<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-12566
---------------
G & L REALTY CORP.
(Exact name of Registrant as specified in its charter)
Maryland 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. Bedford Drive
Beverly Hills, California 90210
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (310)273-9930
---------------
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 .
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
November 12, 1999 was 2,846,700 shares.
================================================================================
<PAGE>
G&L REALTY CORP.
INDEX
<TABLE>
<CAPTION>
Page
Part I Financial Information Number
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998.................................................................. 3
Condensed Consolidated Statements of Operations for the Three and Nine Month Periods
Ended September 30, 1999 and 1998 (unaudited)...................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended
September 30, 1999 and 1998 (unaudited)............................................ 5-6
Notes to Condensed Consolidated Financial Statements (unaudited)..................... 7-18
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 19-25
Item 3 Quantitative and Qualitative Disclosures about Market Risk........................... 26
Part II Other Information
Item 1 Legal Proceedings.................................................................... 27
Item 2 Changes in Securities................................................................ 27
Item 3 Defaults Upon Senior Securities...................................................... 27
Item 4 Submission of Matters to a Vote of Security Holders.................................. 27-28
Item 5 Other Information.................................................................... 28
Item 6 Exhibits and Reports on Form 8-K..................................................... 29-33
Signature .................................................................................. 34
</TABLE>
Page 2
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-----------------------------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Rental properties (Note 3):
Land $ 33,799 $ 35,059
Building and improvements, net 146,284 142,531
Projects under development 1,550 9,161
-------- --------
Total rental properties 181,633 186,751
Cash and cash equivalents 7,313 1,379
Restricted cash 8,590 4,007
Tenant rent and reimbursements receivable, net 2,412 2,050
Unbilled rent receivable, net 2,203 1,892
Other receivables, net 214 208
Mortgage loans and notes receivable, net 15,615 12,101
Investments in unconsolidated affiliates (Note 6) 9,724 7,469
Deferred charges and other assets, net (Note 4) 5,134 3,642
-------- --------
TOTAL ASSETS $232,838 $219,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable $160,961 $134,880
Accounts payable and other liabilities 4,383 2,296
Distributions payable 597 1,768
Tenant security deposits 1,269 1,270
-------- --------
Total liabilities 167,210 140,214
-------- --------
Commitments and Contingencies (Note 8) --- ---
Minority interest in consolidated affiliates (2,098) (2,033)
Minority interest in Operating Partnership 200 1,734
STOCKHOLDERS' EQUITY (Note 5):
Preferred shares - $.01 par value, 10,000,000 shares authorized,
liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding as of
September 30, 1999 and December 31, 1998 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding as of
September 30, 1999 and December 31, 1998 14 14
Common shares - $.01 par value, 50,000,000 shares authorized, 3,846,700
and 3,995,000 shares issued and outstanding as of September 30, 1999
and December 31, 1998, respectively 38 40
Additional paid-in capital 88,027 91,709
Distributions in excess of net income (20,568) (12,194)
-------- --------
Total stockholders' equity 67,526 79,584
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $232,838 $219,499
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 3
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1999 1998 1999 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental $ 7,237 $6,386 $21,213 $18,381
Tenant reimbursements 335 219 945 557
Parking 313 378 851 1,111
Interest, loan fees and related income 833 1,095 2,128 3,418
Other 65 33 355 204
-----------------------------------------------------------------
Total revenues 8,783 8,111 25,492 23,671
-----------------------------------------------------------------
EXPENSES:
Property operations 1,951 1,628 5,617 4,545
Depreciation and amortization 1,473 1,213 4,208 3,356
Interest 3,315 2,210 8,827 6,219
General and administrative 857 545 2,314 1,968
Impairment of long-lived assets 6,400 --- 6,400 ---
-----------------------------------------------------------------
Total expenses 13,996 5,596 27,366 16,088
-----------------------------------------------------------------
(Loss) income from operations (5,213) 2,515 (1,874) 7,583
Equity in (loss) earnings of unconsolidated
affiliates 23 43 (247) 196
Minority interest in consolidated affiliates (46) (46) (135) (161)
Minority interest in Operating Partnership 986 (78) 1,072 (221)
-----------------------------------------------------------------
Net (loss) income $(4,250) $2,434 $(1,184) $ 7,397
=================================================================
Per share data:
Basic $ (1.56) $ 0.15 $ (1.68) $ 0.48
=================================================================
Fully diluted $ (1.56) $ 0.15 $ (1.68) $ 0.48
=================================================================
Weighted average shares outstanding:
Basic 3,889 4,090 3,934 4,112
=================================================================
Fully diluted 3,898 4,125 3,946 4,162
=================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 4
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Month Periods Ended September 30,
1999 1998
--------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,184) $ 7,397
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 4,208 3,356
Amortization of deferred loan costs 257 139
Impairment of long-lived assets 6,400 ---
Minority interests (937) 382
Equity in loss (income) from unconsolidated affiliates 247 (196)
Unbilled rent receivable, net (311) (332)
Allowance for doubtful notes and accounts receivable 101 ---
(Increase) decrease in:
Other receivables (116) 498
Tenant rent and reimbursements receivable (463) (390)
Prepaid expense and other assets 101 (82)
Accrued interest receivable and loan fees (906) (1,120)
Increase (decrease) in:
Accounts payable and other liabilities 2,087 (363)
Tenant security deposits (1) 150
--------------- --------------
Net cash provided by operating activities 9,483 9,439
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of rental properties --- (21,926)
Additions to rental properties (2,894) (1,220)
Pre-acquisition costs (850) (326)
Construction-in-progress (4,425) (3,410)
Leasing commissions (408) (401)
Investment in notes and bonds receivable (net) (2,709) (5,531)
Investment in marketable securities --- (1,222)
Principal reductions received on notes receivable 101 4,571
Contributions to unconsolidated affiliates (1,017) (2,517)
Disposition of real estate assets 295 ---
Distributions from unconsolidated affiliates 236 ---
--------------- --------------
Net cash used in investing activities (11,671) (31,982)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 47,030 31,507
Repayment of notes payable (20,949) (8,729)
Deferred financing costs (778) (478)
(Increase) decrease in restricted cash (4,583) 3,095
Purchase of common stock and partnership units (1,684) (1,124)
Minority interest contribution --- 196
Distributions (10,914) (11,020)
--------------- --------------
Net cash provided by financing activities 8,122 13,447
--------------- --------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 5
<PAGE>
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-------------------------------
(Unaudited)
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,934 (9,096)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,379 13,609
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,313 $ 4,513
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest 9,738 $ 6,770
========= ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Distributions declared not yet paid $ 559 $ 1,776
========= ==========
Transfers from projects under development to building $11,262 ---
========= ==========
Preferred distributions due to minority partner $ 21 ---
========= ==========
The Company acquired an interest in an unconsolidated affiliate
for the following non-cash consideration (Note 1):
Land 947
Construction in progress 775
---------
$ 1,722
=========
The Company exchanged its interest in land and construction in progress
for the following non-cash consideration (Note 1):
Investment in unconsolidated affiliates $ 1,722
=========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
Page 6
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
G&L Realty Corp. (the "Company") was formed as a Maryland corporation to
continue the ownership, management, acquisition and development activities
previously conducted by G&L Development, a California general partnership, the
Company's predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following entities:
G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited
partnership (the "Realty Financing Partnership")*
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company
("Hampden")*
G&L Valencia, LLC, a California limited liability company
("Valencia")
G&L Tustin, LLC, a California limited liability company
("Tustin")*
G&L Holy Cross, LLC, a California limited liability company
("Holy Cross")*
G&L Burbank, LLC, a California limited liability company
("Burbank")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company
("Hoquiam")
G&L Lyon, LLC, a California limited liability company ("Lyon")
G&L Coronado (1998), LLC, a California limited liability company
("Coronado")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Tustin, Holy Cross, and Burbank are herein
collectively referred to as the "Financing Entities" and individually as
a "Financing Entity."
The Company, as the sole general partner and as owner of an approximately
86% ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated either in
the State of Delaware or the State of California (collectively, the
"Subsidiaries" and individually, a "Subsidiary"). Each Subsidiary either (i)
owns, as sole general partner or sole managing member, a 1% ownership interest
in its related Financing Entity or (ii) owns no interest and acts as the manager
of the Financing Entity. The remaining 99% ownership interest in each Financing
Entity, which is owned 1% by a Subsidiary, is owned by the Operating
Partnership, acting as sole limited partner or member. Financing Entities in
which a Subsidiary owns no interest are 100% owned by the Operating Partnership.
References in these condensed consolidated financial statements to the
Company include its operations, assets and liabilities including the operations,
assets and liabilities of the Operating Partnership, the Subsidiaries, the
Financing Entities, the Roxbury Partnership (in which the Operating Partnership
owns a 61.75% partnership interest and is the sole general partner), Valencia
(in which the Operating Partnership owns an 80% membership interest and is the
sole managing member), Pacific Gardens (in which the Operating Partnership owns
a 93% membership interest and is a co-managing member) and Hoquiam, Lyon and
Coronado (in which the Operating Partnership owns a 100% interest).
In addition to the Subsidiaries, the Company also owns interests in various
unconsolidated affiliates. Although the Company's investment represents a
significant portion of the capital of such unconsolidated affiliates and the
Company exercises significant influence over the activities of these entities,
the Company does not have the requisite level of voting
Page 7
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
control to include the assets, liabilities and operating activities of these
entities in the condensed consolidated financial statements of the Company. The
entities in which the Company has unconsolidated financial interests are as
follows:
. GLN Capital Co., LLC ("GLN"), a Delaware limited liability company formed
in 1996. GLN is owned 49.9% by the Operating Partnership and 50.1% by an
affiliate of Nomura Asset Capital Corp. ("Nomura"). The purpose of GLN is
to fund loans to the senior care industry.
. Valley Convalescent, LLC ("Valley Convalescent") is a California limited
liability company formed by the Company, through the Operating
Partnership, and Continuum Health Incorporated, a Delaware corporation
("Continuum"). Both the Operating Partnership and Continuum hold a 50%
ownership interest in Valley Convalescent. Continuum is the managing
member of Valley Convalescent, which was formed for the purpose of
acquiring the Valley Convalescent Center located in El Centro,
California.
. G&L - Grabel, San Pedro, LLC ("San Pedro") is a California limited
liability company, formed on March 10, 1998 by the Company through the
Operating Partnership, and Gary Grabel, an experienced MOB manager. The
Company and Gary Grabel contributed to San Pedro 84% and 16% of the
equity, respectively. However, the initial ownership interests of the
parties will be adjusted to 50% as each partner receives a return of its
initial capital contribution through preferred distributions. San Pedro
was formed for the purpose of acquiring four MOBs located at 1360 West
6/th/ St. in San Pedro, California.
. G&L Penasquitos, LLC ("Penasquitos LLC") is a California limited
liability company, formed by the Company on April 24, 1998, through the
Operating Partnership, and Parsons House, LLC, a California limited
liability company ("Parsons"). The Company and Parsons contributed to
Penasquitos LLC 75% and 25% of the equity, respectively. However, the
initial ownership interests of the parties will be adjusted to 50% as
each partner receives a return of its initial capital contribution
through preferred distributions. Penasquitos LLC was formed for the
purpose of acquiring and converting a building located in Rancho
Penasquitos, California into a senior care facility.
. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
formed on April 21, 1998 by the Company, through the Operating
Partnership, and Parsons House, LLC, a California limited liability
company. The Company owns 75% of the total equity in Penasquitos Inc. in
the form of non-voting preferred stock. Parsons holds 25% of the total
equity and all of the voting common stock. Penasquitos Inc. was formed
for the purpose of operating a senior care facility to be built in Rancho
Penasquitos, California.
. GLH Pacific Gardens Corp. ("Pacific Gardens Corp.") is a California
corporation formed on June 25, 1998 by the Company, through the Operating
Partnership, and ASL Santa Monica, Inc., a California corporation
("ASL"). The Company owns 93% of the total equity in Pacific Gardens
Corp. in the form of non-voting preferred stock. ASL holds 7% of the
total equity in the form of common stock. Pacific Gardens Corp. was
formed for the purpose of operating a senior care facility located in
Santa Monica, California, which was purchased by the Company.
. G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California limited
liability company, formed on December 29, 1998, through the Operating
Partnership and Parsons. The Company and Parsons each contributed 50% of
the total equity in Eagle Run. Eagle Run was formed for the purpose of
acquiring a vacant piece of land in Omaha, Nebraska upon which the
members intend to develop a senior care facility.
. G&L Parsons on Eagle Run, Inc. ("Eagle Run Inc.") is a California
corporation formed on December 20, 1998 by the Company, through the
Operating Partnership, and Parsons. Eagle Run Inc. was formed for the
purpose of operating the senior care facility to be constructed in Omaha,
Nebraska on the land acquired by Eagle Run.
. Lakeview Associates, LLC ("Lakeview") is a California limited liability
company, formed on September 2, 1999 by the Company, through the
Operating Partnership and D.D.&F. ("Prestige"), an Oregon general
partnership. The Company and Prestige each contributed 50% of the total
equity of Lakeview. The Company contributed land and construction in
progress in exchange for 50% of the equity of Lakeview and a $1.4 million
note receivable. Prestige contributed $250,000 for a 50% interest in
Lakeview. Lakeview was formed for the purpose of developing a two story,
80 unit, 92 bed assisted living facility in Yorba Linda, California.
Page 8
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
GLN, Valley Convalescent, San Pedro, Penasquitos Inc., Penasquitos LLC, Pacific
Gardens Corp., Eagle Run and Eagle Run Inc. are herein collectively referred to
as the "Unconsolidated Affiliates" and individually as "Unconsolidated
Affiliate."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a self-managed real estate investment trust
("REIT") that acquires, develops, manages, finances and leases health care
properties. The Company's business currently consists of investments in
healthcare properties and in debt obligations secured by healthcare properties.
Investments in healthcare property consists of acquisitions, made either
directly or through joint ventures, in MOBs or senior care facilities which are
leased to healthcare providers. The Company's lending activities consist of
providing short-term secured loans to facilitate third party acquisitions.
Basis of Presentation - The accompanying condensed consolidated
financial statements include the accounts of the Company. The interests in the
Roxbury Partnership, Valencia and Pacific Gardens not owned by the Company have
been reflected as minority interests. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The information presented as of and for the nine month periods ended
September 30, 1999 and 1998 has not been audited by independent accountants, but
includes all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
for such periods. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of results that might be expected for
the full fiscal year.
Certain information and footnote disclosures normally included in
annual financial statements have been omitted. The Company believes that the
disclosures included in these condensed consolidated financial statements are
adequate for a fair presentation and conform to reporting requirements
established by the Securities and Exchange Commission ("SEC"). The condensed
consolidated financial statements as presented herein should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K as filed with the SEC.
Page 9
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------
(in thousands)
<S> <C> <C>
Buildings and improvements.............................. $158,750 $152,618
Tenant improvements..................................... 7,384 5,846
Furniture, fixtures and equipment....................... 2,664 2,560
-------- --------
168,798 161,024
Less accumulated depreciation and amortization.......... (22,514) (18,493)
-------- --------
Total.............................................. $146,284 $142,531
======== ========
</TABLE>
Rental property is recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.............. 40 years
Tenant improvements..................... Life of lease
Furniture, fixtures and equipment....... 5 to 7 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all external costs directly related to
acquisitions are capitalized.
Impairment loss - In September 1999, the Company recorded a non-cash
accounting charge related to the impairment of six New Jersey medical office
buildings owned by the Company as required by SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The fair market value of these buildings were calculated on the basis of
discounted estimated future cash flows and resulted in a write down of the
carrying value of these buildings of $6.4 million. The impairment loss had no
impact on the Company's 1999 cash flow. The decline in value relates to the loss
of rental revenue on these buildings due to the bankruptcy of the former tenant
in November 1998. See Note 8 for further discussion.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------
(in thousands)
<S> <C> <C>
Deferred financing costs................................ $ 3,236 $2,558
Pre-acquisition costs................................... 900 49
Leasing commissions..................................... 1,680 1,272
Prepaid expense and other assets........................ 376 478
------- ------
6,192 4,357
Less accumulated amortization........................... (1,058) (715)
------- ------
Total.............................................. $ 5,134 $3,642
======= ======
</TABLE>
Page 10
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
5. STOCKHOLDERS' EQUITY
Distributions in excess of net income-- The Company has elected to be
treated, for federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of distributions to its
stockholders, at least 95% of its taxable income. In reporting periods in which
distributions exceed net income, stockholders' equity will be reduced by the
distributions in excess of net income in such period and will be increased by
the excess of net income over distributions in reporting periods in which net
income exceeds distributions. For tax reporting purposes, a portion of the
dividends declared represents a return of capital. The following table
reconciles net income and distributions in excess of net income for the nine
months ended September 30, 1999 and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------
(in thousands)
<S> <C> <C>
Distributions in excess of net income
at beginning of period................................ $(12,194) $ (2,802)
Net (loss) income during period......................... (1,184) 4,343
Minority interest adjustment............................ 1,781 ---
Less: Distributions declared............................ (8,971) (13,735)
-------- --------
Distributions in excess of net income................... $(20,568) $(12,194)
======== ========
</TABLE>
Earnings per share--Basic earnings per share is computed by dividing
net income less preferred stock dividends by the weighted average number of
common shares outstanding during each period. Fully diluted earnings per share
is computed by dividing net income less preferred stock dividends by the
weighted average number of common shares outstanding during each year plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock options. The treasury stock method is used to determine the
number of incremental common equivalent shares resulting from options to
purchase shares of common stock granted under the Company's 1993 Stock Incentive
Plan, as amended. As of September 30, 1999 and 1998 there were approximately
213,500 and 233,500 stock options outstanding with weighted average exercise
prices of $14.49 and $14.61, respectively. For the nine months ended September
30, 1999, the incremental shares that would have been outstanding upon the
assumed exercise of stock options would have been anti-dilutive and, therefore,
were not considered in the computation of fully diluted earnings per share. The
following table reconciles the numerator and denominator of the basic and fully
diluted per share computations for net income for the three and nine months
ended September 30, 1999 and 1998:
Page 11
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
-----------------------------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Numerator:
- ----------
Net (loss) income $(4,250) $ 2,434 $(1,184) $ 7,397
Preferred stock dividends (1,803) (1,803) (5,409) (5,578)
------- ------- ------- -------
Net (loss) income available to common
stockholders $(6,053) $ 631 $(6,593) $ 1,819
======= ======= ======= =======
Denominator:
- ------------
Weighted average shares - basic 3,889 4,090 3,934 4,112
Dilutive effect of stock options 9 35 12 50
------- ------- ------- -------
Weighted average shares - fully diluted 3,898 4,125 3,946 4,162
======= ======= ======= =======
Per share:
- ----------
Basic $ (1.56) $ 0.15 $ (1.68) $ 0.48
Dilutive effect of stock options --- --- --- ---
------- ------- ------- -------
Fully diluted $ (1.56) $ 0.15 $ (1.68) $ 0.48
======= ======= ======= =======
</TABLE>
On September 27, 1999, the Board of Directors reduced the Company's
quarterly Common Stock dividend to $0.125 per share from $0.39 per share.
At various times during the nine months ended September 30, 1999 the
Company repurchased a total of 148,200 shares of the Company's Common Stock at
an average price of approximately $11.28 per share.
Page 12
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in various unconsolidated affiliates as described in
Note 1. The following table provides a summary of the Company's investment in
each of these entities as of September 30, 1999. (In thousands).
<TABLE>
<CAPTION>
Pacific
Valley San Penasquitos Penasquitos Gardens
GLN Convalescent Pedro LLC Inc. Corp.
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Opening balance at beginning
of period..................... $708 $ 76 $1,165 $1,229 $ 270 $(149)
Equity in earnings (loss) of
affiliates.................... 54 (25) 216 40 (277) (163)
Cash contributions............... 9 312 --- 125 113 ---
Cash distributions............... --- (6) (197) --- --- ---
------ -------- -------- -------- ------- -------
Equity, before inter-company
adjustments................... 771 357 1,184 1,394 106 (312)
------ -------- -------- -------- ------- -------
Intercompany transactions:
Receivable, net............... 58 3,376 (27) 213 (1) 110
------ -------- -------- -------- ------- -------
Investment in unconsolidated
affiliates.................... $829 $3,733 $1,157 $1,607 $ 105 $(202)
====== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Eagle Run Eagle Run Lakeview
Inc. LLC Associates Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
Opening balance at beginning
of period.......................... $150 $650 $ --- $4,099
Equity in earnings (loss) of
affiliates......................... (91) (1) --- (247)
Cash contributions.................... --- 5 250 814
Cash distributions.................... --- --- --- (203)
------- ------ -------- --------
Equity, before inter-company
adjustments........................ 59 654 250 4,463
------- ------ -------- --------
Intercompany transactions:
Receivable, net.................... --- 47 1,485 5,261
------- ------ -------- --------
Investment in unconsolidated
affiliates......................... $ 59 $701 $1,735 $9,724
======= ====== ======== ========
</TABLE>
Page 13
<PAGE>
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the nine months ended September 30,
1999. (In thousands).
<TABLE>
<CAPTION>
Pacific
Valley San Penasquitos Penasquitos Gardens
GLN Convalescent Pedro LLC Inc. Corp.
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
- ------------------
Land........................... $ --- $ 382 $ 1,882 $ 641 $ --- $ ---
Buildings...................... --- 2,649 4,326 6,551 --- ---
Notes receivable, net.......... 1,572 --- --- --- --- ---
Other assets................... 31 864 311 746 --- ---
Notes payable.................. --- (2,799) (4,833) (6,047) --- ---
Other liabilities.............. (72) (430) (251) (332) (10) (349)
------ ------- ------- ------- ----- -------
Net assets............................ $1,500 $ 666 $ 1,435 $ 1,559 $ (10) $ (349)
====== ======= ======= ======= ===== =======
Partner's equity:
- ----------------
G&L Realty Partnership, L.P.... $ 771 $ 357 $ 1,184 $ 1,394 $ 106 $ (312)
Others......................... 729 309 251 165 (116) (37)
------ ------- ------- ------- ----- -------
Total equity.......................... $1,500 $ 666 $ 1,435 $ 1,559 $ (10) $ (349)
====== ======= ======= ======= ===== =======
Operations:
- ----------
Revenues....................... $ 109 $ 318 $ 874 $ 425 $ 190 $ 1,371
Expenses....................... --- (369) (658) (340) (560) (1,546)
------ ------- ------- ------- ----- -------
Net income (loss)..................... $ 109 $ (51) $ 216 $ 85 $(370) $ (175)
====== ======= ======= ======= ===== =======
Allocation of net income (loss):
- ------------------------------
G&L Realty Partnership, L.P.... $ 54 $ (25) $ 216 $ 40 $(277) $ (163)
Others......................... 55 (26) --- 45 (93) (12)
------ ------- ------- ------- ----- -------
Net income (loss)..................... $ 109 $ (51) $ 216 $ 85 $(370) $ (175)
====== ======= ======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Eagle Run Eagle Run Lakeview
Inc. LLC Associates Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
Financial Position:
- ------------------
Land........................... $ --- $ --- $ 947 $ 3,852
Buildings...................... --- --- --- 13,526
Notes receivable, net.......... --- --- --- 1,572
Other assets................... 144 5,570 996 8,631
Notes payable.................. --- (4,081) (1,443) (19,203)
Other liabilities.............. (114) (191) --- (1,649)
----- ------- ------- --------
Net assets............................ $ 130 $ 1,298 $ 500 $ 6,729
===== ======= ======= ========
Partner's equity:
- ----------------
G&L Realty Partnership, L.P.... $ 59 $ 654 $ 250 $ 4,463
Others......................... 71 644 250 2,266
----- ------- ------- --------
Total equity.......................... $ 130 $ 1,298 $ 500 $ 6,729
===== ======= ======= ========
Operations:
- ----------
Revenues....................... $ --- $ --- $ --- $ 3,287
Expenses....................... (170) (2) --- (3,645)
----- ------- ------- --------
Net income (loss)..................... $(170) $ (2) $ --- $ (358)
===== ======= ======= ========
Allocation of net income (loss):
- ------------------------------
G&L Realty Partnership, L.P.... $ (91) $ (1) $ --- $ (247)
Others......................... (79) (1) --- (111)
----- ------- ------- --------
Net income (loss)..................... $(170) $ (2) $ --- $ (358)
===== ======= ======= ========
</TABLE>
Page 14
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. SEGMENT INFORMATION
The Company's business currently consists of investments in healthcare
properties and in debt obligations secured by healthcare properties. Investments
in healthcare properties consist of acquisitions, made either directly or
indirectly through joint ventures, of MOBs or senior care facilities which are
leased to healthcare providers. The Company's lending activities consist of
providing short-term secured loans to facilitate acquisitions of MOBs or senior
care facilities by third parties. The tables on the following pages reconcile
the Company's income and expense activity for the nine months ended September
30, 1999 and 1998 and balance sheet data as of September 30, 1999 for these
segments.
1999 Reconciliation of Reportable Segment Information
For the nine months ended September 30, 1999
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking........ $23,009 $ --- $ --- $23,009
Interest, loan fees and related revenues........ 240 1,783 105 2,128
Other........................................... 355 --- --- 355
------- ------ -------- -------
Total revenues................................ 23,604 1,783 105 25,492
------- ------ -------- -------
Expenses:
Property operations............................. 5,617 --- --- 5,617
Depreciation and amortization................... 4,208 --- --- 4,208
Interest........................................ --- --- 8,827 8,827
General and administrative...................... --- --- 2,314 2,314
Impairment of long-lived assets................. --- --- 6,400 6,400
------- ------ -------- -------
Total expenses................................ 9,825 --- 17,541 27,366
------- ------ -------- -------
Income (loss) from operations before
minority interests.............................. $13,779 $1,783 $(17,436) $(1,874)
======= ====== ======== =======
</TABLE>
1998 Reconciliation of Reportable Segment Information
For the nine months ended September 30, 1998
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Rents, tenant reimbursements and parking....... $20,049 $ --- $ --- $20,049
Interest, loan fees and related revenues....... 140 2,499 779 3,418
Other.......................................... 185 4 15 204
------- ------- ------ -------
Total revenues............................... 20,374 2,503 794 23,671
------- ------- ------ -------
Expenses:
Property operations............................ 4,494 51 --- 4,545
Depreciation and amortization.................. 3,356 --- --- 3,356
Interest....................................... --- --- 6,219 6,219
General and administrative..................... --- --- 1,968 1,968
------- ------- ------- -------
Total expenses............................... 7,850 51 8,187 16,088
------- ------- ------- -------
Income (loss) from operations before
minority interests............................. $12,524 $2,452 $(7,393) $ 7,583
======= ======= ======= =======
</TABLE>
Page 15
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
1999 Reconciliation of Reportable Segment Information
As of September 30, 1999
<TABLE>
<CAPTION>
Property Debt
Investments Obligations Other Total
---------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Rental properties............................. $181,633 $ --- $ --- $181,633
Mortgage loans and bonds receivable, net...... --- 15,615 --- 15,615
Other assets.................................. 25,084 829 9,677 35,590
-------- ------- ------ --------
Total assets............................. $206,717 $16,444 $9,677 $232,838
======== ======= ====== ========
Other assets:
Cash and cash equivalents................... $ --- $ --- $7,313 $ 7,313
Restricted cash............................. 8,590 --- --- 8,590
Tenant rent and reimbursements receivable,
net....................................... 2,412 --- --- 2,412
Unbilled rent receivable, net............... 2,203 --- --- 2,203
Other receivables, net...................... 214 --- --- 214
Investment in unconsolidated affiliates..... 8,895 829 --- 9,724
Investment in marketable securities......... --- --- --- ---
Deferred financing costs, net............... --- --- 2,364 2,364
Pre-acquisition costs....................... 900 --- --- 900
Deferred lease costs, net................... 1,494 --- --- 1,494
Prepaid expense and other................... 376 --- --- 376
-------- ------- ------ --------
Total other assets....................... $ 25,084 $ 829 $9,677 $ 35,590
======== ======= ====== ========
Capital Expenditures
--------------------
Purchases of real estate assets............. $ --- $ --- $ --- $ ---
Additions to rental properties.............. 2,808 --- 103 2,911
-------- ------- ------ --------
Total capital expenditures............... $ 2,808 $ --- $ 103 $ 2,911
======== ======= ====== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Except as discussed below, neither the Company, any of its consolidated or
unconsolidated affiliates, nor any of the assets within their respective
portfolios of MOBs, senior care facilities, parking facilities, and retail space
is currently a party to any material litigation.
In November 1998, the previous tenant of six MOBs located in New Jersey and
owned by GL/PHP, LLC ("GL/PHP"), a wholly owned subsidiary of the Company,
Pinnacle Health Enterprises, LLC ("Pinnacle"), a subsidiary of PHP Healthcare
Corporation ("PHP"), filed a Chapter 7 bankruptcy petition. Subsequently, PHP
filed a Chapter 7 bankruptcy petition. In December 1998, the Commissioner of the
New Jersey Department of Banking and Insurance (the "Commissioner") took over
the operations of Pinnacle. Pinnacle paid administrative rent through the
bankruptcy proceeding through March 5, 1999. It then elected to terminate the
lease. The Commissioner continued to occupy and lease certain of the buildings
through March 31, 1999. The Commissioner vacated the buildings as of March 31,
1999. GL/PHP has leased one of the buildings, a portion of an additional
building and has a lease proposal for a third building. GL/PHP is attempting to
restructure the loan in order to attempt to preserve its investment in the MOBs.
On May 5, 1999, GL/PHP presented a loan-restructuring plan to Amresco
Management, Inc. ("Amresco"), the loan servicer, in regards to the mortgage
secured by the six MOBs. GL/PHP has been in default on this loan since May 1999.
On May 10, 1999, Amresco rejected the Company's restructuring plan. The Company
has since continued to negotiate with Amresco in seeking an acceptable
resolution of the current problems. On July 6, 1999, Amresco served GL/PHP with
a complaint commencing a judicial foreclosure and requesting the appointment of
a receiver in the Superior Court of New Jersey Chancery Division Bergen County.
On September 15, 1999, the Superior Court ruled in Amresco's favor and appointed
Page 16
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
a receiver for these buildings. A hearing is scheduled for December 17, 1999 in
the Superior Court for a summary judgement motion. If the Court grants the
motion, title to the buildings will transfer to Amresco early next year. A non-
cash impairment loss of $6.4 million was recorded in September 1999 to reflect
the decline in value of these buildings as a result of the loss of current and
future rental revenue as a result of the Pinnacle and PHP bankruptcies. See Note
3 for further discussion of the $6.4 million impairment loss.
The Company has been informed by Tokai Bank of California that as of June
30, 1999 the Company was in default on its $4.6 million unsecured line of credit
due to a loan covenant violation. Tokai Bank has informed the Company that it
has waived the loan covenant for each of these periods. The loan covenant
requires that the Company maintain a ratio of EBITDA less distributions to debt
service of at least 1.20 to 1.0. While the Company may not meet the requirements
of this loan covenant at the end of 1999, the Company believes that the
reduction in the Common Stock dividend will allow the Company to comply with the
loan covenant in the future.
9. RELATED PARTY TRANSACTIONS
On May 4, 1999, the Company sold a vacant parcel of real property for $1.6
million to the Craig Corporation, whose president is S. Craig Tompkins, a
director of the Company. The Company had the option to repurchase the property
beginning on November 15, 1999 and ending on December 3, 1999 for $1.8 million
plus any costs incurred by the Craig Corporation with respect to the property.
The option was exercised early on November 2, 1999 for $1.76 million.
On December 31, 1998, the Company acquired a property in Coronado,
California from a company owned by Daniel M. Gottlieb and Steven D. Lebowitz,
both directors and officers of the Company, in exchange for the assumption of
$7.5 million in mortgage debt and the issuance of $2.0 million of Operating
Partnership Units. In the third quarter of 1999, Messrs. Gottlieb and Lebowitz
returned approximately $110,000 worth of Operating Partnership Units, including
any dividends paid on the Operating Partnership Units, in full satisfaction of
outstanding debts relating to the property prior to its acquisition by the
Company.
10. SUBSEQUENT EVENTS
On October 1, 1999, the Company made a tender offer for up to 1.0 million
shares, or approximately 26%, of its outstanding Common Stock at a purchase
price of $10.50 per share. The purpose of the offer was to provide liquidity for
those stockholders whose investment objectives may be inconsistent with the
Company's new dividend policy. The offer expired on October 29, 1999. On
November 4, 1999, the Company announced that 2,047,756 shares of Common Stock
had been validly tendered and that the Company would repurchase 1.0 million
shares, or approximately 48.7% of the shares tendered. The transaction is
expected to cost the Company approximately $10.9 million including offering
fees, and will be financed with existing cash balances and proceeds from the
$13.92 million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts and discussed below.
On October 1, 1999, the Company sold a 50% tenants-in-common interest in a
23,000 square foot medical office building the Company is currently constructing
in Aliso Viejo, California to Triad/SCP Partners, LLC, whose President is Joseph
D. Carroll, a former officer of the Company, for $2.85 million. The purchase
price consisted of $1.05 million in cash and the assumption of $1.8 million in
mortgage debt.
On October 22, 1999, the Company obtained a $4.2 million loan secured by
the 23,000 square foot medical office building discussed above. The loan bears
interest at a rate equal to LIBOR plus 3.40% and is due on November 1, 2002. The
lender escrowed $0.6 million to be used for tenant improvements. The building is
expected to open in the first quarter of 2000.
On October 26, 1999, Hoag Memorial Hospital Presbyterian ("Hoag") exercised
its option to purchase for $9.6 million the Company's 33,000 square foot medical
office building located in Aliso Viejo, California. The building is 100% leased
to Hoag. The Company expects to recognize a gain on the sale of the building of
$2.0 million to $2.5 million. The building is currently encumbered by a $5.5
million loan.
Page 17
<PAGE>
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
On November 2, 1999, the Company closed the second and final phase of a
$13.92 million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts at an interest rate of LIBOR plus 2.75%. The
loan is due in three years. The first portion of the loan closed on October 4,
1999 and was used to repay a $6.0 million loan secured by the three facilities.
On November 11, 1999, Lenox Healthcare, Inc. ("Lenox"), the manager of
three skilled nursing facilities located in Massachusetts and owned by the
Company, filed a Chapter 11 petition under the U.S. Bankruptcy Code. While this
petition has had no financial impact on the Company to date, it could affect the
ability of Lenox to make rental payments to the Company in the future. The
Company is currently negotiating to replace the manager before the end of the
year.
Page 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Unaudited Condensed Consolidated Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1998 Annual
Report on Form 10-K as previously filed with the SEC.
Information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, as amended.
These statements can be identified by the use of forward-looking terminology
such as "believe," "may," "will," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other comparable terminology. Any one
factor or combination of factors could cause the Company's actual operating
performance or financial results to differ substantially from those anticipated
by management. Factors influencing the Company's operating performance and
financial results include, but are not limited to, changes in the general
economy, the supply of, and demand for, healthcare related real estate in
markets in which the Company has investments, the availability of financing,
governmental regulations concerning, but not limited to, new construction and
development, environmental issues, healthcare services and government
participation in the financing thereof, and other risks and unforeseen
circumstances affecting the Company's investments which may be discussed
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1998 Annual
Report on Form 10-K as previously filed with the SEC.
Results of Operations
- ---------------------
Comparison of the Nine-Month Period Ended September 30, 1999 versus the
Nine-Month Period Ended September 30, 1998.
Total revenues increased by $1.8 million, or 8%, from $23.7 million for the
nine months ended September 30, 1998, to $25.5 million for the same period in
1999. Rents, tenant reimbursements and parking revenues increased an aggregate
$3.0 million, or 15%, from a combined total of $20.0 million for the nine months
ended September 30, 1998, to $23.0 million for the same period in 1999. The
purchase of two senior care facilities located in Santa Monica, California and
Hoquiam, Washington during June and August 1998, respectively, accounted for
$1.0 million of this increase. The purchase of a 49,000 square foot MOB in
Valencia, California and a 40,000 square foot office and retail complex in
Coronado, California in December 1998 accounted for an additional $1.4 million
increase. In addition, recently completed construction projects in Valencia and
Aliso Viejo accounted for $0.6 million of this increase. Interest, loan fees and
related revenues derived from loans secured by senior care facilities decreased
approximately $1.3 million, or 38%, from $3.4 million in the first three
quarters of 1998, to $2.1 million for the same period in 1999. This decrease was
partially due to the repayment during 1998 of seven outstanding loans,
representing a total decrease of $0.5 million in interest and loan fee income.
An additional $0.6 million of this decrease was due to the loss of interest,
during the first three quarters of 1999, on non-performing loans for which the
Company had previously reserved approximately $2.8 million in December 1998.
Furthermore, interest earned on cash on hand decreased during the first three
quarters of 1999 by approximately $0.2 million as the Company had an average of
approximately $11 million in cash on hand during the first three quarters of
1998, and only $7 million during the first three quarters of 1999. Other income
increased by $0.2 million, or 100%, from $0.2 million during the first three
quarters of 1998, to $0.4 million for the same period in 1999. This increase was
due to the sale of a parcel of land located in Tustin, California by the Company
for a gain of $0.2 million.
Total expenses increased by $11.3 million, or 71%, from $16.0 million for
the nine months ended September 30, 1998, to $27.3 million for the same period
in 1999. Of this increase, $6.4 million was due to the impairment of the
Company's six MOBs located in New Jersey. Property operating expenses increased
by $1.1 million, or 24%, from $4.5 million for the nine months ended June 30,
1998, to $5.6 million for the same period in 1999. Property acquisitions and
completed development projects by the Company during 1998 and 1999 accounted for
$0.8 million of this increase. The remaining $0.3 million increase was due to
costs related to new management personnel. Depreciation and amortization
increased $0.9 million, or 27%, from $3.3 million for the nine months ended
September 30, 1998, to $4.2 million for the same period in 1999. This increase
was attributable to property acquisitions made by the Company during 1998 and
new building developments completed during 1999. Interest expense increased $2.6
million, or 42%, from $6.2 million for
Page 19
<PAGE>
the nine months ended September 30, 1998, to $8.8 million for the same period in
1999. This increase was mainly due to interest incurred on borrowings of $84.0
million made by the Company subsequent to March 31, 1998. In addition, general
and administrative expenses increased by $0.3 million, or 15%, from $2.0 million
for the nine months ended September 30, 1998, to $2.3 million for the same
period in 1999. This increase was related to the Company's addition of new
management personnel
Equity in earnings of unconsolidated affiliates decreased $0.4 million, or
200%, from $0.2 million for the nine months ended September 30, 1998 to $(0.2)
million for the same period in 1999. This decrease was primarily the result of
start-up losses associated with the Company's 75% investment in Penasquitos Inc.
In March 1999, Rancho Penasquitos, an assisted living facility operated by
Penasquitos Inc., commenced operations. The facility is currently in the process
of leasing its units. However, during this lease-up phase, the facility is
operating with a deficit. The Company expects the facility to reach stabilized
occupancy by the end of 1999, at which time the facility will produce positive
income for the Company.
Net income decreased $8.6 million, or 116%, from $7.4 million for the nine
months ended September 30, 1998 to $(1.2) million for the same period in 1999.
This decrease was primarily due to the $6.4 million impairment of long-lived
assets, the $2.6 million increase in interest expense, the $2.0 million increase
in property operating expenses and depreciation as well as the $1.3 million
decrease in interest income. These amounts were offset by a $3.0 million
increase in rents, tenant reimbursements and parking revenues.
Comparison of the Three-Month Period Ended September 30, 1999 versus the
Three-Month Period Ended September 30, 1998.
Total revenues increased by $0.7 million, or 9%, from $8.1 million in the
three months ended September 30, 1998, to $8.8 million for the same period in
1999. Rents, tenant reimbursements and parking revenues increased an aggregate
$0.9 million, or 13%, from a combined total of $7.0 million during the third
quarter of 1998, to $7.9 million for the same period in 1999. The purchase of a
senior care facility located in Santa Monica, California in June of 1998
accounted for $0.1 million of this increase. The purchase of a 49,000 square
foot MOB in Valencia, California and a 40,000 square foot office and retail
complex in Coronado, California in December 1998 accounted for an additional
$0.6 million increase. In addition, recently completed construction projects in
Valencia and Aliso Viejo accounted for $0.2 million of this increase. Interest,
loan fees and related revenues derived from loans secured by senior care
facilities decreased approximately $0.2 million, or 18%, from $1.1 million in
the third quarter of 1998, to $0.9 million for the same period in 1999. This
decrease was partially due to the repayment during 1998 of five outstanding
loans, representing a total decrease of $0.1 million in interest and loan fee
income. An additional $0.3 million of this decrease was due to the loss of
interest, during the third quarter of 1999, on non-performing loans for which
the Company had previously reserved approximately $2.8 million in December 1998.
These decreases were offset by an increase in interest and loan fee income
relating to the refinancing of one of the Company's notes receivable.
Total expenses increased by $8.4 million, or 150%, from $5.6 million for
the three months ended September 30, 1998, to $14.0 million for the same period
in 1999. Of this increase, $6.4 million was due to the impairment of the
Company's six MOBs located in New Jersey. Property operating expenses increased
by $0.3 million, or 19%, from $1.6 million for the three months ended September
30, 1998, to $1.9 million for the same period in 1999. Property acquisitions and
completed development projects by the Company during the second half of 1998 and
during 1999 accounted for this increase. Depreciation and amortization increased
$0.3 million, or 25%, from $1.2 million for the three months ended September 30,
1998, to $1.5 million for the same period in 1999. This increase was
attributable to property acquisitions made by the Company during 1998 and new
building developments completed during 1999. Interest expense increased $1.1
million, or 50%, from $2.2 million for the three months ended September 30,
1998, to $3.3 million for the same period in 1999. This increase was mainly due
to interest incurred on borrowings of $84.0 million made by the Company
subsequent to March 31, 1998. General and administrative expenses increased by
$0.3 million, or 60%, from $0.5 million for the three months ended September 30,
1998, to $0.8 million for the same period in 1999. This increase was related to
the Company's addition of new management personnel.
Net income decreased $6.7 million, or 279%, from $2.4 million for the three
months ended September 30, 1998 to $(4.3) million for the same period in 1999.
This decrease was primarily due to the $6.4 million impairment of long-lived
assets, the $1.1 million increase in interest expense, the $0.6 million increase
in
Page 20
<PAGE>
property operating expenses and depreciation as well as the $0.2 million
decrease in interest income. These amounts were offset by a $0.9 million
increase in rents, tenant reimbursements and parking revenues.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1999, the Company's net investment in real estate
assets totaled approximately $181.6 million, $9.7 million in joint ventures and
$15.6 million invested in notes receivable. Debt outstanding as of September 30,
1999 totaled $161.0 million.
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of MOBs and Senior
Care Facilities and senior care lending activities. These funds primarily
consist of Funds from Operations ("FFO" - see discussion below of FFO). The
Company's external sources of capital consist of various secured loans and lines
of credit as well as access to public equity markets. During the third quarter
of 1999, the Company refinanced the $1.4 million short-term loan with a long-
term $1.4 million loan at an interest rate of 7.375%. Also, during the third
quarter, the Company obtained a $10 million long-term loan secured by one of its
properties at an interest rate of 6.85%, of which $5 million was used to repay a
short-term loan secured by the property and an additional $2.5 million was
escrowed by the lender until the Company meets certain occupancy thresholds at
the collateralized property. Finally, during the third quarter of 1999, the
Company obtained a $7.5 million short-term loan secured by three of its
properties at an interest rate of prime plus 0.75%. In July 1999, the Company
also repaid the outstanding balance of $1.2 million on one of its lines of
credit. In August 1999, the Company refinanced its existing $8.5 million
mortgage on one of its senior care facilities with an $11.4 million long-term
HUD loan at an interest rate of 8%. During the fourth quarter of 1999, the
Company obtained a $4.2 million loan secured by a 23,000 square foot medical
office building at a rate of LIBOR plus 3.40%. The loan is due on November 1,
2002. The Company also obtained a $13.92 million loan secured by three skilled
nursing facilities located in Massachusetts at an interest rate of LIBOR plus
2.75%. The loan is due in three years. All of the Company's secured loans as of
September 30, 1999 bear interest at fixed rates ranging from 6.75% to 8.98%,
except for an $8.5 million loan which bears interest at LIBOR plus 2.35%, a $5.5
million loan which bears interest at LIBOR plus 3.0% and a $7.5 million loan
which bears interest at prime plus 0.75%. The Company's ability to expand its
MOB, Senior Care Facility and senior care lending operations requires continued
access to capital to fund new investments.
The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first and second quarter of 1999 in the amount of
$0.39 per common share, which was paid on April 15 and July 15, 1999 to
stockholders of record on March 31 and June 30, respectively. For the third
quarter of 1999, the Company declared a distribution payable to holders of the
Company's Common Stock in the amount of $0.125 per common share, which was paid
on October 15, 1999 to stockholders of record on September 30. The Company also
paid monthly dividends totaling $0.6 million to holders of the Company's
Preferred Stock on the fifteenth day of each month during the first, second and
third quarters to stockholders of record on the first day of each month. The
Company distributed dividends of $4.1 million to holders of the Company's Common
Stock during the first nine months of 1999 while the Company's FFO was $(3.7)
million for the same period. However, excluding the $6.4 million non-cash
impairment loss, the Company's FFO for the first nine months of 1999 was $2.7
million. Furthermore, during the third quarter of 1999, the Company's FFO was
$0.8 million, excluding the $6.4 million non-cash impairment loss, and the
Company distributed $0.6 million to the holders of its Common Stock. Although
the Company's FFO in the third quarter of 1999 exceeded the amount of
distributions to holders of its Common Stock, the Company can offer no
assurances that the reduced Common Stock dividend will allow the Company to
consistently produce a level of FFO at least equal to the current level of
distributions in the future. However, the Company believes that the reduced
Common Stock dividend rate will benefit stockholders in the future by allowing
the Company to preserve its cash flow to invest in new acquisition and
development projects, thereby increasing the Company's revenues and cash flow.
In order to maximize its cash flow in the future, the Company expects to pay a
Common Stock dividend in the amount which approximates the minimum dividend
required to maintain its status as a real estate investment trust. This may
result in fluctuations in total dividends from year to year or even quarter to
quarter depending upon variations in the Company's taxable income resulting from
such factors as sales of properties or adjustments to reserves. The dividends
paid to the Company's preferred stockholders remain unchanged.
Page 21
<PAGE>
On October 1, 1999, the Company made a tender offer for up to 1.0 million
shares, or approximately 26%, of its outstanding Common Stock at a purchase
price of $10.50 per share. The purpose of the offer was to provide liquidity for
those stockholders whose investment objectives may be inconsistent with the
Company's new dividend policy. The offer expired on October 29, 1999. On
November 4, 1999, the Company announced that 2,047,756 shares of Common Stock
had been validly tendered and that the Company would repurchase 1.0 million
shares, or approximately 48.7% of the shares tendered. The transaction is
expected to cost the Company approximately $10.9 million including offering
fees, and will be financed with existing cash balances and proceeds from the
$13.92 million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts.
In general, the Company expects to continue meeting its short-term
liquidity requirements through its working capital, cash flow provided by
operations and, if necessary, from its lines of credit. The Company considers
its ability to generate cash to be good and expects to continue meeting all
operating requirements as well as providing sufficient funds to maintain
stockholder distributions in accordance with REIT requirements. Long-term
liquidity requirements such as refinancing mortgages, financing acquisitions and
financing capital improvements will be accomplished through long-term
borrowings, the sale of assets, the issuance of debt securities and the offering
of additional equity securities.
The Company has been informed by Tokai Bank of California that as of June
30, 1999 the Company was in default on its $4.6 million unsecured line of credit
due to a loan covenant violation. Tokai Bank has informed the Company that it
has waived the loan covenant for each of these periods. The loan covenant
requires that the Company maintain a ratio of EBITDA less distributions to debt
service of at least 1.20 to 1.0. While the Company may not meet the requirements
of this covenant at the end of 1999, the Company believes that the reduction in
the Common Stock dividend will allow the Company to comply with the loan
covenant in the future.
Historical Cash Flows
- ---------------------
The Company's net cash from operating activities increased $0.04 million,
or 0.4%, from $9.44 million for the nine months ended September 30, 1998 to
$9.48 million for the same period in 1999. Changes include an $8.6 million
decrease in net income for the first three quarters of 1999 compared to the same
period in 1998 and a decrease in minority interests of $1.3 million. These
decreases were offset by an increase of $6.4 million in impairment of assets, a
$0.9 million increase in depreciation and amortization and an increase of $2.5
million in accounts payable and other liabilities.
Net cash used in investing activities decreased $20.3 million, or 63%, from
$32.0 million for the nine months ended September 30, 1998 to $11.7 million for
the same period in 1999. The decrease was primarily due to a $21.9 million
decrease in rental property acquisitions, a $2.8 million decrease in investments
in notes and bonds receivable, a $1.5 million decrease in contributions to
unconsolidated affiliates and a $1.2 million decrease in investments in
marketable securities. These decreases were offset by a $1.0 million increase in
expenditures on construction in progress, a $1.7 million increase in additions
to rental properties and a $4.5 million decrease in principal payments on notes
receivable.
Cash flows provided by financing activities decreased $5.3 million, or 40%,
from $13.4 million for the nine months ended September 30, 1998, to $8.1 million
for the same period in 1999. The decrease was due primarily to a $7.7 million
increase in restricted cash, a $0.6 million increase in purchases of the
Company's common stock, a $12.2 million increase in notes payable repayments and
a $0.3 million increase in financing costs. These were offset by an increase in
notes payable proceeds of $15.5 million.
Year 2000 Readiness Disclosure
- ------------------------------
The information provided below contains Year 2000 statements and is a Year
2000 Readiness Disclosure pursuant to Pub.L.No.105-271.
Many computers, software programs and other equipment which utilize
microprocessors (collectively referred to as "Systems" and individually as a
"System"), process date sensitive data in the normal course of operations. Some
of these Systems use a 2-digit field to designate the year. As the year 2000
approaches,
Page 22
<PAGE>
these Systems may not be capable of distinguishing between events occurring in
the year 1900 and the year 2000, and therefore these Systems may become
inoperable or produce information that is unreliable.
Information Technology Systems
The Company's critical information technology Systems consist of its
Windows NT operating systems and related Windows software as well as its
accounting, property management and fixed assets software. The Company relies on
third party vendors for its computer hardware and software. Based upon
management's communications with the Company's Systems vendors and an outside
consultant, management believes that the Company's hardware and software Systems
are Year 2000 compliant and that the Company's internal computer hardware and
software Systems will not be materially impacted by this issue. In October 1999,
the Company upgraded its accounting and property management software to the next
version which has been deemed Year 2000 compliant by the vendor.
Non-Information Technology Systems
The Company's critical non-information technology building Systems consist
of utilities, security and elevators. The Company has not yet determined whether
all of these Systems are Year 2000 compliant. The Company relies on third party
vendors to service most of these Systems and is currently in communication with
these vendors to determine if these Systems are or will be Year 2000 compliant
by December 31, 1999. The Company's property managers have contacted the
Company's vendors and made inquiries about the Year 2000 readiness of these
Systems. Most of the Company's vendors have confirmed in writing that these
Systems are Year 2000 compliant. The Company has also received confirmation in
writing from certain vendors that the Systems will be Year 2000 compliant by
December 31, 1999. The Company is still following up with those vendors who have
only verbally confirmed Year 2000 compliance or who have not responded to the
Company's inquiries. In January 1999, the Company made inquiries of all of its
tenants concerning their Year 2000 compliance and what impact non-compliance
would have on the Company. Through November 12, 1999, the Company had received
approximately 68 responses, representing 17% of its tenants. None of these
responses indicated that the Company would suffer any negative impact due to
Year 2000 non-compliance.
Risks
While the Company does not expect Year 2000 issues related to the Company's
internal Systems to have a serious impact on the Company's operations, the
Company receives most of its revenues in the form of rental payments. If any of
the Company's tenants suffer a severe disruption of their business due to a Year
2000 problem, it could affect the ability of those tenants to pay their rent. If
multiple tenants were to suffer a severe disruption of their business, the
Company can provide no assurance that its operations would not be materially
affected.
Costs
The cost to the Company to make its internal Systems Year 2000 compliant is
not anticipated to be material to the Company's financial position. However,
management is not able to adequately assess the extent to which the Company is
vulnerable to System failures of any of its tenants or other companies providing
utilities or other services to its properties. Management plans to continue
conversations with other companies with which the Company does significant
business to minimize, to the extent possible, the potential impact of Year 2000
compliance failures. A contingency plan has not been developed for dealing with
the "most reasonably likely worst case scenario" because the Company is unable
at this time to identify such a scenario. The Company will continue to evaluate
these and other potential areas of risk and develop contingency plans, as
appropriate.
Funds from Operations
- ---------------------
Industry analysts generally consider FFO to be an appropriate measure of
the performance of a REIT. The Company's financial statements use the concept of
FFO as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO is calculated to include the minority
interests' share of income from the Operating Partnership since the Operating
Partnership's net
Page 23
<PAGE>
income is allocated proportionately among all owners of Operating Partnership
units. The number of Operating Partnership units held by the Company is
identical to the number of outstanding shares of the Company's Common Stock, and
owners of Operating Partnership units may, at their discretion, convert their
units into shares of Common Stock on a one-for-one basis.
The Company believes that in order to facilitate a clear understanding of
the operating results of the Company, FFO should be examined in conjunction with
the Company's net income as presented in this Form 10-Q, the Selected Financial
Data and Consolidated Financial Statements and Notes thereto included in the
Company's 1998 Annual Report on Form 10-K and the additional data presented
below. The table on the following page presents an analysis of FFO and
additional data for the three and nine month periods ended September 30, 1999
and 1998.
Page 24
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1999 1998 1999 1998
-----------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Funds from Operations/(1)/
- --------------------------
Net (loss)/income.................................. $(4,250) $ 2,434 $ (1,184) $ 7,397
Minority interest in Operating Partnership......... (986) 78 (1,072) 221
----------------------------------------------------------
Income for Operating Partnership................... (5,236) 2,512 (2,256) 7,618
Depreciation of real estate assets................. 1,301 1,057 3,702 2,988
Amortization of deferred lease costs............... 69 42 186 112
Depreciation from unconsolidated affiliates........ 47 39 147 52
Adjustment for minority interest in consolidated
affiliates......................................... (14) (19) (64) (42)
Dividends on preferred stock....................... (1,803) (1,803) (5,409) (5,578)
----------------------------------------------------------
Funds from Operations/(1)/......................... $(5,636) $ 1,828 $ (3,694) $ 5,150
==========================================================
Weighted average shares outstanding/(2)/
- ----------------------------------------
Basic.............................................. 4,514 4,588 4,559 4,610
==========================================================
Fully diluted...................................... 4,523 4,623 4,571 4,660
==========================================================
Additional Data
- ---------------
Cash flows:
- -----------
Operating activities............................ $ 4,616 $ 3,505 $ 9,483 $ 9,439
Investing activities............................ (4,281) (6,180) (11,671) (31,982)
Financing activities............................ 5,093 (3,487) 8,122 13,447
Capital expenditures
- --------------------
Building improvements........................... $ 595 $ 236 $ 1,270 $ 330
Tenant improvements............................. 620 224 1,538 666
Furniture, fixtures & equipment................. --- 109 103 224
Leasing commissions............................. 55 112 408 401
Depreciation and amortization
- -----------------------------
Depreciation of real estate assets.............. $ 1,301 $ 1,057 $ 3,702 $ 2,988
Depreciation of non-real estate assets.......... 103 114 320 256
Amortization of deferred lease costs............ 69 42 186 112
Amortization of capitalized financing costs..... 134 53 257 139
Accrued rent in excess of billed rent........... $ 159 $ 169 $ 311 $ 351
</TABLE>
1) Funds from operations ("FFO") represents net income (computed in accordance
with generally accepted accounting principles, consistently applied
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, less preferred stock dividends
paid to holders of preferred stock during the period and after adjustments
for consolidated and unconsolidated entities in which the Company holds a
partial interest. FFO should not be considered as an alternative to net
income or any other indicator developed in compliance with GAAP, including
measures of liquidity such as cash flows from operations, investing and
financing activities. FFO is helpful in evaluating the performance of a real
estate portfolio considering the fact that historical cost accounting assumes
that the value of real estate diminishes predictably over time. FFO is only
one of a range of indicators which should be considered in determining a
company's operating performance. The methods of calculating FFO among
different companies are subject to variation, and FFO therefore may be an
invalid measure for purposes of comparing companies. Also, the elimination of
depreciation and gains and losses on sales of property may not be a true
indication of an entity's ability to recover its investment in properties.
The Company implemented NAREIT's new method of calculating FFO effective as
of the NAREIT-suggested adoption date of January 1, 1996. FFO has been
restated for all prior periods under the new method.
2) Assumes that all outstanding Operating Partnership units have been converted
to common stock.
Page 25
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed on April 9, 1999.
Page 26
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company or any of its consolidated or unconsolidated
affiliates nor any of the assets within their portfolios of MOBs,
senior care facilities, parking facilities, and retail space is
currently a party to any material litigation, except as discussed in
Note 8 to the Consolidated Financial Statements.
Item 2 Changes in Securities.
None.
Item 3 Defaults Upon Senior Securities.
As discussed in Note 8 to the Consolidated Financial Statements and
in Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources, GL/PHP
defaulted on the $15.5 million loan, which is secured by the six
MOBs in New Jersey. The six MOBs were previously occupied by
Pinnacle, a subsidiary of PHP, both of which filed a Chapter 7
bankruptcy petition. The amount in default is $15.5 million and the
total arrearage as of the date of this report is $0.7 million.
As discussed in Note 8 to the Consolidated Financial Statements and
in Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources, the
Company has been informed by Tokai Bank of California that as of
June 30, 1999 the Company was in default on its $4.6 million
unsecured line of credit due to a loan covenant violation.
Item 4 Submission of Matters to a Vote of Security Holders.
On August 31, 1999 the Company held its 1999 Annual Meeting of
Stockholders. The only items of business conducted were the election of
directors, a vote upon a proposal to adopt an amendment to the Charter
which would give the Board of Directors the authority (i) to waive the
ownership limitation under the Charter for any person(s), and (ii) to
decrease the ownership limit under the Charter for all other persons,
and the ratification of the appointment of the Company's independent
accountants.
The six directors elected at the Annual Meeting, to serve for the
term ending at the next Annual Meeting of Stockholders or until their
successors are duly elected and qualified or until they resign or are
removed, were the following:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
<S> <C> <C>
Daniel M. Gottlieb 3,715,669 86,489
Steven D. Lebowitz 3,717,623 84,535
Richard L. Lesher 3,714,975 87,183
Leslie D. Michelson 3,718,048 84,110
Charles P. Reilly 3,676,965 125,193
S. Craig Tompkins 3,717,948 84,210
</TABLE>
The voting for the proposal to adopt an amendment to the Charter which
would give the Board of Directors the authority (i) to waive the
ownership limitation under the Charter for any person(s), and (ii) to
decrease the ownership limit under the Charter for all other persons was
as follows:
Page 27
<PAGE>
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained Broker Non-Votes
<S> <C> <C> <C>
2,645,028 205,638 68,926 882,566
</TABLE>
The voting for the ratification of the appointment by the Board of
Directors of Deloitte & Touche, LLP as independent accountants for the
Company for the year ending December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained Broker Non-Votes
<S> <C> <C> <C>
3,761,601 22,484 18,073 0
</TABLE>
Item 5 Other Information.
On October 1, 1999, the Company made a tender offer for up to 1.0
million shares, or approximately 26%, of its outstanding Common Stock at
a purchase price of $10.50 per share. The purpose of the offer was to
provide liquidity for those stockholders whose investment objectives may
be inconsistent with the Company's new dividend policy. The offer
expired on October 29, 1999. On November 4, 1999, the Company announced
that 2,047,756 shares of Common Stock had been validly tendered and that
the Company would repurchase 1.0 million shares, or approximately 48.7%
of the shares tendered. The transaction is expected to cost the Company
approximately $10.9 million including offering fees, and will be
financed with existing cash balances and proceeds from the $13.92
million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts.
The Company has also filed an Issuer Tender Offer Statement on
Schedule 13E-4 and Amendment No. 1 to Schedule 13E-4 with the Securities
and Exchange Commission, which includes additional information relating
to the tender offer.
Page 28
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
3.1 (1) Amended and Restated Articles of Incorporation of G&L Realty Corp.
3.2 (3) Amended and Restated Bylaws of G&L Realty Corp.
10.1 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Daniel M. Gottlieb.
10.2 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Steven D. Lebowitz.
10.3 (2) Agreement of Limited Partnership of G&L Realty Partnership, L.P.
10.4 (c) (1) 1993 Employee Stock Incentive Plan
10.5 (1) Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.
10.8.2 (2) Option Notice with respect to Sherman Oaks Medical Plaza.
10.9.2 (1) Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.)
between the Selling Partner (as defined therein) and G&L Development, dated as of October 29, 1993.
10.11 (1) Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and
Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29, 1993.
10.12 (1) Nomura Commitment Letter with respect to the Acquisition Facility.
10.12.2 (3) Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L Financing
Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of New York.
10.16 (1) Investment Banking and Financial Advisory Agreement between G&L Development and Gruntal & Co.,
Incorporated.
10.17 (1) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Milner Investment Corporation.
10.18 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.19 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.20 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II, Helen Milner and John Milner, as Trustees of the Milner Trust.
10.21 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.22 (4) Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing Partnership II,
L.P., as Borrower, and Nomura Asset Capital Corporation, as Lender, dated as of October 31, 1995.
</TABLE>
Page 29
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
10.24 (4) Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner, and G&L
Realty Partnership, L.P., as agent, made August 10, 1995
10.25 (5) Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital Corporation, dated
as of September 29, 1995.
10.30 (6) Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership, L.P. as
Borrower and Nomura Asset Capital Corporation as Lender.
10.38 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware limited
partnership, and Property Acquisition Trust I, a Delaware business trust, for the purpose of
creating a Limited Liability Company to be named GLN Capital Co., LLC, dated as of November 25,
1996.
10.39 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware limited
partnership, and PHP Healthcare Corporation, a Delaware corporation, for the purpose of creating a
Limited Liability Company to be named GL/PHP, LLC, dated as of February 26, 1997.
10.40 (7) First Amendment To Limited Liability Company Agreement entered into as of March 31, 1997 by and
between G&L Realty Partnership, L.P., a Delaware limited partnership, and Property Acquisition Trust
I, a Delaware business trust, for the purpose of amending that certain Limited Liability Company
Agreement of GLN Capital Co., LLC dated as of November 25, 1996.
10.41 (7) Bond Purchase Agreement dated as of March 31, 1997 by and between GLN Capital Co., LLC (as Buyer)
and G&L Realty Partnership, L.P. (as Seller).
10.42 (8) Option Agreement, dated February 28, 1997, by and among G&L Realty Partnership, L.P., GLN Capital
Co., LLC and PHP Healthcare Corporation
10.44 (9) Loan and Security Agreement by GLN Capital Co., LLC, a Delaware limited liability Company, and G&L
Realty Partnership, L.P., a Delaware limited partnership, dated as of June 1, 1997.
10.45 (10) First Amendment to GL/PHP, LLC Limited Liability Company Agreement by and among G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Retiring Manager"), G&L Realty Partnership,
L.P., a Delaware limited partnership ("G&L Member"), and G&L Management Delaware Corp., a Delaware
corporation ("Manager Member"), made as of August 15, 1997.
10.46 (10) Lease Agreement between GL/PHP, a Delaware limited liability company (the "Landlord") and Pinnacle
Health Enterprises, LLC, a Delaware limited liability company wholly owned by PHP Healthcare
Corporation, a Delaware corporation (the "Tenant"), dated August 15, 1997
10.47 (10) Guaranty of Lease by PHP Healthcare Corporation, a Delaware corporation (the "Guarantor"), dated
February 15, 1997.
</TABLE>
Page 30
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
10.48 (10) Non-Negotiable 8.5% Note Due July 31, 2007 in which G&L Realty Partnership, L.P., a Delaware limited
partnership (the "Maker"), promises to pay to PHP Healthcare Corporation (the "Payee") the principal
sum of $2,000,000.00, dated August 15, 1997.
10.49 (10) Mortgage Note in which GL/PHP, LLC a Delaware limited liability company (the "Maker") promises to
pay to the order of Nomura Asset Capital Corporation, a Delaware corporation, the principal sum of
$16,000,000.00, dated August 15, 1997.
10.50 (10) Mortgage, Assignment of Leases and Rents and Security Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Mortgagor") to Nomura Asset Capital Corporation, a Delaware corporation (the
"Mortgagee"), dated August 15, 1997.
10.51 (10) Assignment of Leases and Rents by GL/PHP, LLC a Delaware limited liability company (the "Assignor")
to Nomura Asset Capital Corporation, a Delaware corporation (the "Assignee"), dated August 15, 1997.
10.52 (10) Environmental and Hazardous Substance Indemnification Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Borrower") to Nomura Asset Capital Corporation, a Delaware corporation (the
"Lender"), dated August 15, 1997.
10.53 (11) Purchase and Sale Agreement, dated October 1, 1997, by and between Hampden Nursing Homes, Inc. and
G&L Senior Care, LLC.
10.54 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Holding
Group, Inc.
10.55 (11) Loan Commitment, dated October 23, 1997, by and between G&L Realty Partnership, L.P. and Iatros
Health Network, Inc.
10.56 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Nursing
Homes, Inc.
10.57 (11) Guaranty of Lease, dated October 1, 1997, by Iatros Health Network, Inc.
10.58 (11) Limited Liability Company Agreement of G&L Hampden, LLC.
10.59 (11) Loan Agreement by and between Nomura Asset Capital Corporation and G&L Hampden, LLC.
10.60 (11) Promissory Note in the amount of $6,000,000.00 given by G&L Hampden, LLC in favor of Nomura Asset
Capital Corporation.
10.61 (11) Form of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing for each of the 3
Hampden Properties.
10.62 (12) Operating Agreement of AV Medical Associates, LLC, dated as of September 25, 1997.
10.63 (12) Real Estate Lease by and between AV Medical Associates, LLC and Hoag Memorial Hospital Presbyterian.
</TABLE>
Page 31
<PAGE>
(c) Exhibits - (continued from previous page)
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
10.64 (12) Assignment of Purchase Agreement and Development Management Agreement by and between G&L Realty
Partnership, L.P., Centrium Associates LLC and M&Z Aliso Associates, LLC.
10.68 (12) Promissory Note in the Amount of $2,799,490.00 given by Valley Convalescent, LLC in favor of G&L
Realty Partnership, L.P.
10.69 (12) Deed of Trust, Security Agreement, Fixture Filing with Assignment of Rents and Agreements, dated as
of August 29, 1997, by and between Valley Convalescent, LLC and G&L Realty Partnership, L.P.
10.70 (12) Assignment of Leases and Rents, dated as of August 29, 1997, by and between Valley Convalescent, LLC
and G&L Realty Partnership, L.P.
10.77 (13) Agreement for Transfer of Property by and among G&L Coronado, LLC as Transferor and G&L Realty
Partnership, L.P. as Operating Partnership dated as of December 30, 1998.
10.78 (13) Tenant Estoppel and Real Estate Lease between G&L Coronado, LLC as Landlord and Coronado Managers
Corp. as Tenant dated December 1, 1998.
10.79 (13) Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively "Guarantor") in
favor of G&L Coronado, LLC ("Landlord").
10.80 (14) Promissory Note in the Amount of $2,000,000 given by G&L Realty Corporation in favor of Reese L.
Milner, as Trustee of The Milner Trust.
10.81 Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and GMAC
Commercial Mortgage Corporation, as Lender.
11 Computation of Per Share Earnings
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
Page 32
<PAGE>
1) Previously filed as an exhibit of like number to the Registrant's
Registration Statement on Form S-11 and amendments thereto (File No. 33-
68984) and incorporated herein by reference
2) Previously filed as an exhibit of like number to the Registrant's
Registration Statement on Form S-11 and amendments thereto (File No. 33-
68984) and incorporated herein by reference.
3) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
4) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
5) Previously filed as Exhibits 10.1 (with respect to Exhibit 10.22), 10.2
(with respect to Exhibit 10.23), and 10.3 (with respect to Exhibit 10.24) to
the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1995 and incorporated herein by reference.
6) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
7) Previously filed as an exhibit of like number to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference.
8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
9) Filed as an exhibit to the Company's Registration Statement on Form S-11 and
amendments thereto (File No. 333-24911) and incorporated herein by
reference.
10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
11) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as of
August 15, 1997) and incorporated herein by reference.
12) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as of
October 28, 1997) and incorporated herein by reference.
13) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed as
of November 5, 1997) for the quarter ended September 30, 1997 and
incorporated herein by reference.
14) Filed as an exhibit to the Company's Annual Report on Form 10-K (filed as of
April 9, 1999) for the year ended December 31, 1998 and incorporated herein
by reference.
14) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed as
of May 17, 1999) for the quarter ended March 31, 1999 and incorporated
herein by reference.
c) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
A report on Form 8-K dated October 26, 1999, was filed with the Securities
and Exchange Commission for the purpose of announcing the Company's results
for the third quarter ended September 30, 1999.
Page 33
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: November 12, 1999 By: /s/ David E. Hamer
--------------------------
David E. Hamer
Chief Accounting Officer
Page 34
<PAGE>
Exhibit 10.81
(G&L Hampden)
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of September __, 1999, by
and between G&L HAMPDEN, LLC, a Delaware limited liability company (together
with its successors and assigns, the "Borrower"), and GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation (together with its successors and assigns,
the "Lender").
RECITALS
A. Borrower has requested that the Lender make a loan to Borrower in
the principal sum of THIRTEEN MILLION NINE HUNDRED TWENTY THOUSAND
($13,920,000.00).
B. Lender has agreed to make such loan on the terms and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.
1.1 As used in this Agreement, the following terms shall have the
following meanings unless the context hereof shall otherwise indicate:
"Accounts" means any rights of Borrower arising from the operation
of the Facility to payment for goods sold or leased or for services rendered,
not evidenced by an Instrument, including, without limitation, (a) all accounts
arising from the operation of the Facility, (b) all moneys and accounts held by
Lender pursuant to Section 4.13 of this Agreement, and (c) all rights to payment
from Medicare or Medicaid programs, or similar state or federal programs, boards
bureaus or agencies and rights to payment from patients, residents, private
insurers, and others arising from the operation of the Facility, including
rights to payment pursuant to Reimbursement Contracts. Accounts shall include
the proceeds thereof (whether cash or noncash, moveable or immoveable, tangible
or intangible) received from the sale, exchange, transfer, collection or other
disposition or substitution thereof.
"Actual Management Fees" shall mean actual management fees paid in
connection with the operation of the Facility.
"Advance" shall mean release of moneys from the capital improvements
fund escrow pursuant to the Capital Improvements Fund Agreement.
<PAGE>
"Affiliate" shall mean, with respect to any Person, (a) each Person
that controls, is controlled by or is under common control with such Person, (b)
each Person that, directly or indirectly, owns or controls, whether beneficially
or as a trustee, guardian or other fiduciary, any of the Stock of such Person,
and (c) each of such Person's officers, directors, members, joint venturers and
partners.
"Assignment of Leases and Rents" shall mean that certain Assignment
of Leases and Rents executed by Borrower to and for the benefit of Lender with
respect to the Chestnut Property, the Mary Lyon Property and the Riverdale
Property, of even date herewith.
"Assumed Management Fees" shall mean assumed management fees of five
percent (5%) of net patient revenues of the Facility (after Medicaid and
Medicare contractual adjustments).
"Business Day" means a day, other than Saturday or Sunday and legal
holidays, when the Lender is open for business.
"Capital Improvements Fund Agreement" means that certain Capital
Improvements Fund Escrow and Security Agreement of even date herewith between
Borrower and Lender.
"Closing Date" means the date on which all or any part of the Loan
is disbursed by the Lender to or for the benefit of Borrower.
"Collateral" means, collectively, the Property, Improvements,
Equipment, Rents, Accounts, General Intangibles, Instruments, Inventory, Money,
Permits (to the full extent assignable), Reimbursement Contracts, and all
Proceeds, all whether now owned or hereafter acquired, and including
replacements, additions, accessions, substitutions, and products thereof and
thereto, and all other property which is or hereafter may become subject to a
Lien in favor of Lender as security for any of the Loan Obligations.
"Commitment Letter" means the commitment letter issued by Lender to
Borrower dated August 30, 1999.
"Debt Service Coverage Ratio" means a ratio in which the first
number is the sum of pre-tax "net income" of the Borrower from the operations of
the Facility as set forth in the financial statements provided to Lender
(without deduction for Actual Management Fees or expenses paid or incurred),
calculated based upon the preceding twelve (12) months (or such lesser period as
shall have elapsed following the closing of the Loan), plus interest expense or
lease expense to the extent deducted in determining net income and non-cash
expenses or allowances for depreciation and amortization of the Facility for
said period, less either Assumed Management Fees or Actual Management Fees
----
(based upon the covenant to which such definition relates) for said period and
the second number is the sum of the principal amounts due (even if not paid) on
the Loan (but which shall not include that portion associated with the balloon
payment of the Loan) for the
2
<PAGE>
applicable period plus the interest due on the Loan for the applicable period.
----
In calculating "net income," Extraordinary Income and Extraordinary Expenses
shall be excluded.
"Debt Service Reserve Fund Agreement" means that certain Debt
Service Reserve Fund Escrow and Security Agreement of even date herewith between
Lender and Borrower.
"Default" means the occurrence or existence of any event which, but
for the giving of notice or expiration of time or both, would constitute an
Event or Default.
"Default Rate" means a per annum rate equal to the lesser of (i)
five (5) percentage points above the then applicable Note Rate (as defined in
the Note) or (ii) the maximum rate permitted by applicable law.
"Environmental Permit" means any permit, license, or other
authorization issued under an Hazardous Material Law with respect to any
activities or businesses conducted on or in relation to the Property and/or the
Improvements.
"Equipment" means all beds, linen, televisions, carpeting,
telephones, cash registers, computers, lamps, glassware, rehabilitation
equipment, restaurant and kitchen equipment, and other fixtures and equipment of
Borrower located on, attached to or used or useful in connection with any of the
Property or the Facility and all renewals and replacements thereof and
substitutions therefor; provided, however, that with respect to any items which
are leased for the benefit of the Facility and not owned by Borrower, the
Equipment shall include the leasehold interest only of Borrower together with
any options to purchase any of said items and any additional or greater rights
with respect to such items which Borrower may hereafter acquire, but the
foregoing shall not be construed to mean that such leasing shall be permitted
hereunder and under the other Loan Documents.
"Event of Default" means any "Event of Default" as defined in
Article VII hereof.
"Exhibit" means an Exhibit to this Agreement, unless the context
refers to another document, and each such Exhibit shall be deemed a part of this
Agreement to the same extent as if it were set forth in its entirety wherever
reference is made thereto.
"Extraordinary Income and Extraordinary Expenses" means material
items of a character significantly different from the typical or customary
business activities of the Borrower which would not be expected to recur
frequently and which would not be considered as recurring factors in any
evaluation of the ordinary operating processes of the Borrower's business.
"Facility" means, individually and collectively, (i) the facility
known as "Chestnut Hill Nursing & Rehabilitation Center" (the "Chestnut
Facility"), presently a 123-bed licensed skilled nursing facility located on the
Chestnut Property, as it may now or hereafter exist, together with any other
general or specialized care facilities, if any (including any Alzheimer's care
unit, subacute and any assisted care facility), now or hereafter operated on the
Chestnut Property, (ii) the facility known as "Mary Lyon Nursing Home" (the
"Mary Lyon Facility"), presently a 100-bed licensed skilled
3
<PAGE>
nursing facility located on the Mary Lyon Property, as it may now or hereafter
exist, together with any other general or specialized care facilities, if any
(including any Alzheimer's care unit, subacute and any assisted care facility),
now or hereafter operated on the Mary Lyon Property, and (iii) the facility
known as "Riverdale Gardens Nursing & Rehabilitation Center" (the "Riverdale
Facility"), presently a 168-bed licensed skilled nursing facility located on the
Riverdale Property, as it may now or hereafter exist, together with any other
general or specialized care facilities, if any (including any Alzheimer's care
unit, subacute and any assisted care facility), now or hereafter operated on the
Riverdale Property.
"GAAP" means, as in effect from time to time, generally accepted accounting
principles consistently applied as promulgated by the American Institute of
Certified Public Accountants.
"General Intangibles" means all intangible personal property of Borrower
arising out of connected with the Property or the Facility and all renewals and
replacements thereof and substitutions therefor (other than Accounts, Rents,
Instruments, Inventory, Money, Permits, and Reimbursement Contracts), including,
without limitation, things in action, contract rights and other rights to
payment of money.
"Governmental Authority" means any board, commission, department or body of
any municipal, county, state or federal governmental unit, or any subdivision of
any of them, that has or acquires jurisdiction over the Property and/or the
Improvements or the use, operation or improvement of the Property.
"Guarantor" means G&L Realty Corporation, a Maryland corporation.
"Guaranty Agreement" means, individually and collectively, (i) that certain
Exceptions to Nonrecourse Guaranty of even date herewith from Guarantor to
Lender and (ii) that certain Payment and Performance Guaranty Agreement of even
date herewith from Guarantor to Lender.
"Hazardous Materials" means petroleum and petroleum products and compounds
containing them, including gasoline, diesel fuel and oil; explosives; flammable
materials; radioactive materials; polychlorinated biphenyls ("PCBs") and
compounds containing them; lead and lead-based paint; asbestos or
asbestos-containing materials in any form that is or could become friable;
underground storage tanks, whether empty or containing any substance; any
substance the presence of which on the Property is prohibited by any federal,
state or local authority; any substance that requires special handling; and any
other material or substance now or in the future defined as a "hazardous
substance," "hazardous material," "hazardous waste," "toxic substance," "toxic
pollutant," "contaminant," or "pollutant" within the meaning of any Hazardous
Materials Law.
"Hazardous Materials Law" means all federal, state, and local laws,
ordinances and regulations and standards, rules, policies and other governmental
requirements, administrative rulings and court judgments and decrees in effect
now or in the future and including all amendments,
4
<PAGE>
that relate to Hazardous Materials and apply to Borrower or to the Property
and/or the Improvements. Hazardous Materials Laws include, but are not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section
2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, and their state
analogs.
"Improvements" means all buildings, structures and improvements of
every nature whatsoever now or hereafter situated on the Property, including,
but not limited to, all gas and electric fixtures, radiators, heaters, engines
and machinery, boilers, ranges, elevators and motors, plumbing and heating
fixtures, carpeting and other floor coverings, water heaters, awnings and storm
sashes, and cleaning apparatus which are or shall be attached to the Property or
said buildings, structures or improvements.
"Indebtedness" means any (a) obligations for borrowed money, (b)
obligations, payment for which is being deferred by more than thirty (30) days,
representing the deferred purchase price of property other than accounts payable
arising in connection with the purchase of inventory customary in the trade and
in the ordinary course of Borrower's business, (c) obligations, whether or not
assumed, secured by Liens or payable out of the proceeds or production from the
Accounts and/or property now or hereafter owned or acquired, and (d) the amount
of any other obligation (including obligations under financing leases) which
would be shown as a liability on a balance sheet prepared in accordance with
GAAP.
"Instruments" means all instruments, chattel paper, documents or
other writings obtained from or in connection with the operation of the Property
or the construction and operation of the Facility (including, without
limitation, all ledger sheets, computer records and printouts, data bases,
programs, books of account, trademarks or trade names, utility contracts,
maintenance and service contracts, and files relating thereto).
"Inventory" means all inventories of food, beverages and other
comestibles held by Borrower for sale or use at or from the Property or the
Facility, and soap, paper supplies, medical supplies, drugs and all other such
goods, wares and merchandise held by Borrower for sale to or for consumption by
guests, patients or residents of the Property or the Facility and all such other
goods returned to or repossessed by Borrower.
"Lease Agreement" means that certain Lease Agreement between
Borrower and Lessee dated as of October 1, 1997, whereby Lessee has leased the
Facility from the Borrower.
"Lease Agreement Coverage Ratio" means a ratio in which the
numerator is the sum of lease income from the Facility, for each calendar
quarter during the term of the Loan, and the denominator is the sum of scheduled
payments of principal and interest under the Loan for the applicable calendar
quarter.
"Lessee" means Hampden Nursing Homes, Inc., a Massachusetts
corporation.
5
<PAGE>
"Lessee's SNDA" means that certain Subordination, Attornment and
Non-Disturbance Agreement of even date herewith by and among Borrower, Lessee
and Lender.
"Lien" means any voluntary or involuntary mortgage, security deed,
deed of trust, lien, pledge, assignment, security interest, title retention
agreement, financing lease, levy, execution, seizure, judgment, attachment,
garnishment, charge, lien or other encumbrance of any kind, including those
contemplated by or permitted in this Agreement and the other Loan Documents.
"Loan" means the Loan in the principal sum of $13,920,000.00 made by
Lender to Borrower as of the date hereof.
"Loan Documents" mean, collectively, this Agreement, the Assignment
of Leases and Rents, the Note, the Capital Improvements Fund Agreement, the Debt
Service Reserve Fund Agreement, the Guaranty Agreement, the Lessee's SNDA, the
Mortgage, and the Subordination Agreement together with any and all other
documents executed by Borrower or others, evidencing, securing or otherwise
relating to the Loan.
"Loan Obligations" means the aggregate of all principal and interest
owing from time to time under the Note and all expenses, charges and other
amounts from time to time owing under the Note, this Agreement, or the other
Loan Documents and all covenants, agreements and other obligations from time to
time owing to, or for the benefit of, Lender pursuant to the Loan Documents.
"Management Agreement" means, collectively, that certain Management
Agreement dated as of March 1, 1997 by and between Lessee and Oasis Healthcare,
Inc., a Georgia corporation ("Oasis"), as amended by that certain Assignment,
Amendment and Subordination Agreement dated as of October 1, 1997 by and among
Lessee, Oasis and Hampden Holding Group, Inc., a Massachusetts corporation
("HHG") and that certain Consulting Services Agreement dated as of October 6,
1998, by and among HHG, Manager, Borrower and G&L Realty Partnership, L.P., a
Delaware limited partnership, obligating the Manager to operate and manage the
Facility.
"Manager" means Lenox Healthcare Inc., a Massachusetts
corporation and any successor manager of the Facility approved by Lender in
writing.
"Maturity Date" means October 1, 2002.
"Medicaid" means that certain program of medical assistance, funded
jointly by the federal government and the States, for impoverished individuals
who are aged, blind and/or disabled, and/or members of families with dependent
children, which program is more fully described in Title XIX of the Social
Security Act (42 U.S.C. (S)(S) 1396 et seq.) and the regulations promulgated
thereunder.
"Medicare" means that certain federal program providing health
insurance for eligible elderly and other individuals, under which physicians,
hospitals, skilled nursing homes,
6
<PAGE>
home health care and other providers are reimbursed for certain covered services
they provide to the beneficiaries of such program, which program is more fully
described in Title XVIII of the Social Security Act (42 U.S.C. (S)(S) 1395 et
seq.) and the regulations promulgated thereunder.
"Money" means all monies, cash, rights to deposit or savings accounts or
other items of legal tender obtained from or for use in connection with the
operation of the Facility.
"Mortgage" means, individually and collectively, (i) that certain Mortgage,
Security Agreement and Fixture Filing, of even date herewith from the Borrower
in favor of Lender and covering the Chestnut Property, (ii) that certain
Mortgage, Security Agreement and Fixture Filing, of even date herewith from the
Borrower in favor of Lender and covering the Mary Lyon Property and (iii) that
certain Mortgage, Security Agreement and Fixture Filing, of even date herewith
from the Borrower in favor of Lender and covering the Riverdale Property.
"Note" means the Promissory Note of even date herewith in the principal
amount of the Loan payable by Borrower to the order of Lender.
"O&M Program" means a written program of operations and maintenance
established or approved in writing by Lender relating to any Hazardous Materials
in, on or under the Property or Improvements.
"Permits" means all licenses, permits and certificates used or necessary in
connection with the ownership, operation, use or occupancy of the Property
and/or the Facility, including, without limitation, business licenses, state
health department licenses, food service licenses, licenses to conduct business,
certificates of need and all such other permits, licenses and rights, obtained
from any governmental, quasi-governmental or private person or entity whatsoever
concerning ownership, operation, use or occupancy.
"Permitted Encumbrances" has the meaning given to that term in Section 5.2
hereof.
"Person" means any natural person, firm, trust, corporation, partnership,
limited liability company, trust and any other form of legal entity.
"Proceeds" means all awards, payments, earnings, royalties, issues,
profits, liquidated claims, and proceeds (including proceeds of insurance and
condemnation or any conveyance in lieu thereof) from the sale, conversion
(whether voluntary or involuntary), exchange, transfer, collection, loss,
damage, condemnation, disposition, substitution or replacement of any of the
Collateral.
"Property" means (i) the real estate located in the City of East Long
Meadow, County of Hampden, Commonwealth of Massachusetts which is more
particularly described in Exhibit "A-1" hereto (the "Chestnut Property"), upon
-------------
which the Chestnut Facility is located, and which, concurrent with the Closing
Date, will be owned by the Borrower, (ii) the real estate located
7
<PAGE>
in the City of Hampden, County of Hampden, Commonwealth of Massachusetts which
is more particularly described in Exhibit "A-2" hereto (the "Mary Lyon
------------
Property"), upon which the Mary Lyon Facility is located, and which, concurrent
with the Closing Date, will be owned by the Borrower and (iii) the real estate
located in the City of West Springfield, County of Hampden, Commonwealth of
Massachusetts which is more particularly described in Exhibit "A-1" hereto (the
------------
"Riverdale Property"), upon which the Riverdale Facility is located, and which,
concurrent with the Closing Date, will be owned by the Borrower.
"Reimbursement Contracts" means all third party reimbursement
contracts for the Facility which are now or hereafter in effect with respect to
residents or patients qualifying for coverage under the same, including
Medicare, Medicaid and private insurance agreements, and any successor program
or other similar reimbursement program and/or private insurance agreements.
"Rents" means all rent and other payments of whatever nature from
time to time payable pursuant to leases of the Property or the Facility, or for
retail space or other space at the Property (including, without limitation,
rights to payment earned under leases for space in the Improvements for the
operation of ongoing retail businesses such as newsstands, barbershops, beauty
shops, physicians' offices, pharmacies and specialty shops).
"Single-Purpose Entity" means a Person which owns no interest or
property other than the Property and the Improvements.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, membership interests, participations or other equivalents
(regardless of how designated) in a corporation, limited liability company
partnership or any equivalent entity, whether voting or nonvoting, including,
without limitation, common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended).
"Subordination Agreement" means that certain Subordination of
Management Agreement of even date herewith by and among Hampden Holding Group,
Inc., a Massachusetts corporation, G&L Realty Partnership, L.P., a Delaware
limiter partnership, Lessee, Manager, and Lender.
1.2 Singular terms shall include the plural forms and vice versa, as
applicable, of the terms defined.
1.3 Terms contained in this Agreement shall, unless otherwise defined
herein or unless the context otherwise indicates, have the meanings, if any,
assigned to them by the Uniform Commercial Code in effect in the Commonwealth of
Massachusetts.
1.4 All accounting terms used in this Agreement shall be construed in
accordance with GAAP, except as otherwise specified.
8
<PAGE>
1.5 All references to other documents or instruments shall be deemed to
refer to such documents or instruments as they may hereafter be extended,
renewed, modified, or amended and all replacements and substitutions therefor.
1.6 All references herein to "Medicaid" and "Medicare" shall be deemed
to include any successor program thereto.
ARTICLE II
TERMS OF THE LOAN
2.1 The Loan. Borrower has agreed to borrow the Loan from Lender, and
--------
Lender has agreed to make the Loan to Borrower, subject to Borrower's compliance
with and observance of the terms, conditions, covenants, and provisions of this
Agreement and the other Loan Documents, and Borrower has made the covenants,
representations, and warranties herein and therein as a material inducement to
Lender to make the Loan.
2.2 Security for the Loan. The Loan will be evidenced, secured and
---------------------
guaranteed by the Loan Documents.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, and to make the Loan to
Borrower, Borrower represents and warrants to Lender as follows:
3.1 Existence, Power and Qualification. Borrower is a duly organized and
----------------------------------
validly existing liability company, has the power to own its properties and to
carry on its business as is now being conducted, and is duly qualified to do
business and is in good standing in every jurisdiction in which the character of
the properties owned by it or in which the transaction of its business makes its
qualification necessary.
3.2 Power and Authority. Borrower has full power and authority to borrow
-------------------
the indebtedness evidenced by the Note and to incur the Loan Obligations
provided for herein, all of which have been authorized by all proper and
necessary action. All consents, approvals authorizations, orders or filings of
or with any court or governmental agency or body, if any, required for the
execution, delivery and performance of the Loan Documents by the Borrower have
been obtained or made.
3.3 Due Execution and Enforcement. Each of the Loan Documents to which
-----------------------------
Borrower is a party constitutes a valid and legally binding obligation of
Borrower, enforceable in accordance with its respective terms (except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium, or other laws relating to the rights of creditors
generally and by general principles of equity) and does not violate, conflict
with, or constitute any default
9
<PAGE>
under any law, government regulation, decree, judgment, Borrower's certificate
of formation or operating agreement or any other agreement or instrument binding
upon Borrower.
3.4 Single-Purpose Entity. Borrower is a Single-Purpose Entity.
---------------------
3.5 Pending Matters.
---------------
(a) Operations; Financial Condition. No action or investigation
-------------------------------
is pending or, to the best of Borrower's knowledge, threatened before or by any
court or administrative agency which might result in any material adverse change
in the financial condition, operations or prospects of Borrower or any lower
reimbursement rate under the Reimbursement Contracts. The Borrower is not in
violation of any agreement, the violation of which might reasonably be expected
to have a material adverse effect on its business or assets, and Borrower is not
in violation of any order, judgment, or decree of any court, or any statute or
governmental regulation to which it is subject.
(b) Property Improvements. There are no proceedings pending, or,
---------------------
to the best of Borrower's knowledge, threatened, to acquire through the exercise
of any power of condemnation, eminent domain or similar proceeding any part of
the Property, the Improvements or any interest therein, or to enjoin or
similarly prevent or restrict the use of the Property or the operation of the
Facility in any manner. None of the Improvements is subject to any unrepaired
casualty or other damage.
3.6 Financial Statements Accurate. All financial statements provided to
-----------------------------
Lender by Borrower are true and complete in all material respects as of their
respective dates and fairly present the respective financial condition of
Borrower, and there are no material liabilities, direct or indirect, fixed or
contingent, as of the respective dates of such statements which are not
reflected therein or in the notes thereto or in a written certificate delivered
with such statements. The financial statements of the Borrower have been
prepared in accordance with GAAP. There has been no material adverse change in
the financial condition, operations, or prospects of Borrower since the dates of
such statements except as fully disclosed in writing with the delivery of such
statements. All financial statements of the operations of the Facility
heretofore provided to Lender are true and complete in all material respects as
of their respective dates.
3.7 Compliance with Facility Laws. The Chestnut Facility is duly
-----------------------------
licensed as a 123-bed licensed skilled nursing facility under the applicable
laws of the state where the Property is located and is currently operated as a
123-bed licensed skilled nursing facility. The Mary Lyon Facility is duly
licensed as a 100-bed licensed skilled nursing facility under the applicable
laws of the state where the Property is located and is currently operated as a
100-bed licensed skilled nursing facility. The Riverdale Facility is duly
licensed as a 168-bed licensed skilled nursing facility under the applicable
laws of the state where the Property is located and is currently operated as a
168-bed licensed skilled nursing facility. Lessee is the lawful owners of all
Permits for each Facility, including, without limitation, the certificate of
need, if applicable, which (a) are in full force and effect, (b) constitute all
of the permits, licenses and certificates required for the use, operation and
occupancy thereof, (c) have not been pledged as collateral for any other loan or
Indebtedness, (d) are
10
<PAGE>
held free from restrictions or any encumbrance which would materially adversely
affect the use or operation of the Facility, and (e) are not provisional,
probationary or restricted in any way. The Borrower and Lessee and Manager as
well as the operation of the Facility are in compliance in all material respects
with the applicable provisions of nursing home, nursing facility and/or assisted
living facility laws, rules, regulations and published interpretations to which
the Facility is subject. No waivers of any laws, rules, regulations, or
requirements (including, but not limited to, minimum foot requirements per bed)
are required for each Facility to operate at the current licensed bed capacity.
All Reimbursement Contracts are in full force and effect with respect to the
Facility, and Borrower, Lessee and Manager are in good standing with all the
respective agencies governing such applicable nursing home licenses, program
certification, and Reimbursement Contracts. Borrower, Lessee and Manager are
current in the payment of all so-called provider specific taxes or other
assessments with respect to such Reimbursement Contracts. Borrower will cause
Lessee to maintain (without allowing to lapse) the certificate of need, if
applicable, and any other required Permits. To the best of Borrower's knowledge,
in the event Lender acquires the Facility through foreclosure or otherwise,
neither Lender nor a subsequent manager, a subsequent lessee or any subsequent
purchaser (through foreclosure or otherwise) must obtain a certificate of need
prior to applying for and receiving a license to operate the Facility and
certification to receive Medicare and Medicaid payments (and its successor
programs) for patients having coverage thereunder provided that no service or
bed complement is changed.
3.8 Maintain Bed Capacity. Neither Borrower nor Lessee nor Manager has
---------------------
granted to any third party the right to reduce the number of licensed beds in
the Facility or to apply for approval to transfer the right to any and all of
the licensed Facility beds to any other location.
3.9 Medicare and Medicaid Compliance. Each Facility is in compliance with
--------------------------------
all requirements for participation in Medicare and Medicaid, including without
limitation, the Medicare and Medicaid Patient Protection Act of 1987. Each
Facility is in conformance in all material respects with all insurance,
reimbursement and cost reporting requirements and has a current provider
agreement which is in full force and effect under Medicare and Medicaid.
3.10 Third-Party Payors. There is no pending or threatened revocation,
------------------
suspension, termination, probation, restriction, limitation, or nonrenewal
affecting Borrower, Manager, Lessee or the Facility or any participation or
provider agreement with any third-party payor, including Medicare, Medicaid,
Blue Cross and/or Blue Shield, and any other private commercial insurance
managed care and employee assistance program (such programs, the "Third-Party
Payors' Programs") to which Borrower, Manager or Lessee presently is subject.
All Medicare, Medicaid and private insurance cost reports and financial reports
submitted by Borrower, Manager or Lessee are and will be materially accurate and
complete and have not been and will not be misleading in any material respects.
No cost reports for the Facility remain "open" or unsettled, except as otherwise
disclosed.
3.11 Governmental Proceedings and Notices. Neither Borrower nor Manager nor
------------------------------------
Lessee nor the Facility is currently the subject of any proceeding by any
governmental agency, and no notice
11
<PAGE>
of any violation has been received from a governmental agency that would,
directly or indirectly, or with the passage of time:
(a) Have a material adverse impact on Borrower's, Manager's or
Lessee's ability to accept and/or retain patients or result in the imposition of
a fine, a sanction, a lower rate certification or a lower reimbursement rate for
services rendered to eligible patients;
(b) Modify, limit or annul or result in the transfer, suspension,
revocation or imposition of probationary use of any of the Permits; or
(c) Affect Borrower's, Manager's or Lessee's continued participation
in the Medicare or Medicaid programs or any other Third-Party Payors' Programs,
or any successor programs thereto, at current rate certifications.
3.12 Physical Plant Standards. Each Facility and the use thereof complies
------------------------
in all material respects with all applicable local, state and federal building
codes, fire codes, health care, nursing facility and other similar regulatory
requirements (the "Physical Plant Standards"), and no waivers of Physical Plant
Standards exist at the Facility.
3.13 Pledges of Receivables. Borrower has not pledged its Accounts as
----------------------
collateral security for any loan or Indebtedness other than, if applicable, the
Loan.
3.14 Payment of Taxes and Property Impositions. Borrower has filed all
-----------------------------------------
federal, state, and local tax returns which it is required to file and has paid,
or made adequate provision for the payment of, all taxes which are shown
pursuant to such returns or are required to be shown thereon or to assessments
received by Borrower, including, without limitation, provider taxes. All such
returns are complete and accurate in all respects. Borrower has paid or made
adequate provision for the payment of all applicable water and sewer charges,
ground rents (if applicable) and Taxes (as defined in the Mortgage) with respect
to the Property.
3.15 Title to Collateral. Borrower has good and marketable title to all of
-------------------
the Collateral, subject to no lien, mortgage, pledge, encroachment, material
zoning violation, or encumbrance, except Permitted Encumbrances which do not and
will not materially interfere with the security intended to be provided by the
Mortgage or the current use or operation of the Property and the Improvements or
the current ability of the Facility to generate net operating income sufficient
to service the Loan. All Improvements situated on the Property are situated
wholly within the boundaries of the Property.
3.16 Priority of Mortgage. The Mortgage constitutes a valid first lien
--------------------
against the real and personal property described therein, prior to all other
liens or encumbrances, including those which may hereafter accrue, excepting
only "Permitted Encumbrances" which do not and will not materially and adversely
affect (a) the ability of the Borrower to pay in full the principal of and
interest on the Note when due, (b) the security (and its value) intended to be
provided by the Mortgage, or (c) the current use of the Property and the
Improvements.
12
<PAGE>
3.17 Location of Chief Executive Offices. The location of Borrower's
-----------------------------------
principal place of business and chief executive office is set forth on Exhibit
-------
"B" hereto.
- ---
3.18 Disclosure. All information furnished or to be furnished by Borrower
----------
to Lender in connection with the Loan or any of the Loan Documents, is, or will
be at the time the same is furnished, accurate and correct in all material
respects and complete insofar as completeness may be necessary to provide Lender
with true and accurate knowledge of the subject matter.
3.19 Trade Names. Neither Borrower nor the Chestnut Facility, which
-----------
operates under the trade name "Chestnut Hill Nursing & Rehabilitation Center",
nor the Mary Lyon Facility, which operates under the trade name "Mary Lyon
Nursing Home", nor the Riverdale Facility, which operates under the trade name
"Riverdale Gardens Nursing & Rehabilitation Center" has changed its name, been
known by any other name, or been a party to a merger, reorganization or similar
transaction within the last twenty-two (22) months. Borrower has owned each
Facility for the last twenty-two (22) months.
3.20 ERISA. Borrower is in compliance with all applicable provisions of
-----
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
3.21 Ownership. The ownership interests of the Persons comprising the
---------
Borrower and each of the respective interests in the Borrower are correctly and
accurately set forth on Exhibit "C" hereto.
-----------
3.22 Compliance With Applicable Laws. Each Facility and its operations
-------------------------------
and the Property comply in all material respects with all covenants and
restrictions of record and applicable laws, ordinances, rules and regulations,
including, without limitation, the Americans with Disabilities Act and the
regulations thereunder, and all laws, ordinances, rules and regulations relating
to zoning, setback requirements and building codes and there are no waivers of
any building codes currently in existence for the Facility.
3.23 Solvency. Borrower is solvent for purposes of 11 U.S.C. (S)548, and
--------
the borrowing of the Loan will not render Borrower insolvent for purposes of 11
U.S.C. (S)548.
3.24 Lease Agreement. The Lease Agreement is in full force and effect
---------------
and, there are no defaults (either monetary or non-monetary) by the Borrower or
Lessee thereunder.
3.25 Other Indebtedness. Borrower has no outstanding Indebtedness,
------------------
secured or unsecured, direct or contingent (including any guaranties), other
than (a) the Loan, and (b) indebtedness which represents trade payables or
accrued expenses incurred in the ordinary course of business of owning and
operating the Property; no other debt will be secured (senior, subordinate or
pari passu) by the Property.
3.26 Other Obligations. Borrower has no material financial obligation
-----------------
under any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which
13
<PAGE>
Borrower is a party or by which Borrower or the Property is otherwise bound,
other than obligations incurred in the ordinary course of the operation of the
Property and other than obligations under the Mortgage and the other Loan
Documents.
3.27 Fraudulent Conveyances. Borrower (a) has not entered into this
----------------------
Agreement or any of the other Loan Documents with the actual intent to hinder,
delay, or defraud any creditor, and (b) has received reasonably equivalent value
in exchange for its obligations under the Loan Documents. Giving effect to the
transactions contemplated by the Loan Documents, the fair saleable value of
Borrower's assets exceeds and will, immediately following the execution and
delivery of the Loan Documents, be greater than Borrower's probable
liabilities, including the maximum amount of its contingent liabilities or its
debts as such debts become absolute and mature. Borrower's assets do not and,
immediately following the execution and delivery of the Loan Documents will not,
constitute unreasonably small capital to carry out its business as conducted or
as proposed to be conducted. Borrower does not intend to, and does not believe
that it will, incur debts and liabilities (including, without limitation,
contingent liabilities and other commitments) beyond its ability to pay such
debts as they mature (taking into account the timing and amounts to be payable
on or in respect of obligations of Borrower).
3.28 Management Agreement. The Management Agreement is in full force and
--------------------
effect and there are no defaults (either monetary or non-monetary) by the
Manager or Lessee thereunder.
ARTICLE IV
AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees with and covenants unto the Lender that until the Loan
Obligations have been paid in full, Borrower shall:
4.1 Payment of Loan/Performance of Loan Obligations. Duly and punctually
-----------------------------------------------
pay or cause to be paid the principal and interest of the Note in accordance
with its terms and duly and punctually pay and perform or cause to be paid or
performed all Loan Obligations hereunder and under the other Loan Documents.
4.2 Maintenance of Existence. Maintain its existence as a limited
------------------------
liability company, and, in each jurisdiction in which the character of the
property owned by it or in which the transaction of its business makes
qualification necessary, maintain good standing.
4.3 Maintenance of Single Purpose. Maintain its existence as a
-----------------------------
Single-Purpose Entity.
4.4 Accrual and Payment of Taxes. During each fiscal year, make accurate
----------------------------
provision for the payment of all current tax liabilities of all kinds
(including, without limitation, federal and state income taxes, franchise taxes,
payroll taxes, provider taxes (to the extent necessary to participate in and
receive maximum funding pursuant to Reimbursement Contracts) and Taxes (as
defined in the Mortgage)), all required withholding of income taxes of
employees, all required old
14
<PAGE>
age and unemployment contributions, and all required payments to employee
benefit plans, and pay the same when they become due.
4.5 Insurance. Maintain, or cause Lessee to maintain the following
---------
insurance coverages with respect to the Property and the Facility:
(a) Insurance against loss or damage by fire, casualty and other
hazards as now are or subsequently may be covered by an "all risk" policy or a
policy covering "special" causes of loss, with such endorsements as Lender may
from time to time reasonably require and which are customarily required by
institutional lenders of similar properties similarly situated, including,
without limitation, building ordinance or law, lightning, windstorm, civil
commotion, hail, riot, strike, water damage, sprinkler leakage, collapse,
malicious mischief, explosion, smoke, aircraft, vehicles, vandalism, falling
objects and weight of snow, ice or sleet, and covering the Facility in an amount
equal to one hundred percent (100%) of the full insurable replacement value of
the Facility (exclusive footings and foundations below the lowest basement
floor) without deduction for depreciation. The determination of the replacement
cost amount shall be adjusted annually to comply with the requirements of the
insurer issuing the coverage or, at Lender's election, by reference to such
indexes, appraisals or information as Lender determines in its reasonable
discretion, and, unless the insurance required by this paragraph shall be
effected by blanket and/or umbrella policies in accordance with the requirements
of this Agreement, the policy shall include inflation guard coverage that
ensures that the policy limits will be increased over time to reflect the effect
of inflation. Each policy shall, subject to Lender's approval, contain (i) a
replacement cost endorsement, without deduction for depreciation, (ii) either an
agreed amount endorsement or a waiver of any co-insurance provisions, and (iii)
an ordinance or law coverage or enforcement endorsement if the Improvements or
the use of the Property constitutes any legal nonconforming structures or uses,
and shall provide for deductibles in such amounts as Lender may permit in its
sole discretion.
(b) Commercial general liability insurance under a policy
containing "Comprehensive General Liability Form" of coverage (or a comparably
worded form of coverage) and the "Broad Form CGL" endorsement (or a policy which
otherwise incorporates the language of such endorsement), providing coverage on
an occurrence (not "claims made") basis, which policy shall include, without
limitation, coverage against claims for personal injury, bodily injury, death
and property damage liability with respect to the Facility and the operations
related thereto, whether on or off the Property, and the following coverages:
Employee as Additional Insured, Product Liability/Completed Operations; Broad
Form Contractual Liability, Independent Contractor, Personal Injury and
Advertising Injury Protection, Medical Payment (with a minimum limit of $5,000
per person), Broad Form Cross Suits Liability Endorsement, where applicable,
hired and non-owned automobile coverage (including rented and leased vehicles),
and, if any alcoholic beverages shall be sold, manufactured or distributed in
the Facility, liquor liability coverage, all of which shall be in such amounts
as Lender may from time to time reasonably require, but not less than One
Million Dollars ($1,000,000) per occurrence, Three Million Dollars ($3,000,000)
in the aggregate, with umbrella coverage not less than Five Million Dollars
($5,000,000). If such policy shall cover more than one property, such limits
shall apply on a "per location" basis. If any elevators, health
15
<PAGE>
club facilities or swimming pools are located at the Facility, the foregoing
amounts shall be increased to Three Million Dollars ($3,000,000), Six Million
Dollars ($6,000,000) and Ten Million Dollars ($10,000,000), respectively. Such
liability policy shall delete the contractual exclusion under the personal
injury coverage, if possible, and if available, shall include the following
endorsements: Notice of Accident, Knowledge of Occurrence, and Unintentional
Error and Omission.
(c) Professional liability insurance coverage in an amount equal to One
Million Dollars ($1,000,000) per occurrence and Three Million Dollars
($3,000,000) in the aggregate and insuring Borrower for acts occurring prior to
the date of the Loan.
(d) Loss of rents insurance (i) covering the same perils of loss as are
required to be covered by the property insurance required under Section 4.5(a)
above, (ii) in an amount equal to the projected annual net income from the
Facility plus carrying costs and extraordinary expenses of the Property for a
period of twelve (12) months, based upon Borrower's reasonable estimate thereof
as approved by Lender, (iii) including either an agreed amount endorsement or a
waiver of any co-insurance provisions, so as to prevent Borrower, Lender and any
other insured thereunder from being a co-insurer, and (iv) providing that any
covered loss thereunder shall be payable to Lender.
(e) During the period of any construction of Capital Improvements, as
defined in the Capital Improvements Fund Agreement, and any new construction on
the Property, a so-called "Builder's All-Risk Completed Value" or "Course of
Construction" insurance policy in non-reporting form for any improvements under
construction, including, without limitation, for demolition and increased cost
of construction or renovation, in an amount equal to one hundred percent (100%)
of the estimated replacement cost value on the date of completion, including
"soft cost" coverage, and Workers' Compensation Insurance covering all persons
engaged in such construction, in an amount at least equal to the minimum
required by law. In addition, each contractor and subcontractor shall be
required to provide Lender with a certificate of insurance for (i) worker's
compensation insurance covering all persons engaged by such contractor or
subcontractor in such construction in an amount at least equal to the minimum
required by law, and (ii) general liability insurance showing minimum limits of
at least Five Million Dollars ($5,000,000), including coverage for products and
completed operations. Each contractor and subcontractor also shall cover
Borrower and Lender as an additional insured under such liability policy and
shall indemnify and hold Borrower and Lender harmless from and against any and
all claims, damages, liabilities, costs and expenses arising out of, relating to
or otherwise in connection with its performance of such construction.
(f) If the Facility contains steam boilers, steam pipes, steam engines,
steam turbines or other high pressure vessels, insurance covering the major
components of the central heating, air conditioning and ventilating systems,
boilers, other pressure vessels, high pressure piping and machinery, elevators
and escalators, if any, and other similar equipment installed in the
Improvements, in an amount equal to one hundred percent (100%) of the full
replacement cost of the Facility, which policies shall insure against physical
damage to and loss of occupancy and use of the Improvements arising out of an
accident or breakdown covered thereunder.
16
<PAGE>
(g) Flood insurance with a deductible not to exceed Three
Thousand Dollars ($3,000), or such greater amount as may be satisfactory to
Lender in its sole discretion, and in an amount equal to the full insurable
value of the Facility or the maximum amount available, whichever is less, if the
Facility is located in an area designated by the Secretary of Housing and Urban
Development or the Federal Emergency Management Agency as having special flood
hazards.
(h) Workers' compensation insurance or other similar insurance
which may be required by governmental authorities or applicable legal
requirements in an amount at least equal to the minimum required by law, and
employer's liability insurance with a limit of One Million Dollars ($1,000,000)
per accident and per disease per employee, and Three Million Dollars
($3,000,000) in the aggregate for disease arising in connection with the
operation of the Property.
(i) Such other insurance coverages, in such amounts, and such
other forms and endorsements, as may from time to time be required by Lender and
which are customarily required by institutional lenders to similar properties,
similarly situated, including, without limitation, coverages against other
insurable hazards (including, by way of example only, earthquake, sinkhole and
mine subsidence), which at the time are commonly insured against and generally
available.
All insurance required under this Section 4.5 shall have a term of not less
than one year and shall be in the form and amount and with deductibles as, from
time to time, shall be reasonably acceptable to Lender, under valid and
enforceable policies issued by financially responsible insurers either licensed
to transact business in the State where the Facility is located, or obtained
through a duly authorized surplus lines insurance agent or otherwise in
conformity with the laws of such State, with a (i) rating of not less than the
third (3rd) highest rating category by either Standard & Poor's Ratings Group,
Duff & Phelps Credit Rating Co., Moody's Investors Service, Inc., Fitch
Investors Service, Inc. or any successors thereto, or (ii) an A:V rating in
Best's Key Rating Guide; provided, however, that if the initial principal
- -----------------------
balance of the Loan is greater than Seven Million Five Hundred Thousand Dollars
($7,500,000), such insurer must, in lieu of such Best's rating, have a long term
senior debt rating of at least "A" by Standard & Poor's Ratings Group. Originals
or certified copies of all insurance policies shall be delivered to and held by
Lender. All such policies shall name Lender as an additional insured, shall
provide for loss payable solely to Lender and shall contain: (A) a standard
"non-contributory mortgagee endorsement or its equivalent relating, inter alia,
----- ----
to recovery by Lender notwithstanding the negligent or willful acts or omissions
of Borrower and notwithstanding (1) occupancy or use of the Facility for
purposes more hazardous than those permitted by the terms of such policy, (2)
any foreclosure or other action taken by Lender pursuant to the Mortgage upon
the occurrence of an Event of Default, or (3) any change in title or ownership
of the Facility; and (B) a provision that such policies shall not be canceled or
amended, including, without limitation, any amendment reducing the scope or
limits of coverage, or failed to be renewed, without at least thirty (30) days
prior written notice to Lender in each instance. With respect to insurance
policies which require payment of premiums annually, not less than thirty (30)
days prior to the expiration dates of the insurance policies obtained pursuant
to this Agreement, Borrower shall pay such amount, except to the extent Lender
is escrowing sums therefor pursuant to the Loan Documents. Not less than thirty
(30) days prior to the expiration dates of the insurance policies obtained
pursuant to this Agreement, originals or certified copies of renewals of such
policies (or
17
<PAGE>
certificates evidencing such renewals) bearing notations evidencing the payment
of premiums or accompanied by other evidence satisfactory to Lender of such
payment, which premiums shall not be paid by Borrower through or by any
financing arrangement, shall be delivered by Borrower to Lender. Borrower shall
not carry separate insurance, concurrent in kind or form or contributing in the
event of loss, with any insurance required under this Section 4.5. If the limits
of any policy required hereunder are reduced or eliminated due to a covered
loss, Borrower shall pay the additional premium, if any, in order to have the
original limits of insurance reinstated, or Borrower shall purchase new
insurance in the same type and amount that existed immediately prior to the
loss.
If Borrower fails to maintain and deliver to Lender the original policies
or certificates of insurance required by this Agreement, Lender may, at its
option, procure such insurance and Borrower shall pay or, as the case may be,
reimburse Lender for, all premiums thereon promptly, upon demand by Lender, with
interest thereon at the Default Rate from the date paid by Lender to the date of
repayment and such sum shall constitute a part of the Loan Obligations.
The insurance required by this Agreement may, at the option of Borrower, be
effected by blanket and/or umbrella policies issued to Borrower or to an
Affiliate of Borrower covering the Facility and the properties of such
Affiliate; provided that, in each case, the policies otherwise comply with the
provisions of this Agreement and allocate to the Facility, from time to time,
the coverage specified by this Agreement without possibility of reduction or
coinsurance by reason of, or damage to, any other property (real or personal)
named therein. If the insurance required by this Agreement shall be effected by
any such blanket or umbrella policies, Borrower shall furnish to Lender
original policies or certified copies thereof (or, if acceptable in form and
content to Lender, certificates evidencing such policies), with schedules
attached thereto showing the amount of the insurance provided under such
policies which is applicable to the Facility.
Neither Lender nor its agents or employees shall be liable for any loss or
damage insured by the insurance policies required to be maintained under this
Agreement; it being understood that (i) Borrower shall look solely to its
insurance company for the recovery of such loss or damage, (ii) such insurance
company shall have no rights of subrogation against Lender, its agents or
employees, and (iii) Borrower shall use its best efforts to procure from such
insurance company a waiver of subrogation rights against Lender. If, however,
such insurance policies do not provide for a waiver of subrogation rights
against Lender (whether because such a waiver is unavailable or otherwise), then
Borrower hereby agrees, to the extent permitted by law and to the extent not
prohibited by such insurance policies, to waive its rights of recovery, if any,
against Lender, its agents and employees, whether resulting from any damage to
the Facility, any liability claim in connection with the Facility or otherwise.
If any such insurance policy shall prohibit Borrower from waiving such claims,
then Borrower must obtain from such insurance company a waiver of subrogation
rights against Lender.
At its option, Lender agrees that Lender shall make the net proceeds of
insurance or condemnation (after payment of Lender's reasonable costs and
expenses) available to Borrower for Borrower's repair, restoration and
replacement of the Improvements, Equipment and Inventory
18
<PAGE>
damaged or taken on the following terms and subject to Borrower's satisfaction
of the following conditions:
(i) The aggregate amount of all such proceeds shall not exceed the
aggregate amount of all such Loan Obligations;
(ii) At the time of such loss or damage and at all times thereafter while
Lender is holding any portion of such proceeds, there shall exist no Default or
Event of Default;
(iii) The Improvements, Equipment, and Inventory for which loss or damage
has resulted shall be capable of being restored to its preexisting condition and
utility in all material respects with a value equal to or greater than that
which existed prior to such loss or damage and such restoration shall be capable
of being completed prior to the earlier to occur of (A) the expiration of
business interruption insurance as determined by an independent inspector or (B)
the Maturity Date;
(iv) Within thirty (30) days from the date of such loss or damage Borrower
shall have given Lender a written notice electing to have the proceeds applied
for such purpose;
(v) Within sixty (60) days following the date of notice under the
preceding subparagraph (iv) and prior to any proceeds being disbursed to
Borrower, Borrower shall have provided to Lender all of the following:
(A) complete plans and specifications for restoration, repair and
replacement of the Improvements, Equipment and Inventory damaged to the
condition, utility and value required by subparagraph (iii) above,
(B) if loss or damage exceeds $50,000, fixed-price or guaranteed
maximum cost bonded construction contracts for completion of the repair and
restoration work in accordance with such plans and specifications,
(C) builder's risk insurance for the full cost of construction with
Lender named under a standard mortgagee loss-payable clause,
(D) such additional funds as in Lender's reasonable opinion are
necessary to complete such repair, restoration and replacement, and
(E) copies of all permits and licenses necessary to complete the work
in accordance with the plans and specifications;
(vi) Lender may, at Borrower's expense, retain an independent inspector to
review and approve plans and specification and completed construction and to
approve all requests for disbursement, which approvals shall be conditions
precedent to release of proceeds as work progresses;
19
<PAGE>
(vii) No portion of such proceeds shall be made available by Lender
for architectural reviews or for any other purposes which are not directly
attributable to the cost of repairing, restoring or replacing the Improvements,
Equipment and Inventory for which a loss or damage has occurred unless the same
are covered by such insurance;
(viii) Borrower shall diligently pursue such work and shall complete
such work prior to the earlier to occur of the expiration of business
interruption insurance or the Maturity Date;
(ix) The Facility continues to achieve the Debt Service Coverage
Ratio and Lease Coverage Ratio requirements set forth in Section 4.13 below;
(x) Each disbursement by Lender of such proceeds and deposits shall
be funded subject to conditions and in accordance with disbursement procedures
which a commercial construction lender would typically establish in the exercise
of sound banking practices and shall be made only upon receipt of disbursement
requests on an AIA G702/703 form (or similar form approved by Lender) signed and
certified by Borrower and, if required by the Lender, its architect and general
contractor with appropriate invoices and lien waivers as required by Lender; and
(xi) Lender shall have a first lien and security interest in all
building materials and completed repair and restoration work and in all fixtures
and equipment acquired with such proceeds, and Borrower shall execute and
deliver such mortgages, deeds of trust, security agreements, financing
statements and other instruments as Lender shall request to create, evidence, or
perfect such lien and security interest.
In the event and to the extent such proceeds are not required or used for
the repair, restoration and replacement of the Improvements, Equipment and
Inventory for which a loss or damage has occurred, or in the event Lender does
not permit Borrower to have the insurance proceeds applied to the restoration of
the Improvements, Equipment, or Inventory, or, if the conditions set forth
herein for such application are otherwise not satisfied, then Lender shall be
entitled without notice to or consent from Borrower to apply such proceeds, or
the balance thereof, at Lender's option either (i) to the full or partial
payment or prepayment of the Loan Obligations (without premium) in the manner
aforesaid, or (ii) to the repair, restoration and/or replacement of all or any
part of such Improvements, Equipment and Inventory for which a loss or damage
has occurred.
Borrower appoints Lender as Borrower's attorney-in-fact to cause the
issuance of or an endorsement of any insurance policy to bring Borrower into
compliance herewith and, as limited above, at Lender's sole option, to make any
claim for, receive payment for, and execute and endorse any documents, checks or
other instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will Lender be liable for failure to
collect any amounts payable under any insurance policy.
4.6 Financial and Other Information. Provide Lender, and cause the
-------------------------------
Guarantor and Lessee and/or the Manager to provide to Lender, at its address set
forth in Section 8.7 and at GMAC Commercial Mortgage Corporation, 55 S. Lake
Avenue, Suite 230, Pasadena, California 91101-
20
<PAGE>
2602, the following financial statements and information on a continuing basis
during the term of the Loan:
(a) Within one hundred twenty (120) days after the end of each fiscal year
of the Facility, the Borrower (if different from the Facility) and the
Guarantor, reviewed financial statements of the Facility, the Borrower and the
Guarantor, prepared by a nationally recognized accounting firm or independent
certified public accountant acceptable to Lender, which statements shall be
prepared in accordance with GAAP, and shall include a balance sheet and a
statement of income and expenses for the year then ended, certified by a
financial officer of Borrower and Guarantor, as the case may be, to be true and
correct.
(b) Within ninety (90) days after the end of each fiscal year of Lessee,
unaudited financial statements of Lessee, prepared by a nationally recognized
accounting firm or independent certified public accountant acceptable to
Lender, which statements shall be prepared in accordance with GAAP, and shall
include a balance sheet and a statement of income and expenses for the year then
ended, and shall be certified as true and correct in all material respects by a
financial officer of Lessee.
(c) Within ninety (90) days after the end of each fiscal year of the
Manager, unaudited financial statements of the Manager prepared by a nationally
recognized accounting firm or independent certified public accountant
acceptable to Lender, which statements shall be prepared in accordance with
GAAP, which such statements shall include a balance sheet and a statement of
income and expenses for the year then ended, certified by a chief financial
officer of Manager.
(d) Within forty-five (45) days after the end of each fiscal quarter of the
Facility and of the Borrower (if different from the Facility), unaudited interim
financial statements of the operations of the Facility and the Borrower,
prepared in accordance with GAAP, which statements shall include a balance sheet
and statement of income and expenses for the quarter then ended, certified by a
financial officer of the Borrower to be true and correct.
(e) Within forty-five (45) days of the end of each fiscal quarter of
Lessee, unaudited financial statements of the Lessee, prepared in accordance
with GAAP, which statements shall include a balance sheet and statement of
income and expenses for the quarter then ended, certified by a financial officer
of the Lessee to be true and correct.
(f) Within forty-five (45) days of the end of each fiscal quarter of the
Manager, unaudited financial statements of the Manager, prepared in accordance
with GAAP, which statements shall include a balance sheet and statement of
income and expenses for the quarter then ended, certified by a financial officer
of the Manager to be true and correct.
(g) Within forty-five (45) days after the end of each fiscal quarter of the
Borrower, a statement of the number of bed days available and the actual patient
days incurred for the quarter, together with quarterly census information of
each Facility as of the end of such quarter in sufficient detail to show
patient-mix (i.e., private, Medicare, Medicaid, and V.A.) on a daily
21
<PAGE>
average basis for such year through the end of such quarter, certified by the
chief financial officer of Lessee and of Manager to be true and correct. Such
statements of the Facility shall be accompanied by the Summary of Financial
Statements and Census Data attached hereto as Exhibit "D".
----------
(h) Upon request by Lender, as soon as available, but in no event
more than thirty (30) days after the filing deadline, as may be extended from
time to time, copies of all federal, state and local tax returns of Borrower and
Guarantor, together with all supporting documentation and required schedules.
(i) Within ten (10) days of filing or receipt, all Medicare
and/or Medicaid cost reports and any amendments thereto filed with respect to
the Facility and all responses, audit reports, or other inquiries with respect
to such cost reports.
(j) Within ten (10) days of receipt, a copy of the Medicaid Rate
Calculation Worksheet (or the equivalent thereof) issued by the appropriate
Medicaid Agency for the Facility.
(k) Within three (3) days of receipt, any and all notices
(regardless of form) from any and all licensing and/or certifying agencies that
the Facility license and/or the Medicare and/or Medicaid certification of the
Facility is being downgraded to a substandard category, revoked, or suspended or
that any such action is pending or being considered.
(l) Upon Lender's request, evidence of payment by Borrower or
Lessee or Manager of any applicable provider bed taxes or similar taxes, which
taxes Borrower agrees to pay.
(m) Within one hundred (120) days after each of Lessee's fiscal
years and more frequently, if requested by Lender, an aged accounts receivable
report of the Facility in sufficient detail to show amounts due from each class
of patient-mix (i.e., private, Medicare, Medicaid and V.A.) by the account age
---
classifications of 30 days, 60 days, 90 days, 120 days, and over 120 days.
(n) Within ten (10) days of receipt, a statement of the number of
patient days for which the Facility has received the Medicare default rate for
any applicable period. For purposes herein, "default rate" shall have the
meaning ascribed to it in that certain Medicare rate notification letter
prepared in connection with any review or survey of the Facility.
(o) Within forty-five (45) days of the end of each calendar
quarter, a certificate of a financial officer of the Lessee confirming
compliance with the covenants and requirements of Lessee set forth in the
Lessee's SNDA.
The Lender reserves the right to require that the annual financial
statements of the Borrower, Guarantor, Manager and Lessee be audited and
prepared by a nationally recognized accounting firm or independent certified
public accountant acceptable to Lender, at their respective cost and expense, if
(i) an Event of Default exists, (ii) if required by internal policy, or by any
investor in any securities backed in whole or in part by the Loan or any rating
agency rating such securities, or (iii) if Lender has reasonable grounds to
believe that the unaudited financial statements
22
<PAGE>
do not accurately represent the financial condition of the Borrower, Guarantor
or the Lessee or the Manager as the case may be.
The Lender further reserves the right to require such other financial
information of Borrower, Guarantor, Lessee, Manager and/or the Facility, in such
form and at such other times (including monthly or more frequently) as Lender
shall deem necessary, and Borrower agrees promptly to provide or to cause to be
provided, such information to Lender. All financial statements must be in the
form and detail as Lender may from time to time reasonably request.
4.7 Compliance Certificate. At the time of furnishing the quarterly
----------------------
operating statements required under the foregoing section, furnish to Lender a
compliance certificate in the form attached hereto as Exhibit "E" executed by a
-----------
financial officer of the Borrower.
4.8 Books and Records. Keep and maintain at all times at the Facility or
-----------------
the management agent's offices, and upon Lender's request shall make available
at the Facility, complete and accurate books of account and records (including
copies of supporting bills and invoices) adequate to reflect correctly the
results of the operation of the Facility, and copies of all written contracts,
subleases (if any), and other instruments which affect the Property, which
books, records, contracts, leases (if any) and other instruments shall be
subject to examination and inspection at any reasonable time by Lender (upon
reasonable advance notice, which for such purposes only may be given orally,
except in the case of an emergency or following an Event of Default, in which
case no advance notice shall be required); provided, however, that if an Event
of Default has occurred and is continuing, Borrower shall deliver to Lender upon
written demand all books, records, contracts, subleases (if any) and other
instruments relating to the Facility or its operation and Borrower authorizes
Lender to obtain a credit report on Borrower at any time.
4.9 Payment of Indebtedness. Duly and punctually pay or cause to be paid
-----------------------
all other Indebtedness now owing or hereafter incurred by Borrower in accordance
with the terms of such Indebtedness, except such Indebtedness owing to those
other than Lender which is being contested in good faith and with respect to
which any execution against properties of Borrower has been effectively stayed
and for which reserves and collateral for the payment and security thereof have
been established as determined by Lender in its sole discretion.
4.10 Records of Accounts. Maintain all records, including records
-------------------
pertaining to the Accounts of Borrower, at the principal place of business of
Borrower as set forth in this Agreement.
4.11 Conduct of Business. Conduct, or cause Lessee or the Manager to
-------------------
conduct, the operation of each Facility at all times in a manner consistent with
the level of operation of the Facility as of the date hereof, including without
limitation, the following:
(a) to maintain the standard of care for the patients of each Facility
at all times at a level necessary to ensure quality care for the patients of the
Facility in accordance with customary and prudent industry standards;
23
<PAGE>
(b) to operate each Facility in a prudent manner and in
compliance with applicable laws and regulations relating thereto and cause all
Permits, Reimbursement Contracts, and any other agreements necessary for the use
and operation of the Facility or as may be necessary for participation in the
Medicaid, Medicare, or other applicable reimbursement programs to remain in
effect without reduction in the number of licensed beds authorized for use in
the Medicaid, Medicare, or other applicable reimbursement programs;
(c) to maintain sufficient Inventory and Equipment of types and
quantities at the Facility to enable Borrower adequately to perform operations
of each Facility;
(d) to keep all Improvements and Equipment located on or used or
useful in connection with each Facility in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needed and proper repairs, renewals, replacements, additions, and improvements
thereto to keep the same in good operating condition;
(e) to maintain sufficient cash in the operating accounts of the
Facility in order to satisfy the working capital needs of the Facility; and
(f) to keep all required Permits current and in full force and
effect.
4.12 Periodic Surveys. Furnish or cause Lessee or Manager to furnish to
----------------
Lender within ten (10) days of receipt a copy of any Medicare, Medicaid, or
other licensing agency survey or report and any statement of deficiencies and/or
any other report indicating that any action is pending or being considered to
downgrade the Facility to a substandard category, and within the time period
required by the particular agency for furnishing a plan of correction also
furnish or cause to be furnished to Lender a copy of the plan of correction
generated from such survey or report for the Facility, and correct or cause to
be corrected any deficiency, the curing of which is a condition of continued
licensure or for full participation in Medicaid, Medicare or other reimbursement
program pursuant to any Reimbursement Contract for existing patients or for new
patients to be admitted with Medicaid or Medicare coverage, by the date required
for cure by such agency (plus extensions granted by such agency).
4.13 Debt Service and Lease Coverage Requirements.
--------------------------------------------
(a) Maintain (commencing with the closing of the Loan) and within
forty-five (45) days of the end of each fiscal quarter of Borrower, provide
evidence to Lender in the form of the compliance certificate attached hereto as
Exhibit "E" of the achievement of the following Debt Service Coverage Ratios for
- -----------
the Facility, on an individual basis for each Facility and on a combined basis,
until the Loan Obligations are paid in full:
(i) a Debt Service Coverage Ratio, after deduction of
Actual Management Fees, of not less than 1.0 to 1.0, based on a
rolling twelve (12) month period, tested quarterly; and
24
<PAGE>
(ii) a Debt Service Coverage Ratio, after deduction of Assumed
Management Fees, of not less than 1.30 to 1.0, based on a rolling
twelve (12) month period, tested quarterly.
(b) If Borrower fails to achieve or provide evidence of achievement
of the required Debt Service Coverage Ratios upon fifteen (15) days written
notice to Borrower, Borrower will deposit with Lender additional cash or other
liquid collateral in an amount which, when added to the first number of the debt
service coverage calculation, would have resulted in the noncomplying debt
service requirement having been satisfied. If such failure continues for two (2)
consecutive quarters, on the third consecutive quarter, if Borrower again fails
to achieve or provide evidence of the achievement of the Debt Service Coverage
Ratios required above, upon fifteen (15) days written notice to Borrower,
Borrower will deposit with Lender additional cash or other liquid collateral
(with credit for amounts currently being held by Lender pursuant to the
foregoing sentence), in an amount which, if the same had been applied on the
first (1st) day of the first quarter for which such noncompliance of the debt
service coverage requirement occurred, is sufficient to reduce the outstanding
principal indebtedness of the Loan Obligations and would have resulted in the
noncomplying debt service coverage requirement having been satisfied, and
Borrower agrees promptly to provide such additional cash or other liquid
collateral. Such additional Collateral shall constitute and will be held by the
Lender in a standard custodial account, and shall constitute additional
collateral for the Loan Obligations and an "Account" as defined in this
Agreement, and, upon the occurrence of an Event of Default, may be applied by
the Lender, in such order and manner as the Lender may elect, to the reduction
of the Loan Obligations. Provided that there is no outstanding Default or Event
of Default, Borrower shall be entitled to any interest earned on such additional
Collateral. Provided that there is no outstanding Default or Event of Default,
such additional Collateral which has not been applied to the Loan Obligations
will be released by the Lender at such time as Borrower provides the Lender with
evidence that the required debt service coverage requirements outlined above
have been achieved and maintained (without regard to any cash deposited pursuant
to this Section 4.13) as of the end of each to two (2) consecutive quarters.
(c) Achieve (commencing with the closing of the Loan), and within
forty-five (45) days of the end of each fiscal quarter of Borrower, provide
evidence to Lender in the form of the compliance certificate attached hereto as
Exhibit "E" of the achievement of a Lease Agreement Coverage Ratio, on an
- -----------
individual basis for each Facility and on a combined basis, of not less than 1.3
to 1.0, until the Loan Obligations are paid in full.
(d) If Borrower fails to achieve or provide evidence of achievement
of the Lease Agreement Coverage Ratio for the Facility, upon fifteen (15) days
written notice to Borrower, Borrower will deposit with Lender additional cash or
other liquid collateral in an amount which, when added to the first number of
the lease coverage calculation, would have resulted in the noncomplying lease
coverage requirement having been satisfied. If such failure continues for two
(2) consecutive quarters, on the third consecutive quarter, if Borrower again
fails to achieve or provide evidence of the achievement of the Lease Agreement
Coverage Ratio for the Facility required above, upon fifteen (15) days written
notice to Borrower, Borrower will deposit with Lender additional cash or other
liquid collateral (with credit for amounts currently being held by
25
<PAGE>
Lender pursuant to the foregoing sentence), in an amount which, if the same had
been applied on the first day of the first quarter for which such noncompliance
of the lease coverage requirement occurred, is sufficient to reduce the
outstanding principal indebtedness of the Loan Obligations, and would have
resulted in the noncomplying lease coverage requirement having been satisfied,
and Borrower agrees promptly to provide such additional cash or other liquid
collateral. Such additional Collateral shall constitute and will be held by the
Lender in a standard custodial account, and shall constitute additional
collateral for the Loan Obligations and an "Account" as defined in this
Agreement, and, upon the occurrence of an Event of Default, may be applied by
the Lender, in such order and manner as the Lender may elect, to the reduction
of the Loan Obligations. Provided that there is no outstanding Default or Event
of Default, Borrower be entitled to any interest earned on such additional
Collateral. Provided that there is no outstanding Default or Event of Default,
such additional Collateral which has not been applied to the Loan Obligations
will be released by the Lender at such time as Borrower provides the Lender with
evidence that the required lease coverage requirements outlined above have been
achieved and maintained (without regard to any cash deposited pursuant to this
Section 4.13) as of the end of each of two (2) consecutive quarters.
4.14 Occupancy. Maintain or cause to be maintained, at all times, a daily
---------
average annual occupancy for the Facility, of eighty percent (80%) or higher.
4.15 Capital Expenditures. Maintain each Facility in good condition and
--------------------
make or cause Lessee to make minimum capital expenditures for each Facility in
each fiscal year in the amount of $250 per bed (which capital expenditures may
include those necessary for ordinary repairs and routine maintenance), and
within forty-five (45) days of the end of each fiscal year, provide evidence
thereof satisfactory to Lender. In the event that Borrower or Lessee shall fail
to do so, Borrower shall, upon Lender's written request, immediately establish
and maintain a capital expenditures reserve fund with Lender equal to the
difference between the required amount per bed and the amount per bed actually
spent by the Borrower. Borrower grants to Lender a right of setoff against all
moneys in the capital expenditures reserve fund, and Borrower shall not permit
any other Lien to exist upon such fund. The proceeds of such capital
expenditures reserve fund will be disbursed monthly upon Lender's receipt of
satisfactory evidence that Borrower has caused to be made the required capital
expenditures. Upon Borrower's or Lessee's or Manager's failure to adequately
maintain the Facility in good condition, Lender may, but shall not be obligated
to, make such capital expenditures and may apply the moneys in the capital
expenditures reserve fund for such purpose. To the extent there are
insufficient moneys in the capital expenditures reserve fund for such purposes,
all funds advanced by Lender to make such capital expenditures shall constitute
a portion of the Loan Obligations, shall be secured by the Mortgage and shall
accrue interest at the Default Rate until paid. Upon an Event of Default, Lender
may apply any moneys in the capital expenditures reserve fund to the Loan
Obligations, in such order and manner as Lender may elect. For any partial
fiscal year during which the Loan is outstanding, the required expenditure
amount shall be prorated by multiplying the total of the required amount per bed
by a fraction, the numerator of which is the number of days during such year for
which all or part of the Loan is outstanding and the denominator of which is the
number of days in such year. During the term of the Loan, Lender may, from time
to time, engage a professional building inspector to conduct an inspection of
the Facility. If the inspector's report indicates that repairs or replacements
are necessary over and above the $250 per
26
<PAGE>
bed requirement in this paragraph, then Lender shall require a non-interest
bearing escrow fund to insure completion of the repairs. The amount of any
repair escrow shall be 125% of the estimated cost of repairs as determined by
the inspector and Lender. Lender also shall require an agreement satisfactory to
Lender which will provide for completion of the repairs and the disbursement of
the escrow funds. All fees and costs associated with the inspection, report and
subsequent inspections (if required) shall be paid by Borrower.
4.16 Management Agreement. Maintain the Management Agreement in full
--------------------
force and effect and timely perform all of Borrower's obligations thereunder and
enforce performance of all obligations of the Lessee and Manager thereunder and
not permit the termination, amendment or assignment of the Management
Agreement unless the prior written consent of Lender is first obtained, which
consent may be in the sole and absolute discretion of Lender. Borrower will
enter and cause the Lessee and Manager to enter into the Subordination
Agreement. Borrower will not enter into any other management agreement without
Lender's prior written consent, which consent may be in the sole and absolute
discretion of Lender.
4.17 Updated Appraisals. For so long as the Loan remains outstanding, if
------------------
an Event of Default shall occur hereunder, or if, in Lender's judgment, a
material depreciation in the value of the Property shall have occurred, then in
any such event, Lender may cause the Property to be appraised by an appraiser
selected by Lender, and in accordance with Lender's appraisal guidelines and
procedures then in effect, and Borrower agrees to cooperate in all respects
with such appraisals and furnish to the appraisers all requested information
regarding the Property and the Facility. Borrower agrees to pay all reasonable
costs incurred by Lender in connection with such appraisal which costs shall be
secured by the Mortgage and shall accrue interest at the Default Rate until
paid.
4.18 Comply with Covenants and Laws. Comply, in all material respects,
------------------------------
with all applicable covenants and restrictions of record and all laws,
ordinances, rules and regulations and keep each Facility and the Property in
compliance with all applicable laws, ordinances, rules and regulations,
including, without limitation, the Americans with Disabilities Act and
regulations promulgated thereunder, and laws, ordinances, rules and regulations
relating to zoning, health, building codes, setback requirements, Medicaid and
Medicare laws and keep the Permits for each Facility in full force and effect.
4.19 Taxes and Other Charges. Subject to Borrower's right to contest the
-----------------------
same as set forth in Section 9(c) of the Mortgage, pay all taxes, assessments,
charges, claims for labor, supplies, rent, and other obligations which, if
unpaid, might give rise to a Lien against property of Borrower, except Liens to
the extent permitted by this Agreement.
4.20 Commitment Letter. Provide all items and pay all amounts required by
-----------------
the Commitment Letter. If any term of the Commitment Letter shall conflict with
the terms of this Agreement, this Agreement shall govern and control. As to any
matter contained in the Commitment Letter, and as to which no mention is made
in this Agreement or the other Loan Documents, the Commitment Letter shall
continue to be in effect and shall survive the execution of this Agreement and
all other Loan Documents.
27
<PAGE>
4.21 Certificate. Upon Lender's written request, furnish Lender with a
-----------
certificate stating that Borrower has complied with and is in compliance with
all terms, covenants and conditions of the Loan Documents to which Borrower is a
party and that there exists no Default or Event of Default or, if such is not
the case, that one or more specified events have occurred, and that the
representations and warranties contained herein are true and correct with the
same effect as though made on the date of such certificate.
4.22 Debt Service Reserve Fund. Pursuant to the Debt Service Reserve Fund
-------------------------
Agreement, establish and maintain a debt service reserve fund with Lender equal
to approximate three (3) months of debt service payments with respect to the
Note as reasonably estimated by Lender, rounded upward to the nearest $1,000.
4.23 Capital Improvements Escrow. Pursuant to the Capital Improvement
---------------------------
Funds Agreement, establish and maintain a capital improvements escrow with
Lender.
4.24 Notice of Fees or Penalties. Immediately notify Lender, upon
---------------------------
Borrower's knowledge thereof, of the assessment by any state or any Medicare,
Medicaid, health or licensing agency of any fines or penalties against Borrower,
Lessee, or the Facility.
4.25 Lease Agreement.
---------------
(a) Maintain the Lease Agreement in full force and effect and
timely perform all of its obligations thereunder and not permit the termination
or amendment of the Lease Agreement unless the prior written consent of Lender
is first obtained (which consent will not be unreasonably withheld or delayed);
provided, however, that the Lender's prior consent shall not be required for
termination of the Lease Agreement in the event of emergency situations (i.e.,
----
termination of the Facility's license or decertification of the Facility from
participation in Medicare and/or Medicaid);
(b) In the event that proceedings are instituted to terminate the
Facility's license or to terminate the Facility's Medicaid or Medicare
certification, immediately engage oversight management services from a
management company reasonably acceptable to the Lender; and
(c) In the event that bankruptcy or insolvency proceedings are
instituted by or against the Lessee, Borrower shall (to the extent permitted by
the applicable bankruptcy court having jurisdiction over such proceedings), upon
written instruction received from Lender, terminate the Lease Agreement.
4.26 Loan Closing Certification. Immediately notify Lender in writing, in
--------------------------
the event any representation or warranty contained in that certain Loan Closing
Certification of even date herewith, executed by Borrower for the benefit of
Lender, becomes untrue or there shall have been any material adverse change in
any such representation or warranty.
28
<PAGE>
ARTICLE V
NEGATIVE COVENANTS OF BORROWER
Until the Loan Obligations have been paid in full, Borrower shall not:
5.1 Assignment of Licenses and Permits. Assign or transfer any of its
----------------------------------
interest in any Permits or Reimbursement Contracts (including rights to payment
thereunder) pertaining to the Facility, or assign, transfer, or remove or permit
any other person to assign, transfer, or remove any records pertaining to the
Facility including, without limitation, patient records, medical and clinical
records (except for removal of such patient records as directed by the patients
owning such records), without Lender's prior written consent, which consent may
be granted or refused in Lender's sole discretion.
5.2 No Liens; Exceptions. Create, incur, assume or suffer to exist any
--------------------
Lien upon or with respect to the Facility or any of its properties, rights,
income or other assets relating thereto, including, without limitation, the
Collateral, whether now owned or hereafter acquired, other than the following
permitted Liens ("Permitted Encumbrances"):
(a) Liens at any time existing in favor of the Lender,
(b) Liens which are listed in Exhibit "F" attached hereto,
-----------
(c) Inchoate Liens arising by operation of law for the purchase
of labor, services, materials, equipment or supplies, provided payment shall not
be delinquent and, if such Lien is a lien upon any of the Property or
Improvements, such Lien must be fully disclosed to Lender and bonded off and
removed from the Property and Improvements, within thirty (30) days of its
creation, in a manner satisfactory to Lender,
(d) Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for money borrowed or
for credit received with respect to property acquired) entered into in the
ordinary course of business as presently conducted or to secure obligations for
surety or appeal bonds, and
(e) Liens for current year's taxes, assessments or governmental
charges or levies provided payment thereof shall not be delinquent.
5.3 Merger, Consolidation, Etc. Except as otherwise provided in the
--------------------------
Mortgage, consummate any merger, consolidation or similar transaction, or sell,
assign, lease or otherwise dispose of substantially all of its assets (whether
now or hereafter acquired), without the prior written consent of the Lender,
which consent may be granted or refused in Lender's sole discretion.
29
<PAGE>
5.4 Maintain Single-Purpose Entity Status.
-------------------------------------
(a) Dissolve or terminate or materially amend the terms of its
certificate of incorporation, articles of organization, operating agreement or
partnership agreement or by-laws, as applicable, the terms of which require
Borrower to be a Single-Purpose Entity;
(b) at any time own any encumbered asset other than (i) the Property,
and (ii) incidental personal property necessary for the operation of the
Property;
(c) at any time be engaged directly or indirectly, in any business
other than the ownership, management and operation of the Property;
(d) incur, create or assume any indebtedness, secured or unsecured,
direct or contingent (including guaranteeing any obligation), other than (i) the
Loan, and (ii) indebtedness which represents trade payables or accrued expenses
incurred in the ordinary course of business of owning and operating the
Property; no other debt will be secured (senior, subordinate or pari passu) by
the Property;
(e) become insolvent or fail to pay its debts from its assets as the
same shall become due;
(f) fail to do all things necessary to preserve its existence as a
Single-Purpose Entity, and will not, nor will any partner, limited or general,
member or shareholder thereof, amend, modify or otherwise change its partnership
certificate, partnership agreement, articles of organization, operating
agreement, articles of incorporation or by-laws in a manner which adversely
affects Borrower's existence as a Single-Purpose Entity;
(g) fail to maintain books and records and bank accounts separate from
those of its Affiliates, including its members, general partners or
shareholders, as applicable;
(h) fail to at all times hold itself out to the public as a legal
entity separate and distinct from any other entity (including any Affiliate
thereof, including the general partner or any member or shareholder of Borrower
or any Affiliate of the general partner or any member or shareholder of
Borrower, as applicable);
(i) fail to file its own tax returns; or
(j) fail to maintain its assets in such a manner that it is not costly
or difficult to segregate, ascertain or identify its individual assets from
those of any Affiliate or any other Person.
5.5 Change of Business. Make any material change in the nature of its
------------------
business as it is being conducted as of the date hereof.
30
<PAGE>
5.6 Changes in Accounting. Change its methods of accounting, unless
---------------------
such change is permitted by GAAP, and provided such change does not have the
effect of curing or preventing what would otherwise be an Event of Default or
Default had such change not taken place.
5.7 ERISA Funding and Termination. In the event that Borrower becomes
-----------------------------
the licensed operator of the Facility, permit (a) the funding requirements of
ERISA with respect to any employee plan to be less than the minimum required by
ERISA at any time, or (b) any employee plan to be subject to involuntary
termination proceedings at any time.
5.8 Transactions with Affiliates. Enter into any transaction with a
----------------------------
Person which is an Affiliate of Borrower other than in the ordinary course of
its business and on fair and reasonable terms no less favorable to Borrower,
than those they could obtain in a comparable arms-length transaction with a
Person not an Affiliate.
5.9 Transfer of Ownership Interests. Except as otherwise provided in
-------------------------------
the Mortgage, permit a change in the ownership interests of the Persons
comprising the Borrower unless the written consent of the Lender is first
obtained, which consent may be granted or refused in Lender's sole discretion.
5.10 Change of Use. Alter or change the use of the Facility or permit any
-------------
management agreement for the Facility other than the Management Agreement or
enter into any operating lease for the Facility (other than the Lease
Agreement), unless Borrower first notifies Lender and provides Lender a copy of
the proposed lease agreement or management agreement, obtains Lender's written
consent thereto, which consent may be withheld in Lender's sole discretion, and
obtains and provides Lender with a subordination agreement in form satisfactory
to Lender, as determined by Lender in its sole discretion, from such manager or
lessee subordinating to all rights of Lender.
5.11 Place of Business. Change its chief executive office or its
-----------------
principal place of business without first giving Lender at least thirty (30)
days prior written notice thereof and promptly providing Lender such information
and amendatory financing statements as Lender may request in connection
therewith.
5.12 Acquisitions. Directly or indirectly, purchase, lease, manage, own,
------------
operate, or otherwise acquire any property or other assets (or any interest
therein) which are not used in connection with the operation of the Facility.
5.13 Dividends, Distributions and Redemptions. Unless Borrower and the
----------------------------------------
Facility are in full compliance with all the Debt Service Coverage Ratio and
Lease Coverage Ratio requirements set forth in Section 4.13 above and no Event
of Default has occurred and is continuing, or as otherwise consented to by
Lender in writing, declare or pay any distributions to its shareholders, members
or partners, as applicable, or purchase, redeem, retire, or otherwise acquire
for value, any ownership interests in Borrower now or hereafter outstanding,
return any capital to its shareholders, members or partners as applicable, or
make any distribution of assets to its shareholders, members or partners, as
applicable.
31
<PAGE>
ARTICLE VI
ENVIRONMENTAL HAZARDS
6.1 Prohibited Activities and Conditions. Except for matters covered by a
------------------------------------
written program of operations and maintenance approved in writing by Lender (an
"O&M Program") or matters described in Section 6.2, Borrower shall not cause or
permit any of the following:
(a) The presence, use, generation, release, treatment, processing,
storage (including storage in above ground and underground storage tanks),
handling, or disposal-of any Hazardous Materials in, on or under the Property or
any Improvements;
(b) The transportation of any Hazardous Materials to, from or across
the Property,
(c) Any occurrence or condition on the Property or in the Improvements
or any other property of Borrower that is adjacent to the Property, which
occurrence or condition is or may be in violation of Hazardous Materials Laws;
or
(d) Any violation of or noncompliance with the terms of any
Environmental Permit with respect to the Property, the Improvements or any
property of Borrower that is adjacent to the Property.
The matters described in clauses (a) through (d) above are referred to
collectively in this Article VI as "Prohibited Activities and Conditions" and
individually as a "Prohibited Activity and Condition."
6.2 Exclusions. Notwithstanding any other provision of Article VI to the
----------
contrary, "Prohibited Activities and Conditions" shall not include the safe and
lawful use and storage of quantities of (a) pre-packaged supplies, medical
waste, cleaning materials and petroleum products customarily used in the
operation and maintenance of comparable facilities, (b) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for
consumer use and used by occupants of the Facility, and (c) petroleum products
used in the operation and maintenance of motor vehicles from time to time
located on the Property's parking areas, so long as all of the foregoing are
used, stored, handled, transported and disposed of in compliance with Hazardous
Materials Laws.
6.3 Preventive Action. Borrower shall take all appropriate steps
-----------------
(including the inclusion of appropriate provisions in any Leases approved by
Lender which are executed after the date of this Agreement) to prevent its
employees, agents, contractors, tenants and occupants of the Facility from
causing or permitting any Prohibited Activities and Conditions.
6.4 O & M Program Compliance. If an O&M Program has been established with
------------------------
respect to Hazardous Materials, Borrower shall comply in a timely manner with,
and cause all employees, agents, and contractors of Borrower and any other
persons present on the Property to
32
<PAGE>
comply with the O&M Program. All costs of performance of Borrower's obligations
under any O&M Program shall be paid by Borrower, and Lender's out-of-pocket
costs incurred in connection with the monitoring and review of the O&M Program
and Borrower's performance shall be paid by Borrower upon demand by Lender. Any
such out-of-pocket costs of Lender which Borrower fails to pay promptly shall
become an additional part of the Loan Obligations.
6.5 Borrower's Environmental Representations and Warranties. Borrower
-------------------------------------------------------
represents and warrants to Lender that, except as previously disclosed by
Borrower to Lender in writing:
(a) Borrower has not at any time caused or permitted any
Prohibited Activities and Conditions;
(b) No Prohibited Activities and Conditions exist or have existed
during the period of Borrower's ownership of the Property or, to the best of
Borrower's knowledge, prior to the period of Borrower's ownership of the
Property;
(c) The Property and the Improvements do not now contain any
underground storage tanks, and, to the best of Borrower's knowledge after
reasonable and diligent inquiry, the Property and the Improvements have not
contained any underground storage tanks in the past. If there is an underground
storage tank located on the Property or the Improvements which has been
previously disclosed by Borrower to Lender in writing, that tank complies with
all requirements of Hazardous Materials Laws;
(d) Borrower has complied with all Hazardous Materials Laws,
including all requirements for notification regarding releases of Hazardous
Materials. Without limiting the generality of the foregoing, Borrower has
obtained all Environmental Permits required for the operation of the Property
and the Improvements in accordance with Hazardous Materials Laws now in effect
and all such Environmental Permits are in full force and effect. No event has
occurred with respect to the Property and/or Improvements that constitutes, or
with the passing of time or the giving of notice would constitute, noncompliance
with the terms of any Environmental Permit;
(e) There are no actions, suits, claims or proceedings pending
or, to the best of Borrower's knowledge after reasonable and diligent inquiry,
threatened that involve the Property and/or the Improvements and allege, arise
out of, or relate to any Prohibited Activity, and Condition;
(f) Borrower has not received any complaint, order, notice of
violation or other communication from any Governmental Authority with regard to
air emissions, water discharges, noise emissions or Hazardous Materials, or any
other environmental, health or safety matters affecting the Property, the
Improvements or any other property of Borrower that is adjacent to the Property.
The representations and warranties in this Article VI shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the Loan evidenced by the Note, until the Loan
Obligations have been paid in full.
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6.6 Notice of Certain Events. Borrower shall promptly notify Lender in
------------------------
writing of any and all of the following that may occur:
(a) Borrower's discovery of any Prohibited Activity and Condition;
(b) Borrower's receipt of or knowledge of any complaint, order, notice
of violation or other communication from any Governmental Authority or other
person with regard to present, or future alleged Prohibited Activities and
Conditions or any other environmental, health or safety matters affecting the
Property, the Improvements or any other property of Borrower that is adjacent to
the Property; or
(c) Any representation or warranty in this Article VI which becomes
untrue at any time after the date of this Agreement.
Any such notice given by Borrower shall not relieve Borrower of, or
result in a waiver of, any obligation under this Agreement, the Note, or any of
the other Loan Documents.
6.7 Costs of Inspection. Borrower shall pay promptly the costs of any
-------------------
environmental inspections, tests or audits required by Lender in connection with
any foreclosure or deed in lieu of foreclosure, or, if required by Lender, as a
condition of Lender's consent to any "Transfer" (as defined in the Mortgage), or
required by Lender following a reasonable determination by Lender that
Prohibited Activities and Conditions may exist. Any such costs incurred by
Lender (including the fees and out-of-pocket costs of attorneys and technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) which Borrower fails to pay promptly shall become an
additional part of the Loan Obligations.
6.8 Remedial Work. If any investigation, site monitoring, containment,
-------------
clean-up, restoration or other remedial work ("Remedial Work") is necessary to
comply with any Hazardous Materials Law or order of any Governmental Authority
that has or acquires jurisdiction over the Property, the Improvements or the
use, operation or improvement of the Property under any Hazardous Materials Law,
Borrower shall, by the earlier of (a) the applicable deadline required by
Hazardous Materials Law or (b) thirty (30) days after notice from Lender
demanding such action, begin performing the Remedial Work, and thereafter
diligently prosecute it to completion, and shall in any event complete such work
by the time required by applicable Hazardous Materials Law. If Borrower fails to
begin on a timely basis or diligently prosecute any required Remedial Work,
Lender may, at its option, cause the Remedial Work to be completed, in which
case Borrower shall reimburse Lender on demand for the cost of doing so. Any
reimbursement due from Borrower to Lender shall become part of the Loan
Obligations.
6.9 Cooperation with Governmental Authorities. Borrower shall cooperate
-----------------------------------------
with any inquiry by any Governmental Authority and shall comply with any
governmental or judicial order which arises from any alleged Prohibited Activity
and Condition.
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6.10 Indemnity.
---------
(a) Borrower shall hold harmless, defend and indemnify (i)
Lender, (ii) any prior owner or holder of the Note, (iii) the officers,
directors, partners, agents, shareholders, employees and trustees of any of the
foregoing, and (iv) the heirs, legal representatives, successors and assigns of
each of the foregoing (together, the "Indemnitees") against all proceedings,
claims, damages, losses, expenses, penalties and costs (whether initiated or
sought by any Governmental Authority or private parties), including fees and out
of pocket expenses of attorneys and expert witnesses, investigatory fees, and
remediation costs, whether incurred in connection with any judicial or
administrative process or otherwise, arising directly or indirectly from any of
the following:
(A) Any breach of any representation or warranty of
Borrower in this Article VI;
(B) Any failure by Borrower to perform any of its
obligations under this Article VI;
(C) The existence or alleged existence of any Prohibited
Activity and Condition;
(D) The presence or alleged presence of Hazardous Materials
in, on, or around under the Property, the Improvements or any
property of Borrower that is adjacent to the Property; or
(E) Actual or alleged violation of any Hazardous Materials
Law.
(b) Counsel selected by Borrower to defend Indemnitees shall be
subject to the approval of those Indemnitees. Notwithstanding anything contained
herein, any Indemnitee may elect to defend any claim or legal or administrative
proceeding at the Borrower's expense if such Indemnitee has reason to believe
that its interests are not being adequately represented or diverge from other
interests being represented by such counsel (but Borrower shall be obligated to
bear the expense of at most only one such separate counsel). Nothing contained
herein shall prevent an Indemnitee from employing separate counsel in any such
action at any time and participating in the defense thereof at its own expense.
(c) Borrower shall not, without the prior written consent of
those Indemnitees who are named as parties to a claim or legal or administrative
proceeding (a "Claim") settle or compromise the Claim if the settlement (i)
results in the entry of any judgment that does not include as an unconditional
term the delivery by the claimant or plaintiff to Lender of a written release of
those Indemnitees, satisfactory in form and substance to Lender; or (ii) may
materially and adversely affect any Indemnitee, as determined by such Indemnitee
in its sole discretion.
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<PAGE>
(d) The liability of Borrower to indemnify the Indemnitees shall not be
limited or impaired by any of the following, or by any failure of Borrower or
any guarantor to receive notice of or consideration for any of the following:
(i) Any amendment or modification of any Loan Document;
(ii) Any extensions of time for performance required by any of the
Loan Documents;
(iii) The accuracy or inaccuracy of any representations and warranties
made by Borrower under this Agreement or any other Loan Document;
(iv) The release of Borrower or any other person, by Lender or by
operation of law, from performance of any obligation under any of the
Loan Documents;
(v) The release or substitution in whole or in part of any security
for the Loan Obligations; and
(vi) Lender's failure to properly perfect any lien or security
interest given as security for the Loan Obligations.
(e) Borrower shall, at its own cost and expense, do all of the
following:
(i) Pay or satisfy any judgment or decree that may be entered
against any Indemnitee or Indemnitees in any legal or administrative
proceeding incident to any matters against which Indemnitees are
entitled to be indemnified under this Article VI;
(ii) Reimburse Indemnitees for any expenses paid or incurred in
connection with any matters against which Indemnitees are entitled to
be indemnified under this Article VI; and
(iii) Reimburse Indemnitees for any and all expenses, including fees
and costs of attorneys and expert witnesses, paid or incurred in
connection with the enforcement by Indemnitees of their rights under
this Article VI, or in monitoring and participating in any legal or
administrative proceeding.
(f) In any circumstances in which the indemnity under this Article VI
applies, Lender may employ its own legal counsel and consultants to prosecute,
defend or negotiate any claim or legal or administrative proceeding and Lender,
with the prior written consent of Borrower (which shall not be unreasonably
withheld, delayed or conditioned) may settle or compromise any action or legal
or administrative proceeding. Borrower shall reimburse Lender upon demand for
all
36
<PAGE>
costs and expenses incurred by Lender, including all costs of settlements
entered into in good faith, and the fees and out of pocket expenses of such
attorneys and consultants.
(g) The provisions of this Article VI shall be in addition to any and
all other obligations and liabilities that Borrower may have under the
applicable law or under the other Loan Documents, and each Indemnitee shall be
entitled to indemnification under this Article VI without regard to whether
Lender or that Indemnitee has exercised any rights against the Property and/or
the Improvements or any other security, pursued any rights against any
guarantor, or pursued any other rights available under the Loan Documents or
applicable law. If Borrower consists of more than one person or entity, the
obligation of those persons or entities to indemnify the Indemnitees under this
Article VI shall be joint and several. The obligations of Borrower to indemnify
the Indemnitees under this Article VI shall survive any repayment or discharge
of the Loan Obligations, any foreclosure proceeding, any foreclosure sale, any
delivery of any deed in lieu of foreclosure, and any release of record of the
lien of the Mortgage.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following shall constitute an "Event of Default" hereunder:
(a) The failure by Borrower to pay any installment of principal,
interest, or other payments required under the Note, within ten (10) days after
the same becomes due;
(b) Borrower's violation of any covenant set forth in Article V
hereof;
(c) Borrower's failure to deliver or cause to be delivered the
financial statements and information set forth in Section 4.6 above within the
times required and such failure is not cured within thirty (30) days following
Lender's written notice to Borrower thereof;
(d) The failure of Borrower properly and timely to perform or
observe any covenant or condition set forth in this Agreement (other than those
specified in this Section 7.1) or any other Loan Documents which is susceptible
of being cured and is not cured within any applicable cure period as set forth
herein or, if no cure period is specified therefor, is not cured within thirty
(30) days of Lender's written notice to Borrower of such Default; provided,
however, that if such default cannot be cured within such thirty (30) day
period, such cure period shall be extended for an additional sixty (60) days, as
long as Borrower is diligently and in good faith prosecuting said cure to
completion;
(e) The filing by Borrower or Lessee or Manager or Guarantor of a
voluntary petition, or the adjudication of any of the aforesaid Persons, or the
filing by any of the aforesaid Persons of any petition or answer seeking or
acquiescing, in any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other
37
<PAGE>
relief for debtors, or if any of the aforesaid Persons should seek or consent to
or acquiesce in the appointment of any trustee, receiver or liquidator for
itself or of all or any substantial part of its property or of any or all of the
rents, revenues, issues, earnings, profits or income thereof, or the mailing of
any general assignment for the benefit of creditors or the admission in writing
by any of the aforesaid Persons of its inability to pay its debts generally as
they become due; provided, however, that in the event that Lessee or Manager
takes any of the foregoing actions, Borrower shall have thirty (30) days from
the date of such action to replace such Lessee or Manager with a Person
satisfactory to Lender and such action shall not constitute an Event of Default
hereunder until the lapse of such thirty (30) day period.
(f) The entry by a court of competent jurisdiction of an order,
judgment, or decree approving a petition filed against Borrower, Guarantor or
Manager or Lessee which such petition seeks any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency, or other relief for debtors, which order, judgment or
decree remains unvacated and unstayed for an aggregate of sixty (60) days
(whether or not consecutive) from the date of entry thereof, or the appointment
of any trustee, receiver or liquidator of any of the aforesaid Persons or of all
or any substantial part of its properties or of any or all of the rents,
revenues, issues, earnings, profits or income thereof which appointment shall
remain unvacated and unstayed for an aggregate of sixty (60) days (whether or
not consecutive);
(g) Unless otherwise permitted hereunder or under any other Loan
Documents, the sale, transfer, lease, assignment, or other disposition,
voluntarily or involuntarily, of the Collateral, or any part thereof, or, except
for Permitted Encumbrances as described in Section 5.2 above, any further
encumbrance of he Collateral, unless the prior written consent of Lender is
obtained, which consent may be withheld in Lender's sole discretion;
(h) Any certificate, statement, representation, warranty or audit
heretofore or hereafter furnished by or on behalf of Borrower or Lessee or
Manager pursuant to or in connection with this Agreement (including, without
limitation, representations and warranties contained herein or in any Loan
Documents) or as an inducement to Lender to make the Loan to Borrower, (i)
proves to have been false in any material respect at the time when the facts
therein set forth were stated or certified, (ii) proves to have omitted any
substantial contingent or unliquidated liability or claim against Borrower or
Lessee or Manager, or (iii) on the date of execution of this Agreement there
shall have been any materially adverse change in any of the facts previously
disclosed by any such certificate, statement, representation, warranty or audit,
which change shall not have been disclosed to Lender in writing at or prior to
the time of such execution;
(i) The failure of Borrower to correct, or to cause the Lessee or the
Manager to correct, within the time deadlines set by any applicable Medicare,
Medicaid or licensing agency, any deficiency which would result in the
following actions by such agency with respect to the Facility:
(i) a termination of any Reimbursement Contract or any Permit;
or
38
<PAGE>
(ii) a ban on new admissions generally or on admission of
patients otherwise qualifying for Medicare or Medicaid coverage.
(j) The Borrower, Lessee, Manager, or the Facility should be assessed
fines or penalties by any state or any Medicare, Medicaid, health or licensing
agency have jurisdiction over such Persons over the facility in excess of
$25,000;
(k) A final judgment shall be rendered by a court of law or equity
against Borrower or Lessee or Manager or Guarantor in excess of $50,000, and the
same shall remain undischarged for a period of thirty (30) days, unless such
judgment is either (i) fully covered by collectible insurance and such insurer
has within such period acknowledged such coverage in writing, or (ii) although
not fully covered by insurance, enforcement of such judgment has been
effectively stayed, such judgment is being contested or appealed by appropriate
proceedings and Borrower or Lessee or Manager or Guarantor as the case may be,
has established reserves adequate for payment in the event such Person is
ultimately unsuccessful in such contest or appeal and evidence thereof is
provided to Lender; or
(l) The occurrence of any materially adverse change in the financial
condition or prospects of Borrower, Manager, Guarantor, or Lessee or the
existence of any other condition which, in Lender's reasonable determination,
constitutes a material impairment of any such Person's ability to operate the
Facility or of such Person's ability to perform their respective obligations
under the Loan Documents, which is not remedied within thirty (30) days after
written notice.
Notwithstanding anything in this Section, all requirements of notice
shall be deemed eliminated if Lender is prevented from declaring an Event of
Default by bankruptcy or other applicable law. The cure period, if any, shall
then run from the occurrence of the event or condition of Default rather than
from the date of notice.
7.2 Remedies. Upon the occurrence of any one or more of the foregoing
--------
Events of Default, the Lender may, at its option;
(a) Declare the entire unpaid principal of the Loan Obligations to be,
and the same shall thereupon become, immediately due and payable, without
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived; and/or
(b) Proceed to protect and enforce its rights by action at law
(including, without limitation, bringing suit to reduce any claim to judgment),
suit in equity and other appropriate proceedings including, without limitation,
for specific performance of any covenant or condition contained in this
Agreement; and/or
(c) Exercise any and all rights and remedies afforded by the laws of
the United States, the states in which any of the Property or other Collateral
is located or any other appropriate jurisdiction as may be available for the
collection of debts and enforcement of covenants and conditions such as those
contained in this Agreement and the Loan Documents; and/or
39
<PAGE>
(d) Exercise the rights and remedies of setoff and/or banker's lien
against the interest of Borrower in and to every account and other property of
Borrower which is in the possession of the Lender or any person who then owns a
participating interest in the Loan, to the extent of the full amount of the
Loan; and/or
(e) Exercise its rights and remedies pursuant to any other Loan
Documents.
ARTICLE VIII
MISCELLANEOUS
8.1 Waiver. No remedy conferred upon, or reserved to, the Lender in this
------
Agreement or any of the other Loan Documents is intended to be exclusive of any
other remedy or remedies, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing in law or in equity. Exercise of or omission to exercise any right of
the Lender shall not affect any subsequent right of Lender to exercise the same.
No course of dealing between Borrower and Lender or any delay on the Lender's
part in exercising any rights shall operate as a waiver of any of the Lender's
rights. No waiver of any Default under this Agreement or any of the other Loan
Documents shall extend to or shall affect any subsequent or other then existing
Default or shall impair any rights, remedies or powers, of Lender.
8.2 Costs and Expenses. Borrower will bear all taxes, fees and expenses
------------------
(including actual attorneys' fees and expenses of counsel for Lender) in
connection with the Loan, the Note, the preparation of this Agreement and the
other Loan Documents (including any amendments hereafter made), and in
connection with any modifications thereto and the recording of any of the Loan
Documents. If, at any time, a Default occurs or Lender becomes a party to any
suit or proceeding in order to protect its interests or priority in any
collateral for any of the Loan Obligations or its rights under this Agreement or
any of the Loan Documents, or if Lender is made a party to any suit or
proceeding by virtue of the Loan, this Agreement or any Collateral and as a
result of any of the foregoing, the Lender employs counsel to advise or provide
other representation with respect to this Agreement, or to collect the balance
of the Loan Obligations, or to take any action in or with respect to any suit or
proceeding relating to this Agreement, any of the other Loan Documents, any
Collateral, Borrower, any Guarantor or Lessee or Manager, or to protect,
collect, or liquidate any of the security for the Loan Obligations, or attempt
to enforce any security interest or lien granted to the Lender by any of the
Loan Documents, then in any such events, all of the reasonable attorney's fees
arising from such services, including attorneys' fees for preparation of
litigation and in any appellate or bankruptcy proceedings, and any expenses,
costs and charges relating thereto shall constitute additional obligations of
Borrower to the Lender payable on demand of the Lender. Without limiting the
foregoing, Borrower has undertaken the obligation for payment of, and shall pay,
all recording and filing fees, revenue or documentary stamps or taxes,
intangibles taxes, and other taxes, expenses and charges payable in connection
with this Agreement, any of the Loan Documents, the Loan Obligations, or the
filing of any financing statements or other instruments required to effectuate
the purposes of this Agreement, and should Borrower fail to do so, Borrower
agrees to reimburse Lender for the amounts paid by Lender, together with
penalties or interest, if any, incurred by Lender as a result of underpayment or
nonpayment. Such amounts shall constitute
40
<PAGE>
a portion of the Loan Obligations, shall be secured by the Mortgage and shall
bear interest at the Default Rate (as defined in the Note) from the date
advanced until repaid.
8.3 Performance of Lender. At its option, upon Borrower's failure to do
---------------------
so, the Lender may make any payment or do any act on Borrower's behalf that
Borrower or others are required to do to remain in compliance with this
Agreement or any of the other Loan Documents, and Borrower agrees to reimburse
the Lender, on demand, for any payment made or expense incurred by Lender
pursuant to the foregoing authorization, including, without limitation,
attorneys' fees, and until so repaid any sums advanced by Lender shall
constitute a portion of the loan Obligations, shall be secured by the Mortgage
and shall bear interest at the Default Rate (as defined in the Note) from the
date advanced until repaid.
8.4 Indemnification. Borrower shall, at its sole cost and expense,
---------------
protect, defend, indemnify and hold harmless the Indemnified Parties from and
against any and all claims, suits, liabilities (including, without limitation,
strict liabilities), actions, proceedings, obligations, debts, damages, losses,
costs, expenses, diminutions in value, fines, penalties, charges, fees,
expenses, judgments, awards, amounts paid in settlement, punitive damages,
foreseeable and unforeseeable consequential damages, of whatever kind or nature
(including but not limited to reasonable attorneys' fees and other costs of
defense) imposed upon or incurred by or asserted against Lender by reason of (a)
ownership of the Note, the Mortgage, the Property or any interest therein or
receipt of any Rents (as defined in the Mortgage), (b) any amendment to, or
restructuring of, the Loan Obligations and/or any of the Loan Documents, (c) any
and all lawful action that may be taken by Lender in connection with the
enforcement of the provisions of the Mortgage or the Note or any of the other
Loan Documents, whether or not suit is filed in connection with same, or in
connection with Borrower, Lessee, any Guarantor, Manager and/or any partner,
joint venturer, member or shareholder thereof becoming a party to a voluntary or
involuntary federal or state bankruptcy, insolvency or similar proceeding, (d)
any accident, injury to or death of persons or loss of or damage to property
occurring in, on or about the Property, the Improvements or any part thereof or
on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas,
streets or ways, (e) any use, nonuse or condition in, on or about the Property,
the Improvements or any part thereof or on the adjoining sidewalks, curbs,
adjacent property or adjacent parking areas, streets or ways, (f) any failure on
the part of Borrower, Lessee or any Guarantor to perform or comply with any of
the terms of this Agreement or any of the other Loan Documents, (g) any claims
by any broker, person or entity claiming to have participated in arranging the
making of the Loan evidenced by the Note, (h) any failure of the Property to be
in compliance with any applicable laws, (i) any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in the Lease Agreement or any
replacement or renewal thereof or substitution therefor, (j) performance of any
labor or services or the furnishing of any materials or other property with
respect to the Property, the Improvements or any part thereof, (k) the failure
of any person to file timely with the Internal Revenue Service an accurate Form
1099-b, statement for recipients of proceeds from real estate, broker and barter
exchange transactions, which may be required in connection with the Mortgage, or
to supply a copy thereof in a timely fashion to the recipient of the proceeds of
the transaction in connection with which the Loan is made, (l) any
misrepresentation made to Lender
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<PAGE>
in this Agreement or in any of the other Loan Documents, (m) any tax on the
making and/or recording of the Mortgage, the Note or any of the other Loan
Documents, (n) the violation of any requirements of the Employee Retirement
Income Security Act of 1974, as amended, (o) any fines or penalties assessed or
any corrective costs incurred by Lender if the Facility or any part of the
Property is determined to be in violation of any covenants, restrictions of
record, or any applicable laws, ordinances, rules or regulations, or (p) the
enforcement by any of the Indemnified Parties of the provisions of this Section
8.4. Any amounts payable to Lender by reason of the application of this Section
8.4 shall become immediately due and payable, and shall constitute a portion
of the Loan Obligations, shall be secured by the Mortgage and shall accrue
interest at the Default Rate (as defined in the Note). The obligations and
liabilities of Borrower under this Section 8.4 shall survive any termination,
satisfaction, assignment, entry of a judgment of foreclosure or exercise of a
power of sale or delivery of a deed in lieu of foreclosure of the Mortgage. For
purposes of this Section 8.4, the term "Indemnified Parties" means Lender and
any Person who is or will have been involved in the origination of the
Loan, any Person who is or will have been involved in the servicing of the Loan,
any Person in whose name the encumbrance created by the Mortgage is or will have
been recorded, any Person who may hold or acquire or will have held a full or
partial interest in the Loan (including, without limitation, any investor in any
securities backed in whole or in part by the Loan) as well as the respective
directors, officers, shareholder, partners, members, employees, agents,
servants, representatives, contractors, subcontractors, affiliates,
subsidiaries, participants, successors and assigns of any and all of the
foregoing (including, without limitation, any other Person who holds or acquires
or will have held a participation or other full or partial interest in the Loan
or the Property, whether during the term of the Mortgage or as a part of or
following a foreclosure of the Loan and including, without limitation, any
successors by merger, consolidation or acquisition of all or a substantial
portion of Lender's assets and business).
8.5. Headings. The headings of the Sections of this Agreement are for
--------
convenience of reference only, are not to be considered a part hereof, and shall
not limit or otherwise affect any of the terms hereof.
8.6 Survival of Covenants. All covenants, agreements, representations and
---------------------
warranties made herein and in certificates or reports delivered pursuant hereto
shall be deemed to have been material and relied on by Lender, notwithstanding
any investigation made by or on behalf of Lender, and shall survive the
execution and delivery to Lender of the Note and this Agreement.
8.7 Notices, etc. Any notice or other communication required or permitted
------------
to be given by this Agreement or the other Loan Documents or by applicable law
shall be in writing and shall be in writing and shall be deemed received (a) on
the date delivered, if sent by hand delivery (to the persoon or department if
one is specified below) with receipt acknowledged by the recipient thereof, (b)
three (3) Business Days following the date deposited in U.S. mail, certified or
registered, with return receipt requested, or (c) one (1) Business Day following
the date deposited with Federal Express or other national overnight carrier, and
in each case addressed as follows:
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<PAGE>
If to Borrower:
c/o G&L Realty Corp.
439 North Bedford Drive
Beverly Hills, California 90210
Attn: Stephen Lebowitz
with a copy to:
Day, Berry & Howard LLP
260 Franklin Street
Boston, Massachusetts 02110
Attn: Lewis A. Burleigh, Esquire
If to Lender:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
Attn: Servicing Department
with a copy to:
Kelly M. Wrenn, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
601 13th Street, NW, Suite 1000 South
Washington, D.C. 20005-3807
Either party may change its address to another single address by
notice given as herein provided, exept any change of adddress notice must be
actually recieved in order to be effective.
8.8 Benefits. All of the terms and provisions of this Agreement shall
--------
bind and inure to the benefit of the parties hereto and their respective
successors and assigns. No Person other than Borrower or Lender shall be
entitled to rely upon this Agreement or be entitled to the benefits of this
Agreement.
8.9 Participation. Borrower acknowledges that Lender may, at its option,
-------------
sell participation interests in the Loan or to other participating banks or
Lender may (but shall not be obligated to) assign its interest in the Loan to
its affiliates, or to other assignees (the "Assignee") to be included as a pool
of properties to be financed in a proposed Real Estate Mortgage Investment
Conduit (REMIC). Borrower agrees with each present and future participant in or
Assignee of the Loan that if an Event of Default should occur, each such present
and future participant or Assignee
43
<PAGE>
shall have all of the rights and remedies of Lender with respect to any deposit
due from Borrower; provided, however, that Borrower will be provided with
written notice of each participant in or Assignee of the Loan. The execution by
a participant of a participation agreement with Lender, and the execution by
Borrower of this Agreement, regardless of the order of execution, shall evidence
an agreement between Borrower and said participant in accordance with the terms
of this Section. If the Loan is assigned to the Assignee, the Assignee will
engage an underwriter (the "Underwriter"), who will be responsible for the due
diligence, documentation, preparation and execution of certain documents
required in connection with the offering of interests in the REMIC. Borrower
agrees that Lender may, at its sole option and without notice to or consent of
Borrower, assign its interest in the Loan to the Assignee for inclusion in the
REMIC and, in such event, Borrower agrees to provide the Assignee with such
information as may be reasonably required by the Underwriter in connection
therewith or by an investor in any securities backed in whole or in part by the
Loan or any rating agency rating such securities. Borrower irrevocably waives
any and all right it may have under applicable law to prohibit such disclosure,
including, but not limited to, any right of privacy, and consents to the
disclosure of such information to the Underwriter, to potential investors in the
REMIC, and to such rating agencies.
8.10 Supersedes Prior Agreements; Counterparts. This Agreement and the
-----------------------------------------
instruments referred to herein supersede and incorporate all representations,
promises, and statements, oral or written, made by Lender in connection with the
Loan. This Agreement may not be varied, altered, or amended except by a written
instrument executed by an authorized officer of the Lender. This Agreement may
be executed in any number of counterparts, each of which, when executed and
delivered, shall be an original, but such counterparts shall together constitute
one and the same instrument.
8.11 Loan Agreement Governs. The Loan is governed by terms and provisions
----------------------
set forth in this Loan Agreement and the other Loan Documents and in the event
of any irreconcilable conflict between the terms of the other Loan Documents
and the terms of this Loan Agreement, the terms of this Loan Agreement shall
control; provided, however, in the event there is any apparent conflict between
any particular term or provision which appears in both this Loan Agreement and
the other Loan Documents and it is possible and reasonable for the terms of both
this Loan Agreement and the Loan Documents to be performed or complied with then
notwithstanding the foregoing both the terms of this Loan Agreement and the
other Loan Documents shall be performed and complied with.
8.12 CONTROLLING LAW. THE PARTIES HERETO AGREE THAT THE VALIDITY,
---------------
INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
AND THE PARTIES HERETO SUBMIT (AND WAIVE ALL RIGHTS TO OBJECT) TO NON-EXCLUSIVE
PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS, FOR THE ENFORCEMENT
OF ANY AND ALL OBLIGATIONS UNDER THE LOAN DOCUMENTS EXCEPT THAT IF ANY SUCH
ACTION OR PROCEEDING ARISES UNDER THE CONSTITUTION, LAWS OR TREATIES OF THE
UNITED STATES OF AMERICA, OR IF THERE IS A DIVERSITY OF CITIZENSHIP
44
<PAGE>
BETWEEN THE PARTIES THERETO, SO THAT IT IS TO BE BROUGHT IN A UNITED STATES
DISTRICT COURT, IT SHALL BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS SITTING IN BOSTON OR ANY SUCCESSOR FEDERAL COURT
HAVING ORIGINAL JURISDICTION.
8.13 WAIVER OF JURY TRIAL. BORROWER HEREBY WAIVES ANY RIGHT THAT IT MAY
--------------------
HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR
CAUSE OF ACTION(A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR
THE LOAN, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR
INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER WITH RESPECT TO THE LOAN
DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF EITHER PARTY'S
RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE
RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. BORROWER AGREES THAT LENDER MAY FILE A COPY OF THIS AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT
OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF
LENDER TO MAKE THE LOAN, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN
BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement
to be properly executed, by their respective duly authorized representatives, as
of the date first above written.
WITNESS: BORROWER:
G&L HAMPDEN, LLC, a Delaware limited
liability company
By: G&L Hampden, Inc., a Delaware
corporation, Manager
/s/ Lorraine V. Tseng By: /s/ Steven D. Lebowitz
________________________ _________________________(SEAL)
Lorraine V. Tseng Steven D. Lebowitz
_________________________ President
[Print Name]
46
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
================================================================================
State of California }
} ss.
County of Los Angeles }
--------------------- }
On September 21, 1999, before me, Helen Nelson, Notary Public ,
------------------ ---------------------------------------------
Date Name and Title of Officer
(e.g., "Jane Doe, Notary Public")
personally appeared Steven D. Lebowitz
------------------------------------------------------------
Name(s) of Signer(s)
[X] personally known to me
[_] proved to me on the basis of
satisfactory evidence
to be the person(s) whose name(s)
is/are subscribed to the within
- ----------------------------------------- instrument and acknowledged to me
HELEN NELSON that he/she/they executed the same in
[SEAL OF Commission # 1200198 his/her/their authorized
CALIFORNIA] Notary Public - California capacity(ies), and that by
Los Angeles County his/her/their signature(s) on the
My Comm. Expires Oct 31, 2002 instrument the person(s), or the
- ----------------------------------------- entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Helen Nelson
-------------------------------------
Place Notary Seal Above Signature of Notary Public
- ----------------------------------- OPTIONAL -----------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
Description of Attached Document
Title or Type of Document: Loan Agreement
-----------------------------------------------------
Document Date: Number of Pages:
-------------------------- ------------------
Signer(s) Other Than Named Above:
----------------------------------------------
Capacity(ies) Claimed by Signer
Signer's Name: ------------------------
---------------------------------- RIGHT THUMBPRINT
[_] Individual OF SIGNER
[_] Corporate Officer - Title(s): ------------------------
--------------- Top of thumb here
[_] Partner - [_] Limited [_] General
[_] Attorney-in-fact
[_] Trustee
[_] Guardian or Conservator
[_] Other:
--------------------------------------
Signer Is Representing:
------------------------- ------------------------
================================================================================
(C) 1997 National Notary Association Prod. No. 5907 Reorder: Call Toll-Free
. 9350 De Soto Ave., P.O. Box 2402 . 1-800-876-6827
Chatsworth CA 91313-2402
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement
to be properly executed, by their respective duly authorized representatives, as
of the date first above written.
WITNESS: BORROWER:
G&L HAMPDEN, LLC, a Delaware limited
liability company
By: G&L Hampden, Inc., a Delaware
corporation, Manager
/s/ Lorraine V. Tseng By: /s/ Steven D. Lebowitz (SEAL)
- ------------------------------- --------------------------
Lorraine V. Tseng Steven D. Lebowitz
- ------------------------------- President
[Print Name]
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
================================================================================
State of California }
} ss.
County of Los Angeles }
--------------------- }
On September 21, 1999, before me, Helen Nelson, Notary Public ,
------------------ ---------------------------------------------
Date Name and Title of Officer
(e.g., "Jane Doe, Notary Public")
personally appeared Steven D. Lebowitz
------------------------------------------------------------
Name(s) of Signer(s)
[X] personally known to me
[_] proved to me on the basis of
satisfactory evidence
to be the person(s) whose name(s)
is/are subscribed to the within
- ----------------------------------------- instrument and acknowledged to me
HELEN NELSON that he/she/they executed the same in
[SEAL OF Commission # 1200198 his/her/their authorized
CALIFORNIA] Notary Public - California capacity(ies), and that by
Los Angeles County his/her/their signature(s) on the
My Comm. Expires Oct 31, 2002 instrument the person(s), or the
- ----------------------------------------- entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Helen Nelson
-------------------------------------
Place Notary Seal Above Signature of Notary Public
- ----------------------------------- OPTIONAL -----------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
Description of Attached Document
Title or Type of Document: Loan Agreement
-----------------------------------------------------
Document Date: Number of Pages:
-------------------------- ------------------
Signer(s) Other Than Named Above:
----------------------------------------------
Capacity(ies) Claimed by Signer
Signer's Name: ------------------------
---------------------------------- RIGHT THUMBPRINT
[_] Individual OF SIGNER
[_] Corporate Officer - Title(s): ------------------------
--------------- Top of thumb here
[_] Partner - [_] Limited [_] General
[_] Attorney-in-fact
[_] Trustee
[_] Guardian or Conservator
[_] Other:
--------------------------------------
Signer Is Representing:
------------------------- ------------------------
================================================================================
(C) 1997 National Notary Association Prod. No. 5907 Reorder: Call Toll-Free
. 9350 De Soto Ave., P.O. Box 2402 . 1-800-876-6827
Chatsworth CA 91313-2402
<PAGE>
WITNESS: LENDER:
GMAC COMMERCIAL MORTGAGE CORPORATION,
a California corporation
/s/ Elizabeth A. Poindexter By: /s/ John P. Fogarty (Seal)
- ------------------------------- ----------------------------
Elizabeth A. Poindexter John P. Fogarty
- ------------------------------- Senior Vice President
[Print name]
<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
On this 13th day of August, 1999, before me, Christine Lew, a Notary Public in
and for the said state, personally appeared John P. Fogarty, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument, the person, of the entity upon behalf of which the person acted,
executed the instrument.
Witness my hand and official seal.
/s/ Christine Lew
-----------------------------------------
(Signature of Notary)
My Commission Expires: Dec. 11, 2001
------------------
(Stamp or Seal)
-----------------------------------------
CHRISTINE LEW
[SEAL OF Commission # 1165146
CALIFORNIA] Notary Public - California
Los Angeles County
My Comm. Expires Dec 11, 2001
-----------------------------------------
<PAGE>
Exhibit 11
G&L Realty Corp.
Computation of Per Share Earnings
Quarterly Report on Form 10-Q
September 30, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (Loss) Income $(4,250) $2,434 $(1,184) $ 7,397
Less: Preferred Dividends
10.25% Series A Cumulative Preferred (958) (958) (2,874) (3,043)
9.8% Series B Cumulative Preferred (845) (845) (2,535) (2,535)
------- ------ ------- -------
Net (loss) income available to common shareholders $(6,053) $ 631 $(6,593) $ 1,819
======= ====== ======= =======
Options outstanding 214 234 214 234
======= ====== ======= =======
Weighted average exercise price $ 14.49 $14.61 $ 14.49 $ 14.61
======= ====== ======= =======
Proceeds upon exercise of options $ 3,101 $3,419 $ 3,101 $ 3,419
======= ====== ======= =======
Treasury stock shares 205 199 202 184
======= ====== ======= =======
Common share equivalents 9 35 12 50
Average shares outstanding 3,889 4,090 3,934 4,112
------- ------ ------- -------
Total common and common share equivalents outstanding 3,898 4,125 3,946 4,162
======= ====== ======= =======
Per share earnings data:
- ------------------------
Basic $ (1.56) $ 0.15 $ (1.68) $ 0.48
======= ====== ======= =======
Fully diluted $ (1.56) $ 0.15 $ (1.68) $ 0.48
======= ====== ======= =======
</TABLE>
<PAGE>
Exhibit 21
G&L Realty Corp.
List of Subsidiaries
October 31, 1999
1. G&L Hampden, Inc., a Delaware corporation
2. G&L Hampden, LLC a Delaware limited liability company
3. G&L Realty Partnership, L.P., a Delaware limited partnership
4. G&L Realty Financing II, Inc., a Delaware corporation
5. G&L Realty Financing Partnership II, L.P., a Delaware limited partnership
6. G&L Medical, Inc., a Delaware corporation
7. G&L Gardens, LLC, an Arizona limited liability company
8. G&L Management Delaware Corp., a Delaware corporation
9. G&L Senior Care, Inc., a Delaware corporation
10. G&L Medical Partnership, L.P., a Delaware limited partnership
11. GLN Capital Co. LLC, a Delaware limited liability company
12. GL/PHP, LLC a Delaware limited liability company
13. Theme World, L.P., a New Jersey limited partnership
14. Valley Convalescent, LLC, a California limited liability company
15. 435 N. Roxbury Drive, Ltd., a California limited partnership
16. G&L - Grabel San Pedro, LLC
17. G&L Burbank, LLC
18. G&L Burbank Managers Corp., a California corporation
19. G&L Holy Cross, LLC
20. G&L Holy Cross Managers Corp., a California corporation
21. G&L Tustin, LLC
22. G&L Tustin Managers Corp., a California corporation
23. G&L Valencia, LLC
24. G&L Penasquitos, LLC
25. G&L Penasquitos, Inc.
26. GLH Pacific Gardens, LLC
27. GLH Pacific Gardens Corp., a California corporation
28. G&L Hoquiam, LLC
29. G&L Lyon, LLC
30. G&L Coronado (1998), LLC
31. G&L Parsons on Eagle Run, LLC
32. G&L Parsons on Eagle Run, Inc.
33. GLR/Yorba Linda, LLC
34. Lakeview Associates, LLC
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,313
<SECURITIES> 0
<RECEIVABLES> 26,457
<ALLOWANCES> 6,013
<INVENTORY> 0
<CURRENT-ASSETS> 23,448
<PP&E> 204,147
<DEPRECIATION> 22,514
<TOTAL-ASSETS> 232,838
<CURRENT-LIABILITIES> 4,351
<BONDS> 160,961
0
29
<COMMON> 38
<OTHER-SE> 67,459
<TOTAL-LIABILITY-AND-EQUITY> 232,838
<SALES> 0
<TOTAL-REVENUES> 8,783
<CGS> 0
<TOTAL-COSTS> 1,951
<OTHER-EXPENSES> 8,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,315
<INCOME-PRETAX> (5,213)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,250)
<EPS-BASIC> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
