereinabove provided shall be a waiver of Tenant's<PAGE>
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right of first refusal to purchase the Collective Leased Properties
pursuant to this Section 20.3. If Tenant exercises its right of first
refusal, the sale to Tenant shall be consummated upon the same terms and
conditions as contained in such proposal, offer or agreement (including
all terms certain in such agreement or Notice relating to any security
deposit or fee, and the date of closing). Such sale to Tenant shall be
made in accordance with the provisions of Article 15 no later than the
closing date specified in such proposal, offer or agreement (or, if no
closing date is so specified, thirty (30) days after Tenant exercises
its right of first refusal). If Tenant shall not exercise its right of
first refusal within the time period and in the manner above provided,
Landlord shall be free to sell such Leased Property to any third party
at a price and upon terms substantially similar and in any event no less
favorable to Landlord than those offered to Tenant. Tenant shall be
entitled to exercise its right of first refusal as provided in this
Section 20.3 as to any subsequent or proposed sale during the Term or
any Extended Term.
ARTICLE 21
FACILITY MORTGAGES
21.1 Landlord May Grant Liens.
Without the consent of Tenant, Landlord may, subject to the terms
and conditions set forth in this Section 21.1, from time to time,
directly or indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement ("Encumbrance") upon any of the
Collective Leased Properties, or any portion thereof or interest
therein, whether to secure any borrowing or other means of financing or
refinancing. Any such Encumbrance shall include the right to prepay
(whether or not subject to a prepayment penalty) and shall provide
(subject to Section 21.2 below) that it is subject to the rights of
Tenant under this Agreement, including the rights of Tenant to acquire
the Collective Leased Properties pursuant to the applicable provisions
of this Agreement.
21.2 Subordination of Lease.
Subject to Section 21.1, this Agreement, any and all rights of
Tenant hereunder, are and shall be subject and subordinate to any ground
or master lease, and all renewals, extensions, modifications and
replacements thereof, and to all mortgages and deeds of trust, which may
now or hereafter affect the Collective Leased Properties, or any of
them, or any improvements thereon and/or any of such leases, whether or
not such mortgages or deeds of trust shall also cover other lands and/or
buildings and/or leases, to each and every advance made or hereafter to
be made under such mortgages and deeds of trust, and to all renewals,
modifications, replacements and extensions of such leases and such
mortgages and deeds of trust and all consolidations of such mortgages
and deeds of trust. This section shall be self-operative and no further<PAGE>
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instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver
any instrument that Landlord, the lessor under any such lease or the
holder of any such mortgage or the trustee or beneficiary of any deed of
trust or any of their respective successors in interest may reasonably
request to evidence such subordination. Any lease to which this
Agreement is, at the time referred to, subject and subordinate is herein
called "Superior Lease" and the lessor of a Superior Lease or its
successor in interest at the time referred to, is herein called
"Superior Landlord" and any mortgage or deed of trust to which this
Agreement is, at the time referred to, subject and subordinate, is
herein called "Superior Mortgage" and the holder, trustee or beneficiary
of a Superior Mortgage is herein called "Superior Mortgagee".
If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to
the rights of Landlord under this Agreement with respect to one or more
of the Collective Leased Properties, whether through possession or
foreclosure action or delivery of a new lease or deed, or otherwise,
then at the request of such party so succeeding to Landlord's rights
(herein called "Successor Landlord") and upon such Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to
and recognize such Successor Landlord as Tenant's landlord under this
Agreement with respect to one or more of the Collective Leased
Properties, and shall promptly execute and deliver any instrument that
such Successor Landlord may reasonably request to evidence such
attornment. Upon such attornment, this Agreement shall continue in full
force and effect as a direct lease between the Successor Landlord and
Tenant upon all of the terms, conditions and covenants as are set forth
in this Agreement, except that the Successor Landlord (unless formerly
the landlord under this Agreement or its nominee or designee) shall not
be (a) liable in any way to Tenant for any act or omission, neglect or
default on the part of Landlord under this Agreement, (b) responsible
for any monies owing by or on deposit with Landlord to the credit of
Tenant, (c) subject to any counterclaim or setoff which theretofore
accrued to Tenant against Landlord, (d) bound by any modification of
this Agreement subsequent to such Superior Lease or Mortgage, or by any
previous prepayment of Minimum Rent or Additional Rent for more than one
(1) month, which was not approved in writing by the Superior Landlord or
the Superior Mortgagee thereto, (e) liable to Tenant beyond the
Successor Landlord's interest in the applicable Leased Property and the
rents, income, receipts, revenues, issues and profits issuing from such
Leased Property, (f) responsible for the performance of any work to be
done by the Landlord under this Agreement to render the applicable
Leased Property ready for occupancy by Tenant, or (g) required to remove
any Person occupying the applicable Leased Property or any part thereof,
except if such person claims by, through or under the Successor
Landlord. Tenant agrees at any time and from time to time to execute a
suitable instrument in confirmation of Tenant's agreement to attorn, as
aforesaid.
21.3 Notice to Mortgagee and Ground Landlord. <PAGE>
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Subsequent to the receipt by Tenant of notice from any Person that
it is a Facility Mortgagee or that it is the ground lessor under a lease
with Landlord, as ground lessee, which includes the applicable Leased
Property as part of the demised premises, no notice from Tenant to
Landlord as to the applicable Leased Property shall be effective unless
and until a copy of the same is given to such Facility Mortgagee or
ground lessor, and the curing of any of Landlord's defaults by such
Facility Mortgagee or ground lessor shall be treated as performance by
Landlord.
ARTICLE 22
ADDITIONAL COVENANTS OF TENANT
22.1 Prompt Payment of Indebtedness.
Tenant shall (a) pay or cause to be paid when due all payments of
principal of and premium and interest on Indebtedness for money borrowed
and shall not permit or suffer any such Indebtedness to become or remain
in default beyond any applicable grace or cure period, (b) pay or cause
to be paid when due all lawful claims for labor and rents, (c) pay or
cause to be paid when due all trade payables and (d) pay or cause to be
paid when due all other Indebtedness upon which it is or becomes
obligated, except, in each case, other than that referred to in clause
(a), to the extent payment is being contested in good faith by
appropriate proceedings in accordance with Article 8 and if Tenant shall
have set aside on its books adequate reserves with respect thereto in
accordance with GAAP or unless and until foreclosure, distraint sale or
other similar proceedings shall have been commenced.
22.2 Conduct of Business.
Tenant shall not engage in any business other than the ownership
and operation of the Collective Leased Properties and shall do or cause
to be done all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and its
rights and licenses necessary to conduct such business.
22.3 Maintenance of Accounts and Records.
Tenant shall keep true records and books of account in which full,
true and correct entries will be made of dealings and transactions in
relation to the business and affairs of Tenant in accordance with GAAP.
Tenant shall apply accounting principles in the preparation of the
financial statements of Tenant which, in the judgment of and the opinion
of its independent public accountants, are in accordance with GAAP,
except for changes approved by such independent public accountants.
Tenant shall provide to Landlord either in a footnote to the financial
statements delivered under Section 17.2 which relate to the period in
which such change occurs, or in separate schedules to such financial
statements, information sufficient to show the effect of any such
changes on such financial statements.<PAGE>
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22.4 Notice of Change of Name, Administrator, Etc.
Tenant shall give prompt Notice to Landlord of any change in (a)
the name (operating or otherwise) of Tenant or any Facility, (b) the
individual licensed as administrator of any Facility, (c) the number of
beds in any bed category for which any Facility is licensed or the
number of beds in any bed category available for use at any Facility,
and (d) the patient and/or child care services that are offered at any
Facility.
22.5 Notice of Litigation, Potential Event of Default, Etc.
Tenant shall give prompt Notice to Landlord of any litigation or
any administrative proceeding to which it or any Guarantor may hereafter
become a party which involves a potential liability equal to or greater
than Ten Thousand Dollars ($10,000) or which may otherwise result in any
material adverse change in the business, operations, property,
prospects, results of operation or condition, financial or other, of
Tenant or such Guarantor. Forthwith upon Tenant obtaining knowledge of
any Default, Event of Default or any default or event of default under
any agreement relating to Indebtedness for money borrowed in an
aggregate amount exceeding, at any one time, Ten Thousand Dollars
($10,000), or any event or condition that would be required to be
disclosed in a current report filed by Tenant or any Guarantor on Form
8-K or in Part II of a quarterly report on Form 10-Q if Tenant or any
Guarantor were required to file such reports under the Securities
Exchange Act of 1934, as amended, Tenant shall furnish Notice thereof to
Landlord specifying the nature and period of existence thereof and what
action Tenant has taken or is taking or proposes to take with respect
thereto.
22.6 Indebtedness of Tenant.
Tenant shall not create, incur, assume or guarantee, or permit to
exist, or become or remain liable directly or indirectly upon, any
Indebtedness except the following:
(a) Indebtedness of Tenant to Landlord;
(b) Indebtedness of Tenant for taxes, assessments,
governmental charges or levies, to the extent that payment thereof
shall not at the time be required to be made in accordance with the
provisions of Article 8;
(c) Indebtedness of Tenant in respect of judgments or awards
(i) which have been in force for less than the applicable appeal
period and in respect of which execution thereof shall have been
stayed pending such appeal or review, or (ii) which are fully
covered by insurance payable to Tenant, or (iii) which are for an
amount not in excess of $10,000 in the aggregate at any one time
outstanding and (x) which have been in force for not longer than
the applicable appeal period, so long as execution is not levied<PAGE>
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thereunder or (y) in respect of which an appeal or proceedings for
review shall at the time be prosecuted in good faith in accordance
with the provisions of Article 8, and in respect of which execution
thereof shall have been stayed pending such appeal or review;
(d) unsecured borrowings of Tenant from its Affiliated
Persons which are by their terms expressly subordinate pursuant to
a Subordination Agreement to the payment and performance of
Tenant's obligations under this Agreement; or
(e) Indebtedness for purchase money financing.
22.7 Distributions, Payments to Affiliated Persons, Etc. All
payments by any Guarantor and/or Tenant to any Affiliated Person shall
be subordinated to payments due to Landlord and neither any Guarantor
nor Tenant shall declare, order, pay or make, directly or indirectly,
any Distributions or any payment to any Affiliated Person of either of
them (including payments in the ordinary course of business and
reasonable payments pursuant to management agreements with any such
Affiliated Person) or set apart any sum or property therefor, or agree
to do so, if, at the time of such proposed action, or immediately after
giving effect thereto, any Default or an Event of Default shall exist.
22.8 Investments.
Tenant shall not make, or permit to remain outstanding, at any time
any Investment (including without limitation, the formation of or
investment in any Subsidiary or the acquisition of any business) except
the following:
(a) Marketable direct full faith and credit obligations of,
and marketable obligations guaranteed by, the United States of
America, or any agency or instrumentality thereof, which mature
within one year from the date of acquisition thereof;
(b) Marketable direct full faith and credit obligations of
any state of the United States of America, or any county, city,
town, township or other governmental subdivision of any such state,
which mature within one year from the date of acquisition thereof,
provided, that such obligations are accorded a rating within one of
the three highest grades by Moody's Investors Service, Inc. or
Standard & Poor's Corporation;
(c) Commercial paper maturing no more than two hundred and
seventy (270) days from the date of issue, provided that such paper
is accorded a rating within the highest category by Moody's
Investors Service, Inc. or Standard & Poor's Corporation;
(d) Certificates of deposit which have a remaining term to
maturity at the time of purchase of no more than one year (or which
are subject to a repurchase agreement with one of the banks or
trust companies described in this paragraph (d) exercisable within<PAGE>
-70-
one year from the time of purchase) issued by banks or trust
companies organized under the laws of the United States of America
or a State thereof and which are member banks of the Federal
Reserve System, and have aggregate capital, surplus and undivided
profits of at least $100,000,000 and the long term obligations of
which carry a rating of "A" or better by Moody's Investors Service,
Inc. or Standard & Poor's Corporation; and
(e) Bonds or debentures which have a remaining term to
maturity at the time of purchase of no more than one year, issued
by a Person, other than an Affiliated Person as to Tenant or any
Guarantor, organized under the laws of a State of the United States
or the District of Columbia; provided, that such obligations carry
a rating of "A" or better by Moody's Investors Service, Inc. or
Standard & Poor's Corporation.
22.9 Prohibited Transactions.
Tenant shall not permit to exist or enter into any agreement or
arrangement whereby it engages in a transaction of any kind with any
Affiliated Person as to Tenant or any Guarantor, except on terms and
conditions which are not less favorable to Tenant than those on which
similar transactions between unaffiliated parties could fairly be
expected to be entered into on an arms-length basis.
22.10 Management of Collective Leased Properties.
Tenant shall not enter into any Management Agreement unless the
terms thereof have been previously approved in writing by Landlord,
which approval may be given or withheld in Landlord's sole and absolute
discretion. All management fees, payments in connection with any
extension of credit and fees for services provided in connection with
the operation of the applicable Leased Property, payable by Tenant to
any Guarantor (or any Affiliated Person as to Tenant or such Guarantor),
shall be subordinated to all of the obligations of Tenant due under this
Agreement pursuant to a Subordination Agreement. Tenant shall not agree
to any change in the Manager of any of the Collective Leased Properties
and/or any Facility, to any change in any Management Agreement,
terminate any Management Agreement or permit any Manager to assign any
Management Agreement without the prior written approval of Landlord in
each instance, which approval may be given or withheld in Landlord's
sole and absolute discretion. Any Management Agreement shall provide
that Landlord shall be provided notice of any defaults thereunder and,
at Landlord's option, an opportunity to cure such defaults and shall
otherwise be in form and substance satisfactory to Landlord in its sole
and absolute discretion. If Landlord shall cure any of Tenant's
defaults under any Management Agreement, the cost of such cure shall be
payable upon demand by Tenant to Landlord with interest accruing from
the demand date at the Overdue Rate and Landlord shall have the same
rights and remedies for failure to pay such costs on demand as for
Tenant's failure to pay Minimum Rent. Tenant shall deliver to Landlord<PAGE>
-71-
any instrument requested by Landlord to implement the intent of the
foregoing provision.
22.11 Liens and Encumbrances. Except as permitted by Section 7.1,
Tenant shall not create or incur or suffer to be created or incurred or
to exist any Lien on this Agreement, Tenant's Personal Property or any
of its other respective assets, properties, rights or income, or any of
its interest therein, now or at any time hereafter owned, other than:
(a) Security interests securing the purchase price of
equipment or personal property acquired after the Commencement
Date; provided, however, that (i) such Lien shall at all times be
confined solely to the asset in question, (ii) the aggregate
principal amount of Indebtedness secured by any such Lien shall not
exceed the cost of acquisition or construction of the property
subject thereto; and (iii) the aggregate principal amount of
Indebtedness secured by any such Lien in favor of a single vendor
shall not exceed $250,000 at any one time outstanding; and
(b) Permitted Encumbrances.
22.12 Merger; Sale of Assets; Etc. Tenant shall not (i) sell,
lease (as lessor or sublessor), transfer or otherwise dispose of, or
abandon, all or any material portion of its assets (including capital
stock) or business to any Person, (ii) merge into or with or consolidate
with any other Entity, or (iii) sell, lease (as lessor or sublessor),
transfer or otherwise dispose of, or abandon, any personal property or
fixtures or any real property; provided, however, that, notwithstanding
the provisions of clause (iii) preceding, Tenant may dispose of
equipment or fixtures which have become inadequate, obsolete, worn-out,
unsuitable, undesirable or unnecessary, provided substitute equipment or
fixtures having equal or greater value and utility (but not necessarily
having the same function) have been provided.
22.13 Guaranties. Upon the execution hereof and from time to time
during the Term and any Extended Term hereof, Tenant shall cause
Connecticut Subacute, CSC II, any corporate Parent of, or corporate
successor to, Tenant, and any other Entity that is an Affiliated Person
of Tenant that conducts business on any of the Collective Leased
Properties, to execute a Guaranty, in favor of Landlord.
ARTICLE 23
MISCELLANEOUS
23.1 Limitation on Payment of Rent. All agreements between
Landlord and Tenant herein are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of
Rent, or otherwise, shall the Rent or any other amounts payable to
Landlord under this Agreement exceed the maximum permissible under
applicable law, the benefit of which may be asserted by Tenant as a<PAGE>
-72-
defense, and if, from any circumstance whatsoever, fulfillment of any
provision of this Agreement, at the time performance of such provision
shall be due, shall involve transcending the limit of validity
prescribed by law, or if from any circumstances Landlord should ever
receive as fulfillment of such provision such an excessive amount, then,
ipso facto, the amount which would be excessive shall be applied to the
reduction of the installment(s) of Minimum Rent next due and not to the
payment of such excessive amount. This provision shall control every
other provision of this Agreement and any other agreements between
Landlord and Tenant.
23.2 No Waiver. No failure by Landlord to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial
payment of Rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of any such term. To the
maximum extent permitted by law, no waiver of any breach shall affect or
alter this Agreement, which shall continue in full force and effect with
respect to any other then existing or subsequent breach.
23.3 Remedies Cumulative. To the maximum extent permitted by law,
each legal, equitable or contractual right, power and remedy of
Landlord, now or hereafter provided either in this Agreement or by
statute or otherwise, shall be cumulative and concurrent and shall be in
addition to every other right, power and remedy and the exercise or
beginning of the exercise by Landlord of any one or more of such rights,
powers and remedies shall not preclude the simultaneous or subsequent
exercise by Landlord of any or all of such other rights, powers and
remedies.
23.4 Severability. Any clause, sentence, paragraph, section or
provision of this Agreement held by a court of competent jurisdiction to
be invalid, illegal or ineffective shall not impair, invalidate or
nullify the remainder of this Agreement, but rather the effect thereof
shall be confined to the clause, sentence, paragraph, section or
provision so held to be invalid, illegal or ineffective, and this
Agreement shall be construed as if such invalid, illegal or ineffective
provisions had never been contained therein.
23.5 Acceptance of Surrender. No surrender to Landlord of this
Agreement or of any of the Collective Leased Properties or any part
thereof, or of any interest therein, shall be valid or effective unless
agreed to and accepted in writing by Landlord and no act by Landlord or
any representative or agent of Landlord, other than such a written
acceptance by Landlord, shall constitute an acceptance of any such
surrender.
23.6 No Merger of Title. It is expressly acknowledged and agreed
that it is the intent of the parties that there shall be no merger of
this Agreement or of the leasehold estate created hereby by reason of
the fact that the same Person may acquire, own or hold, directly or
indirectly this Agreement or the leasehold estate created hereby and the<PAGE>
-73-
fee estate or ground landlord's interest in any of the Collective Leased
Properties.
23.7 Conveyance by Landlord. If Landlord or any successor owner
of all or any portion of any of the Collective Leased Properties shall
convey all or any portion of the Collective Leased Properties in
accordance with the terms hereof other than as security for a debt, and
the grantee or transferee of such of the Collective Leased Properties
shall expressly assume all obligations of Landlord hereunder arising or
accruing from and after the date of such conveyance or transfer,
Landlord or such successor owner, as the case may be, shall thereupon be
released from all future liabilities and obligations of Landlord under
this Agreement with respect to such of the Collective Leased Properties
arising or accruing from and after the date of such conveyance or other
transfer and all such future liabilities and obligations shall thereupon
be binding upon the new owner.
23.8 Quiet Enjoyment. So long as Tenant shall pay the Rent as the
same becomes due and shall comply with all of the terms of this
Agreement, Tenant shall peaceably and quietly have, hold and enjoy the
Collective Leased Properties for the Term, free of hindrance or
molestation by Landlord or anyone claiming by, through or under
Landlord, but subject to (a) any Encumbrance permitted under Article 21
or otherwise permitted to be created by Landlord hereunder, (b) all
Permitted Encumbrances, (c) liens as to obligations of Landlord that are
either not yet due or which are being contested in good faith and by
proper proceedings, and (d) liens that have been consented to in writing
by Tenant. Except as otherwise provided in this Agreement, no failure
by Landlord to comply with the foregoing covenant shall give Tenant any
right to cancel or terminate this Agreement or abate, reduce or make a
deduction from or offset against the Rent or any other sum payable under
this Agreement, or to fail to perform any other obligation of Tenant
hereunder.
23.9 NON-LIABILITY OF TRUSTEES. THE DECLARATION, A COPY OF WHICH
IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION
COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT
NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE
HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION
OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN
ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF
ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
23.10 Landlord's Consent of Trustees. Where provision is made in
this Agreement for Landlord's consent and Landlord shall fail or refuse
to give such consent, Tenant shall not be entitled to any damages for
any withholding by Landlord of its consent, it being intended that
Tenant's sole remedy shall be an action for specific performance or
injunction, and that such remedy shall be available only in those cases<PAGE>
-74-
where Landlord has expressly agreed in writing not unreasonably to
withhold its consent.
23.11 Memorandum of Lease. Neither Landlord nor Tenant shall
record this Agreement. However, Landlord and Tenant shall promptly,
upon the request of the other, enter into a short form memorandum of
this Agreement, in form suitable for recording under the laws of the
State in which reference to this Agreement, and all options contained
herein, shall be made. Tenant shall pay all costs and expenses of
recording such memorandum.
23.12 Notices.
(a) Any and all notices, demands, consents, approvals,
offers, elections and other communications required or permitted
under this Agreement shall be deemed adequately given if in writing
and the same shall be delivered either in hand, by telecopier with
written acknowledgment of receipt, or by mail or Federal Express or
similar expedited commercial carrier, addressed to the recipient of
the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid
(if by Federal Express or similar carrier).
(b) All notices required or permitted to be sent hereunder
shall be deemed to have been given for all purposes of this
Agreement upon the date of acknowledged receipt, in the case of a
notice by telecopier, and, in all other cases, upon the date of
receipt or refusal, except that whenever under this Agreement a
notice is either received on a day which is not a Business Day or
is required to be delivered on or before a specific day which is
not a Business Day, the day of receipt or required delivery shall
automatically be extended to the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
Health and Retirement Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. David J. Hegarty and
Mr. John G. Murray
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]<PAGE>
-75-
if to Vermont Subacute to:
Vermont Subacute Corporation
150 South Champlain Street
Burlington, Vermont 05401
Attn: Mark J. Finkelstein
if to New Hampshire Subacute to:
New Hampshire Subacute Corporation
40 Whitehall Road
Rochester, New Hampshire 03867
Attn: Mark J. Finkelstein
(d) By notice given as herein provided, the parties hereto
and their respective successor and assigns shall have the right
from time to time and at any time during the term of this Agreement
to change their respective addresses effective upon receipt by the
other parties of such notice and each shall have the right to
specify as its address any other address within the United States
of America.
23.13 Construction. Anything contained in this Agreement to the
contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination or expiration of
this Agreement with respect to any of the Collective Leased Properties
shall survive such termination or expiration. In no event shall
Landlord be liable for any consequential damages suffered by Tenant as
the result of a breach of this Agreement by Landlord. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party to be
charged. All the terms and provisions of this Agreement shall be bind-
ing upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Each term or provision of this
Agreement to be performed by Tenant shall be construed as an independent
covenant and condition. Time is of the essence with respect to the
exercise of any rights of Tenant under this Agreement. Except as
otherwise set forth in this Agreement, any obligations of Tenant
(including without limitation, any monetary, repair and indemnification
obligations) shall survive the expiration or sooner termination of this
Agreement.
23.14 Counterparts; Headings. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original,
but which, when taken together, shall constitute but one instrument and
shall become effective as of the date hereof when copies hereof, which,
when taken together, bear the signatures of each of the parties hereto
shall have been signed. Headings in this Agreement are for purposes of
reference only and shall not limit or affect the meaning of the
provisions hereof.<PAGE>
-76-
23.15 Landlord Financing. In the event that at any time during
the Term, Tenant, any Guarantor or any Entity that is an Affiliated
Person of Tenant or any Guarantor shall elect to obtain sale, lease or
mortgage financing for any health care related facilities owned, leased,
operated or to be owned, leased or operated by Tenant, any Guarantor or
such Entity within the Market Area of any of the Collective Leased
Properties, Tenant shall give (or cause such Guarantor or such Entity to
give, as the case may be) Notice thereof to Landlord, which notice shall
set forth in reasonable detail the terms of such financing, shall
identify the source thereof and shall include a copy of any applicable
term sheet, letter of intent or commitment letter. Landlord shall have
the right, exercisable by the giving of Notice to Tenant (or such
Guarantor or Entity, as the case may be) within ten (10) Business Days
after such notice from Tenant (or such other Guarantor or Entity, as the
case may be), to provide such financing on the same terms and conditions
as described in the Notice given to Landlord. In the event that
Landlord shall exercise such option, Tenant (or such Guarantor or
Entity, as the case may be) shall be obligated to obtain such financing
from Landlord on the terms and conditions set forth in the Notice to
Landlord. In the event that Landlord shall decline to provide such
financing or shall fail to give such notice to Tenant (or such Guarantor
or Entity, as the case may be), Tenant (or such Guarantor or Entity, as
the case may be) shall be free to obtain such financing from the party
identified in, and on the terms and conditions set forth in, the Notice
given to Landlord with respect thereto.
23.16 Applicable Law, Etc. Except as to matters regarding the
internal affairs of Landlord and issues of or limitations on any
personal liability of the shareholders and trustees of Landlord for
obligations of Landlord, as to which the laws of the State of Maryland
shall govern, this Agreement shall be interpreted, construed, applied
and enforced in accordance with the laws of The Commonwealth of
Massachusetts applicable to contracts between residents of Massachusetts
which are to be performed entirely within Massachusetts, regardless of
(i) where this Agreement is executed or delivered; or (ii) where any
payment or other performance required by this Agreement is made or
required to be made; or (iii) where any breach of any provision of this
Agreement occurs, or any cause of action otherwise accrues; or (iv)
where any action or other proceeding is instituted or pending; or (v)
the nationality, citizenship, domicile, principal place of business, or
jurisdiction of organization or domestication of any party; or (vi)
whether the laws of the forum jurisdiction otherwise would apply the
laws of a jurisdiction other than The Commonwealth of Massachusetts; or
(vii) any combination of the foregoing. Notwithstanding the foregoing,
the laws of the State shall apply to the perfection and priority of
liens upon and the disposition of and disposition with respect to any of
the Collective Leased Properties.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the
provisions of this Agreement may be brought and prosecuted in such court
or courts located in The Commonwealth of Massachusetts as is provided by<PAGE>
-77-
law; and the parties consent to the jurisdiction of said court or courts
located in The Commonwealth of Massachusetts and to service of process
by registered mail, return receipt requested, or by any other manner
provided by law.
23.17 Allocation of Minimum Rent. Landlord and Tenant, by the
execution hereof, agree that Minimum Rent shall be allocated among the
Facilities as set forth in Exhibit C.
23.18 Additional Leased Properties. Landlord and Tenant
acknowledge and agree that, concurrently herewith, Landlord is entering
into a Purchase and Sale Agreement, dated of even date herewith (the
"Purchase Agreement"), between Landlord, as purchaser, and John F.
Chapple, III, as seller, to purchase certain land, with related
improvements and personal property (collectively, the "Additional
Properties"), to be used in connection with the operation of certain of
the Collective Leased Properties, as further described in the Purchase
Agreement. Landlord and Tenant further acknowledge and agree that, upon
Landlord's purchase of the Additonal Properties, Landlord and Tenant
shall enter into an amendment to this Agreement pursuant to which
Landlord shall lease to Vermont Subacute, and Vermont Subacute shall
lease from Landlord, the Additonal Properties, upon and subject to the
terms and conditions herein set forth (but including an increase in the
Minimum Rent payable hereunder by the amount of Five Thousand Nine
Hundred Six and 25/100 ($5,906.25)), provided, however, that nothing
herein shall be construed to require Landlord to acquire the Additional
Properties and Landlord shall have the right, but not the obligation, to
acquire the Additional Properties on such terms and conditions as
Landlord, in its sole discretion, shall determine. In the event that
Landlord shall, in its sole discretion, determine not to acquire the
Additional Properties, Landlord's and Tenant's obligations under this
Section 23.18 shall terminate. Landlord shall provide Tenant with
copies of all purchase and other agreements entered into by Landlord
with respect to the Additonal Properties and all diligence and other
information provided to or obtained by Landlord in connection therewith.<PAGE>
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IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date above first written.
LANDLORD:
HEALTH AND RETIREMENT
PROPERTIES TRUST
By: /s/ David J. Hegarty
Its: Executive Vice President
and Chief Financial
Officer
VERMONT SUBACUTE:
VERMONT SUBACUTE CORPORATION
By: /s/ Mark J. Finkelstein
Its (Vice) President
NEW HAMPSHIRE SUBACUTE:
NEW HAMPSHIRE SUBACUTE
CORPORATION
By: /s/ Mark J. Finkelstein
Its (Vice) President<PAGE>
EXHIBITS A-1 TO A-8
The Land
[See attached copies.]<PAGE>
EXHIBIT B
Purchase Prices
Burlington $7,253,686
Bennington 4,822,930
Springfield 4,027,146
Berlin 5,121,951
St. Johnsbury 3,718,479
Rowan 4,167,011
Redstone 926,002
Hanson 868,127
Vermont Total 30,905,333
Rochester 4,094,667
Total 35,000,000<PAGE>
EXHIBIT C
Minimum Rent Allocation
Burlington $761,637.03
Bennington 506,407.65
Springfield 422,850.33
Berlin 537,804.85
St. Johnsbury 390,440.29
Rowan 437,536.15
Redstone 97,230.21
Hanson 91,153.33
Rochester 429,904.04
-2-<PAGE>
Exhibit 10.22
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
BERLIN C.C., INC.,
A VERMONT CORPORATION,
ST. JOHNSBURY C.C., INC.,
A VERMONT CORPORATION,
ROCHESTER C.C., INC.,
A NEW HAMPSHIRE CORPORATION,
SPRINGFIELD C.C., INC.
A VERMONT CORPORATION,
BURLINGTON C.C., INC.,
A VERMONT CORPORATION
BENNINGTON C.C., INC.,
A VERMONT CORPORATION
THE LP CORPORATION,
A VERMONT CORPORATION,
AMERICAN HEALTH CARE, INC.,
A VERMONT CORPORATION
("SELLERS")
and
HEALTH AND RETIREMENT PROPERTIES TRUST,
A MARYLAND REAL ESTATE INVESTMENT TRUST,
("HRP")
___________________________
January 26, 1995<PAGE>
TABLE OF CONTENTS
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 1
Section 2. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . 3
Section 3. CONDITIONS TO HRP'S OBLIGATION TO CLOSE. . . . . . . . 4
3.1 Closing Documents . . . . . . . . . . . . . . . . . 4
3.2 Condition of Properties . . . . . . . . . . . . . . 5
3.3 Title Policies. . . . . . . . . . . . . . . . . . . 6
3.4 Opinions of Counsel . . . . . . . . . . . . . . . . 6
3.5 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . 6
3.6 Rate Setting . . . . . . . . . . . . . . . . . . . 6
3.7 VSA/NHSA Agreement . . . . . . . . . . . . . . . . 6
3.8 Board Approval . . . . . . . . . . . . . . . . . . 6
3.9 Other Approvals . . . . . . . . . . . . . . . . . . 6
3.10 Deposit . . . . . . . . . . . . . . . . . . . . . . 7
Section 4. CONDITIONS TO SELLERS' OBLIGATION TO CLOSE. . . . . . 7
4.1 HRP Shares . . . . . . . . . . . . . . . . . . . . 7
4.2 Closing Documents . . . . . . . . . . . . . . . . . 7
4.3 Opinion of Counsel . . . . . . . . . . . . . . . . 7
4.5 Satisfaction of Other Conditions . . . . . . . . . 7
Section 5. REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . 7
5.1 Status and Authority of the Sellers . . . . . . . . 7
5.2 Action of the Sellers . . . . . . . . . . . . . . . 8
5.3 No Violations of Agreements . . . . . . . . . . . . 8
5.4 Litigation . . . . . . . . . . . . . . . . . . . . 8
5.5 Existing Leases, Agreements, Etc . . . . . . . . . 8
5.6 Disclosure . . . . . . . . . . . . . . . . . . . . 9
5.7 Utilities, Etc. . . . . . . . . . . . . . . . . . . 9
5.8 Compliance With Law . . . . . . . . . . . . . . . . 9
5.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Special Districts . . . . . . . . . . . . . . . . . 10
5.11 Not A Foreign Person . . . . . . . . . . . . . . . 10
5.12 Hazardous Substances . . . . . . . . . . . . . . . 10
5.13 Investment Intent . . . . . . . . . . . . . . . . . 10
Section 6. REPRESENTATIONS AND WARRANTIES OF HRP . . . . . . . . 11
6.1 Status and Authority of HRP . . . . . . . . . . . . 11
6.2 Action of HRP . . . . . . . . . . . . . . . . . . . 11
6.3 No Violations of Agreements . . . . . . . . . . . . 12
6.4 Litigation . . . . . . . . . . . . . . . . . . . . 12
6.5 Capitalization . . . . . . . . . . . . . . . . . . 12
Section 7. COVENANTS OF THE SELLERS. . . . . . . . . . . . . . . 12
7.1 Compliance with Laws, Etc. . . . . . . . . . . . . 12
7.2 Operation of the Facilities . . . . . . . . . . . . 13
7.3 Approval of Agreements . . . . . . . . . . . . . . 13
7.4 Compliance with Agreements . . . . . . . . . . . . 13<PAGE>
-ii-
7.5 Notice of Material Changes or Untrue
Representations . . . . . . . . . . . . . . . . . 13
7.6 Title Matters . . . . . . . . . . . . . . . . . . . 13
7.7 Survey Matters . . . . . . . . . . . . . . . . . . 14
7.8 Other Diligence Materials . . . . . . . . . . . . . 15
7.9 Other Activities During the Period Prior to
Closing . . . . . . . . . . . . . . . . . . . . . 15
Section 8. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . 15
8.1 Adjustments Based on Existing Liens . . . . . . . . 15
8.2 Adjustments Relating to Rochester C.C., Inc. . . . 15
8.3 Closing Costs. . . . . . . . . . . . . . . . . . . 16
Section 9. DEFAULT; TERMINATION . . . . . . . . . . . . . . . . . 16
9.1 Default by the Sellers . . . . . . . . . . . . . . 16
9.2 Default by HRP . . . . . . . . . . . . . . . . . . 16
Section 10. INDEMNIFICATION. . . . . . . . . . . . . . 17
10.1 Indemnification by the Sellers . . . . . . . . . 17
10.2 Indemnification by HRP . . . . . . . . . . . . . 17
10.3 Notice and Payment of Claims . . . . . . . . . . 18
Section 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 18
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . 18
11.2 Brokerage Commissions . . . . . . . . . . . . . . 18
11.3 Publicity. . . . . . . . . . . . . . . . . . . . . 19
11.4 Execution of Additional Documents. . . . . . . . . 19
11.5 Notices . . . . . . . . . . . . . . . . . . . . . 19
11.6 Waivers, Etc. . . . . . . . . . . . . . . . . . . 20
11.7 Assignment; Successors and Assigns . . . . . . . . 21
11.8 Severability. . . . . . . . . . . . . . . . . . . 21
11.9 Counterparts; Amendments. . . . . . . . . . . . . 21
11.10 Governing Law . . . . . . . . . . . . . . . . . . 21
11.11 Jurisdiction. . . . . . . . . . . . . . . . . . . 22
11.12 Performance on Business Days . . . . . . . . . . . 22
11.13 Attorneys Fees . . . . . . . . . . . . . . . . . . 22
11.14 Section and Other Headings . . . . . . . . . . . . 22
11.15 Entire Agreement . . . . . . . . . . . . . . . . . 22
11.16 Obligations of Sellers After the Closing . . . . . 22
11.17 Limitation of Liability. . . . . . . . . . . . . . 23<PAGE>
-iii-
Schedule A - List of Sellers
Schedule B - Allocation of HRP Shares
Schedule C-1 - Berlin Health and Rehab Center
Schedule C-2 - St. Johnsbury Health and Rehab Center
Schedule C-3 - Springfield Health and Rehab Center
Schedule C-4 - Bennington Health and Rehab Center
Schedule C-5 - Hanson Court Convalescent Home
Schedule C-6 - Redstone Villa
Schedule C-7 - Rowan Court Health and Rehab Center
Schedule C-8 - Rochester Manor
Schedule C-9 - Burlington Health and Rehab Center
Schedule D - Liens and Encumbrances
Schedule E - Opinion of Sellers' Counsel
Schedule F - Opinion of HRP's Counsel
Schedule G - Registration Rights Agreement
Schedule H - Breaches or Conflicts
Schedule I - Contracts and Agreements; Licensed Bed
Capacity and Medicare/Medicaid Status
Schedule J - Compliance with Law
Schedule K - Hazardous Substances
Schedule L - Capitalization of HRP
Schedule M - Form of Surveyor's Certificate<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF
REORGANIZATION is made as of the 26th day of January, 1995, by
and among the Sellers listed on Schedule A hereto (collectively,
the "Sellers") and HEALTH AND RETIREMENT PROPERTIES TRUST, a
Maryland real estate investment trust ("HRP").
WITNESSETH:
WHEREAS, Sellers are the owners and holders of the
Properties (this and other capitalized terms used and not
otherwise defined herein having the meanings ascribed to such
terms in Section 1); and
WHEREAS, the Sellers wish to transfer substantially all of
their assets to HRP, solely in exchange for voting shares of HRP
and the assumption by HRP of certain of the liabilities of
Sellers in a transaction intended to qualify as a Reorganization
within the meaning of Section 368(a)(1)(C) of the Code;
WHEREAS, it is contemplated by Sellers and HRP that, upon
the consummation of such Reorganization, each Seller will
distribute the HRP Shares received by such Seller to its
shareholders in complete liquidation of such Seller, and will
thereafter dissolve as a corporation;
WHEREAS, HRP wishes to acquire substantially all of Sellers'
assets and agrees to assume certain liabilities of Sellers on the
terms and conditions hereinafter set forth;
WHEREAS, the Sellers and HRP entered into an Agreement and
Plan of Reorganization dated September 1, 1994 (the "Original
Agreement") to accomplish the transactions referred to above; and
WHEREAS, the Sellers and HRP now desire to amend the
Original Agreement in certain respects and to restate the
Original Agreement in its entirety;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the
mutual receipt and legal sufficiency of which are hereby
acknowledged, the Sellers and HRP hereby agree as follows:
Section 1. DEFINITIONS.
Capitalized terms used in this Agreement shall have the
meanings set forth below or in the Section of this Agreement
referred to below:<PAGE>
-2-
1.1 "Agreement" shall mean this Amended and Restated
Agreement and Plan of Reorganization, together with Schedules A
through M, attached hereto, as it and they may be amended from
time to time as herein provided.
1.2 "Business Day" shall mean any day other than a
Saturday, Sunday or any other day on which banking institutions
in The Commonwealth of Massachusetts, the State of Vermont or the
State of New Hampshire are authorized by law or executive action
to close.
1.3 "Closing" shall have the meaning given such term in
Section 2.1.
1.4 "Closing Date" shall have the meaning given such term
in Section 2.1.
1.5 "Code" means the United States Internal Revenue Code of
1986, as amended.
1.6 "Declaration" shall mean the Declaration of Trust of
HRP, dated October 9, 1986, as the same has been and may be
amended and restated from time to time.
1.7 "Deposit" shall mean the sum of Two Hundred Fifty
Thousand Dollars ($250,000) paid by HRP to the Sellers and held
by the Escrow Agent for the benefit of the Sellers prior to the
date of the Original Agreement, receipt of which is hereby
acknowledged by the Sellers.
1.8 "Escrow Agent" shall mean Miller, Eggleston and
Rosenberg, Ltd.
1.9 "Facilities" shall mean, collectively, the nursing
homes, retirement centers, congregate living facilities and/or
other facilities offering other related health care products or
services being operated by the Sellers at the Properties.
1.10 "HRP" shall have the meaning given such term in the
preamble to this Agreement.
1.11 "HRP Shares" shall mean common shares of beneficial
interest, $.01 par value per share, of HRP.
1.12 "Properties" shall mean, collectively, those certain
real properties, the improvements thereon, all fixtures,
machinery, systems, equipment, furniture and furnishings owned by
the Sellers attached or appurtenant thereto or used in connection
therewith and all easements, privileges, licenses, rights and
appurtenances relating thereto, located in (i) Berlin, Vermont
and known as Berlin Health and Rehab Center, as more particularly
described in Schedule C-1, attached hereto and made a part<PAGE>
-3-
hereof; (ii) St. Johnsbury, Vermont and known as St. Johnsbury
Health and Rehab Center, as more particularly described in
Schedule C-2, attached hereto and made a part hereof; (iii)
Springfield, Vermont and known as Springfield Health and Rehab
Center, as more particularly described in Schedule C-3, attached
hereto and made a part hereof; (iv) Bennington, Vermont and known
as Bennington Health and Rehab Center, as more particularly
described in Schedule C-4, attached hereto and made a part
hereof; (v) Springfield, Vermont and known as Hanson Court
Convalescent Home, as more particularly described in Schedule C-
5, attached hereto and made a part hereof; (vi) St. Albans,
Vermont and known as Redstone Villa, as more particularly
described in Schedule C-6, attached hereto and made a part
hereof; (vii) Barre, Vermont and known as Rowan Court Health and
Rehab Center, as more particularly described in Schedule C-7,
attached hereto and made a part hereof; (viii) Rochester, New
Hampshire and known as Rochester Manor, as more particularly
described in Schedule C-8, attached hereto and made a part
hereof; and (ix) Burlington, Vermont and known as Burlington
Health and Rehab Center, as more particularly described in
Schedule C-9, attached hereto and made a part hereof.
1.13 "Securities Act" shall have the meaning given such
term in Section 5.13.
1.14 "Sellers" shall have the meaning given such term in
the preamble to this Agreement.
1.15 "Surveys" shall have the meaning given such term in
Section 7.6.
1.16 "Title Commitments" shall have the meaning given such
term in Section 7.6.
1.17 "Title Company" shall mean Lawyer's Title Company or
such other title insurance company as shall have been approved by
HRP.
1.18 "VSA/NHSA Agreement" shall mean that certain Amended
and Restated Purchase and Sale Agreement, dated the date hereof,
among the Sellers, Vermont Subacute Corporation ("VSA") and New
Hampshire Subacute Corporation ("NHSA").
Section 2. CLOSING.
2.1 Closing. (a) The transfer and delivery of the
Properties to HRP and the issuance and delivery of HRP Shares to
the Sellers shall be consummated at a closing (the "Closing") to
be held at the offices of Sullivan & Worcester, One Post Office
Square, Boston, Massachusetts, or at such other location as the
Sellers and HRP may agree, at 10:00 a.m., local time, on a date<PAGE>
-4-
(the "Closing Date") ten (10) days after the later to occur of
(i) the expiration of any applicable waiting periods required
under or in connection with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or the receipt from the
Federal Trade Commission and any other applicable governmental
agency having jurisdiction of valid and enforceable waivers
thereof, (ii) the approval for listing on the New York Stock
Exchange of the HRP Shares, and (iii) the receipt of all other
applicable approvals and licenses from any applicable
governmental bodies including, without limitation, certificates
or determinations of need, if required. In the event that the
Closing shall not have occurred on or before March 31, 1995,
provided that no action for specific performance shall have been
commenced by any party to enforce this Agreement, any party shall
have the right, by the giving of written notice, to terminate
this Agreement and, in such event, the Deposit, together with
interest thereon, shall be refunded to HRP in accordance with
Section 9.1.
(b) At the Closing, the Sellers shall transfer and deliver
to HRP all of the Properties, and HRP shall accept delivery of
the Properties. In exchange for the Properties, HRP shall cause
to be delivered to the Sellers that number of HRP Shares, the
value of which (as determined pursuant to the following sentence)
shall be equal to $35,000,000; provided, however, that such
amount shall be adjusted as may be required pursuant to Section
8). The value given to each HRP Share shall be $15.00. At the
Closing, the portion of such HRP Shares allocated to each Seller
on Schedule B hereto shall be issued to such Seller by delivery
of a certificate or certificates representing that number of HRP
Shares set forth opposite such Seller's name on such Schedule B,
in such manner as each such Seller shall specify to HRP not later
than three (3) Business Days prior to the Closing. The
certificates representing the HRP Shares shall bear the legend
set forth in Section 5.13 hereof.
Section 3. CONDITIONS TO HRP'S OBLIGATION TO CLOSE.
The obligation of HRP to accept delivery of the Properties
and to deliver the HRP Shares at the Closing shall be subject to
the satisfaction of the following conditions precedent on and as
of the Closing Date:
3.1 Closing Documents. The Sellers shall have delivered to
HRP:
(a) a good and sufficient special warranty deed, or its
local equivalent, with respect to each of the Properties, in
proper statutory form for recording, duly executed and
acknowledged by the Sellers, conveying good and marketable title
to the applicable Properties, free from all liens and<PAGE>
-5-
encumbrances other than (i) liens and encumbrances approved by
HRP in accordance with Sections 7.5 and 7.6 and (ii) liens set
forth on Schedule D which HRP shall assume (subject to a
corresponding reduction in the Purchase Price as set forth in
Section 8);
(b) an assignment by the Sellers and an assumption by HRP,
in form and substance reasonably satisfactory to the Sellers and
HRP, duly executed and acknowledged by the Sellers and HRP, of
all of the Sellers' right, title and interest in, to and under
all licenses, contracts, permits and agreements affecting the
Properties which HRP has elected to assume (if any);
(c) an assignment by the Sellers and an assumption by HRP,
in form and substance reasonably satisfactory to, and duly
executed and acknowledged by, the Sellers and HRP of the
liabilities set forth on Schedule D which HRP has agreed to
assume;
(d) a certificate of a duly authorized officer of each of
the Sellers confirming the continued truth and accuracy of (i)
the representations and warranties of the Sellers in this
Agreement and (ii) the matters set forth in Section 3.2 of this
Agreement;
(e) to the extent the same are in the Sellers' possession,
original, fully executed copies of all documents and agreements
pertaining to the Properties and, in any event, copies of all
such documents and agreements certified by a responsible officer
of Sellers as conforming to the originals in all respects;
(f) certified copies of all charter documents, applicable
corporate resolutions and certificates of incumbency with respect
to each of the Sellers; and
(g) such other conveyance documents, certificates, deeds
and other instruments as HRP or the Title Company may reasonably
require.
3.2 Condition of Properties. (a) All of the Properties
and Facilities shall be in substantially the same physical
condition as on the date of this Agreement, ordinary wear and
tear excepted;
(b) No material default or event which with the giving of
notice and/or lapse of time could constitute a default shall have
occurred and be continuing under any material agreement
benefiting or affecting the Properties or the Facilities;
(c) No material adverse change shall have occurred, and no
action shall be pending or threatened which would adversely
affect the licensing, certification, qualification status,<PAGE>
-6-
occupancy, eligibility for participation in federal or state
reimbursement programs or material accreditations of any of the
Facilities or, to the extent applicable, the Properties; and
(d) No action shall be pending or threatened for the
condemnation or taking by power of eminent domain of all or any
portion of the Properties or all or any portion of the
Facilities.
3.3 Title Policies. The Title Company shall be prepared,
subject only to payment of the applicable premium, to issue title
insurance policies to HRP, in form and substance satisfactory to
HRP in accordance with Sections 7.5 and 7.6, together with such
affirmative coverages as HRP may require and shall have been
determined available prior to the Closing.
3.4 Opinions of Counsel. HRP shall have received a written
opinion from Miller, Eggleston and Rosenberg, Ltd., special
counsel to the Sellers (or such additional local counsel as may
be reasonably acceptable to HRP), substantially in the form
attached hereto as Schedule E.
3.5 Hart-Scott-Rodino. The Sellers and HRP shall have
complied with all applicable provisions (if any) of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended.
3.6 Rate Setting. HRP shall have received such assurances
as HRP, in its sole discretion, shall deem necessary, including,
without limitation, opinions of counsel and/or confirmations from
state agencies, that the transactions contemplated by this
Agreement will have an acceptable effect on Medicaid rates for
the Facilities.
3.7 VSA/NHSA Agreement. The transactions contemplated by
the VSA/NHSA Agreement shall have been consummated.
3.8 Board Approval. The Board of Trustees of HRP shall
have approved the transactions contemplated hereby in all
respects.
3.9 Other Approvals. The Sellers and HRP shall have
received, in form and substance reasonably satisfactory to the
Sellers and HRP, all required approvals and waivers, including,
without limitation, all licenses, certificates of need and
regulatory and reimbursement permits and approvals as may be
necessary or appropriate to consummate the transaction
contemplated by this Agreement and to use the Properties in the
same manner as they are currently being used by the Sellers, as
set forth on Schedule I hereto.
3.10 Deposit. The Escrow Agent shall have returned the
Deposit, together with interest accrued thereon, to HRP.<PAGE>
-7-
Section 4. CONDITIONS TO SELLERS' OBLIGATION TO CLOSE.
The obligation of the Sellers to convey the Properties and
the Facilities to HRP is subject to the satisfaction of the
following conditions precedent on and as of the Closing Date:
4.1 HRP Shares. HRP shall deliver to the Sellers the HRP
Shares in the manner provided in Section 2, adjusted as herein
provided.
4.2 Closing Documents. HRP shall have delivered to the
Sellers:
(a) A certificate of a duly authorized officer of HRP
confirming the continued truth and accuracy of the
representations and warranties of HRP in this Agreement; and
(b) Certified copies of all charter documents, applicable
resolutions and certificates of incumbency with respect to HRP.
4.3 Opinion of Counsel. The Sellers shall have received a
written opinion from (a) Sullivan & Worcester, special counsel to
HRP (or such additional local counsel as shall be reasonably
satisfactory to Sellers), substantially in the form attached
hereto as Schedule F, and (b) Miller, Eggleston & Rosenberg,
special counsel to the Sellers, that the transactions
contemplated hereby qualify as a reorganization within Section
368(a)(1)(C) of the Code.
4.4 Registration Rights Agreement. The Sellers and HRP
shall have entered into a Registration Rights Agreement in the
form attached hereto as Schedule G.
4.5 Satisfaction of Other Conditions. The conditions
precedent described in Sections 3.5, 3.7 and 3.8 shall have been
satisfied.
Section 5. REPRESENTATIONS AND WARRANTIES OF SELLERS.
To induce HRP to enter into this Agreement, the Sellers
jointly and severally represent and warrant to HRP as follows
(such representations and warranties to be effective as of the
date of the Original Agreement):
5.1 Status and Authority of the Sellers. Each of the
Sellers is a corporation duly organized, validly existing and in
corporate good standing under the laws of its state of
incorporation, and has all requisite power and authority under
the laws of such state and its respective charter documents to
enter into and perform its obligations under this Agreement and<PAGE>
-8-
to consummate the transactions contemplated hereby. Each of the
Sellers has duly qualified to transact business in each
jurisdiction in which the nature of the business conducted by it
requires such qualification. Each Seller is acquiring the HRP
Shares solely for investment purposes, and not with a view toward
involvement in the management of HRP.
5.2 Action of the Sellers. Each of the Sellers has taken
all necessary action to authorize the execution, delivery and
performance of this Agreement, and upon the execution and
delivery of any document to be delivered by the Sellers on or
prior to the Closing Date, such document shall constitute the
valid and binding obligation and agreement of each of the
Sellers, enforceable against each of the Sellers in accordance
with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application affecting the rights and remedies of
creditors.
5.3 No Violations of Agreements. Except as set forth on
Schedule H, neither the execution, delivery or performance of
this Agreement by the Sellers, nor compliance with the terms and
provisions hereof, will result in any breach of the terms,
conditions or provisions of, or conflict with or constitute a
default under, or result in the creation of any lien, charge or
encumbrance upon any property or assets of the Sellers pursuant
to the terms of any indenture, mortgage, deed of trust, note,
evidence of indebtedness or any other agreement or instrument by
which any of the Sellers is bound.
5.4 Litigation. No investigation, action or proceeding is
pending and, to the Sellers' knowledge, no action or proceeding
is threatened and no investigation looking toward such an action
or proceeding has begun, which (i) questions the validity of this
Agreement or any action taken or to be taken pursuant hereto,
(ii) will result in any material adverse change in the business,
operation, licensure, reimbursement, affairs or condition of any
of the Properties or the Facilities, (iii) result in or subject
the Properties or the Facilities to a material liability, or (iv)
involves condemnation or eminent domain proceedings against any
part of the Properties.
5.5 Existing Leases, Agreements, Etc. The Sellers have not
entered into any contracts or agreements with respect to the
Properties, other than as previously disclosed to HRP and listed
on Schedule I hereto. The copies of such contracts or agreements
heretofore made available by the Sellers to HRP for examination
are true, correct and complete copies thereof, have not been
amended except as evidenced by amendments similarly delivered and
constitute the entire agreement between the Sellers and the
respective parties thereto. There are no defaults under such
contracts or agreements; no events have occurred which with the<PAGE>
-9-
passage of time or the giving of notice or both would result in
an event of default thereunder; there are no contingent
liabilities under such contracts and agreements except as set
forth in Schedule I; and Sellers are entitled to all benefits of
such contracts and agreements which have not been assigned or
encumbered in any way. Sellers may assign all such contracts and
agreements to HRP. There are no other material agreements
affecting the Properties. Schedule I sets forth a fair and
accurate representation of the licensed bed capacity and
Medicare/Medicaid certification status of each of the Facilities.
5.6 Disclosure. There is no fact or condition which
materially and adversely affects the business or condition of the
Properties or the Facilities which has not been set forth in this
Agreement, or in the other documents, certificates or statements
furnished to HRP in connection with the transactions contemplated
hereby.
5.7 Utilities, Etc. All utilities and services necessary
for the use and operation of the Properties and the Facilities
located thereon (including, without limitation, road access, gas,
water, electricity and telephone), are available thereto, are of
sufficient capacity to meet adequately all needs and requirements
necessary for the use and operation of the Properties and
Facilities for their respective intended purposes and the
Properties and the Facilities are legally entitled to be served
by such utilities at rates typical for similar properties without
further action by the Sellers or any other party. To the
Sellers' knowledge, no fact, condition or proceeding exists which
would result in the termination or impairment of the furnishing
of such utilities to the Properties or the Facilities located
thereon.
5.8 Compliance With Law. (i) Except as set forth on
Schedule J, the Properties and the Facilities and the use and
operation thereof do not violate any applicable federal, state,
municipal or other governmental statutes, ordinances, by-laws,
rules, regulations or any other legal requirements, including,
without limitation, those relating to health care, construction,
occupancy, zoning, adequacy of parking, environmental protection,
occupational health and safety and fire safety; and (ii) there
are presently in effect all licenses, permits, and other
authorizations necessary for the current use, occupancy and
operation thereof. The Sellers have not been advised in writing
of any threatened request, application, proceeding, plan, study
or effort which would materially adversely affect the present
use, zoning of, or licenses, permits or other authorizations for
use of, the Properties or the Facilities or which would modify or
realign any adjacent street or highway.
5.9 Taxes. Other than the amounts disclosed by tax bills,
no taxes or special assessments of any kind (special, bond or<PAGE>
-10-
otherwise) are or have been levied with respect to the Properties
or any portion thereof, which are outstanding or unpaid, and, to
the Sellers' knowledge, none will be levied prior to the Closing
Date. Each of the Properties is separately and distinctly
assessed as a separate tax lot. To the Sellers' knowledge, each
of the Properties, during the most recent tax fiscal year and the
three (3) years prior thereto, has been duly valued and assessed
for property tax purposes in accordance with applicable law.
There is no pending abatement proceeding or, to the Sellers'
knowledge, threatened reassessment of all or any portion of the
Properties.
5.10 Special Districts. No portion of the Properties is
within a Special Flood Hazard Area (or 100-year flood plain) as
identified by the Federal Emergency Management Administration or
other governmental agency or within any specially designated or
registered historic, architectural or taxing district, such as
would require any more than normal or routine local governmental
approvals in order to effect interior or exterior improvements to
such Properties or the Facilities, either cosmetic or structural.
5.11 Not A Foreign Person. None of the Sellers is a
"foreign person" within the meaning of Section 1445 of the United
States Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
5.12 Hazardous Substances. Except as set forth in Schedule
K, neither the Sellers nor any other occupant or user of the
Properties or the Facilities, or any portion thereof, has stored
or disposed of (or engaged in the business of storing or
disposing of) or has released or caused the release of any
hazardous waste, contaminants, oil, radioactive or other material
on the Properties or any portion thereof, the removal of which is
required or the maintenance of which is prohibited or penalized
by any applicable Federal, state or local statutes, laws,
ordinances, rules or regulations, and, to the Sellers' knowledge,
the Properties and the Facilities are free from any such
hazardous waste, contaminants, oil, radioactive and other
materials.
5.13 Investment Intent. Each of the Sellers and the
shareholder of each Seller is acquiring the HRP Shares to be
received by it pursuant to this Agreement for investment and not
with a view to, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or
selling the same. Each Seller understands that such HRP Shares
have not been registered under the Securities Act of 1993, as
amended (the "Securities Act") by reason of a specific exemption
from the registration provisions thereof which depends upon,
among other things, the bona fide nature of the Sellers'
investment intent as expressed herein. Each Seller acknowledges
and agrees that each certificate representing such HRP Shares<PAGE>
-11-
shall bear the following legend until such time as such legend is
no longer required under the Securities Act and the rules and
regulations thereunder:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state laws regulating the sale of securities
and may not be offered, sold or otherwise transferred unless
registered or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required. Health and Retirement Properties Trust (the
"Company") is authorized to issue more than one class of
shares of beneficial interest. The preferences, voting
powers, qualifications and special and relative rights of
the shares of each such class are set forth in the Company's
Declaration of Trust, a copy of which will be furnished
without charge upon written request."
The representations and warranties made in this Agreement by
the Sellers shall be continuing and shall be deemed remade by the
Sellers as of the Closing Date with the same force and effect as
if made on, and as of, such date. All representations and
warranties made by the Sellers in this Agreement shall survive
the Closing for a period of three years and in the event of the
liquidation and dissolution of a Seller shall be deemed to be
representations and warranties of the shareholders of said Seller
who receive distributions in connection with said liquidation and
dissolution.
Section 6. REPRESENTATIONS AND WARRANTIES OF HRP.
To induce the Sellers to enter in this Agreement, HRP
represents and warrants to the Sellers as follows (such
representations and warranties to be effective as of the date of
the Original Agreement):
6.1 Status and Authority of HRP. HRP is a real estate
investment trust duly organized, validly existing and in good
standing under the laws of the State of Maryland, and has all
requisite power and authority under the laws of such state and
under the Declaration to enter into and perform its obligations
under this Agreement and to consummate the transactions
contemplated hereby. HRP has duly qualified and is in good
standing as a trust or unincorporated business association in
each jurisdiction in which the nature of the business conducted
by it requires such qualification.
6.2 Action of HRP. HRP has taken all necessary action to
authorize the execution, delivery and performance of this
Agreement, and upon the execution and delivery of any document to
be delivered by HRP on or prior to the Closing Date, such<PAGE>
-12-
document shall constitute the valid and binding obligation and
agreement of HRP, enforceable against HRP in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws of general
application affecting the rights and remedies of creditors.
6.3 No Violations of Agreements. Neither the execution,
delivery or performance of this Agreement by HRP, nor compliance
with the terms and provisions hereof, will result in any breach
of the terms, conditions or provisions of, or conflict with or
constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of HRP
pursuant to the terms of any indenture, mortgage, deed of trust,
note, evidence of indebtedness or any other agreement or
instrument by which HRP is bound.
6.4 Litigation. No investigation, action or proceeding is
pending and, to HRP's knowledge, no action or proceeding is
threatened and no investigation looking toward such an action or
proceeding has begun, which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto.
6.5 Capitalization. Schedule L sets forth the authorized
capital stock of HRP and the number of shares of each class
thereof outstanding as of the date hereof. All of such
outstanding shares of capital stock are, and the HRP Shares to be
issued to the Sellers hereunder, when issued pursuant to the
terms hereof upon receipt of the consideration specified herein,
will be, duly authorized and validly issued, fully paid and non-
assessable and not subject to any preemptive or similar rights.
The representations and warranties made in this Agreement by
HRP shall be continuing and shall be deemed remade, subject to
updating for those representations which are made as of the date
hereof, by HRP as of the Closing Date with the same force and
effect as if made by HRP on, and as of, such date. All
representations and warranties made in this Agreement shall
survive the Closing for a period of three years.
Section 7. COVENANTS OF THE SELLERS.
The Sellers hereby jointly and severally covenant with HRP
between the date of this Agreement and the Closing Date as
follows:
7.1 Compliance with Laws, Etc. With respect to their
respective Properties and Facilities, to comply in all material
respects with (i) all laws, regulations and other requirements
from time to time applicable of every governmental body having
jurisdiction of the Properties or the use or occupancy of the
Facilities located thereon and (ii) all terms, covenants and<PAGE>
-13-
conditions of all of the instruments of record and other
agreements affecting the Properties or the Facilities.
7.2 Operation of the Facilities. To operate the Properties
and the Facilities only in the ordinary course of business as
conducted, and to maintain the quality of the Facilities, in all
material respects consistent with past practice; to maintain
inventory at normal operating levels, in all material respects
consistent with past practice; and to use their best efforts to
preserve and maintain the Properties and the Facilities intact,
maintain occupancy at present or higher percentages, keep
available the services of their employees, and preserve for HRP
their relationships with suppliers, customers, sales
representatives and others having business relations with the
Facilities, and generally maintain the reputation of the
Facilities.
7.3 Approval of Agreements. Except as otherwise authorized
by this Agreement, not to enter into modify, amend or terminate
any material lease, contract or other agreement with respect to
the Properties or the Facilities which would encumber or be
binding upon the Properties or the Facilities from and after the
Closing Date, without in each instance obtaining the prior
written consent of HRP.
7.4 Compliance with Agreements. To the extent of their
respective obligations, to comply with each and every material
term, covenant and condition contained in any other document or
agreement affecting the Properties or the Facilities.
7.5 Notice of Material Changes or Untrue Representations.
Upon learning of any material change in any condition with
respect to the Properties, the Facilities or of any event or
circumstance which makes any representation or warranty of the
Sellers to HRP under this Agreement untrue or misleading,
promptly to notify HRP thereof (HRP agreeing, on learning of any
such fact or condition, promptly to notify the Sellers thereof).
7.6 Title Matters. The Sellers have delivered to HRP a
preliminary title report or title commitment, having an effective
date after the date of the Original Agreement, for an ALTA
extended owner's policy of title insurance with respect to the
Properties, together with complete and legible copies of all
instruments and documents referred to as exceptions to title or
as title requirements (collectively, the "Title Commitments"),
and HRP has given the Sellers notice of any title exceptions to
which HRP objects. Sellers shall use their best efforts to take
or cause to be taken such actions as may be required to cause
such exceptions to be removed from the Title Commitments. In the
event that Sellers cannot cause such exceptions to be removed,
the Sellers shall give HRP prompt notice thereof; it being
understood and agreed that the failure of the Sellers to give<PAGE>
-14-
such notice within ten (10) Business Days after Sellers' receipt
of the final form of the Surveys referred to in Section 7.7 shall
be deemed an election by the Sellers to remedy such matters. If
HRP receives such notice from Sellers, HRP may elect (i) to
terminate this Agreement by the giving of written notice thereof
to the Sellers, in which event the Deposit, together with
interest thereon, shall be returned to HRP in accordance with
Section 9.1, or (ii) to consummate the transactions contemplated
hereby, notwithstanding such title defect, with an appropriate
abatement or reduction in the number of HRP Shares to be
delivered to Sellers on account thereof, the amount of which
shall be determined by good faith negotiation between the
parties. HRP shall make any such election by written notice to
the Sellers given on or prior to the tenth Business Day after the
Sellers' notice of their inability to cure such defect. Failure
of HRP to give such notice shall be deemed an election by it to
proceed in accordance with clause (ii) above.
7.7 Survey Matters. HRP (a) has arranged for the
preparation of an ALTA survey with respect to each of the
Properties (collectively, the "Surveys"), by a licensed surveyor
in the jurisdiction in which the applicable property is located,
which (i) contains an accurate legal description of the
applicable property, (ii) shows the exact location, dimension and
description (including applicable recording information) of all
utilities, easements, encroachments and other physical matters
affecting such property, the number of striped parking spaces
located thereon and all applicable building set-back lines, (iii)
states whether the applicable property is located within a 100-
year flood plain and (iv) includes a certification in the form
set forth in Schedule M, addressed to HRP, the Title Company and
any other persons requested by HRP, and (b) has given the Sellers
notice of any matters shown thereon to which HRP objects.
Sellers shall use their best efforts to take or cause to be taken
such actions as may be required to remedy the objectionable
matters. In the event the Sellers cannot cause such exceptions
to be removed, the Sellers shall give HRP notice thereof within
five (5) Business Days of becoming aware of such inability. If
HRP receives such notice from the Sellers, HRP may elect (i) to
terminate this Agreement by the giving of written notice thereof
to the Sellers, in which event the Deposit, together with
interest thereon, shall be refunded to HRP in accordance with
Section 9.1, or (ii) to consummate the transactions contemplated
hereby, notwithstanding such defect, with any appropriate
abatement or reduction in the number of HRP Shares to be
delivered to the Sellers on account thereof, the amount of which
shall be determined by good faith negotiation between the
parties. HRP shall make any such election by written notice to
the Sellers, given on or prior to the tenth Business Day after
the Sellers' notice of their inability to cure such defect.
Failure of HRP to give such notice shall be deemed an election by
HRP to proceed in accordance with clause (ii) above.<PAGE>
-15-
7.8 Other Diligence Materials. The Sellers have delivered
to HRP all surveys, environmental assessment reports, building
evaluations, licenses, certificates of need, compliance and other
surveys, and other investigations and materials pertaining to the
Properties as are in the possession of the Sellers, and will
deliver to HRP any additional materials of the same or similar
nature which come into the possession of the Sellers between the
date hereof and the Closing Date. HRP agrees to provide the
Sellers with copies of all material studies and reports relating
to the physical condition of the Properties prepared for HRP (if
any) and with a copy of each of the Title Commitments and the
Surveys.
7.9 Other Activities During the Period Prior to Closing.
The Sellers and HRP shall endeavor to agree on the form of all of
the closing documents and opinions of counsel described herein on
or prior to the Closing Date. In addition, the Sellers and HRP
shall, prior to the Closing, cooperate in the preparation and
filing of any materials required (i) in order to obtain all
licenses, certifications and approvals required for the purchase,
sale and subsequent operation of the Properties and the
Facilities, or (ii) by the Hart-Scott-Rodino Improvements Act of
1976 and shall respond promptly to any requests by any
governmental agency with respect thereto.
All covenants made by the Sellers in this Agreement shall
survive the Closing for a period of three years and shall not be
merged into any instrument or conveyance document delivered at
Closing.
Section 8. ADJUSTMENTS.
8.1 Adjustments Based on Existing Liens. At Closing, the
number of HRP Shares to be issued to the Sellers shall be reduced
by that number of HRP Shares the value of which (based on $15.00
per share) is equal to the amount of liabilities of the Sellers
set forth on Schedule D which HRP has agreed to assume. It is
understood and agreed by the parties that no insurance policies
of the Sellers are to be transferred to HRP, and no apportionment
of the premiums therefor shall be made.
8.2 Adjustments Relating to Rochester C.C., Inc. At
Closing, the number of HRP Shares which would otherwise be
delivered to Rochester C.C., Inc. shall be reduced by _____ HRP
Shares.1
1 Number to be determined after calculation of post-
closing adjustment.<PAGE>
-16-
8.3 Closing Costs. At Closing, all closing costs for the
transaction contemplated hereby (including, without limitation,
documentary, stamp, and other transfer taxes and fees, recording
and filing fees, premiums, charges, and fees of the Title Company
and Survey costs, costs and expenses relating to those certain
Phase II environmental site assessments performed by
Environmental Management Group, Inc. at certain of the
Properties, but specifically excluding each parties' legal and
accounting fees) shall be equally divided between HRP and Sellers
and an appropriate adjustment in the number of HRP Shares to be
issued to Sellers at Closing shall be made.
Section 9. DEFAULT; TERMINATION.
9.1 Default by the Sellers. If the Sellers shall have made
any representation or warranty herein which shall be untrue or
misleading in any material respect, or if the Sellers shall fail
to perform any of the material covenants and agreements contained
herein to be performed by them and such failure continues for a
period of ten (10) days after notice thereof from HRP, then HRP
may terminate this Agreement and/or HRP pursue any and all
remedies available to it at law or in equity, including, but not
limited to, a suit for specific performance or other equitable
relief. In addition to, and not in limitation of, the foregoing,
HRP may direct the Escrow Agent to return the Deposit, together
with interest accrued thereon with respect to one-half of the
Deposit from July 26, 1994 through the date of refund, and, with
respect to the balance of the Deposit, from the date of the
Original Agreement through the date of refund.
9.2 Default by HRP. If HRP shall have made any
representation or warranty herein which shall be untrue or
misleading in any material respect, or if HRP shall fail to
perform any of the covenants and agreements contained herein to
be performed by it and such failure shall continue for a period
of ten (10) days after notice thereof from the Sellers, the
Sellers may terminate this Agreement and/or the Sellers may
either retain the Deposit as liquidated damages, or may pursue
any and all remedies available to them at law or in equity,
including, but not limited to, a suit for specific performance or
other equitable relief.
9.3 Termination. If the average of the closing price for
HRP Shares during any consecutive five day period prior to the<PAGE>
-17-
Closing Date as quoted in the Wall Street Journal is: (a) less
than or equal to $12.50, then the Sellers, by notice to HRP
delivered within two Business Days, may terminate this Agreement;
or (b) greater than or equal to $17.50, then HRP, by notice to
the Sellers delivered within two Business Days, may terminate
this Agreement; provided, that in either case the parties agree,
promptly upon such a termination, to direct the Escrow Agent to
return the Deposit, together with interest accrued thereon, to
HRP.
Section 10. INDEMNIFICATION.
10.1 Indemnification by the Sellers. The Sellers shall
indemnify and hold harmless HRP and its successors and assigns,
from and against any and all damages, claims, losses,
liabilities, and expenses, including without limitation
reasonable legal and accounting expenses (collectively,
"Losses"), which may arise out of: (i) any material breach or
violation of this Agreement by the Sellers; (ii) any material
breach of any of the representations, warranties or covenants
made in this Agreement by Sellers; (iii) any material inaccuracy
or misrepresentation or omission in any certificate or document
delivered by the Sellers in connection with this Agreement; and
(iv) any claim or action asserted by any third party arising out
of or in connection with the Sellers' ownership of the Properties
or operation of the Facilities prior to the Closing Date,
including, without limitation, all Losses with respect to (a)
Medicaid or Medicare depreciation recaptures as provided in
Section 3.6 hereto and (b) retroactive rate adjustments whether
arising from or related to recoupments, offsets, or otherwise.
The representations, warranties and covenants of the Sellers
contained in this Agreement, or any certificate, document,
instrument or agreement delivered pursuant to this Agreement,
shall survive the execution and delivery of this Agreement, the
Closing and the consummation of the transactions contemplated by
this Agreement for a period of three years from the Closing Date
and in the event of the liquidation and dissolution of a Seller,
these representations and warranties shall also be deemed to be
the joint and several representations and warranties of the
shareholders of said Seller.
10.2 Indemnification by HRP. HRP shall indemnify and hold
harmless the Sellers and their successors and assigns from and
against any and all Losses which may arise out of (i) any
material breach or violation of this Agreement by HRP; (ii) any
material breach of any of the representations, warranties or
covenants made in this Agreement by HRP; (iii) any material
inaccuracy or misrepresentation or omission in any certificate or
document delivered by HRP in connection with this Agreement; or
(iv) HRP's ownership of the Properties after the Closing Date.
The warranties, representations and covenants of HRP contained in
this Agreement, or any certificate, document, instrument or<PAGE>
-18-
agreement delivered pursuant to this Agreement, shall survive the
execution and delivery of this Agreement, the Closing, and the
consummation of the transactions contemplated by this Agreement
for a period of three years from the Closing Date.
10.3 Notice and Payment of Claims. Upon obtaining knowledge
thereof, the party entitled to indemnification (the "Indemnitee")
shall promptly notify the party liable for such indemnification
(the "Indemnitor") in writing of any damage, claim, loss,
liability or expense which the Indemnitee has determined has
given or could give rise to a claim under Sections 10.1 or 10.2
hereof (such written notice being hereinafter referred to as a
"Notice of Claim"). A Notice of Claim shall specify in
reasonable detail the nature and estimated amount of such claim,
the basis on which such claim is asserted, whether such claim is
covered by insurance and whether any rights of indemnification
may exist against any third party with respect to such claim.
The Indemnitor shall satisfy its obligations under Sections 10.1
or 10.2, as the case may be, or shall advise the Indemnitee that
in good faith it disputes the claim, within 30 days of its
receipt of a Notice of Claim.
Section 11. MISCELLANEOUS.
11.1 Expenses. Except as set forth in Section 8.3, the
Sellers and HRP shall pay their own expenses incident to the
negotiation, preparation and carrying out of this Agreement,
including, without limitation, all fees and expenses of their
respective counsel.
11.2 Brokerage Commissions. Each of the parties hereto
represents to the other parties that it dealt with no broker,
finder or like agent in connection with this Agreement, the
Original Agreement or the transactions contemplated hereby, and
that it reasonably believes that there is no basis for any other
person or entity to claim a commission or other compensation for
bringing about this Agreement, the Original Agreement or the
transactions contemplated hereby. The Sellers shall indemnify
and hold harmless HRP and its legal representatives, heirs,
successors and assigns from and against any loss, liability or
expense, including reasonable attorneys' fees, arising out of any
claim or claims for commissions or other compensation for
bringing about this Agreement, the Original Agreement or the
transactions contemplated hereby made by any broker, finder or
like agent, if such claim or claims are based in whole or in part
on dealings with the Sellers. HRP shall indemnify and hold
harmless the Sellers and their respective legal representatives,
heirs, successors and assigns from and against any loss,
liability or expense, including reasonable attorneys' fees,
arising out of any claim or claims for commissions or other
compensation for bringing about this Agreement, the Original<PAGE>
-19-
Agreement or the transactions contemplated hereby made by any
broker, finder or like agent, if such claim or claims are based
in whole or in part on dealings with HRP. Nothing contained in
this section shall be deemed to create any rights in any third
party.
11.3 Publicity. The parties agree that no party shall,
with respect to this Agreement and the transactions contemplated
hereby, contact or conduct negotiations with public officials,
make any public pronouncements, issue press releases or otherwise
furnish information regarding this Agreement or the transactions
contemplated to any third party without the consent of the other
parties except with respect to HRP as may be required by law or
rules of the New York Stock Exchange, and except as may be
required in order to give governmental notices and secure
governmental approvals or exemptions in connection with health
care licenses or permits and Hart-Scott-Rodino notifications. No
party, or its employees, agents, attorneys, officers, directors
or shareholders, shall trade in the securities of HRP until a
public announcement of the transactions contemplated by this
Agreement has been made.
11.4 Execution of Additional Documents. From and after the
Closing, the Sellers and HRP shall, at the cost of the requesting
party, duly execute and deliver to the parties hereto all such
instruments and documents, and shall take or cause to be taken
all such other and further action as any party shall reasonably
request to confirm the ownership and title to the Properties.
11.5 Notices. (a) Any and all notices, demands, consents,
approvals, offers, elections and other communications required or
permitted under this Agreement shall be deemed adequately given
if in writing and the same shall be delivered either in hand, by
telecopier with written acknowledgment of receipt, or by mail or
Federal Express or similar expedited commercial carrier,
addressed to the recipient of the notice, postpaid and registered
or certified with return receipt requested (if by mail), or with
all freight charges prepaid (if by Federal Express or similar
carrier).
(b) All notices required or permitted to be sent hereunder
shall be deemed to have been given for all purposes of this
Agreement upon the date of acknowledged receipt, in the case of a
notice by telecopier, and, in all other cases, upon the date of
receipt or refusal, except that whenever under this Agreement a
notice is either received on a day which is not a Business Day or
is required to be delivered on or before a specific day which is
not a Business Day, the day of receipt or required delivery shall
automatically be extended to the next Business Day.
(c) All such Notices shall be addressed,<PAGE>
-20-
if to the Sellers to:
Marlin Management
Box 1103
150 South Champlain Street
Burlington, Vermont 05401
Attn: John F. Chapple, III
Patricia Rickard, Esq.
Telecopier No. (802) 862-6345
with a copy to:
Miller, Eggleston and Rosenberg, Ltd.
150 South Champlain Street
Burlington, Vermont 05401
Attn: Jon Eggleston, Esq.
Telecopier No. (802) 864-0328
If to HRP, to:
Health and Retirement Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. David J. Hegarty
Telecopier No. (617) 332-2261
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
Telecopier No. (617) 338-2880
(d) By notice given as herein provided, the parties hereto
and their respective successors and assigns shall have the right
from time to time and at any time during the term of this
Agreement to change their respective addresses effective upon
receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the
United States of America.
11.6 Waivers, Etc. Any waiver of any term or condition of
this Agreement, or of the breach of any covenant, representation
or warranty contained herein, in any one instance, shall not
operate as or be deemed to be or construed as a further or
continuing waiver of any other breach of such term, condition,
covenant, representation or warranty or any other term,
condition, covenant, representation or warranty, nor shall any
failure at any time or times to enforce or require performance of
any provision hereof operate as a waiver of or affect in any
manner such party's right at a later time to enforce or require<PAGE>
-21-
performance of such provision or any other provision hereof.
This Agreement may not be amended, nor shall any waiver, change,
modification, consent or discharge be effected, except by an
instrument in writing executed by or on behalf of the party
against whom enforcement of any amendment, waiver, change,
modification, consent or discharge is sought.
11.7 Assignment; Successors and Assigns. This Agreement
shall not be assignable by any party without the written consent
of the other parties. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted
assigns. This Agreement is not intended and shall not be
construed to create any rights in or to be enforceable in any
part by any other persons.
11.8 Severability. If any provision of this Agreement
shall be held or deemed to be, or shall in fact be, invalid,
inoperative or unenforceable as applied to any particular case in
any jurisdiction or jurisdictions, or in all jurisdictions or in
all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering
the provision or provisions in question invalid, inoperative or
unenforceable in any other jurisdiction or in any other case or
circumstance or of rendering any other provision or provisions
herein contained invalid, inoperative or unenforceable to the
extent that such other provisions are not themselves actually in
conflict with such constitution, statute or rule of public
policy, but this Agreement shall be reformed and construed in any
such jurisdiction or case as if such invalid, inoperative or
unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and
enforceable to the maximum extent permitted in such jurisdiction
or in such case.
11.9 Counterparts; Amendments. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement may not be amended
or modified in any respect other than by the written agreement of
all of the parties hereto.
11.10 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the law (other than
the law governing conflict of law matters) of The Commonwealth of
Massachusetts, except that matters relating to real property law
as to the Properties located in Vermont shall be governed by and
construed and enforced in accordance with the law of the State of
Vermont, and matters relating to real property law as to the
Property located in New Hampshire shall be governed by and<PAGE>
-22-
construed and enforced in accordance with the law of the State of
New Hampshire.
11.11 Jurisdiction. The parties hereby irrevocably submit
to the jurisdiction of any court sitting in The Commonwealth of
Massachusetts or any United States Federal Court sitting in
Boston, Massachusetts in any action or proceeding arising out of
or relating to this Agreement and the parties hereby irrevocably
agree that all claims in respect of any action or proceeding
arising out of or relating to this Agreement shall be heard and
determined in such state or Federal Court. The parties hereby
consent to and grant to any such court jurisdiction over the
person of such parties and over the subject matter of any such
dispute and agree that delivery or mailing of any process or
other papers in the manner provided in Section 11.5 or in such
other manner as may be permitted by law shall be valid and
sufficient service thereof.
11.12 Performance on Business Days. In the event the date
on which performance or payment of any obligation of a party
required hereunder is other than a Business Day, the time for
payment or performance shall automatically be extended to the
first Business Day following such date.
11.13 Attorneys Fees. If any lawsuit or arbitration or
other legal proceeding arises in connection with the
interpretation or enforcement of this Agreement, the prevailing
party therein shall be entitled to receive from the other party
the prevailing party's costs and expenses, including reasonable
attorneys' fees incurred in connection therewith, in preparation
therefor and on appeal therefrom, which amounts shall be included
in any judgment therein.
11.14 Section and Other Headings. The headings contained in
this Agreement are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.
11.15 Entire Agreement. This Agreement (including all
schedules hereto and all agreements, instruments, other documents
and certificates delivered by the parties on the date hereof or
pursuant hereto) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all prior agreements, arrangements, covenants, promises,
conditions, understandings, inducements, representations, and
negotiations, expressed or implied, written or oral, between them
as to such subject matter, including, without limitation, the
Original Agreement and that certain letter of intent dated July
13, 1994 and accepted by the Sellers on July 18, 1994.
11.16 Obligations of Sellers After the Closing. From and
after the Closing Date, the Sellers will not engage in any
business, will each promptly liquidate and dissolve as a<PAGE>
-23-
corporation, and will each distribute the HRP Shares received by
it at the Closing to its shareholders in complete cancellation
and redemption of their shares of such Seller.
11.17 Limitation of Liability. The Declaration is duly
filed in the Office of the Department of Assessments and Taxation
of the State of Maryland, provides that the name "Health and
Retirement Properties Trust" refers to the trustees under the
Declaration collectively as Trustees, but not individually or
personally, and that no trustee, officer, shareholder, employee
or agent of HRP shall be held to any personal liability, jointly
or severally, for any obligation of, or claim against, HRP. All
persons dealing with HRP, in any way, shall look only to the
assets of HRP for the payment of any sum or the performance of
any obligation.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as a sealed instrument as of the date first above
written.
SELLERS:
BERLIN C.C., INC.
By: /s/ John F. Chapple III
Its: President
ST. JOHNSBURY C.C., INC.
By: /s/ John F. Chapple III
Its: President
ROCHESTER C.C., INC.
By: /s/ John F. Chapple III
Its: President
SPRINGFIELD C.C., INC.
By: /s/ John F. Chapple III
Its: President<PAGE>
-24-
BURLINGTON C.C., INC.
By: /s/ John F. Chapple III
Its: President
BENNINGTON C.C., INC.
By: /s/ John F. Chapple III
Its: President
THE LP CORPORATION
By: /s/ John F. Chapple III
Its: President
AMERICAN HEALTH CARE, INC.
By: /s/ John F. Chapple III
Its: President
HRP:
HEALTH AND RETIREMENT PROPERTIES TRUST
By: /s/ Mark J. Finkelstein
Its: President<PAGE>
Exhibit 10.23
HEALTH AND RETIREMENT PROPERTIES TRUST
SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
DATED AS OF MARCH 15, 1995
This SECOND AMENDED AND RESTATED REVOLVING LOAN
AGREEMENT is dated as of March 15, 1995, among HEALTH AND
RETIREMENT PROPERTIES TRUST, a real estate investment trust
formed under the laws of the State of Maryland ("Borrower"), the
several lenders parties to this Agreement (each, together with
any additional lender or lenders pursuant to Section 2.1(c) or
10.4, a "Lender" and, collectively, the "Lenders"), KLEINWORT
BENSON LIMITED, a bank organized under the laws of England, as
agent for itself and the other Lenders (in such capacity,
together with any successor in such capacity in accordance with
the terms hereof, "Agent"), WELLS FARGO BANK, NATIONAL
ASSOCIATION, a bank organized under the laws of the United States
of America, as administrative agent, and NATWEST BANK N.A.
(formerly National Westminster Bank USA), a national banking
association, as co-agent (in such capacity, "Co-Agent"); and, in
connection with Section 9 and the guaranties given therein,
HOSPITALITY PROPERTIES, INC., a Delaware corporation, and HEALTH
AND RETIREMENT PROPERTIES INTERNATIONAL, INC., a Delaware
corporation, each being a direct wholly-owned Subsidiary (as
defined below) of Borrower.
WHEREAS, Borrower, Kleinwort Benson Limited, as agent,
Wells Fargo Bank, National Association, as administrative agent,
National Westminster Bank USA (the predecessor to NatWest Bank
N.A.), as co-agent, and the lenders described therein are parties
to that certain Amended and Restated Revolving Loan Agreement
dated as of June 15, 1994 (as such agreement may have been
amended, supplemented or modified from time to time prior to the
date hereof, the "Existing Loan Agreement");
WHEREAS, Borrower desires that Lenders increase the
size of their aggregate commitments and extend the maturity date
under the Existing Loan Agreement, provide for borrowings to be
made in either U.S. Dollars or, up to a limit, GBP (both such
terms as defined below), permit Borrower to have Subsidiaries to
which it may advance borrowings hereunder and make certain other
amendments to the Existing Loan Agreement and amend and restate
it in its entirety; and
WHEREAS, Lenders desire to make such increase and
extension, provide for such borrowings, permit such Subsidiaries
and advances and make such amendments and such amendment and
restatement.<PAGE>
NOW, THEREFORE, the parties hereto hereby agree as
follows:
SECTION 1. DEFINITIONS
1.1. Defined Terms. As used in this Agreement:
"Acute Care Asset" means, in respect of any Property or
Mortgage Interest, that more than 50% of the licensed beds of the
Property or, in the case of a Mortgage Interest, of the Mortgaged
Property covered thereby, are designated for acute care.
"Administrative Agent" means Wells Fargo Bank, National
Association ("Wells") acting in its capacity as administrative
agent in connection with this Agreement; provided that with
respect to Loans denominated in GBP,"Administrative Agent" shall
mean a Lender (the "GBP Agent") agreed to by Borrower, Agent and
Wells and, in such circumstances, references to "Administrative
Agent" relating to Loans denominated in GBP shall be read as
references to the GBP Agent, while references to "Administrative
Agent" relating to Loans denominated in U.S. Dollars or otherwise
shall be read as references to Wells, and if such circumstances
are applicable the singular term "Administrative Agent" shall be
construed to include both Wells and the GBP Agent where
appropriate (including, without limitation, for purposes of the
indemnifications given in Sections 8 and 10.7); and, in addition,
"Administrative Agent" shall mean any successor to either Wells
or the GBP Agent in their respective capacities in accordance
with the terms hereof; provided further that in no event shall
Wells be or be deemed to be the GBP Agent or have any of its
related duties unless Wells expressly accepts such role.
"Advisor" means HRPT Advisors or such other Person as
shall act as an advisor to Borrower, whether pursuant to the
Advisory Agreement, or an agreement analogous to the Advisory
Agreement, with the prior written consent of Agent.
"Advisory Agreement" means the Advisory Agreement,
dated as of November 20, 1986, between Borrower and HRPT
Advisors, as amended by an Amendment Agreement, dated August 26,
1987, between Borrower and HRPT Advisors and as amended by a
Second Amendment Agreement, dated December 6, 1993, between
Borrower and HRPT Advisors, and as amended, supplemented or
modified from time to time in a manner not inconsistent with the
terms of the Existing Loan Agreement, hereof or of the
Subordination Agreement.
"Affiliate" means, with respect to a particular Person,
(a) any Person which, directly or indirectly, is in Control of,
is Controlled by, or is under common Control with such particular
Person, or (b) any Person who is a director or officer or trustee
(i) of such particular Person, (ii) of any Subsidiary of such
2<PAGE>
particular Person or (iii) of any Person described in clause (a)
above.
"Agreement" means this Second Amended and Restated
Revolving Loan Agreement, as amended, supplemented or modified
from time to time in accordance herewith.
"Allowed Value" means, as of any date of determination,
(i) with respect to each Eligible Property or Property (as the
context may require), the lesser of (a) the acquisition cost to
Borrower or to any of its Subsidiaries of such Eligible Property
or Property, (b) the Appraised Value of such Eligible Property or
Property as set forth in the then most recent Appraisal with
respect to such Eligible Property or Property less the value
attributable to any capital improvements made by the Operator of
such Eligible Property or Property financed by such Operator, and
(c) the minimum purchase price (howsoever denominated) that would
be payable to Borrower or such Subsidiary by the Operator of such
Eligible Property or Property or any other Person if it purchased
such Eligible Property or Property on the date of determination
pursuant to the exercise of any right it may have (whether then
or in the future exercisable) to purchase such Eligible Property
or Property (assuming in the case of any such right only
exercisable in the future that such right is exercisable on the
date of determination), and (ii) with respect to each Eligible
Mortgage or Mortgage Interest (as the context may require), the
lesser of (a) the outstanding principal amount due to Borrower or
any of its Subsidiaries from the relevant Mortgagor in respect of
such Eligible Mortgage or Mortgage Interest, and (b) the
Appraised Value of the Mortgaged Property which is covered by the
relevant Eligible Mortgage or Mortgage Interest as set forth in
the most recent Appraisal with respect to such Eligible Mortgage
or Mortgaged Property.
"Alternate GBP Rate" means the interest rate per annum
specified by Administrative Agent from time to time as the cost
to Lenders of funding affected Loans described in Section 2.13 or
2.14 (without reference to the Applicable Margin or the Mandatory
Liquid Asset Costs payable under Section 2.4(a)).
"Alternate GBP Rate Loans" means the portion of Loans
(which are denominated in GBP) the interest on which is computed
by reference to the Alternate GBP Rate.
"Alternate Rate", in respect of any Loan, means the
rate or rates of interest agreed pursuant to Section 2.13 or
2.14, as the case may be, between Borrower and Lenders to be
applicable to such Loan; provided that in the absence of such
agreement under the circumstances specified in Section 2.13 or
2.14, as the case may be, the Alternate Rate shall be equal to
the Base Rate in the case of Loans denominated in U.S. Dollars
and shall be equal to the Alternate GBP Rate in the case of
3<PAGE>
Loans denominated in GBP.
"Alternate Rate Loans" means the portion of the Loans
(which may be denominated in U.S. Dollars or in GBP) the interest
on which is computed by reference to the Alternate Rate.
"Applicable Margin" means, in the case of a Base Rate
Loan, a margin of zero and, in the case of a Eurodollar Loan or
an Alternate Rate Loan which is not a Base Rate Loan, a margin of
one and one-quarter percentage points (1.25%) per annum; provided
that if, at any date of determination, Borrower's long-term
unsecured senior debt is not rated BBB - or higher by Standard &
Poor's Corporation or Baa3 or higher by Moody's Investors
Service, Inc. (or similarly rated by any successor to either of
such rating services), then, in the case of all Loans, the
Applicable Margin otherwise applicable (including any increase
under the next proviso) shall be increased by an additional
one-quarter percentage point (0.25%) per annum; provided further
that if, at any date of determination, Loans have been
outstanding in an aggregate principal amount equal to or greater
than 66-2/3% of the Commitments for a period of 12 consecutive
months or longer, then, in the case of all Loans, the Applicable
Margin otherwise applicable (including any increase under the
previous proviso) shall be increased by an additional one-quarter
percentage point (0.25%) per annum, with any additional margin
under this further proviso to remain in effect until the first
Business Day next following the first period of 30 consecutive
days after such increase became effective during which the
aggregate principal amount of Loans outstanding has been less
than 66-2/3% of the Commitments.
"Appraisal" means an appraisal using methodologies
acceptable to Agent and Administrative Agent at the time such
appraisal is or was made and performed by a Recognized Appraiser.
"Appraised Value" of any Facility shall mean (a) in the
case of any Fee Interest, the lesser of (i) the value placed upon
such Facility pursuant to the most recent Appraisal thereof based
on a valuation of the Fee Interest subject to the Lease(s) in
respect of such Fee Interest and (ii) the value placed upon such
Facility pursuant to the most recent Appraisal thereof based on
a valuation of the Fee Interest free and clear of all Leases and
determined by discounting to present value the Facility's future
projected net cash flow, provided that in the case where the most
recent Appraisal only values the Fee Interest under either
subclause (i) or subclause (ii) of this clause (a) but not both,
the Appraised Value shall mean the value so placed on the Fee
Interest under either subclause (i) or subclause (ii) of this
clause (a), whichever is applicable; (b) in the case of a
Leasehold Interest, the lesser of (i) the value placed upon such
Facility pursuant to the most recent Appraisal thereof based on a
valuation of the Leasehold Interest subject to the Lease(s) in
4<PAGE>
respect of such Leasehold Interest and (ii) the value placed upon
such Facility pursuant to the most recent Appraisal thereof based
on a valuation of the Leasehold Interest free and clear of all
Leases and determined by discounting to present value the
Facility's future projected net cash flow, provided that in the
case where the most recent Appraisal only values the Leasehold
Interest under either subclause (i) or subclause (ii) of this
clause (b) but not both, the Appraised Value shall mean the value
so placed on the Leasehold Interest under either subclause (i) or
subclause (ii) of this clause (b), whichever is applicable; and
(c) in the case of a Mortgage Interest, the value placed upon the
Mortgaged Property covered by such Mortgage Interest pursuant to
the most recent Appraisal thereof based on a valuation of such
Mortgaged Property free and clear of such Mortgage Interest and
determined by discounting to present value the future projected
net cash flow of such Mortgaged Property.
"Base Rate" means a fluctuating interest rate per annum
as shall be in effect from time to time, which rate per annum
shall at all times be equal to the greater of:
(i) the prime rate of interest announced by
Administrative Agent from time to time, changing
when and as said prime rate changes; and
(ii) the sum of one-half of one percent (0.5%) and the
Federal Funds Rate in effect from time to time,
changing when and as such Federal Funds Rate
changes.
"Base Rate Loans" means the portion of the Loans (which
are denominated in U.S. Dollars) the interest on which is
computed by reference to the Base Rate.
"Borrower" has the meaning set forth in the first
paragraph of this Agreement.
"Borrowing Date" means the Business Day specified in a
Notice of Borrowing as the date on which Borrower requests the
Lenders to make Loans hereunder.
"Business Day" means a day other than a Saturday,
Sunday or other day on which commercial banks in New York City or
London, England are authorized or required by law to remain
closed or on which banks are not open for dealings in U.S. Dollar
and GBP deposits in the London interbank market.
"Capitalized Lease Obligation" means, as to any Person,
any obligation of such Person to pay rent or other amounts under
a lease of (or other agreement conveying the right to use) real
or personal property which obligation is required to be
5<PAGE>
classified or accounted for as a capital lease obligation on a
balance sheet of such Person prepared in accordance with GAAP
and, for purposes of this Agreement, the amount of such
obligation at any date shall be the outstanding amount thereof at
such date, determined in accordance with GAAP and Section 1.3(a).
"Cash Flow" means, for any period and any Person in
respect of one or more Properties and/or Mortgaged Properties as
to which such Person is the Operator or Mortgagor thereof, the
sum (without duplication of counting and determined in accordance
with Section 1.3(a)) of (i) Income Before Extraordinary Items,
(ii) Interest Charges payable to Borrower, in the case of a
Mortgaged Property, (iii) depreciation expenses,
(iv) amortization expenses, (v) other non-cash items reducing
Income before Extraordinary Items, (vi) all payments required to
be made to Borrower or any of its Subsidiaries under a Lease,
including without limitation fixed rent, participation rent and
additional rent in respect of (a) operating expenses, (b) taxes
based on the ownership of real property, (c) insurance premiums
and/or (d) any other costs or expenses of the relevant lessor or
sublessor, (vii) subordinated expenses paid to any Affiliate of
such Operator or such Mortgagor relating to management,
accounting or other similar fees, and (viii) to the extent
otherwise included in the calculation of Income Before
Extraordinary Items, any Restricted Payment, less non-cash items
increasing Income Before Extraordinary Items, in each case of
such Person for such period attributable to such Properties
and/or Mortgaged Properties.
"Cash Flow Event" means in respect of a Property or
Mortgaged Property, that the Cash Flow of the Operator or
Mortgagor thereof (as applicable) over its four most recent
financial quarters (or, (i) if financial reporting for such Cash
Flow is provided on an annual basis, over its last reported
financial year, or (ii) where Mariott International, Inc. is the
Operator or Mortgagor (but not in any event for a Courtyard
Lodging) and financial reporting for such Cash Flow is not
otherwise required to be provided to Borrower or its
Subsidiaries, over the last reported financial year as certified
by an officer of Marriott International, Inc. in a certificate
described in Section 5.2(b)(iii)), attributable to that Property
or Mortgaged Property is less than its Fixed Charges over the
same period for such Property or Mortgaged Property; provided
that a Cash Flow Event shall not be deemed to occur in respect of
a Property or a Mortgaged Property that is part of a group of
Cross Guarantied Assets if the Cash Flow of the Operators and
Mortgagors determined on an aggregate basis over their respective
four most recent financial quarters (or last reported financial
year or last certified financial year, as the case may be),
attributable to the relevant group of Cross Guarantied Assets, is
greater than or equal to their Fixed Charges determined on an
aggregate basis over the same period in respect of such group of
6<PAGE>
Cross Guarantied Assets.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Commission" means the United States Securities and
Exchange Commission or any successor to the responsibilities of
such commission.
"Commitment" has the meaning set forth in Section
2.1(b).
"Commitment Period" means the period from and including
the date hereof to and including the Final Borrowing Date or such
earlier date as the Commitments shall terminate as provided
herein.
"Common Shares" means Borrower's common shares of
beneficial interest, $0.01 par value.
"Contingent Obligation" means, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee
any Indebtedness, leases, dividends or other obligations (
"primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary
obligation or any property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary
obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such
primary obligation of the payment of, or the ability of the
primary obligor to make payment of, such primary obligation or
(d) otherwise to assure or hold harmless the owner of such
primary obligation against loss in respect thereof; provided
that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent
Obligation shall be determined in accordance with Section 1.3(a)
and shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in
respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Contractual Obligation" means, as to any Person, the
Certificate of Incorporation and By-Laws or other organizational
7<PAGE>
or governing documents of such Person, and any provision of any
security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any
of its property is bound.
"Control" (including with correlative meanings the
terms "Controlling", "Controlled by" and "under common Control
with"), as applied to any Person, means the possession of the
power, direct or indirect, (i) to vote 5% or more of the
securities having ordinary voting power for the election of
directors or trustees of such Person, or (ii) to direct or cause
the direction of the management and policies of such Person
whether by contract or otherwise.
"Courtyard Lodgings" means the Properties consisting of
21 Courtyard Hotels identified on Schedule 6 to be purchased by
Borrower and leased to HMH HPT Courtyards, Inc., an Affiliate of
Host Marriott Corporation, and managed by Courtyard Management
Corporation, an Affiliate of Marriott International, Inc.
"Credit Support Agreements" means each of the Lease
Guarantees, Mortgage Guarantees, Pledges and Sublease Agreements,
and any other agreements or instruments providing assurances in
any form, in each case in respect of any Person's obligations
under a Lease or Mortgage Interest Agreement.
"Credit Support Obligors" means the obligors in respect
of the Credit Support Agreements, and each of them.
"Cross Guarantied Assets" means a group of Properties
and/or Mortgage Interests as to which the various Operators
and/or Mortgagors have guarantied each other's obligations to
Borrower and/or any of Borrower's Subsidiaries and have agreed to
cross-default such obligations and/or cross-collateralize those
obligations to the extent of any security or credit support that
has been provided for such obligations or a group of Properties
and/or Mortgage Interests operated by a single Operator or
Mortgagor as to which such Operator or Mortgagor has agreed to
cross-default all of its obligations to Borrower and/or any of
Borrower's Subsidiaries and to cross-collateralize those
obligations to the extent of any security or credit support that
has been provided for such obligations.
"Current" means, at any date of determination, in
respect of cash flow information of an Operator or Mortgagor
required in a Real Property Statement, (a) for a fiscal year of
that Operator or Mortgagor, that such information relates to its
fiscal year then current or the fiscal year ended not more than
one hundred and fifty days prior thereto or (b) for a fiscal
quarter of that Operator or Mortgagor, that such information
relates to its fiscal quarter then current or a fiscal quarter
8<PAGE>
ended not more than seventy five days prior thereto.
"Declaration of Trust" means the Declaration of Trust
establishing Borrower, dated October 9, 1986, as amended and
restated on July 1, 1994, as such Declaration of Trust may be
further amended, supplemented or modified from time to time.
"Default" means any of the events specified in
Section 7.1, whether or not any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has
been satisfied.
"EBI" means, with respect to Borrower and its
Subsidiaries, for any period of time, without duplication of
counting and determined in accordance with Section 1.3(a), the
sum of (i) the net income on a consolidated basis (determined in
accordance with GAAP for such period), plus (ii) any losses for
such period and reserves for such losses from the sale of real
property assets (on a tax effected basis) plus (iii) any non-cash
extraordinary losses and expenses and reserves for any non-cash
extraordinary losses and expenses for such period, minus (iv) any
gains for such period from the sale of assets (on a tax effected
basis) outside the ordinary course of business, minus (v) any
extraordinary gains from such period, plus (vi) to the extent
deducted from gross income to calculate net income, Interest
Charges of Borrower and its Subsidiaries on a consolidated basis
for such period.
"Effective Date" means the date when the conditions
precedent set forth in Section 4 are first satisfied, or are
waived pursuant to Section 10.6.
"Eligible Mortgage" has the meaning set forth in
Section 2.16.
"Eligible Property" has the meaning set forth in
Section 2.16.
"Environmental Laws" means all statutes, ordinances,
orders, rules and regulations having effect in any domestic or
foreign jurisdiction relating to environmental matters,
including, without limitation, those relating to fines, orders,
injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials and to the generation,
use, storage, transportation, or disposal of Hazardous Materials,
in any manner applicable to Borrower or any Operator or Mortgagor
or any of their respective Subsidiaries or any of their
respective properties, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. Section 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
9<PAGE>
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Federal Water Pollution Control Act (33 U.S.C. Section 1251
et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.),
the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.) and the Emergency Planning and Community Right-to-Know Act
(42 U.S.C. Section 11001 et seq.), each as amended or
supplemented, and any analogous future or present local,
municipal, state and federal statutes and regulations promulgated
pursuant thereto, each as in effect as of the date of
determination.
"Equivalent Amount" means the amount of a currency
other than U.S. Dollars that can be purchased with U.S. Dollars
calculated on the basis of Administrative Agent's spot rate of
exchange for the purchase of such other currency with U.S.
Dollars on the date such calculation is to be made (such
calculation to be made on the occasions set forth in Section
1.3(b)).
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means (i) any corporation which is an
entity under common control with Borrower within the meaning of
Section 4001 of ERISA or a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code of
which Borrower is a member; (ii) any trade or business (whether
or not incorporated) which is a member of a group of trades or
businesses under common control within the meaning of
Section 414(c) of the Code of which Borrower is a member; and
(iii) any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Code of which Borrower,
any corporation described in clause (i) above or any trade or
business described in clause (ii) above is a member.
"Eurodollar Loans" means the portion of the Loans
(which may be denominated in U.S. Dollars or in GBP) the interest
on which is computed by reference to the LIBO Rate.
"Event of Default" means any of the events specified in
Section 7.1, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has
been satisfied.
"Existing Loan Agreement" has the meaning set forth in
the introduction to this Agreement.
"Existing Loans" has the meaning set forth in Section
2.1(a).
10<PAGE>
"Excluded Taxes" means taxes upon any Lender's overall
net income imposed by the United States of America or any
political subdivision or taxing authority thereof or therein or
by any jurisdiction in which the Lending Office of any Lender is
located or in which any Lender is organized or has its principal
or registered office, except taxes, duties or charges imposed
pursuant to Section 1, 2 and/or 39 of the Massachusetts General
Laws, Chapter 63, as currently in effect or as amended
hereafter or any analogous provisions (or provisions having an
analogous effect) of the laws, rules or regulations (or
interpretations thereof) of Massachusetts or any other
Governmental Authority.
"Facility" means each operating facility, offering
health care or related services, rehabilitation or retirement
services or hotel or other lodging services comprised of the
Courtyard Lodgings, or other income producing real property
interest (including, without limitation, the Fee Interests and/or
Leasehold Interests and/or Mortgage Interests associated with
such Facility) in which Borrower or any of its Subsidiaries has
acquired or will acquire an interest as owner, lessee or
mortgagee, including without limitation each Property and
Mortgaged Property.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such
day (or, if such day is not a day for which such rate is
published, for the next preceding day for which it is published)
by the Federal Reserve Bank of New York.
"Fee Interests" means any land and any buildings,
structures, improvements and fixtures owned beneficially in fee
simple by Borrower or any of its Subsidiaries and equipment
located thereon or used in connection therewith and all
personalty (including, without limitation, franchises) related
thereto and all other real estate interests, owned beneficially
by Borrower or any of its Subsidiaries.
"Final Borrowing Date" means the earlier of (i) March
15, 1997 and (ii) such date as the Commitments shall terminate as
provided herein.
"Fixed Charges" means, for any period and any Person in
respect of one or more Properties and/or Mortgaged Properties as
to which such Person is the Operator or Mortgagor thereof, the
sum (without duplication of counting and determined in accordance
with Section 1.3(a)) of (i) Interest Charges, (ii) all payments
required to be made as lessee or sublessee under the terms of any
Lease or other lease agreement, including without limitation
11<PAGE>
fixed rent, participation rent and additional rent in respect of
(a) operating expenses, (b) taxes based on the ownership of real
property, (c) insurance premiums and/or (d) any other costs or
expenses of the relevant lessor or sublessor, and (iii) scheduled
payments of principal of Indebtedness or payments of amounts
equivalent to principal, in each case of such Person, for such
period and attributable to such Properties and/or Mortgaged
Properties.
"GAAP" means, subject to the provisions of Section 1.2,
generally accepted accounting principles set forth in the
Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements by the
Financial Accounting Standards Board or in such other statement
by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the
circumstances as of the date in question; and the requirement
that such principles be applied on a consistent basis shall mean
that the accounting principles observed in a current period are
comparable in all material respects to those applied in a
preceding period.
"GBP" shall mean the lawful currency from time to time
of the United Kingdom.
"General Corporate Loans" means Loans, the proceeds of
which are to be applied toward general corporate purposes of
Borrower or its Subsidiaries, as designated by Borrower pursuant
to a Notice of Borrowing.
"Governmental Authority" means any nation or
government, any state or other political subdivision thereof, and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or
Controlled (through stock or capital ownership or otherwise) by
any of the foregoing.
"Hazardous Material" means (i) any chemical, material,
substance or waste defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous waste," "restricted hazardous
waste," or "toxic substances" or any other formulations intended
to define, list or classify substances by reason of deleterious
properties under any applicable Environmental Laws,
(ii) biomedical waste, (iii) any oil, petroleum or petroleum
derived substance, any drilling fluids, produced waters and other
wastes associated with the exploration, development or production
of crude oil, any flammable substances or explosives, any
radioactive materials, any toxic wastes or substances or any
other materials or pollutants which (a) pose a hazard to any
12<PAGE>
property of Borrower or any Operator or Mortgagor or any of their
respective Subsidiaries or to Persons on or about such property
or (b) cause such property to be in violation of any
Environmental Laws, (iv) asbestos in any form which is or could
become friable, urea formaldehyde foam insulation, electrical
equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per
million, and (v) any other chemical, material, substance or
waste, exposure to which is prohibited, limited or regulated by
any Governmental Authority or may or could pose a hazard to the
health and safety of the owners, occupants or any Persons
surrounding the Facilities.
"HRPT Advisors" means HRPT Advisors, Inc., a Delaware
corporation.
"IDFA Indebtedness" means the Indebtedness, in an
aggregate principal amount not to exceed $17,700,000 plus accrued
interest thereon, existing pursuant to (a) that certain Loan
Agreement dated as of April 15, 1991 between the Illinois
Development Finance Authority and Marriott Retirement
Communities, Inc. and relating to the Illinois Development
Finance Authority Revenue Refunding Bonds Series 1991A, and (b)
that certain Loan Agreement dated as of April 15, 1991 between
the Illinois Development Finance Authority and Marriott
Retirement Communities, Inc. and relating to the Illinois
Development Finance Authority Revenue Refunding Bonds Series
1991B, which Indebtedness was assumed by Borrower's wholly-owned
Subsidiary Church Creek Corporation, a Massachusetts corporation,
pursuant to that certain Purchase Agreement dated March 17, 1994
among HMC Retirement Properties, Inc., HMH Properties, Inc. and
Borrower and (without duplication) the letter of credit
obligations with respect to which such Indebtedness was
guaranteed by Borrower.
"Income Before Extraordinary Items" means, for any
period and any Person in respect of one or more Properties and/or
Mortgaged Properties as to which such Person is the Operator or
Mortgagor thereof, the net income (or loss) of such Person for
such period attributable to such Properties and/or Mortgaged
Properties, excluding any extraordinary items (net of taxes) and
including amounts paid or provided for income taxes or deferred
income taxes by or on behalf of such Person attributable to such
Properties and/or Mortgaged Properties, all as determined in
conformity with GAAP and Section 1.3(a).
"Indebtedness" means, with respect to any Person, and
without duplication and determined in accordance with Section
1.3(a), (i) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money or
13<PAGE>
other extensions of credit or evidenced by bonds, debentures,
notes or similar instruments (whether or not the recourse of the
lender is to the whole of the assets of such Person or to only a
portion thereof), (ii) all reimbursement obligations and other
liabilities (contingent or otherwise) of such Person with respect
to letters of credit or bankers' acceptances issued for the
account of such Person or with respect to interest rate
protection agreements or securities repurchase agreements or
currency exchange agreements or similar or analogous hedging or
derivative agreements or instruments, (iii) all obligations and
other liabilities (contingent or otherwise) of such Person with
respect to any conditional sale, installment sale or other title
retention agreement, purchase money mortgage or security
interest, or otherwise to pay the deferred purchase price of
property or services (except trade accounts payable and accrued
expenses arising in the ordinary course of business) or in
respect of any sale and leaseback arrangement, (iv) all
Capitalized Lease Obligations of such Person, (v) all Contingent
Obligations of such Person, (vi) all surety and other bonds and
deposits, and all obligations and other liabilities secured by a
Lien or other encumbrance on any asset of such Person (even
though such Person has not assumed or otherwise become liable for
the payment thereof), and (vii) all obligations to purchase,
redeem or acquire any capital stock of such Person or its
Subsidiaries that, by its terms or by the terms of any security
into which it is convertible or exchangeable, is, or upon the
happening of any event or the passage of time would be, required
to be redeemed or repurchased by such Person or its Subsidiaries,
including at the option of the holder, in whole or in part, or
has, or upon the happening of an event or passage of time would
have, a redemption or similar payment due, on or prior to the
fifth anniversary of the date hereof or, if later, the date which
is two years after the due date for the final repayment of the
Loans as specified in any amendment of this Agreement.
"Independent Trustees" has the meaning set forth in the
Declaration of Trust.
"Insolvency Event", with respect to any Person, means
that (i) such Person shall have suspended or discontinued its
business or commenced any case, proceeding or other action
(A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets,
or such Person shall have made a general assignment for the
benefit of its creditors; or (ii) there shall have been commenced
14<PAGE>
against such Person any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded
for a period of 60 days; or (iii) there shall have been commenced
against such Person any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its
assets, which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed
or bonded pending appeal within 60 days from the entry thereof;
or (iv) such Person shall have taken any action in furtherance
of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii) or (iii) above;
or (v) such Person shall generally not be paying, or shall have
been unable to pay, or shall have admitted in writing its
inability to pay, its debts as they become due.
"Interest Charges" of a Person for any period means the
sum of (i) the aggregate interest accrued and payable in cash,
securities or otherwise on all Indebtedness of such Person and
its Subsidiaries, if any, on a consolidated basis for such
period, plus (ii) the aggregate amount of debt discount or other
amounts analogous to interest accruing during or attributable to
such period, whether or not payable during such period, including
without limitation all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under (a)(i) interest rate
swap agreements, interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person and/or
its Subsidiaries against fluctuations in interest rates; and(b)
foreign exchange contracts and other agreements or arrangements
designed to protect such Person and/or its Subsidiaries against
fluctuations in currency values, all amounts calculated above to
be determined in conformity with GAAP and in accordance with
Section 1.3(a).
"Interest Payment Date" means, subject to Section 2.10
hereof, (i) in the case of a Eurodollar Loan, the last day of
each Interest Period (or if any such day is not a Business Day,
the next succeeding Business Day), provided that in the case of
each Interest Period of more than three months duration,
"Interest Payment Date" shall also include each date that is
three months, or an integral multiple thereof, after commencement
of such Interest Period; and (ii) in the case of an Alternate
Rate Loan or Base Rate Loan, the last Business Day of March,
June, September and December of each year and the date such Loan
(or any portion thereof) is converted in accordance with the
terms hereof into a Base Rate Loan or Eurodollar Loan, in the
case of an Alternate Rate Loan, or an Alternate Rate Loan or
Eurodollar Loan, in the case of a Base Rate Loan.
15<PAGE>
"Interest Period" means with respect to each Eurodollar
Loan, and subject to Section 2.10 hereof, a one, two, three or
six month period (or such other period of less than six months as
shall be agreed by all the Lenders) as selected at the option of
Borrower pursuant to a Notice of Borrowing or Notice of
Continuation; provided that:
(i) no Interest Period may be selected which expires
later than the Termination Date;
(ii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day with respect
to which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall,
subject to the foregoing proviso, end on the last Business
Day of a calendar month;
(iii) in the case of immediately successive Interest
Periods applicable to a Eurodollar Loan continued as such
pursuant to a Notice of Continuation, each successive
Interest Period shall commence on the day on which the next
preceding Interest Period expires;
(iv) there shall be no more than eight Interest Periods
outstanding at any one time; and
(v) in the event Borrower fails to specify an Interest
Period for any Loan in the applicable Notice of Borrowing or
Notice of Continuation, Borrower shall be deemed to have
selected an Interest Period of one month.
"Interest Rate Determination Date" means each date for
calculating the LIBO Rate for purposes of determining the
interest rate in respect of an Interest Period. For a Eurodollar
Loan, the Interest Rate Determination Date for such Loans
denominated in U.S. Dollars shall be the second Business Day
prior to the first day of the related Interest Period, while the
Interest Rate Determination Date for such Loans denominated in
GBP shall be the first day of the related Interest Period.
"Kleinwort Benson" means Kleinwort Benson Limited, a
bank organized and existing under the laws of England.
"Lease Guarantees" means each guarantee, letter of
credit or other similar undertaking issued by any Person in
respect of any of the obligations of an Operator under a Lease.
"Lease Guarantors" means the obligors in respect of the
Lease Guarantees, and each of them.
"Leasehold Interests" means any leasehold estate in any
land and/or any buildings, structures, improvements and fixtures
16<PAGE>
owned beneficially by Borrower or any of its Subsidiaries and all
equipment located thereon or used in connection therewith and all
personalty (including, without limitation, franchises) related
thereto, owned beneficially by Borrower or any of its
Subsidiaries.
"Leases" means any leases or subleases relating to the
Properties in respect of which Borrower of any of its
Subsidiaries is the lessor.
"Lender" has the meaning set forth in the first
paragraph of this Agreement.
"Lending Office" means the branch or Affiliate office
or offices of each Lender designated as the Lending Office(s) of
such Lender on Schedule 1 and each other branch or Affiliate
office as such Lender may designate as its Lending Office(s) from
time to time by notice to Agent and Borrower.
"LIBO Rate" means the average (expressed as a
percentage and rounded to the nearest one ten thousandth of one
percent) of the offered rates, if any, quoted by the Reference
Banks to Administrative Agent in the London interbank market for
U.S. Dollar or GBP (as applicable) deposits of amounts comparable
to the principal amount of the Loans for which the LIBO Rate is
being determined with maturities comparable to the Interest
Period for which such LIBO Rate will apply as of approximately
11:00 A.M. (London time) on the Interest Rate Determination Date
for such Interest Period.
"Lien" means, as to any Person, any mortgage, lien
(statutory or otherwise), pledge, adverse claim, charge, security
interest, assignment, deposit agreement or other encumbrance in
or on, or any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional
sale or other title retention agreement or Capitalized Lease
Obligation with respect to any property or asset of such Person,
or the signing or filing of a financing statement which names
such Person as debtor, or the signing of any security agreement
authorizing any other party as the secured party thereunder to
file any financing statement.
"Loan Agents" has the meaning set forth in Section
8.1(a).
"Loan Documents" means, collectively, this Agreement
(including, without limitation, the guaranties in Section 9), the
Notes and any other agreements, documents or instruments
delivered pursuant to or in connection with any of the foregoing,
as such agreements, documents or instruments may be amended,
17<PAGE>
modified or supplemented from time to time.
"Loans" means the Existing Loans and the revolving
loans made or to be made to Borrower by the Lenders hereunder.
"MAC" means, with respect to any Property or Mortgage
Interest, any material adverse effect on or change in (a) the
business, operations, assets, prospects or financial condition or
other condition of (i) such Property or (ii) such Mortgage
Interest or (iii) any Operator of such Property or (iv) any
Mortgagor of such Mortgage Interest or (v) any Credit Support
Obligor of such Property or Mortgage Interest, (b) Agent's,
Administrative Agent's or any Lender's rights and remedies under
the Loan Documents, or (c) the ability of (i) any Operator of
such Property or (ii) any Mortgagor of such Mortgage Interest or
(iii) any Credit Support Obligor of such Property or Mortgage
Interest to perform its obligations under the Loan Documents or
under the Leases, the Mortgage Interest Agreements or the Credit
Support Agreements in respect of such Property or Mortgage
Interest.
"Majority Lenders" means, at any particular time,
Lenders having more than 66-2/3% of the Commitments, or if the
Commitments have been terminated at such time, Lenders having
more than 66-2/3% of the aggregate principal amount of the Loans
then outstanding.
"Mandatory Liquid Asset Costs" means, in relation to
each Lender which may be subject to such requirements, the
additional cost to such Lender of complying with the relative
reserve asset ratio required by the Bank of England from time to
time (if any), expressed as a percentage per annum and calculated
as set forth in Schedule 5.
"Material Adverse Effect" means a material adverse
effect on or change in (a) the business, operations, assets,
prospects or financial condition or other condition of
(i) Borrower and its Subsidiaries taken as a whole or (ii) the
Advisor or (iii) the Properties and Mortgage Interests taken as a
whole, (b) Agent's, Administrative Agent's or any Lender's rights
and remedies under the Loan Documents, (c) the ability of
(i) Borrower or any of its Subsidiaries or (ii) the Advisor to
perform its respective obligations under the Loan Documents, the
Advisory Agreement, the Leases, the Mortgage Interest Agreements
or the Credit Support Agreements, or (d) the ability of the
Operators, Mortgagors and Credit Support Obligors (taken as a
whole) to perform their obligations under the Leases, the
Mortgage Interest Agreements and the Credit Support Agreements
insofar as they relate to Eligible Properties and Eligible
Mortgages.
"Mortgage Guarantees" means each guarantee, letter of
18<PAGE>
credit or other similar undertaking issued by any Person in
respect of any of the obligations of a Mortgagor under a Mortgage
Interest Agreement.
"Mortgage Guarantors" means the obligors in respect of
the Mortgage Guarantees, and each of them.
"Mortgage Interest" means any interest of Borrower or
any of its Subsidiaries as lender and as mortgagee or
beneficiary, as applicable, in respect of a loan secured in whole
or in part by a Lien on any land or any buildings, structures,
improvements and fixtures (including any leasehold estate with
respect thereto).
"Mortgage Interest Agreement" means any agreement,
note, mortgage, deed of trust and/or other document creating,
evidencing or securing a Mortgage Interest.
"Mortgaged Property" means any land and any building,
structure, improvements and fixtures (including any leasehold
estate with respect thereto) with respect to which Borrower or
any of its Subsidiaries has a Mortgage Interest.
"Mortgagor" means, in the case of a Mortgage Interest,
the obligor or obligors in respect of such Mortgage Interest.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which Borrower or any
ERISA Affiliate is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years
made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit
plan, other than a Multiemployer Plan, subject to Title IV of
ERISA to which Borrower or any ERISA Affiliate, and at least one
employer other than Borrower or an ERISA Affiliate, is making or
accruing an obligation to make contributions or, in the event
that any such plan has been terminated, to which Borrower or any
ERISA Affiliate made or accrued an obligation to make
contributions during any of the five plan years preceding the
date of termination of such plan.
"Net Mortgage Proceeds" means (a) any amounts paid,
other than scheduled repayments, by a Mortgagor to Borrower or
any of its Subsidiaries under an agreement, evidencing or
securing any interest of Borrower or such Subsidiary as lender
and as mortgagee or beneficiary, as applicable, in respect of a
loan secured in whole or in part by a Lien on a Facility, in
respect of principal thereunder, plus (b) the gross proceeds
received by or for the account of Borrower or such Subsidiary of
any sale or other disposition of any such agreement, minus (c)
19<PAGE>
the reasonable out-of-pocket fees and expenses (including
attorneys' fees and expenses) incurred by Borrower or such
Subsidiary in connection with such sale or other disposition.
"Net Property Proceeds" means (a) the gross proceeds
received by or for the account of Borrower or any of its
Subsidiaries of any sale, lease or other disposition of any Fee
Interest or Leasehold Interest or termination or substitution of
any lease or sublease with respect to any Fee Interest or
Leasehold Interest of Borrower or any of its Subsidiaries, minus
the reasonable out-of-pocket fees and expenses (including
attorneys' fees and expenses) incurred by Borrower or such
Subsidiary in connection with such sale or other disposition, (b)
all insurance proceeds paid and received by or for the account of
Borrower or such Subsidiary on account of the loss of or damage
of any such Fee Interest or Leasehold Interest, to the extent
such proceeds are not applied to the replacement or restoration
of such assets and (c) all proceeds received by or for the
account of Borrower or such Subsidiary, arising from the taking
by condemnation or eminent domain of any such Fee Interest or
Leasehold Interest, to the extent such proceeds are not applied
to the replacement or restoration of such assets.
"Net Securities Proceeds" with respect to any private
or public offering of securities or any borrowing from one or
more financial institutions means the gross proceeds thereof
received by or for the account of Borrower net of
(a) underwriting discounts and commissions and (b) reasonable
out-of-pocket fees and expenses incurred in connection with such
offering or borrowing; provided that such proceeds shall not
include proceeds from borrowings (or from refinancing of such
borrowings) from financial institutions which are applied
substantially contemporaneously with the borrowing thereof to the
acquisition of one or more Facilities but no later than two
Business Days after such borrowing.
"Notes" has the meaning set forth in Section 2.2.
"Notice of Borrowing" means a notice substantially in
the form of Exhibit B hereto delivered by Borrower to
Administrative Agent (with a copy to Agent to follow) pursuant to
Section 2.3 with respect to a proposed borrowing.
"Notice of Continuation/Conversion" means a notice
substantially in the form of Exhibit C hereto delivered by
Borrower to Administrative Agent (with a copy to Agent to follow)
pursuant to Section 2.5 with respect to a continuation or
conversion of one or more Loans.
"Operators" in respect of a Facility, means the lessee
or sublessee (other than Borrower or any of its Subsidiaries)
thereof.
20<PAGE>
"Outstanding" means, when used with reference to the
Notes as of a particular time, all Notes theretofore issued as
provided in this Agreement, except (i) Notes theretofore reported
as lost, stolen, damaged or destroyed, or surrendered for
transfer, exchange or replacement, in respect of which
replacement Notes have been issued, (ii) Notes theretofore paid
in full, and (iii) Notes theretofore duly cancelled by Borrower;
and except that, for the purpose of determining whether holders
of the requisite principal amount of Notes have made or concurred
in any waiver, consent, approval, notice or other communication
or matter under this Agreement, Notes held or owned by Borrower
or any Affiliate of Borrower, shall not be deemed to be
outstanding.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA, or any
successor to the responsibilities of such corporation.
"Permitted Exceptions" means those exceptions to title
set forth on Schedule 2.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan" means an employee benefit plan, other than a
Multiemployer Plan, maintained for or covering any employees of
Borrower or any ERISA Affiliate and subject to Title IV of ERISA.
"Pledges" means any pledge or grant of a Lien to secure
any of the obligations of a Mortgagor under a Mortgage Interest
Agreement, an Operator under a Lease, a Mortgage Guarantor under
a Mortgage Guarantee, a Lease Guarantor under a Lease Guarantee
or a Sublessee under a Sublease Agreement, each as amended,
supplemented or modified from time to time.
"Pledgors" means the obligors in respect of the
Pledges, and each of them.
"Preferred Shares" means Borrower's preferred shares of
beneficial interest authorized under the Declaration of Trust.
"Primary Credit Support Obligor" means each Credit
Support Obligor in respect of obligations of a Primary
Operator/Mortgagor.
"Primary Operator/Mortgagor" means any Operator and/or
Mortgagor which is a lessee or sublessee with respect to
Facilities and/or an obligor or mortgagor with respect to
Mortgage Interests or Facilities representing, in aggregate, 10%
or more of the aggregate Allowed Value of the Properties and
21<PAGE>
Mortgage Interests; provided that with respect to property
interests located in the United Kingdom, every Operator and every
Mortgagor shall be deemed to be a "Primary Operator/Mortgagor" .
"Process Agent" has the meaning set forth in
Section 10.2.
"Property" or "Properties" means each of the Facilities
in which Borrower or any of its Subsidiaries has a Fee Interest
or Leasehold Interest.
"Pro Rata Share" means, with respect to each Lender as
of the date of determination, the percentage obtained by dividing
(i) the Commitment of that Lender as of such date by (ii) the
Commitment of all Lenders as of such date; provided that if the
Commitments have been terminated at such time, such Pro Rata
Share shall be the percentage obtained by dividing (i) the
aggregate amount of the Loans outstanding from that Lender as of
such date by (ii) the aggregate amount of the Loans outstanding
from all Lenders as of such date; and provided further that with
respect to Agent and The Daiwa Bank, Limited this definition
shall be subject to the modification described in Section 2.3(c)
with respect to Loans denominated in GBP for the period of time
described therein, but not otherwise.
"Psychiatric Care Asset" means, in respect of any
Property or Mortgage Interest, that more than 50% of the licensed
beds of the Property or, in the case of a Mortgage Interest, of
the Mortgaged Property covered thereby, are designated for
psychiatric treatment.
"Real Property" has the meaning set forth in Section
5.12.
"Real Property Permit" means, in respect of any
Property or Mortgaged Property, all certificates of occupancy,
permits, licenses, franchises, approvals and authorizations from
all Governmental Authorities having jurisdiction over such
Property or Mortgaged Property or any portion thereof, the
absence of which could materially impair the use of such Property
or Mortgaged Property for the purposes for which it is currently
used, and from all insurance companies and fire rating and
similar boards and organizations required to have been issued to
Borrower or any of its Subsidiaries or the Operator (in the case
of a Property) or the Mortgagor (in the case of a Mortgaged
Property) to enable such Property or Mortgaged Property or any
portion thereof to be lawfully occupied and used as currently so
occupied or used.
"Real Property Statement" means a certificate of a
Responsible Officer providing each of the following:
22<PAGE>
(i) a list of all Facilities owned by Borrower and its
Subsidiaries or in which Borrower or any such Subsidiary has
an interest at the date of such certificate, identifying the
nature of such interest and certifying the Appraised Value,
if available, and each of the other costs, values and prices
referred to in the definition of "Allowed Value" relating to
each Facility;
(ii) specification in respect of each Facility of each
of the following:
(a) whether as of the date of such certificate
such Facility is an Eligible Property or a
Mortgaged Property covered by an Eligible
Mortgage;
(b) in respect of each Eligible Property, the
acquisition cost of Borrower or any of its
Subsidiaries in respect of such Eligible Property;
and
(c) in respect of each Eligible Mortgage, the then
outstanding principal amount due to Borrower or
any of its Subsidiaries from the relevant
Mortgagor in respect of such Eligible Mortgage;
(iii) with respect to each such Eligible Property
or Eligible Mortgage, certification as to the ratio of (A)
the Cash Flow of the Operator or Mortgagor thereof (as
applicable) over the four most recent financial quarters
(or, (y) if financial reporting for such Cash Flow is
provided on an annual basis, over its last reported
financial year, or (z) where Marriott International, Inc. is
the Operator or Mortgagor (but not in any event for a
Courtyard Lodging) and financial reporting for such Cash
Flow is not otherwise required to be provided to Borrower or
its Subsidiaries, over the last reported financial year as
certified by an officer of Marriott International, Inc. in a
certificate described in Section 5.2(b)(iii)) attributable
to that Eligible Property or Eligible Mortgage to its (B)
Fixed Charges over the same period for such Eligible
Property or Eligible Mortgage and, further, certification
that, with respect to each Eligible Property or Eligible
Mortgage, the details of cash flows of the Operator or
Mortgagor thereof used by Borrower in its calculations are
Current; provided that if such Eligible Property or Eligible
Mortgage is part of a group of Cross Guarantied Assets, in
addition to the certification required for each individual
Eligible Property or Eligible Mortgage, Borrower also shall
provide certification as to the ratio of (A) the Cash Flow
of the Operators or Mortgagors (as applicable) for such
group determined on an aggregate basis over their respective
23<PAGE>
four most recent financial quarters (or last reported
financial year or last certified financial year, as the case
may be) attributable to the group of Cross Guarantied Assets
to (B) their Fixed Charges over the same period for such
group of Cross Guarantied Assets; and
(iv) certification that there has been no MAC in
any of the circumstances set forth in Section 2.16(c), other
than, in each case, a MAC which has ceased to be in effect.
"Recognized Appraiser" means a qualified and recognized
professional appraiser as may be selected or approved by Agent
and Administrative Agent with the consent of Borrower, which will
not be unreasonably withheld, having at least five years' prior
experience in performing real estate appraisals in the geographic
area where the property being appraised is located, having a
recognized expertise in appraising properties operated as health
care or retirement facilities or hotel or other lodging
facilities; provided that if the property being appraised is
located in the United Kingdom, such appraiser will be selected or
approved by Agent with the consent of Borrower.
"Reference Banks" means Kleinwort Benson Limited and
Wells Fargo Bank, National Association.
"Rehabilitation Treatment Asset" means, in respect of
any Property or Mortgage Interest, that more than 50% of the
licensed beds of the Property or, in the case of a Mortgage
Interest, of the Mortgaged Property covered thereby, are
designated for rehabilitation treatment.
"Release" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal,
discharge, dispersal, leaching or migration of any Hazardous
Materials into the indoor or outdoor environment (including,
without limitation, the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the
movement of any Hazardous Material through the air, soil, surface
water, groundwater or property.
"Reportable Event" means a "reportable event" within
the meaning of Section 4043 of ERISA (other than a "reportable
event" for which the 30-day notice to PBGC requirement has been
waived by regulation of PBGC).
"Requirement of Law" means, as to any Person, any law,
treaty, rule or regulation, or judgment, order, directive or
other determination of any arbitrator or a court or other
24<PAGE>
Governmental Authority, in each case applicable to or binding
upon such Person or any of its properties or to which such Person
or any of its property is subject.
"Responsible Officer" means, with respect to any matter
(including financial matters), the president, chief executive
officer, chief financial officer, executive vice president or
treasurer of Borrower.
"Restricted Payment" means (a) every dividend or other
distribution of assets, properties, cash, rights, obligations or
securities paid, made, declared or authorized by Borrower or any
of its Subsidiaries (other than to Borrower) or in respect of any
of the Common Shares, the Preferred Shares or other equity
securities of Borrower, or any class of Borrower's equity
securities, or for the benefit of holders of any thereof in their
capacity as such and (b) every payment by or for the account of
Borrower or any of its Subsidiaries in connection with the
redemption, purchase, retirement, defeasance or other acquisition
of any Common Shares, Preferred Shares or other equity securities
of Borrower or options, warrants or other rights to acquire any
of Borrower's equity securities and (c) every payment (i) of
principal, interest, fees or other amounts in respect of any
Indebtedness of Borrower or any of its Subsidiaries to any
Affiliate of Borrower (provided that "Restricted Payment" shall
not include or prohibit any such payment in respect of
intercompany Indebtedness of any of Borrower's Subsidiaries
permitted under Section 6.8(d)), (ii) in respect of the
redemption, purchase, retirement, defeasance, or other
acquisition from an Affiliate of Borrower of any Indebtedness of
Borrower, or (iii) of fees in respect of advisory services
rendered to Borrower or any of its Subsidiaries by the Advisor
and (d) every direct or indirect investment by Borrower (by means
of capital contribution, advance, loan or otherwise) in an
Affiliate or any Person which becomes an Affiliate after or as a
result of such investment (but not including investments by
Borrower in its direct wholly-owned Subsidiaries), and (e) every
payment by or for the account of Borrower or any of its
Subsidiaries in connection with the redemption, purchase,
retirement, defeasance or other acquisition for value, directly
or indirectly, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of Indebtedness
which is subordinate in right of payment to the Loans or the
Notes.
"Solvent" means, with respect to any Person on a
particular date, that on such date (i) the fair value of the
property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent
liabilities, of such Person (whether or not required to be
reflected on a balance sheet prepared in accordance with GAAP),
25<PAGE>
(ii) the present fair salable value of the assets of such Person
is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become
absolute and matured, (iii) such Person is able to realize upon
its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal
course of business, (iv) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and
(v) such Person is not engaged in business or a transaction for
which such Person's property would constitute unreasonably small
capital after giving due consideration to the prevailing practice
in the industry in which such Person is engaged. In computing
the amount of contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount which, in
light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become
an actual or matured liability.
"Specified Subordinated Indebtedness" means
Indebtedness of any Person, the terms of which prohibit the
holder or any representative of the holder from exercising any
legal remedies or other creditor's rights (including without
limitation the filing of a petition in respect of such Person
under the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq.) thereunder
until all obligations (contingent or otherwise) of such Person to
Borrower under all Leases, Mortgage Interest Agreements and
Credit Support Agreements to which that Person is a party have
been indefeasibly satisfied in full.
"Sublease Agreement" means any agreement pursuant to
which a Person subleases all, or a material portion, of a
Property from an Operator, as such agreement is amended,
supplemented or modified from time to time.
"Sublessees" means the sublessees in respect of the
Sublease Agreements, and each of them.
"Subordination Agreement" means the amended and
restated subordination agreement, dated as of June 15, 1994,
among Administrative Agent, the Advisor and Borrower an executed
copy of which is annexed hereto as Exhibit D, as amended,
supplemented or modified from time to time in a manner not
inconsistent with the terms of the Existing Loan Agreement or
hereof.
"Subsidiary" means, as to any Person, a corporation,
partnership or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation,
26<PAGE>
partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries, or both, by such
Person.
"Tangible Net Worth" means, with respect to Borrower
and its Subsidiaries, the excess of total assets over total
liabilities of such Persons on a consolidated basis, such total
assets and total liabilities each to be determined in accordance
with GAAP and Section 1.3(a), consistent with those applied in
the preparation of the financial statements referred to in
Section 3.1; excluding, however, from the determination of total
assets (i) goodwill, organizational expenses, capitalized
software, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and
rights in any thereof, and other similar intangibles, (ii) all
prepaid expenses, deferred charges or unamortized debt discount
and expense, (iii) all reserves carried and not deducted from
assets, (iv) treasury stock and shares of beneficial interest and
capital stock, obligations or other securities of, or capital
contributions to, or investments in, any Subsidiary,
(v) securities which are not readily marketable, (vi) cash held
in a sinking or other analogous fund established for the purpose
of redemption, purchase, retirement, defeasance, acquisition or
prepayment of Common Shares, Preferred Shares or other equity
securities, capital stock or Indebtedness, (vii) any write-up in
the book value of any asset resulting from a revaluation thereof
subsequent to December 31, 1987, (viii) leasehold improvements
not recoverable at the expiration of a Lease (to the extent that
the useful life of such improvements is greater than the term of
such Lease), and (ix) any items not included in clauses (i)
through (viii) above which are treated as intangibles in
conformity with GAAP.
"Termination Date" means March 15, 1998.
"Termination Event" means (i) a Reportable Event or an
event described in Section 4062(e) of ERISA, or (ii) the
withdrawal of Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year in which it was a "substantial
employer", as such term is defined in Section 4001(a)(2) of
ERISA, or the incurrence of liability by Borrower or any ERISA
Affiliate under Section 4064 of ERISA upon the termination of a
Multiple Employer Plan, (iii) the filing of a notice of intent to
terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC under Section 4042 of
ERISA, (v) the withdrawal of Borrower or any ERISA Affiliate from
any Multiemployer Plan, or (vi) any other event or condition
which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to
administer, any Plan.
27<PAGE>
"Total Liabilities" of any Person means and includes,
as of any date as of which the amount thereof is to be
determined, without duplication (i) all items which in accordance
with GAAP would be required to be included on the liabilities
side of a consolidated balance sheet of such Person at such date
and (ii) to the extent not otherwise included in (i) above, all
Indebtedness of such Person as of such date, determined on a
consolidated basis and in accordance with Section 1.3(a).
"Trigger Date" has the meaning set forth in Section
5.14.
"Trigger Amount" has the meaning set forth in Section
5.14.
"United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland.
"U.S. Dollars" or "$" shall mean the lawful currency of
the United States of America.
1.2. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
meanings assigned to them herein when used in the Notes or any
certificate or other document made or delivered pursuant hereto,
unless otherwise defined therein.
(b) As used herein and in the Notes and other Loan
Documents, and any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not
defined in Section 1.1, and accounting terms partly defined in
Section 1.1 to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement, and section, schedule and exhibit references
are to this Agreement unless otherwise specified and, where
appropriate, the singular shall include the plural.
1.3 Certain Calculations: Mark-to Market
(a) Except in the circumstances set forth in Section
1.3(b), for the purposes of determining the amount of outstanding
Indebtedness, Total Liabilities or any other indebtedness,
obligations or liabilities of Borrower or any of its Subsidiaries
or any other Person, or the amount or value of any investments or
assets of or obligations owed to Borrower or any of its
Subsidiaries or any other Person, or the amount of any other item
included in income or cash flow statements of Borrower or any of
28<PAGE>
its Subsidiaries or any other Person (each of the foregoing being
a "Calculation Item"), if such Calculation Item is owed or
otherwise recorded or measured in GBP or any other currency other
than U.S. Dollars, the amount or value of the Calculation Item
shall be calculated in U.S. Dollars and shall be the amount of
U.S. Dollars that can be purchased with GBP or such other
currency calculated on the basis of Administrative Agent's spot
rate of exchange for the purchase of U.S. Dollars with GBP or
such other currency on the date such calculation is to be made;
provided that notwithstanding the continuous nature of certain
representations and covenants in this Agreement, unless requested
to do so by Agent or Administrative Agent or unless Borrower is
aware of any material currency movement or other circumstance
which would be reasonably likely to have an effect on its ability
to satisfy any such representation or covenant, Borrower shall
not be required to make such calculation with respect to such
representations and covenants at any time other than in
connection with the delivery of a Real Property Statement or the
delivery of the certificate of a Responsible Officer under
Section 5.2(b); provided further that even if not required to
make such calculations, nothing in this Section 1.3(a) shall be
construed to in any way limit Borrower's obligations to satisfy
all such representations and covenants in accordance with their
terms.
(b) Administrative Agent shall calculate the
Equivalent Amount of Loans denominated in GBP: (i) after any
Borrowing Date on which Loans are made such that the aggregate
principal amount of Loans outstanding exceeds 75% of the
Commitments and if requested by Agent or if Administrative Agent
in the reasonable exercise of its judgment considers it desirable
to make such calculation to monitor compliance by Borrower with
the limits set forth in Section 2.1, once each Business Day or
otherwise as often as Administrative Agent considers it desirable
or necessary to make such calculation and Administrative Agent
shall notify Borrower and Agent if, based on such calculation,
Borrower is in compliance with the requirements of Section 2.1 as
to the maximum aggregate outstanding principal amount of Loans
denominated in GBP or whether prepayment of the Loans is
necessary as required by Section 2.8(e); (ii) on any proposed
Borrowing Date to determine whether, after giving effect to a
proposed borrowing, Borrower will be in compliance with such
requirements of Section 2.1; (iii) on any proposed
continuation/conversion date under Section 2.5 to determine
whether, after giving effect to such proposed
continuation/conversion, Borrower will be in compliance with such
requirements of Section 2.1 and (iv) if any Loans denominated in
GBP are outstanding, from time to time as necessary for the
purpose of calculating the Commitment fees payable under Section
2.6(a); provided that any failure by Administrative Agent to
make such calculations or provide the information under this
Section 1.3(b) shall not affect the obligations of Borrower to
29<PAGE>
comply with the limits set forth in Section 2.1 or otherwise to
satisfy all representations and covenants made by it in this
Agreement.
SECTION 2. AMOUNT AND TERMS OF REVOLVING LOANS
2.1. Revolving Loans.
(a) Each Lender severally (and not jointly) agrees,
subject to the terms and conditions hereof, to continue the
Existing Loans outstanding on the Effective Date, to make Loans
to Borrower from time to time during the period from the
Effective Date to and including the Final Borrowing Date, and to
maintain its Loans outstanding to Borrower on the Final Borrowing
Date from such date until the Termination Date, up to an
aggregate amount (including, without limitation, the amount of
any Existing Loans) or the Equivalent Amount in GBP at any one
time not exceeding its Pro Rata Share of the aggregate
Commitments (as defined below) to be used for the purposes
identified in Section 2.11 ; provided that in no event shall the
aggregate outstanding principal amount of Loans denominated in
GBP at any time exceed the Equivalent Amount of $100,000,000 (as
determined in accordance with Section 1.3(b)). Each Loan
hereunder shall be made by Lenders in accordance with their
respective Pro Rata Share. Upon satisfaction of the conditions
set forth in Section 4, (i) all loans outstanding under the
Existing Loan Agreement as of, and at the time of, the Effective
Date ("Existing Loans") and all rights relating to the Existing
Loans and all other rights arising under the Existing Loan
Agreement and all documents relating thereto, except to the
extent specifically amended and restated by this Agreement, shall
be assigned (without any further action or authorization being
required) by the lenders under the Existing Loan Agreement to the
Lenders proportionately to their respective Pro Rata Shares of
the Commitments without recourse, representation or warranty
(except for representations and warranties made in this Section
2.1(a)) of any nature, express or implied, by any such lender and
such Existing Loans shall be continued and deemed to be Loans for
all purposes under this Agreement and (ii) each Lender shall pay
to Administrative Agent its Pro Rata Share of the Existing Loans
or, if less, the amount by which such Pro Rata Share exceeds its
outstanding Existing Loans (if any), for distribution to the
lenders under the Existing Loan Agreement that are not Lenders
and to the other Lenders that have funded such Loans, in
accordance with their respective Commitments, and each Lender's
share of the Existing Loans shall be adjusted accordingly. In
connection with such assignment, each Lender shall be deemed to
represent and warrant to each other Lender that (i) it is, and
will be on the Effective Date, prior to the assignment of its
interests pursuant to this Section 2.1(a), the legal and
beneficial owner of the interests being assigned and such
interests are, and will be on the Effective Date, free and clear
30<PAGE>
of any adverse claim and (ii) the total aggregate principal
amount and accrued interest, fees and other amounts due to such
Lender under the Existing Loan Agreement on March 15, 1995 are as
set forth on Schedule 3 annexed hereto. Any amounts of accrued
interest, commitment fees or other amounts (other than principal)
owed (whether or not presently due and payable) by Borrower to
the lenders under or in respect of the Existing Loans shall, as
of the Effective Date, be deemed to be due and payable to the
lenders under the Existing Loan Agreement. The continuation of
the Existing Loans hereunder shall not be deemed to be a
repayment thereof, and Borrower shall not be required to deliver
any notice of prepayment or notice of borrowing or to satisfy any
condition relating to minimum amounts of prepayments or minimum
amounts of borrowings hereunder with respect to such continuance
of the Existing Loans.
(b) Each Lender's commitment to make and maintain
Loans to Borrower pursuant to this Section 2.1 is herein called
its "Commitment" and such commitments of all Lenders in the
aggregate are herein called the "Commitments". The original
amount of each Lender's Commitment is set forth opposite its name
on Schedule 1 annexed hereto and the aggregate original amount of
the Commitments is $200,000,000; provided that up to an
Equivalent Amount of $100,000,000 may be made in Loans
denominated in GBP (as determined in accordance with Section
1.3(b)); provided further that the amount of the Commitments
shall be reduced from time to time by the amount of any
reductions thereto made pursuant to Section 2.7 (with a
proportionate reduction of the amount of the Commitments
otherwise available for the borrowing of Loans denominated in
GBP); provided further that Lenders shall have no obligation to
make or maintain Loans hereunder to the extent any such Loan
would (i) cause the aggregate amount of the Loans then
outstanding to exceed the Commitments or (ii) cause the aggregate
amount of the General Corporate Loans then outstanding to exceed
25% of the Commitments; and provided further that Lenders shall
have no obligation to make or maintain Loans denominated in GBP
hereunder to the extent any such Loan would cause the aggregate
amount of the Loans denominated in GBP then outstanding to exceed
the Equivalent Amount of $100,000,000 (as determined in
accordance with Section 1.3(b)).
(c) The foregoing notwithstanding, if prior to
September 30, 1995 an additional lender satisfactory to Borrower
and Agent shall execute and deliver to Borrower and Agent on
behalf of the parties hereto counterparts substantially in the
form of this Agreement, with the amount of such additional
lender's Commitment hereunder typed immediately below its
signature on such counterpart, upon notification of such
execution and delivery by Agent to the other parties hereto, such
additional lender shall become a Lender and its Commitment shall
31<PAGE>
be added to the aggregate Commitments for all purposes hereunder;
and if an existing Lender shall notify Borrower and Agent of its
agreement to increase its Commitment above its original
Commitment and such agreement is accepted by Borrower and Agent,
then upon notification thereof by Agent to the other parties
hereto (or, if later, upon the effective date for such increase
stated in such notification), in each case not later than
September 30, 1995, such existing Lender's Commitment shall be
increased as set forth in such notification; provided that no
such additional lender shall become a Lender (and no such
increase shall become effective) without the consent of Borrower
and all Lenders if such additional lender's Commitment (or such
increase) would make the aggregate Commitments exceed
$250,000,000. The other terms of this Agreement notwithstanding,
such additional lender or Lender increasing its Commitment shall,
on the first day thereafter which is the last day of an Interest
Period (or on such day if such day is the last day of an Interest
Period), pay to Administrative Agent (i) its Pro Rata Share of
the Loans then outstanding (if any) or, if less, the amount by
which such Pro Rata Share exceeds its outstandings hereunder (if
any), for distribution to the other Lenders that have funded such
Loans, in accordance with their respective Commitments, and all
rights of such other Lenders with respect to the Pro Rata Share
being assumed by such additional lender or the increased portion
thereof of an existing Lender shall be deemed assigned (without
any further action or authorization being required) to such
additional lender or increasing Lender without recourse,
representation or warranty, and each Lender's share of the
outstanding Loans shall be adjusted accordingly; and (ii) any
other amounts due from it on such date as a Lender hereunder.
(d) Each Lender's Commitment shall expire on the
Termination Date and all Loans and all other amounts owed
hereunder with respect to the Loans and the Commitments shall be
paid in full no later than that date.
(e) Subject to the other terms and conditions hereof,
Borrower may borrow under this Section 2.1, repay Loans in
accordance with Section 2.10 or prepay Loans in accordance with
Section 2.8 and reborrow the amounts so repaid under this Section
2.1.
2.2. Notes; Maturity Date. The Loans of each Lender
pursuant hereto shall be evidenced by, and be repayable with
interest in accordance with the terms of, a promissory note of
Borrower substantially in the form of Exhibit A, with appropriate
insertions, payable to the order of such Lender in the principal
amount of the Commitment of such Lender (together with any
replacement, modification, renewal or substitution thereof,
individually a "Note" and collectively, the "Notes"), which shall
be dated the Effective Date and be duly completed, executed and
delivered by Borrower. The Loans of each Lender pursuant hereto
32<PAGE>
shall be made and maintained by such Lender's Lending Office(s)
as designated by such Lender from time to time. All outstanding
Loans and each of the Notes shall mature and Borrower shall repay
the outstanding principal amount of such Loans and the Notes in
full together with all unpaid interest accrued thereon on the
Termination Date (or earlier as hereinafter provided) (or if such
day is not a Business Day, the next preceding Business Day) all
in accordance with Section 2.10(b), and shall be subject to
payment and prepayment as provided in Section 2.8 hereof. Each
Lender is authorized to endorse at any time the date and amount
of each Loan or conversion or continuation thereof, the date and
amount of each payment of principal with respect to its Loans and
whether its Loans are Base Rate Loans, Eurodollar Loans or
Alternate Rate Loans, on the schedule annexed to and constituting
a part of such Lender's Note, which endorsement shall constitute
prima facie evidence of the accuracy of the information endorsed.
2.3. Procedure for Borrowing.
(a) Whenever Borrower desires to borrow under Section
2.1, it shall deliver both a Notice of Borrowing and a Real
Property Statement to Administrative Agent (with a copy of each
to Agent) no later than 11:00 A.M. (New York time) in the case of
Base Rate Loans at least one Business Day and in the case of
Eurodollar Loans at least three Business Days in advance of the
proposed Borrowing Date. The Notice of Borrowing shall specify
(i) the proposed Borrowing Date (which shall be a Business Day),
(ii) whether such Loans are to be denominated in U.S. Dollars or,
subject to the limit in Section 2.1, GBP, (iii) the amount of the
Loans requested (which amount shall be in a minimum aggregate
amount of $1,000,000 and integral multiples of $500,000 in excess
of that amount if the Loans are to be denominated in U.S. Dollars
or a minimum aggregate amount of GBP 1,000,000 and integral
multiples of GBP 500,000 in excess of that amount if the Loans
are to be denominated in GBP), (iv) whether such Loans will be
Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans are
specified, the initial Interest Period requested for such
Eurodollar Loans, (v) Borrower's account at Administrative Agent
to which the net proceeds of the requested Loans are to be
credited, (vi) whether the requested Loans (or any portion
thereof) are to be General Corporate Loans and, if only a portion
thereof are so designated, the amount of such portion, (vii) that
the representations and warranties contained in the Loan
Documents are true, correct and accurate in all material respects
to the same extent as though made on and as of the date of such
Notice of Borrowing unless stated in the relevant Loan Document
to relate to a specific earlier date, in which case such
representations and warranties shall be true, correct and
complete in all material respects as of such earlier date,
(viii) that no event has occurred and is continuing or would
result from the proposed borrowing that would constitute a
Default or Event of Default, (ix) that the amount of the proposed
33<PAGE>
borrowing will not cause (A) the aggregate outstanding principal
amount of the Loans to exceed the Commitments currently in
effect, (B) the aggregate amount of the General Corporate Loans
then outstanding to exceed 25% of the Commitments or (C) the
aggregate amount of the Loans denominated in GBP then outstanding
to exceed the Equivalent Amount of $100,000,000 (as determined in
accordance with Section 1.3(b)), (x) that the proceeds of the
proposed borrowing (other than any proceeds of General Corporate
Loans) shall be used to make payment on the proposed Borrowing
Date for the purchase price and costs of acquiring interests in
one or more Facilities due and payable on such Borrowing Date and
(xi) with respect to the amount of such Loans which will not be
General Corporate Loans, the following:
(x) the name of the proposed Operators and/or
Mortgagors (as applicable) of the Facility or
Facilities to which such borrowing relates and any
Credit Support Obligors in relation thereto;
(y) the name and location of such Facility or
Facilities, the Appraised Value(s) thereof and each of
the other costs, values and prices referred to in the
definition of "Allowed Value" therefor, and a
description of the interests of Borrower or any of its
Subsidiaries therein to be acquired with the proceeds
of such borrowing; and
(z) if the proceeds of such Loan will be used to
acquire an interest in any Facility which interest is
required to be an Eligible Property or Eligible
Mortgage included in the calculation of Indebtedness
permitted under Section 6.8(a) after giving effect to
such Loan, certification to that effect.
In lieu of delivering the above-described Notice of
Borrowing, Borrower may give Administrative Agent telephonic
notice (which telephonic notice shall be followed
immediately with a notice by facsimile telecopy) by the time
specified for a Notice of Borrowing above; provided that
such notice shall be promptly confirmed in writing by
delivery of a Notice of Borrowing and a Real Property
Statement to Administrative Agent and Agent on or before the
applicable Borrowing Date; provided further that in the
event of a discrepancy between a Notice of Borrowing and
such telephonic notice, the telephonic notice shall govern.
Except as otherwise provided in Sections 2.13 and 2.14, a
Notice of Borrowing (or telephonic notice in lieu thereof as
provided above) shall be irrevocable, and Borrower shall be
bound to make the borrowing specified in such Notice of
Borrowing (or telephonic notice in lieu thereof as provided
above) in accordance therewith.
34<PAGE>
None of Agent, Administrative Agent or any Lender shall
incur any liability to any Person (including Borrower or any of
its Subsidiaries) in acting upon any telephonic notice referred
to above that Administrative Agent or Agent believes in good
faith to have been given by a duly authorized officer or other
Person authorized to borrow on behalf of Borrower or otherwise
acting in good faith under this Section 2.3, and upon funding of
Loans by Lenders in accordance with this Agreement pursuant to
any such telephonic notice Borrower shall have effected the
borrowing of such Loans hereunder.
(b) All Loans under this Agreement shall be made by
Lenders simultaneously and proportionately to their respective
Pro Rata Shares of the Commitments, it being understood that no
Lender shall be responsible for any default by any other Lender
in that other Lender's obligation to make Loans requested
hereunder nor shall the Commitment of any Lender to make Loans
requested hereunder be increased or decreased as a result of a
default by any other Lender in that other Lender's obligation to
make Loans requested hereunder. Promptly after receipt by
Administrative Agent of a Notice of Borrowing pursuant to Section
2.3(a) (or telephonic notice in lieu thereof followed immediately
with a notice by facsimile telecopy) and in any event not later
than 2:00 p.m. (New York time) on the preceding Business Day (in
the case of Base Rate Loans) or at least three Business Days (in
the case of Eurodollar Loans) in advance of the proposed
Borrowing Date, Administrative Agent shall notify each Lender of
the relevant details of the proposed borrowing. Each Lender
shall make the amount of its Loan available to Administrative
Agent, in immediately available funds, at the account specified
by Administrative Agent to the Lenders, not later than 11:00 A.M.
(New York time) on the Borrowing Date specified in the applicable
Notice of Borrowing. Upon satisfaction or waiver of the
applicable conditions precedent specified in Sections 4.1 and
4.2, Administrative Agent shall make the proceeds of such Loans
available to Borrower on such Borrowing Date by causing an amount
of immediately available funds equal to the proceeds of all such
Loans received by Administrative Agent from Lenders to be
credited to the account at Administrative Agent as specified by
Borrower in the Notice of Borrowing.
Unless Administrative Agent shall have been notified by
any Lender prior to the Borrowing Date for any Loans that such
Lender does not intend to make available to Administrative Agent
the amount of such Lender's Loan requested on such Borrowing Date
(and any such notice shall be without prejudice to any rights of
Borrower against such Lender hereunder), Administrative Agent may
assume that such Lender has made such amount available to
Administrative Agent on such Borrowing Date and Administrative
Agent may, in its sole discretion, but shall not be obligated to,
make available to Borrower a corresponding amount on such
Borrowing Date. If such corresponding amount is not in fact made
35<PAGE>
available to Administrative Agent by such Lender, Administrative
Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon, for each
day from such Borrowing Date until the date such amount is paid
to Administrative Agent, at the Base Rate in the case of Loans
denominated in U.S. Dollars or at the Alternate GBP Rate in the
case of Loans denominated in GBP. If such Lender does not pay
such corresponding amount forthwith upon Administrative Agent's
demand therefor, Administrative Agent shall promptly notify
Borrower and Borrower shall immediately pay such corresponding
amount to Administrative Agent together with interest thereon,
for each day from such Borrowing Date until the date such amount
is paid to Administrative Agent, at the Base Rate in the case of
Loans denominated in U.S. Dollars or at the Alternate GBP Rate in
the case of Loans denominated in GBP. Nothing in this Section
2.3 shall be deemed to relieve any Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that
Borrower may have against any Lender as a result of any default
by such Lender hereunder.
(c) (i) Notwithstanding the foregoing provisions of
this Section 2.3 and other references in this Agreement to the
obligations of Lenders to fund Loans in proportion to their
respective Pro Rata Shares, for a period of no more than 120 days
after the Effective Date The Daiwa Bank, Limited ("Daiwa") shall
not be required (unless it has notified Agent and Administrative
Agent of its ability to do so) to make Loans denominated in GBP;
provided that Agent shall fund all such Loans which would
otherwise be required to be made by Daiwa; provided further that
Agent shall only be required to make such fundings so long as it
is satisfied as to letter of credit or other guaranty, funding or
support arrangements provided by Daiwa with respect to such
additional fundings by Agent. If Agent is not, or ceases to be,
so satisfied and, in any event, at the end of the 120 day period
described above, Daiwa shall assume its obligations hereunder to
fund its Pro Rata Share of Loans denominated in GBP and shall be
subject to the provisions of Section 2.3(b) and any other
provisions relating to defaulting Lenders.
(ii) Subject to Section 2.3(c)(iii), payments of
principal or interest with respect to any additional fundings
made by Agent under this Section 2.3(c) shall be made to Agent
rather than to Daiwa for distribution between themselves as
separately agreed.
(iii) At the end of the 120 day period described in
Section 2.3(c)(i) (or earlier if Daiwa has notified Agent and
Administrative Agent of its ability to make Loans denominated in
GBP), Agent shall be deemed to have assigned to Daiwa all rights
and obligations with respect to any additional fundings made by
Agent under this Section 2.3 and not previously assumed by Daiwa
without recourse, representation or warranty of any nature,
36<PAGE>
express or implied, by Agent, and Daiwa shall be obliged to pay
to Agent all principal, accrued but unpaid interest and any other
amounts as owed to Agent with respect to such additional
fundings.
2.4. Interest.
(a) Generally. Each Loan shall be a Eurodollar Loan
or a Base Rate Loan as selected by Borrower initially at the time
a Notice of Borrowing is given pursuant to Section 2.3(a) or as
selected pursuant to Section 2.5 (or, in the case of any Existing
Loans, as in effect on the Effective Date), except for any
portion of a Eurodollar Loan which is converted to an Alternate
Rate Loan pursuant to Section 2.13 or 2.14. Loans shall bear
interest on the unpaid principal amount thereof from the date
made (or, in the case of any Existing Loans, from the Effective
Date) to maturity (whether by accelerations or otherwise), at the
interest rates specified as follows:
(i) in the case of a Eurodollar Loan, at an
interest rate per annum for and during each Interest
Period equal to the LIBO Rate for such Interest Period
plus the Applicable Margin in effect from time to time;
(ii) in the case of the Base Rate Loan, at an
interest rate per annum equal to the Base Rate in
effect from time to time plus the Applicable Margin in
effect from time to time; and
(iii) in the case of an Alternate Rate Loan
(including any Alternate GBP Rate Loan), at an interest
rate per annum equal to the Alternate Rate in effect
from time to time plus the Applicable Margin in effect
from time to time,
plus, in the case of any Loan denominated in GBP and made by
a Lender subject to such requirements, Mandatory Liquid Asset
Costs.
Borrower shall pay interest on the unpaid principal amount of the
Loans outstanding from time to time, in arrears, (i) on each
Interest Payment Date, (ii) on the Termination Date, (iii) in the
currency required by Section 2.10(b) and (iv) in accordance with
Section 2.4(b) (where applicable). In addition, Borrower shall
pay accrued interest on the principal amount of any Loans prepaid
in accordance with Section 2.8 on the date of any such
prepayment.
(b) Default Interest. If Borrower shall default in
the payment of the principal of or interest on any portion of a
37<PAGE>
Loan or any other amount becoming due hereunder or under any of
the Loan Documents, Borrower shall on demand from time to time
pay interest (to the extent permitted by law in the case of
interest on overdue interest) on such defaulted amount accruing
from and including the date of such default (without reference to
any period of grace) up to and including the date of actual
payment (after as well as before judgment) at a rate per annum
which is the sum of (i) two percent (2%) plus (ii) the greatest
of the LIBO Rate, the Alternate Rate or the Base Rate plus
(iii) the Applicable Margin. Interest under this Section 2.4(b)
shall be payable upon demand.
(c) Interest Determination. Upon determining the LIBO
Rate for each Interest Period, the Alternate Rate for any period
or the Base Rate in effect from time to time, Administrative
Agent shall promptly notify Borrower and Lenders thereof by
telephone (confirmed promptly in writing) or in writing. Such
determination shall, in the absence of manifest error, be
conclusive and binding upon Borrower and the Lenders.
2.5. Duration of Interest Period; Notice of
Continuation/Conversion.
(a) Borrower may, pursuant to the applicable Notice of
Borrowing or Notice of Continuation/Conversion, as the case may
be, select an Interest Period to be applicable to each Eurodollar
Loan.
(b) Subject to the provisions of Sections 2.13 and
2.14, Borrower shall have the option (i) to convert at any time
all or any part of outstanding Base Rate Loans to Eurodollar
Loans or (ii) upon the expiration of any Interest Period
applicable to Eurodollar Loans, to continue all or any portion of
such Loans as Eurodollar Loans or convert all or any portion of
such Loans to Base Rate Loans, as the case may be, and the
succeeding Interest Period(s) of such continued Loans shall
commence on the most recent Interest Payment Date therefor;
provided that Loans may be continued as, or converted into,
Eurodollar Loans with a particular Interest Period only in an
aggregate amount equal to $1,000,000 and integral multiples of
$500,000 in excess of that amount if the Loans are to be
denominated in U.S. Dollars or a minimum aggregate amount of GBP
1,000,000 and integral multiples of GBP 500,000 in excess of that
amount if the Loans are to be denominated in GBP (but subject
always to the determinations described in Section 1.3(b) and the
limits in Section 2.1 for Loans denominated in GBP); provided
further that Eurodollar Loans or any portion thereof may only be
converted into Base Rate Loans on the expiration date of the
Interest Period(s) applicable thereto; and provided further that
(i) no event has occurred and is continuing or would result from
such Loan continuation/conversion that would constitute a Default
or Event of Default, and (ii) the representations and warranties
38<PAGE>
contained in Section 3 shall be true, correct and complete in all
material respects on and as of the proposed continuation/
conversion date to the same extent as though made on and as of
that date unless stated in such section to relate to a specific
earlier date, in which case such representations and warranties
shall be true, correct and complete in all material respects as
of such earlier date. All conversions and continuations of Loans
shall be made simultaneously and on a pro rata basis by the
Lenders in accordance with their respective Pro Rata Shares.
Borrower shall deliver a Notice of Continuation/
Conversion to Administrative Agent (with a copy to Agent to
follow) no later than 11:00 A.M. (New York City time) at least
three Business Days in advance of the proposed continuation/
conversion date (in the case of a conversion to, or a
continuation of, Eurodollar Loans) or at least three Business
Days in advance of the proposed conversion date (in the case of a
conversion to Base Rate Loans). A Notice of
Continuation/Conversion shall specify (i) the proposed
continuation/conversion date (which shall be a Business Day),
(ii) the amount of the Loans to be continued/ converted,
(iii) the nature of the proposed continuation/ conversion,
(iv) in the case of a continuation of, or conversion to,
Eurodollar Loans, the requested Interest Period, (v) that the
representations and warranties contained in the Loan Documents
are true, correct and accurate in all material respects to the
same extent as though made on and as of the date of such Notice
of Continuation/Conversion unless stated in such Loan Documents
to relate to a specific earlier date, in which case such
representations and warranties shall be true, correct and
complete in all material respects as of such earlier date, and
(vi) that no event has occurred and is continuing or would result
from the proposed continuation/conversion that would constitute a
Default or Event of Default. In lieu of delivering the
above-described Notice of Continuation/Conversion, Borrower may
give Administrative Agent telephonic notice by the time specified
for delivery of a Notice of Continuation/Conversion above (which
telephonic notice shall be followed immediately with a notice by
facsimile telecopy); provided that in the event of a discrepancy
between a Notice of Continuation/Conversion and such telephonic
notice, such telephonic notice shall govern.
Promptly after receipt by Administrative Agent of a
Notice of Continuation/Conversion pursuant to this Section 2.5
(or telephonic notice followed immediately with a notice by
facsimile telecopy), and in any event not later than
2:00 p.m. (New York time) at least three Business Days in advance
of the proposed continuation/conversion date, Administrative
Agent shall notify each Lender of the relevant details of the
proposed continuation/conversion.
None of Agent, Administrative Agent or any Lender shall
39<PAGE>
incur any liability to any Person (including Borrower) in acting
upon any telephonic notice referred to above that Administrative
Agent or Agent believes in good faith to have been given by a
duly authorized officer or other person authorized to act on
behalf of Borrower or for otherwise acting in good faith under
this Section 2.5, and upon the continuation and/or conversion (as
applicable) of any Loan in accordance with this Agreement
pursuant to any such telephonic notice, Borrower shall have
effected a continuation and/or conversion (as applicable)
hereunder of such Loan.
Except as otherwise provided in Sections 2.13 and 2.14,
a Notice of Continuation/Conversion (or telephonic notice in lieu
thereof) shall be irrevocable from and after the giving thereof,
and Borrower shall be bound to effect a continuation and/or
conversion (as applicable) in accordance therewith.
2.6. Fees.
(a) Borrower shall pay to Administrative Agent for the
account of each Lender, in accordance with its Pro Rata Share of
the Commitments, a Commitment fee in an amount equal to one
quarter of one percent (0.25%) per annum of the average of the
daily excess of (i) such Lender's Commitment over (ii) the
aggregate amount of the Loans of such Lender outstanding from
time to time during the period from the date hereof to but
excluding the Final Borrowing Date (which aggregate amount of
Loans shall be determined in accordance with Section 1.3(b) when
Loans denominated in GBP are outstanding), payable in arrears on
(x) the last Business Day of March, June, September and December
of each year until the Final Borrowing Date and (y) the Final
Borrowing Date, such Commitment fee to accrue from the Effective
Date to and excluding the Final Borrowing Date and be payable in
U.S. Dollars as required by Section 2.10(b); provided that if, at
any date of determination, Borrower's long-term unsecured senior
debt is not rated BBB- or higher by Standard & Poor's Corporation
or Baa3 or higher by Moody's Investors Service, Inc. (or
similarly rated by any successor to either of such rating
services), then the Commitment fee otherwise payable shall be
increased by an additional one-eighth of one percent (0.125%) per
annum.
(b) Borrower shall on the date this Agreement is
delivered by the parties hereto pay to Administrative Agent for
Administrative Agent's own account and the account of each Lender
such fees in such amount as may have been agreed in writing
between Agent and Borrower.
(c) Borrower shall pay to Administrative Agent for its
account an annual administration fee payable in such amounts and
according to such terms as are set forth in a separate letter
agreement between Administrative Agent and Borrower, the first
40<PAGE>
such payment to be due on the date this Agreement is delivered by
the parties hereto.
2.7. Termination or Reduction of Commitment. Borrower
shall have the right, upon not less than five Business Days'
notice to Administrative Agent, to terminate the Commitments or,
from time to time, to reduce pro rata the amount of the
Commitments, to the extent, in either case, that the Commitments
are undrawn. Any such reduction shall be in an amount of
$1,000,000 or any integral multiple thereof and shall reduce
permanently the aggregate amount of the Commitments then in
effect, with a proportionate reduction of the amount of the
Commitments otherwise available for the borrowing of Loans
denominated in GBP.
2.8. Optional Prepayments; Mandatory Prepayments.
(a) Subject to Sections 2.8(f) and 2.15, Borrower may,
at its option, prepay any Loans on any Business Day in whole or
in part, without premium, upon at least three Business Days', in
the case of Eurodollar Loans, or one Business Day's, in the case
of Base Rate Loans, prior written notice to Administrative Agent,
specifying the amount of prepayment. Each notice of prepayment
pursuant to this clause (a) shall be irrevocable and the payment
amount specified in such notice shall be due and payable on the
date specified in the currency required by Section 2.10(b),
together with accrued interest to such date on the Loans and all
amounts (if any) payable pursuant to Section 2.15. Partial
prepayments of the Loans pursuant to this clause (a) shall be in
an aggregate principal amount of $1,000,000 (or GBP 1,000,000) or
integral multiples of $500,000 (or GBP 500,000) in excess of that
amount.
(b) In the event of any sale or other disposition of
any interest in any Facility, any Lease termination, or any other
event giving rise to Net Property Proceeds or Net Mortgage
Proceeds, within thirty days after the closing of any such sale
or other disposition, Lease termination or other event giving
rise to Net Property Proceeds or Net Mortgage Proceeds, Borrower
shall apply an amount equal to all of such Net Property Proceeds
and Net Mortgage Proceeds (other than any amount thereof required
and used to satisfy Indebtedness secured by a Lien, not
inconsistent with the terms of this Agreement, on the relevant
Properties or Mortgage Interests) to the prepayment of the Loans;
provided that with respect to a particular transaction or a
related series of transactions giving rise to Net Property
Proceeds or Net Mortgage Proceeds, prepayment of the Loans shall
be required from such Net Property Proceeds or Net Mortgage
Proceeds only to the extent that the same exceed $1,000,000.
(c) In the event of any (i) public or private offering
by or on behalf of Borrower of debt or equity securities issued
41<PAGE>
by Borrower or (ii) incurrence by Borrower of Indebtedness to one
or more financial institutions, within thirty days after such
offering or incurrence, Borrower shall apply all Net Securities
Proceeds arising from such offering or incurrence to the
prepayment of the Loans; provided that such Net Securities
Proceeds may, at Borrower's option, first be applied toward any
obligation of Borrower to repay any installment of principal on
any Indebtedness of Borrower at its stated maturity then or at
any time in the next thirty days due and owing.
(d) The Loans shall be subject to certain mandatory
prepayments pursuant to and upon the occurrence of the events
described in the provisions of Sections 2.13 and 2.14.
(e) If at any time the principal balance of the Loans
exceeds the Commitments, Borrower shall promptly (and in any
event no later than two Business Days after becoming aware
thereof) repay Loans to the extent necessary to reduce the
aggregate outstanding principal amount thereof to an amount that
is equal to or less than the Commitments. If at any time the
principal balance of the General Corporate Loans then outstanding
exceeds 25% of the Commitments, Borrower shall promptly (and in
any event no later than two Business Days after becoming aware
thereof) repay General Corporate Loans to the extent necessary to
reduce the aggregate outstanding principal amount thereof to an
amount that is equal to or less than 25% of the Commitments. If
at any time the principal balance of the Loans denominated in GBP
exceeds the Equivalent Amount of $100,000,000 (as determined in
accordance with Section 1.3(b)), Borrower shall promptly (and in
any event no later than two Business Days after becoming aware
thereof) repay Loans denominated in GBP to the extent necessary
to reduce the aggregate outstanding principal amount thereof to
an amount that is equal to or less than the Equivalent Amount in
GBP of $100,000,000; provided that, so long as no Default or
Event of Default has occurred and is continuing, any such
repayment of the Loans denominated in GBP may be made at the end
of the applicable Interest Periods on condition that Borrower
deposits with Administrative Agent cash in an amount equal to the
amount of the required prepayment at the time otherwise required
for prepayment (such amounts to be held as cash collateral by
Administrative Agent pending such repayment on terms satisfactory
to Agent, Administrative Agent and Borrower).
(f) Subject to the application of the payment
provisions of Section 2.10(a), any prepayments of the Loans
pursuant to this Section, Sections 2.13 or 2.14, or any other
provision of any Loan Document shall be applied first to any
amounts payable with respect thereto pursuant to Section 2.15,
second to the payment of accrued and unpaid interest on the
principal amount of outstanding General Corporate Loans up to and
including the date of prepayment, third, to the extent no General
Corporate Loans remain outstanding, to the payment of accrued and
42<PAGE>
unpaid interest on the principal amount of all other outstanding
Loans up to and including the date of prepayment, fourth to the
principal amount of such General Corporate Loans, and fifth to
the principal amount of all other outstanding Loans. Subject to
the requirements of the preceding sentence, Borrower may
designate the application of any prepayments, to be applied to
principal on the Loans, to the Eurodollar Loans, Base Rate Loans
and/or Alternate Rate Loans, as it may select, provided that if
Borrower does not designate such application, such prepayments
shall be applied (x) first to outstanding Base Rate Loans,
(y) second to outstanding Alternate Rate Loans and (z) third to
outstanding Eurodollar Loans.
2.9. Computation of Interest and Fees. Fees and other
amounts other than interest calculated on the basis of a rate per
annum shall be computed on the basis of a 360-day year for the
actual days elapsed. Interest on the Base Rate Loans (other than
any such interest the calculation of which is based on the
Federal Funds Rate) and interest on the Eurodollar Loans
denominated in GBP shall be computed on the basis of a 365-day
year for the actual days elapsed, while interest on the
Eurodollar Loans denominated in U.S. Dollars and interest on the
Alternate Rate Loans which do not bear interest at the Base Rate
shall be computed on the basis of a 360-day year for the actual
days elapsed.
2.10. Payments and Currency. (a) Except as
contemplated by this Agreement, the borrowing by Borrower from
the Lenders, each payment (including each prepayment) by Borrower
on account of principal, interest and fees required under
Sections 2.6(a) and (b), and any reduction of the amount of the
Commitments of the Lenders hereunder, shall be made for the
account of each Lender according to its Pro Rata Share; provided
that payments to the Lenders of interest based upon the Alternate
Rate shall be allocated appropriately to give effect to
differences among the Lenders' respective costs of funds. All
payments (including prepayments) by Borrower on account of
principal, interest, fees, costs, indemnities or other amounts
payable hereunder or under any of the Loan Documents shall be
made to Administrative Agent for the account of the applicable
Lenders (except for fees required under Section 2.6(c) which
shall be only for the account of Administrative Agent and Agent,
respectively) at the account of Administrative Agent specified in
Section 10.3(b) and in immediately available funds in the
currency required by Section 2.10(b). Each payment or prepayment
hereunder and under the Notes and the other Loan Documents shall
be made without set-off or counterclaim and free and clear of,
and without deduction for, any present or future withholding or
other taxes, duties or charges of any nature imposed on or
attributable to such payments or prepayments by or on behalf of
any Governmental Authority, except for any Excluded Taxes. If
any such taxes (other than any Excluded Taxes), duties or charges
43<PAGE>
(including, without limitation, any tax, duty or charge imposed
by Sections 1, 2 and/or 39 of the Massachusetts General Laws,
Chapter 63, as currently in effect or as amended hereafter or any
analogous provisions (or provisions having an analogous effect)
of the laws, rules or regulations (or interpretations thereof) of
Massachusetts or any other Governmental Authority) are so levied
or imposed on or are attributable to any such payment or
prepayment, Borrower will make additional payments in such
amounts as may be necessary so that the net amount received by a
Lender, after withholding or deduction for or on account of all
such taxes, duties or charges, will be equal to the amount
provided for herein or in such Lender's Note or in any of the
other Loan Documents. Whenever any taxes, duties or charges are
payable by Borrower with respect to or attributable to any
payments or prepayments hereunder or under any of the Notes or
any other Loan Document, Borrower agrees to furnish promptly to
Administrative Agent for the account of the applicable Lender
official receipts or copies thereof, if reasonably available,
evidencing payment of any such taxes, duties or charges so
withheld or deducted. If Borrower fails to pay any such taxes,
duties or charges when due to the appropriate taxing authority
after receipt of notice that any such taxes, duties or charges
are due, or fails to remit to Administrative Agent for the
account of the applicable Lender the customary evidence of
payment of any such taxes, duties or charges so withheld or
deducted, Borrower shall indemnify the affected Lender for any
incremental taxes, duties, charges, interest or penalties that
may become payable by such Lender as a result of any such
failure. During the continuance of any Default, Administrative
Agent may, but shall be under no obligation to, apply all
payments received by Administrative Agent from Borrower pursuant
to any of the Loan Documents in the following order of payment
regardless of the application designated by Borrower: first to
any interest owing under Section 2.4(b) or under any of the Loan
Documents other than interest owing on the Loans and the Notes
referred to below, second to any fees then payable to Agent,
Administrative Agent or the Lenders, third to any amounts owing
pursuant to Section 10.7, fourth to any amounts owing pursuant to
Sections 2.13, 2.14 or 2.15, fifth to any other sums (other than
principal on the Loans and the Notes and interest thereon
referred to below) owing under any of the Loan Documents, sixth
to any interest owing on the Loans and Notes and seventh to the
repayment of the principal of the Loans and the Notes as
designated by Administrative Agent; provided that if such
application is other than in accordance with any express
designation by Borrower, Administrative Agent shall promptly
notify Borrower of such application. Administrative Agent will
distribute each payment to the applicable Lenders promptly upon
receipt thereof (and in any event on the same Business Day as the
date when received, if such payment is received at or prior to
12:00 noon (New York time)). Each payment by Administrative
Agent to a Lender shall be made for the account of such Lender's
44<PAGE>
Lending Office as designated by such Lender to Administrative
Agent in writing from time to time. Whenever any payment to be
made hereunder or under any Loan Document, including, without
limitation, any principal of or interest on any Loan, shall
become due and payable, or whenever the last day of any Interest
Period would otherwise occur, on a day which is not a Business
Day, such payment shall be made and the last day of such Interest
Period shall occur on the next succeeding Business Day and such
extension of time shall in such case be included in computing
interest on such payment; provided that if such extension would
cause any such payment to be made in the next succeeding calendar
month, or the last day of such Interest Period to occur in the
next succeeding calendar month, such payment shall be made, and
the last day of such Interest Period shall occur, on the next
preceding Business Day.
(b) A repayment or prepayment of a Loan or any part of
a Loan is payable in the currency in which the Loan was
denominated at the time at which such Loan was made to Borrower
by Lenders. Interest in respect of a Loan is payable in the
currency in which the principal portion of the respective Loan in
respect of which it is payable is denominated. Fees in respect
of Commitments or otherwise hereunder shall be payable in U.S.
Dollars. Amounts payable in respect of costs, expenses and taxes
and the like are payable in the currency in which they are
incurred. Any other amount payable under this Agreement is,
except as otherwise provided in this Agreement, payable in U.S.
Dollars.
2.11. Use of Proceeds. The proceeds of the Loans
hereunder shall be used by Borrower (either directly or
indirectly through intercompany advances of such proceeds as
permitted under Section 6.8(d) to its Subsidiaries; provided
that Church Creek Corporation may not receive any such proceeds)
for (a) the acquisition of Properties; and (b) the acquisition or
funding of Mortgage Interests; provided that the General
Corporate Loans may be used by Borrower and its Subsidiaries for
their respective general corporate purposes; provided further
that the Existing Loans may be continued for the same purposes as
they were made under the Existing Loan Agreement, and shall not
be treated as General Corporate Loans.
2.12. Increased Costs.
(a) If any Requirement of Law or other event or
condition, or any amendment, modification or interpretation
thereof (including, without limitation, any request,
recommendation, guideline or policy, whether or not having the
force of law, of or from any central bank or other Governmental
Authority), in any such case, adopted, effective, made or issued
after the date hereof (but in any event including, without
limitation, Regulation D and Section 1, 2 and/or 39 of the
45<PAGE>
Massachusetts General Laws, Chapter 63 as currently in effect or
as amended hereafter or any analogous provisions (or provisions
having an analogous effect) of the laws, rules or regulations (or
interpretations thereof) of Massachusetts or any other
Governmental Authority) by any authority charged with the
administration or interpretation thereof:
(i) subjects Agent, Administrative Agent or any
Lender or any branch or Affiliate of Agent, Administrative
Agent or such Lender to any tax (except Excluded Taxes),
fee, deduction, duty, withholding, levy, impost or other
charge or reduction of any nature, on or with respect to, or
which Agent, Administrative Agent or such Lender in its sole
discretion deems applicable or attributable to this
Agreement, any Note, any of the other Loan Documents, its
Commitment or its pro rata share of the Loans, or interest,
fees or other amounts attributable thereto or to any of the
foregoing; or
(ii) changes the basis of taxation of payments to
any Lender or any branch or Affiliate of such Lender of
principal of and/or interest on such share of the Loans
and/or other fees and amounts payable hereunder or under any
of the Loan Documents or with respect hereto or thereto
(including in any event imposition of or change in any
withholding taxes, but excluding any Excluded Taxes); or
(iii) imposes upon, modifies, requires, makes or
deems applicable to any Lender, or any of its branches or
Affiliates, any regular, special, supplementary or other
reserve or deposit requirement, insurance assessment or
similar requirement against or affecting any assets held by,
or liabilities of, or deposits with or for the account of,
such Lender or such branch or Affiliate, with respect to or
which Agent or such Lender in its sole discretion deems
applicable or attributable to this Agreement, any Note, any
of the other Loan Documents, its Commitment or its pro rata
share of the Loans, or interest, fees or other amounts
attributable thereto or to any of the foregoing; or
(iv) imposes, modifies or deems applicable any
condition or requirement upon or causes in any manner the
addition of any supplement to, or increase of any kind to,
the capital or cost base of Agent, Administrative Agent or
any Lender or such branch or Affiliate, for extending or
maintaining its Commitment or its pro rata share of the
Loans which results in an increase in the capital
requirement supporting such Commitment or its pro rata share
of the Loans, or imposes upon, modifies, requires, makes or
deems applicable to Agent, Administrative Agent or such
Lender or any such branch or Affiliate any capital
requirement, increased capital requirement or similar
46<PAGE>
requirement, with respect to or which Agent, Administrative
Agent or such Lender in its sole discretion deems applicable
or attributable to this Agreement, any Note, any of the
other Loan Documents, its Commitment or its pro rata share
of the Loans, or interest, fees or other amounts
attributable thereto or to any of the foregoing; or
(v) imposes upon Agent, Administrative Agent or
any Lender or any branch or Affiliate of Agent,
Administrative Agent or such Lender any other conditions
with respect to, or allocable or attributable in good faith
by Agent, Administrative Agent or the Lender to, this
Agreement, any Note, any of the other Loan Documents or such
share of the Loans or its Commitment hereunder or such
interest, fees or other amounts;
and the result of any of the foregoing, based solely upon the
good faith determination and allocation by Agent, Administrative
Agent or any Lender, as the case may be, of costs, decreased
benefits and/or reduced amount of payments, is to increase the
cost or decrease the benefit, in any way, to Agent,
Administrative Agent or such Lender, as the case may be, or any
branch or Affiliate of Agent, Administrative Agent or such
Lender, as the case may be, of funding or maintaining its
Commitment or its share of the Loans hereunder, or to reduce the
amount of any payment (whether of principal, interest, or
otherwise) received or receivable by Agent, Administrative Agent
or such Lender, as the case may be, or any branch or Affiliate of
Agent, Administrative Agent or such Lender, as the case may be,
or to require Agent, Administrative Agent or such Lender, as the
case may be, or any branch or Affiliate of Agent, Administrative
Agent or such Lender, as the case may be, to make any payment,
then and in any such case:
(1) Agent, Administrative Agent or such Lender, as the
case may be, shall promptly notify Borrower and the other
Lenders in writing of the happening of such event;
(2) Agent, Administrative Agent or such Lender, as the
case may be, shall promptly deliver to Borrower and the
other Lenders a certificate stating the change or event
which has occurred or the reserve or capital requirements or
other conditions which have been imposed on Agent,
Administrative Agent or such Lender, as the case may be, or
branch or Affiliate of Agent, Administrative Agent or such
Lender, as the case may be, or the request, recommendation,
guideline or policy with which it has complied, together
with the date thereof, the amount of such increased cost,
decreased benefit or reduction payment; and
(3) Borrower shall pay Agent, Administrative Agent or
such Lender, as the case may be, promptly on demand such an
47<PAGE>
amount or amounts as:
(A) in the case of events referred to in clauses
(i), (ii), (iii) and (v) and, if applicable, clause
(iv) above, shall be sufficient to compensate it or
such branch or Affiliate for all such increased costs
and/or payments and/or decreased benefits, and/or
reduced amount of payment; and/or
(B) in the case of events referred to in clause
(iv) above, shall be an amount equal to the reduction,
as reasonably determined by Agent, Administrative Agent
or such Lender, as the case may be, in the after-tax
rate of return on Agent's, Administrative Agent's or
such Lender's capital resulting from any such capital
or increased capital or similar requirement, all as
certified by Agent, Administrative Agent or such Lender
or Lenders, as the case may be, in said written notice
to Borrower. Such certification shall be conclusive
and binding on Borrower absent manifest error.
The certificate of Agent, Administrative Agent or such
Lender as to the additional amounts payable pursuant to this
Section 2.12 delivered to Borrower shall constitute prima facie
evidence of the amount thereof. Agent, Administrative Agent and
each Lender agree to use reasonable efforts, as determined by
Agent, Administrative Agent or such Lender, as the case may be,
to avoid or minimize the payment by Borrower of any additional
amounts under this Section 2.12. The protection provided by this
Section 2.12 shall be available to Agent, Administrative Agent
and each Lender regardless of any possible contention of
invalidity or inapplicability of the Requirement of Law,
interpretation, recommendation, guideline, policy or event or
condition which has been imposed or has occurred. In the event
that after Borrower shall have paid any additional amount under
this Section 2.12 with respect to the Loans Agent, Administrative
Agent or such Lender shall have successfully contested such
Requirement of Law, interpretation, recommendation, guideline,
policy or event or condition then, to the extent that Agent,
Administrative Agent or such Lender will be placed in the same
position it was in prior to the incurrence of the increased cost
or reduction in amount received or receivable (on an after-tax
basis), but without giving effect to interest which may have been
earned on the additional amount paid by Borrower (but with
interest to the extent actually earned by Agent, Administrative
Agent or such Lender, as the case may be, on such amount as
determined by Agent, Administrative Agent or such Lender, as the
case may be), Agent, Administrative Agent or such Lender, as the
case may be, shall refund to Borrower such additional amount
(with such interest, if any).
48<PAGE>
2.13. Change in Law Rendering Eurodollar Loans or
Alternate Rate Loans Unlawful; Failure to Give Notice of
Continuation.
(a) Notwithstanding anything to the contrary herein
contained, in the event that any Requirement of Law or any change
in any existing Requirement of Law or in the interpretation
thereof by any Governmental Authority charged with the
administration thereof, in any case adopted, issued or effective
after the date hereof, (i) shall make it unlawful for any Lender
to fund any portion of the Eurodollar Loans or to give effect to
its obligations as contemplated hereby with respect to its making
or maintaining its pro rata share of the Eurodollar Loans, or
(ii) shall make it unlawful for any Lender to fund any portion of
the Alternate Rate Loans or to give effect to its obligations as
contemplated hereby with respect to its Commitment or making or
maintaining its pro rata share of the Alternate Rate Loans, such
Lender shall, upon the happening of such event, notify Agent,
Administrative Agent, the other Lenders and Borrower thereof in
writing stating the reason therefor and the effective date of
such event, and (x) upon the effectiveness of any such event
referred to in clause (i) above, the obligation of such Lender to
make or maintain its pro rata share of the Eurodollar Loans to
Borrower shall forthwith be suspended for the duration of such
illegality and during such illegality such Lender shall, upon
payment of any amounts owing under Section 2.15 with respect to
such conversion, convert its share of the Eurodollar Loans to
Alternate Rate Loans or (upon effectiveness of any such event
referred to in clause (ii) and during the continuance of such
event) Base Rate Loans in the case of Loans denominated in U.S.
Dollars or Alternate GBP Rate Loans in the case of Loans
denominated in GBP, and (y) upon the effectiveness of any such
event referred to in clause (ii), the obligation of such Lender
to make or maintain its pro rata share of the Alternate Rate
Loans to Borrower shall forthwith be suspended for the duration
of such illegality and during such illegality such Lender shall,
upon payment of any amounts owing under Section 2.15 with respect
to such conversion, convert its share of the Alternate Rate Loans
to Base Rate Loans in the case of Loans denominated in U.S.
Dollars or Alternate GBP Rate Loans in the case of Loans
denominated in GBP. If and when such illegality with respect
thereto ceases to exist, such suspension shall cease and such
affected Lender shall similarly notify Agent, Administrative
Agent, the other Lenders and Borrower and the Alternate Rate Loan
or Base Rate Loan or Alternate GBP Rate Loan into which such
share of the Eurodollar Loans or Alternate Rate Loans (as
applicable) was converted pursuant to this Section 2.13 shall be
reconverted to a Eurodollar Loan or Alternate Rate Loan,
respectively, on the first day of the next succeeding Interest
Period.
(b) If Borrower fails to give a valid Notice of
49<PAGE>
Continuation/Conversion in respect of any portion of a Eurodollar
Loan which is not repaid in accordance with the terms hereof at
the end of the relevant Interest Period in respect thereto, such
portion shall be converted automatically into Base Rate Loans in
the case of Loans denominated in U.S. Dollars or Alternate GBP
Rate Loans in the case of Loans denominated in GBP; provided that
if Borrower subsequently gives a valid Notice of
Continuation/Conversion in respect of such Base Rate Loans or
Alternate GBP Rate Loans, such Loans shall be converted into
Eurodollar Loans in accordance with the requirements for a
continuation/conversion under Section 2.5.
(c) If any Loan is converted to an Alternate Rate Loan
pursuant to this Section 2.13, Borrower and Lenders, acting
through Administrative Agent, shall enter into negotiations in
good faith with a view to agreeing upon a substitute basis for
determining the rate or rates of interest from time to time
applicable to such Loan, which shall be acceptable to each
Lender, and the rate or rates so determined shall constitute the
Alternate Rate for that Loan from the date of such conversion.
If, however, Borrower and Majority Lenders fail to agree to such
substitute basis within thirty (30) days after such conversion,
such Loan shall be deemed to have been converted to (i) in the
case of Loans denominated in U.S. Dollars, a Base Rate Loan, and
(ii) in the case of Loans denominated in GBP, an Alternate GBP
Rate Loan effective (in the case of clauses (i) and (ii)) from
the date of such conversion.
2.14. Eurodollar Availability. (a) In the event, and
on each occasion, that on the day two Business Days prior to the
commencement of any Interest Period for any Eurodollar Loans,
Administrative Agent shall have determined (which determination
shall, in the absence of manifest error, be conclusive and
binding upon Borrower) that U.S. Dollar or GBP (as the case may
be) deposits in the amount of the principal amount of the
Eurodollar Loans which is to have such Interest Period are not
generally available in the London interbank market, or that the
rate at which such U.S. Dollar or GBP (as the case may be)
deposits are being offered will not accurately reflect the cost
to any of the Lenders of making or funding such principal amount
of such Eurodollar Loans during such Interest Period, or that
reasonable means do not exist for ascertaining the LIBO Rate,
Administrative Agent shall, as soon as practicable thereafter,
give written or telephonic notice (which telephonic notice shall
be followed immediately with a notice by facsimile telecopy) of
such determination to Agent, the Lenders and Borrower and
(i) such principal amount of such Eurodollar Loans shall
automatically be converted, as of the last day of the Interest
Period during which such determination is made, to Alternate Rate
Loans subject to the last sentence of this paragraph and (ii) any
request by Borrower for such Eurodollar Loans pursuant to
Section 2.3 hereof shall thereupon, and until the circumstances
50<PAGE>
giving rise to such notice no longer exist (as notified by
Administrative Agent to Borrower and the Lenders), be deemed a
request for the making of Alternate Rate Loans. If at any time
Administrative Agent shall have determined (which determination
shall, in the absence of manifest error, be conclusive and
binding upon Borrower) that any contingency has occurred which
adversely affects the London interbank market or that any
Requirement of Law or any change in any existing Requirement of
Law or in the interpretation thereof or other circumstance
affecting the Lenders or the London interbank market makes the
funding of the Eurodollar Loans impracticable, Administrative
Agent shall, as soon as practicable thereafter, give written or
telephonic notice (which telephonic notice shall be followed
immediately with a notice by facsimile telecopy) of such
determination to Agent, the Lenders and Borrower and (i) the
Eurodollar Loans shall automatically be converted, as of the last
day of each Interest Period during which such determination is
made and in each case in respect of the principal amount of the
Eurodollar Loans having an Interest Period ending on such date,
to Alternate Rate Loans, subject to the last sentence of this
paragraph, and (ii) any request by Borrower for the Eurodollar
Loans pursuant to Section 2.3 hereof shall thereupon, and until
the circumstances giving rise to such notice no longer exist (as
notified by Administrative Agent to Borrower, Agent and the
Lenders), be deemed a request for the making of Alternate Rate
Loans. If, in the circumstances specified in this paragraph or
in Section 2.13, Administrative Agent determines that no
reasonable alternate source of funding for the Eurodollar Loans,
or no reasonable basis for determining the Alternate Rate, is
available or practicable, Administrative Agent shall promptly so
notify the other Lenders, Agent and Borrower thereof and any
notice of borrowing under Section 2.3 shall be deemed rescinded
and each principal amount of the Eurodollar Loans, if
outstanding, having an Interest Period then current, together
with all interest thereon, shall be due and payable by Borrower
on the last day of the Interest Period then applicable to it.
(c) If any Loan is converted to an Alternate Rate Loan
pursuant to this Section 2.14, Borrower and Lenders, acting
through Administrative Agent, shall enter into negotiations in
good faith with a view to agreeing upon a substitute basis for
determining the rate or rates of interest from time to time
applicable to such Loan, which shall be acceptable to each
Lender, and the rate or rates so determined shall constitute the
Alternate Rate for that Loan from the date of such conversion.
If, however, Borrower and Majority Lenders fail to agree to such
substitute basis within thirty (30) days after such conversion,
such Loan shall be deemed to have been converted to (i) in the
case of Loans denominated in U.S. Dollars, a Base Rate Loan, and
(ii) in the case of Loans denominated in GBP, an Alternate GBP
Rate Loan, effective (in the case of clauses (i) and (ii)) from
the date of such conversion.
51<PAGE>
2.15. Indemnities. Borrower shall indemnify each
Lender on demand for, from and against any actual loss
(including, without limitation, any loss of anticipated profits)
or expense (including but not limited to any loss or expense
sustained or incurred in liquidating or employing or redeploying
deposits from third parties acquired to effect or maintain any
Loan or any portion thereof) which such Lender or its branch or
Affiliate may sustain or incur as a consequence of (i) any
default in payment or prepayment of the principal amount of any
Loan or any portion thereof or interest accrued thereon, as and
when due and payable (at the due date thereof, by irrevocable
notice of payment or prepayment, or otherwise), (ii) the effect
of the occurrence of any Event of Default upon any Loan,
(iii) the payment or prepayment of any principal amount of any
Loan or the conversion of any portion of any Eurodollar Loan to
Alternate Rate Loans or Base Rate Loans on any day other than the
last day of an Interest Period or the payment of any interest on
such Loan, or portion thereof, on a day other than an Interest
Payment Date for the Loan or (iv) any failure of Borrower to
accept or make a borrowing of the Loans or continue or convert a
Loan after delivery of a notice requesting a Loan under Section
2.3 or, as the case may be, a notice requesting a continuation or
conversion under Section 2.5 or any failure by Borrower to
satisfy any of the conditions precedent to the making of Loans
hereunder after it has requested the borrowing thereof (other
than any such conditions that are waived in accordance with the
provisions hereof). The determination of each Lender of any
amount payable under this Section 2.15 shall, in the absence of
manifest error, be conclusive and binding upon Borrower.
2.16 Eligible Mortgages and Eligible Properties.
(a) "Eligible Mortgage" means each Mortgage Interest
where (i) the requirements of Section 2.16(c) in respect of such
Mortgage Interest are met, (ii) the Mortgagor in respect of such
Mortgage Interest is not in default under any payment obligation
or in any material respect under any other Contractual Obligation
between such Mortgagor and Borrower or any of its Subsidiaries,
including without limitation any Mortgage Interest Agreement, any
note payable by such Mortgagor to Borrower or any of its
Subsidiaries or any Lease, (iii) there has been no Cash Flow
Event with respect to such Mortgaged Property, (iv) no Credit
Support Obligor in respect of such Mortgage Interest is in
default under any payment obligation or in any material respect
under any other Contractual Obligation of such Credit Support
Obligor to Borrower or any of its Subsidiaries, including without
limitation any Lease, Mortgage Interest Agreement or Credit
Support Agreement, and (v) such Mortgage Interest is not subject
to a Lien otherwise permitted pursuant to Section 6.9(i) or 6.9
(iv).
(b) "Eligible Property" means each Property which is
52<PAGE>
leased to an Operator pursuant to a Lease approved in all
respects by Agent, provided (i) the requirements of Section
2.16(c) in respect of such Property are met, (ii) it is not a
Property the Operator of which has failed to exercise any renewal
option under the Lease thereof prior to the expiration of that
option (and no replacement Lease with that or another Operator
has been signed), (iii) such Operator is not in default under any
payment obligation or in any material respect under any other
Contractual Obligation between such Operator and Borrower or any
of its Subsidiaries, including without limitation such Lease, any
other Lease or any Mortgage Interest Agreement, (iv) there has
been no Cash Flow Event with respect to such Property, (v) no
Credit Support Obligor for the Lease of such Property is in
default under any payment obligation or in any material respect
under any other Contractual Obligation of such Credit Support
Obligor to Borrower or any of its Subsidiaries, including without
limitation any Lease, Mortgage Interest Agreement or Credit
Support Agreement, (vi) such Property is not subject to a Lien
otherwise permitted pursuant to Section 6.9(i) or 6.9 (iv), and
(vii) in the case of any Property which is a Courtyard Lodging,
either (y) the ratio of the Cash Flow of its Operator
attributable to that Property for the last period certified in a
Real Property Statement delivered pursuant to Section 5.2(b)(ii)
to its Fixed Charges over the same period for such Property is
equal to or greater than 1.25 to 1.00 or (z) such Property is
part of a group of Cross Guarantied Assets, and the ratio of the
Cash Flow attributable to all such Cross Guarantied Assets to
Fixed Charges for all such Cross Guarantied Assets is equal to or
greater than 1.25 to 1.00.
(c) No Mortgage Interest shall be an Eligible Mortgage
and no Property shall be an Eligible Property unless, on any
relevant date, there has been no MAC in respect of such (i)
Property (or any Operator or Credit Support Obligor for the Lease
thereof), or (ii) Mortgaged Property (or any Mortgagor or Credit
Support Obligor for the Mortgage Interest Agreements in respect
thereof), in each case since December 31, 1993 or, if later, the
date on which Borrower or any of its Subsidiaries acquired an
interest in such Property or Mortgaged Property other than, in
each case, a MAC which has ceased to be in effect; provided that
for the purposes of this Section 2.16, failure to comply with
clause (ii) of Section 5.5(a) in connection with an Eligible
Property or an Eligible Mortgage shall be deemed to constitute a
MAC in respect of such Eligible Property or Eligible Mortgage.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this
Agreement and to make the Loans herein provided for, Borrower
hereby covenants, represents and warrants to Agent,
Administrative Agent and each Lender that:
53<PAGE>
3.1. Financial Condition. The balance sheet of
Borrower and its Subsidiaries (if any) as at December 31, 1991,
December 31, 1992 and December 31, 1993 and the related
consolidated statements of income, stockholders' equity and cash
flows for the fiscal years ended on such dates, certified by
Ernst & Young, copies of which have heretofore been furnished to
Agent, are complete and correct and present fairly the financial
condition of Borrower and its Subsidiaries (if any) on a
consolidated basis as at such dates, and stockholders' equity and
cash flows for the fiscal years then ended. All such financial
statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as
disclosed therein). Borrower and its Subsidiaries have no
material Contingent Obligation, contingent liabilities or
liability for taxes, long-term lease or unusual forward or
long-term commitment, which is not reflected in the foregoing
statements or in the notes thereto.
3.2. No Material Adverse Effect. Since December 31,
1993 (a) there has been no Material Adverse Effect, and no event
has occurred and no condition exists which could reasonably be
expected to have a Material Adverse Effect and (b) no dividends
or other distributions have been declared the payment of which
could result in a Default or Event of Default nor have any Common
Shares, Preferred Shares or other equity securities of Borrower
been redeemed, retired, purchased or otherwise acquired for value
by Borrower or any of its Subsidiaries.
3.3. Existence; Compliance with Law. Borrower and
each of its Subsidiaries (a) is, in the case of Borrower, a real
estate investment trust duly organized, validly existing and in
good standing under the laws of the State of Maryland and, in the
case of each such Subsidiary, a corporation duly organized,
validly and existing and in good standing under the laws of its
respective jurisdiction of incorporation, (b) has full power and
authority and the legal right to own its property, to lease (as
lessee) the property that it leases as lessee, to lease (as
lessor) or sublease the property it owns and/or leases (as
lessee) and to conduct the business in which it is currently
engaged, (c) is duly qualified or licensed and is in good
standing under the laws of each jurisdiction where its ownership
or lease of property or the conduct of its business require such
qualification, and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith is
not reasonably likely to have, in the aggregate, a Material
Adverse Effect.
54<PAGE>
3.4. Operator, Advisor, Credit Support Obligors;
Compliance with Law.
(a) To the best knowledge of Borrower, each Operator
and Mortgagor (i) has full power and authority and the legal
right to own, lease (or sublease) and operate (as applicable) the
properties it operates and to conduct the business in which it is
currently engaged with respect to any Facility, (ii) is duly
qualified or licensed and is in good standing under the laws of
each jurisdiction where its ownership, lease (or sublease) or
operation of any Facility requires such qualification, and
(iii) is in compliance with all Requirements of Law applicable to
the Facilities operated by it, or applicable to the operation
thereof except to the extent that the failure to comply therewith
is not reasonably likely to have, in the aggregate, a Material
Adverse Effect.
(b) To the best knowledge of Borrower, the Advisor
(i) has full power and authority and legal right to conduct the
business in which it is presently engaged and to perform its
obligations under the Advisory Agreement, (ii) is duly qualified
or licensed and is in good standing under the laws of each
jurisdiction where the conduct of its business requires such
qualification, and (iii) is in compliance with all Requirements
of Law except to the extent that the failure to comply therewith
is not reasonably likely to have, in the aggregate, a Material
Adverse Effect.
(c) To the best knowledge of Borrower, the Credit
Support Obligors (i) have full power and authority and legal
right to conduct the business in which they are presently engaged
and to perform their obligations under the Credit Support
Agreements to which they are parties, and (ii) are in compliance
with all Requirements of Law, except, in the case of clauses (i)
and (ii), to the extent that the failure to comply therewith is
not reasonably likely to have, in the aggregate, a Material
Adverse Effect.
3.5. Power; Authorization; Enforceable Obligations.
Borrower and each of its Subsidiaries has the power and authority
and the legal right to make, deliver and perform each of the Loan
Documents to which it is a party and, in the case of Borrower, to
borrow hereunder; and Borrower has taken all necessary action to
authorize the borrowings hereunder, on the terms and conditions
of the Loan Documents, and Borrower and each of its Subsidiaries
has taken all necessary action to authorize the execution,
delivery and performance of each of the Loan Documents to which
it is a party. No consent or authorization of, filing with, or
other act by or in respect of any Governmental Authority is
required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of
the Loan Documents. This Agreement has been, and each other Loan
55<PAGE>
Document will be, duly executed and delivered on behalf of
Borrower and each of its Subsidiaries which is a party thereto
and this Agreement constitutes, and each other Loan Document when
executed and delivered will constitute, a legal, valid and
binding obligation of Borrower and each of its Subsidiaries which
is a party thereto enforceable against Borrower and each of its
Subsidiaries which is a party thereto in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally.
3.6. No Legal Bar. The execution, delivery and
performance of this Agreement and the other Loan Documents, the
borrowings hereunder and the use of the proceeds thereof, will
not violate any Requirement of Law or any Contractual Obligation
of Borrower or any of its Subsidiaries, and will not result in,
or require, the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any
Requirement of Law or Contractual Obligation.
3.7. No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the best knowledge and
belief of Borrower, threatened by or against Borrower or any of
its Subsidiaries or against any of their respective properties or
revenues or, to the best knowledge and belief of Borrower, by or
against any of the Operators and Mortgagors or against any of
their respective properties (a) with respect to this Agreement or
the other Loan Documents, the Leases, the Mortgage Interest
Agreements, or any of the transactions contemplated hereby or
thereby, or (b) relating to the Properties, the Mortgaged
Properties or the ownership or the operation thereof or the
conduct of business thereon as presently conducted, which, in the
case of (a) or (b), is reasonably likely to have, in the
aggregate, a Material Adverse Effect.
3.8. No Default. Neither Borrower nor any of its
Subsidiaries is in default under or with respect to any
Contractual Obligation in any respect which could have a Material
Adverse Effect. No Default or Event of Default has occurred and
is continuing.
3.9. Ownership of Mortgage Interests and Property;
Liens.
(a) In the case of a Mortgage Interest, Borrower or
one of its Subsidiaries has good record, marketable and
indefeasible title to such Mortgage Interest. In the case of a
Property which is a Fee Interest, Borrower or one of its
Subsidiaries has good record, marketable and indefeasible fee
simple absolute title to such Fee Interest. In the case of a
Property which is a Leasehold Interest, Borrower or one of its
56<PAGE>
Subsidiaries has good record and marketable title to such
Leasehold Interest. In the case of a Mortgage Interest in
respect of which all or any part of the Mortgaged Property is a
fee interest in land and/or buildings, structures, improvements
and fixtures, the Mortgagor with respect to such Mortgaged
Property has good record, marketable and indefeasible fee simple
absolute title to such Mortgaged Property. In the case of a
Mortgage Interest in respect of which all or any part of the
Mortgaged Property is a leasehold estate, the Mortgagor with
respect to such Mortgaged Property has good record and marketable
title to such leasehold estate. In each of the cases described
in this Section 3.9, such title shall be free and clear of all
Liens and other matters affecting title except for such other
matters not reasonably likely to have, in the aggregate, a
Material Adverse Effect.
(b) The buildings, structures, and other improvements
located on each Facility are in good operating condition and
repair (ordinary wear and tear which are not such as to
materially and adversely affect the operations of the business
conducted thereon, excepted), free of any material structural or
engineering defects known to Borrower or any of its Subsidiaries
on the date hereof and are suitable for their present uses,
subject to such exceptions which are not reasonably likely to
have, in the aggregate, a Material Adverse Effect.
(c) All water, sewer, gas, electricity, telephone and
other utilities serving each Facility are supplied directly to
such Facility by public utilities and enter such Facility through
adjoining public streets or, if they pass through adjoining
private land, do so in accordance with valid public easements
which inure to the benefit of Borrower or one of its Subsidiaries
(in the case of a Facility in which Borrower or such Subsidiary
has a Fee Interest) or a mortgagor's or beneficiary's benefit (in
the case of a Facility in which Borrower or such Subsidiary is a
mortgagor or beneficiary, as applicable, of a loan secured in
whole or in part by a Lien on a Facility), subject to such
exceptions which are not reasonably likely to have, in the
aggregate, a Material Adverse Effect. All of such utilities are
presently installed and operating and are in good and safe
condition, subject to such exceptions which are not reasonably
likely to have, in the aggregate, a Material Adverse Effect. All
material assessments for public improvements that have been made
against the Facilities have been paid or provided for, except
that in the case of any assessments that are payable in
installments, all installments due as of the date hereof have
been paid or provided for, subject to such exceptions which are
not reasonably likely to have, in the aggregate, a Material
Adverse Effect.
(d) None of Borrower or any of its Subsidiaries or to
57<PAGE>
the best knowledge and belief of Borrower, the Operators and
Mortgagors, has received notice of any pending, threatened or
contemplated condemnation proceeding or similar taking affecting
the Facilities, or any portion thereof, or any sale or other
disposition of the Facilities or any portion thereof in lieu of
condemnation or similar taking, in each case, subject to such
exceptions which are not reasonably likely to have, in the
aggregate, a Material Adverse Effect.
(e) All Real Property Permits from all Governmental
Authorities having jurisdiction over the Facilities or any
portion thereof, the absence of which could materially impair the
use of any Facility for the purposes for which it is currently
used, and from all insurance companies and fire rating and
similar boards and organizations required to have been issued to
Borrower or any of its Subsidiaries or any Operators and
Mortgagors of such Facility, as the case may be, to enable such
Facility or any portion thereof to be lawfully occupied and used
as currently so occupied or used have been issued and are in full
force and effect, subject to such exceptions which are not
reasonably likely to have, in the aggregate, a Material Adverse
Effect. Neither Borrower nor any of its Subsidiaries has
received or been informed by a third party, including the
Operators and Mortgagors of the Facilities, of the receipt by it
of any notice from any Governmental Authority having jurisdiction
over the Facilities or any portion thereof or from any insurance
company or fire rating or similar board or organization
threatening a suspension, revocation, modification or
cancellation of any Real Property Permit, subject to such
exceptions which are not reasonably likely to have, in the
aggregate, a Material Adverse Effect.
(f) Each of the Leases, Mortgage Interest Agreements
and Credit Support Agreements relating to Properties and Mortgage
Interests (including Properties which are not Eligible Properties
and Mortgage Interests which are not Eligible Mortgages) is in
full force and effect and is a legally valid and binding
obligation of Borrower or its Subsidiaries and the other parties
thereto, subject to such exceptions which are not reasonably
likely to have, in the aggregate, a Material Adverse Effect.
Neither Borrower nor any of its Subsidiaries has mortgaged,
pledged or otherwise encumbered any of the Leases or Mortgage
Interest Agreements or its right to obtain rental, interest or
other payments thereunder except for the Liens permitted by
Section 6.9. Neither Borrower nor any of its Subsidiaries has
collected any rents becoming due under any Lease more than 30
days in advance (except (i) an amount equal to one month's
instalment of rent under a Lease or (ii) in the case of a lease
acquired from Host Marriott Corporation and its Affiliates
pursuant to the transaction (or one on substantially similar
terms) described in the Form S-3 Registration Statement of
Borrower filed with the Commission on March 29, 1994, an amount
58<PAGE>
equal to no more than three months' instalment of rent under such
lease). All rent and other sums and charges payable by any
Operator under each Lease to which it is a party are current, no
notice of default or termination under any such Lease is
outstanding, no termination event or condition or uncured default
on the part of an Operator exists under any Lease, and no event
of default has occurred which, with the giving of notice or the
lapse of time or both, would constitute such a default or
termination event or condition or uncured default on the part of
Borrower or its Subsidiaries or the Operators (as the case may
be), subject to such exceptions which are not reasonably likely
to have, in the aggregate, a Material Adverse Effect. All
payments required from any Mortgagor under any Mortgage Interest
Agreement to which it is a party are current, no notice of
default or acceleration under any such Mortgage Interest
Agreement is outstanding, no default or condition or uncured
default on the part of the Mortgagor exists under any Mortgage
Interest Agreement, and no event of default has occurred which,
with the giving of notice or the lapse of time or both, would
constitute such a default or termination event or condition or
uncured default on the part of the Mortgagor, subject to such
exceptions which are not reasonably likely to have, in the
aggregate, a Material Adverse Effect. All payments required from
any Credit Support Obligor in respect of any Credit Support
Agreement for the Lease of a Property or for a Mortgage Interest
are current, no notice of default or acceleration under any such
Credit Support Agreement is outstanding, and no default or
condition or uncured default on the part of such Credit Support
Obligor exists under any such Credit Support Agreement, subject
to such exceptions which are not reasonably likely to have, in
the aggregate, a Material Adverse Effect. As to all of the
Leases, Borrower and each of its Subsidiaries has performed all
of its repair and maintenance obligations (if any) and, to the
best knowledge and belief of Borrower, each Operator and
Mortgagor under each Lease and Mortgage to which it is a party
has performed all of its repair and maintenance obligations,
subject to such exceptions which are not reasonably likely to
have, in the aggregate, a Material Adverse Effect.
(g) Borrower and each of its Subsidiaries has good
record and marketable title in fee simple to or valid mortgage
interests in all its real property, other than the Properties and
Mortgaged Properties, as to which Borrower has made the
representation set forth in subsection (a) of this Section 3.9,
and good title to all its other property other than the
Properties, and none of such property is subject to any Lien for
borrowed money as of the date hereof, except for Liens permitted
by Section 6.9.
3.10. No Burdensome Restrictions. No Contractual
Obligation of Borrower or any of its Subsidiaries or, to
Borrower's best knowledge and belief, of any of the Operators and
59<PAGE>
Mortgagors and no Requirement of Law currently has a Material
Adverse Effect, or insofar as Borrower may reasonably foresee may
have a Material Adverse Effect.
3.11. Taxes. Borrower and each of its Subsidiaries
has filed or caused to be filed all tax returns which to the best
knowledge and belief of Borrower are required to be filed, and
has paid or caused to be paid all taxes shown to be due and
payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental
Authority (other than those the amount or validity of which is
currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of Borrower or such
Subsidiary); and no tax Liens have been filed and, to the
knowledge of Borrower, no claims are being asserted with respect
to any such taxes, fees or other charges.
3.12. Federal Regulations. Neither Borrower nor any
of its Subsidiaries is engaged and nor will it engage,
principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to
time hereafter in effect. No part of the proceeds of the Loans
hereunder will be used for "purchasing" or "carrying" "margin
stock" as so defined or for any purpose which violates, or which
would be inconsistent with, the provisions of the Regulations of
such Board of Governors. If requested by Agent, Borrower will
furnish to Agent and each Lender a statement in conformity with
the requirements of Federal Reserve Form U-1 referred to in said
Regulation U to the foregoing effect.
3.13. Employees. Neither Borrower nor any of its
Subsidiaries has any employees and none of them has ever engaged
any employees.
3.14. ERISA. No ERISA Affiliate has been, since July
1, 1974, an "employer", as defined in Section 3(5) of ERISA, in
respect of any Plan or making contributions to any Multiemployer
Plan.
3.15. Status as REIT. Borrower is organized in
conformity with the requirements for qualification as a real
estate investment trust under the Code. Borrower's failure to
elect to be treated as a real estate investment trust under the
Code for its fiscal year ended December 31, 1986 has not had and
will not have any Material Adverse Effect. Borrower has met all
of the requirements for qualification as a real estate investment
trust under the Code for its fiscal years ended December 31,
60<PAGE>
1991, 1992, 1993 and 1994. Borrower is in a position to qualify
for its current fiscal year as a real estate investment trust
under the Code and its proposed methods of operation will enable
it to so qualify.
3.16. Restrictions on Incurring Indebtedness. Neither
Borrower nor any of its Subsidiaries is (a) an "investment
company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as
amended, or (b) a "holding company" as defined in, or otherwise
subject to, regulation under the Public Utility Holding Company
Act of 1935. Neither Borrower nor any of its Subsidiaries is
subject to regulation under any federal or state statute or
regulation which limits its ability to incur the indebtedness or
give the guaranties described in this Agreement.
3.17. Subsidiaries. Set forth on Schedule 4 annexed
hereto is a complete and accurate list of all of Borrower's
Subsidiaries showing as of the date hereof (as to each
Subsidiary) the jurisdiction of its incorporation, the number of
shares of each class of capital stock authorized, and the number
outstanding, and the percentage of each class of capital stock
owned by Borrower, all of which capital stock is owned free and
clear of all Liens; all of the issued and outstanding shares of
capital stock of such Subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable.
3.18. Compliance with Environmental Laws. Borrower
and each of its Subsidiaries and, to the best knowledge of
Borrower, each Operator and each Mortgagor of the Facilities is
in compliance with all applicable statutes, laws, rules,
regulations and orders of all Governmental Authorities relating
to environmental protection, pollution control and Hazardous
Materials and with respect to the conduct of its business and the
ownership of its properties, except for such noncompliance which
would not result in imposition of Liens, fines, penalties,
injunctive relief or other civil or criminal liabilities and
which, in the aggregate, could not have a Material Adverse
Effect.
3.19. Pollution; Hazardous Materials. In connection
with the acquisition and ownership of its interests in the
Properties and Mortgage Interests, Borrower and each of its
Subsidiaries has made and will continue to make such inquiries,
and has and will continue to cause such testing, surveying,
inspection or other action, with respect to each Facility as is
necessary or desirable in connection with Hazardous Materials
which might be present in the air, soil, surface water or
groundwater at such Facility. Except for such exceptions which
are not reasonably likely to have, in the aggregate, a Material
Adverse Effect, there are not, and, to the knowledge of Borrower
after diligent inquiry, were not previously, any Hazardous
61<PAGE>
Materials present in the air, soil, surface water or groundwater
at any Facility and no Hazardous Materials (except Hazardous
Materials maintained in accordance with all Requirements of Law
and necessary for the business operations of any such Facility as
a health care facility, including, without limitation, petroleum
used for heating oil and certain medications) are used in the
operation of any Facility. Borrower is not aware of any claim or
notice of violation, alleged violation, noncompliance, liability
or potential liability relating to any Facility nor any judicial
proceedings or governmental or administrative actions pending or,
to the knowledge of Borrower, threatened, to which Borrower or
any of its Subsidiaries would be named a party in connection with
any Facility which, if adversely determined, would be reasonably
likely to result in a Material Adverse Effect.
3.20. Securities Laws. None of the Common Shares,
Preferred Shares or other equity securities of Borrower has been
issued in violation of the Securities Act of 1933, as amended, or
the securities or "blue sky" or other applicable laws or
regulations of any applicable jurisdiction.
3.21. Declaration of Trust, By-Laws, Advisory
Contract, etc. The copies of the Declaration of Trust and
by-laws of Borrower and the Advisory Agreement which have been
furnished to Agent are true, correct and complete copies thereof
as in effect on the date of this Agreement.
3.22. Disclosures. The financial statements referred
to in Section 3.1 do not, nor does this Agreement, the other Loan
Documents, or any other written statement furnished by or on
behalf of Borrower to any Lender in connection with the
transactions contemplated hereby or thereby, contain any untrue
statement of a material fact or omit a material fact necessary to
make the statement contained therein or herein not misleading.
3.23. Medicare and Medicaid Certification. Subject to
such exceptions which, in the aggregate, are not reasonably
likely to have a Material Adverse Effect, to the best knowledge
of Borrower after reasonable investigation, each Operator with
respect to each of the Properties that it operates, and each
Mortgagor with respect to each of the Mortgaged Properties that
it owns, (a) is validly licensed under applicable law to operate
such Property or Mortgaged Property and to conduct the business
in which it is currently engaged, (b) has received any applicable
certificate of need, determination of need or similar approval,
and any amendments or supplements, and such approvals are in full
force and effect, (c) (except in the case of non-healthcare
Properties and Mortgaged Properties, United Kingdom located
Properties or Mortgaged Properties or otherwise where
participation in Medicare or Medicaid is deemed undesirable in
the reasonable business judgment of the Operator or Mortgagor) is
validly certified or approved for participation in Medicare and
62<PAGE>
Medicaid by the applicable federal and state authorities and is a
party to provider agreements with respect to its participation in
Medicare and Medicaid, which provider agreements are in full
force and effect, in each case only to the extent that such
Property or Mortgaged Property is of a character eligible for
participation in Medicare or Medicaid, and (d) no proceedings
have been initiated or notices issued to suspend or revoke any
such license, approval, certification or provider agreement,
except for notices of deficiency which are issued and corrected
in the ordinary course of business.
3.24. Offering, Etc., of Securities. Neither Borrower
nor any agent with the authority of Borrower has offered any
securities similar to the Notes, nor solicited any offer to buy
any such securities, in a manner which would render the offering,
sale or issuance of the Notes subject to the registration
requirements of the Securities Act of 1933, as amended.
SECTION 4. CONDITIONS PRECEDENT
4.1. Conditions to Effectiveness. This Agreement
shall become effective only upon satisfaction of all of the
following conditions precedent:
(a) Note. Agent shall have received for the account
of each Lender a Note conforming to the requirements hereof and
executed by a duly authorized officer of Borrower.
(b) Legal Opinion. Agent shall have received, with a
counterpart for each Lender, a favorable opinion of Sullivan &
Worcester, as counsel to Borrower and its Subsidiaries and the
Advisor, addressed to Agent and the Lenders and dated the
Effective Date, and in form and substance satisfactory to Agent.
(c) Organizational Documents. Agent shall have
received certified copies of the Declaration of Trust for
Borrower and Articles of Organization or a Certificate of
Incorporation for each Subsidiary of Borrower, by-laws of
Borrower and each of its Subsidiaries and all resolutions of the
Board of Trustees of Borrower and the board of directors of each
of its Subsidiaries approving this Agreement and the other Loan
Documents to which each is a party and the transactions
contemplated hereby and thereby, and of all documents evidencing
other necessary corporate action and approvals, if any, of
Governmental Authorities with respect to this Agreement and the
other Loan Documents and the transactions contemplated hereby and
thereby.
(d) Good Standing and Existence. Agent shall have
received certificates of the appropriate governmental officials
of the State of Maryland and of any other State where Borrower
conducts business and the State of incorporation of each of
63<PAGE>
Borrower's Subsidiaries and of any other State where such
Subsidiary conducts business, each dated a recent date prior to
the Effective Date, to the effect that Borrower or such
Subsidiary (as the case may be) is validly existing and is in
good standing with respect to payment of franchise and similar
taxes and is duly qualified to transact business therein.
(e) Advisory Agreement and Subordination Agreement.
Agent shall have received copies of the Advisory Agreement and
the Subordination Agreement each certified by a Responsible
Officer.
(f) Debt Rating. Agent shall have received evidence
that Borrower's long-term unsecured senior debt is rated BBB- or
higher by Standard & Poor's Corporation or Baa3 or higher by
Moody's Investors Service, Inc.
(g) Existing Loan Agreement
(i) Borrower shall have paid all accrued
interest, fees, commissions and other amounts
(other than principal) accrued or owed under the
Existing Loan Agreement, whether or not presently
due and payable.
(ii) No Default or Event of Default (both such
terms being used as defined in the Existing Loan
Agreement) shall have occurred and be continuing
under the Existing Loan Agreement.
(h) No Material Adverse Effect. No Material Adverse
Effect specified in clause (a)(i), (b), (c)(i) or (d) of the
definition thereof shall have occurred since December 31,
1993.
(i) Compensation. All obligations of Borrower to pay
fees and provide compensation and reimbursement of costs and
expenses to Agent, Administrative Agent and the Lenders or their
designees as of the Effective Date hereunder or otherwise in
connection with the financing contemplated hereby shall have been
satisfied.
(j) Real Property Statement. Agent shall have
received a Real Property Statement dated the Effective Date.
(k) Additional Matters. Agent shall have received
such other approvals, opinions or documents as it may reasonably
request and all documents and legal matters in connection with
the transactions contemplated by this Agreement and the other
Loan Documents shall be satisfactory in form and substance to
Agent and its counsel.
64<PAGE>
4.2. Conditions Precedent to Loans. The obligations
of Lenders to make Loans on each Borrowing Date and to continue
any Existing Loans on the Effective Date (which, for purposes of
this Section 4.2 shall be deemed to be a Borrowing Date) are
subject to the following further conditions precedent:
(a) Representations and Warranties. The
representations and warranties made by Borrower herein or made by
any Person in the other Loan Documents or which are contained in
any certificate, document or financial or other statement
furnished at any time under or in connection with any of the Loan
Documents, shall be true, correct and accurate in all material
respects on and as of the Borrowing Date for the Loan as if made
on and as of such date unless stated to relate to a specific
earlier date, in which case such representations and warranties
shall be true, correct and complete in all material respects as
of such earlier dates.
(b) No Default or Event of Default. No Default or
Event of Default shall have occurred and be continuing on such
date either before or after giving effect to the Loan to be made
on the Borrowing Date.
(c) Legality of Loans. The making of the Loans
hereunder by the Lenders and the acquisition of the Notes shall
be permitted as of the Borrowing Date by all applicable
Requirements of Law and shall not subject any Lender to any
penalty or other onerous condition in or pursuant to any such
Requirement of Law or result in a Material Adverse Effect.
(d) No Material Adverse Effect. No Material Adverse
Effect specified in clause (a)(i), (b), (c)(i) or (d) of the
definition thereof shall have occurred since December 31, 1993.
(e) Solvency. Both after and immediately before the
making of any Loans on the Borrowing Date, Borrower and each of
its Subsidiaries shall be Solvent.
(f) Borrowing Certificate. Administrative Agent shall
have received, with a counterpart for each Lender, a Notice of
Borrowing, dated the Borrowing Date, substantially in the form of
Exhibit B, with appropriate insertions and attachments
satisfactory in form and substance to Agent and its counsel,
executed by a Responsible Officer; provided that while no Notice
of Borrowing shall be required with respect to any Existing Loans
continued on the Effective Date, on the Effective Date Agent
shall have received a certificate of a Responsible Officer
certifying as to the matters set forth in clauses (vi)-(viii) of
the Notice of Borrowing with respect to such Existing Loans.
(g) Borrowing Limits. After the making of the Loans
on any Borrowing Date, the aggregate principal amount of all
65<PAGE>
Loans outstanding shall not exceed the Commitments, the aggregate
principal amount of all General Corporate Loans outstanding shall
not exceed 25% of the Commitments and the aggregate principal
amount of all Loans outstanding denominated in GBP shall not
exceed the Equivalent Amount of $100,000,000 (as determined in
accordance with Section 1.3(b)) and Agent and Administrative
Agent shall have received a certificate dated as of a date not
more than five (5) Business Days prior to the relevant Borrowing
Date to such effect.
(h) Real Property Statement. Administrative Agent
shall have received a Real Property Statement dated, or dated as
of, the Borrowing Date.
SECTION 5. AFFIRMATIVE COVENANTS.
Borrower hereby agrees that, so long as the Commitments
remain in effect, any Note remains Outstanding and unpaid or any
other amount is owing to any Lender, Agent or Administrative
Agent hereunder or under any other Loan Document, Borrower shall
(and shall cause each of its Subsidiaries to):
5.1. Financial Statements. Furnish to Administrative
Agent, with sufficient copies for each Lender:
(a) as soon as available, but in any event within
ninety days after the end of each fiscal year of Borrower and
within one hundred thirty-five days after the end of each fiscal
year of each Primary Operator/Mortgagor and Primary Credit
Support Obligor, a copy of each of the following (except for any
thereof to the extent none of the related Leases, Mortgage
Interest Agreements or Credit Support Agreements requires the
provision of any of the following to Borrower or one of its
Subsidiaries within such period, in respect of which Borrower's
obligation to furnish copies to each Lender shall be satisfied by
furnishing copies as soon as practicable after Borrower or such
Subsidiary receives one or more copies thereof): the audited
balance sheet prepared on a consolidated basis (and, if ever
prepared on a consolidating basis, on a consolidating basis) for
Borrower and its Subsidiaries and on a consolidated basis for
each Primary Operator/Mortgagor and Primary Credit Support
Obligor, each as at the end of such year and the related
statements or income, stockholders' equity and cash flows for
such year (on a consolidated basis (and,if ever prepared on a
consolidating basis, on a consolidating basis) for Borrower and
its Subsidiaries and on a consolidated basis for each Primary
Operator/Mortgagor and Primary Credit Support Obligor), setting
forth in each case in comparative form the figures for the
previous year, certified without a "going concern" or like
qualification or exception, or qualification arising out of the
scope of the audit, by independent certified public accountants
of nationally recognized standing; and
66<PAGE>
(b) as soon as available, but in any event not later
than forty-five days after the end of each of the first three
quarterly periods of each fiscal year of Borrower and not later
than seventy-five days after the end of each of the first three
quarterly periods of each fiscal year of each Primary Operator/
Mortgagor and Primary Credit Support Obligor, copies of each of
the following (except for any thereof to the extent none of the
related Leases, Mortgage Interest Agreements or Credit Support
Agreements requires the provision of any of the following to
Borrower or one of its Subsidiaries within such period, in
respect of which Borrower's obligation to furnish copies to each
Lender shall be satisfied by furnishing copies as soon as
practicable after Borrower or such Subsidiary receives one or
more copies thereof): the unaudited balance sheet prepared on a
consolidated basis (and, if ever prepared on a consolidating
basis, on a consolidating basis) for Borrower and its
Subsidiaries and on a consolidated basis for each Primary
Operator/Mortgagor and Primary Credit Support Obligor, each as at
the end of each such quarter and the related unaudited statements
of income, stockholders' equity and cash flows for such quarterly
period and the portion of the fiscal year through such date (on a
consolidated basis (and, if ever prepared on a consolidating
basis, on a consolidating basis) for Borrower and its
Subsidiaries and on a consolidated basis for each Primary
Operator/Mortgagor and Primary Credit Support Obligor), setting
forth in each case in comparative form the figures for the
previous year, certified by a responsible officer of such entity
as being fairly stated and complete and correct in all material
respects (subject to normal year-end audit adjustments); all such
financial statements referred to in clauses (a) and (b) above to
be complete and correct in all material respects and be prepared
in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as
approved by such accountants or officer, as the case may be, and
disclosed therein).
5.2. Certificates; Other Information. Furnish to
Administrative Agent, with sufficient copies for each Lender:
(a) concurrently with the delivery of the financial
statements of Borrower and its Subsidiaries referred to in
Section 5.1(a) above, a certificate of Borrower's independent
certified public accountants certifying such financial statements
of Borrower and its Subsidiaries stating that in making the
examination necessary therefor, no knowledge was obtained of any
Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements of Borrower and its Subsidiaries referred to in
Sections 5.1(a) and (b) above, (i) a certificate of a Responsible
Officer (A) stating that, to the best of such officer's
67<PAGE>
knowledge, Borrower and each of its Subsidiaries during such
period has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in the Loan
Documents to be observed, performed or satisfied by it, and that
such officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate, and (B) showing
in detail the calculations supporting such statement in respect
of Sections 6.1(a), 6.1(b) and 6.1(c) and 6.8 (including,
without limitation, certification and details as to all
Indebtedness of Borrower and its Subsidiaries, if any), (ii) a
Real Property Statement and (iii) with respect to each Property
or Mortgaged Property (but in no event for a Courtyard Lodging,
for which the reporting information required will be as set forth
in Sections 5.1(a) and (b)) for which Marriott International,
Inc. is the Operator or Mortgagor, a certificate of a senior
officer of Marriott International, Inc. as to the Cash Flow and
Fixed Charges of Marriott International, Inc. attributable to
that Property or Mortgaged Property for the last reported
financial year of Marriott International, Inc.;
(c) within forty-five days after the end of each
calendar quarter following the Effective Date, a written report
signed by a Responsible Officer describing in reasonable detail
any acquisitions or dispositions of any Fee Interests or Mortgage
Interests by Borrower and its Subsidiaries or any other material
property of Borrower and its Subsidiaries which shall include,
without limitation (i) in the case of acquisitions of property, a
description of (A) the geographic area and type of property, (B)
the current and anticipated cash flow from the property, (C) the
operators of such property and (D) financing of the acquisition,
(ii) with respect to dispositions of property, a description of
(A) the amount and use of proceeds from such disposition and (B)
the reasons for the disposition, and (iii) a copy of any
appraisals of the property acquired or disposed of;
(d) within 30 days prior to the first day of each
fiscal year of Borrower, a copy of the projections by Borrower of
the operating budget and cash flow of Borrower and its
Subsidiaries for such fiscal year, such projections to be
accompanied by a certificate of a Responsible Officer to the
effect that such projections have been prepared on the same basis
as the financial statements of Borrower and its Subsidiaries then
current and that such officer has no reason to believe they are
incorrect or misleading in any material respect;
(e) promptly after the same are sent, copies of all
financial statements and reports which Borrower sends to its
holders of Common Shares, Preferred Shares or other equity
securities, and promptly after the same are filed by Borrower
copies of all financial statements and reports which Borrower or
any of its Subsidiaries may make to, or file with, the Commission
or any successor or analogous Governmental Authority; and
68<PAGE>
(f) promptly, such additional financial and other
information respecting the financial or other condition of the
Primary Operators/Mortgagors, the Primary Credit Support
Obligors, the Advisor or Borrower or any of its Subsidiaries or
the status or condition of the Facilities or the operation
thereof which Borrower is entitled to or can otherwise reasonably
obtain as Agent may from time to time reasonably request.
5.3. Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all its Indebtedness and other
obligations of whatever nature, except, in the case of
Indebtedness other than that described in Section 7.1(e), when
the amount or validity thereof is currently being contested in
good faith by appropriate proceedings, and reserves in conformity
with GAAP with respect thereto have been provided on the books of
Borrower and its Subsidiaries.
5.4. Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now
conducted by it (except that Borrower and its Subsidiaries may
acquire the Courtyard Lodgings but will not own, operate or
finance Psychiatric Care Assets other than those owned, operated
or financed as of the date hereof and will not own, operate or
finance hotels or other lodging facilities other than the
Courtyard Lodgings), and preserve, renew and keep in full force
and effect its existence and take all reasonable action to
maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business; and comply with
all Contractual Obligations and Requirements of Law except to the
extent that the failure to comply therewith could not, in the
aggregate, have a Material Adverse Effect.
5.5. Leases and Mortgage Interests; Credit Support
Agreements. (a) (i) Maintain the Leases, Mortgage Interests and
Credit Support Agreements in full force and effect and enforce
the obligations of the Operators under the Leases, the Mortgagors
under the Mortgage Interests and the Credit Support Obligors
under the Credit Support Agreements in a timely manner and (ii)
obtain the consent of Agent in connection with any materially
adverse change in or waiver of any obligation of any Operator,
Mortgagor or Credit Support Obligor contained in, or any right or
remedy of Borrower or any of its Subsidiaries under, any Lease,
Mortgage Interest Agreement or Credit Support Agreement,
including, without limitation, any renewal, amendment,
modification or termination thereof, except to the extent that
the failure to comply with this Section 5.5(a) could not, in the
aggregate, have a Material Adverse Effect; and (b) give notice to
Agent of each waiver, renewal, amendment, modification or
termination of the Leases, Mortgage Interests and Credit Support
Agreements in respect of any Eligible Property or Eligible
Mortgage, together with a copy of such waiver, renewal,
69<PAGE>
amendment, modification or termination.
5.6. Maintenance of Property, Insurance. Keep all
property useful and necessary in its business in good working
order and condition; maintain or cause the Operators of its
Properties to maintain with financially sound and reputable
insurance companies insurance with respect to its property and
business of such a nature, with such terms and in such amounts,
as is customary in the case of business entities of established
reputation engaged in the same or similar business similarly
situated against loss or damage of the kinds and in the amounts
customarily insured against and for by such business entities,
and to cause the Mortgagors of each of its Mortgaged Properties
to maintain comparable insurance. Borrower shall furnish to each
Lender, upon written request, full information as to the
insurance carried.
5.7. Inspection of Property; Books and Records;
Discussions. Keep proper books of record and account in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities; and
permit representatives of Agent and/or Administrative Agent and,
after the occurrence of a Default, any Lender, to visit and
inspect any of its properties and examine and make abstracts from
any of its books and records at any reasonable time and as often
as may reasonably be desired, and to discuss the business,
operations, properties, prospects and financial and other
condition of Borrower and its Subsidiaries with officers and
employees of Borrower or such Subsidiaries and the Advisor and
with its independent certified public accountants.
5.8. Notices. Promptly, and in any event within ten
Business Days after an officer of Borrower obtains knowledge
thereof, give notice to Agent, Administrative Agent and each
Lender:
(a) of the occurrence of any Default or Event of
Default;
(b) of (i) any default or event of default or
termination under any Lease, Credit Support Agreement, Mortgage
Interest Agreement or any other Contractual Obligation of or in
favor of Borrower or any of its Subsidiaries which could have a
Material Adverse Effect and (ii) any litigation, investigation or
proceeding which may exist at any time between Borrower or any of
its Subsidiaries or any Operator, Mortgagor or Credit Support
Obligor and any Governmental Authority or other Person, which if
adversely determined could have a Material Adverse Effect;
(c) of any litigation or proceeding affecting Borrower
or any of its Subsidiaries, any Primary Operator/Mortgagor or
70<PAGE>
any Primary Credit Support Obligor in which the amount involved
is $100,000 or more and is not fully covered by insurance or in
which injunctive or similar relief is sought;
(d) of the following events, as soon as possible and
in any event within 30 days after Borrower knows or has reason to
know thereof (provided that with respect to any Multiemployer
Plan in which neither Borrower nor any ERISA Affiliate is a
substantial employer Borrower shall only be deemed to have
knowledge of facts concerning which it has actual knowledge):
(i) the occurrence or expected occurrence of any Reportable Event
with respect to any Plan, or (ii) the institution of proceedings
or the taking or expected taking of any other action by PBGC or
Borrower or any ERISA Affiliate to terminate or withdraw from any
Plan, and in addition to such notice, deliver to each Lender
whichever of the following may be applicable: (A) a certificate
of the chief financial officer or treasurer of Borrower setting
forth details as to such Reportable Event and the action that
Borrower or ERISA Affiliate proposes to take with respect
thereto, together with a copy of any notice of such Reportable
Event that may be required to be filed with PBGC, or (B) any
notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be
terminated, as the case may be;
(e) of the adoption by Borrower or any ERISA Affiliate
of any Plan or of any Plans maintained by any Person that becomes
an ERISA Affiliate after the date hereof;
(f) of any proposed transaction or event which may
give rise to Net Property Proceeds, Net Mortgage Proceeds or Net
Securities Proceeds;
(g) of the occurrence or existence of any event or
condition which could reasonably be expected to have, or which
has had, a Material Adverse Effect; and
(h) of the occurrence or existence of any event or
condition which would cause any of the representations and
warranties set forth in Section 3.9 to be untrue if repeated
after the occurrence, or during the existence, of such event or
condition.
Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer setting forth details of the
occurrence referred to therein and stating what action Borrower
proposes to take with respect thereto. For all purposes of
clause (d) of this Section, Borrower shall be deemed to have all
knowledge or knowledge of all facts attributable to the
administrator of such Plan.
5.9. Appraisals and Other Valuations. (a) From time
71<PAGE>
to time during the term of this Agreement, Agent may, in its sole
discretion, order an Appraisal of one or more of the Eligible
Properties and/or Mortgaged Properties covered by Eligible
Mortgages. Any such Appraisal shall be at Borrower's cost if
(i) Agent shall have obtained a letter from an expert appraiser
or evaluator of real property, health care or retirement
facilities or hotel or other lodging facilities to the effect
that, or Agent shall otherwise in good faith have determined
that, facts or circumstances exist, or changes in market
conditions have occurred, as a result of which there exists a
reasonable possibility that Appraisals of the Eligible Properties
and Mortgaged Properties covered by Eligible Mortgages, might
result in an aggregate valuation thereof reflecting a material
loss of value as compared to the value thereof indicated in the
certificate of a Responsible Officer delivered to Agent pursuant
to Section 4.1(j), or (ii) an Event of Default has occurred.
(b) In addition to the Appraisals referred to in
Section 5.9(a), from time to time during the term of this
Agreement, if so requested by Agent, in its sole discretion,
Borrower shall furnish to Administrative Agent, with sufficient
copies for each Lender, a certificate of a Responsible Officer
certifying as to the value of one or more of the Eligible
Properties and/or Mortgaged Properties covered by Eligible
Mortgages.
5.10. Meetings. Within one hundred days after the end
of each fiscal year of Borrower, one or more Responsible Officers
of Borrower shall attend an annual informational meeting with the
Lenders, for the purpose of answering reasonable questions of any
Lender, Agent and/or Administrative Agent relating to the
Facilities and/or the Loan Documents, to be held at Borrower's
cost and at such time and place to be determined by Agent as is
reasonably requested by Agent; provided that each Lender shall
bear the costs of transportation and accommodation for any of its
representatives attending such meeting.
5.11. REIT Requirements. Operate its business at all
times so as to satisfy or be deemed to have satisfied all
requirements necessary to qualify as a real estate investment
trust under Section 856 through 860 of the Code. Borrower will
maintain adequate records so as to comply with all record-keeping
requirements relating to the qualification of Borrower as a real
estate investment trust as required by the Code and applicable
regulations of the Department of the Treasury promulgated
thereunder and will properly prepare and timely file with the
Internal Revenue Service all returns and reports required
thereby. Borrower will request from its shareholders all
shareholder information required by the Code and applicable
regulations of the Department of Treasury promulgated thereunder.
5.12. Indemnification. Borrower agrees to indemnify,
72<PAGE>
defend (with counsel selected by Agent) and hold Agent,
Administrative Agent, Lenders and the directors, officers,
shareholders, employees and agents of each of them harmless for,
from and against any claims (including without limitation third
party claims for personal injury or real or personal property
damage), actions, administrative proceedings, judgments, damages,
punitive damages, penalties, fines, costs, expenses
disbursements, liabilities (including sums paid in settlements of
claims), obligations, interest or losses, including attorneys'
fees, consultant fees and expert fees, that arise at any time
(including, without limitation, at any time after the payment of
the Notes) directly or indirectly from or in connection with the
presence, suspected presence, release or suspected release of any
Hazardous Material in the air, soil, surface water or groundwater
at or from the real property or any portion thereof with respect
to a Facility, or any other real property in which Borrower or
any of its Subsidiaries has any interest (all of the foregoing
real property shall be referred to collectively as the "Real
Property"). Without limiting the generality of the foregoing,
the indemnification provided by this Section shall specifically
cover (i) costs, including capital, operating and maintenance
costs, incurred in connection with any investigation or
monitoring of site conditions or any clean-up, remedial, removal
or restoration work required or performed by any federal, state
or local governmental agency or political subdivision or
performed by any non-governmental Person, including any Operator
or Mortgagor of a Facility, because of the presence, suspected
presence, release or suspected release of Hazardous Material in
the air, soil, surface water or groundwater at or from the Real
Property; and (ii) costs incurred in connection with (A)
Hazardous Material present or suspected to be present in the air,
soil, surface water or groundwater at the Real Property before
the date of this Agreement, or (B) Hazardous Material that
migrates, flows, percolates, diffuses or in any way moves onto or
under or from the Real Property after the date of this Agreement,
or (C) Hazardous Material present at the Real Property as a
result of any release, discharge, disposal, dumping, spilling or
leaking (accidental or otherwise) onto or from the Property
before or after the date of this Agreement by any Person.
5.13. Changes in GAAP. Borrower and the Lenders
hereby agree that in the event of a change in GAAP which would
cause the financial covenants set forth herein to provide less
protection to the Lenders than presently provided for hereunder,
such financial covenants shall be reset, in good faith, by the
Majority Lenders to maintain the protection to the Lenders
equivalent to that in place prior to such change and Borrower
agrees to execute one or more amendments to this Agreement to
effect such reset.
5.14. Refinancing of Loans. If at any date of
determination (the "Trigger Date"), Loans are outstanding in an
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aggregate principal amount equal to or greater than 66-2/3% of
the Commitments (the "Trigger Amount"), Borrower shall promptly
(but in no event later than 12 months after the Trigger Date)
take action to obtain financing in an amount at least equal to
the Trigger Amount or, if at the date of consummation of any such
financing less than the Trigger Amount aggregate principal amount
of Loans are outstanding, such lesser amount. Borrower shall
have completed such financing transaction within 15 months of the
Trigger Date and the proceeds thereof shall be used to prepay the
Loans in an amount equal to that required by the first sentence
of this Section 5.14. Any such financing shall be in the form of
either equity or of Indebtedness which shall not have any
instalment of principal due earlier than three months after the
Termination Date.
5.15. Further Assurances; Restrictions on Negative
Pledges.
(a) At any time upon the request of Agent,
Borrower will, promptly and at its expense, execute, acknowledge
and deliver such further documents and do such other acts and
things as Agent may reasonably request to provide for payment of
the Loans made hereunder and interest thereon in accordance with
the terms of this Agreement.
(b) If Borrower or any of its Subsidiaries
shall agree to any "negative pledge" or like agreement more
restrictive (or otherwise more generous to its beneficiaries) in
its scope than Section 6.9, then, without any further action
being required, the provisions of such agreement relating to the
prohibition on Liens shall be deemed incorporated by reference
(with appropriate modifications as may be necessary) into this
Agreement for the benefit of Lenders.
5.16. Currency Arrangements. (a) Borrower shall at
all times maintain agreements or other arrangements, practices or
procedures in form and substance satisfactory to Agent which will
protect Borrower and its Subsidiaries against fluctuations in
foreign currency values against the U.S. Dollar.
(b) Borrower shall only enter into interest rate and
currency exchange or similar or analogous arrangements as are (in
Borrower's reasonable judgment) necessary for the hedging or
other protection to exposure of Borrower and its Subsidiaries,
and not those which are of a purely speculative nature.
SECTION 6. NEGATIVE COVENANTS.
Borrower hereby agrees that, so long as the Commitments
remain in effect or any Note remains Outstanding and unpaid or
any other amount is owing to any Lender, Agent or Administrative
74<PAGE>
Agent hereunder or under any other Loan Document, Borrower shall
not (and shall not permit any of its Subsidiaries to) directly or
indirectly:
6.1. Financial Covenants.
(a) Tangible Net Worth. Suffer or permit Tangible Net
Worth at any time to be less than the aggregate of
(i) $525,000,000, plus (ii) 75% of the Net Securities Proceeds of
all issues of any Common Shares, Preferred Shares or other equity
securities by Borrower in one or more transactions received after
the date hereof.
(b) Interest Coverage. Suffer or permit the ratio of
EBI for any fiscal quarter to the Interest Charges of Borrower
and its Subsidiaries for such quarter to be less than 3 to 1.
(c) Debt to Net Worth. Suffer or permit the ratio of
the Total Liabilities of Borrower and its Subsidiaries to
Tangible Net Worth to be greater than 1 to 1 at any time.
6.2. Restricted Payments.
(a) Declare, make or pay any Restricted Payment except
where (i) no Default or Event of Default is continuing either
before or after giving effect to such Restricted Payment,
(ii) Borrower has sufficient funds or availability under its
credit facilities (including this Agreement) to pay the next
installment of interest payable in respect of the Loans and
(iii) immediately upon declaring, making or paying any such
Restricted Payment a Responsible Officer shall certify to
Administrative Agent in writing that Borrower is in compliance
with each condition hereof with respect to the declaration,
making or payment, as the case may be, of such Restricted
Payment; or
(b) directly or indirectly make any payment of
Indebtedness of Borrower or any of its Subsidiaries in
contravention of the terms of any agreement or instrument
subordinating or purporting to subordinate any rights to receive
payments in respect of any Indebtedness of Borrower or such
Subsidiary to any rights to receive payments under this
Agreement.
6.3. Merger; Sale of Assets; Termination and Other
Actions.(a) Cause to be organized or assist in organizing any
Person under the laws of any jurisdiction to acquire all or
substantially all of its assets, terminate, wind up, liquidate or
dissolve its affairs or enter into any reorganization, merger or
consolidation or, in the case of Borrower, take any other action
whatsoever under or pursuant to Articles 6.15, 8.1, 8.2 and 8.5
of the Declaration of Trust or agree to do any of the foregoing
75<PAGE>
at any future time, except that Borrower or any Subsidiary of
Borrower other than Church Creek Corporation may acquire all or
substantially all of the assets of a Subsidiary of Borrower and
any Subsidiary of Borrower may reorganize, merge or consolidate
with Borrower (so long as Borrower is the surviving entity) or
any other Subsidiary of Borrower other than Church Creek
Corporation, or (b) convey, sell, lease or otherwise dispose of
(i) any of the Properties, the Mortgage Interests or its other
interests in Facilities or (ii) any substantial part of its
property or assets (other than the Properties) or (iii) any
shares of stock in any of its Subsidiaries; except that the
foregoing will be permitted in the case of sub-clauses (i) and
(ii) of this clause (b), but only if (A) the consideration
therefor shall be equal to the fair market value thereof (or, in
the case of a Mortgage Interest where the consideration is less
than fair market value, the Board of Trustees of Borrower or the
board of directors of the relevant Subsidiary of Borrower shall
have determined that the consideration received or to be received
is in an amount consistent with the best financial interests of
Borrower or such Subsidiary, as the case may be) and no default
under any other provision hereof results therefrom or (B) such
conveyance, sale, lease or other disposition is pursuant to the
exercise of an option contained in a Lease, and, in either case,
the proceeds of such disposition (whether received by Borrower or
one of its Subsidiaries) are used to prepay the Loans to the
extent required by Section 2.8(b).
6.4. Transactions with Affiliates. Enter into or be a
party to any transaction directly or indirectly with or for the
benefit of any Affiliate of Borrower, other than (i) in the
ordinary course of business and (ii) for fair consideration and
on terms no less favorable to Borrower or any of its Subsidiaries
than are available in an arm's-length transaction from
unaffiliated third parties and (iii) if the Independent Trustees
determine in their reasonable good faith judgment that such
transaction is in the best interests of Borrower or such
Subsidiary based on full disclosure of all relevant facts and
circumstances.
6.5. Subsidiaries. (a) Create, or permit to exist,
any Subsidiary other than those named on Schedule 4 without the
prior written consent of Agent and Borrower shall not sell or
otherwise dispose of any of the capital stock owned by Borrower
in any such Subsidiary or (b) permit any Subsidiary to issue any
shares of capital stock to any Person other than Borrower.
6.6. Accounting Changes. Make any significant change
in accounting treatment and reporting practices, except as
required by GAAP or with which Borrower's independent certified
public accountants have agreed. Borrower will advise Agent
sufficiently in advance of any proposed change to permit
representatives of Agent to discuss the proposed change with the
76<PAGE>
officers of Borrower.
6.7. Change in Nature of Business. Make any material
change in the nature of its business as presently conducted
(where a "material change" shall mean any change in the type of
industry then invested in in accordance with this Section 6.7,
regardless of the amount or size of such new investment); the
business of Borrower and its Subsidiaries as presently conducted
being the business of acquiring and operating, and acquiring or
funding Mortgage Interests in, income producing real property
interests and facilities which are hotels or other lodging
facilities being Courtyard Lodgings or which offer health care or
related services or rehabilitation or retirement services, and
activities incidental to any of the foregoing, but which shall
not include any acquisition, operating or funding either of
Psychiatric Care Assets other than those owned, operated or
financed as of the date hereof or of hotels or other lodging
facilities other than the Courtyard Lodgings; provided that (i)
such property interests and facilities shall be located in either
the United States of America or the United Kingdom, (ii) the
aggregate Allowed Value of all Properties and Mortgage Interests
located in the United Kingdom shall not exceed 10% of the
aggregate Allowed Value of all Properties and Mortgage Interests
and (iii) Church Creek Corporation shall not engage in any
business or activities other than those engaged in by it on the
Effective Date, and activities incidental thereto.
6.8. Indebtedness. (a) Suffer or permit the total
Indebtedness (determined without duplication) of Borrower and its
Subsidiaries (other than the IDFA Indebtedness, Indebtedness in
the nature of bridge financings described in the exception to
Section 6.8(b) and Indebtedness described in Section 6.8(c)), at
any time to be greater than the aggregate of (i) 50% of the
aggregate Allowed Value of all Eligible Properties and all
Eligible Mortgages other than Eligible Properties which are
Courtyard Lodgings plus (ii) 25% of the aggregate Allowed Value
of all Eligible Properties which are Courtyard Lodgings.
(b) Suffer or permit to exist any Indebtedness unless,
in the case of Borrower, the earliest date for any payment of
principal or other settlement thereof is at least three months
after the Termination Date, except for (i) Borrower's guaranty of
the IDFA Indebtedness, the terms of which Indebtedness provide
for mandatory redemption prior to the Termination Date upon the
occurrence of certain extraordinary events, and (ii)
Indebtedness of Borrower in the nature of bridge financings to
effect acquisitions of Fee Interests or Mortgage Interests by
Borrower so long as the final date for payment or other
settlement of all such bridge financing Indebtedness is less than
one year from the date of its incurrence or issuance and Borrower
promptly commences (and diligently pursues) the refinancing
thereof; provided that, at any time either after total
77<PAGE>
Indebtedness in the nature of bridge financings exceeds
$100,000,000 or would as a result of any proposed further bridge
financing exceed $100,000,000, not less than thirty days prior to
the incurrence or issuance of any additional bridge financing,
Borrower shall provide Lenders with such details of the terms and
conditions thereof as Lenders (acting through Agent) may
reasonably request (and Borrower shall promptly advise Agent of
any subsequent material changes to such details), and if after a
review of such details Majority Lenders (each in its respective
absolute discretion) determine that no further Loans may be made
and the Termination Date shall be brought forward to a date which
is the earlier of the maturity date for such additional bridge
Indebtedness and a date eleven months after the incurrence or
issuance thereof, then, effective upon the incurrence or issuance
of such Indebtedness and without any further action being
required, no further Loans shall be made and the definition of
"Termination Date" shall be so amended; provided that if Majority
Lenders (acting through Agent) have not advised Borrower of such
a determination within fifteen days of receipt of all such
details as they may have requested, then, subject to the
opportunity to review any subsequent material changes to the
details provided and to make a contrary determination based
thereon, Majority Lenders shall be deemed not to have made such a
determination and no change to this Agreement shall be effected
pursuant to this Section 6.8(b).
(c) Suffer or permit the aggregate of Indebtedness
which is (i) secured by a Lien covering property or assets
acquired by Borrower or any of its Subsidiaries, (ii)
Indebtedness of a Person acquired by Borrower or any of its
Subsidiaries or (iii) Indebtedness to which the assets of a
Person acquired by Borrower or any of its Subsidiaries are
subject, which in the case of any of clause (i), (ii) or (iii) is
outstanding at the time of the relevant acquisition and remains
outstanding following such acquisition, to exceed $50,000,000 at
any time; provided that, in addition to Indebtedness otherwise
permitted under this Section 6.8(c), Borrower and Church Creek
Corporation may suffer or permit to exist the IDFA Indebtedness.
(d) In the case of Subsidiaries of Borrower, suffer or
permit to exist any Indebtedness, except for (i) intercompany
Indebtedness owed to Borrower which is incurred as the result of
the direct or indirect advance by Borrower of the proceeds of
Loans and used for purposes described in Section 2.11 and (ii) in
the case of Subsidiaries other than Church Creek Corporation, the
Contingent Obligations arising from the guarantees given under
Section 9 and (iii) in the case of Church Creek Corporation, the
IDFA Indebtedness.
6.9. No Liens. Suffer or permit after the date hereof
any Lien on any Facility, Lease, Mortgage Interest, or Credit
Support Agreement, except (i) in the case of Borrower, Liens
78<PAGE>
granted to secure Indebtedness in the nature of bridge financings
(but not any subsequent refinancing or any other restructuring
of such bridge financing) permitted under Section 6.8(b), so long
as such Liens are granted only on the properties or interests
acquired with such Indebtedness; provided that any such property
or interest which is the subject of such a Lien shall not be an
Eligible Property or an Eligible Mortgage, (ii) Permitted
Exceptions, (iii) with respect to either (A) Properties that are
not Eligible Properties or (B) Mortgaged Properties that are
subject to Mortgage Interest Agreements which are not Eligible
Mortgages only, Liens that are not created or granted by Borrower
or any of its Subsidiaries, which Liens, in the aggregate, would
not be reasonably likely to cause or create a Material Adverse
Effect and (iv) (A) Liens securing Indebtedness permitted by
Section 6.8(c) (other than the IDFA Indebtedness) so long as
neither such Indebtedness nor such Liens were incurred or granted
in contemplation of such acquisition and such Liens are granted
only on the related properties or interests acquired by Borrower
or its Subsidiaries and (B) Liens existing on the Effective Date
securing the IDFA Indebtedness and any Liens in continuation
thereof or replacement or substitution therefor so long as the
Allowed Value of the subject property or interest is not greater
than the Allowed Value on the Effective Date of the property or
interest then the subject of such permitted Liens; provided that
any property or interest which is the subject of a Lien permitted
under this clause (iv) shall not be an Eligible Property or an
Eligible Mortgage.
6.10. Fiscal Year. Change the fiscal year end of
Borrower or any of its Subsidiaries from December 31 to any other
date without the prior written consent of Agent.
6.11. Chief Executive Office. Change the name of
Borrower or the chief executive office of Borrower unless
Borrower has given Administrative Agent at least 15 Business
Days' prior written notice of any such change.
6.12. Amendment of Certain Agreements. Amend,
supplement or otherwise modify (a) the Advisory Agreement, or (b)
the Declaration of Trust in a manner which would be reasonably
likely to cause a Material Adverse Effect, in either case without
the prior written consent of Agent.
6.13. Payments Not to Exceed Appraised Value. Pay
consideration in an amount greater than the Appraised Value for
the acquisition of any Facility.
SECTION 7. EVENTS OF DEFAULT
7.1. Events of Default. Upon the occurrence of any of
the following events (each an "Event of Default"):
79<PAGE>
(a) Payments. Borrower shall fail to pay any
principal of or interest on any Note, or Borrower or any of its
Subsidiaries shall fail to pay any other amount payable
hereunder, when due in accordance with the terms thereof or
hereof; or
(b) Representations and Warranties. Any
representation or warranty made or deemed made by Borrower or any
of its Subsidiaries herein or by any Person in any other Loan
Document or which is contained in any certificate, document or
financial or other statement furnished at any time under or in
connection with this Agreement or any other Loan Document shall
prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) Certain Covenant Defaults. Borrower shall default
in the observance or performance of any agreement contained in
Section 6 of this Agreement, or the Advisor shall default in the
observance or performance of any material provision of the
Subordination Agreement; or
(d) Certain Other Covenant Defaults. Borrower or any
other party to any of the Loan Documents (other than Agent,
Administrative Agent and the Lenders hereunder) shall default in
the observance or performance of any other provision of this
Agreement or any of the other Loan Documents, and such default
shall continue unremedied for a period of 20 days; or
(e) Cross-Default. Borrower or any of its
Subsidiaries shall (i) default in any payment of principal of or
interest on any Indebtedness (other than the Notes) in respect of
money borrowed or Capitalized Lease Obligations or incurred for
the deferred purchase price of property or services or evidenced
by a note, debenture or other similar written obligation to pay
money, or in the payment of any Contingent Obligation (other than
the guarantees of Subsidiaries of Borrower given in Section 9,
which shall be subject to Section 7.1(d)), beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument
or agreement under which such Indebtedness or Contingent
Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any
such Indebtedness or Contingent Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto,
or any other event shall occur, the effect of which default or
other event is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to become due
prior to its stated maturity or such Contingent Obligation to
become payable; or
80<PAGE>
(f) Qualification as REIT. Either Agent or the
Majority Lenders shall have determined in good faith, and shall
have so given notice to Borrower, that Borrower has at any time
ceased to be in a position to qualify, or has not qualified, as a
real estate investment trust for any of the purposes of the
provisions of the Code applicable to real estate investment
trusts; provided that no Event of Default under this Section
7.1(f) shall be deemed to have occurred and be continuing if,
within 10 days after notice of any such determination is given to
Borrower, Borrower shall have furnished each Lender with an
opinion of Borrower's tax counsel (who shall be satisfactory to
the Majority Lenders provided that the Majority Lenders may not
unreasonably withhold their approval) to the effect that Borrower
is then in a position to so qualify, or has so qualified, as the
case may be, which opinion shall not contain any material
qualification unsatisfactory to the Majority Lenders; or
(g) Insolvency, Etc. There shall be an Insolvency
Event with respect to Borrower or any of its Subsidiaries or the
Advisor; or
(h) ERISA. (i) Any Person shall engage in any
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (ii) any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Termination Event shall occur or (iv) any other
event or condition shall occur or exist with respect to a Plan or
a Multiemployer Plan; and in each case in clauses (i) through
(iv) above, such event or condition, together with all other such
events or conditions, if any, could subject Borrower or any of
its Subsidiaries to any tax, penalty or other liabilities in the
aggregate material in relation to the business, operations,
property or financial or other condition of Borrower and its
Subsidiaries, taken as a whole; or
(i) Certain Judgments. One or more judgments or
decrees shall be entered against Borrower or any of its
Subsidiaries involving in the aggregate a liability (not paid or
fully covered by insurance) of $250,000 or more and all such
judgments or decrees shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry
thereof; or
(j) Certain Ownership of Borrower. Barry M. Portnoy
and Gerard M. Martin (or any Person in respect of which either or
both of them own more than 50% of the securities having ordinary
voting power for the election of directors) shall cease at any
time to hold beneficially and of record, in the aggregate, at
least 750,000 shares of the issued and outstanding Common Shares
and each other class of equity securities of Borrower (adjusted
for any division, reclassification or stock dividend in respect
81<PAGE>
of Common Shares) or such lesser amount as shall be approved by
Agent; or
(k) Change of Control of Advisor. Barry M. Portnoy
and Mr. Gerard M. Martin shall cease at any time to have the
power to direct the management and policies of HRPT Advisors; or
(l) Investment Grade Operators and Mortgagors. More
than 50% of the aggregate Allowed Value of the Properties and
Mortgage Interests shall be attributable to Properties and
Mortgage Interests having the same "investment grade Person" (or
any of that Person's Affiliates; provided that for the purposes
of this Section 7.1(l), so long as there is no material change in
their practices and procedures in place at the Effective Date to
provide for arm's-length dealings, Marriott International, Inc.
and its Affiliates and Host Marriott Corporation and its
Affiliates will not be treated as Affiliates of each other) as
Mortgagor or Operator thereof (with an "investment grade Person"
being one whose long-term senior debt is rated BBB- or higher by
Standard & Poor's Corporation or Baa3 or higher by Moody's
Investors Service, Inc. (or similarly rated by any successor to
either of such rating agencies)); or
(m) Operators and Mortgagors Generally. Except in the
case of Mortgagors or Operators which are "investment grade
Persons" (as defined in Section 7.1(l)), more than 40% of the
aggregate Allowed Value of the Properties and Mortgage Interests
shall be attributable to Properties and Mortgage Interests having
the same Person (or any of that Person's Affiliates; provided
that for the purposes of this Section 7.1(m) so long as there is
no material change in their practices and procedures in place at
the Effective Date to provide for arm's-length dealings, Marriott
International, Inc. and its Affiliates and Host Marriott
Corporation and its Affiliates will not be treated as Affiliates
of each other) as Mortgagor or Operator thereof; or
(n) Rehabilitation Treatment Assets. More than 40%
of the aggregate Allowed Value of the Properties and Mortgage
Interests shall be attributable to Properties and Mortgages
consisting of Rehabilitation Treatment Assets; or
(o) Acute Care Assets. More than 15% of the
aggregate Allowed Value of the Properties and Mortgage Interests
shall be attributable to Properties and Mortgages consisting of
Acute Care Assets; or
(p) Psychiatric Care Assets. Any of the aggregate
Allowed Value of the Properties and Mortgage Interests shall be
attributable to Properties or Mortgages consisting of Psychiatric
Care Assets other than Psychiatric Care Assets owned, operated or
financed by Borrower and its Subsidiaries as of the date hereof;
or
82<PAGE>
(q) Hotels and Lodging Facilities. Any of the
aggregate Allowed Value of the Properties and Mortgage Interests
shall be attributable to Properties and Mortgages consisting of
hotels or other lodging facilities other than the Courtyard
Lodgings; or
(r) Advisor. HRPT Advisors shall cease to be the
sole Advisor to Borrower pursuant to and in accordance with the
Advisory Agreement, without Agent's prior written consent or the
Advisory Agreement shall be materially amended, supplemented or
modified without Agent's prior written consent; or
(s) Loan Documents. From and after the Effective
Date, any guarantee given by a Subsidiary of Borrower in Section
9 or any Loan Document shall be terminated or otherwise shall
cease to be in full force and effect or shall cease to give the
Lenders the rights, powers and privileges purported to be created
thereby or any party thereto other than Agent and the Lenders
shall cease to be, or shall assert that it is not, bound thereby
in accordance with its terms;
then, and in any such event, (a) if such event is an Event of
Default specified in paragraph (g) above, automatically the
Commitments shall immediately terminate and the Loans hereunder
(with accrued interest thereon) and all other amounts owing under
this Agreement, the Notes and any other Loan Document shall
immediately become due and payable, and (b) if such event is any
other Event of Default, either or both of the following actions
may be taken: (i) Agent may, or upon the request of the Majority
Lenders, Agent shall, by notice to Borrower, declare the
Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (ii) Agent may, or upon the
request of the Majority Lenders, Agent shall, by notice of
default to Borrower, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this
Agreement, the Notes and any other Loan Document to be due and
payable forthwith, whereupon the same shall immediately become
due and payable. Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of
any kind are hereby expressly waived.
7.2. Annulment of Acceleration. If payment on the
Loans and the Notes is accelerated in accordance with Section 7.1
of this Agreement, then and in every such case, the Majority
Lenders may, by an instrument delivered to Borrower (and to Agent
and/or Administrative Agent, as applicable, to the extent it is
or they are not participating in the giving of notice) annul such
acceleration and the consequences thereof; provided that at the
time such acceleration is annulled:
(a) all arrears or interest on the Loans and the Notes
83<PAGE>
and all other sums payable in respect of the Loans and pursuant
to this Agreement, the Notes and each other Loan Document (except
any principal of or interest or premium on the Loans and the
Notes and other sums which have become due and payable only by
reason of such acceleration) shall have been duly paid; and
(b) every other Default or Event of Default shall have
been duly waived or otherwise cured;
provided, further, that no such annulment shall extend to or
affect any subsequent Default or Event of Default or impair any
right consequent thereon.
7.3. Cooperation by Borrower. To the extent that it
lawfully may, Borrower agrees that it will not (and that it will
cause its Subsidiaries not to) at any time insist upon or plead,
or in any manner whatever claim or take any benefit or advantage
of any applicable present or future stay, extension or moratorium
law, which may affect observance or performance of the provisions
of this Agreement or of any Note or any other Loan Document.
SECTION 8. THE AGENTS
8.1. Appointment of Agent and Administrative Agent.
(a) Each Lender hereby irrevocably designates and
appoints Kleinwort Benson as Agent of such Lender and each of
Wells Fargo Bank, National Association and the GBP Agent (as
defined in the definition of "Administrative Agent"), as
Administrative Agent of such Lender (with their respective
functions as set forth in the definition of "Administrative
Agent") (the Agent and Administrative Agent collectively being
the "Loan Agents", and, for the purposes of Sections 8.1(c),
8.1(g), 8.1(h) and 8.1(l), Co-Agent shall also be deemed to be a
"Loan Agent") under this Agreement and the Loan Documents and the
other documents or instruments delivered pursuant to or in
connection herewith or therewith and each such Lender hereby
irrevocably authorizes each Loan Agent, for such Lender, to take
such action on behalf of each Lender under the provisions of the
Loan Documents and to exercise such powers and perform such
duties as are expressly delegated to such Loan Agent by the terms
of the Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in the Loan Documents, no Loan Agent shall
have any duties or responsibilities other than those expressly
set forth in the Loan Documents, nor any fiduciary relationship
with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be
read into the Loan Documents or otherwise exist against either
Loan Agent.
(b) Each Loan Agent may execute any of its duties
84<PAGE>
under the Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Loan Agent
shall be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
(c) None of the Loan Agents nor any of their
respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it under or in
connection with the Loan Documents (except for its gross
negligence or willful misconduct), or (ii) responsible in any
manner to any Lender for any recitals, statements,
representations or warranties made by Borrower or any of its
Subsidiaries or any other Person contained in the Loan Documents
or in any certificate, report, statement or other document
referred to or provided for in, or received by either Loan Agent
under or in connection with, the Loan Documents (including,
without limitation, any Appraisal or valuation or any certificate
or other report relating to the value of any Property or any
Mortgage Interest), or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of the Loan Documents
or otherwise or for any failure of Borrower or any of its
Subsidiaries or any other Person to perform its obligations under
the Loan Documents. The Loan Agents shall not be under any
obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in,
or conditions of, the Loan Documents, or to inspect the
properties, books or records of Borrower or any of its
Subsidiaries or any other Person or to insure, protect or
preserve any of the property of Borrower or any of its
Subsidiaries or any other Person.
(d) Each Loan Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation reasonably
believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation,
counsel to Borrower or its Subsidiaries), independent accountants
and other experts selected by such or the other Loan Agent. Each
Loan Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with such
Loan Agent.
(e) Each Loan Agent shall be fully justified in
failing or refusing to take any action under the Loan Documents
unless it shall first receive such advice or concurrence of the
Majority Lenders as it deems appropriate or it shall first be
85<PAGE>
indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. Each Loan Agent
shall in all cases be fully protected in acting, or in refraining
from acting, under the Loan Documents in accordance with a
request of the Majority Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
(f) No Loan Agent shall be deemed to have knowledge or
notice of the occurrence of any Event of Default or event, act or
condition which with notice or lapse of time, or both, would
constitute an Event of Default hereunder unless such Loan Agent
shall have received notice from the other Loan Agent, a Lender or
Borrower referring to this Agreement, describing such event, act
or condition or Event of Default and stating that such notice is
a "notice of default". In the event that a Loan Agent receives
such a notice, such Loan Agent shall give prompt notice thereof
to the Lenders and (provided such notice is not received from the
other Loan Agent) to the other Loan Agent. Each Loan Agent shall
take such action with respect to the rights and remedies given to
such Loan Agent pursuant to the terms of the Loan Documents as
shall be reasonably directed by the Majority Lenders; provided
that, unless and until such Loan Agent shall have received such
directions, such Loan Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, as it shall
deem advisable in the best interests of the Lenders.
(g) Each Lender expressly acknowledges that none of
the Loan Agents nor any of their officers, directors, employees,
agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by either
Loan Agent hereinafter taken or hereinbefore taken in connection
with the Existing Loan Agreement, including any review of the
affairs of Borrower or any of its Subsidiaries, shall be deemed
to constitute any representation or warranty by that Loan Agent
to any Lender. Each Lender represents to the Loan Agents that it
has, independently and without reliance upon either Loan Agent or
any other Lender, and based on such documents and information as
it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial
and other condition and creditworthiness of Borrower and its
Subsidiaries, each Operator, each Mortgagor and each Credit
Support Obligor, and made its own decision to make its loans
hereunder and enter into this Agreement, and that it has
satisfied itself independently, without reliance on either of the
Loan Agents or any of their respective officers, directors,
employees, agents, attorneys-in-fact or affiliates, as to the
compliance of the transactions contemplated hereby with all legal
and regulatory requirements applicable to such Lender. Each
Lender expressly acknowledges that its representation in the
previous sentence shall not be restricted or construed in any way
86<PAGE>
to import any reliance on either Loan Agent or any other Lender
as a result of any duties or other actions which may have been
undertaken by that Loan Agent or other Lender in connection with
the Existing Loan Agreement, and, where such Lender is itself
also a party to the Existing Loan Agreement, that such Lender's
decision to make its Loans hereunder and enter into this
Agreement is made independently of its decisions to enter into
the Existing Loan Agreement and to make any loans thereunder.
Each Lender also represents that it will, independently and
without reliance upon either Loan Agent or any other Lender, and
based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action
under this Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of
Borrower and its Subsidiaries, any Operator, any Mortgagor or any
Credit Support Obligor. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by
that Loan Agent hereunder, neither Loan Agent shall have any duty
or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property,
financial and other condition or credit-worthiness of Borrower
and its Subsidiaries which may come into its possession or the
possession of any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
(h) Each Lender agrees to indemnify, defend (with
counsel selected by each Loan Agent) and hold each Loan Agent in
its capacity as such (to the extent not reimbursed by Borrower
and without limiting the obligation of Borrower to do so), and
such Loan Agent's respective officers, directors, shareholders,
employees and agents, ratably according to the aggregate loan
percentages set forth opposite its name on Schedule 1 hereto,
harmless for, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including without limitation at any time
following the payment of the Notes) be imposed on, incurred by or
asserted against such Loan Agent in any way relating to or
arising out of the Loan Documents or the transactions
contemplated thereby or any action taken or omitted by such Loan
Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of
such liabilities, obligations, losses, damages, penalties,
actions, judgements, suits, costs, expenses or disbursements
resulting primarily from such Loan Agent's willful misconduct or
gross negligence. The agreements in this Section shall survive
the payment of the Notes.
(i) Each Loan Agent and its affiliates may make loans
to and generally engage in any kind of business with Borrower or
87<PAGE>
any of its Subsidiaries as though such Loan Agent were not a Loan
Agent hereunder. With respect to its pro rata share of the Loan
made or extended by it and any Note issued to it, each Loan Agent
shall have the same rights and powers under this Agreement as any
Lender and may exercise the same as though it were not a Loan
Agent. The terms "Lender" and "Lenders" shall include each Loan
Agent in its individual capacity.
(j) A Loan Agent may resign as Loan Agent upon 30
days' written notice to the Lenders. In the event that a Loan
Agent shall enter receivership, then the Lenders (other than the
Lender which is acting as such Loan Agent, if applicable) may, by
unanimous consent, remove such Loan Agent as Loan Agent under
this Agreement. If a Loan Agent shall resign as such Loan Agent
under this Agreement or a Loan Agent shall be removed, then the
Majority Lenders shall within 30 days of such resignation or
removal or, in the absence of such appointment, the resigning or
removed Loan Agent shall, appoint a successor agent for the
Lenders, whereupon such successor agent shall succeed to the
rights, powers and duties of such Loan Agent, and the term
"Agent" or "Administrative Agent", as applicable, shall mean such
successor agent effective upon its appointment, and the former
Loan Agent's rights, powers and duties as Loan Agent shall be
terminated, without any other or further act or deed on the part
of such former Loan Agent or any of the parties to this Agreement
or any holders of the Notes. After any retiring Loan Agent's
resignation hereunder as Loan Agent or any Loan Agent's removal,
the provisions of this Section 8.1 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was a
Loan Agent under this Agreement.
(k) Each Lender agrees to use its best efforts
promptly upon an officer responsible for the administration of
this Agreement becoming aware of any development or other
information which may have a Material Adverse Effect or MAC to
notify the other Lenders of the same. Each Loan Agent agrees
that it shall promptly deliver to each Lender copies of all
notices, demands, statements and communications which such Loan
Agent gives to Borrower, except for routine notices of payment
due under the Loan Documents and other miscellaneous notices,
demands, statements and communications, the failure of delivery
of which to each Lender shall not have a material adverse effect
on any Lender. The foregoing notwithstanding, no Loan Agent
shall have any liability to any Lender, nor shall a cause of
action arise against any Loan Agent, as a result of the failure
of such Loan Agent to deliver to any Lender any notice, demand,
statement or communication required to be delivered by it under
this Section 8.1(k), except to the extent such failure is due to
the gross negligence or wilful misconduct of such Loan Agent.
(l) Each Loan Agent shall endeavor to exercise the
same care in administering the Loan Documents as it exercises
88<PAGE>
with respect to similar transactions in which it is involved and
where no other co-lenders or participants are involved; provided
that the liability of such Loan Agent for failing to do so shall
be limited as provided in the preceding paragraphs of this
Section 8.1.
(m) Each Lender agrees that, as between it and any
Loan Agent, any Loan Document or Appraisal, or other report or
document with respect to which the approval of such Lender is
required hereunder, sent to it for review shall be deemed
consented to by it for purposes of any approval thereof by any
Loan Agent if such Lender does not give to such Loan Agent
written notice of its objection thereto within five Business Days
of its receipt thereof. The foregoing shall be for the benefit
of such Loan Agent only and shall not be deemed a consent under
any other provision of this Agreement or to confer any rights on
Borrower or any of its Subsidiaries under this Agreement in any
manner whatsoever.
SECTION 9. SUBSIDIARY GUARANTIES
9.1 Guaranties.
In order to induce the Lenders to enter into this
Agreement and to make the Loans to Borrower hereunder, each
Subsidiary of Borrower other than Church Creek Corporation agrees
as follows:
(a) Each such Subsidiary of Borrower hereby
unconditionally (subject to the next paragraph) and irrevocably
guarantees, as primary obligor and not merely as surety, the full
and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal and interest
(including, without limitation, interest which, but for the
filing of a petition in bankruptcy with respect to Borrower would
accrue hereunder) on all Loans made to Borrower, and the full and
punctual payment of all other amounts payable by Borrower under
this Agreement (including amounts that would become due but for
the operation of the automatic stay under Section 362(a) of the
United States Bankruptcy Code). Upon failure by Borrower to pay
punctually any such amount, each such Subsidiary shall forthwith
on demand pay the amount not so paid as if that Subsidiary
instead of Borrower were expressed to be the principal obligor.
The obligations of each Subsidiary of Borrower
under this Section 9 shall be limited to a maximum aggregate
amount equal to the largest amount that would not render its
obligations subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of the United States Bankruptcy Code
or any applicable provisions of comparable state law, in each
case after giving effect to all other liabilities of the relevant
Subsidiary (contingent or otherwise) that are relevant under
89<PAGE>
those laws.
In order to provide for just and equitable
contribution among the Subsidiaries of Borrower, each such
Subsidiary agrees that if any other Subsidiary makes payments
under this Section 9 in an aggregate amount in excess of the net
value of the benefits received by such other Subsidiary and its
own Subsidiaries from extensions of credit under this Agreement,
then the Subsidiary which has made such excess payments shall
have a right of contribution against the other Subsidiaries of
Borrower for such excess. However, this right of contribution
shall be subject to Section 9.1(e) in all respects.
Each Subsidiary of Borrower acknowledges that the
giving by it of this guarantee is a condition precedent to the
making or maintenance of the Loans to Borrower and also
acknowledges that a portion of the proceeds of the Loans may be
advanced to it by Borrower, and accordingly the obligations
guaranteed are being incurred for, and will inure to, its
benefit.
(b) The obligations of each Subsidiary of Borrower
hereunder shall be unconditional, irrevocable, direct and
absolute and, without limiting the generality of the foregoing,
shall not be released, discharged or otherwise affected by (and,
to the fullest extent permitted by law, each such Subsidiary
waives its rights in connection with):
(i) any extension, increase, renewal, settlement,
compromise, waiver or release in respect of any obligation
of Borrower hereunder, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to
this Agreement;
(iii) any release, impairment, non-perfection or
invalidity of any direct or indirect security (if any) for
any obligation of Borrower under this Agreement;
(iv) any change in the trust existence, structure or
ownership of Borrower, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting
Borrower or its assets or any resulting release or discharge
of any obligation of Borrower contained in the Agreement;
(v) the existence of any claim, set-off or other
rights which such Subsidiary may have at any time against
Borrower, any Lender or any other Person, whether in
connection herewith or any unrelated transactions; provided
that nothing herein shall prevent the assertion of any such
claim by separate suit or compulsory counterclaim;
90<PAGE>
(vi) any invalidity or unenforceability relating to or
against Borrower for any reason of this Agreement, or any
provision of applicable law or regulation purporting to
prohibit the payment by Borrower of the principal or
interest on any Loan or any other amount payable by Borrower
under this Agreement; or
(vii) any other act or omission to act or delay of
any kind by Borrower, any Lender or any other Person or any
other circumstance whatsoever which might, but for the
provisions of this Section 9, constitute a legal or
equitable discharge of or defense to such Subsidiary's
obligations hereunder.
(c) Each such Subsidiary's obligations hereunder shall
remain in full force and effect until this Agreement shall have
terminated and the principal and interest on all Loans and all
other amounts payable by Borrower hereunder shall have been paid
in full. Each such Subsidiary further agrees that its guarantee
hereunder shall continue to be effective or be reinstated, as the
case may be, if at any time payments, or any part thereof, of
principal of or interest on any obligation of Borrower is
rescinded or must otherwise be restored by Agent or any Lender
upon the bankruptcy or reorganization of Borrower or otherwise.
(d) Each such Subsidiary irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided
for herein, as well as any requirement that at any time any
action be taken by any Person against Borrower or any other
Person.
(e) Each Subsidiary irrevocably waives any and all
rights to which it may be entitled, by operation of law or
otherwise, upon making any payment hereunder to be subrogated to
the rights of the payee against Borrower with respect to such
payment or against any direct or indirect security therefor, or
otherwise to be reimbursed, indemnified or exonerated by or for
the account of Borrower in respect thereof.
SECTION 10. GENERAL
10.1 CHOICE OF LAW. THIS AGREEMENT AND THE NOTES
SHALL BE CONTRACTS UNDER AND SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
10.2 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
ETC. NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, THE
NOTES OR ANY OTHER LOAN DOCUMENT, EACH OF BORROWER AND EACH OF
ITS SUBSIDIARIES HEREBY IRREVOCABLY (a) SUBMITS TO THE
NON-EXCLUSIVE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT
IN THE STATE OF NEW YORK IN ANY SUIT, ACTION OR OTHER LEGAL
91<PAGE>
PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE
OTHER LOAN DOCUMENTS; (b) AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH SUIT, ACTION OR OTHER LEGAL PROCEEDING MAY BE HEARD AND
DETERMINED IN, AND ENFORCED IN AND BY, ANY SUCH COURT; (c) WAIVES
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO VENUE IN ANY
SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM; (d)
AGREES TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, OR IN ANY OTHER MANNER
PERMITTED BY LAW, TO ANY THEN ACTIVE AGENT FOR SERVICE OF PROCESS
("PROCESS AGENT") AT ANY SPECIFIED ADDRESS OR TO BORROWER AT ITS
ADDRESS SET FORTH HEREIN OR TO SUCH OTHER ADDRESS OF WHICH
ADMINISTRATIVE AGENT (WITH A COPY TO AGENT TO FOLLOW) SHALL HAVE
BEEN NOTIFIED IN WRITING (SUCH SERVICE TO BE EFFECTIVE ON THE
EARLIER OF RECEIPT THEREOF OR, IN THE CASE OF SERVICE BY MAIL,
THE 5TH DAY AFTER DEPOSIT OF SUCH SERVICE IN THE MAILS AS
AFORESAID), AND HEREBY WAIVES ANY CLAIM OF ERROR ARISING OUT OF
SERVICE OF PROCESS BY ANY METHOD PROVIDED FOR HEREIN OR ANY CLAIM
THAT SUCH SERVICE WAS NOT EFFECTIVELY MADE; (e) AGREES THAT THE
FAILURE OF ITS PROCESS AGENT TO GIVE ANY NOTICE OF ANY SUCH
SERVICE OF PROCESS TO IT SHALL NOT IMPAIR OR AFFECT THE VALIDITY
OF SUCH SERVICE OR ANY JUDGMENT BASED THEREON; (f) TO THE EXTENT
THAT BORROWER OR ANY SUCH SUBSIDIARY HAS ACQUIRED, OR HEREAFTER
MAY ACQUIRE, ANY IMMUNITY FROM JURISDICTION OF ANY SUCH COURT OR
FROM LEGAL PROCESS THEREIN, WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY; (g) WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN CONNECTION WITH,
OR WITH RESPECT TO, ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING
RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN
DOCUMENTS, (i) ANY CLAIM THAT IT IS IMMUNE FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH
RESPECT TO IT OR ANY OF ITS PROPERTY, (ii) ANY CLAIM THAT IT IS
NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, AND
(iii) ANY RIGHT TO A JURY TRIAL; AND (h) AGREES THAT AGENT AND
EACH LENDER SHALL HAVE THE RIGHT TO BRING ANY LEGAL PROCEEDINGS
(INCLUDING A PROCEEDING FOR ENFORCEMENT OF A JUDGMENT ENTERED BY
ANY OF THE AFOREMENTIONED COURTS) AGAINST BORROWER OR SUCH
SUBSIDIARY IN ANY OTHER COURT OR JURISDICTION IN ACCORDANCE WITH
APPLICABLE LAW. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT OF AGENT AND EACH LENDER TO BRING
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES
OR ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY OTHER
JURISDICTION OR THE RIGHT, IN CONNECTION WITH ANY LEGAL ACTION OR
PROCEEDING WHATSOEVER, TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. EACH OF BORROWER AND EACH OF ITS SUBSIDIARIES
HEREBY IRREVOCABLY DESIGNATES THE FIRM OF SULLIVAN & WORCESTER,
WITH OFFICES AT 767 THIRD AVENUE, NEW YORK, NEW YORK 10017,
ATTENTION: CHARLES M. DUBROFF, AS ITS PROCESS AGENT TO RECEIVE
SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS ON ITS BEHALF IN ANY
LEGAL PROCEEDING IN THE STATE OF NEW YORK AND SUCH PROCESS AGENT,
BY ITS ACKNOWLEDGEMENT BELOW, IRREVOCABLY AGREES TO SO ACT AS
PROCESS AGENT FOR SERVICE OF PROCESS. IF SUCH PROCESS AGENT
92<PAGE>
SHALL FOR ANY REASON FAIL TO ACT, OR BE PREVENTED FROM ACTING, AS
PROCESS AGENT, NOTICE THEREOF SHALL IMMEDIATELY BE GIVEN TO AGENT
BY REGISTERED OR CERTIFIED MAIL AND BORROWER AGREES (FOR ITSELF
AND ITS SUBSIDIARIES) PROMPTLY TO DESIGNATE ANOTHER PROCESS AGENT
IN THE CITY OF NEW YORK, SATISFACTORY TO AGENT UNDER THIS
AGREEMENT, TO SERVE IN PLACE OF SUCH PROCESS AGENT AND DELIVER TO
AGENT WRITTEN EVIDENCE OF SUCH SUBSTITUTE PROCESS AGENT'S
ACCEPTANCE OF SUCH DESIGNATION. SUCH ACTING PROCESS AGENT SHALL
NEVERTHELESS CONTINUE TO SERVE AS PROCESS AGENT UNTIL ITS
SUCCESSOR IS DULY APPOINTED.
10.3 Notices; Certain Payments. (a) All notices,
consents and other communications to Borrower or any of its
Subsidiaries, Agent, Administrative Agent or any Lender relating
hereto to be effective shall be in writing and shall be deemed
made (i) if by certified mail, return receipt requested, or
facsimile, when received, (ii) if by telex, when sent answerback
received, and (iii) if by courier, when receipted for, in each
case addressed to them as follows or at such other address as
either of them may designate by written notice to the other: (w)
Borrower and its Subsidiaries: Health and Retirement Properties
Trust, 400 Centre Street, Newton, Massachusetts 02158, Attention:
President and Treasurer (telecopier no. (617) 332-2261) with a
copy to Sullivan & Worcester, One Post Office Square, Boston,
Massachusetts 02109, Attention: Lena G. Goldberg, Esq.
(telecopier no. (617) 338-2880); (x) Agent: Kleinwort Benson
Limited, P.O. Box 560, 20 Fenchurch Street, London, EC3P 3DB,
England, Attention: Robin Tilbury, Loans Administration
(telecopier no. 011-44-171-956-6105) with a copy to Kleinwort
Benson (North America), Incorporated, 200 Park Avenue, 25th
Floor, New York, New York 10166, Attention: David Watanabe and
Peter Kettle (telecopier no. 1-212-983-5981); (y) Administrative
Agent: Wells Fargo Bank, National Association, Corporate Banking,
420 Montgomery Street, San Francisco, California 94163,
Attention: (in the case of a Notice of Borrowing) Lupe Barajas
(telecopier no. 1-415-989-4319) or (in all other cases) Richard
Clapp (telecopier no. 1-415-421-1352); and (z) the Lenders : to
the addresses specified opposite such Lenders' respective names
on Schedule 1 hereto, with a copy to O'Melveny & Myers, 153 East
53rd Street, New York, New York 10022, Attention: Christopher D.
Hall, Esq. (telecopier no. (212) 326-2061).
(b) All payments on account of the Loans and the
related Notes pursuant hereto or pursuant to the other Loan
Documents shall be made to the Borrower's account with
Administrative Agent at:
Wells Fargo Bank, N.A.
San Francisco, California
ABA No. 121000248
Account Name: Health and Retirement
Properties Trust
93<PAGE>
Account No. 4518073184
together with irrevocable instructions to Administrative Agent to
apply such payments under this Agreement. Administrative Agent
may by written notice to Borrower specify or change its account
and address for payment instructions hereunder.
10.4 No Waivers; Cumulative Remedies; Entire
Agreement; Headings; Successors and Assigns; Counterparts;
Severability. No action, failure, delay or omission by Agent,
Administrative Agent or any Lender in exercising any rights,
powers, privileges and remedies under this Agreement, the Notes
or any other Loan Document, or otherwise, shall constitute a
waiver of, or impair, any of the rights, powers, privileges or
remedies of Agent, Administrative Agent or any Lender hereunder
or thereunder. No single or partial exercise of any such right,
power, privilege or remedy shall preclude any other or further
exercise thereof or the exercise of any other right, power,
privilege or remedy. Such rights, powers, privileges and
remedies are cumulative and not exclusive of any rights, powers,
privileges and remedies provided by law or otherwise available,
including, but not limited to, rights to specific performance (to
the extent permitted by law) or any covenant or agreement
contained in this Agreement or any of the Loan Documents. No
waiver of any such right, power, privilege or remedy shall be
effective unless given in writing by the Majority Lenders or as
otherwise provided in Section 10.6. No waiver of any such right,
power, privilege or remedy shall be deemed a waiver of any other
right, power, privilege or remedy hereunder or thereunder. Every
right, power, privilege and remedy given by this Agreement or by
applicable law to Agent, Administrative Agent or any Lender may
be exercised from time to time and as often as may be deemed
expedient by Agent, Administrative Agent or any Lender. This
Agreement, the Notes and the other Loan Documents constitute the
entire agreement of the parties relating to the subject matter
hereof and thereof and there are no verbal agreements relating
hereto or thereto. Section headings herein shall have no legal
effect. This Agreement, the Notes and the other Loan Documents
(including all covenants, representations, warranties, rights,
powers, privileges and remedies made or granted herein or
therein) shall inure to the benefit of, and be enforceable by,
Agent, Administrative Agent and each Lender and their respective
successors and assigns, except as otherwise expressly provided in
this Agreement. Neither Borrower nor any of its Subsidiaries may
directly or indirectly assign or transfer (whether by agreement,
by operation of law or otherwise) any of its rights or
obligations and liabilities hereunder without the prior written
consent of each Lender. Each of the Lenders may make, carry or
transfer its pro rata share of the Loans at, to or for the
account of, any of its branch offices or the office of one or
more of its Affiliates. Further, each Lender may sell
participations in all or any part of its pro rata share of the
94<PAGE>
Loans or its Commitments or any other interest herein or in its
Notes to another bank or Person, or with the prior written
consent of Agent and Borrower (not to be unreasonably withheld;
provided that Borrower's consent shall not be required if an
Event of Default has occurred and is continuing) each Lender may
assign its rights and delegate its obligations under this
Agreement and any of the other Loan Documents and with the prior
written consent of Agent and Borrower (not to be unreasonably
withheld; provided that Borrower's consent shall not be required
if an Event of Default has occurred and is continuing) may assign
all or any part of its pro rata share of the Loans or its
Commitment or any other interest herein or in its Notes to
another bank or other Person in amounts not less than $5,000,000
(or any lesser amount in the case of an assignment by one Lender
to another Lender) to any one assignee, in which event (i) in the
case of an assignment, upon notice thereof by such Lender to
Borrower, Agent and Administrative Agent, the assignee shall
have, to the extent of such assignment (unless otherwise provided
therein), the same rights and benefits as it would have if it
were such Lender hereunder and the holder of a Note and to such
extent shall be deemed a "Lender" for all purposes of this
Agreement and the other Loan Documents, and (ii) in the case of a
participation, the participant shall not have any rights under
this Agreement or any Note or any other Loan Document (the
participant's rights against such Lender in respect of such
participation to be those set forth in the agreement executed by
such Lender in favor of the participant relating thereto). In
the case of such a participation, the terms of the agreement or
agreements pursuant to which any such participation is created
shall not confer upon the participant any right to vote its
interest as a participant in respect of any matter relating to
the Loans other than (w) the extension of the maturity of any
Note or the time of payment of interest thereon, (x) the
reduction of the rate of interest payable hereunder, (y) the
reduction of any other amount payable hereunder or (z) the
increase of such participant's share of the relevant Lender's
Commitment hereunder. Each Lender may furnish any information
concerning Borrower and its Subsidiaries, the Advisor, any
Operator, any Mortgagor and any Credit Support Obligor in the
possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants).
In the event that any Lender shall assign or sell any of its
Notes, such Lender shall at the time of such assignment or sale
give written notice to Agent, Administrative Agent and Borrower
of the name and address of the assignee (including the name of
the account officer if applicable). Each Lender agrees that such
Lender shall not assign or offer to assign interests in its Notes
in such a manner which would require that the Notes be registered
under applicable securities laws. Each Lender represents that it
is acquiring its respective Note for investment and not with a
view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act of 1933, as amended;
95<PAGE>
provided that the disposition of the Notes in accordance with the
other provisions of this Section 10.4 shall at all times remain
within the Lenders' control. This Agreement may be executed in
any number of separate counterparts, each of which shall be
deemed an original and all of which taken together shall be
deemed to constitute one and the same instrument. In the event
any one or more of the provisions contained in this Agreement or
any Notes or any other Loan Documents should be held invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
or therein shall not in any way be affected or impaired thereby.
The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal, or unenforceable
provisions.
10.5 Survival. The obligations of Borrower under
Sections 2.6, 2.10, 2.12, 2.13, 2.14, 2.15, 5.12 and 10.7 (and
all other indemnification and expense reimbursement obligations
of Borrower under this Agreement) shall survive the repayment of
the Loans and the cancellation of the Notes and the termination
of the other obligations of Borrower hereunder and under the
other Loan Documents. All representations and warranties made
hereunder and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the Notes and the
funding of the Loans.
10.6 Amendments and Waivers. With the written consent
of the Majority Lenders, Agent and Borrower may, from time to
time, enter into written amendments, supplements or modifications
hereto or to any of the other Loan Documents and with the written
consent of the Majority Lenders, Agent on behalf of the Lenders
may execute and deliver to Borrower a written instrument waiving,
on such terms and conditions as Agent may specify in such
instrument, any of the requirements of this Agreement or the
Notes or any Default or Event of Default and its consequences;
provided that no such waiver and no such amendment, supplement or
modification shall (a) extend the maturity of any Note, or reduce
the rate or extend the time of payment of interest thereon, or
reduce or postpone the due date for the principal amount thereof
or any other amount payable in connection herewith, or change the
amount or terms of any Lender's Commitment or amend, modify or
waive any provision of this Section or reduce the percentage
specified in the definition of Majority Lenders, or consent to
the assignment or transfer by Borrower or any of its
Subsidiaries of any of its rights and obligations under this
Agreement, in each case without the written consent of all the
Lenders, (b) amend, modify or waive any provision of Section 8 or
otherwise change any of the rights or obligations of either or
both of the Loan Agents under any of the Loan Documents without
96<PAGE>
the written consent of the affected Loan Agent or Loan Agents (as
applicable) at the time, (c) with respect to Section 6.7, amend,
modify or waive (y) any provision thereof in a manner which
permits Borrower or any of its Subsidiaries to own, operate,
acquire or fund income producing real property interests or
facilities which are not Courtyard Lodgings or which do not offer
health care or related services or rehabilitation or retirement
services, or incidental activities to any of the foregoing, or
(z) the proviso to Section 6.7, without, in the case of both
clauses (y) and (z) of this clause (c), the written consent of
the Majority Lenders, Agent, Co-Agent and Borrower (provided that
any other type of amendment, modification or waiver of Section
6.7 shall only require the written consent of the Majority
Lenders, Agent and Borrower) or (d) amend, modify or waive any
provision of this Section 10.6 without the written consent of all
Lenders. In the case of any waiver, Borrower, Agent,
Administrative Agent and the Lenders shall be restored to their
former position and rights hereunder and under the Outstanding
Notes, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Default or Event of Default, or impair
any right consequent thereon.
10.7 Payment of Expenses and Taxes. Borrower agrees
(a) to pay or reimburse each of Agent and Administrative Agent on
demand for all its out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of,
and any amendment, supplement or modification to, this Agreement,
the Notes and any other Loan Documents or other documents
prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without
limitation, the reasonable fees and disbursements of counsel to
Agent and Administrative Agent, (b) to pay or reimburse each
Lender, Agent and Administrative Agent on demand for all its
costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the Notes, the
other Loan Documents and any such other documents, or the
satisfaction or review of conditions precedent to any borrowing
other than that occurring on the Effective Date, including,
without limitation, reasonable fees and disbursements of counsel
to Agent and Administrative Agent and, in the case of enforcement
or preservation of any rights under this Agreement, counsel to
the several Lenders, and (c) to pay, indemnify, and to hold each
Lender, Agent and Administrative Agent and their respective
officers, directors, employees and agents harmless for, from and
against, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be
payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of
any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or
97<PAGE>
in respect of, this Agreement, the Notes, the other Loan
Documents and any such other documents, and (d) to pay,
indemnify, and hold each Lender, Agent and Administrative Agent
and their respective officers, directors, employees and agents
harmless for, from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement,
performance and administration of, or in any other way arising
out of or relating to, this Agreement, the Notes, the other Loan
Documents and any such other documents, including, without
limitation, any claim resulting or arising out of the presence of
Hazardous Materials in any of the Properties (all the foregoing,
collectively, the "indemnified liabilities"), provided that
Borrower shall have no obligation hereunder with respect to
indemnified liabilities arising from (i) the willful misconduct
of any such Lender or (ii) legal proceedings commenced against
any such Lender by any security holder or creditor thereof
arising out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such.
10.8 Adjustments; Setoff.
(a) If any Lender (a "benefitted Lender") shall at any
time receive any payment of all or part of its Loan, or interest
thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in clause (g) of Section
7.1, or otherwise) in a greater proportion than any such payment
to or collateral received by any other Lender, if any, in respect
of such other Lenders' Loan, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders such
portion of each such other Lender's Loan, or shall provide such
other Lenders with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted
Lender to share the excess payment or benefits of such collateral
or proceeds ratably with each of the Lenders; provided that if
all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest. Borrower
expressly consents to the foregoing arrangements and agrees that
each Lender so purchasing a portion of another Lender's Loan may
exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if
such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right,
without prior notice to Borrower, any such notice being expressly
waived by Borrower to the extent permitted by applicable law,
upon
98<PAGE>
(i) the filing of a petition under any of the
provisions of the federal bankruptcy act or amendments
thereto, by or against;
(ii) the making of an assignment for the benefit of
creditors by;
(iii) the application for the appointment, or the
appointment, of any receiver of, or of any of the property
of;
(iv) the issuance of any execution against any of the
property of;
(v) the issuance of a subpoena or order, in
supplementary proceedings, against or with respect to any of
the property of; and/or
(vi) or the issuance of a warrant of attachment against
any of the property of;
Borrower to set off and apply against any indebtedness, whether
matured or unmatured, of Borrower to such Lender, any amount
owing from such Lender to Borrower, at or at any time after, the
happening of any of the above-mentioned events, and the aforesaid
right of set off may be exercised by such Lender against Borrower
or against any trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of Borrower, or against anyone
else claiming through or against Borrower or such trustee in
bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment
creditor, notwithstanding the fact that such right of set off
shall not have been exercised by such Lender prior to the making,
filing or issuance, or service upon such Lender of, or of notice
of, any such petition; assignment for the benefit of creditors;
appointment or application for the appointment of a receiver; or
issuance of execution, subpoena or order of warrant. Each Lender
agrees promptly to notify Borrower, Agent and Administrative
Agent after any such set off and application made by such Lender,
provided that the failure to give such notice shall not affect
the validity of such set off and application. The proceeds of
any set off or application pursuant to this subsection (b) of
Section 10.8 shall be distributed in accordance with the
preceding subsection (a).
10.9 NONLIABILITY OF TRUSTEES. THE DECLARATION OF
TRUST ESTABLISHING BORROWER, DATED OCTOBER 9, 1986, A COPY OF
WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF
THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND
RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE
99<PAGE>
DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY,
JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST,
BORROWER. ALL PERSONS DEALING WITH BORROWER, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR
THE PERFORMANCE OF ANY OBLIGATION.
[Remainder of page left blank intentionally]
100<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York
by their proper and duly authorized officers as of the day and
year first above written.
HEALTH AND RETIREMENT PROPERTIES TRUST
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: Executive Vice President
KLEINWORT BENSON LIMITED,
as Agent and as a Lender
By: /s/ Patrick F. Donelan
Name: Patrick F. Donelan
Title: Director
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent and as a Lender
By: /s/ Lenny Mason
Name: Lenny Mason
Title: Assistant Vice President
NATWEST BANK N.A. (formerly National
Westminster Bank, USA), as Co-Agent and
as a Lender
By: /s/ Paul Chau
Name: Paul Chau
Title: Vice President
By: ___________________________________
Name:_________________________________
Title:________________________________
S-1<PAGE>
FLEET BANK OF MASSACHUSETTS, as a Lender
By: /s/ Ginger Stolzenthaler
Name: Ginger Stolzenthaler
Title: Vice President
THE DAIWA BANK, LIMITED, as a Lender
By: /s/ Daniel Eastman
Name: Daniel Eastman
Title: Executive Vice President
By: /s/ Stephen F. O'Sullivan
Name: Stephen F. O'Sullivan
Title: Executive Officer
MITSUI LEASING (USA) INC., as a Lender
By: /s/ Toshiaki Nagano
Name: Toshiaki Nagano
Title: Executive Vice President
BANK HAPOALIM B.M., as a Lender
By: /s/ Nancy J. Lushan
Name: Nancy J. Lushan
Title: Vice President
By: /s/ Paul J. Bresler
Name: Paul J. Bresler
Title: Vice President
DRESDNER BANK AG, New York Branch and
Grand Cayman Branch, as a Lender
By: /s/ Andrew P. Nesi
Name: Andrew P. Nesi
Title: Vice President
By: /s/ Andrew K. Mittag
Name: Andrew K. Mittag
Title: Vice President
CREDIT LYONNAIS, Cayman Island Branch,
as a Lender
By: /s/ Xavier Ratouis
Name: Xavier Ratouis
Title: Authorized Signature
S-2<PAGE>
For the purposes of Section 9 and the guaranties given therein:
HOSPITALITY PROPERTIES, INC.
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: President
HEALTH AND RETIREMENT PROPERTIES
INTERNATIONAL, INC.
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: President
S-3<PAGE>
Acknowledgement by Process Agent
We hereby acknowledge and accept the designation of our
firm at our address of 767 Third Avenue, New York, New York 10017
(or such other address as the Process Agent may notify the Agent
and Administrative Agent under the foregoing Agreement) as
Process Agent for Health and Retirement Properties Trust,
Hospitality Properties, Inc. and Health and Retirement Properties
International, Inc pursuant to Section 10.2 of the foregoing
Agreement.
SULLIVAN & WORCESTER
By: /s/ Lena Goldberg
Sullivan & Worcester
S-4<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
A-1<PAGE>
EXHIBIT B
FORM OF
NOTICE OF BORROWING
B-1<PAGE>
EXHIBIT C
FORM OF
NOTICE OF CONTINUATION/CONVERSION
C-1<PAGE>
EXHIBIT D
FORM OF
SUBORDINATION AGREEMENT
D-1<PAGE>
SCHEDULE 1
LENDERS' COMMITMENTS
LENDER COMMITMENT
Kleinwort Benson Limited $47,500,000
Wells Fargo Bank, National Association
$15,000,000
NatWest Bank N.A. $25,000,000
The Daiwa Bank, Limited $20,000,000
Fleet Bank of Massachusetts $20,000,000
Bank Hapoalim B.M. $20,000,000
Dresdner Bank AG, New York Branch $20,000,000
and Grand Cayman Branch
Credit Lyonnais, $20,000,000
Cayman Island Branch
Mitsui Leasing (USA) Inc.
$12,500,000
Total $200,000,000
CERTAIN LENDING OFFICES
Kleinwort Benson Limited
20 Fenchurch Street
London EC3P 3DB
Tel: (44) 171-623-8000
Fax: (44) 171-623-3598
Attn:______________
Wells Fargo Bank, National Association
Corporate Banking
420 Montgomery Street
San Francisco, California 94163
Tel: (415) 396-5997
Fax: (415) 421-1352
Attn: Lenny Mason
NatWest Bank N.A.
175 Water Street, 28th Floor
S1-1<PAGE>
New York, New York 10038
Tel: (212) 602 2610
Fax: (212) 602 2671
Attn: Paul Chau
The Daiwa Bank, Limited
233 South Wacker Drive
Suite 5400
Chicago, Illinois 60606
Tel: (617) 451-3200
Fax: (617) 423-4884
Attn: Vice President/Credit Administration
Fleet Bank of Massachusetts
75 State Street
Boston, Massachusetts 02109
Tel: (617) 346-1647
Fax: (617) 346-1634
Attn: Ginger Stolzenthaler
Mitsui Leasing (U.S.A.) Inc.
200 Park Avenue, Suite 3214
New York, New York 10166
Tel: (212) 557 0454
Fax: (212) 490 1684
Attn: Ms. Takako Sumi
Bank Hapoalim B.M.
70 Federal Street
Boston, Massachusetts 02110
Tel: (617) 457-1811
Fax: (617) 542-0015
Attn: Nancy Lushan
Dresdner Bank, New York Branch
and Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Tel: (212) 574 0100
Fax: (212) 574 0127
Attn: Andrew Nesi
Credit Lyonnais,
Cayman Island Branch
1301 Avenue of the Americas 20th Floor
New York, New York 10019
Tel: (212) 261 7748
Fax: (212) 261 3440
Attn: Francoise Giacalone
S1-2<PAGE>
S1-3<PAGE>
SCHEDULE 2
PERMITTED EXCEPTIONS
1. Liens of landlords, mechanics, materialmen and other
Liens imposed by law incurred in the ordinary course of
business for sums not yet delinquent or being contested
in good faith; provided that, in each case, any such
Lien is not reasonably likely to cause a MAC; and
provided further that, in the case of any Liens being
so contested, (v) the amount secured thereby is not
material in relation to the Allowed Value of the
affected Property or Mortgage Interest, (w) such
Property or any interest therein would not be in any
danger of being sold, forfeited or lost by reason of
such contest; (y) no insurance coverage required to be
maintained pursuant to this Agreement shall be
cancelled or jeopardized as a result of the contest;
and (z) if required by Agent, Borrower shall have
furnished to Agent a bond, or other security
satisfactory to Borrower, to protect Lenders from any
liability to which it may be exposed as a result of
such contest.
2. In the case of a Property, all Leases for such Property
and the rights of the Operators under such Leases and
any Credit Support Agreements relating to such Leases.
3. In the case of a Mortgaged Property, the Mortgaged
Interest Agreements for such Mortgaged Property and any
Credit Support Agreements relating thereto.
4. Liens for taxes, assessments, water rates, sewer or
other governmental charges or claims, the payment of
which is not, at the time, due.
5. Easements, rights-of-way, rights of access,
encroachments upon or by any Property, in respect of
which affirmative insurance, without payment of
additional premiums, has been provided by a reputable
title insurance company.
6. Easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other
similar charges or encumbrances that, in respect of any
Property, could not reasonably be likely to result in a
MAC.
7. Liens resulting from equipment financings or similar
security arrangements entered into by an Operator.
S2-1<PAGE>
SCHEDULE 3
AMOUNTS OWED UNDER THE EXISTING LOAN AGREEMENT
Kleinwort Benson Limited
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995
$1,176,470.59
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$5,511.68
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$10,261.44
Wells Fargo Bank, N.A.
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $882,352.94
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$4,133.76
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$7,696.08
NatWest Bank, N.A.
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $1,470,588.24
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$6,889.61
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$12,826.80
S3-1<PAGE>
Fleet Bank of Massachusetts
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $1,176,470.59
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$5,511.68
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$10,261.44
The Daiwa Bank, Limited
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $1,176,470.59
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$5,511.68
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$10,261.44
Mitsui Leasing (USA) Inc.
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $735,294.12
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$3,444.80
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$6,413.40
S3-2<PAGE>
Bank Hapoalim B.M.
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $735,294.12
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$3,444.80
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$6,413.40
Dresdner Bank
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $1,176,470.59
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$5,511.68
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$10,261.44
Credit Lyonnais
1. Aggregate principal amount of Existing
Loans outstanding on March 15, 1995 $588,235.29
2. Aggregate interest accrued (whether
or not due and payable) on March 15, 1995
$2,755.84
3. Aggregate commitment fee accrued (whether
or not due and payable) on March 15, 1995
$5,130.72
S3-3<PAGE>
SCHEDULE 4
BORROWER'S SUBSIDIARIES
Name of Subsidiary Jurisdiction of Shares Shares
%
Incorporation Authorized Outstanding
Owned
1. Church Creek Massachusetts 200,000 100 100%
Corporation common
stock
($0.01 par
value)
2. Hospitality Delaware 3,000 100
100%
Properties, Inc. common
stock
($0.01 par
value)
3. Health and Delaware 3,000 100 100%
Retirement common
Properties stock
International, ($0.01 par
Inc. value)
S4-1<PAGE>
SCHEDULE 5
Calculation of the Mandatory Liquid Asset Costs
for any GBP Loans
(a) The Mandatory Liquid Asset Costs for a Loan if denominated
in GBP for each Interest Period for that Loan is calculated
in accordance with the following formula:
BY + L(Y-X) + S(Y-Z)% PER ANNUM
100 - (B+S)
where on the day of the application of the formula:
B is the percentage of Agent's eligible liabilities which
the Bank of England then requires Agent to hold on a
non-interest-bearing deposit account in accordance with
its cash ration requirements;
Y is the rate at which GBP deposits are offered by Agent
to leading banks in the London interbank market at or
about 11.00 A.M. on that day for the relevant period;
L is the percentage of eligible liabilities which (as a
result of the requirements of the Bank of England)
Agent maintains as secured money with members of the
London Discount Market Association or in certain
marketable or callable securities approved by the Bank
of England, which percentage shall (in the absence of
evidence that any other figure is appropriate) be
conclusively presumed to be 5 per cent.;
X is the rate at which secured GBP deposits may be placed
by Agent with members of the London Discount Market
Association at or about 11.00 A.M. on that day for the
relevant period or, if greater, the rate at which GBP
bills of exchange (of a tenor equal to the duration of
the relevant period) eligible for rediscounting at the
Bank of England can be discounted in the London
Discount Market at or about 11.00 A.M. on that day;
S is the percentage for Agent's eligible liabilities
which the Bank of England requires Agent to place as a
special deposit; and
Z is the interest rate per annum allowed by the Bank of
England on special deposits.
(b) For the purposes of this Schedule:
(i) "eligible liabilities" and "special deposits" have the
meanings given to them at the time of application of
S5-1<PAGE>
the formula by the Bank of England; and
(ii) "relevant period" in relation to each Interest Period
means:
(A) if it is 3 months or less, that Interest Period, or
(B) if it is more than 3 months, 3 months.
(c) In the application of the formula, B, Y, L, X, S and Z are
included in the formula as figures and not as percentages,
e.g. if B=0.5% and Y = 15%, BY is calculated as 0.5 x 15.
(d) The formula is applied on the first day of each relevant
period. Each amount is rounded up to the nearest one-
sixteenth of one per cent.
(e) If Agent determines that a change in circumstances has
rendered, or will render, the formula inappropriate, Agent
(after consultation with the Lenders) shall notify Borrower
of the manner in which the Mandatory Liquid Asset Costs for
such Loans will subsequently be calculated. The manner of
calculation so notified by Agent shall, in the absence of
manifest error, be binding on Borrower.
S5-2<PAGE>
SCHEDULE 6
COURTYARD LODGINGS
1. Seattle/Bellevue, WA
2. Atlanta Airport North, GA
3. Minneapolis/Eden Prairie, MN
4. Spartanburg, SC
5. Boston/Danvers, MA
6. Kansas City South, MO
7. Philadelphia Airport, PA
8. Boston/Foxboro, MA
9. Atlanta Midtown, GA
10. Indianapolis/Carmel, IN
11. Dulles/Fairfax, VA
12. Raleigh/Durham Airport, NC
13. Atlanta Cumberland, GA
14. Detroit/Auburn Hills, MI
15. Boston/Milford, MA
16. Boston/Lowell, MA
17. Atlanta/Jimmy Carter Blvd., GA
18. Phoenix Camelback, AZ
19. Boston/Stoughton, MA
20. Scottsdale/Mayo Clinic, AZ
21. Mahwah, NJ
S6-1<PAGE>
EXECUTION
U.S. $200,000,000
SECOND AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
among
HEALTH AND RETIREMENT PROPERTIES TRUST,
as Borrower,
THE LENDERS NAMED HEREIN,
KLEINWORT BENSON LIMITED,
as Agent,
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent
and
NATWEST BANK N.A.
as Co-Agent
Dated as of March 15, 1995<PAGE>
TABLE OF CONTENTS
SECTION PAGE
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 2
1.1. Defined Terms . . . . . . . . . . . . . . . . . . 2
1.2. Other Definitional Provisions . . . . . . . . . . 24
SECTION 2. AMOUNT AND TERMS OF REVOLVING LOANS . . . . . . . 25
2.1. Revolving Loans. . . . . . . . . . . . . . . . . 25
2.2. Notes; Maturity Date. . . . . . . . . . . . . . . 27
2.3. Procedure for Borrowing. . . . . . . . . . . . . 28
2.4. Interest. . . . . . . . . . . . . . . . . . . . . 31
2.5. Duration of Interest Period; Notice of
Continuation/Conversion. . . . . . . . . . . . 32
2.6. Fees. . . . . . . . . . . . . . . . . . . . . . . 33
2.7. Termination or Reduction of Commitment. . . . . . 34
2.8. Optional Prepayments; Mandatory Prepayments. . . 34
2.9. Computation of Interest and Fees. . . . . . . . . 36
2.10. Payments and Currency. . . . . . . . . . . . . . 36
2.11. Use of Proceeds. . . . . . . . . . . . . . . . . 38
2.12. Increased Costs. . . . . . . . . . . . . . . . . 38
2.13. Change in Law Rendering Eurodollar Loans or
Alternate Rate Loans Unlawful . . . . . . . . 40
2.14. Eurodollar Availability. . . . . . . . . . . . . 42
2.15. Indemnities. . . . . . . . . . . . . . . . . . . 43
2.16 Eligible Mortgages and Eligible Properties. . . . 43
SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . 44
3.1. Financial Condition. . . . . . . . . . . . . . . 44
3.2. No Material Adverse Effect. . . . . . . . . . . . 45
3.3. Existence; Compliance with Law. . . . . . . . . . 45
3.4. Operator, Advisor, Credit Support Obligors;
Compliance with Law. . . . . . . . . . . . . . 45
3.5. Power; Authorization; Enforceable Obligations. . 46
3.6. No Legal Bar. . . . . . . . . . . . . . . . . . . 46
3.7. No Material Litigation. . . . . . . . . . . . . . 46
3.8. No Default. . . . . . . . . . . . . . . . . . . . 46
3.9. Ownership of Mortgage Interests and Property;
Liens. . . . . . . . . . . . . . . . . . . . . 47
3.10. No Burdensome Restrictions. . . . . . . . . . . 49
3.11. Taxes. . . . . . . . . . . . . . . . . . . . . . 49
3.12. Federal Regulations. . . . . . . . . . . . . . . 49
3.13. Employees. . . . . . . . . . . . . . . . . . . . 50
3.14. ERISA. . . . . . . . . . . . . . . . . . . . . . 50
3.15. Status as REIT. . . . . . . . . . . . . . . . . 50
3.16. Restrictions on Incurring Indebtedness. . . . . 50
3.17. Subsidiaries. . . . . . . . . . . . . . . . . . 50
3.18. Compliance with Environmental Laws. . . . . . . 50
3.19. Pollution; Hazardous Materials. . . . . . . . . 50
3.20. Securities Laws. . . . . . . . . . . . . . . . . 51
3.21. Declaration of Trust, By-Laws, Advisory
Contract, etc. . . . . . . . . . . . . . . . . 51
i<PAGE>
3.22. Disclosures. . . . . . . . . . . . . . . . . . . 51
3.23. Medicare and Medicaid Certification . . . . . . 51
3.24. Offering, Etc., of Securities . . . . . . . . . 52
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . 52
4.1. Conditions to Effectiveness . . . . . . . . . . . 52
4.2. Conditions Precedent to Loans . . . . . . . . . . 53
SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . 54
5.1. Financial Statements. . . . . . . . . . . . . . . 55
5.2. Certificates; Other Information. . . . . . . . . 56
5.3. Payment of Obligations . . . . . . . . . . . . . 57
5.4. Conduct of Business and Maintenance of
Existence . . . . . . . . . . . . . . . . . . 57
5.5. Leases and Mortgage Interests; Credit Support
Agreements . . . . . . . . . . . . . . . . . . 57
5.6. Maintenance of Property, Insurance. . . . . . . 57
5.7. Inspection of Property; Books and Records;
Discussions . . . . . . . . . . . . . . . . . 58
5.8. Notices. . . . . . . . . . . . . . . . . . . . . 58
5.9. Appraisals and Other Valuations. . . . . . . . . 59
5.10. Meetings. . . . . . . . . . . . . . . . . . . . 59
5.11. REIT Requirements. . . . . . . . . . . . . . . . 60
5.12. Indemnification. . . . . . . . . . . . . . . . . 60
5.13. Changes in GAAP. . . . . . . . . . . . . . . . . 60
5.14. Refinancing of Loans . . . . . . . . . . . . . . 61
5.15. Further Assurances; Restrictions on Negative
Pledges . . . . . . . . . . . . . . . . . . . 61
5.16. Currency Arrangements . . . . . . . . . . . . . 61
SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . 61
6.1. Financial Covenants. . . . . . . . . . . . . . . 62
6.2. Restricted Payments. . . . . . . . . . . . . . . 62
6.3. Merger; Sale of Assets; Termination and Other
Actions . . . . . . . . . . . . . . . . . . . 62
6.4. Transactions with Affiliates. . . . . . . . . . . 63
6.5. Subsidiaries . . . . . . . . . . . . . . . . . . 63
6.6. Accounting Changes. . . . . . . . . . . . . . . . 63
6.7. Change in Nature of Business. . . . . . . . . . . 63
6.8. Indebtedness. . . . . . . . . . . . . . . . . . . 63
6.9. No Liens. . . . . . . . . . . . . . . . . . . . . 65
6.10. Fiscal Year. . . . . . . . . . . . . . . . . . . 65
6.11. Chief Executive Office. . . . . . . . . . . . . 65
6.12. Amendment of Certain Agreements . . . . . . . . 65
SECTION 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 65
7.1. Events of Default. . . . . . . . . . . . . . . . 66
7.2. Annulment of Acceleration. . . . . . . . . . . . 69
7.3. Cooperation by Borrower. . . . . . . . . . . . . 69
SECTION 8. THE AGENTS . . . . . . . . . . . . . . . . . . . 69
8.1. Appointment of Agent and Administrative Agent. . 69
SECTION 9. SUBSIDIARY GUARANTIES . . . . . . . . . . . 73
ii<PAGE>
9.1 Guaranties. . . . . . . . . . . . . . . . . . . 73
SECTION 10. GENERAL . . . . . . . . . . . . . . . . . . 75
10.1 CHOICE OF LAW. . . . . . . . . . . . . . . . . . 75
10.2 SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; ETC. . . . . . . . . . . . . . . . . . 75
10.3 Notices; Certain Payments. . . . . . . . . . . . 77
10.4 No Waivers; Cumulative Remedies; Entire
Agreement; Headings; Successors and Assigns;
Counterparts; Severability. . . . . . . . . . 78
10.5 Survival. . . . . . . . . . . . . . . . . . . . . 80
10.6 Amendments and Waivers. . . . . . . . . . . . . . 80
10.7 Payment of Expenses and Taxes. . . . . . . . . . 80
10.8 Adjustments; Setoff. . . . . . . . . . . . . . . 81
10.9 NONLIABILITY OF TRUSTEES. . . . . . . . . . . . . 82
EXHIBITS
EXHIBIT A - FORM OF PROMISSORY NOTE
EXHIBIT B - FORM OF NOTICE OF BORROWING
EXHIBIT C - FORM OF NOTICE OF CONTINUATION/CONVERSION
EXHIBIT D - FORM OF SUBORDINATION AGREEMENT
SCHEDULES
Schedule 1 - LENDERS' COMMITMENTS AND CERTAIN LENDING OFFICES
Schedule 2 - PERMITTED EXCEPTIONS
Schedule 3 - AMOUNTS OWED UNDER THE EXISTING LOAN AGREEMENT
Schedule 4 - BORROWER'S SUBSIDIARIES
Schedule 5 - MANDATORY LIQUID ASSET COSTS (FOR GBP LOANS)
Schedule 6 - COURTYARD LODGINGS
iii<PAGE>
Exhibit 10.24
PURCHASE OPTION AGREEMENT
THIS PURCHASE OPTION AGREEMENT (this "Agreement") is entered into
as of this 11th day of February, 1994, by and between HEALTH AND
REHABILITATION PROPERTIES TRUST, a Maryland real estate investment trust
("HRP"), and HORIZON HEALTHCARE CORPORATION, a Delaware corporation
("HHC").
W I T N E S S E T H :
WHEREAS, HRP is the owner of certain real property and the
improvements thereon as more particularly described in Exhibits
A-1 through A-7, attached hereto and made a part hereof (collectively,
the "Properties"); and
WHEREAS, on the date hereof, HRP and HHC are entering into lease
agreements (collectively, the "Leases"), pursuant to which HRP is
leasing to HHC and HHC is leasing from HRP the Properties; and
WHEREAS, HHC would like an option to purchase each of the
Properties and HRP is willing to grant such an option to HHC, all
subject to and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt
and legal sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. Purchase Option. Provided no Default or Event of Default (as
defined therein) shall have occurred and be continuing under the Leases,
HHC shall, subject to and upon the terms and conditions set forth in
this Agreement, have the option to purchase one or more of the
Properties. The purchase price for each of the Properties shall be an
amount equal to the allocable purchase price set forth on Exhibit B,
attached hereto and made a part hereof, plus the cost of any
improvements made or purchased by HRP with respect thereto after the
date of this Agreement, without deduction or adjustment for depreciation
or otherwise. HHC may exercise its option to purchase one or more of
the Properties described in Exhibits A-1 through A-6 at any time after
January 1, 1994 and prior to the first to occur of December 31, 2003 and
the sooner termination of the Leases (the "Option Period") and may
exercise its option to purchase the property described in Exhibit A-7 at
any time after July 1, 1995 and prior to the expiration of the Option
Period (or at such other time as HRP may approve), in either case, by
the giving of sixty (60) days prior written notice (any such notice, an
"Exercise Notice") thereof to HRP. The failure of HHC to give an
Exercise Notice with respect to any Property prior to the expiration of
the Option Period shall be deemed a waiver by HHC of its option to
purchase the Properties pursuant to this Agreement; it being expressly
understood and agreed that time shall be of the essence with respect to
the giving of any such Exercise Notice. Any Exercise Notice shall be<PAGE>
-2-
accompanied by a refundable deposit (the "Option Deposit") in the amount
of five percent (5%) of the purchase price of the applicable Property.
2. Certain Terms and Conditions. HHC's right to purchase one or
more of the Properties pursuant to this Agreement shall be subject to
the following additional terms and conditions:
(i) the first Property acquired pursuant to this Agreement shall
be the Property located in Slidell, Louisiana;
(ii) among the first four (4) Properties acquired pursuant to this
Agreement shall be either the Property located in Middleboro,
Massachusetts or the Property located in Cannonsburg, Pennsylvania;
(iii) among the first six (6) Properties acquired pursuant to this
Agreement shall be both the Property located in Middleboro,
Massachusetts and the Property located in Cannonsburg, Pennsylvania; and
(iv) HHC shall not have the right to acquire more than one (1)
Property in any consecutive twelve (12) month period during the Option
Period.
HHC shall have no right to acquire the Properties other than in a
manner consistent with this Section 2.
3. Purchase and Sale. Any closing pursuant to this Agreement
shall occur sixty (60) days after the giving of the applicable Exercise
Notice. The purchase price for each Property shall be payable in cash
or by wire transfer of immediately available Federal funds. Any
applicable Property shall be conveyed by HRP to HHC by insurable deed
with warranties and other instruments customary therefor in the
jurisdiction in which the applicable property is located. Upon such
conveyance, the applicable Lease shall be terminated. All closing costs
shall be paid by HHC.
4. Default. In the event of any default by HHC in purchasing any
Property subsequent to the giving of the applicable Exercise Notice (for
reasons other than HHC's determination of sufficiency of title, any
encumbrances and matters of record affecting such Property), HRP's sole
remedy shall be to retain that portion of the applicable Option Deposit
equal to the reasonable costs and expenses (including, without
limitation, attorneys' fees) incurred by HRP in connection with the
exercise of such option by HHC and HHC shall, thereafter, have no
further right to purchase any of the Properties pursuant to this
Agreement.
5. Financing. In the event that HHC shall elect to obtain
financing for the purchase of any Property pursuant to this Agreement
from a third party, HHC shall give HRP notice thereof, which notice
shall set forth in reasonable detail the terms of such financing, shall
identify the source thereof and shall include a copy of any applicable
term sheet, letter of intent or commitment letter. HRP shall have the
right, exercisable by the giving of notice to HHC within 10 days after
such notice from HHC, to provide financing for such acquisition on the
same terms and conditions as offered by such third party. In the event<PAGE>
-3-
HRP shall exercise such option, HHC shall be obligated to obtain such
financing from HRP on the terms and conditions set forth in HHC's notice
to HRP. In the event HRP shall decline to provide such financing or
shall fail to give such notice to HHC, HHC shall be free to obtain such
financing from the third party and on the terms and conditions set forth
in HHC's notice.
6. Notices. (a) Any and all notices, demands, consents,
approvals, offers, elections and other communications required or
permitted under this Agreement shall be deemed adequately given if in
writing and the same shall be delivered either in hand, by telecopier
with written acknowledgment of receipt, or by mail or Federal Express or
similar expedited commercial carrier, addressed to the recipient of the
notice, postpaid and registered or certified with return receipt
requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
(b) All notices required or permitted to be sent hereunder shall
be deemed to have been given for all purposes of this Agreement upon the
date of acknowledged receipt, in the case of a notice by telecopier,
and, in all other cases, upon the date of receipt or refusal, except
that whenever under this Agreement a notice is either received on a day
which is not a business day or is required to be delivered on or before
a specific day which is not a business day, the day of receipt or
required delivery shall automatically be extended to the next business
day.
(c) All such notices shall be addressed,
If to HRP, to:
Health and Rehabilitation Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. David J. Hegarty
[Telecopier No. (617) 332-2261]
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Lena G. Goldberg, Esq.
[Telecopier No. (617) 338-2880]
if to HHC to:
Horizon Healthcare Corporation
6001 Indian School Road, NE, Fl. 5
Albuquerque, NM 87110
Attn: Neal Elliott
[Telecopier No. (505) 881-5097]
with a copy to:<PAGE>
-4-
Horizon Healthcare Corporation
6001 Indian School Road, NE, Fl. 5
Albuquerque, NM 87110
Attn: Scot Sauder, Esq.
[Telecopier No. (505) 881-5097]
(d) By notice given as herein provided, the parties hereto and
their respective successors and assigns shall have the right from time
to time and at any time during the term of this Agreement to change
their respective addresses effective upon receipt by the other parties
of such notice and each shall have the right to specify as its address
any other address within the United States of America.
7. Waivers, Etc. Any waiver of any term or condition of this
Agreement, or of the breach of any covenant, representation or warranty
contained herein, in any one instance, shall not operate as or be deemed
to be or construed as a further or continuing waiver of any other breach
of such term, condition, covenant, representation or warranty or any
other term, condition, covenant, representation or warranty, nor shall
any failure at any time or times to enforce or require performance of
any provision hereof operate as a waiver of or affect in any manner such
party's right at a later time to enforce or require performance of such
provision or any other provision hereof. This Agreement may not be
amended, nor shall any waiver, change, modification, consent or
discharge be effected, except by an instrument in writing executed by or
on behalf of the party against whom enforcement of any amendment,
waiver, change, modification, consent or discharge is sought.
8. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted assigns.
This Agreement is not intended and shall not be construed to create any
rights in or to be enforceable in any part by any other persons.
9. Severability. If any provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative or
unenforceable as applied to any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions or in all cases, because of the
conflict of any provision with any constitution or statute or rule of
public policy or for any other reason, such circumstance shall not have
the effect of rendering the provision or provisions in question invalid,
inoperative or unenforceable in any other jurisdiction or in any other
case or circumstance or of rendering any other provision or provisions
herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with
such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if
such invalid, inoperative or unenforceable provision had never been
contained herein and such provision reformed so that it would be valid,
operative and enforceable to the maximum extent permitted in such
jurisdiction or in such case.
10. Counterparts, Etc. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This<PAGE>
-5-
Agreement constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and shall supersede and take the
place of any other instruments purporting to be an agreement of the
parties hereto relating to the subject matter hereof. Each of the
parties hereto shall cooperate with one another in order to consummate
the transactions contemplated by this Agreement.
11. Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
12. Memorandum of Option. Neither HRP nor HHC shall record this
Agreement. However, HRP and HHC shall promptly, upon the request of
either, enter into a short form memorandum of this Agreement, in form
suitable for recording under the laws of the states in which the
Properties are located, in which reference to the options herein
contained shall be made. The party requesting such memorandum shall pay
all costs and expenses incurred in recording such memorandum.
13. Limitation of Liability. The Declaration of Trust of HRP, as
amended, is duly filed in the Office of the Department of Assessments
and Taxation of the State of Maryland, provides that the name "Health
and Rehabilitation Properties Trust" refers to the trustees under the
Declaration collectively as Trustees, but not individually or
personally, and that no trustee, officer, shareholder, employee or agent
of HRP shall be held to any personal liability, jointly or severally,
for any obligation of, or claim against, HRP. All persons dealing with
HRP, in any way, shall look only to the assets of HRP for the payment of
any sum or the performance of any obligation.
14. Governing Law. This Agreement shall be interpreted,
construed, applied and enforced in accordance with the laws of The
Commonwealth of Massachusetts applicable to contracts between residents
of Massachusetts which are to be performed entirely within
Massachusetts, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required by
this Agreement is made or required to be made; or (iii) where any breach
of any provision of this Agreement occurs, or any cause of action
otherwise accrues; or (iv) where any action or other proceeding is
instituted or pending; or (v) the nationality, citizenship, domicile,
principle place of business, or jurisdiction of organization or
domestication of any party; or (vi) whether the laws of the forum
jurisdiction otherwise would apply the laws of a jurisdiction other than
The Commonwealth of Massachusetts; or (vii) any combination of the
foregoing.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the
provisions of this Lease may be brought and prosecuted in such court or
courts located in The Commonwealth of Massachusetts as is provided by
law; and the parties consent to the jurisdiction of said court or courts
located in The Commonwealth of Massachusetts and to service of process
by registered mail, return receipt requested, or by any other manner
provided by law.<PAGE>
-6-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as a sealed instrument as of the date above first written.
HEALTH AND REHABILITATION
PROPERTIES TRUST
By: David J. Hegarty
Its: Executive Vice President
HORIZON HEALTHCARE CORPORATION
By: Neal Elliott
Its: President<PAGE>
EXHIBIT A-1
[See attached copy.]<PAGE>
EXHIBIT A-2
[See attached copy.]<PAGE>
EXHIBIT A-3
[See attached copy.]<PAGE>
EXHIBIT A-4
[See attached copy.]<PAGE>
EXHIBIT A-5
[See attached copy.]<PAGE>
EXHIBIT A-6
[See attached copy.]<PAGE>
EXHIBIT A-7
[See attached copy.]<PAGE>
EXHIBIT B
Purchase Price
Hyannis $ 8,300,000
North Andover $12,500,000
Middleboro $17,000,000
Worcester $17,500,000
Cannonsburg $15,600,000
Slidell $24,500,000
Boston $25,000,000<PAGE>
Exhibit 12 - Computation of Ratios
<TABLE>
<CAPTION>
HEALTH AND RETIREMENT PROPERTIES TRUST
(In thousands)
YEARS ENDED DECEMBER 31,
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
EARNINGS:
INCOME BEFORE $14,280 $22,079 $27,243 $37,738 $57,878
GAIN ON SALE OF
PROPERTIES AND
EXTRAORDINARY
ITEMS
ADJUSTMENTS FOR 9,997 12,305 10,419 6,529 10,096
FIXED CHARGES
TOTAL EARNINGS $24,277 $34,384 $37,662 $44,267 $67,974
FIXED CHARGES:
INTEREST EXPENSE $ 9,511 $11,741 $ 9,466 $6,217 $ 8,965
AMORTIZATION 486 584 943 312 1,131
TOTAL FIXED $ 9,997 $12,305 $10,419 $ 6,529 $10,096
CHARGES
RATIO OF 2.4X 2.8X 3.6X 6.8X 6.7X
EARNINGS TO
FIXED CHARGES
/TABLE
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME BUSINESS NAME INCORPORATION
<S> <C> <C>
Church Creek Corporation Same
Massachusetts
Health and Retirement Same Delaware
Properties International, Inc.
Hospitality Properties, Inc. Same Delaware
Hospitality
Project
Hospitality
Properties
(Delaware), Inc.
</TABLE> <PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporaltion by reference in
Amendment No. 1 to the Registration Statement (Form S-3
No. 33-53173) of Health and Retirement Properties Trust
and in the related Prospectus of (a) our report dated
February 9, 1995, with respect to the financial
statements and schedules of Health and Retirement
Properties Trust included in this Annaul Report (Form
10-K) for the year ended December 31, 1994, and (b) our
report dated February 21, 1995 with respect to the
consolidated financial statements and schedules of
GranCare, Inc. included in GranCare, Inc.'s Annual
Report on Form 10-K for the year ended December 31,
1994, all filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 1995<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation by reference of our report dated July
22, 1994, included in Horizon Healthcare Corporation's
Form 10-K for the year ended May 31, 1994, into Health
and Retirement Properties Trust previously filed
Registration Statement File No. 33-52875.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
March 30, 1995
POWER OF ATTORNEY
The undersigned Officers and Trustees of Health and Retirement
Properties Trust hereby severally constitue Mark J. Finkelstein, David
J. Hegarty, Gerard M. Martin and Barry M. Portnoy, and each of them, to
sign for us and in our names in the capacities indicated below, the
Annual Report on Form 10-K herewith filed with the Securities and
Exchange Commission, and any and all amendments thereto, hereby
ratifying and confirming our signatures as they may be signed by our
said attorneys to the Annual Report on Form 10-K and any and all
amendments to the Annual Report on Form 10-K.
Witness our hands and seals on the dates set forth below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ MARK J. FINKELSTEIN President and Chief March 30, 1995
Mark J. Finkelstein Executive Officer
/s/ DAVID J. HEGARTY Executive Vice March 30, 1995
David J. Hegarty President and Chief
Financial Officer
/s/ JOHN L. HARRINGTON Trustee March 30, 1995
John L. Harrington
/s/ ARTHUR G. KOUMANTZELIS Trustee March 30, 1995
Arthur G. Koumantzelis
/s/ REV. JUSTINIAN MANNING Trustee March 30, 1995
Rev. Justinian Manning,
C.P.
/s/ GERARD M. MARTIN Trustee March 30, 1995
Gerard M. Martin
/s/ BARRY M. PORTNOY Trustee March 30, 1995
Barry M. Portnoy
/TABLE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's audited financial statements incorporated by reference to the
accompanying Form 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 59,766
<SECURITIES> 0
<RECEIVABLES> 4,712
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,478
<PP&E> 673,083
<DEPRECIATION> 39,570
<TOTAL-ASSETS> 840,206
<CURRENT-LIABILITIES> 17,854
<BONDS> 216,513
<COMMON> 574
0
0
<OTHER-SE> 601,465
<TOTAL-LIABILITY-AND-EQUITY> 840,206
<SALES> 0
<TOTAL-REVENUES> 86,683
<CGS> 0
<TOTAL-COSTS> 19,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (10,000)
<INTEREST-EXPENSE> 8,965
<INCOME-PRETAX> 51,872
<INCOME-TAX> 0
<INCOME-CONTINUING> 57,878
<DISCONTINUED> 0
<EXTRAORDINARY> (1,953)
<CHANGES> 0
<NET-INCOME> 49,919
<EPS-PRIMARY> .95
<EPS-DILUTED> 0
</TABLE>
